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International Monetary Fund

This paper on the First Review Under the Staff-Monitored Program (SMP) on Djibouti explains macroeconomic framework and policies. The policy discussions centered on the need to sustain the improvement in the country’s fiscal position in the remainder of the year and steadfast structural reforms to create the basis for sustainable growth. Determined efforts by the authorities are needed to implement the longstanding structural reforms planned under the SMP. IMF staff recognizes the difficulties in adopting a challenging reform agenda and the need to achieve a political consensus.

International Monetary Fund

This 2008 Article IV Consultation highlights that Djibouti’s macroeconomic performance improved significantly, but inflation pressures are intensifying. Real GDP growth accelerated to 5.3 percent in 2007, driven mainly by foreign direct investment concentrated in the construction and port services. Executive Directors have welcomed Djibouti’s strong economic growth driven by large foreign direct investments in the port and other key sectors of the economy. Directors have also emphasized the importance of maintaining the fiscal consolidation objective, with a view to controlling inflation and creating fiscal space to finance the poverty reduction strategy.

International Monetary Fund. Middle East and Central Asia Dept.

The article is a review on Djibouti’s Extended Credit Facility (ECF) program and the performance of economic development in the program. The ECF program helped Djibouti to maintain macroeconomic stability, and the period underwent a transformation in the Djiboutian economy. The country saw an economic increase, and the banking system boomed. A positive thought of economic growth is projected in 2012, so plans were targeted to pursue fiscal reforms to improve debt sustainability, strengthening the banking sectors. The authorities of the Executive Board expect another program similar to the ECF.

International Monetary Fund

The overall fiscal position improved and the reduction in domestic arrears was triple the program target. The direct impact of the global financial crisis on Djibouti has been limited. The financial system has not been affected by the global crisis, and capital adequacy has improved slightly despite increased competition. GDP growth remained strong in 2008, and inflation decelerated during the fourth quarter. The risk of external debt distress remains high. Banks remain profitable and have not been affected by the global financial crisis.

International Monetary Fund

The fourth review of Djibouti’s economic performance under the Extended Credit Facility (ECF) arrangement highlights that the authorities maintained fiscal discipline in 2010, but fiscal performance weakened in the first months of 2011. The authorities made progress toward tackling high input costs, which hinder the development of the private sector. The Djibouti authorities remain committed to the IMF program, especially in the areas of fiscal discipline and structural reforms in tax revenue, public financial management, bank supervision, and central bank governance.

International Monetary Fund

An important challenge for Djibouti is to implement a comprehensive strategy to promote private investment and job creation to reduce poverty. The medium-term macroeconomic outlook is dominated by the authorities' plan to launch a public investment program along with the planned construction of a new deep water seaport. The authorities have improved the expenditure control and monitored the framework, but could further enhance the transparency of public finance. Although Djibouti improved its macroeconomic database in recent years, its statistical system continues to fail owing to changes in quality, frequency, and dissemination.

International Monetary Fund. Middle East and Central Asia Dept.

This 2014 Article IV Consultation highlights that Djibouti is undergoing an investment boom that would accelerate economic growth. Aggregate investment is projected to rise from 26 percent of GDP in 2010-13 to 52 percent in 2014-16. GDP growth is expected to rise from 6 percent in 2014 to about 7 percent in 2015-19. Inflation is projected to pick up from 3 percent in 2014 to 3.3 percent in 2015-19 as the large investment spending fuels demand for housing and basic services. Central bank gross foreign assets are projected to remain strong, permitting full currency board coverage over the period 2015-19.

International Monetary Fund. Middle East and Central Asia Dept.

Djibouti is expanding its infrastructure to leverage its strategic location and foster growth, reduce poverty, and create jobs. The remarkable investments in ports and railways-started in 2015 and mostly debt-financed by financial institutions from China-presents opportunities as well as risks. With public debt rising from 50 to 85 percent of GDP in just two years, the authorities need to advance rapidly with critical reforms. Such reforms would aim at translating the investment boom into strong, inclusive, and job-creating growth to reduce poverty and return to a sustainable debt trajectory given the current high risk of debt distress. While there is strong ownership of such reforms under the authorities' Vision Djibouti 2035, close government coordination will be needed to ensure their effective implementation.

Jakob Saper and Timothy Sweeney

Among the most difficult problems faced by developing countries is that of balancing a budget which is swollen by the cost of development. This problem is enhanced both by the slowness with which revenues grow, and by technical difficulties in controlling expenditures. The Fund is alive to the importance of the problem and is now able to offer help to its members in this field.