major macro economic indicators
|2019||2020||2021 (e)||2022 (f)|
|GDP growth (%)||3.8||-0.6||5.7||4.0|
|Inflation (yearly average, %)*||-16.4||4.7||2.6||2.0|
|Budget balance (% GDP)**||-1.5||-5.2||-4.8||-1.5|
|Current account balance (% GDP)***||12.0||10.1||10.8||10.5|
|Public debt (% GDP)||189.3||185.6||175.5||165.5|
(e): Estimate (f): Forecast *Data only for the Asmara region **Including grants ***Including official transfers
- Extensive mineral resources (potash, copper, gold, silver, zinc)
- Extensive agricultural resources (maize, barley, vegetables, livestock)
- Large influx of funds from the Eritrean diaspora
- Recurrent droughts and climate shocks
- Closed economy
- Critical level of debt
- Country has become an international pariah state
- Worrying human rights record
- Extremely difficult business climate
- State plays a massive role in the economy
- Extreme poverty, high emigration
Growth supported by mineral exports and the Colluli mine project
After taking a double hit from the COVID-19 pandemic and a locust invasion that decimated agricultural crops, in 2022, the economy will continue the recovery that began in 2021. Despite the authorities' refusal to launch a vaccination campaign, growth should be stimulated mainly by a return to normal in services. Consumption, which began picking up in 2021 thanks in particular to the resumption of remittances inflows, should benefit from this. In 2022, the improvement in the agricultural sector, on which the population is extremely dependent (75% of people earn their livings from agriculture, livestock farming and fishing), should have a positive impact on household income and, consequently, on consumption, which will nevertheless remain fragile, with 69% of the population living below the poverty line. In addition, agricultural activities will remain exposed to the risk of locusts and climate-related hazards. In 2022, growth will also be supported by higher export revenues from mining activities (copper, potash, zinc and gold). After benefiting from the strong recovery in commodity prices in 2021, price levels should remain favourable to growth. In addition, work on the major potash project in Colluli could support exports from 2022. This project will be one of the main sources of growth in private investment, which will otherwise remain weak. The unfavourable business environment, the slow pace of reforms, unpredictable policies, deficient infrastructure and an unstable political environment will continue to make foreign investors wary of a country that is still very closed. The contribution of public investment should also remain weak, owing to recurrent financing difficulties.
After a period of deflation between 2016 and 2019 reflecting a contraction in the money supply, inflation initiated a comeback in 2020. It is expected to be sustained in 2022 by prices of imported commodities, especially oil and food (from Ethiopia).
Public debt still alarmingly high
With the COVID-19 pandemic, the budget deficit increased, due to support measures for businesses and the establishment of a National Pandemic Fund. In 2022, it is expected to narrow thanks to higher revenues resulting from the recovery in activity. Despite the end of support measures, the state wage bill and capital investment in infrastructure, as part of mining projects, will maintain the deficit. However, recurrent financing problems are likely to continue to constrain the authorities' investment capacity. Public debt, which is essentially domestic and denominated in local currency, remains extremely high, as a result of recurrent debt-financed budget deficits, and will continue to put pressure on the country's public finances. Although relations with the international community have improved slightly following the rapprochement with Ethiopia, access to donor assistance will remain limited.
In 2022, the current account will continue to show a significant surplus, thanks to expatriate remittances and the trade surplus. Despite high oil prices, which are expected to increase the import bill, the trade balance will remain in surplus thanks to the simultaneous recovery of mining exports (95% of export earnings in 2019). The income and services accounts will again register slight deficits, driven by interest payments and imports of services needed for mining activity, respectively. By drawing on foreign exchange reserves (three months of imports) fuelled by repeated current account surpluses, the central bank will continue to maintain the nafka's dollar peg, which, given the parallel market exchange rate, will remain overvalued.
Tigray conflict fuels tensions on the border with Ethiopia
Since 1993, the political landscape has been dominated by the People's Front for Democracy and Justice (PFDJ), the only legally authorised party, and by President Isaias Afwerki. The lack of basic freedoms and the regime’s totalitarian excesses are widely acknowledged and make the country one of the most closed in the world. However, in 2018, the president signed a peace declaration with neighbouring Ethiopia, ending a 20-year war. The conflict with Ethiopia, which started as a border dispute, coupled with accusations over the funding of al-Shabab armed groups in Somalia, had excluded Eritrea from the international community and led to UN sanctions. These were lifted at the end of 2018 following the peace efforts made with its neighbours, including Ethiopia, but also Somalia, Sudan and Djibouti. Despite the hopes raised by this progress, the country is again under international scrutiny for sending troops to the Tigray region of northern Ethiopia, where a conflict is underway between the regional government and the central government. Many media outlets have reported war crimes and serious human rights violations, including rape and torture. As a result, international pressure is mounting for troops to be withdrawn from the region. The conflict, which began in November 2020, remains unresolved, with Eritrean refugee camps in Tigray particularly at risk.
Last updated: February 2022