Djibouti’s economy weathered the initial impact of the pandemic well, averting a contraction. Output expanded by 0.5% in 2020, driven by buoyant free zone re-exports and exports of transportation, logistics, and telecommunication services to and from Ethiopia in the latter half of the year. Yet, extreme poverty increased slightly to 14.7% in 2020. Djibouti’s growth prospects, while favorable, depends critically on Ethiopia’s political and economic conditions. High global food prices raise concern about Djibouti’s food security.
Djibouti weathered the COVID-19 crisis relatively well. Despite a sharp fall, GDP growth remained positive at 0.5% in 2020, as a recovery of key domestic market-oriented sectors (construction, trade and energy), and strong economic activity in Ethiopia boosted re-export activities and transportation and logistics services in the latter half of the year. Inflation remained low at 1.8% in 2020, down from 3.3% in 2019.
The medium-term outlook is positive. , as a recovery of global trade would drive re-exports and demand for Djibouti’s transshipment, logistics and telecommunication services. The resumption of infrastructure projects, such as the construction of a ship repair yard, is also expected to support non-trade growth and create jobs, while further increasing Djibouti’s competitive advantage as a regional trade and logistic hub in the medium run. The current account will likely slip into a deficit in 2021-22, reflecting a surge in capital goods imports for infrastructure projects. A return to fiscal consolidation is not expected in the near future, as the authorities recently announced additional targeted measures to support businesses and households, including a halving of the minimum flat-rate tax and tax exemptions to the ICT, transport and tourism sectors. The fiscal deficit would start narrowing in 2023, provided that the COVID-related fiscal measures are phased out.