The Ministry of Finance is working to replace its existing macroeconomic forecasting framework with a new model designed to better assess the impact of economic reforms, policy decisions and shocks on the broader economy and public debt, according to an IMF technical assistance report seen by EBR.

The initiative, financed by the government of Japan, comes as Ethiopian authorities navigate one of the country's most far-reaching policy shifts in decades, including a floating exchange rate and interest-based monetary policy.

The report indicates that the Ministry of Finance (MoF) requested the assistance in October 2024, after which the IMF's Institute for Capacity Development joined a scoping mission from the Fund's Fiscal Affairs Department to assess forecasting capacity at the MoF, the Ministry of Planning and Development (MoPD) and the National Bank of Ethiopia (NBE).

A follow-up mission visited Addis Ababa between 12 and 15 May 2025, meeting Senior Fiscal Policy Advisor Mezgebu Amha Terefe, Senior Advisor Abebe Shimeles (PhD), and Firehiywot Handamo Godiso of the ministry's Economic Management team, among other officials.

According to the report, the review exposed real gaps in how Ethiopia currently forecasts its economy. Existing models, the mission found, relied too heavily on basic accounting relationships between sectors rather than sound economic theory, struggled to reflect the government's recent liberalization agenda, and offered limited flexibility for testing different policy scenarios.

The fix, the report indicates, is a new toolkit called a Comprehensive Adaptive Expectations Model (CAEM), tailored specifically to Ethiopia's data and institutional setup. The model was chosen partly because MoF staff already have hands-on experience with Excel-based frameworks that work in a similar way, easing the transition.

The IMF team also plans to build in nowcasting tools, which use timely indicators to estimate current economic conditions before official annual data is released, giving policymakers more frequent, up-to-date reads on the economy. A Debt Dynamic Tool will be linked to the new model as well, reflecting how central debt sustainability has become to Ethiopia's macroeconomic calculus.

Fourteen economists from the MoF, MoPD and NBE have been assigned to the project, which the report describes as a sign of strong institutional buy-in. The work is scheduled to run through roughly seven missions over the coming months, with completion targeted for September 2026.