Urgent action needed to help economy - IMF

The International Monetary Fund (IMF) has called for "decisive and urgent" action by Eritrea to confront what it described as the enormous economic challenges ahead. In a report, following bilateral discussions with Eritrea, the IMF's executive directors said the challenges included addressing the severe drought in the country, accelerating the demobilisation and reintegration of some 200,000 combatants, re-establishing macroeconomic stability and laying the foundations for sustained economic growth and poverty reduction. The directors acknowledged that many of the problems stemmed from the drought, the legacy of war with Ethiopia, political and governance difficulties as well as limited resources, but stressed there had also been "policy slippages". "Directors recognised that external assistance will be critical for the success of the economic strategy, and encouraged the authorities to step up their efforts to resolve outstanding governance issues with donors to permit the resumption of such assistance," the report said. Donors have been cautious in extending assistance to Eritrea, after it jailed political dissidents and independent journalists. The IMF also called for strengthening the transparency and accountability of the central bank, and improving the flow of information between the government and private sector. "While acknowledging that the government will continue to play an important role in the Eritrean economy, they [directors] urged the authorities to do a careful appraisal of that role and to adopt policies that foster the development of the private sector," the report said. It noted that progress had been made in some areas, including tax and expenditure reform, trade liberalisation and bank supervision. The directors also welcomed Eritrea's intention to reduce the fiscal deficit in 2003, primarily through cuts in current spending, and shifting expenditure to education and health. Meanwhile, the European Commission has extended humanitarian aid, worth €1.3 million, to help Eritrea combat the effects of drought. "The aid will include provision of water where levels have receded to below humanitarian minimums, as well as the measuring of and response to emergency levels of acute malnutrition," the EC said in a statement. "Funds will be allocated to humanitarian agencies operating in the region, via ECHO [European Commission Humanitarian Aid Office]."