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- GDP (PPP):
- $8.7 billion
- 4.8% growth
- 5.7% 5-year compound annual growth
- $1,297 per capita
- Inflation (CPI):
- FDI Inflow:
Economic mismanagement and structural anomalies that severely undermine private-sector development have impeded productivity growth, dynamism, and overall economic growth in Eritrea. Long-standing structural problems include poor management of public finance and underdeveloped legal and regulatory frameworks.
Poor governance and the lack of commitment to reforms continue to hamper economic freedom in Eritrea. Monetary stability remains fragile, and inflation is very high, largely reflecting excessive money creation to fund fiscal deficits. Arbitrary taxation, poor infrastructure, marginal enforcement of property rights, and weak rule of law have driven many people and enterprises into the informal sector.
Isaias Afwerki has ruled this one-party state since 1993, when it voted for independence from Ethiopia after winning a 30-year war with its southern neighbor. A border dispute between Ethiopia and Eritrea occasionally flares into conflict, most recently in June 2016. According to the Committee to Protect Journalists, Eritrea is the world’s most censored country, and the U.N. Human Rights Council determined in 2016 that the government was guilty of crimes against humanity, a finding that the Eritrean government rejects. Eritrea is also subject to U.N. military and economic sanctions for allegedly supporting armed groups in the Horn of Africa. Copper and gold are important exports, but military spending drains resources from the development of public infrastructure.
Protection of property rights is poor, and the state often expropriates private property without due process or compensation. The politicized judiciary, understaffed and unprofessional, has never ruled against the government. The one-party state, ruled by the autocratic regime of the president and his small circle of senior advisers and military commanders, is widely regarded as one of the world’s most repressive. Corruption is a major problem.
The top personal income and corporate tax rates are 30 percent. The overall tax burden is estimated to equal about 10 percent of total domestic income, but taxation remains erratic. Government spending has amounted to 29 percent of total output (GDP) over the past three years, and budget deficits have averaged 14.6 percent of GDP. Public debt is equivalent to 127.1 percent of GDP.
The overall regulatory regime remains severely outdated and is not conducive to entrepreneurial activity. Procedures for establishing and running a business are opaque and costly. Monetary stability has been weak. Labor regulations are not enforced effectively in the absence of a well-functioning labor market. Subsidies and price controls have been a core feature of Eritrea’s command economy.
Trade is important to Eritrea’s economy; the value of exports and imports taken together equals 52.9 percent of GDP. The average applied tariff rate is 5.4 percent. Foreign investment in several sectors of the economy is restricted, and state-owned enterprises distort the economy. The financial system remains very underdeveloped. All banks are majority-owned by the state, and private-sector involvement remains limited.