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© 2003 International Monetary Fund

June 2003

Corrected: July 2003

IMF Country Report No. 03/166

Eritrea: Selected Issues and Statistical Appendix

This Selected Issues paper and Statistical Appendix for Eritrea was prepared by a staff team of the International Monetary Fund as background documentation for the periodic consultation with the member country. It is based on the information available at the time it was completed on April 21, 2003. The views expressed in this document are those of the staff team and do not necessarily reflect the views of the government of Eritrea or the Executive Board of the IMF.

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Front Matter Page

INTERNATIONAL MONETARY FUND

ERITREA

Selected Issues and Statistical Appendix

Prepared by a Staff Team Consisting of Mr. Riechel (head), Mr. Christensen, Mr. Mercereau, Mr. Schindler, and Mr. Yamauchi (all AFR), and Mr. Ding (TRE)

Approved by the African Department

April 21, 2003

Contents

• Basic Data

• I. Introduction

• II. Sustainability of the Public Finances

  • A. Introduction

  • B. The Importance of Fiscal Sustainability

  • C. Public Finance: Developments and Trends

  • D. Responses to Fiscal Policy and Management

  • E. Restoring Sustainability

    • Annex. Measures of Fiscal Sustainability Gaps

    • References

  • Text Figures

  • II.1. Fiscal Policies and the Sustainability of Public Finance

  • Text Tables

  • II.1. Key Fiscal Indicators, 1993-2002

  • II.2. Indicators of Fiscal Sustainability, 1993-2002

  • II.3. Assets and Liabilities of Government, 1993-2002

  • II.4. Key Economic Developments, 1993-2002

  • II.5. Sustainability Indicators, 1993-2002

  • II.6. Minimum Primary Balance and Adjustment Required - Status Quo, 2000

  • II.7. Minimum Primary Balance—Sensitivity Analysis, 2002-20

• III. Monetary Policy and Management

  • A. Introduction

  • B. The Eritrean Financial Sector

  • C. Statutory Role of the BE

  • D. Implementation of Monetary Policy

  • E. Tentative Conclusions

• Text Figures

• III.1. Bank of Eritrea’s Advances to the Government, 1997-2002

• Text Tables

• III.1. Selected Monetary Indicators, 1997-2002

• IV. Exchange Rate Policy and Management

  • A. Introduction

  • B. Brief of Historical Overview

  • C. Official (de jure) Structure of the Foreign Exchange Market

  • D. Actual (de facto) Structure of the Foreign Exchange Market

  • E. Macroeconomic and Microeconomic Implications

  • F. Conclusions

  • Annex. Diagrammatic Analysis of Exchange Rate Determination

• Text Figures

• IV.1. Nominal Exchange Rates, 1998-2002

• IV.2. Actual and Hypothetical exports, 1998-2001

• V. Inflation and Its Determinants in Eritrea

  • A. Introduction

  • B. Measures of Inflation in Eritrea

  • C. Recent Developments in Inflation

  • D. Theoretical Background and Data Issues

  • E. Results

  • F. Conclusions

  • Annex I. Data Issues Description and Sources

  • Annex II. Time-Series Properties: Test for Stationarity

• Text Figures

• V.1. Inflation and Its Subcomponents, January 1997-December 2002

• V.2. Levels and First Differences of the Data Series, 1992:Q1-2002:Q4

• Text Tables

• V.1. Comparison of Weights in the CPI Measures of the BE, and SEO, and Ethiopia

• V.2. CPI and Selected Economic and Financial Indicators, 1993-2002

• V.3. Structural VAR Models, 1993:Q2-2002:Q3

• Statistical Appendix Tables

• 1. Gross Domestic Product by Sector, 1997-2002

• 2. Agricultural Production and Prices, 1997-2002

• 3. Regional Structure of the Agricultural Sector, 1997-2002

• 4. Food Grain Position, 1996/97-2001/02

• 5. Annual Catch and Sales of Fish, 1997-2002

• 6. Gross Value of Public Enterprise Production, 1997-2002

• 7. Investment Projects by Sector, 1997-2002

• 8. Assab Refinery Production, Purchases, and Sales by Eritrea, 1997-2002

• 9. Ex-Refinery and Retail Prices of Petroleum Products, 1997-2002

• 10. Electricity Production, Sales, and Tariffs, 1997-2002

• 11. Asmara Price Index, 1997-2002

• 12. Developments in the Labor Market, 1997-2002

• 13. Structure of Private Sector Wages, 1997-2002

• 14. Summary of Government Operations, 1997-2002

• 15. Selected Indicators of Government Operations, 1997-2002

• 16. Government Revenues and Grants, 1997-2002

• 17. Government Current Expenditure by Economic Classification, 1997-2002

• 18. Government Current Expenditure by Functional Classification, 1997-2002

• 19. Government Capital Expenditure, 1997-2002

• 20. Monetary Survey, 1997-2002

• 21. Summary Accounts of the Bank of Eritrea, 1997-2002

• 22. Summary Accounts of the Commercial Banks, 1997-2002

• 23. Distribution of Net Foreign Assets, 1997-2002

• 24. Commercial Banks’ Excess Reserves, 1997-2002

• 25. Sectoral Distribution of Commercial Bank Loans, 1997-2002

• 26. Structure of Interest Rates, 1997-2002

• 27. Balance of Payments, 1997-2002

• 28. Commodity Composition of Exports, 1997-2002

• 29. Commodity Composition of Imports, 1997-2002

• 30. Direction of Exports, 1997-2002

• 31. Origin of Imports, 1997-2002

• 32. External Public Debt Commitments and Disbursements, 1997-2002

• 33. Foreign Exchange Rates, 1992-2002

• 34. Summary of the Tax System as of December 2002