São Paulo – Economic growth in the Arab country Djibouti in Africa is expected to maintain robust levels of growth around 6% in the medium term, driven by sustained growth in exports and private investments. The projection was made by Stéphane Roudet, the head of the International Monetary Fund (IMF) mission in Djibouti at the beginning of the week and published by the organ this Wednesday (19).
Assessing the country’s economic situation, Rouded says Djibouti growth slowed to 6.5% this year, after an annual average of 9.5% between 2014 and 2016, owing to the sizable drop in public investment in infrastructure. Nevertheless, he sees exports and private investment will support the economic growth next years, provided progresses are made in local structural reforms.
Exports from Djibouti reached approximately USD 160 million last year, according to information by Central Intelligence Agency (CIA), and were composed primarily by re-exports, leather and scraps. The main trading partners are Ethiopia, Somalia, Qatar, Brazil, Yemen, and United States. The country produces fruits, vegetables, leather and have goat, sheep and camel farms. Industry is mainly the processing of agricultural products.
According to the IMF, Djiboutian authorities invested heavily in infrastructure in the last few years in order to transform the economy and position the country as a logistics and commercial hub. However, the financing of this strategy has resulted in a build-up of debt. According to the IMF, this means serious financial risks. Public debt is expected to be around 104% of the Gross Domestic Product (GDP) at the end of 2018.
IMF believes the positioning of the country as a logistics and commercial hub offers great opportunities for economic growth and development but ensuring debt sustainability should be a priority. Returns on public investment projects should be strengthened and reforms should be expedited to facilitate the transition to private sector-led growth to create jobs and reduce poverty.
Djiboutian authorities have begun to implement reforms to manage the risks of their development strategy and maintain robust levels of growth, which should be deepened and accelerated to enable an inclusive and sustained economic growth, according to the IMF. “To achieve debt sustainability, reforms need to ensure that the various projects implemented bring economic and social returns”, says Roudet.
The head of the mission asks for strengthening of the governance of state-owned enterprises, public finance and debt management, and the tax system. IMF says more resources may be generated for the government by reforming state-owned enterprises, reducing tax expenditures and improving their efficiency. The organ suggests bold reforms in the telecom and electricity sectors, in order to reduce prices and improve the quality of services offered.
Translated by Guilherme Miranda