“A shared blueprint for peace and prosperity for people and the planet, now and into the future!” When world leaders endorsed these words in 2016 through the Sustainable Development Goals (SDGs), replacing the Millennium Development Goals (MDGs), they made an ambitious pledge to “[eliminate] extreme poverty in all its forms everywhere.”
However, with little time remaining and progress lagging behind by four years, the world faces critical questions: What became of the ambition to “eliminate extreme poverty and achieve shared prosperity”? And where does Ethiopia stand in this ongoing global pursuit?
From 2000 to 2016, Ethiopia was widely celebrated—and portrayed by institutions like the World Bank—as a leading example of poverty reduction in Africa. The national absolute poverty headcount ratio in Ethiopia decreased significantly from 44.2% in 2000 to 23.5% in 2016, lifting millions from destitution. The success was attributed mainly to a strategic focus on public investment, agricultural growth, and targeted welfare programs.
However, the country is now facing a sharp setback: 43% of its population now lives below the poverty line, up from 33% in 2016.
The dramatic reversal, highlighted in the World Bank’s October 2025 Poverty and Equity Brief, reflects more than an economic downturn.
“As someone who has closely followed Ethiopia’s economic growth trajectories and challenges for several years, the reversal of the hard-won gains of the previous decades isn’t surprising, although terribly disappointing,” a development economist told The Reporter Magazine on condition of anonymity.
Molla Alemayehu (PhD), a senior researcher at the Ethiopian Economic Association (EEA), also told The Reporter Magazine that the finding is “something we all recognize.”
The EEA is an active institution that conducts regular economic studies and publishes informative quarterly reports, and Molla specializes in studies relating to poverty. He believes “the reality on the ground can even be worse than the report.”
“Our own research has shown a rising trend in poverty. In fact, based on what we see in our studies, [the poverty rate] might even be higher than that,” he told The Reporter Magazine.
The researcher referred to an EEA study from 2021, which showed that Addis Ababa’s poverty rate had risen by 10% within a short period of time.
“The latest poverty report available at our Association covers the 2023 status. Unlike the World Bank, which used the three dollars per day poverty line, we applied the older USD 1.25 per day threshold. Even using that measure, we found the poverty rate was as high as 32%. Imagine what the result would have been had we applied the three dollar per day line. It would have been double,” Molla told The Reporter Magazine.
He emphasized the methodological differences and raised doubts about the World Bank’s findings.
“When converted, that three-dollar threshold equals roughly 450 Birr per day, about 13,800 Birr per month, which means 57% earn more than that, something that sounds unrealistic,” argued Molla.
However, even the World Bank’s report noted that the situation affects millions of Ethiopians who had previously seen improvements in their living standards. Rural households are the hardest hit, with poverty in the countryside standing at 45.2%. Compounding this, the report noted that nearly half of all rural households have at least one stunted child.
In fact, the significant surge in poverty was also highlighted in the most recent Multidimensional Poverty Index (MPI), a joint report released by the UNDP and the Oxford Poverty and Human Development Initiative (OPHI).
The report posited that no less than 86 million Ethiopians are “multidimensionally poor,” or deprived in terms of health, education, or standard of living. The massive figure makes Ethiopia one of the top affected countries in the globe.
“It is like a vicious cycle leading to a low-level equilibrium trap (lack of investible capital, low productivity, low growth, and underdevelopment),” notes the development economist. “Inflation and the declining purchasing power of the local currency deprive citizens of access to nutrition, health, and education, not only for the poorest segment of the population but also for what is usually considered the middle class.”
From Pro-Poor Focus to Policy Drift
Ethiopia’s earlier progress is mostly attributed to policy approaches that favored low-income sectors.
“The government’s reduced focus on pro-poor sectors is one major reason,” said Molla. “Take budget allocation to sectors. In the early 2000s, pro-poor sectors such as agriculture, education, and health together received about 73% of the national budget. Now, it’s around 49%. When focus and resources are shifted away from these areas, poverty naturally increases because those sectors are essential in reducing it.”
The EEA’s Working Paper No. 25/2024 supports this concern, finding that poverty reduction slowed as public expenditure priorities changed. Both the World Bank and the United Nations emphasize that sustained commitment to pro-poor investment, not short bursts of attention, determines whether poverty falls or rebounds.
The EEA’s Quarterly Macroeconomic Update published in September 2025 shows that while total government revenues and grants rebounded sharply in the first quarter of 2024/25, current expenditure and debt service have risen rapidly, and capital expenditure including spending on social and development programs fell 41.8% from the previous quarter.
This combination suggests that fiscal pressures persist, leaving limited room for pro-poor investment despite increased revenue.
The federal government’s Ten-Year Development Plan sets the goal of “eradicating extreme poverty and ensuring inclusive growth by 2030.” Yet the UN Sustainable Development Goals Report 2025 (and its related SDG Index) paint a grim picture of Ethiopia’s development, citing a troubling trajectory marked by a sharp rise in food insecurity and a significant cut in government spending on health and education.
The same report ranks the country among the world’s poorest when measured in terms of multidimensional poverty, which takes into account education, health, and access to basic services.
The World Bank brief shows that deprivation in Ethiopia extends well beyond income. Around 70% of citizens lack electricity, 95% have no access to sanitation that meets even limited standards, and more than 40% lack safe drinking water. Many households have at least one school-aged child who is not enrolled in school. The World Bank concludes that inadequate infrastructure continues to trap families in poverty despite growth elsewhere in the economy.
What Went Wrong?
“The problem began with inconsistency in policy focus,” Molla explained. “The government frequently shifts its attention from one priority to another. For example, in recent years, manufacturing became the top focus. As a result, resources and attention that used to go to the welfare or pro-poor sectors such as agriculture, health, and education were redirected.”
The expert stressed that development priorities should complement, not replace, one another.
“What should have been done was to maintain steady support for these pro-poor sectors while also developing other areas like manufacturing. You shouldn’t take resources away from one to build another,” Molla argues.
The EEA’s 2024 report stresses that agriculture remains the most poverty-sensitive sector in the Ethiopian economy. A one-percent improvement in agricultural productivity, it found, has two to three times more effect on poverty reduction than similar progress in other sectors.
“Agriculture should not be neglected or replaced when promoting other sectors like manufacturing,” Molla noted. “Growth in other areas should happen while maintaining, not substituting, support for agriculture.”
However, declining agricultural productivity, limited off-farm employment, and low investment in human capital have eroded earlier gains, according to the Association.
“A decline in both national demand and national production have been witnessed. The country’s overall demand has fallen sharply, and production has declined as well. This combination has significantly contributed to rising poverty levels,” he told The Reporter Magazine.
The development economist argues that observing factors such as the vulnerability of growth sources and drivers, premature deindustrialization, political instability and lack of peace, and the impacts of climate change-related shocks made the regression “unsurprising to him.”
The Cost of Instability
Conflict and insecurity have only served to further deepen poverty. In countries experiencing similar reversals in extreme poverty, war and political instability have historically been the principal drivers. The World Bank’s 2021 estimates excluded the Tigray region because of fighting, suggesting that the real national rate may be even higher.
“Development cannot take place without stability,” said Molla. “When there is no peace, even raw materials cannot move freely, nor can human labor. Without that mobility, productivity suffers, and plans are delayed. So even if there are good development plans, if they are not implemented within the intended timeframe, poverty will inevitably rise.”
Climate shocks and inaccessibility have worsened the picture. Repeated droughts have devastated crops and livestock in many parts of the country, while isolated rural communities suffer from restricted access to markets and services.
The Bank’s report notes that these conditions leave the poorest households especially vulnerable to food shortages and income loss.
The Impact of Reforms
Beginning mid-2024, Ethiopia introduced macroeconomic reforms designed to stabilize prices and encourage private-sector growth. They included a shift to market-based exchange rates, trade and tax adjustments, and the removal of fuel subsidies. To soften the blow on low-income households, the government raised public-sector wages and expanded safety-net benefits.
The EEA’s latest fiscal update reports that stronger tax enforcement and renewed external grants helped boost government revenues in early 2025. However, the surge in current expenditure and rising debt service suggest that fiscal pressures remain, limiting the room for pro-poor investment, leaving the impact on poverty uncertain.
The development economist believes economic reforms contributed directly to the poverty rate. He specifically noted that “the decision to free-float the birr led to unprecedented depreciation—from less than 60 Birr per US dollar pre-reform to nearly 180 currently.” He argued that the erosion of the birr’s purchasing power, combined with galloping inflation and the removal of vital subsidies, is a key factor reversing decades of hard-won poverty reduction gains. This economic shift, he concluded, “has entrained persistent macroeconomic instability, including external indebtedness, budget imbalance, and a severe shortage of hard currency in the country.”
Molla, however, believes it is too early to say.
“These reforms need time to show their effects. It’s only been about a year since they took effect. The trend of rising poverty began earlier, around 2019. So, while the reforms might have some impact, they are not the main driver of poverty. The primary causes are the weakening of national demand and supply,” said the expert.
The World Bank also notes that by early 2025, households’ economic sentiment had improved slightly compared with 2024 but remained largely negative, particularly in urban areas. Inflation continues to strain city dwellers, while rural families with poor market access gain little from higher food prices.
SDG: Mission Impossible?
The global commitment to end poverty by 2030 is drifting beyond reach for Ethiopia. The UN SDG Report 2025 warns that without accelerated action, poverty reduction in Sub-Saharan Africa will stagnate.
The challenge ahead is to restore lost ground and protect households from further setbacks, testing whether the nation can rebuild the momentum that once made it a leading example of rapid poverty reduction.
The EEA’s latest fiscal update notes that revenue gains from stronger tax enforcement and renewed external grants offer an opportunity for pro-poor investment. However, rising current expenditure, debt service, and declining capital spending may limit resources for sectors most effective in reducing poverty.
“If we continue in the same direction without a real paradigm shift, poverty will keep increasing,” Molla said. “The first and most urgent priority is peace and security. Without them, it’s impossible to do anything else. After that, there must be a clear and practical roadmap that answers where we should focus our efforts and how this will help reduce poverty.”
The World Bank projects that poverty may begin to decline gradually in 2026, assuming peace and stability return. For now, hardship remains widespread, and much of the progress from the past decade has been lost.
Ethiopia’s experience shows that growth alone cannot end poverty unless it is broad-based and stable. The EEA’s latest fiscal update notes that renewed grants, concessional loans, and revenue gains could support pro-poor investment, but rising expenditure and debt service may limit their impact.
With only four years left until the SDG deadline for ‘zero poverty,’ Ethiopia’s poverty rate is instead rising sharply. Achieving the SDG target now appears not only unrealistic but also improbable, if not impossible.
“We all know that poverty cannot be zero from 43% within just four years,” said Molla, emphasizing the most pressing task is halting the ongoing rise in poverty rates.
“The first goal should be to stabilize it, to make the growth pause where it is,” he explained. “Once we can stop it from growing, then we can develop a roadmap that helps us decide what should be prioritized and how to move forward.”
The development economist calls for Ethiopia to prioritize fostering economy-wide productive capacities—the ability to produce and export a range of economically meaningful and technologically sophisticated goods and services to drive growth. He emphasized that building these capacities requires investment in strategic sectors, education, and health, as well as recalibrating institutions and the private sector. As he noted, “No nation has ever achieved structural transformation without fostering requisite productive capacities.” Restoring peace and political stability and adopting poverty-reducing economic growth driven by diverse sectors remain crucial.
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Editors Note: This report was first published by The Reporter Magazine and prepared by Mahlet Mehdi.
Ethiopian Policy Institute 