ERITREA

Key conditions andchallenges

Table 12023

Population, million

3.7GDP, current US$ billion

2.7

GDP per capita, current US$712.3

School enrollment, primary (% gross)

a72.0

a66.5

Total GHG emissions (mtCO2e)7.0Life expectancy at birth, years

Source: WDI, Macro Poverty Outlook, and official data.
a/ WDI for School enrollment (2019); Life expectancy(2021).

Economic growth is projected at 2.8 percent in 2024, supported by the Colluli
potash project construction. Lower global
food prices are expected to help reduce inflation to 5.1 percent in 2024. Downside
risks to the outlook include production
delays at the Colluli mine, global commodity price volatility, geopolitical andregional tensions, and climate vulnerabilities. Poverty is assessed to be widespread,
although national accounts and poverty
statistics have not been produced for morethan a decade.

Eritrea emerged from a decade of international isolation with the lifting of UN sanctions in November 2018. During that period, the government relied on domestic
sources of growth. As a result, the economy is dominated by large state-owned enterprises that crowded out the private sector. Zinc, copper, and gold account forover 90 percent of exports, so metal pricefluctuations are a key source of vulnerability. Monetary policy under a fixed exchange rate regime (pegged to the US dollar) seems ineffective and has been undertaken through administrative measures. Its
effectiveness is further weakened by fiscal
dominance and an underdeveloped financial sector. The absence of a competition
law framework discourages foreign capital
inflows. Competition is severely constrained by state-owned enterprises dominance and government restrictions. Severe
import restrictions limit the demand forforeign currency in the context of low foreign exchange reserves. The country is vulnerable to climate change, with frequent
weather shocks posing a heavy burden on
the economy and rural livelihoods.
The COVID-19 crisis hit Eritrea when
it paused its engagement with international development partners and faced
challenges in accessing external funding.
Informal cross-border trade seemed less affected as the conflict in northern Ethiopia
ended, giving cross-border trade a boost.

The emergency conditions that prevailedin Eritrea over the past decade have led
to severe data production capacity constraints. National accounts data are limited
to unofficial GDP estimates produced by
the Ministry of Finance that the government does not endorse. Inflation estimatescover only the capital city, Asmara, andthe full balance of payment accounts is notproduced. The last population census inEritrea took place more than 25 years
ago, and the last official poverty rate forthe country dates from 1996/97, when it
was calculated that 70 percent of urbanhouseholds lived in poverty. Limitedgrowth and the multiple economic shocks
since then, affecting both urban and rural
households, suggest that this figure may
now be higher.

Recent developments
Real GDP growth is estimated to haveremained relatively stable at 2.6 percent
in 2023, underpinned mainly by the construction of the Colluli potash project.
Meanwhile, inflation moderated to justover 6 percent, largely due to easing
global food and energy prices, providing
some respite for households. Although
global zinc prices fell by 24 percent in2023, relatively high gold and copper
prices contributed to higher export revenues. Together with lower fuel and foodimports, this helped maintain the current
account surplus above 14 percent ofGDP. Notwithstanding such large surpluses, international reserves are estimated at

FIGURE 1 Eritrea / Evolution of total public debt

FIGURE 2 Eritrea / Primary and overall fiscal balances

Percent of GDP
300

Percent of GDP
0250

-1-2

200
-3
150

-4

100

-5

50

-6-70
2020

2021

Domestic debt

2022

2023
External debt

2024f

2025f

2020

2026f

2022

Overall fiscal balance

Total public debt

Sources: Ministry of Finance, Planning, and Economic Development, and WorldBank estimates.
MPO

2021

2023

2024f

2025f

2026f

Primary fiscal balance

Sources: Ministry of Finance, Planning, and Economic Development, and WorldBank estimates.
1Apr 24

around three months of imports. Strong
mining export revenues have also supported government revenues. Public
debt was estimated at around 219 percent of GDP at end-2023, of which nearly 80 percent is owed to domestic banks.
The country is in debt distress, and asof January 2023, Eritrea was at a pre-decision point in the Highly Indebted PoorCountries (HIPC) list.
Eritrea has begun to re-engage with development partners and revitalize somebilateral relations. In 2023, the African
Development Bank Board approved
US$49.9 million to build a 30-megawatt
solar photovoltaic power plant in
Dekemhare, and the project is scheduled
to be completed in 2027. The Chinesecompany Sichuan Road and Bridge
Group has acquired a 50 percent stake in
the Colluli project, and the mine is scheduled to start operating in 2026. In addition, Eritrea has rejoined the East African
trade bloc, the Intergovernmental Authority on Development, nearly 17 years after
withdrawing from the body.

OutlookGDP growth is projected to increase to 2.8
percent in 2024, as domestic demand isboosted in the short term by progress inthe construction of the Colluli mine.
Growth is projected to reach 3.3 percent
in 2026 once the mine begins production.
In line with easing global food prices, inflation is expected to decrease further toabout 5 percent in 2024. The current account surplus is expected to widen to over
14 percent of GDP in 2024, helped by robust mining sector performance amid tightimport controls. Gradual fiscal consolidation and sustained strong mining sector receipts should support a narrowing of thefiscal deficit to 4 percent of GDP in 2024,with fiscal consolidation continuing overthe medium term. The economic recovery
should support a reduction in the public
debt-to-GDP ratio, from 211 percent ofGDP in 2024 to 189 percent of GDP in 2026.
The poverty rate is not expected to decline

TABLE 2 Eritrea / Macro poverty outlook indicators

significantly in the coming years. Significant improvements in the agricultural sector and increased productive employment
in urban areas are critical to addressing thepervasive deprivation in the country.
Significant downside risks include weakerthan-expected global or Chinese demandfor Eritrean commodity exports and related volatility in metals and minerals prices,
production delays at the Colluli mine,
spillovers from the conflict in Sudan, andheightened tensions in the Middle East.
Moreover, severe climate vulnerabilities
could worsen in the coming years, posing
a high risk to food security in Eritrea.
Against this backdrop, Eritrea’s re-engagement with the international community
could help to significantly reduce externalarrears and provide much-needed financing to build essential infrastructure overthe medium term, help abate the risks associated with climate change, and jumpstart the private and financial sectors. Development of the private and financial
sectors could enhance job creation andpromote inclusive growth.

(annual percent change unless indicated otherwise)

Real GDP growth, at constant market prices
Private consumption
Government consumption
Gross fixed capital investment
Exports, goods and services
Imports, goods and services

2021
2.9
3.0
14.0
39.1
31.0
21.6

2022
2.5
3.6
5.7
13.1
9.2
11.0

2023e
2.6
4.0
3.7
22.7
5.1
5.3

2024f
2.8
4.3
4.1
3.6
3.7
4.1

2025f
3.0
4.1
4.1
12.5
4.1
4.3

2026f
3.3
4.1
4.1
14.9
4.1
4.3

Real GDP growth, at constant factor prices
Agriculture
Industry
Services

2.9
4.5
1.4
5.3

2.5
1.6
3.2
1.3

2.6
3.5
2.9
1.5

2.8
3.6
3.3
1.2

3.0
3.2
3.3
2.2

3.3
3.2
3.1
3.8

Inflation (consumer price index)

6.6

7.4

6.4

5.1

5.2

5.2

Current account balance (% of GDP)Net foreign direct investment inflow (% of GDP)

14.0
1.4

13.0
1.3

14.1
1.2

14.2
1.2

14.2
1.0

15.8
1.0

Fiscal balance (% of GDP)
Revenues (% of GDP)
Debt (% of GDP)
Primary balance (% of GDP)

-5.8
26.7
241.7
-4.2

-5.6
27.0
239.8
-4.2

-4.8
27.6
219.4
-3.7

-4.0
27.9
210.6
-2.9

-3.8
27.7
193.9
-2.8

-3.4
26.9
188.5
-2.4

GHG emissions growth (mtCO2e)
Energy related GHG emissions (% of total)

1.611.7

1.6
11.7

1.4
11.5

1.6
11.7

1.5
11.9

1.5
12.1

Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD.
Notes: e = estimate, f = forecast.

MPO2

Apr 24