Country Summary

Economic performance and outlook:  Economic growth has exceeded 5% in recent years, reached an estimated 6.8% in 2017, and is projected to be 6.9% in 2018 and 2019. It is driven by continued investment in infrastructure, especially ports, justified by the transit of goods to and from Ethiopia. The government’s long-term goal is to establish Djibouti as an emerging country by 2035; short-term goals are to accelerate growth and increase employment. Structural constraints on energy and water supplies are among the major challenges. The energy challenge is attenuated by a joint electricity transmission line with Ethiopia. The economy has a dual aspect: on the one hand, it has a modern sector based on revenues from ports and military bases leased by foreign countries; on the other hand, it has a large informal sector. 

Macroeconomic evolution: The budget deficit, which rose sharply from 5.9% of GDP in 2013 to 15.7% in 2015, widened to 18.2% in 2016 and fell to an estimated 15.5% in 2017. Between December 2015 and June 2016, the money supply increased 2.6%. The exchange rate between the Djibouti franc and the U.S. dollar has been fixed since independence in 1973. Inflation was 3% in 2014 and 3.1% in 2015 and is projected to fall to 2.3% in 2018. The country’s indebtedness remains critical. Debt has risen from 52.5% of GDP in 2014 to 65.7% in 2015 to 78.3% in 2016 to more than 79% in 2017. Despite the economic upturn, extreme poverty and unemployment remain endemic. 

Tailwinds: Djibouti is banking on infrastructure development, including ports, to promote rapid growth and reduce poverty. The infrastructure program financed in recent years by a massive influx of foreign direct investment remains concentrated in ports, roads, and hotels. The construction of railways and new specialized ports and terminals along the coast will consolidate the country’s regional integration, strengthening its role as a platform for trade and services in the subregion. The growth and development model is focused on transport and related services, based on the exploitation of the country’s geostrategic position on the Gulf of Aden, at the crossroads of important commercial shipping corridors for goods and oil transportation.

Headwinds: Economic growth and diversification remain constrained by several factors, including the poor quality of economic infrastructure, the high cost of services, and weak institutional capacity. More than 48% of the working-age population, especially young people and women, is unemployed; extreme poverty has not declined since 2002 and affects about 23% of a population of less than 1 million. Djibouti suffers from high exposure to environmental shocks. The country’s progress is undermined by the low efficiency and poor quality of public services, despite the recent introduction of modern administrative management practices. Growing indebtedness could further impede development efforts. The political governance index has generally deteriorated in recent years.

Source: African Economic Outlook 2018

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