Economy of Djibouti

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{rate, high, increase}
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The Economy of Djbouti is derived in large part from its strategic location on the Red Sea. Djibouti is mostly barren, with little development in the agricultural and industrial sectors. The country has a harsh climate, a largely unskilled labour force, and limited natural resources. The country’s most important economic asset is its strategic location connecting the Red Sea and the Gulf of Aden. As such, Djibouti’s economy is dominated by the services sector, providing services as both a transit port for the region and as an international transshipment and refuelling centre.

From 1991 to 1994, Djibouti experienced a civil war which had devastating effects on the economy. Since then, the country has benefited from political stability. In recent years, Djibouti has seen significant improvement in macroeconomic stability, with its annual GDP improving at an average of over 3 percent since 2003. This comes after a decade of negative or low growth. This is attributed to fiscal adjustment measures aimed at improving public financing, as well as reforms in port management.

Despite the recent modest and stable growth, Djibouti is faced with many economic challenges, particularly job creation and poverty reduction. With an average annual population growth rate of 2.5 percent, the economy cannot significantly benefit national income per capita growth. Unemployment is extremely high at over 50 percent and is a major contributor to widespread poverty. Efforts are needed in creating conditions that will enhance private sector development and accumulate human capital. These conditions can be achieved through improvements in macroeconomic and fiscal framework, public administration, and labour market flexibility.[1]

Contents

Economic performance

Djibouti has experienced stable economic growth in recent years as a result of achievements in macroeconomic adjustment efforts. Fiscal adjustment measures included downsizing the civil service, implementing a pension reform that placed the system on a much stronger financial footing, and strengthening public expenditure institutions. From 2003 to 2005, annual real GDP growth averaged 3.1 percent driven by good performance in the services sector and strong consumption. Inflation has been kept low (only 1 percent in 2004, compared with 2.2 percent in 2003), due to the fixed peg of the Djibouti franc to the US dollar. However, as mentioned above, unemployment has remained high at over 50 percent in recent years.

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