Test Debt Guide

Country Debt Guide
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djibouti
Current Financing Challenges
WHAT DOES DJIBOUTI STILL NEED TO FINANCE?
SOME EXAMPLES:
ACCESS TO ELECTRICITY FOR 40% OF THE POPULATION
ACCESS TO DRINKING WATER FOR 24% OF THE POPULATION
ACCESS TO INTERNET FOR 44% OF THE POPULATION
IMPROVING TRADE INFRASTRUCTURE BY 26% TO REACH CHINESE LEVELS
As is illustrated above, Djibouti has significant remaining financing needs in order for the population to achieve
poverty reduction, in particular ensuring access to electricity and internet, much of which is unlikely to be met
through domestic financing alone. The IMF considers Djibouti’s debt to be sustainable under the baseline scenario,
but with a high risk of debt distress given any further economic shock, as their ability to service debt could be
substantially weakened. Similarly, the Jubilee debt campaign predict a debt crisis in 2020. The IMF and Jubilee
believe that debt vulnerability has grown because of a too heavy focus on big investment projects in a few subsectors
at the expense of holistic efforts to improve factor productivity, debt management and domestic resource
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mobilization. Multilateral organisations believe this is reinforced by structural challenges in governance.
Nevertheless, these large investment projects are a source of growth, albeit vulnerable to external shocks. The
small Djiboutian economy is heavily dependent on port operations: the manufacturing and service sectors revolve
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almost entirely around the port’s activities, accounting for more than 80% of GDP. Over 80% of the port’s
operations in turn involves Ethiopian trade: Ethiopia is Djibouti’s largest trading partner, and as a landlocked
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nation, relies on access to the Port of Djibouti to transport its goods. Djibouti’s foreign exchange earnings are
likely to fall due to lower demand for Ethiopian exports in 2020 on the back of weak global demand and supply
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chain disruptions. As a result, Djibouti’s heavy reliance on foreign exchange creates potential vulnerabilities in
servicing its debt.
The COVID19 Impact
In order to deal with COVID19, Djibouti has introduced social assistance measures included distribution of food
across vulnerable households and cash transfers, $11.2 million in microcredits to small businesses and postponed a
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tax levy. Overall, this is estimated to cost a total $70 million by September 2020.
However, the COVID-19 pandemic has weakened the country’s macroeconomic position, with GDP forecast to
contract by 0.5% in 2020 based on the African Development Bank’s ‘worst-case scenario’. The budget deficit is
particularly at risk, potentially widening to 15.6% of GDP, and public debt is forecast to rise to 150% of GDP in 2020,
the joint highest public debt to GDP ratio amongst select countries analysed in this guide. In order to keep public
debt in check and reduce future vulnerabilities, the country should aim for more balanced growth, particularly as it
implements Vision Djibouti 2035, which aims to turn Djibouti into a regional hub for logistics, commerce and
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transhipment. With this in mind, assuming global economic recovery, economic growth is expected to return to
Djibouti in 2021 at a rate of 5.2%.
Djibouti participated in the G20’s Debt Suspension Initiative (DSSI), which would allow the country to receive debt
service suspension by official bilateral creditors – including China – amounting to $56.8 million by the end of in
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2020. In May 2020, Djibouti requested and was approved for a new loan of $43.4 million from the IMF’s interestfree
Rapid Credit Facility (RCF) to mitigate the economic effects of the pandemic, along with grants worth up to $8.2
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million to help the country cover other IMF-linked debt service obligations. These funds are channelled directly
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into Djibouti’s budget and may account for up to 11% of gross foreign reserves at their peak.