The 2019 Annual Meetings of the African Development Bank Group will be held from 11-14 June 2019, in Malabo, Republic of Equatorial Guinea. Find out more
Real GDP growth was an estimated 5.6% in 2018, up from 4.1% in 2017, due to normalization of the situation with Ethiopia and large infrastructure investments. On the supply side, growth was driven by the tertiary sector, especially construction, transport, and storage. The fiscal deficit worsened slightly, to an estimated 15.5% of GDP in 2018, from 15.3% in 2017, due to large imports of goods for infrastructure projects started in 2014 and financed by foreign loans and foreign direct investment. Inflation rose by only 0.2 point, to an estimated 0.8% in 2018 from 0.6% in 2017. Inflation control is largely a result of anchoring the Djibouti franc to the US dollar at a fixed rate.
Foreign debt was estimated at 102.9% of GDP in 2018, up from 49.9% in 2014 and 97.4% in 2016. World Bank and International Monetary Fund analysis of debt sustainability at the end of 2017 showed high risk of insolvency in the short term. The current account deficit was an estimated 17.8% of GDP in 2018, up slightly from 17.5% in 2017, due mainly to the structural deficit in the balance of trade. The country does not export much (essentially cattle to the Gulf States), whereas imports are large, especially food and petroleum products, as well as capital goods. As a result, the current account balance depends less on fluctuations in the real exchange rate.
Real GDP is projected to grow by 5.9% in 2019 and 5.2% in 2020, based on sustained growth in exports and private investment, promoted by structural reforms in line with the country’s strategy of infrastructure investment aimed at transforming the economy and positioning the country as the subregion’s logistics and trade hub. As part of this, the largest free trade zone in Africa was opened in July 2018. Moreover, because of the country’s geostrategic location on the Indian Ocean, it is at the center of the major global trade, economic, development, and security challenges. This explains its attractiveness, illustrated by the presence of several military bases. The country’s stability since independence is an asset in a region experiencing several political crises. Djibouti is also profiting from being a neighbor of landlocked Ethiopia, which has experienced a decade of strong economic growth, since it is a point of sea access.
Despite these favorable outlooks and developments, Djibouti is weakened by several factors. First, high debt is likely to reduce the government’s ability to finance the infrastructure investment strategy. Second, the recent peace between Ethiopia and Eritrea, with the resulting opportunity for Ethiopia to use Eritrea’s ports, could hurt the Djibouti economy in the medium term. Finally, the country continues to face persistently high unemployment (39% in 2017), an unstable regional geopolitical situation faced with crises, a poorly diversified economy with little resilience to outside shocks, and a fragile ecosystem when faced with risks from climate change that translate into strong environmental vulnerability.