Key messages:

• Climate change threatens Djibouti’s development goals and without effective adaptation, could generate economic losses equivalent to nearly four years of today’s output by midcentury. Climate change exposes Djibouti to more frequent extreme heat, drought, and floods. These events threaten the infrastructure and services that serve the vibrant trade sector and that could enable a more diversified economy. Other sectors prioritized for diversification, including fisheries, information and communications technology (ICT), and tourism, are also directly impacted by climate change. Unless Djibouti adapts, climate change will also have a particularly negative impact on the livelihoods of the poor, on workers’ productivity, and on water and food security. 
• Policies and investments aimed at climate adaptation can reduce economic damages and help to build systems that protect livelihoods; a limited set of priority actions could halve the potential GDP losses. To safeguard its role as a pivotal regional hub, Djibouti can invest in the resilience of its transport infrastructure, deepen regional energy integration, and advance economic integration of migrants with international support. Priority actions to protect livability include investments to avoid water losses in the urban network and manage rural water resources, alongside multidimensional support to food security, investments in the health system, and greater adaptive safety net capacity to safeguard human capital. Economic diversification can be promoted by reducing the impact of floods and heat, climate‑sensitive planning in the ICT and fisheries industries, and reforms and investments to deliver better service quality in the energy sector.
• Significant infrastructure investments have laid a foundation for resilience and economic diversification, but Djibouti must now ensure that these assets deliver on their promise. While recent infrastructure investments have come at the cost of a high public debt burden, they have also produced assets that could drive economic growth in a changing climate.These assets include port, road, and rail infrastructure, capacity for desalinization and the import of piped water that can help ensure water security, and electricity generating capacity and interconnections that have lowered the cost of energy production and could boost growth if savings are passed on. A key policy priority is to ensure that these major development assets deliver the benefits they should. 
• Capacity building, economic reform, and an emphasis on skills are critical to successful adaptation. Successful climate adaptation and diversification hinge on building capacity in the public sector to plan new investments well, to manage key development assets, and to ensure service delivery. Economic reforms are also pivotal to ensuring that investments deliver broad benefits, with priorities being reforms to electricity and ICT pricing, efforts to raise utility state-owned enterprise (SOE) performance, and further improvements in the business environment. Systems and workforce skills are critical enablers of successful adaptation. 
• Building resilience will require additional concessional resources, in the context of reform to ensure their effective use. Djibouti’s climate adaptation and green growth needs could exceed US$2.8 billion. This Country Climate and Development Report (CCDR) estimates that even a limited set of priority adaptation actions may require US$1.1 billion in additional funds, including an additional US$77 million per year through 2035. Such investment can be consistent with Djibouti’s goal of achieving both growth and debt sustainability, but it needs to be accompanied by economic reform and additional adaptation resources provided on a concessional basis. International support is particularly warranted given the regional importance of the resilience of Djibouti’s economy