Annual Report on Exchange Arrangements and Exchange Restrictions 2005
Chapter

ERITREA

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
September 2005
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(Position as of January 31, 2005)

Status Under IMF Articles of Agreement
Article XIVYes.
Exchange Arrangement
CurrencyThe currency of Eritrea is the Eritrean nakfa.
Exchange rate structure
Unitary.Effective January 1, 2005, a unified exchange rate of ERN 15 per $1 applies to all transactions. Previously, a preferential exchange rate of ERN 19 per $1 applied to exports and to remittances from Eritreans living abroad.
Classification
Conventional pegged arrangementEffective January 1, 2005, ADs conducting transactions in the foreign exchange market are to apply the official exchange rate of ERN 15 per $1. Previously, the buying rate had remained at about ERN 13.5 per $1 since September 2002, although the rate in the informal market has been at a premium of about 50%.
Exchange taxThe Bank of Eritrea (BE) prescribes a 0.50% commission on sales and a 0.25% commission on purchases of foreign exchange, except for banknote transactions. ADs are permitted, but not required, to levy an additional service charge of up to 0.25% for buying and 0.75% for selling foreign exchange on their own accounts.
Exchange subsidyNo.
Forward exchange marketNo.
Arrangements for Payments and Receipts
Prescription of currency requirements
Use of foreign exchange among residentsSome transactions in foreign currency are allowed with the approval of the BE.
Payments arrangements
Regional arrangementsEritrea is a member of the COMESA.
Clearing agreementsA clearing arrangement exists among the members of the COMESA.
Administration of controlThe BE oversees all foreign exchange transactions of the ADs. It may from time to time issue regulations, directives, and instructions on foreign exchange matters. The National Licensing Office issues licenses for importers, exporters, and commercial agents; the Ministry of Trade and Industry regulates foreign investments. The Asmara Chamber of Commerce issues certificates of origin for exports.
International security restrictionsNo.
Payments arrears
OfficialSome arrears have arisen in connection with remittances of expatriate employees’ salaries and overdue bonds and loans.
Controls on trade in gold (coins and/or bullion)
Controls on domestic ownership and/or tradeAuthorization from the Ministry of Energy and Mines is required for the ownership or possession of gold or other precious metals or ores. Residents may own gold jewelry without restrictions.
Controls on external tradeYes.
Controls on exports and imports of banknotesEffective January 1, 2005, travelers are required to declare their foreign currency holdings upon entry or exit.
On exports
Domestic currencyYes.
Foreign currencyYes.
On imports
Domestic currencyYes.
Foreign currencyYes.
Resident Accounts
Foreign exchange accounts permittedYes.
Held domesticallyYes.
Approval requiredYes.
Held abroadThe opening of these accounts is restricted to resident banks.
Accounts in domestic currency held abroadn.a.
Accounts in domestic currency convertible into foreign currencyNo.
Nonresident Accounts
Foreign exchange accounts permittedYes.
Domestic currency accountsThese accounts are available only to members of the diplomatic community; welfare organizations; nongovernmental organizations and their personnel; and joint ventures and other business firms that invest their capital, wholly or partially, in foreign exchange.
Convertible into foreign currencyYes.
Blocked accountsNo.
Imports and Import Payments
Foreign exchange budgetNo.
Financing requirements for importsMost imports financed with official foreign exchange are effected under LCs or on a cash-against-documents basis.
Advance import depositsThese are required only for LC types of imports.
Documentation requirements for release of foreign exchange for imports
Preshipment inspectionYes.
Letters of creditYes.
Import licenses and other nontariff measures
Negative listGoods may be imported freely, with some exceptions.
Open general licensesAll importers must have a valid trade license issued by the National Licensing Office.
Import taxes and/or tariffs
Taxes collected through the exchange systemEffective January 1, 2005, franco valuta imports (imports that do not require official foreign exchange and are not aid funded) are not allowed.
State import monopolyImports of military materials, weapons, armaments, and the like are conducted by the state.
Exports and Export Proceeds
Repatriation requirementsAll export proceeds must be repatriated within 90 days of shipment; where justified, this deadline may be extended by another 90 days.
Surrender requirementsAll export proceeds must be surrendered.
Financing requirementsExports may be made under LCs on an advance-payment or a consignment basis.
Documentation requirementsAll exports require documentation. Certain commodities require clearance from specific government bodies (e.g., the Eritrean Institute of Standards). In particular, livestock and cereals require permission from the Ministry of Agriculture, and marine products require permission from the Ministry of Marine Resources.
Letters of creditYes.
GuaranteesYes.
Preshipment inspectionYes.
Export licensesExporters must be licensed by the National Licensing Office.
Without quotasYes.
Export taxesNo.
Payments for Invisible Transactions and Current Transfers
Controls on these transfersYes.
Payments for travel
Prior approvalYes.
Quantitative limitsYes.
Personal payments
Prior approvalYes.
Quantitative limitsYes.
Foreign workers’ wages
Prior approvalYes.
Quantitative limitsYes.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsYes.
Surrender requirementsAll proceeds from invisible transactions must be surrendered.
Restrictions on use of fundsYes.
Capital Transactions
Controls on capital transactionsYes.
Controls on capital and money market instruments
On capital market securities
Shares or other securities of a participating nature
Purchase locally by nonresidentsYes.
Purchase abroad by residentsADs may acquire securities with the approval of the BE.
On money market instruments
Purchase abroad by residentsYes.
Controls on derivatives and other instrumentsn.a.
Controls on credit operations
Commercial credits
To residents from nonresidentsYes.
Financial credits
To residents from nonresidentsADs may borrow abroad or overdraw their correspondent accounts abroad.
Controls on direct investment
Inward direct investmentDomestic retail and wholesale trade, and import and commission agencies are open to foreign investors only when Eritrea has a bilateral agreement of reciprocity with the country of the investor; this latter condition may be waived by the government. Approved investments and their subsequent expansion are exempt from customs duties and sales tax for capital goods and spare parts associated with the investment. There are no exemptions from income tax.
Controls on liquidation of direct investmentNo.
Controls on real estate transactionsNo.
Controls on personal capital transactions
Loans
By residents to nonresidentsYes.
To residents from nonresidentsYes.
Provisions specific to commercial banks and other credit institutions
Borrowing abroadCommercial banks may borrow abroad or overdraw their accounts.
Maintenance of accounts abroadCommercial banks may maintain correspondent accounts with their counterparts abroad.
Lending to nonresidents (financial or commercial credits)Yes.
Lending locally in foreign exchangeYes.
Purchase of locally issued securities denominated in foreign exchangeYes.
Open foreign exchange position limits
On resident assets and liabilitiesYes.
Provisions specific to institutional investorsn.a.
Other controls imposed by securities lawsn.a.
Changes During 2004
No significant changes occurred in the exchange and trade system.
Changes During 2005
Exchange arrangementJanuary 1. The exchange rate of the Eritrean nakfa was unified at ERN 15 per $1 and applied to all transactions by the ADs.
Arrangements for payments and receiptsJanuary 1. Travelers were required to declare their holdings of foreign currency upon entry or exit.
Imports and import paymentsJanuary 1. Imports that do not require official foreign exchange or are not aid funded (franco valuta imports) were prohibited.

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