Djibouti’s Economic Outlook- April 2017

Growth is estimated at 6.5% in 2016 and expected to remain strong in 2017. Growth in 2017 will be supported by improved net exports, compensating for a decline in investment, and pick-up in private and government consumption. Although fiscal and external positions are improving, debt and fiscal sustainability risks remain. Unemployment, at almost 40% of the labor force, continues to cripple the country. Inflation accelerated to 3.5% in 2016 from 2.2% in 2015, spurred mainly by demand for housing and services.

Growth is expected to reach 7% in 2017 as the sharp drop in investments due to the end of the infrastructure projects is expected to be more than offset by the sharp decline in capital goods imports leading to an improvement in net exports. Growth will also be supported by an expected pick up in private and government consumption. The medium-term outlook for 2018-2019 remains favorable, with the expectation that the recent capital investments will generate revenues to service the debt.

The fiscal position should gradually improve, narrowing to low single digits in 2017-19, under the assumption that current investments will create new production and export capacity, spending is rationalized, and fiscal policies to improve the business environment for SMEs and increase revenues as well as fuel subsidies reform are implemented effectively. The current account deficit is projected to decline to 22.2% of GDP in 2017 and further down to 14.4 percent by 2019, with a gradual pick up in exports over imports. FDI inflows and capital transfers should continue to finance the deficit.