Djibouti’s economy will grow 5 percent this year then accelerate towards 6 percent by 2016 but needs to diversify and tackle unemployment if it is to lift almost half its population out of extreme poverty, the IMF said.
The tiny Red sea state, a key ally in the West’s fight against militant Islam and piracy, also needs to push ahead with economic reforms, the International Monetary Fund said.
“The bulk of the population has benefited little from the recent economic growth,” the IMF said, adding that the economy grew 4.8 percent in 2012.
Commodity price shocks and domestic political instability posed the main risks to expansion this year, it said.
Djibouti’s national output last year relied heavily on activity at its DP World-run port, transit trade with neighboring landlocked Ethiopia and transhipment activity.
The IMF said inflation would slow further to 2.5 percent in 2013 from 3.7 percent last year when steadier international food prices and lower power tariffs for low-consumption households helped ease price pressures on the previous 12 months.
However, persistent budget deficits underscored the need for Djibouti to expand its tax base and strengthen tax administration.
“Priority should also be given to reforming the fuel pricing mechanism, especially replacing the costly fuel subsidies with well-targeted social safety nets, and to re-examining the tax exemptions system,” the IMF said.
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