DJIBOUTI, March 7, 2022 – Construction and public works are expected to remain the main drivers of Djibouti’s economic growth, according to the first edition of the World Bank’s Djibouti Economic Monitor. The Winter 2021 edition is the first in a series of semi-annual reports aimed at analyzing development trends and constraints in Djibouti.
Titled “Navigating through the Pandemic and Regional Tensions”, the report provides an update on the country’s recent economic developments and its macroeconomic outlook. Djibouti’s economic activity is estimated to have recovered from COVID-19 in 2021, with a projected growth of 5.1%, compared to a decade-low growth rate of 0.5% in 2020. The economic rebound, however, suffered from a fall in demand from Ethiopia for logistics services during the second half of 2021.
The report outlines how inflation rose to 2.6% in October 2021, driven by the pass-through of higher international commodity prices and demand-side pressures resulting from the recovery. Public finances are expected to remain under pressure. The overall fiscal deficit increased to 1.6% of GDP in 2021 from 0.5% in 2019. The current account is estimated to have turned from a surplus of 11.6% of GDP in 2020 to a deficit of 1% of GDP in 2021, as the growth in imports of goods and services is expected to outpace exports. However, Djibouti’s participation in the G-20 Debt Service Suspension Initiative (DSSI) provided budget buffers in 2020 and 2021 by reducing financing needs.
“As around the world, COVID-19 reversed years of economic and social progress in Djibouti,” said Boubacar-Sid Barry, World Bank Resident Representative in Djibouti. “Added to this is the growing instability in the Horn of Africa which is exacerbating the welfare challenges faced by the poorest and most vulnerable. In this context, the authorities are called upon to pursue the reform efforts to put the country on the path to a sustainable, inclusive and private sector-led economic recovery.”
The report estimates that a protracted conflict in Ethiopia poses one of the major risks to Djibouti’s recovery. While considerable uncertainty remains, the report considers two scenarios for the medium-term outlook: a scenario in which the conflict is resolved peacefully within six months; and a negative scenario that anticipates a prolonged conflict until December 2022. On this basis, it is estimated that Djibouti’s real GDP growth could hover between 4.3% and 2.7% in 2022.
Finally, the report also analyzed how COVID-19 has negatively affected the labor market and household welfare in Djibouti, hitting the poorest hardest. The analysis is based on high-frequency data produced by the World Bank and the Institute of Statistics of Djibouti. While welfare indicators, including food security, signal a path towards recovery, special attention must be given to vulnerable and marginalized populations to build back better.