Djibouti’s economy saw significant growth in 2023, with GDP rising by an estimated 6.7 percent. This growth was driven by a recovery in Ethiopia's demand for port and logistics services and strong domestic demand bolstered by private investment and government measures to counter inflation from the Russian invasion of Ukraine.
Shipping disruptions in the Red Sea have had mixed impacts on Djibouti's economy. According to the World Bank’s most recent Djibouti Economic Monitor, titled “Strengthening the Sustainability and Equity of Public Finances,” transshipment activity at the port of Djibouti increased by 39 percent in container volume handled between November 2023 and March 2024. However, maritime freight costs have risen significantly, affecting consumer goods prices.
Inflation in Djibouti reached 5 percent in March 2024, its highest since December 2022, primarily due to a 6.1 percent rise in food and non-alcoholic beverage prices. The crisis has also impacted customs revenues, which fell by about 910 million Djiboutian francs (0.1 percent of GDP) in early 2024.
The medium-term outlook remains cautiously optimistic with projected annual GDP growth of 5.1 percent from 2024 to 2026. However, risks such as fiscal deterioration, regional tensions, and climate shocks persist. Effective debt management and fiscal reforms are crucial for long-term sustainability.
Djibouti faces challenges with external debt levels increasing due to non-concessional loans, with arrears reaching 6 percent of GDP by mid-2023. To achieve long-term debt sustainability, Djibouti needs to clear its external arrears fully and restructure its bilateral external debt portfolio.
“Djibouti new development plan will primarily focus on economic strengthening," said Ilyas Moussa Dawaleh, Djibouti’s Minister of Economy and Finance in charge of Industry. "Strengthening the sustainability of macroeconomic and public finance reforms is essential for ensuring inclusive growth and long-term prosperity for Djibouti."
The budget is under pressure due to declining tax revenues caused by tax exemptions that reached 19 percent of GDP in 2022. Tax revenues fell from 13 percent of GDP in 2019 to 11.4 percent but slightly increased to 11.5 percent of GDP in 2023 thanks to economic recovery.
“The report makes it clear that tax reforms are needed that would lead to more equitable redistribution and increased revenues without exacerbating poverty,” said Fatou Fall, Joint Resident Representative of the World Bank Group for Djibouti.
The report highlights the importance of road infrastructure for economic connectivity given Djibouti's strategic location and ports.
The World Bank’s portfolio in Djibouti consists of 19 projects worth US$401.3 million focusing on various sectors including education, health, social safety nets, energy, rural and urban development, public administration modernization, digital development, governance strengthening, infrastructure improvement, and private sector development with an emphasis on women and youth.