effects. On the external side, the current DJIBOUTI account deficit narrowed steadily to 15.4 Recent developments percent of GDP in 2018 and is expected to reach 11.1 percent of GDP in 2019, down Djibouti’s small economy is resuming from 22.9 percent of GDP in 2015, as im- acceleration. After growing by 4.1 percent ports related to the large infrastructure Table 1 2018 in 2017 and 6.0 percent in 2018, output is projects decreased while and exports of Population, million 1.0 expected increase by 7 percent in 2019 as logistics services started to pick up. The GDP, current US$ billion 2.5 international trade normalizes in Ethiopia new current account deficit is composed GDP per capita, current US$ 2605 following the successful political transi- of FDI-related projects (non debt - International poverty rate ($1.9) a 17.1 tion and the devaluation by 15 percent of creating), mainly in the tourism (hotels) a Lower middle-income poverty rate ($3.2) 40.2 the Ethiopian birr, in October 2017. and housing sectors and into the new National poverty ratea 21.1 Growth will be driven by export of trans- International Free Trade Zone (DIFTZ). a Gini index 41.6 portation and logistics services supported International reserves holding by the School enrollment, primary (% gross)b 89.0 by the newly commissioned trade infra- Central Bank is expected to stabilize at Life expectancy at birth, years c 62.5 structure. Growth in the industrial sector 3.2 months of imports, enough for the Source: WDI, Macro Poverty Outlook, and official data. will also remain strong as the nascent im- coverage of base money and currency Notes: port-substitution manufacturing industry board requirements, while net foreign (a) Most recent value (2017), 2011 PPPs. (b) Ministry of Education. (mainly food processing and construction assets holding by the commercial banks (c) Most recent WDI value (2016). materials) develops. will average 50 percent of GDP. Inflation The drivers of the growth are also chang- has been below 1 percent in the last two ing from domestic demand and public - years but is expected to increase to 2 per- investment-push toward external de- cent in 2019. After a short slowdown in 2017 as some mand and service-exports-pull. From The fiscal deficit is also declining rapidly, of the large infrastructure projects were 2014 to 2016, the fast implementation of falling from 23.7 percent of GDP in 2015 to phased out, growth recovered in 2018 but the large public infrastructure projects 4.3 percent of GDP in 2018. Despite lower added 3 to 5 percentage points to the real mobilization of nontax revenue, the fiscal is still below potential. Pursuing its ambi- growth, pushing the economy to run stance is expected to improve further in tion to position itself as a regional digital above its potential and flagging some 2019 as total expenditure continues to hub, the country is re-shifting the growth sustainability challenges. However, those decline. Capital expenditure is normaliz- engine back to exports of transportation public investments were critical to the ing toward its level in 2013 and current Government ambition of positioning Dji- expenditures are also expected to decline and logistics services after a temporary bouti as a trade, logistics and digital hub in 2019, with tightening of spending in domination of public investment with of East Africa and have significantly in- goods and services and transfers. As a high import content and financed mainly creased the country’s growth potential. result, external public and publicly guar- through debt accumulation. Fiscal consol- Excess capacity remains in several sec- anteed debt (PPG) reached its peak in 2018 idation policy and deleveraging by SOEs tors, including in transportation and lo- and is expected to decline in 2019. Exter- gistics that are export oriented. nal PPG debt rose from 43 percent of GDP are tapering the fiscal and current ac- The shift in the drivers of growth is having in 2014 to an estimated 83.4 percent of count deficits. significant macroeconomic stabilization GDP in 2018, essentially resulting from FIGURE 1 Djibouti / Real GDP growth, fiscal, and current FIGURE 2 Djibouti / Actual and projected poverty rates and account balances real GDP per capita Percent change Percent of GDP Poverty rate (%) Real GDP per capita (constant LCU) 29.0 10.0 50 450000 400000 24.0 8.0 40 350000 19.0 300000 6.0 30 14.0 250000 4.0 200000 9.0 20 150000 2.0 4.0 10 100000 50000 -1.0 0.0 2015 2016 2017 2018e 2019f 2020f 2021f 0 0 Real GDP growth (right axis) 2012 2014 2016 2018 2020 Current Account deficit (left axis) International poverty rate Lower middle-income pov. rate Government fiscal deficit (left axis) Real GDP pc Sources: Government of Djibouti and World Bank staff projections. Sources: World Bank. Note: see Table 2. MPO 150 Apr 19 three non-concessional loans that the gov- percent in 2021-2023. Growth will be sup- challenge of a paucity of jobs leading to ernment contracted or guaranteed to build ported by exports of transportation, logis- very low labor market participation rates a water pipeline, a multipurpose port and tics, and telecommunication services, as and high unemployment rates. Further a new railway link to Ethiopia. the country harvest dividends from its reductions in poverty may be possible if Despite faster economic growth, poverty ambitious investment program. Over the economic growth translates into private remains high. According to the last house- medium term, a gradual emergence of sector dynamism. hold survey conducted in 2017, 21.1 per- non-traditional exports, mainly light man- cent of the population lived with less than ufacturing from the export-processing US$2.17 in 2011 PPP per day (equivalent to national poverty line) while an estimat- zones will increase value-added. As trade and investment flows to Ethiopia continue Risks and challenges ed 17.1 percent lived with less than to develop, the need for greater connectiv- US$1.90 per day. The regions registered ity will drive capital inflows over the me- Downside uncertainties are related to: (i) an extreme poverty rate that was more dium term and help increase the utiliza- the high dependence on Ethiopia which is than twice as high as the national rate tion of existing logistics facilities, includ- going through a transition period; (ii) high (45.0 percent) and Djibouti city a lower ing the recently added capacity. With the vulnerability to exogenous shocks, such as rate (13.6 percent). The extreme poverty starting of production of natural gas in price hikes on its high food and fuel im- rate in the rural areas is very high at 62.6 Ethiopia, an export terminal in Djibouti ports, and cyclones and floods; and (iii) percent. The official unemployment rate in will generate further boosts in activity. the failure to implement reforms. Without 2017 was high at 47 percent, with signifi- On the policy side, the Government will significant implementation of policy re- cant gender differences. Younger individ- continue to implement its Vision 2035. forms, Djibouti may become a modern uals also face higher unemployment rates With the critical infrastructure in place, the port enclave in a country otherwise as compared to the older individuals. Government will continue to implement equipped with lagging energy, ICT and reform to modernize its administration, education system, with high poverty at including the management of the SOEs, the periphery. Reaching the poor at the Outlook develop its human capital and its private sector, and open some of its protected sec- periphery is the main policy challenge to make growth inclusive. Unlike countries tors to competition. The recent perfor- endowed with widely distributed and The medium-term economic outlook is mance in the Doing Business and LPI rank- broadly accessible natural assets, the na- positive, as the Government’s strategy of ing has increased the appetite for reform. ture of the Djibouti’s natural asset, its geo- positioning the country as a regional The extreme poverty rate at US$1.90 per graphical position, is such that resources trade, logistics, and digital hub gains trac- day is expected to decline to 16.3 percent and capacity are to be pooled to make it tion. GDP growth is expected to reach 7.0 and 15.4 percent in 2018 and 2019 respec- productive and distribute gains for collec- percent in 2019 before accelerating to 8.0 tively. The country is facing the difficult tive benefit. TABLE 2 Djibouti / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2016 2017 2018 e 2019 f 2020 f 2021 f Real GDP growth, at constant market prices 9.1 4.1 6.0 7.0 7.5 8.0 Private Consumption 5.0 5.0 5.0 5.0 5.0 5.0 Government Consumption 12.4 9.3 8.2 4.8 14.0 9.1 Gross Fixed Capital Investment 12.6 13.3 0.4 6.4 0.8 5.2 Exports, Goods and Services 4.8 2.0 4.0 9.5 10.3 10.3 Imports, Goods and Services 5.0 8.0 6.0 5.5 5.8 5.8 Real GDP growth, at constant factor prices 11.0 0.6 8.6 6.8 7.1 7.6 Agriculture 4.4 3.5 3.5 3.5 3.5 3.5 Industry 4.6 5.9 7.6 7.6 7.7 7.7 Services 12.7 -0.6 9.0 6.7 7.0 7.7 Inflation (Consumer Price Index) 2.5 0.6 -0.1 2.0 2.5 3.0 Current Account Balance (% of GDP) -18.2 -17.5 -15.4 -11.1 -8.0 -4.5 Net Foreign Direct Investment (% of GDP) 7.2 7.0 7.5 13.4 13.2 12.7 Fiscal Balance (% of GDP) -15.0 -4.9 -4.3 -2.0 -1.0 0.5 Fiscal Balance, excl. Grants (% of GDP) -19.7 -8.2 -6.9 -4.4 -3.4 -1.8 Total PPG Debt (% of GDP) 75.5 85.2 85.1 81.9 76.2 69.2 Primary Balance, excld. Grants (% of GDP) -18.5 -6.7 -5.2 -2.5 -2.5 -0.6 a,b International poverty rate ($1.9 in 2011 PPP) .. 17.1 16.5 15.5 14.2 13.5 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Notes: e = estimate, f = forecast. (a) Calculations based on 2017-EDAM. Actual data: 2017. Nowcast: 2018. Forecast are from 2019 to 2021. (b) Projection using neutral distribution (2017) with pass-through = 0.7 based on GDP per capita in constant LCU. MPO 151 Apr 19