Djibouti's economy: a franc backed by dollars that the coast earns

How France tied the Djibouti franc to the dollar

On 20 March 1949 the French government created, by decree 49/374, a local currency for what was then the French Somali Coast, with the stated aim of favouring the territory's economic development. The franc de Djibouti was defined in fine gold, which set it at 214.392 to the US dollar, and from the start it could be converted on sight, with no restriction and no justification asked, by residents and non-residents alike. The central bank's own history calls the arrangement extremely liberal for its time.

The right of issue passed from a private bank to the Treasury, which opened an account with the French American Banking Corporation in New York and kept in it, as a guarantee, a dollar deposit equal to the notes in circulation. That made it a currency board, in which each franc issued has to be covered by its value in dollars. Under the French exchange rules then in force the territory also left the franc zone and became, in the bank's words, a foreign country with the status of a free-trade zone. The bank's summary table dates the board to 17 March 1949, three days before the decree.

The rate has moved twice, each time because the dollar's value in gold changed while the franc's did not. On 18 December 1971 the dollar's gold definition was cut by 7.895% and the parity became 197.466 francs. On 13 February 1973 it was cut by a further 10% and the parity became 177.721. By then the franc was no longer coupled mechanically to the French franc, and the bank records that the rate of 1973 has not varied since.

Independence on 27 June 1977 brought full monetary sovereignty, and the new government kept a system that had, in the bank's phrase, already proved itself. Issue went to the national Treasury until a central bank existed; the bank's table gives 3 December 1977 as the date of its creation.

What the currency board asks of Djibouti's reserves

The bank describes the mechanism in a few lines. A buyer of francs deposits the dollar equivalent, at the fixed rate, in one of the Treasury's accounts with its correspondent banks, and a buyer of foreign currency hands over francs. The volume of francs in issue rises and falls with those sales and purchases. By its own table the central bank does not refinance commercial banks, runs no exchange control, sets no reserve requirement and offers no deposit insurance. It covers more than 100% of the notes and coins in circulation, and commercial banks must hold convertible foreign currency in proportion to their deposits in francs. The BTI's 2026 report traces the foreign exchange behind the peg to port and logistics operations.

How the reserves slipped below the monetary base

Gross official reserves stood at US$578 million in 2021 and US$581 million in 2022 by the IMF's count. They fell to US$494 million in 2023 and an estimated US$338 million in 2024, enough for 2.4 months of the next year's imports once re-exports are left out. Concluding its Article IV consultation on 11 September 2025, the Fund's board wrote that fiscal consolidation in 2024 had partly offset a decline under way since late 2023, but that reserves remained below the monetary base. The commercial banks held far more abroad: US$1,758 million of gross foreign assets at the end of 2024.

The board asked for the central bank law to be amended to give the bank more autonomy, for reserve requirements to be phased in and for the bank to keep its future profits; the bank's own table records that its dividends go to the national Treasury, and that it may lend to the state with the specific agreement of the Council of Ministers. When IMF staff visited in January 2026 they asked for a repayment plan between the bank and the Ministry of Budget to settle the Treasury's outstanding overdrafts, and for reserves to be rebuilt from retained profits, state company dividends or military base income.

Their statement of 15 January 2026 said gross reserves had risen in 2025 while their ratio to the monetary base was still below what the currency board requires. It put growth in 2025 at 6.5% and inflation at zero, down from 2.1% in 2024, as lower food prices passed through to consumers. IMF staff estimated the 2025 budget deficit at about 0.7% of GDP; the World Bank's monitor of May 2026 described the budget as having returned to surplus.

Where dollars change hands outside the banks

The BTI report finds that hawala, the informal transfer network, dominates trade with Ethiopia, carrying payments for port services and imports past Ethiopia's strict foreign exchange controls. Currency dealing in central Djibouti City is mostly in the hands of women street vendors, whose customers include foreign traders and Ethiopian truck drivers.

The formal sector has grown beside it. Ten conventional and Islamic banks were operating by 2010, and the BTI counted at least 13 in its 2026 report, the Bank of China among them since 2019. Non-performing loans were 4.3% of the total in 2022 by the World Bank's figure. There is no capital market. IMF staff noted in January 2026 that Djibouti was under the enhanced monitoring of MENAFATF while it strengthened its rules against money laundering.

Why Ethiopia's trade sets the pace in Djibouti

The port grew out of Ethiopia's search for an outlet to the sea. The Franco-Ethiopian railway was begun in 1897 and reached Addis Ababa in June 1917, and its construction turned Djibouti into a boomtown of 15,000 people. The line let Djibouti take over the caravan trade that had run through Zeila, then in British Somaliland, and it became the port for coffee and other goods leaving southern Ethiopia through Harar.

Ethiopia lost its own coast when Eritrea became independent in 1993. When hostilities between the two closed the Eritrean port of Assab to Ethiopian cargo, Djibouti handled all of Ethiopia's imports and exports, the State Department recorded in 2004, including large shipments of American food aid during the drought and famine of 2000.

The later counts agree. By 2018 the port of Djibouti handled 95% of Ethiopian transit cargo, by Wikipedia's account. The Congressional Research Service wrote in June 2025 that Ethiopia, with more than 120 million people, relied on Djibouti for the transit of over 90% of its trade, that roughly 80% of the goods passing through Djiboutian ports were Ethiopian and that the traffic reportedly brought Djibouti US$400 million a year in port fees. Larry Andre, a former United States ambassador, told Al Jazeera in April 2026 that 85% of Djibouti's GDP derived from servicing Ethiopian trade.

The IMF's outlook rests on the same neighbour. In September 2025 the Fund projected growth of about 6% for 2025 and close to 5.5% over the medium term, "largely driven by Ethiopia's strong demand for port services", and it listed new competition from nearby ports among the risks. Ethiopia raised that prospect itself in 2024 with a plan, noted by the CRS, to gain sea access of its own through Somaliland, where DP World of Dubai had signed a 30-year concession for the port of Berbera in May 2016.

How Djibouti borrowed to build ports and a railway

In September 2025 the IMF's board wrote that logistics investment over the past decade had boosted growth and economic transformation but increased external debt, leaving limited fiscal space for development needs. Work on the Doraleh multipurpose port began in 2013 and added 29 million tons of annual capacity beside the old harbour, and the port at Damerjog, begun the same year, now takes livestock, liquid bulk and ship repairs. In July 2018 the first 240-hectare phase of the Djibouti International Free Trade Zone opened, an investment of about US$370 million with China Merchants Group among the partners; the whole zone is planned to cover 4,800 hectares at a total cost of around US$3.5 billion.

What the railway to Addis Ababa cost

By 2004 the metre-gauge line of 1917 had decayed so far that Addis Ababa had lost its rail link to the sea. Its replacement is an electrified standard-gauge line of 759 km, 93 km of it in Djibouti, built by Chinese state companies and opened to commercial traffic on 1 January 2018. The section from Dewele on the border to the port of Doraleh cost US$525 million, against US$1.873 billion and US$1.12 billion for the two Ethiopian sections, and loans of US$3 billion from the Export-Import Bank of China in 2013 put US$2.4 billion into the Ethiopian part and the balance into Djibouti. A case study of the line, drafted from a literature review and from interviews at the Addis Ababa Institute of Technology and the Ethiopian Railway Corporation, puts the whole project at US$5.09 billion in 2011 values, 30% paid by the two governments and 70% by concessional loans from three Chinese banks.

The two states own the line through a company established by their bilateral agreement of 16 December 2016, in which Ethiopia holds 75% and Djibouti 25%. It was built without spurs to the port terminals, and the links to two of them were added later for about US$70 million. Freight trains still cover the last 12 km to Doraleh behind diesel locomotives, because overhead wires there would interfere with the loading cranes. In 2019 the railway took in US$40 million against operating costs of US$70 million. Cargo passed 2 million tons in 2023, researchers reported in The Diplomat in February 2024, where the original plans had foreseen more than 20 million.

Who holds the debt and on what terms

Public debt rose from 50.2% of GDP in 2015 to an expected 72.9% in 2020, in Wikipedia's account, and the IMF put external public debt at US$2,985 million in 2024. China held more than half of the external debt, the CRS reported from the Fund's 2024 figures. The BTI's 2026 report found that China and the Kuwait Fund for Arab Economic Development together held more than 90% of the bilateral debt, and that the debt owed to the Export-Import Bank of China came to nearly 40% of GDP, mainly for the railway and the water pipeline from Ethiopia.

Djibouti paused payments to the Exim Bank in early 2023 and settled a moratorium in October of that year; the CRS calls it a four-year moratorium, and the BTI describes relief until 2028. It also negotiated with India and with the Paris Club. The Fund's September 2025 table projects the debt ratio falling to 38.5% of output by 2030, and its board tied that path to clearing all arrears, finishing the negotiations and enforcing ceilings on the debt of state companies as well as the central government. By the BTI's account the state companies carry most of the external debt and government-guaranteed loans, the Djibouti Ports and Free Zones Authority's among them.

The container terminal at Doraleh adds a liability of another kind. Djibouti ended DP World's 30-year concession unilaterally in February 2018, and in July 2024 a United States district court upheld a US$200 million arbitration award to the company, the BTI records, while a separate award of US$485 million was dropped that December.

What ships and foreign armies pay on the coast

Refuelling ships is the older trade. France took Obock in 1862 because it wanted a coaling station for steamships, which until then had to buy their coal at the British port of Aden across the gulf. Pétroles de Somalie, now Total, bunkered its first ship at Djibouti in 1952, and bunkering quadrupled in the ten years from 1954 to a peak of 1.8 million tons in 1965. The first modern container terminal began work in February 1985.

Yemen's Houthi movement launched more than 520 attacks targeting at least 176 ships in its campaign against shipping in the Bab-el-Mandeb between late 2023 and the ceasefire in Gaza in late 2025, by ACLED's count, and tonnage through the Suez Canal was still 70% below its 2023 level in May 2025, according to UNCTAD. Djibouti's own figures moved the other way. The IMF linked growth of more than 6.5% in 2024 to higher transshipment, alongside construction, commerce, telecommunications and tourism, and IMF staff put growth in 2025 slightly lower because transshipments had eased.

The armies pay rent. In 2017 the finance minister set out the yearly sums: US$65 million from the United States, US$30 million from France, US$20 million from China and just over US$3 million each from Italy and Japan. The CRS put the total at more than US$125 million a year in June 2025, against nominal output that the IMF estimated at US$4,291 million for 2024, and counted the American facilities as providing jobs for more than 1,000 local workers and third-country nationals. The analyst Samira Gaid told Al Jazeera in April 2026 that "everything to do with these military bases is basically imported, they're just renting space." The BTI found the rents only partly accounted for in the state budget, and IMF staff named the revision of military leases in January 2026 among the measures needed to close the revenue shortfall.

Why the port economy employs so few Djiboutians

Estimates of unemployment in Djibouti range widely with the body that made them. The BTI's 2026 report sets World Bank estimates below 30% against the 50% of the working-age population reported by the French Development Agency, and finds that unemployment falls disproportionately on people under 30. Al Jazeera gave official unemployment as nearly 40% in April 2026, and Britannica's entry, revised in October 2026, cites estimates from almost three-fifths to more than four-fifths of the workforce.

The newest evidence is the country's first nationally representative labour force survey. The World Bank's Djibouti Economic Monitor of May 2026, drawing on it, found more than half the working-age population outside the labour force and nearly 46% of people aged 16 to 24 neither in education, employment nor training. The census of 2024 counted 1,066,809 people with a median age of 23.

Most activity is informal. The Djibouti Center for Studies and Research found in 2024 that at least 60% of economic activity took place in the urban informal sector, and women made up 29.3% of the formal workforce in 2023, by the BTI's figures. Khat, the stimulant leaf, arrives daily from Ethiopia through a private syndicate the government sanctions; Britannica puts its trade at almost a tenth of the working population and notes the windfall it brings in taxes.

The CRS reported the IMF's view, in June 2025, that building a logistics hub had driven growth without significant job creation. The BTI places the gap in free zones geared to trade and logistics, in high energy costs and in a labour market that relies on unskilled workers. More than 60% of the rural population lived in extreme poverty, the CRS wrote in the same paper of June 2025.

What Djibouti grows and mines for itself

Services made up about 79.7% of GDP in 2013, industry 17.3% and agriculture 3%, and the railway case study, citing the World Bank, gives services 76% of GDP in 2019.

What the land and Lake Assal yield

Less than 4% of the land is arable, by the BTI's 2026 count, and more than 90% of the food supply comes from abroad. Farming is confined to a few wadis that produce small yields of vegetables, mostly tomatoes, and dates, and in the countryside sheep and goats are kept for milk, meat and skins. The drought of 2008 to 2011 cut GDP by 4% and cost the agricultural sector half of its output, according to the World Bank's climate profile of 2021.

Britannica names salt as the resource that is exploited, some of it exported and some sold through the informal economy. Four concessions at the southeastern end of Lake Assal were awarded in 2002, and two companies hold nearly 80% of production. In 2012 the government engaged China Harbor Engineering to build a US$64 million ore terminal for salt exports to Southeast Asia, and the port of Goubet handled salt by 2018.

Exports of Djibouti's own making are few. Britannica lists aircraft parts, animal hides and skins and live animals, and notes that many goods recorded as exports are re-exports bound for neighbouring countries. The IMF separates the re-export trade to show the balance underneath it: the current account surplus of 14.1% of output in 2024 becomes a deficit of 0.4% once imports and exports tied to re-exporting are taken out. Tourism is small. The French Treasury put international arrivals at an average of 57,500 a year from 2010 to 2013.

Where Djibouti's electricity comes from

Britannica's entry says virtually all of Djibouti's electricity is generated from fossil fuels, while the BTI's 2026 report says most energy imports arrive from Ethiopia as hydropower. In 2015 consumption ran at about 330 kWh per person a year, and about 45% of the population had no access to electricity.

Vision 2035, launched in 2014, sets a goal of electricity drawn entirely from renewable sources by 2035. The 60 MW Ghoubet wind power station was inaugurated in September 2023, and at COP28 that year Djibouti signed a memorandum with CWP Global on producing hydrogen from wind and solar power. The IMF's board, in September 2025, asked for electricity costs to be lowered by curbing overuse by government agencies and by collecting bills more effectively.