Ahead of Ethiopia’s general election on 1 June, much attention has focused on security concerns and political tensions. But beneath the political headlines lies a question with major implications for Ethiopia’s future: can economic growth still serve as a force for cohesion in one of Africa’s most populous and divided states?

For decades, Ethiopia’s political legitimacy has been closely tied to economic performance. Under both the former Ethiopian People’s Revolutionary Democratic Front-led government and Prime Minister Abiy Ahmed’s administration, growth has been presented not only as an economic necessity but also as a political project – a way of strengthening the state and holding together a highly diverse federation.

“States derive legitimacy from their ability to deliver”, says Redie Bereketeab, a sociologist focused on national identity and state formation, and senior researcher at the Nordic Africa Institute (NAI). “That can be security, services, stability or economic growth. There is always a kind of social contract between the state and society.”

Ethiopia’s economy has continued to grow despite conflict, debt pressures and external shocks, says development economist Jörgen Levin at NAI. According to estimates by the International Monetary Fund, Ethiopia’s economy grew by around 9.2 percent in 2024/25, driven by mining, construction, manufacturing and agriculture. Growth is expected to remain high in the coming years.

The Ethiopian government has introduced reforms aimed at stabilising the economy and strengthening domestic revenue mobilisation. Inflation has eased significantly from previous highs, falling to below 10 percent earlier this year, while tax revenues have also improved. “These are strong growth figures in a regional comparison”, Levin says. “But there are also underlying structural weaknesses and vulnerabilities that should not be ignored.”

Among the challenges facing Ethiopia are rising public debt, declining aid flows and growing pressure on imports following recent increases in global oil prices. Fossil fuels and refined oil products are among the country’s largest import categories, making Ethiopia particularly vulnerable to higher oil prices.

The growing public debt burden is putting increasing pressure on the Ethiopian economy. Although export earnings have recently improved due to high coffee prices and increased gold exports, Ethiopia still lacks sufficient foreign currency reserves to finance essential imports and meet external debt obligations. With access to new external borrowing now largely closed off, the government has increasingly turned to domestic borrowing to finance infrastructure and development projects.

According to Levin, this creates new risks for the economy. “When the state borrows more domestically, interest rates can rise and make it harder for private companies to access financing”, he says. That, in turn, could slow private sector investment and increase the long-term costs of servicing the country’s debt.

According to Levin, this creates a difficult balancing act for the government. Ethiopia’s fiscal space is becoming increasingly constrained, meaning the state may have to scale back parts of its investment-driven development model. At the same time, continued reforms will be needed to improve the business environment and encourage more private sector investment and job creation. Reforms of the foreign exchange market are also likely to remain important as businesses continue to face shortages of foreign currency needed for imports.

But maintaining growth is becoming increasingly difficult in a country still marked by insecurity, regional tensions and large humanitarian needs.

“Economic growth alone is never enough”, says Bereketeab. “The key issue is who benefits from that growth and whether different groups feel included.”

For many years, Ethiopia was presented internationally as one of Africa’s major development success stories. Inspired partly by East Asian developmental state models, the government invested heavily in infrastructure, industrialisation and state-led development.

According to Bereketeab, the strategy initially helped strengthen the Ethiopian state after decades of instability.

“The developmental state model gave the government legitimacy because people could see roads, schools, infrastructure and economic expansion”, he says.

But the model also created tensions.

Economic growth was unevenly distributed, and many communities felt excluded from both political influence and economic opportunities. In Ethiopia’s ethnic federal system, such disparities quickly become politically sensitive.

Bereketeab points to the distinction between what researchers call “vertical inequality”, between rich and poor people, and “horizontal inequality”, between ethnic groups and regions.

“In a multi-ethnic society like Ethiopia, horizontal inequalities are especially dangerous”, he says. “Groups compare themselves with other groups. They ask, who is benefiting, who controls resources, who gets investment?”

That dynamic has become increasingly important in recent years, as political mobilisation has often followed ethnic and regional lines.

Infrastructure projects, public sector employment and state investment are rarely perceived as neutral economic policies, Bereketeab argues. Instead, they are often interpreted through the lens of ethnic competition.

That leaves Abiy’s government facing a challenge that is both economic and political: how to continue reforms while navigating tensions between regional autonomy and national cohesion.

Levin notes that Ethiopia’s reform agenda is highly complex. Concerns remain around unclear regulations, taxation, foreign exchange rules and the overall business environment, while conflict, insecurity and climate-related shocks continue to affect investment and productivity.

At the same time, elections often increase pressure for public spending even as financing constraints limit the government’s room for manoeuvre. That tension illustrates what may be Ethiopia’s central dilemma today: economic growth remains essential for political stability, but the state’s ability to finance and distribute that growth is under increasing strain.

“Conflict damages the economy, and economic decline fuels grievances and instability”, Bereketeab says. “It becomes a vicious circle.”

Growth remains relatively strong compared with other countries in the region, but both Levin and Bereketeab point to the fragility beneath the headline figures.

For Ethiopia’s leaders, the question is no longer only how to generate growth, but whether growth can still function as a unifying national project in a deeply fragmented political landscape.

TEXT: Mattias Sköld