Press Release No. 09/337

Press Release No. 09/337
September 29, 2009

An International Monetary Fund (IMF) mission visited Eritrea during September 14–29, 2009 to conduct the 2009 Article IV consultation discussions.¹ The last Article IV consultation was concluded in April 2008. The mission met with Mr. Ali, Minister of Energy and Mines, Mr. Woldemariam, Acting Governor of the Bank of Eritrea, Mrs. Woldeghiorghis, Director General of the Treasury and Mr. Tesfaldet, Director General of the Budget (both in the Ministry of Finance), other senior officials, and representatives of the international community and civil society. The mission is grateful to the authorities for their very warm hospitality and fruitful discussions.

Mr. Mario de Zamaróczy, mission chief for Eritrea, issued the following statement today in Asmara:

“The mission reviewed economic developments since the last consultation and discussed the authorities’ macroeconomic policies against the backdrop of a severe drought in 2008, the international food and oil price crises, and the global recession. In the wake of these exogenous shocks, Eritrea’s economic performance has weakened, with growth remaining elusive, while inflation has accelerated and progress in fiscal consolidation, stalled.

“The mission noted a number of areas where progress had been made. These included continued investment in agricultural and irrigation projects to wean the country’s farming industry progressively away from dependence on irregular rainfall; public investment program in targeted key sectors, such as education, health, mining, infrastructure, cement production, tourism, green energy, and fisheries. These investments are expected to contribute to a resumption of growth in the medium term. However, even with the positive impact of forthcoming mining and cement productions, Eritrea’s medium-term outlook could present downside risks. The mission expressed concerns with regard to the size of the fiscal and current account deficits, external and domestic debt levels, and high inflation. Growth, even with the maturation of earlier investments, may remain below the level necessary to achieve a significant reduction in poverty.

“The policy discussions centered on a number of possible policy measures to rekindle economic growth and private sector activities. In the short run, the focus should be on restoring macroeconomic and financial balances, through fiscal consolidation; reducing banking sector financing of the budget deficit; and relaxing import and exchange controls to re-launch imports of basic and intermediary goods. As global pressures recede, it would be important to bring inflation under control through restrained fiscal and monetary policies. The government’s expenditure prioritization efforts were identified as key to raising the effectiveness of public outlays in a resource-constrained environment. In the medium term, the focus should be on measures that promote external competitiveness; liberalization of the financial sector; removal of administrative bottlenecks; and promotion of private investment in the productive sectors. The mission believes that with the right set of reform policies and building on the country’s rich human and mineral resource potential, Eritrea could be well placed to rebound as the world recession wanes.

“The mission welcomed the authorities’ renewed interest in drawing on the IMF’s and other donors capacity-building assistance to develop institutional and human capacity in the civil service. The mission noted that the IMF’s East Africa Regional Technical Assistance Center (East AFRITAC) was well placed to provide technical assistance on a grant basis.

“It is expected that, subject to IMF management approval, the IMF’s Executive Board will consider the mission’s report in December 2009.”

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¹ Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities.