Djibouti Economic Monitor, Fall 2024

Djibouti Economic Monitor – Strengthening the Sustainability and Equity of Public Finances (Fall 2024)

1. Recent Economic Developments

Real Sector:

• Economic activity saw an upturn driven by increased demand from Ethiopia for port and logistics services.

Inflation:

• Inflation decreased due to slower world oil and food prices and government interventions.

Public Finances:

• The budget faced pressure from increased tax exemptions and rising public debt servicing costs.

Public Debt:

• External public debt rose after subscribing to new non-concessional loans in March and July 2023.

Monetary Sector:

• Despite a significant drop in gross reserves following the end of pandemic-related international aid, currency board coverage remained adequate.

External Sector:

• The balance of payments current account improved by the end of 2023 due to recovery in Ethiopian demand.

Labor Market:

• Economic growth did not significantly reduce poverty or unemployment.

2. Medium-term Outlook

Real Sector:

• Foreign trade and public works will drive growth in the medium term.

Public Finances:

• Government adjustments will be insufficient; additional measures are needed to ensure financial sustainability.

External Sector:

• The current account balance is expected to deteriorate slightly due to increased imports of hydrocarbons and materials for infrastructure projects.

Risks:

• Risks include fiscal deterioration, regional tensions, climate shocks, and worsening conflict in the Middle East.

3. Strengthening the Redistributive Effects of Djibouti’s Fiscal System: Opportunities for Efficiency Gains

Overview:

• Analysis of fiscal and social expenditure policies on equality and poverty in Djibouti.

Key Findings:

• Opportunities exist for efficiency gains in the fiscal system.

4. The Efficiency of Public Spending in the Road Sector

Financing Mechanisms:

• Various financing mechanisms for the road sector.

Improvements:

• Better scheduling through a road agency can enhance efficiency.

Need for Financing:

• Securing financing for the transport sector is crucial.

Training:

• Training is key to improving public spending efficiency.

Key Data Points

• Port Activity: Volume of goods handled in Djibouti’s ports increased by around 14% in 2023 compared to 2022 (Figure 1).
• Container Handling: Number of containers handled in Djibouti’s ports exceeded 890,000 units in 2023 (Figure 2).
• Cement Sales: Cement sales surged in 2023 (Figure 3).
• Electricity Consumption: Electricity consumption and the number of customers both increased by 7% and 5%, respectively (Figure 4).
• Service Sector Contribution: The service sector remains the leading contributor to GDP (Figure 5).
• Household Consumption: Household consumption is the main contributor to GDP (Figure 6).
• Inflation: Inflation fell in 2023, driven by lower food and non-alcoholic beverage prices (Figure 8).
• Primary Budget Balance: The primary budget balance deteriorated since 2020 (Figure 9).
• Infrastructure Spending: 40% of budget spending is allocated to infrastructure (Figure 10).
• Foreign Debt: Stock of foreign debt will continue to grow, with state-guaranteed debt accounting for 76% (Figure 11).
• Non-Paris Club Debt: Non-Paris Club bilateral and multilateral debt forms the bulk of external debt (Figure 12).
• Debt Service: Debt service doubled in 2022 (Figure 13).
• External Debt Arrears: External debt arrears reached 6% of GDP (Figure 14).
• Currency Board Coverage: Currency board coverage remains adequate, though reserves have fallen (Figure 15).
• Loan-to-Deposit Ratio: Loan-to-deposit ratio declined between December 2022 and December 2023 (Figure 16).
• Banking System Solvency: Banking system remains solvent but profitability declined (Figure 17).

These data points highlight the key economic indicators and challenges facing Djibouti, providing a comprehensive overview of the country's economic landscape.