IMF: Regional Geopolitics Pose Risks to Djibouti’s Strong Recovery

Regional geopolitical developments pose high risks for Djibouti to sustain its strong rebound in 2023, the International Monetary Fund (IMF) said on Thursday.

The fund, after its staff completed a two-week mission on Thursday, put Djibouti’s economic growth last year at “around 7 percent” and projected the recovery to continue in 2024. However, Team leader Joyce Wong cautioned that the economy could face “significant risks” stemming from regional geopolitics.

The investments in logistics by Djibouti- the main port transit for Ethiopia – have economic growth averaging 6% from 2013 to 2019.

“This growth, however, was financed by debt, which reached 68 percent by the end of 2022,” said Wong adding it was not also “matched by sufficient employment growth.”

The East African country saw its revenues drop and fiscal space shrink in the same year due to combined shocks of the pandemic, commodity price increase, and conflict in Ethiopia, Per IMF.

“In 2023, as shocks abated, growth rebounded to around 7 percent supported by stronger than projected port traffic – which grew at 31% up to end-Sept 2023 – and the construction sector,” Wong said.

Inflation is also estimated to have slowed to 3.6% in Nov 2023, aided by lower energy and telecom costs.

“Staff projects that the recovery will continue in 2024, albeit at a lower pace, and subject to significant risks stemming from the situation in the Red Sea and developments in Ethiopia,” Wong said.

“The uncertain regional context stresses the need for Djibouti to strengthen its resilience by overhauling its growth model, building fiscal buffers and enhancing governance,” the team leader urged.

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