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© 2013 International Monetary Fund
March 2013
IMF Country Report No. 13/78
Djibouti: Sixth Review Under the Extended Credit Facility Arrangement and Request for Waivers of Nonobservance of Performance Criteria—Staff Report; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Djibouti.
In the context of the sixth review under the extended credit facility arrangement and request for waivers of nonobservance of performance criteria, the following documents have been released and are included in this package:
The staff report for the sixth review under the extended credit facility arrangement and request for waivers of nonobservance of performance criteria, prepared by a staff team of the IMF, following discussions that ended on March 19, 2012 with the officials of Djibouti on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on May 9, 2012. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive
A Press Release summarizing the views of the Executive Board as expressed during its May 23, 2012 discussion of the staff report that completed the request and/or review.
A statement by the Executive Director for Djibouti.
The documents listed below have been or will be separately released.
Letter of Intent sent to the IMF by the authorities of Djibouti*
Memorandum of Economic and Financial Policies by the authorities of Djibouti*
*Also included in Staff Report
The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.
Copies of this report are available to the public from
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Front Matter Page
INTERNATIONAL MONETARY FUND
DJIBOUTI
Sixth Review Under the Extended Credit Facility Arrangement and Request for Waivers of Nonobservance of Performance Criteria
Prepared by the Middle East and Central Asia Department (In consultation with other departments)
Approved by Adnan Mazarei and Dhaneshwar Ghura
May 9, 2012
Mission: Discussions on the sixth review of the Extended Credit Facility (ECF) were held in Djibouti during March 6–19, 2012. The staff team consisted of Messrs. Sdralevich (head) and Davies, and Ms. Gicquel (all MCD), and Mr. Million (SPR). The mission met with the governor of the Central Bank of Djibouti (CBD), the minister of finance, senior government officials, representatives of public enterprises, the private sector, and the donor community. World Bank staff attended some of the meetings. Mr. Thiam (resident representative) assisted the mission. Mr. Bah (OED) participated in key policy meetings.
Fund relations: The ECF arrangement (September 2008–June 2012) was approved in September 2008 in the amount of SDR 12.72 million (80 percent of quota). The program performance was broadly on track, and the authorities are requesting three waivers of nonobservance of end-December 2011 performance criteria. Djibouti’s outstanding loans from the Fund were SDR 16.92 million (106.43 percent of quota) as of March 31, 2012.
Augmentation: At the completion of the fifth review, the Executive Board approved an augmentation of SDR 9.54 million (60 percent of quota) to meet the additional external financing needs created by the international price shock and the drought. The second, equal tranche of the augmentation will be disbursed at completion of the sixth review.
Exchange rate regime: The CBD operates a currency board arrangement pegged to the U.S. dollar at the rate of Djibouti Franc 177.721 per U.S. dollar. Djibouti has accepted the obligations of Article VIII, Sections 2, 3, and 4, and maintains an exchange system free of restrictions on payments and transfers for current international transactions.
Safeguards assessment: A mission took place in June–July 2008; an update assessment mission took place in November 2011.
Financial Sector Assessment Program: The report was discussed by the Board on June 17, 2009.
Contents
Executive Summary
I. Background and Recent Economic Developments
II. Program Performance
III. Policy Discussions
A. Real Sector
B. Fiscal Issues
C. Public Debt
D. Financial Sector Issues
IV. Program Issues and Risks
V. Staff Appraisal
Tables
1. Selected Economic and Financial Indicators, 2009–17
2. Central Government Fiscal Operations, 2009–12 (In millions of Djibouti francs)
3. Central Government Fiscal Operations, 2009–12 (In percent of GDP)
4. Balance of Payments, 2009–12
5. Monetary Survey and Banking Sector Indicators, 2008–12
6. Financial Soundness Indicators, 2000–11
7. Millennium Development Goals, 1990–2015
8. Reviews and Disbursements, 2008–12
9. Indicators of Capacity to Repay the Fund, 2007–22
Text Tables
1. Main Macroeconomic Indicators, 2008–12
2. End-December 2011 Quantitative Performance Criteria and Preliminary Estimates
Figures
1. Selected Economic Indicators, 2007–12
2. Bank Deposits, 2007–12
Boxes
1. Diesel Subsidies
2. Debt Sustainability Analysis
Appendices
I. Letter of Intent and Memorandum of Economic and Financial Policies
II. Technical Memorandum of Understanding
III. Debt Sustainability Analysis Charts and Tables
Executive Summary
The ECF which began in 2008 is nearing its conclusion. Despite mixed program implementation, the ECF helped Djibouti maintain macroeconomic stability in a period that saw a transformation of the Djiboutian economy, when massive FDI expanded port capacity, transit trade to Ethiopia soared, the banking system boomed, and the country played an increasingly important geopolitical role. The Fund also supported the country in dealing with the Horn of Africa drought and the 2008 and 2011 commodity price hikes.
Economic activity is expected to be strong in 2012, and inflation is projected to decline. Port activity, trade with Ethiopia, construction, and FDI are expected to contribute to a 4.8 percent GDP growth this year compared to 4.5 percent in 2011. Inflation is projected to decline to 4.3 percent mostly thanks to the stabilization of world food prices. Still high world commodity prices and food import to help households affected by the drought are expected to keep the current account deficit above 12 percent of GDP.
The ECF program was broadly on track at the end of 2011. The authorities improved fiscal performance and achieved a fiscal deficit of 0.7 percent of GDP, in line with the program targets. However, bank financing to the government was higher than programmed because of the larger repayment of domestic arrears, and the government missed by a very small margin the ceiling on the accumulation on domestic arrears. The structural benchmarks for 2011-12 have been met, save two.
The authorities are committed to keeping sound macroeconomic policies in 2012 by:
Targeting a surplus of 0.5 percent of GDP in 2012 and pursuing fiscal reforms;
Improving debt sustainability by relying on concessional borrowing and avoiding accumulation of domestic and external arrears; and
Continuing strengthening bank supervision and central bank governance.
Staff supports the authorities’ request for the completion of the sixth review and the waivers for the nonobservance of performance criteria. Executive Directors endorsed the revised targets agreed with the authorities during the fifth review mission, but because of the delay in issuing the fifth review report to the Board, the end-2011 performance criteria could not be modified accordingly. Therefore, the authorities request waivers for nonobservance of performance criteria on the budget balance (for which the revised target was met) and net credit to the government (for which the revised target was missed by a small margin), and of the continuous performance criterion on the non-accumulation of domestic arrears.
The authorities have expressed interest for a successor program. Staff is ready to assist the authorities in drawing lessons after the completion of the program and help define the objectives of a new ECF arrangement.
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INTERNATIONAL MONETARY FUND
DJIBOUTI
Sixth Review Under the Extended Credit Facility Arrangement and Request for Waivers of Nonobservance of Performance Criteria
Informational Annex
Prepared by the Middle East and Central Asia Department
(In consultation with other departments)
May 9, 2012
Relations with the Fund. Describes financial and technical assistance from the Fund and provides information on the safeguards assessment and the exchange rate system. Outstanding purchases amounted to SDR 16.92 million (106.43 percent of quota) as of March 31, 2012.
Joint managerial Action Plan—June 2011–May 2012. Describes the Fund and World Bank Group’s joint work programs.
Statistical Issues. Assesses the quality of statistical data. Data provided to the Fund are broadly adequate for surveillance and program monitoring purposes but significant deficiencies remain.
Table of Common Indicators Required for Surveillance. Provides information on statistical data for surveillance purposes.
Contents
I. Relations with the Fund
II. Joint Managerial Action Plan
III. Statistical Issues
IV. Table of Common Indicators Required for Surveillance
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Press Release No.12/190
FOR IMMEDIATE RELEASE
May 24, 2012
International Monetary Fund
Washington, D.C. 20431 USA
Telephone 202-623-7100
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