The cost of war for Ethiopians is not just felt on the battlefront or even the millions now displaced but in the ransacking of the future of young Ethiopians who once believed in future prosperity. The dream of Ethiopia to escape poverty is rapidly fading. While Ethiopian diaspora who are rarely Tigray and Oromo tout Abiy Ahmed as a prophetic bringer of fortune and power the opposite is becoming clear. The economy of Ethiopia is diving into a bottomless abyss beginning when Abiy Ahmed took power in 2018 with an increasingly accelerating progression downward.
The Ethiopian birr has fallen in value by almost 50% since 2018. Noted Johns Hopkins economist Steven Hanke as well as others note that the current inflation rate of 31% which predicts will lead to an unbearable circumstance for the average Ethiopian.
Total Ethiopian gold reserves were at over $ 400 million when Abiy Ahmed took power in 2018 but now are likely below $100 million after payments to Eritrea, United Arab Emirates, Iran and others for weapons.
The Biden administration has clearly stated that it no longer considers the government under Abiy Ahmed a democracy. The free trade agreement, African Growth and Opportunity Act, with Ethiopia was dependent upon Ethiopia following democratic principals mutually agreed upon which were violated. Similarly many Western democracies are taking a similar view.
Although the Ethiopian government falsely claimed economic growth rates of 6% the real number is more like -2% and dropping. The human rights violations and the instability of the Ethiopian state by an ongoing war with no end coming on the horizon severely inhibits foreign investors from participating in the Ethiopian economy which at this point has no future.
Researchers at William & Mary Global Research Institute in the USA have discovered that Ethiopia’s previous thought debt to foreign lenders of $30 billion does not take into account “hidden debt” which involves private institutions from both borrower and lender but still carrying government guarantees of repayment. How much higher is difficult to measure but it may be an additional 5% of the Gross Domestic Product higher then previously thought.
This is apparently involved in China’s “high risk high reward” loans to developing countries which have natural resources. Typically the loans involve credit payments much higher than those available from Western democracy sources. Ethiopian Prime Minister Abiy Ahmed in February 2020, had wanted to try getting Europe to replace China as a creditor because of the high interests and obligations of Chinese lending. China cancelled all previous interest free loans to Ethiopia in 2019 when the Ethiopian economy under Abiy Ahmed after his first year began to deteriorate. Europe has become cold to dealing with Ethiopia and given its dim view of the developing despotic government and falling economy is not going to be willing to jump in soon. Western financial analysts warn China is creating situations where they can control infrastructure and natural resources in the developing countries to whom they lend development capital.
Ethiopia has to make payments on its debt of over $2 billion per year while its usual baseline whole country budget is only $2 billion per year. Ethiopia’s Gross Domestic Product of 2020 at $ 107 billion is expected to fall precipitously due to war costs exceeding $2.5 billion, abnormal rain patterns, locus swarms, inflation due to currency devaluation, and loss of confidence of foreign investors due to the ongoing Ethiopia Tigray conflict. Economists warn that debt burdens greater than 10% of GDP are very risky. Ethiopia having debt burden approaching 40% will have to suffer agreeing to severe fiscal austerity from the International Monetary Fund contributors to its debt, mainly China.