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Djibouti is one of the smallest countries in Africa, with an area of 23,200 square kilometers and a population estimated at about 990,000. The size of its economy limits its ability to diversify production and increases its reliance on foreign markets, making it more vulnerable to market downturns and hampering its access to external capital. With less than 1,000 square kilometers of arable land (0.04% of its total land area) and average annual rainfall of only 130 millimeters, Djibouti depends almost completely on imports to meet its food needs. 

Djibouti’s strength lies in its strategic location at the southern entrance to the Red Sea, marking a bridge between Africa and the Middle East. Adjacent to some of the world’s busiest shipping lanes (between Asia and Europe), it hosts military bases for France, the United States, Japan, China, and the North Atlantic Treaty Organization (NATO), as well as for other countries with forces supporting global anti-piracy efforts. 

Djibouti’s economy is driven by a state-of-the-art port complex, among the most sophisticated in the world. Trade through the port is expected to grow rapidly in parallel with the expanding economy of the country’s largest neighbor and main trading partner, Ethiopia. Djibouti has some natural assets that could be used for tourism, untapped marine resources that could support more artisanal fishing, and an infrastructure of undersea telecommunications cables from which it could develop new digital and service industries. Renewable energy could be another source of growth, as Djibouti has geothermal, solar, and eolian potential. 

Djibouti's economy is recovering after the decline observed in 2022. The rebound is mostly driven by renewed trade and logistics demand from its key trade partner, Ethiopia following the signing of a peace agreement between the Ethiopian federal government and the Tigray Rebel movement in November 2022. GDP is slated to increase from 3.1% in 2022 to 4.7% in 2023. Year-on-year inflation has fallen from a high of 11% in July 2022 to a decrease of 1.2% by July 2023. However, Djibouti's fiscal situation is under strain due to diminished tax revenues, recent tax exemptions, and mounting public debt servicing costs. Djibouti's banking sector remains resilient, characterized by stability, increased profitability, and a decline in non-performing loans, even in the face of recent economic shocks. The medium-term economic outlook is positive, with GDP growth projected at 5.1% in 2024 and a further increase to 5.7% in 2025, driven mainly by foreign trade and investments in the public works sector. However, there are looming risks, including the ongoing accumulation of public debt, regional tensions, climatic shocks, and the worsening Middle East conflict, which could potentially disrupt Djibouti's economic stability and growth trajectory.

Last Updated: Dec 18, 2023


Djibouti: Commitments by Fiscal Year (in millions of dollars)*

*Amounts include IBRD and IDA commitments
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