Djibouti’s economy is showing signs of recovery, thanks partly to a recent peace deal in nearby Ethiopia, Djibouti’s main trading partner.
The International Monetary Fund (IMF) says the peace deal, which ended two years of fighting between Ethiopia’s government and the Tigray People’s Liberation Front (TPLF), has increased port, railway and road freight.
Djibouti’s economy had struggled due to the pandemic and conflict in North Ethiopia, which reduced trade going through Djibouti. Africa’s smallest nation handles over 90 percent of Ethiopia’s imports and exports via a USD four billion railway – showing their economic connection.
The IMF says Djibouti’s growth slowed in 2022 due to issues with international trade and the conflict in Ethiopia. But recovery is beginning this year, and is expected to continue next year. Improving revenue, cutting wasteful spending, and making governance stronger will help investments in people and inclusive growth, the IMF says.
“The economic rebound post-COVID was held back in 2022 by international trade disruptions and the conflict in Ethiopia,” said Joyce Wong, senior economist in the Regional Analytics and Strategy Division of the IMF’s Middle East and Central Asia department, who led the IMF team’s visit to Djibouti from June 11 to June 15.
Djibouti continues to face the consequences of the war in Ukraine, the conflict in Ethiopia, the tightening of global financial conditions, and climate change, according to Wong.
“In such a context, the authorities are working towards rebuilding much-needed fiscal space,” Wong added.
Despite a tough economy with lower tax revenues from domestic fuel, Djibouti managed to narrow its budget deficit to a commendable 1.4 percent of GDP in 2022.
Djibouti’s economy leaders are acting to build back the country’s finances, realizing big policy changes are needed. Efforts include working harder on debt talks with their main lender.
The IMF advised Djibouti to review leases for military bases to boost how much money they make domestically. Djibouti currently hosts bases for powers in the Horn, like the US, China and France.