Djibouti Economy Slows Due to Global Crises, Severe Drought

After rebounding in 2021, Djibouti’s economy has slowed since the beginning of 2022 due to the war in Ukraine, global inflation, severe drought, and subdued Ethiopian demand. Yet growth is expected to recover to 5.3% in 2023 and 6.2% in 2024, and opening up the digital sector for competition could lead to an additional 1% increase in national GDP by 2025, according to the latest edition of the World Bank’s Djibouti Economic Monitor.

The twice-yearly report analyzes development trends and constraints in Djibouti. The autumn 2022 report, titled “Towards Sustainable Growth: Improving Fiscal Stability and Competitiveness of the Digital Sector,” estimates real GDP growth at 3.6% for the whole of 2022, down from 4.3% in 2021.

But in the current year, soaring global oil and food prices have pushed up inflation—the year-on-year rate at the end of June 2022 was 11%. Moreover, measures to mitigate the impact of the war in Ukraine and worsening drought have put pressure on the fiscal deficit. Troublingly, public debt service has more than tripled in 2022, leading the government to temporarily suspend some of its foreign debt payments.

Urgent action is needed for the Djibouti economy to recover over the coming two years. This includes expediting structural reforms, fiscal consolidation, and implementing the private and public investment programs,” said Boubacar-Sid Barry, World Bank Resident Representative in Djibouti.

The report discusses the current government’s plans which aim at strengthening the country’s resilience to the multiple shocks it faces and creating more economic opportunities.

For example, Djibouti’s strategy to diversify its port activities aims to capture more value in international trade. This strategy includes the development of a ship repair yard, a new oil terminal and a new business district at the old port. Also, the country is developing a national strategy for the promotion of a green economy that aims at addressing the impact of climate change and generating additional income for its population.

The special chapter of the report looks at the economic promise of unlocking Djibouti’s digital sector by ending the near monopoly of Djibouti Telecom. The report finds that opening up the sector to competition would produce cheaper and better services that would support the emergence of new industries, strengthen the country’s position as a regional hub, and attract more private investors. The development would give a boost to the country’s many micro, small and medium enterprises, and increase employment and entrepreneurship opportunities for the country’s youth.