Djibouti’s economy saw a strong recovery in 2023, surpassing expectations with a GDP growth of 6.7 percent. The country’s economy benefited from increased demand for port and logistics services from Ethiopia, as well as robust domestic demand supported by private investment and government interventions to counter inflation caused by the Russian invasion of Ukraine.
The disruptions in shipping in the Red Sea had varying effects on Djibouti’s economy. The latest Djibouti Economic Monitor from the World Bank noted that transshipment activity at the port of Djibouti increased by 39 percent in container volume in March 2024 compared to November 2023. However, the crisis led to a rise in maritime freight costs, impacting consumer goods prices in Djibouti.
Inflation in Djibouti hit 5 percent in March 2024, the highest since December 2022, primarily due to a 6.1 percent increase in food and non-alcoholic beverage prices. The tensions in the Red Sea also affected customs revenues, which dropped by approximately 910 million Djiboutian francs (0.1 percent of GDP) in the first quarter of 2024.
The medium-term outlook for Djibouti remains cautiously optimistic, with an expected annual GDP growth of 5.1 percent from 2024 to 2026. However, challenges like fiscal deterioration, regional tensions, and climate risks persist. Effective debt management and fiscal reforms are crucial for long-term sustainability.
Djibouti’s external debt remains a significant challenge, with arrears reaching 6 percent of GDP by mid-2023. To achieve debt sustainability, Djibouti must clear external arrears and restructure its bilateral external debt portfolio.
“Djibouti’s new development plan will focus on economic growth. Strengthening macroeconomic and public finance reforms is crucial for inclusive growth and long-term prosperity. By optimizing fiscal policies and mobilizing domestic resources, we can enhance public services and create opportunities for all citizens, especially the most vulnerable,” said Ilyas Moussa Dawaleh, Djibouti’s Minister of Economy and Finance.
The budget faces ongoing pressures from declining tax revenues due to exemptions, reaching 19 percent of GDP in 2022. Despite a nominal increase in revenues in 2023, tax revenues only rose slightly to 11.5 percent of GDP, offset by a decrease in non-tax revenues.
“The report emphasizes the need for tax reforms to increase revenues without worsening poverty,” said Fatou Fall, the Joint Resident Representative of the World Bank Group for Djibouti. “It is important to maximize the benefits of social programs like the National Family Solidarity Program, which targets poor populations.”
The report highlights the critical role of Djibouti’s road infrastructure in economic connectivity due to its strategic location and ports.
Distributed by APO Group on behalf of The World Bank Group.