Economic growth moderated in 2022 amid international trade disruptions and the conflict in Ethiopia; Port activity started to rebound this year on the back of the peace agreement in Ethiopia, and a continued recovery is expected in 2023; Improving revenue collection, enhancing expenditure efficiency, and strengthening governance will help support investments in human capital and inclusive growth.

An International Monetary Fund (IMF) team, led by Joyce Wong, visited Djibouti on June 11-15. Discussions covered recent economic developments, the outlook, and progress on key reforms. At the end of the mission, Ms. Wong made the following statement:

“The economic rebound post-COVID was held back in 2022 by international trade disruptions and the conflict in Ethiopia. The authorities’ preliminary estimates point to real GDP growth moderating to 3.7 percent in 2022 relative to 4.8 percent in 2021. Despite the decline in revenues from the slower economic activity and the shortfall of taxes on domestic fuel, the fiscal deficit narrowed to 1.4 percent of GDP in 2022. This outturn reflects in part some arrears accumulation, both domestic and external, pending the outcome of debt restructuring with their main external creditor.

“The recent peace agreement in Ethiopia, Djibouti’s main trade partner, has resulted in an increase in port activity, as well as rail and road freight. Inflation remains below regional trends, aided by exchange rate stability and unchanged domestic fuel prices. A continued recovery is expected for 2023, but the outlook remains highly dependent on global and regional developments.

“After managing the COVID-19 pandemic, Djibouti continues to face the consequences of the war in Ukraine, the conflict in Ethiopia, the tightening of global financial conditions, and climate change. In such a context, the authorities are working towards rebuilding much needed fiscal space. In this regard, they are accelerating efforts on debt negotiations with their main creditor. The upcoming publication of the PEFA report will pave the way for future reforms. The mission and authorities agree on the need for an overhaul of fiscal policies. Lastly, the upcoming MENAFATF evaluation and the ongoing inter-agency preparatory work are shining an important spotlight on the importance of governance.

“Djibouti’s main challenges are to strengthen economic resilience and achieve a more inclusive and job-rich growth. In this context, reviewing exonerations and military base leases will help entrench a more equitable and sustainable revenue base. Shifting from broad-based subsidies to better targeted social transfers, as inflation abates, will ensure that scarce public resources can be directed to human capital development. Furthermore, accelerating the implementation of the Code of Good Governance for SOEs, including further empowering the Executive Secretariat of the State Portfolio, will help improve accountability and contain future risks from SOE borrowing.

“The mission team expresses deep appreciation to the Djiboutian authorities and other counterparts for their warm hospitality, excellent cooperation and candid discussions, and looks forward to continuing close engagement.”