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Eritrea’s Economy Faces Uncertainty Amidst Pandemic and Climate Change

Asmara, Eritrea - The Eritrean economy is expected to experience a slow recovery in the coming years, with real GDP growth projected to reach 2% in 2021 after contracting by 0.6% in 2020.

Challenges Ahead

According to a new report from the World Bank, the country’s economic performance has been hampered by the COVID-19 pandemic and climate change, which have resulted in significant downside risks. The fiscal deficit widened to nearly 5% of GDP in 2020, driven by an investment push in two mines and a road project.

Economic Performance

The external current account surplus is expected to narrow to 10.7% of GDP in 2020 from 12.1% in 2019, largely due to a slowdown in remittances and a compression of the merchandise trade surplus. The country’s public debt is estimated at over 260% of GDP, with 80% owed to domestic banks.

Pathway to Recovery

The report highlights that efforts to normalize Eritrea’s relations with the international community could result in a pathway to reduce external arrears and provide much-needed external financing. This would enable the country to build much-needed infrastructure and help mitigate the risks associated with climate change.

Key Indicators

  • Real GDP growth: 13% in 2018, 3.8% in 2019, -0.6% in 2020, and projected to reach 2% in 2021
  • Private consumption: 13.2% in 2018, 5.5% in 2019, -1.9% in 2020, and projected to grow by 2% in 2021
  • Government consumption: 0.8% in 2018, 39.3% in 2019, 16.4% in 2020, and projected to grow by 8.8% in 2021
  • Inflation: -14.4% in 2018, -16.4% in 2019, and 4.9% in 2020

Opportunities for Growth

The report notes that significant upside potential exists if Eritrea can achieve widespread vaccination and introduce policy reforms that foster private sector development. However, the country faces several challenges, including severe climate vulnerabilities and limited space to boost preparedness and control damages.

Read the Full Report

The World Bank’s report provides a comprehensive overview of Eritrea’s economy and highlights the challenges it faces in terms of economic development and poverty reduction. The report is available online at [insert link].