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Eritrea’s Economic Outlook Improves Despite Debt Distress

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The East African nation of Eritrea is expected to experience economic growth in the coming years, driven by progress in the construction of the Colluli mine and robust mining sector performance.

Growth Projections

According to World Bank estimates, GDP growth is projected to increase to 2.8 percent in 2024, followed by a further increase to 3.3 percent in 2026 once the mine begins production.

Fiscal Balance Improvement

The country’s fiscal balance is also expected to improve, with the deficit narrowing to 4 percent of GDP in 2024 from 5.8 percent in 2021. The current account surplus is projected to widen to over 14 percent of GDP in 2024, supported by strong mining sector receipts and tight import controls.

Debt Distress

However, Eritrea remains in debt distress, with public debt estimated at around 219 percent of GDP at end-2023. The country has begun to re-engage with development partners and revitalize some bilateral relations, including a $49.9 million project to build a 30-megawatt solar photovoltaic power plant.

Risks and Opportunities

Despite these positive developments, significant downside risks remain, including:

  • Weaker-than-expected global or Chinese demand for Eritrean commodity exports
  • Production delays at the Colluli mine
  • Spillovers from the conflict in Sudan
  • Climate vulnerabilities that pose a high risk to food security

However, re-engagement with the international community could help to significantly reduce external arrears and provide much-needed financing to build essential infrastructure over the medium term. Development of the private and financial sectors could enhance job creation and promote inclusive growth.

Poverty Reduction

According to World Bank estimates, poverty rates are not expected to decline significantly in the coming years. However, significant improvements in the agricultural sector and increased productive employment in urban areas are critical to addressing pervasive deprivation in the country.

Key Indicators

  • Real GDP growth: 2.8 percent (2024), 3.3 percent (2026)
  • Fiscal balance: -5.8 percent of GDP (2021), -4.0 percent of GDP (2024)
  • Current account balance: 14.0 percent of GDP (2021), 14.2 percent of GDP (2024)
  • Public debt: 219 percent of GDP (2023), 188.5 percent of GDP (2026)
  • Poverty rates: not expected to decline significantly in the coming years

Sources

World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices.

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