Djibouti is a small country in which more than 23% of the population lives in extreme poverty. With less than 1,000 km2 of arable land (0.04% of 23,200 km2) and an average annual rainfall of 5.1 inches, Djibouti has a chronic food deficit and is totally dependent on imports to meet its food needs. As such, it is highly sensitive to external shocks such as spikes in food and fuel prices and natural disasters such as floods and droughts.
Djibouti’s economy is dependent on foreign financing, foreign direct investments, rents from foreign countries’ military bases, and port services, which capitalize on both the country’s strategic position at the southern entrance to the Red Sea and on being Ethiopia’s main import-export route.
Because of its global location – geographic and geopolitical – transportation and logistics services drive the economy. Djibouti has enjoyed rapid and sustained growth over the past fifteen years with per capita GDP increasing by 3.1 percent on average per annum in 2001-2017.
Economic growth accelerated to more than 6.5 percent on average per year in 2014-2016 as the country engaged in mega-investments in port infrastructure development and railway construction to link Djibouti to Ethiopia. Those strategic investments are expected to boost export of services over the coming decade with GDP growth remaining around 7 percent. Inflation rates have declined from a peak of 11.9 percent in 2008 to 0.6 percent in 2017.
In the first two months of 2018, consumer prices declined by 0.5 percent on a year-on-year basis. Extreme poverty declined in the last fifteen years but remains high since about one fifth of the population continues to live below the international poverty line. Fiscal deficits rose significantly in 2014-2016 to more than 15 percent of GDP on average per year as the country was implementing an ambitious public investment program but declined to around 3 percent of GDP in 2017.
As a result, public and publicly guaranteed debt more than doubled to reach 87 percent of GDP in 2017. Foreign exchange reserves are projected to remain strong in 2018 at US$435 million, sufficient for coverage of about 3.6 months of imports.
Last Updated: Apr 17, 2018