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 40 percent in recent years.
The government fiscal balance is in deficit because the government has not been able to raise sufficient tax revenues to cover expenses. In 2004, a substantial increase in expenditure resulted in a deterioration of the fiscal position. As a result, the government deficit increased to US$17 million in 2004 from US$7 million in 2003. But improvement in expenditure management brought down the fiscal deficit to US$11 million in 2005.
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