Prioritizing Real Economy Transformation

The recently held Ethiopian Finance Forum provided yet another opportunity for Ethiopian authorities to argue that the sweeping macroeconomic policy reform the government has been undertaking over the past one year has been a resounding success. The Governor of the National Bank of Ethiopia and the Minister of Finance said at the forum that the reform has made inroads into tackling the persistent structural challenges Ethiopia has grappled with—inflation, foreign exchange shortages, and macroeconomic instability—and played a vital role in spur broad-based growth across various sectors of the economy. While progress in monetary policy, such as controlling inflation and stabilizing exchange rates, has garnered attention, equating the success of the economic reform solely with these macroeconomic indicators offers a limited and incomplete view. To truly gauge the country’s economic resilience and future growth prospects, a broader perspective that includes the reform of the real economy — encompassing structural policies in agriculture, manufacturing, infrastructure, and the entrepreneurship ecosystem—is essential. Only through a balanced evaluation can Ethiopia realize its developmental potential.

Monetary policy achievements are vital for macroeconomic stability. Controlling inflation, ensuring currency stability, and managing interest rates create a favorable environment for investment and savings, which are crucial for economic growth. Maintaining inflation within targeted ranges and stabilizing the exchange rate have helped reduce volatility and anchor expectations. These are undeniably important achievements. However, monetary stability alone does not guarantee sustainable growth. It is merely a foundation upon which the real economy—that is, the production, employment, and investment activities—must build. Overemphasizing monetary indicators risks neglecting the structural issues that hinder Ethiopia’s economic transformation, including, among others, low productivity, inefficient resource allocation, limited diversification, and inadequate infrastructure in key sectors. Without addressing these core issues, macroeconomic stability may prove fragile or even misleading, masking underlying vulnerabilities.

The need for structural reforms of the real economy cannot be overstated. Ethiopia’s economy remains heavily reliant on agriculture, which employs more than 70 percent of the population yet suffers from low productivity, climate vulnerability, and subsistence-driven practices. Structural reforms targeting modernizing agriculture—through mechanization, improved extension services, access to finance, and market integration—are essential. Sustainable growth and rural livelihoods hinge on transforming traditional farming into a resilient, commercially-driven sector, reducing poverty and enhancing food security. The government must also exert greater effort to address the bottlenecks handicapping the industrial and manufacturing sector, the stimulation of a dynamic private sector, the building of a reliable and efficient infrastructure network as well as the creation of a skilled workforce capable of adapting to technological changes.

Implementing structural reforms in Ethiopia is inherently complex, often requiring long-term commitment, institutional capacity, and stakeholder consensus. Challenges abound in the form of bureaucratic inertia, resource constraints, and social and political stability. To succeed, the government must articulate a clear reform roadmap that integrates macroeconomic stability with targeted interventions in agriculture, industry, infrastructure, and human capital development. In this regard transparency, inclusiveness, and strong governance are of paramount importance. Engaging the private sector, civil society, and local communities ensures reforms are practical, sustainable, and broadly supported.

In assessing Ethiopia’s economic progress, it is essential to look beyond mere monetary indicators and recognize the crucial importance of structural reforms within the real economy. Stabilizing inflation and managing exchange rates provide vital groundwork, but sustainable development hinges on transforming agriculture, industrializing sectors, building resilient infrastructure, and fostering a robust private sector. Without these structural changes, Ethiopia’s growth remains fragile and vulnerable to external shocks. True success will be evident when economic reforms translate into improved productivity, job creation, and enhanced living standards for all citizens. Therefore, policymakers must embrace a holistic approach—combining sound monetary policy with strategic, impactful reforms that stimulate the real economy—ensuring Ethiopia’s long-term stability, competitiveness, and inclusive growth. Only then can the country realize its potential as a resilient, diversified, and prosperous economy capable of weathering future challenges and delivering broad-based prosperity to its people.