Djibouti’s economic performance in the coming years largely depends on how it benefits from Ethiopia’s fast growth and whether Djibouti can mitigate potential port diversions, concludes the International Monetary Fund (IMF) following a staff visit to the tiny coastal nation.
The IMF projected Djibouti’s 2027 growth at six percent, buoyed by growing revenue from Ethiopia’s increasing use of its ports.
“Ethiopia’s expansive market and upcoming major infrastructure projects are expected to boost demand for Djibouti’s port services, resulting in a positive growth outlook of about six percent 2027 onwards,” reads an IMF statement issued this week.
It estimates Djibouti’s growth in 2025 at 6.5 percent, driven by robust port activity, vibrant construction, transportation, telecommunications, and retail sectors.
“The fiscal deficit for 2025 is estimated to have moderated to about 0.7 percent of GDP, from 2.7 percent in 2024, reflecting expenditure restraint despite revenue shortfalls. The 2026 budget anticipates that the government will have no deficit this year,” reads the statement.
It also warns Djibouti might face growth setbacks in the face of tensions in the Horn and the possibility that Ethiopia turns towards other alternatives. The IMF recommends that Djibouti and Ethiopia collaborate on joint port developments to curb the economic risks.
“Djibouti’s economic outlook faces several risks. Rising tensions in neighboring Horn of Africa countries may increase uncertainty and refugee flows amidst reduced humanitarian aid. Potential trade diversion to other regional ports, which could lower revenues, may be mitigated by Ethiopia’s fast growth and ongoing joint infrastructure projects with Djibouti,” said IMF.
Landlocked Ethiopia depends heavily on Djibouti for its international trade. The administration of PM Abiy Ahmed (PhD) has been engaged in a years-long campaign to secure maritime access, initially through Somaliland’s Berbera and, more recently, through Assab.
The campaign has, however, been met with fierce opposition.
Most recently, Djibouti and Egypt reached a preliminary agreement to cooperate in the development of Doraleh port. Analysts say the deal could carry significant consequences for Ethiopia’s interests, and it was likely part of the reason for a visit to Djibouti this week by PM Abiy Ahmed and other senior officials.
