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 strategic position at the southern entrance to the Red Sea and as Ethiopia’s main import-export route.
The private and public investment boom in port-related capital-intensive activities continues to spur growth in Djibouti, but macroeconomic risks remain high. Although national accounts data are limited in Djibouti, the IMF estimated that real GDP grew by about 6.5% in 2015–16, up from 6% in 2014 and 5% in 2013. Growth and macroeconomic stability remain subject to substantial risks such as delays in construction, inefficient management of new infrastructure, adverse economic events in countries on which Djibouti depends economically, regional security developments, and domestic social and political instability.
Recourse to publicly and externally financed investments is reflected in growing twin deficits. The fiscal deficit grew to 16.5% of GDP in 2015 from 12.2 % in 2014. Similarly, the external deficit soared to an estimated 31% of GDP in 2015 from 25.6% in 2014, foreign reserves remain strong at an estimated US$350 million in 2015 (covering 3.6 months of imports and 109% of the currency board). However, the commercial bank loan portfolio has deteriorated and nonperforming loans are on the rise, topping 22 % in June 2015. Moreover, Fiscal and external debt sustainability pressures are intensifying with the approaching completion of disbursements from two large nonconcessional loans contracted in 2013.
Last Updated: Oct 01, 2015