In the last few years, Djibouti has been executing a strategy of promoting investments in infrastructure and in its ports to foster growth and reduce poverty.
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The plan is still ongoing and should put pressure on the country’s fiscal sector, as well as elevate the debt and current account deficit. The International Monetary Fund (IMF) released a report about Djibouti’s economy as part of a review that the fund performs every year on the economies of its members.
According to the Fund’s report, ongoing investments are driving up the country’s Gross Domestic Product (GDP). In 2014, it stood at 6%. This number should go up to 7% per year between 2017 and 2019, after reaching 6.5% in 2015 and 2016.
Aggregate investment should reach 57% of the GDP at the end of the next year, and inflation, which stands at 3% this year, should increase to 3.5% until 2018 due to the increase in demand coming from housing and services sectors. Poverty and unemployment, however, remain at high levels.
Djibouti’s debt should increase in the next few years and reach approximately 80% of the GDP in 2017 due to borrowing made by the country at near-market-level interest rates. The IMF warns that the country doesn’t have available many funding sources.
“Staff recommends prioritizing the proposed projects, based on absorptive capacity and resource constraints, and conducting cost-benefit analyses before any project is undertakenâ€, says the report.
The IMF also expressed concerns with Djibouti’s banking system, although it acknowledges that the Central Bank holds strong international reserves. With banks, there’s an increase in debt and at the same time a decline in return on equity.
The fund advises on increasing banking supervision and implementing instruments to counter money laundering and the financing of terrorism.
The IMF also advises the implementation of a program for job creation and poverty reduction, as well as measures of support and social protection to the poor. Additionally, the fund recommends redirecting the work force to sectors such as tourism and fishing, which are some of Djibouti’s main economic activities. ■