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IMF expects Djibouti’s Economic Recovery to Continue

ADDIS ABABA – The International Monetary Fund (IMF) has projected a continued economic recovery for Djibouti this year but says the outlook rests on global and regional developments.

An IMF team conducted a 5-day long visit to the country this week during which they held discussions with officials on recent economic developments, the outlook, and progress on key reforms.

In a statement the IMF issued today, team leader Joyce Wong says Djibouti, after managing the COVID-19 pandemic, 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,” Wong said. “In this regard, they are accelerating efforts on debt negotiations with their main creditor.”

The Djibouti government’s preliminary estimates point to real GDP growth moderating to 3.7 percent in 2022 relative to 4.8 percent in 2021.

In the same period, the fiscal deficit narrowed to 1.4 percent of GDP despite the decline in revenues from the slower economic activity and the shortfall of taxes on domestic fuel.

“This outturn reflects in part some arrears accumulation, both domestic and external, pending the outcome of debt restructuring with their main external creditor,” Wong noted.

The IMF says port activity has started to rebound on the back of the peace agreement in Ethiopia, Djibouti’s main trade partner. Inflation also 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,” the IMF team leader forecasted.

Wong also states that 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,” Wong said.

“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.”

Straightening governance will also help support investments in human capital and inclusive growth, the IMF says.