August 01, 2025
This introduction sets a simple test: substance before symbolism. We’ll compare three everyday models to show why governments, like families, must fund foundations before luxuries:
- The prudent household: rent before perfume.
- The prudent school: teachers and textbooks before facades.
- The strategic enterprise: capacity before prestige.
When public budgets ignore this order, trust erodes and long-term resilience weakens. Here’s how a people-first plan can realign priorities—and why it matters for food security, healthcare, and education under the current Prosperity Party fiscal policy.
Introduction to the Prosperity Party’s Fiscal Approach
Historical Background
The historical background of Ethiopia’s fiscal policy sets the stage for understanding the Prosperity Party’s approach. For decades, Ethiopia was led by a socialist military government, the Derg, which controlled and managed almost all economic activity. After 1991, the Ethiopian People’s Revolutionary Democratic Front (EPRDF) came into power, shifting the economy toward a more open, but still state-driven, model. The EPRDF government greatly increased spending on infrastructure, education, and health. Their policy focused on public investment-led growth, which was financed through loans and revenues from state-owned enterprises.
During this era, the government viewed state intervention as essential. Economic growth was fast, but it came with rising debt, inflation, and questions about sustainability. Critics often pointed to a lack of fiscal discipline, arguing that spending was directed to large projects even when basic needs or local priorities were underfunded.
Shift from EPRDF to Prosperity Party
The shift from EPRDF to the Prosperity Party marked a dramatic change in Ethiopia’s political and economic environment. The Prosperity Party, established in 2019, emerged from the dissolution of the EPRDF. This new political party aimed to create a more unified national identity and to move away from the former system of ethnic federalism.
With this shift, the Prosperity Party promised fiscal reforms. Their approach called for greater efficiency and prioritization in public spending. There was increased talk of privatization, reducing subsidies, and improving how government resources were allocated. The new leadership tried to show a commitment to fiscal responsibility, aiming to prevent wasteful spending and to focus funds on areas with the most significant public good, especially during times of economic hardship and rising debt.
Ideological Framework and Political Context
The ideological framework and political context of the Prosperity Party’s fiscal policy is rooted in centrist, pragmatic thinking. The party emphasizes national unity, stability, and modernization. Its leaders argue for prudent fiscal management, drawing from both socialist and market-based ideas. On the one hand, they stress the importance of providing essential public services like healthcare, education, and food security. On the other, they recognize the limits of state power and the need for the private sector to play a bigger role in the economy.
Politically, the Prosperity Party operates in a complex landscape—a young and fast-growing population, expectations for economic opportunity, and ongoing conflicts and humanitarian needs. Its fiscal policies are shaped by the need to balance development with social stability, maintain legitimacy, and address the interests of a diverse society. In this context, spending decisions are not just about numbers, but about public trust and the future direction of Ethiopia.
Scarcity and Prioritization in Economic Policy
Scarcity and prioritization are core concepts in any prudent fiscal policy, and the Prosperity Party has found these ideas especially important for Ethiopia. In a country where resources are always limited, policy makers must decide which needs are most urgent. They cannot spend on everything at once. The Prosperity Party’s economic reform agenda has focused on doing more with less, placing the most important issues at the top of the spending list. For Ethiopia, this usually means food security, healthcare, and education get the first share of the budget.
Ethiopia’s government has also learned that macro-financial stability cannot be achieved without prioritizing basic services when resources are tight. Leaders talk often about “balancing the budget” by making hard choices, cutting non-essential projects, and supporting only what benefits the majority. This principle is not just theory; it is reflected in how the country directs loans, international aid, and even domestic revenues. It often means delaying big projects or luxury government spending, focusing instead on what the population truly needs most.
Lessons from Households and Small Enterprises
Lessons from households and small enterprises are surprisingly relevant to national fiscal policy. Ethiopian families, especially in rural areas, know what it means to stretch every Birr. They buy only what is necessary, save when possible, and avoid waste. The government is encouraged to act in the same way: spend only on what truly helps economic growth and citizen welfare, avoid debt traps, and think carefully before making expensive commitments.
Small businesses also provide clear examples for government behavior. These businesses track their expenses closely, prioritizing basics like rent, wages, and materials before spending on anything “nice to have.” When their income drops, they cut non-essentials first, not the basics. The Prosperity Party has publicly said it supports policies inspired by this practical wisdom. The idea is simple—when the nation lives within its means, it is more resilient to shocks like inflation or drought.
In both families and businesses, even small financial mistakes can be costly, so discipline and planning are necessary. This approach also helps maintain public trust, because people see that their leaders are managing resources as responsibly as ordinary citizens do.
Balancing Essentials and Luxuries: Theory vs. Practice
Balancing essentials and luxuries in fiscal policy is a constant challenge for the Prosperity Party. In theory, it is easy to say that the government will always put healthcare, food, and education over prestige projects or luxury spending. However, in practice, the lines sometimes blur. For example, Ethiopia has seen public debates when large sums were spent on fancy new government buildings or big celebrations while many citizens struggled to afford food or medicine.
Government officials argue that some “luxuries” like modern infrastructure or international conferences bring long-term benefits, such as more jobs and tourism. But critics say spending should always reflect the country’s basic, immediate needs. The public expects that, especially during difficult times like drought, inflation, or conflict, every Birr goes to keep families safe and healthy.
The Prosperity Party claims it is working to avoid the mistakes of the past, where less urgent projects drained critical resources. Still, balancing these priorities is tough, and choices often spark lively debate. Ethiopians watch closely to see if the party truly honors its own principle: essentials first, luxuries only if there is extra. This ongoing balancing act is at the heart of prudent fiscal policy in Ethiopia.
Public Services: Healthcare, Education, Food Security
Government spending priorities in Ethiopia, under the Prosperity Party, claim to focus on improving public services, but there have been many mixed results recently. Official documents and independent reports show that the Prosperity Party has committed to enhancing access to vital services like healthcare, education, and food security. For instance, the government increased funding for social safety nets such as the Productive Safety Net Programme (PSNP), which aims to address food insecurity, especially amid rising food prices and climate shocks.
However, the reality on the ground reveals serious gaps. Independent news sources and healthcare professionals have criticized the government for not doing enough to support doctors, nurses, and public hospitals. Many have noted that public health facilities remain underfunded and that many school systems struggle with overcrowding and lack of materials. Food security also remains a major issue. Humanitarian organizations warn that many regions are forecasted to experience severe food shortages, with millions at risk of malnutrition.
So, while the rhetoric emphasizes public services, the resources invested often do not meet the scale of the need — and the benefits are not felt equally across society.
Infrastructure and Social Service Investments
Infrastructure and social service investments are high-profile pillars of government spending priorities in Ethiopia. The Prosperity Party claims that investing in roads, power generation, and industrial parks will unlock prosperity across the country. Highways, industrial parks, and urban developments have been showcased as proof of Ethiopia’s ambition. These investments often receive significant domestic and foreign funding, with the hope that they will improve market access and economic productivity.
Still, experts and researchers have spotted some pitfalls. While infrastructure drives growth, some projects have not met their social goals or have left rural communities behind. Rapid urbanization and road-building sometimes overlooked issues of fairness and local needs. In many cases, social services like primary health clinics, village schools, and rural water supply do not receive the same attention or funding as city-centric development. This means basic services do not always improve as fast as the official statistics promise.
In conclusion, infrastructure spending is heavily prioritized, but its social benefits can be uneven — especially when rural voices are left out or when maintenance funds fail to catch up.
Analysis of Vanity Projects and Prestige Spending
Analysis of government spending also needs to look closely at vanity projects and prestige spending, which have become a major source of public debate under the Prosperity Party. Many critics point to the billions spent on monumental government buildings, lavish palace constructions, and large-scale urban beautification projects — even as basic needs like food and water are at crisis levels for many Ethiopians.
Unlike investments with a clear return for social welfare, these prestige projects are seen as ways for political leaders to showcase their power and create symbolic legacies. Reports have exposed how government funds flow toward high-visibility projects while clinics and schools struggle. Even voices inside Ethiopia’s ruling circles have raised concerns that these priorities encourage “mass delusion,” where showy achievements mask deeper social problems.
In summary, when vanity spending takes the spotlight, it often comes at the expense of ordinary people’s welfare and does not address true development needs.
Case Studies: Urban Developments vs. Core Needs
Government spending priorities can be best understood by comparing urban developments with core public needs. Urban areas like Addis Ababa have seen rapid construction: towers, museums, new roads, and beautified city centers. These are presented as evidence of progress and modernity. However, case studies from both international and local researchers show sharp contrasts with the living conditions found in rural communities and poor urban neighborhoods.
For example, while cityscapes shine, many rural clinics are understaffed, rural schools are crumbling, and large populations face ongoing food insecurity. Social safety nets receive “supplementary funding,” but often not enough to match rising needs due to inflation and disaster. This gap between urban development and basic needs creates tension and sometimes fuels social unrest.
At the heart of the debate is a simple but important question: are government priorities serving the many, or just delivering prestige for the few? For many Ethiopians, spending priorities remain out of balance with their everyday struggles.
Phasing Out Subsidies on Essentials
Phasing out subsidies on essential goods like fuel, food, and fertilizer has been a major part of Ethiopia’s fiscal reform since 2024. The government began reducing these subsidies in response to International Monetary Fund (IMF) recommendations. The aim is to make public spending more efficient and to limit the fiscal deficit, but this step is not easy for most people.
Reports show that as of June 2025, fuel subsidies have largely been removed in Ethiopia. The same is planned for other essentials such as fertilizer and possibly food. However, the removal has not been sudden; the government is still offering temporary subsidies in 2024 to help ease the transition. This change has sparked worries among the population, especially since inflation is high and the cost of living keeps rising. Without subsidies, many essential goods become less affordable for ordinary families.
Fiscal Consolidation and Budget Deficits
Fiscal consolidation in Ethiopia means the government is trying to tighten its spending and reduce the budget deficit. For years, Ethiopia has run high deficits, but these reached historic levels after the conflict in the north. The government’s 2024/25 budget is a bit more restrained, aiming for a deficit of about 2 percent of GDP – a significant improvement from past years, where deficits averaged over 3 percent of GDP and at times were even higher.
Ethiopia’s move towards fiscal consolidation is a response to both internal and external pressures. Reducing government borrowing, streamlining expenditures, and prioritizing spending on key sectors like health, education, and safety nets are all central strategies. The government now tracks its budget performance more closely and tries to follow stricter fiscal rules. Still, progress is slow due to existing debts and continued economic challenges.
Impact on Inflation and the Birr
Fiscal reforms have had a strong effect on both inflation and the Ethiopian Birr. Removal of subsidies, especially on fuels and fertilizers, plus reduced government spending, has driven prices up. In 2024, Ethiopia’s inflation rate has stayed high, with some estimates placing it near 24 percent for the year.
Alongside rising prices, the currency has faced turbulence. In July 2024, the Ethiopian government allowed the Birr to float more freely, which led to a sharp devaluation—dropping by 30 percent or even more against the US dollar. This move was meant to correct long-standing currency imbalances and stop black-market currency trading, but it instead led to more expensive imports and higher inflation. Many everyday goods became expensive overnight.
IMF Involvement and Loan Preconditions
The IMF has played a central role in Ethiopia’s recent changes. In July 2024, the IMF approved a major $3.4 billion loan (through the Extended Credit Facility). To get this support, Ethiopia had to agree to strict preconditions, including subsidy removal, market reforms, currency devaluation, and steps toward reducing the fiscal deficit.
These reforms are meant to stabilize public finances and attract more international aid and investment. The IMF expects Ethiopia to restructure its debts and maintain strict fiscal discipline. In return, Ethiopia gets access to both immediate cash and longer-term debt relief. However, these reforms also come with risk and hardship for ordinary people.
Borrowing and Fiscal Health
Borrowing by the Ethiopian government remains a sensitive issue. Public debt is close to or exceeds 46 percent of the country’s GDP, and by June 2024, total debt had reached nearly $69 billion. The country’s fiscal health suffered because of high spending, war costs, and slow export growth.
To avoid a full debt crisis, Ethiopia secured temporary debt payment suspensions under the G20 framework and multilayered support from donors and international partners. Still, the IMF and World Bank assess Ethiopia’s debt as “unsustainable” unless reforms hold. Interest costs, heavy external debt, and a reliance on new loans risk dragging down development and fiscal space for social services. Ethiopia’s path forward means careful management of new borrowing and strict controls on future spending.
Impact on Vulnerable Populations
Removing subsidies and pursuing fiscal consolidation hits the poor and vulnerable hardest. Poorer households, urban and rural, rely on subsidized fuel, food, fertilizer, and public services to keep living costs manageable. Ending subsidies while inflation is already high causes serious hardship. Families now pay more for transport, food, and basic needs.
Some government efforts try to soften the blow through temporary safety nets and maintaining lower tariffs for the poorest. However, these measures have not fully offset the higher prices. Many households report reducing meals, using less energy, or skipping medical care. The risk is that rising costs push more Ethiopians into poverty or food insecurity, widening inequality and causing potential social unrest.
Overall, the consequences of these fiscal reforms are complex. They are meant to secure the country’s financial health in the long term, but they bring short-term hardship to millions. The government’s challenge is to manage fiscal discipline while protecting those least able to absorb new shocks.
Centralization of Fiscal Decisions
Centralization of fiscal decisions in Ethiopia has become a key feature under the Prosperity Party. After the shift from the EPRDF’s more consensus-driven structure, decision-making power, especially when it comes to financial matters, has become highly concentrated at the top. The federal government, and particularly the Prime Minister and a small inner circle, have the final say on how national resources are allocated and spent. Regional governments now have much less autonomy over their budgets. This centralization has led to complaints that local needs and unique regional challenges are not getting enough attention.
Many critics believe that the centralization of governance under the Prosperity Party has also made it harder for diverse voices to influence fiscal priorities. The new model is designed for efficiency and quick decision-making, but often at the cost of public input and transparency. Investments, major public projects, and fiscal reforms are now mostly decided in the capital, Addis Ababa, with less consultation from provincial or grassroots actors. This can create tensions in such a diverse country, where different regions have different needs and priorities.
Political Legitimacy and Public Trust
Political legitimacy and public trust are important for any government, but they have become a serious concern for the Prosperity Party. While the party secured a major electoral victory and presented itself as a stabilizing force in Ethiopia’s turbulent politics, events on the ground have made the situation more complicated. Reports suggest that public trust has declined in recent years, particularly after episodes of ethnic conflict, public protests, and concerns about political freedoms.
The Prosperity Party has made public statements about honoring trust and seeking prosperity for all. But legitimacy goes beyond official rhetoric. Many citizens view the party as not being fully representative, or feel excluded from decision-making. The lack of strong opposition parties and worries about the fairness of elections contribute to the perception that political power is not always truly earned or exercised in the people’s best interests. Declining legitimacy can make it harder for the government to push through tough fiscal reforms or maintain public order without resorting to force.
Patronage, Loyalty, and Suppression of Dissent
Patronage and loyalty are now major drivers of both political and fiscal decision-making in Ethiopia. Within the Prosperity Party, rewards often go to individuals who show personal loyalty to the party leadership rather than to those with independent views or technical expertise. This pattern is visible in appointments to powerful roles and in how contracts or state benefits are distributed.
Suppression of dissent has also become common. Party policies are enforced strictly, and those who challenge the party line or criticize government spending may face punishment. This could be through legal action, loss of position, or public vilification. The focus on building a loyal network means that valuable new ideas and reforms might not reach the top. It also means that allegations of corruption can go unchecked, as whistle-blowers are discouraged.
This heavy focus on loyalty and patronage can be risky. It may lead to less effective government, because important feedback is ignored. It can also drive public anger, especially when essential services are failing or when social inequalities are rising.
The Cult of Personality and Governance
The cult of personality is another striking aspect of current governance in Ethiopia. Since its creation, the Prosperity Party has become closely associated with the image of its leader, Prime Minister Abiy Ahmed. Public media, state messaging, and even some public events have focused on projecting Abiy’s image as a transformative, almost heroic figure.
This focus on one leader shapes both fiscal and political decisions in the country. Policies can be promoted not because they are best for the country, but because they suit the leader’s vision or prestige. Critics and observers have warned that this approach can erode independent institutions and distract from tackling daily challenges like poverty, unemployment, or inflation.
A cult of personality can foster loyalty among some supporters, but it also polarizes society. People who do not agree with the leader often feel left out or targeted. Over time, this approach puts pressure on all levels of government to perform and think according to a single vision, which may not reflect the true needs or ambitions of Ethiopia’s diverse population.
Market Liberalization and Privatization
Market liberalization and privatization are at the heart of the Prosperity Party’s economic strategy. After 2019, the Prosperity Party (PP) started to move away from the old state-led development approach of the EPRDF and began opening up key economic sectors. This means the government reduced its control, aiming for a greater role for the private sector. Big state-owned enterprises, like those in sugar and telecom, have been prepared for sale or partial privatization.
Supporters of the PP believe these reforms will boost investment, raise efficiency, and introduce new technologies. The hope is that more competition will encourage business growth. However, opponents worry that rapid privatization may lead to assets being concentrated in the hands of a few, while ordinary citizens could be left out. Also, the banking sector’s partial opening has led to debates on how foreign investment and competition might affect local players.
Overall, market liberalization under the Prosperity Party has created both expectations and fears. While there are signs of increased private activity, many Ethiopians wonder if these changes will lead to fairer opportunities or deepen existing inequalities.
Emergence of Regional Business Elites
Emergence of regional business elites is one of the biggest political consequences of the new market policies. Previously, Ethiopia’s economic elite was dominated by individuals and groups linked to the central government. Now, since the Prosperity Party’s rise, powerful regional actors—especially from Oromia and Amhara—have gained greater influence in business.
Key sectors like mineral extraction, agriculture, and manufacturing have seen new regional players take over, often with the blessing of the ruling party. These groups sometimes fill the gap created by the withdrawal of old state-aligned businesses. Regional governments and their favored companies can now compete for large contracts and state-backed projects.
Yet, this trend is double-edged. On one side, it can help decentralize wealth and build local economies. On the other side, critics say that the rise of regional elites is mostly about shifting control from one privileged group to another, not real economic inclusion. There have been claims of favoritism and rise of “crony capitalism,” where political loyalty is rewarded with access to business opportunities.
Distribution of Resource Extraction Rights
Distribution of resource extraction rights has become a major issue as Ethiopia works to harness its natural wealth. Under the Prosperity Party, the system for granting mining, oil, and land rights has changed. Rather than being managed only from Addis Ababa, these powers are often shared, or even transferred, to regional authorities. This was meant to address complaints from marginalized areas that they never benefitted from local resources.
Still, this shift hasn’t solved all problems. Allegations of corruption and lack of transparency are common. Often, political connections determine who gets mining contracts or land leases. In some places, local communities see little benefit from extraction projects happening in their own backyard. Instead, profits flow to politically connected businesses or distant government bodies.
This new model has also increased conflict over land and resources, as different elites—at both the regional and central levels—compete for control. Despite promises of fairer distribution, the realities remain complicated, and many ordinary Ethiopians still feel left out of the prosperity promised by the party.
Impact on Peripheral Regions and Ethnic Representation
Impact on peripheral regions and ethnic representation is a hotly debated topic in Ethiopia today. The Prosperity Party claims its national unity approach will improve inclusion and bring fair development to all corners of the country. In practice, though, many from peripheral regions—like Somali, Afar, Gambella, and Benishangul-Gumuz—say they remain politically and economically marginalized.
The system of allocating resources and projects often favors more populous or politically influential regions, especially those where the ruling party is strongest. Critics argue that the promised shift away from ethnicity-based federalism has left some minority groups with less power and fewer opportunities to shape decision-making. Although some regional elites have gained wealth, ordinary people in far-flung areas can still feel overlooked and frustrated.
Ethnic representation at the national level has also changed. The PP’s push toward civic nationalism tries to weaken ethnic lines in politics. While this goal is praised by some, others say it has diluted the voice of smaller communities, who relied on ethnic-based parties to advocate for them.
In summary, while the Prosperity Party’s policies on resource allocation and ethnicity aimed for unity and inclusivity, the lived experience in peripheral regions often points to deepening inequalities and new forms of exclusion.
Social Unrest and Civil Resistance
Social unrest in Ethiopia has grown during the Prosperity Party’s rule. Many people feel that their voices are not heard by the government, especially at the grassroots level. This sense of exclusion has led to increased frustration. Urban areas, like Addis Ababa, have become centers for protest and civil disobedience. Many demonstrations are sparked by political grievances, unemployment, and rising living costs.
The government has responded to protests by tightening its control and sometimes by taking strong action against organizers. According to reports, the Prosperity Party often accuses opposition leaders and critics of working with rebel groups, making it difficult for peaceful protest movements to grow. Despite these risks, civil resistance continues to appear in the form of local strikes, peaceful marches, and online activism. As people demand more transparency and participation, the government’s heavy-handed responses have sometimes made tensions even worse.
Economic Reforms and Grassroots Backlash
Economic reforms by the Prosperity Party have led to significant backlash, especially among grassroots communities. The government’s push for rapid change in areas like privatization, subsidy removal, and currency adjustments has hit the poorest Ethiopians the hardest. Inflation has surged, making basics like food and fuel more expensive for ordinary families.
People often question who really benefits from these economic reforms. Many believe that only foreign investors and powerful business interests have seen positive results, while most citizens struggle with a higher cost of living and fewer job opportunities. Critics argue that while reforms promise long-term growth, they have so far weakened public services and led to the neglect of education, healthcare, and social safety nets.
Grassroots backlash has included local protests and vocal opposition to new government policies. Communities express anger at being left out of important decisions. Public distrust in the Prosperity Party is rising, and citizens often express their frustrations online and in public forums, pushing for more inclusive policies that reflect their daily needs.
State Violence and Humanitarian Crises
State violence remains a major concern in Ethiopia under the Prosperity Party. Security forces have often used harsh measures against protesters and communities suspected of supporting opposition movements. Reports show widespread human rights abuses, arbitrary arrests, and, in some regions, military crackdowns on entire villages.
These actions have led to serious humanitarian crises. Large numbers of people in regions like Tigray, Amhara, and Oromia have been displaced by conflict and violence. Basic services such as food, medical care, and clean water are often unavailable in these areas, making life very hard for millions of Ethiopians. International organizations and human rights groups frequently call for more protection for civilians.
The combination of violence and failed reforms has strained social trust and led to even deeper divisions in Ethiopian society. The Prosperity Party faces pressure both inside and outside Ethiopia to change its approach and make respect for human rights a real priority. The way forward depends on whether the government can address these crises in a peaceful and inclusive way.
The Dangers of Prioritizing Prestige Over Essentials
Prioritizing prestige projects over essentials in fiscal policy is a risky path for any country. When governments focus spending on grand buildings, big events, or other “prestige” items, they often neglect vital services like healthcare, education, and food security. This misallocation of resources can make daily life harder for many people. According to analysis from the IMF and other fiscal experts, such spending choices can strain the national budget, increase public debt, and weaken economic stability. When countries neglect essentials, they are less prepared for emergencies, such as drought, health crises, or sudden economic shocks. Furthermore, public trust can drop if citizens see flashy projects benefit only a few while basic needs go unmet. Over time, ignoring essentials for prestige may result in higher poverty rates, more unrest, and even long-term setbacks for development goals.
Paths Toward More Inclusive and Responsible Fiscal Policy
Paths toward inclusive and responsible fiscal policy in Ethiopia and similar countries involve several key steps. First, governments should ensure fair and sustainable economic growth by boosting revenue collection and managing debt, as highlighted by recent reforms and government reports. Making fiscal policy more “pro-poor” means raising tax revenue in a way that does not overburden the poorest while directing public investment toward programs that reduce inequality. Transparent budgeting, effective public financial management, and empowering regional governments to make decisions also help. Inclusive policies require listening to citizens and addressing the real needs of different regions and communities. According to the World Bank and Ethiopian Finance Ministry, this could mean expanding investments in regional infrastructure, supporting small businesses, and focusing spending on healthcare, education, and social protection. The best fiscal policy is both responsible about future debts and inclusive in meeting the basic needs of all people.
Building Consensus for Development
Building consensus for development is crucial in a diverse country like Ethiopia. Development depends not just on good policies, but on broad agreement among political groups, regions, and communities about priorities and the direction of reform. As the Reporter Ethiopia and UNICEF documents show, historical challenges and differences between ethnic groups or regions can make this difficult. Open and honest dialogue between citizens and the government is vital. Development plans must reflect the voices of all groups, not just political elites. This means more public consultations, more local participation in planning, and clear communication about how fiscal decisions are made. By working together and ensuring transparency, Ethiopians can build the trust needed to carry out effective reforms and reach their development goals. When everyone sees their interests reflected in national priorities, stability grows and reforms are more likely to succeed.