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Djibouti’s fundamental development challenges remain to reduce widespread poverty and unemployment, and diversify its economy to reduce dependence on the ports. Forty two percent of the population lives in extreme poverty and 48 percent of the labor force is unemployed.
Djibouti is undergoing an investment boom which would accelerate economic growth. Aggregate investment is projected to rise from 26 percent of GDP in 2010-13 to 52 percent in 2014-16. GDP growth is expected to rise from 6 percent in 2014 to about 7 percent in 2015-19. Inflation is projected to pick up from 3 percent in 2014 to 3.3 percent in 2015-19 as the large investment spending fuels demand for housing and basic services.
High debt-financed public investment spending is exerting considerable fiscal and external debt pressures. The fiscal deficit, on a commitment basis, should rise from 5.9 percent in 2013 to 12 percent in 2014, and peak at 13.8 percent in 2015. External public and publicly guaranteed debt is projected to peak at about 81 percent of GDP in 2017-18. Exports, comprising mainly port services, are expected to increase. However, the current account deficit is estimated to widen from 23.3 percent of GDP in 2013 to about 28 percent in 2014-15, due to large capital goods imports financed by loans or Foreign Direct Investments (FDI).
Central bank gross foreign assets are projected to remain strong, permitting full currency board coverage over the period 2015-19. The authorities have indicated that external and domestic arrears are being cleared. The central bank made further progress in strengthening its banking supervision capacity, adopting new instructions on liquidity and the licensing of credit institutions. However, nonperforming loans increased from 11.4 percent of total loans in 2012 to 16.2 percent at end-June 2014—which the authorities attribute to the introduction of stricter loan classification requirements.
Source: International Monetary Fund Updated: February 2015
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