Djibouti’s economy is moderating in 2025 after strong growth in 2024 but remains resilient. Port throughput fell 10.5 percent in the first half of 2025 as transshipment volumes plunged due to weaker global trade from U.S. tariff uncertainty and Israel–Iran tensions, though exports rose 12 percent and imports declined only 1 percent, reflecting Ethiopia’s steady demand. Despite port headwinds, GDP growth was revised up to 6 percent, driven by strong construction, telecom, fisheries, and modest tourism gains, alongside rising investment in logistics and energy corridors that signal gradual diversification.
The fiscal balance is improving thanks to spending restraint and higher military lease revenues, but this windfall may prove short‑lived without sustained effort. After a deficit of 1 percent of GDP in 2024, the fiscal balance is projected to swing into a modest surplus of 0.1 percent of GDP over the medium term. While the turnaround reflects tighter discipline and stronger revenue mobilization, its durability will depend on reforms, stronger State‑Owned Enterprise (SOE) governance, and avoiding renewed arrears.
Despite recent fiscal gains, debt dynamics remain a pressing concern. External public and publicly guaranteed debt nearly doubled over the past decade, from 34.9 percent of GDP in 2013 to about 69.6 percent in 2024, driven by non‑concessional SOE loans for ports, railways, and a water pipeline. With the expiration of pandemic‑era relief and rising global borrowing costs, debt‑servicing pressures intensified, forcing the government to suspend repayments. Arrears were around 2.7 percent of GDP in March 2025.
The September 2025 joint International Monetary Fund–World Bank Debt Sustainability Analysis concluded that Djibouti’s overall and external public debts are in distress and unsustainable, citing arrears and repeated breaches of the PV debt‑to‑GDP and debt service‑to‑revenue thresholds.
The DSA underscores high exposure to swings in exports, exchange‑rate shifts, and fiscal imbalances. Policy reforms to increase domestic revenues and improve SOE governance are vital, alongside a credible plan to clear external arrears to create fiscal space for social spending and human capital.
Externally, softer port earnings weigh the current account while import dependency persists. Inflation is projected to stay moderate at 1.6 percent, supported by lower oil prices and the currency board arrangement pegging the franc to the US dollar.
The medium‑term outlook is cautiously upbeat. Throughput is expected to stabilize; continued public investment in transport and energy corridors should sustain momentum, but without lower electricity costs and faster renewable integration, private competitiveness may lag. The fiscal balance is set to slip from a 0.8 percent surplus in 2025 to a slight deficit in 2026 before recovering in 2027, while high external debt service strains public finances. Inflation should remain moderate under the peg, though exposure to global fuel and food shocks is high. Risks include renewed Red Sea tensions, U.S. tariff uncertainty, and droughts, but if global trade rebounds and reforms cut energy costs and boost climate resilience, Djibouti could attract investment, create jobs, and reduce poverty; without reforms, growth will remain steady but vulnerable to global trade.