Eritrea’s Economic Outlook Improves as Mining Sector Boosts Growth

Asmara, Eritrea - The World Bank has projected a modest economic recovery for Eritrea in the coming years, driven by strong mining sector performance and gradual fiscal consolidation.

Fiscal Balance Nears Narrowing

According to latest estimates, the country’s overall fiscal balance is expected to narrow to 4% of GDP in 2024, from 5.8% in 2021. This improvement is largely attributed to the significant growth in the mining sector.

Mining Sector Performance

The mining sector has been a major contributor to government revenues, with export revenues surging in recent years. The Colluli mine project, which is scheduled to start operating in 2026, is expected to further boost growth and foreign exchange earnings.

GDP Growth Projections

Eritrea’s GDP growth is projected to increase to 2.8% in 2024, driven by domestic demand and progress in the construction of the Colluli mine. Growth is expected to reach 3.3% in 2026 once the mine begins production.

International Relations and Development

The country has also made significant strides in revitalizing its international relations, with the African Development Bank approving a $49.9 million loan to build a solar power plant in Dekemhare. The Chinese company Sichuan Road and Bridge Group has acquired a 50% stake in the Colluli project, a major boost for Eritrea’s mining sector.

Risks and Challenges

However, significant risks remain, including weaker-than-expected global demand for Eritrean commodity exports, production delays at the Colluli mine, and heightened tensions in the Middle East. Climate change also poses a high risk to food security in Eritrea.

Medium-Term Prospects

Despite these challenges, the World Bank estimates that Eritrea’s re-engagement with the international community could help reduce external arrears and provide much-needed financing for essential infrastructure development over the medium term. Development of the private sector and financial sectors could also enhance job creation and promote inclusive growth.

Macroeconomic Outlook Indicators

According to Table 2, Eritrea’s macro poverty outlook indicators show a mixed picture. While real GDP growth is expected to improve, inflation remains a concern, and poverty rates are not expected to decline significantly in the coming years.

Recommendations

The World Bank has urged Eritrea to address its significant climate vulnerabilities and implement policies to promote sustainable development and reduce poverty.

Table 2: Macroeconomic Outlook Indicators

Note: The table shows the projected values for real GDP growth, inflation rate, and poverty rate in Eritrea from 2021 to 2026.