Djibouti Economy

Djibouti Economy

Subchapters:

  • Basic data
  • Public finances and the state budget
  • Banking system
  • Tax System

Basic data

Djibouti’s economy is based on services linked to the country’s strategic location and its status as a free trade zone in the Horn of Africa. The capital of Djibouti is a port that mediates 70% of neighboring Ethiopia’s trade, 3/4 of the country’s population lives here (the rest are mostly herders). The engine of the economy is the service sector, which represents 3/4 of GDP. Transit traffic to neighboring Ethiopia is key. Agricultural production is limited to fruits and vegetables due to the dry climate, and most food is imported. The economy in 2020 and 2021 felt the consequences of the global pandemic and the conflict in neighboring Ethiopia, i.e. temporary restrictions on transport and related services, however, the recovery of the Djibouti economy should happen very quickly and its growth in the following years should continue in numbers similar to those before pandemic.┬áCheck ebizdir for economical facts of Djibouti.

Services accounted for 80.0% of GDP in 2020, industry for 18.5% and agriculture for 1.5%; compared to 2019, there was a 1.6% decrease in services, a 1.5% increase in industry, and a 0.1% increase in agriculture. Djibouti has long been dependent on foreign aid. The government’s effort to attract more foreign investors to the country is blunted by the lack of confidence in its seriousness (by investors) due to the cancellation of DP World’s contract to operate the port of Djibouti.

Pointer 2019 2020 2021 2022 2023
GDP growth (%) 7,8 -2 4.1 5.8 6.5
GDP/population (USD/PPP) 6,300.00 6,320.00 6,690.00 7,280.00 7,840.0
Inflation (%) 3.3 2.3 1.6 2 2.1
Unemployment (%) 26.4 28.4 ON ON ON
Export of goods (billion USD) 0.2 0.1 0.2 0.2 0.2
Import of goods (billion USD) 1.5 1.2 1.4 1.5 1.5
Trade Balance (Billion USD) -0.1 -0.1 -0.7 -0.8 -0.7
Industrial production (% change) ON ON ON ON ON
Population (millions) 1 1 1 1 1
Competitiveness ON ON ON ON ON
OECD export risk 7/7 7/7 7/7 7/7 7/7

Source: EIU, OECD, IMD

Public finance and state budget

Public finance 2021
State budget balance (% of GDP) -2.4
Public debt (% of GDP) ON
Current account balance (billion USD) -0.1
Taxes 2022
AFTER 25%
F.O 2-30% depending on the amount of income
VAT ON

As a result of the global pandemic in 2020, Djibouti’s state budget revenue has decreased. Higher spending on healthcare and social programs pushed the state budget balance to 4.6% of GDP. In 2021, public finances were consolidated and the state budget balance fell to 2.4% of GDP. In the next period, a gradual decline in the balance is expected following the expected strengthening of international trade, which will, among other things, result in profits for the country in the form of customs fees. One of the key contributors to the state budget is the rental of military bases, which represents a stable source of income for Djibouti. The ongoing reduced tax burden for foreign investors, which is the target of IMF criticism, will continue in the next period, however, its reduction or cancellation can potentially lead to an increase in state budget revenues.

Based on the national development plan, Djibouti continues to implement several key infrastructure projects. The debt service on these loans (largely Chinese, which is not included in debt relief initiatives) will burden the state budget in the next period as well. The budget deficit is largely financed through loans, mainly from the IMF. According to World Bank analyses, Djibouti’s debt is risky but sustainable. Djibouti is also being assisted by African Development Bank and IMF initiatives to better cope with the financial impact of state interventions in the wake of the global pandemic. The current account balance reached a deficit of USD 0.1 billion in 2021, a significant change from 2020 when the balance was positive at USD 0.366 billion.

Banking system

The Central Bank of Djibouti (Banque centrale de Djibouti) has not taken any measures of a monetary nature in the context of the pandemic. The financial sector in Djibouti is generally very underdeveloped and weak. Since 2012, the Central Bank has been trying to introduce rules for commercial banks, including minimum reserves, which should lead to strengthening the liquidity of the local banking sector. However, these rules have not yet been approved. Efforts to improve procedures for risk management and the development of the financial sector are undermined by a lack of information about clients and a weak level of assets.

Tax system

At first glance, the Djibouti tax system is relatively clear and stable, but its problem is low efficiency and arbitrariness in application and enforcement.

A uniform rate of 25% applies to legal entities.

For individuals with an income of up to 30,000 DJF, a rate of 2% applies, then the tax is graduated according to income at rates of 15%, 18%, 20% and for the highest category that earns more than 600,000 DJF, a rate of 30% applies.

The VAT rate is 10%.

Djibouti Economy