The economic landscape of Djibouti has witnessed a remarkable resurgence in 2023, defying expectations with a GDP growth rate of 6.7%. This uptick can be attributed to the revival of Ethiopia‘s demand for Djibouti’s port and logistics services, coupled with robust domestic consumption fueled by private investment and government initiatives aimed at mitigating the effects of inflation triggered by the Russian invasion of Ukraine.
According to the World Bank‘s latest Economic Situation Monitoring Report, disruptions to maritime transport in the Red Sea have yielded a mixed impact on the economy. While transshipment activities at the port of Djibouti saw a notable increase, with a 39% surge in container volume handled in March 2024 compared to November 2023, the crisis led to a substantial hike in maritime freight costs, thereby influencing consumer goods prices in Djibouti.
In March 2024, inflation peaked at 5%, the highest level since December 2022, driven by a 6.1% increase in food and non-alcoholic beverage prices, with uneven effects across different regions. Furthermore, Red Sea tensions resulted in a decline in customs revenue, which dropped by approximately 910 million Djiboutian francs (0.1% of GDP) in the first quarter of 2024.
Despite these challenges, Djibouti’s medium-term economic outlook remains cautiously optimistic, with annual GDP growth forecasted at 5.1% between 2024 and 2026. However, risks persist, including fiscal deterioration, regional tensions, and climatic shocks. Robust debt management and fiscal reforms will be vital to ensuring long-term economic stability.
Djibouti’s external debt is another pressing concern, which continues to escalate due to the accumulation of non-concessional loans. By mid-2023, arrears had reached 6% of GDP. To ensure long-term viability, the country will need to settle these arrears and thoroughly restructure its bilateral external debt portfolio, according to the report.
« Djibouti’s new development plan will primarily focus on the economy. Enhancing the sustainability of macroeconomic reforms and public finances is crucial to ensuring inclusive growth and long-term prosperity for Djibouti. By optimizing fiscal policies and mobilizing domestic resources, we can improve public services and create opportunities for all citizens, especially the most vulnerable. » declared Ilyas Moussa Dawaleh, Minister of Economy and Finance of Djibouti in charge of Industry.
The state budget remains under pressure, primarily due to tax exemptions, which reached 19% of GDP in 2022. Tax revenues, which accounted for 13% of GDP in 2019, declined to 11.4%. In 2023, although nominal revenues increased due to economic recovery, tax revenues reached only 11.5% of GDP, partly offset by a decline in non-tax revenues.
« The report highlights that tax reform is necessary to ensure fairer distribution and increase revenue without exacerbating poverty, » pointed out Fatou Fall, Joint Resident Representative of the World Bank in Djibouti. « It will also be crucial to maximize the impact of social programs, such as the National Family Solidarity Program, which directly targets the most vulnerable populations. »
A special chapter of the report is devoted to the road sector and public spending, emphasizing the crucial importance of road infrastructure for Djibouti’s economic connectivity, given its strategic geographical position and the significance of its ports.
The World Bank in Djibouti
The World Bank portfolio in Djibouti comprises 19 projects worth a total of $401.3 million, covering education, health, social safety nets, energy, rural and urban development, modernization of public administration, digital development, strengthening governance, infrastructure, and private sector development, with a particular focus on women and young people.
Analyzing Djibouti’s Economic Landscape: A Resurgence with Challenges Ahead
As I delve into the recent economic developments in Djibouti, I am struck by the country’s remarkable resurgence in 2023, defying expectations with a GDP growth rate of 6.7%. This uptick can be attributed to the revival of Ethiopia’s demand for Djibouti’s port and logistics services, coupled with robust domestic consumption fueled by private investment and government initiatives aimed at mitigating the effects of inflation triggered by the Russian invasion of Ukraine.
However, this growth story comes with its own set of challenges. Disruptions to maritime transport in the Red Sea have yielded a mixed impact on the economy. While transshipment activities at the port of Djibouti saw a notable increase, with a 39% surge in container volume handled in March 2024 compared to November 2023, the crisis led to a substantial hike in maritime freight costs, thereby influencing consumer goods prices in Djibouti [[1]].
Inflation peaked at 5% in March 2024, the highest level since December 2022, driven by a 6.1% increase in food and non-alcoholic beverage prices, with uneven effects across different regions. Furthermore, Red Sea tensions resulted in a decline in customs revenue, which dropped by approximately 910 million Djiboutian francs (0.1% of GDP) in the first quarter of 2024.
Despite these challenges, Djibouti’s medium-term economic outlook remains cautiously optimistic, with annual GDP growth forecasted at 5.1% between 2024 and 2026. However, risks persist, including fiscal deterioration, regional tensions, and climatic shocks. Robust debt management and fiscal reforms will be vital to ensuring long-term economic stability.
Djibouti’s external debt is another pressing concern, which continues to escalate due to the accumulation of non-concessional loans. By mid-2023, arrears had reached 6% of GDP. To ensure long-term viability, the country will need to settle these arrears and thoroughly restructure its bilateral external debt portfolio, according to the World Bank’s latest Economic Situation Monitoring Report.
The report highlights the need for tax reform to ensure fairer distribution and increase revenue without exacerbating poverty. A special chapter of the report is devoted to the importance of fiscal policy in promoting inclusive growth and long-term prosperity for Djibouti.
Minister of Economy and Finance of Djibouti, Ilyas Moussa Dawaleh, emphasized the need for optimizing fiscal policies
