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
Author: International Monetary Fund. Middle East and Central Asia Dept.
Publication Date:
21 Mar 2013
eISBN:
9781484355923
Language:
English
Keywords:
ISCR; CR; government; ECF arrangement; financing; government transition; central bank; debt service; broad money; authorities of the risk; Arrears
Download PDF (956.6 KB)

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.

Abstract

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.

I. Background and Recent Economic Developments

1. The sixth review concludes the ECF:

  • The program coincided with the still-ongoing transformation of the Djiboutian economy. Massive FDI expanded port capacity, transit trade to Ethiopia soared, and the country played an increasingly important geopolitical role—not least because of the threat of piracy in the Indian Ocean. Reflecting Djibouti’s rising pivotal role in the region, the number of banks increased, and deposits and credit to the private sector grew at double-digit rates. At the same time, the economy was hit by exogenous shocks, chiefly the Horn of Africa drought and the 2008 and 2011 commodity price hikes.

  • The ECF helped the authorities to maintain sustained growth and broad economic stability. Fiscal policy focused on social and investment spending. The CBD’s policies centered on maintaining coverage of the currency board and strengthening bank supervision. Despite the imported price shocks, inflation remained relatively contained.

  • Program implementation was however mixed. After the 2009 fiscal slippage, partly driven by extra-budgetary spending, the completion of the second and third reviews required building a track record period. Moreover, external arrears were accumulated to several bilateral and multilateral creditors. And, structural reform advanced less than expected, undermining the effectiveness of fiscal policy and holding back improvements in the economy’s competitiveness.

2. The ruling coalition was unexpectedly defeated at the February local elections. Civil society associations won key municipal positions, including the mayor of Djibouti, thus giving rise to the first-ever electoral loss on the ruling coalition. President Ismaël Omar Guelleh is still solidly in power at the national level, but public discontent—fueled by widespread poverty and unemployment particularly among the youth—is rising and will likely affect the next legislative elections in January 2013. Security risks are increasing with the government’s military involvement in Somalia.

3. Economic activity is expected to be strong this year. GDP growth is projected to rise from 4.4 percent last year to 4.8 percent in 2012 because of improved port activity, trade with Ethiopia, construction and FDI. Inflation is expected to decline from about 5 percent in 2011 to about 4 percent this year owing to the stabilization of international food prices, a likely larger supply of subsidized food from the state-owned farms abroad, and the reduction of electricity tariffs. Broad money and bank deposits, which had fallen in 2011 because of exceptional factors, are expected to resume growth this year. In parallel, private-sector credit growth is projected to rise, driven by construction and trade.

4. The current account deficit will remain high. The deficit rose sharply to 12.6 percent of GDP last year mainly because of the impact of last year’s Horn of Africa drought and high commodity prices. As these effects will persist to some degree in 2012 while FDI is expected to increase, the deficit is projected to decline only to about 12 percent of GDP. International reserves will increase from about $230 million in 2011 to $245 million in 2012 and continue to ensure currency board coverage. In line with the decline of the U.S. dollar, the real effective exchange rate depreciated by about 4 percent in 2011.

Text Table 1.

Djibouti: Main Macroeconomic Indicators, 2008–12

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Sources: Djibouti authorities; and IMF staff estimates.

In months of following year’s imports.

5. The negative effects of the drought will continue to affect Djibouti in 2012. The UN has declared the end of the famine in Somalia, the country worst hit by the drought. However, its effects will persist in Djibouti, as the total affected population, mainly rural inhabitants and refugees, is expected by the UN to rise from about 140,000 in 2011 to over 200,000 this year, including a refugee population numbering about 22,000 (up from 15,000 before the summer) which puts continued pressure on government and donor services. Development partners have already disbursed part of the pledged $65 million, mostly in the form of food aid through the World Food Program (WFP).

Figure 1.
Figure 1.

Djibouti: Selected Economic Indicators, 2007-12

Citation: IMF Staff Country Reports 2013, 078; 10.5089/9781484355923.002.A001

Sources: IMF World Economic Outlook, September 2011; IMF Information Notice System; Djibouti Authorities; and IMF staff projections.1/ Gross foreign assets of the CBD in percent of monetary liabilities (reserve money and government deposits).

II. Program Performance

6. The end-2011 program outcome is being formally evaluated based on the performance criteria set at the time of the fourth review. Owing to the issuance of the fifth review staff report to the Board after the end of 2011, Executive Directors could not modify the end-December performance criteria on the budget balance and net credit to the government in line with the authorities’ revised fiscal objectives for the year agreed during the fifth review mission, which envisages a budget deficit target of 0.4 percent of GDP. Consequently, the end-2011 performance criteria set in CR/12/169 still reflect the more ambitious target of a fiscal surplus of 0.4 percent of GDP (Text Table 2). At the Board meeting for the completion of the fifth review, Directors supported the principle that the program would be achieving its broader goals if the end-December 2011 outcome is in line with the revised targets (CR/12/197).

Text Table 2:

End-December 2011 Quantitative Performance Criteria and Preliminary Estimates

(In millions of Djibouti francs; unless otherwise indicated)

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Sources: Djibouti authorities; and IMF staff estimates and projections.

See the Technical Memorandum of Understanding for definitions and adjustor calculations.

7. According to these metrics, the program is broadly on track. The authorities achieved a budget deficit of 0.7 percent of GDP (compared with the targeted deficit of 0.4 percent of GDP). This allowed them to meet the target for the budget balance adjusted for the shortfalls in the French military base payment (net of taxes)1 and external assistance. However, the target on net credit to government from the banking system was missed by 0.2 percent of GDP because of the much-larger-than-planned repayment of domestic arrears at the end of the year. The criterion on accumulation of new domestic arrears was missed by less than 0.01 percent of GDP in December 2011, by about 0.05 percent of GDP in January 2012, and by about 0.09 percent in February 2012 because of delays in social security payments.

8. The structural benchmarks for 2011-12 have now been met, save two. Because of the lack of systematic information on tax-exempt companies (gathering which turned out to be administratively and politically more challenging than expected), the authorities have not been able to prepare a list of beneficiary companies defaulting on the requirement to file tax returns (structural benchmark for end-March 2012). Moreover, the software for the introduction of the new budget classification consistent with the GFS standard was not acquired because of delays in donor financing (structural benchmark for end-December 2011).

III. Policy Discussions

9. Discussions focused on the economic situation, program performance, and policies for 2012 on the backdrop of the forthcoming program conclusion. In the real sector, the authorities’ continued concern is how to reduce unemployment through high rates of growth. In the fiscal sector, the challenges are maintaining fiscal discipline through strong tax collection and spending controls. In this connection, public debt issues center on preventing the accumulation of new external arrears and gradually repaying domestic arrears, especially with public utilities. In the monetary and financial sector, the emphasis is on strengthening bank supervision and implementing the 2011 banking law.

A. Real Sector

10. Unemployment remains the crucial social and economic challenge for Djibouti. During the mission, staff presented the results of cross-country comparisons and medium-term unemployment projections and sensitivity analysis. The sobering message of these simulations is that Djibouti’s high unemployment rate, currently estimated at 60 percent of the labor force, will persist for several years even under very optimistic assumptions.

11. Growth will be helped by the interconnection with the Ethiopian electricity grid, which is fully operational. This has made possible a 30 percent tariff reduction for about 60 percent of consumers, and reduced fuel imports by the state-owned power company Electricité de Djibouti (EDD). At the same time, a World Bank-funded study to evaluate options for the domestic production of electricity will be launched this year. The World Bank is also financing the exploration of Djibouti’s geothermal potential. A recently launched solar-energy project financed by Japan could open the way to wider exploitation of solar power.

12. Long-delayed poverty and household budget consumption surveys were launched in the first half of the year. The results will be used to update the National Initiative for Social Development (INDS), the government’s poverty reduction initiative, and prepare the ground for the donor conference. The oft-postponed donor conference is tentatively planned for the second half of 2012 when the outcome of the poverty and household expenditure review will be available.

B. Fiscal Issues

13. In 2011, the authorities succeeded in maintaining broad fiscal discipline. The budget deficit reached 0.7 percent of GDP as the authorities caught up most of the shortfall in tax collection that was due to the government transition and the drought in the first half of the year. A shortfall in revenues from the lease on the French military base net of taxes and in external assistance was partly compensated by cuts in current and investment spending.

14. A higher-than-planned repayment of domestic arrears led to an increase in net bank credit to the government. Last year, the authorities concluded the reconciliation of cross-debt with Djibouti Telecom, the water company ONEAD, and EDD (structural benchmark for end-September 2011), which confirmed that the stock of domestic arrears accumulated in the 1990s (netting out taxes due the public enterprises) amounted to about 4 percent of GDP. These arrears made it more difficult for public enterprises to attract donor financing, and the authorities decided at the end of last year to clean the public enterprises’ balance sheet by doubling the scheduled annual arrears payment of 1 percent of GDP. The needed additional financing came from an advance on dividends of the CBI, the largest commercial bank in which the government has a stake, and the draw-down of government deposits at the CBD. This led net credit to government to overshoot its ceiling by 0.2 percent of GDP.

15. The authorities committed to a budget surplus of 0.5 percent of GDP in 2012. The National Assembly approved a balanced budget for 2012, with the objective of improving debt sustainability, strengthening the financial position with the banking system, and repaying domestic arrears. However, the authorities agreed that the improvement in the government financial position vis-à-vis the banking sector and the repayment of domestic arrears require a more ambitious outcome:

  • Revenues: The authorities project broadly unchanged tax revenues compared with the budget. The expected shortfall deriving from the downward revision of the French contribution net of taxes (based on the lower outcome in 2011) will be compensated by the additional $8 million per year recently agreed with the U.S. as fixed annual payment in lieu of taxes on fuel consumed by the U.S. military.

  • Expenditures: The authorities aim to maintain tight control on current spending, including the freeze on public-sector hiring (excluding health and education) and public-sector wages. The increase in the lowest salary level as an anti-poverty measure amounts to an additional budgeted cost of about 0.1 percent of GDP. To achieve the targeted budget surplus, the authorities made a commitment to postpone investment and reduce lower-priority transfer spending by a total of about 0.5 percent of GDP.

Fiscal sector reforms

16. The authorities renewed their commitment to fiscal reform:

  • Exemptions: The reform of the tax exemption system remains a priority. Enforcing the suspension of exemptions for companies that have not yet filed tax returns for 2010 (structural benchmark for end-March 2012) proved to be too ambitious administratively and politically. However, tax returns are essential to calculate fiscal expenditures and build momentum for reform of the discretionary and nontransparent exemptions system, which would allow rationalizing the tax system and strengthening government revenues. Therefore, the authorities committed to compiling and publishing a list of tax-exempt companies, which is a necessary step toward collecting tax returns.

  • Tax policy: The ministry of finance intends to conduct in the coming months a wide-ranging review of the tax framework in consultation with the private sector. The review would constitute the first step in a medium-term reform of the tax system that supports business, especially small-and-medium-sized enterprises, and boosts Djibouti’s role as services and transport platform in the region.

  • Public financial management: Financing from the EU, which had been secured to purchase the software for the reclassification of the budget according to GFS standards, may materialize much later than planned. The authorities are therefore considering possible back-up financing options, including budget resources.

  • Fuel and food subsidies: In early 2011, the authorities fixed the prices of diesel and gasoline with the objective of alleviating the impact of the oil price shock on the poorest segments of the population. In light of its cost, estimated at 1.5 percent of GDP in 2011 and limited effectiveness, the authorities committed to a reform of the diesel subsidy (Box 1); the timing of the reform is uncertain, however, in light of the weak poverty data and the needed involvement of development partners. With regard to the food subsidy system, the authorities estimate its overall cost as relatively small (0.1 percent of GDP for the farm system, and 0.5 percent in indirect tax exemptions on basic food items), and do not plan to reform it in the immediate future.

Diesel Subsidies

Diesel prices are set on the basis of a mechanism which allows domestic prices to follow international oil price movements. The mechanism adds several taxes, distribution costs and margins to the reference CFI (cost, freight, and insurance) price, and is applied monthly. A discretionary adjustment component is designed to smooth the transmission from world prices (Table), but in recent years has been used to maintain retail diesel prices consistently below full pass-through levels. In March 2012, the adjustment component was set at 50 DF, keeping the pump price around 20 percent below the 256.5 DF full pass-through level.

The diesel subsidy entails a shortfall in tax revenues, rather than an explicit subsidy. In 2011, reflecting rising international oil prices, the shortfall in revenue on diesel products amounted to 1.7 percent of GDP.

The diesel subsidy is inefficient. The diesel pricing mechanism was intended to protect the most vulnerable segments of the population. However, recent IMF technical assistance shows that 70 percent of direct fuel subsidies benefited the wealthiest quintile of the population.

The diesel subsidy should be substituted by better-targeted social safety nets and increased social spending. The gradual increase in diesel prices reduce the tax revenue loss should be accompanied by better targeting of social safety net spending. The government could support the neediest households, for example those below the extreme poverty line, through “workfare” cash-transfer programs, and the poor who are affected by higher transportation costs, through subsidized transportation for students. Geographical targeting can help to focus these interventions, since in Djibouti City, 90 percent of the population in the two lowest income quintiles lives in the northern neighborhoods of the city, mostly in Balbala. The World Bank is already active on these fronts in the context of its crisis response program, and availability of poverty statistics from the forthcoming household expenditure survey will help further improve targeting. Later on, the resources freed by subsidy reform could be used to promote spending on items that highly benefit the poor, such as water, health care, and education, which represent the largest expenditure shares in poor households’ budgets.

Fuel Price Structure for Retail Sale, March 2012

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Source: National authorities

C. Public Debt

17. During 2011, external public debt remained broadly stable at about 55 percent of GDP. Djibouti remains at high risk of debt distress, and staff alerted the authorities of the risks that could derive from the ambitious investment plan which underpins “Djibouti 2035,” a long-term vision for the country’s economic development. For these projects, the authorities intend to rely on concessional financing and public-private partnerships. However, the scale of the envisaged projects could heighten debt vulnerabilities due to insufficient concessionality of financing and contingent fiscal costs related to the public-private partnerships. These vulnerabilities may be exacerbated by Djibouti’s weak administrative capacity.

Debt Sustainability Analysis

The updated DSA confirms that Djibouti remains at a high risk of debt distress. Under the baseline, the present value (PV) of the debt-to-GDP ratio is projected to decrease from 46 percent in 2012 to 27 percent in 2032, but remains above the threshold of 30 percent up to 2029. The PV of the debt-to-exports ratio also breaches its indicative threshold of 100 percent until 2020. However, the PV of the debt-to-revenue ratio and both debt service ratios are below their indicative thresholds.

Stress tests show that external debt sustainability is most vulnerable to a devaluation of the currency. The PVs of the debt-to-GDP ratio and debt -to-revenues ratio are most vulnerable to a one-time devaluation of the currency (Djibouti operates a currency board arrangement pegged to the U.S. dollar). The debt service-to-export ratio and the debt-to-export ratio are most vulnerable to an export shock, highlighting the vulnerability of debt sustainability to port services.

The macroeconomic assumptions for 2012–31 remain broadly the same as in the last DSA. The real GDP growth rate in the long run is projected at 5.8 percent, while inflation is expected to remain at 2.5 percent. The current account deficit is expected to stabilize at about 12 percent of GDP in the next few years, mostly due to large assumed FDI inflows, and then gradually decrease to about 5 percent of GDP in the long run.

A01ufig01

Djibouti: Debt Dynamics, 2012–32

Citation: IMF Staff Country Reports 2013, 078; 10.5089/9781484355923.002.A001

The results of the public-sector DSA mirror those of the external DSA. In the baseline scenario, public debt indicators are projected to improve in the medium term. The PV of the debt-to-GDP ratio is projected to decrease from 51 percent in 2012 to 27 percent in 2032. The PV of debt-to-revenue ratio would also decrease from 143 percent to 89 percent in 2032, reflecting Djibouti’s relatively high and stable government revenues.

18. The authorities are implementing the corrective measures introduced after the accumulation of external arrears in 2011. All external arrears were cleared before the fifth review. The authorities are following more rigorously the external debt service schedule and have improved regular reporting to staff. However, despite the availability of UNDP financing, the debt office staff has not yet been strengthened, as finding an international debt expert has proved difficult. The authorities have also requested Fund technical assistance to strengthen debt sustainability analysis and debt management.

19. Debt rescheduling efforts are continuing with the remaining official bilateral creditors. To comply with the comparability of treatment requirement in their Paris Club agreement, the authorities are seeking similar terms from non-Paris Club creditors. They have already signed agreements with Saudi Arabia and are in negotiation with Kuwait and the United Arab Emirates.

20. A successor arrangement with the Fund could open the way to a debt stock reduction by Paris Club creditors. According to the goodwill clause in the 2008 agreement, creditors may agree to re-evaluate the sustainability of Djibouti’s external debt situation and consider a debt stock reduction, provided that the current ECF is completed successfully and a successor arrangement is approved.

D. Financial Sector Issues

21. Overall, the banking sector seems healthy, but there are concerns about credit quality. According to end-2011 indicators, the banking sector remains profitable and highly liquid, with liquid assets accounting for over 60 percent of total assets. However, the ratio of nonperforming loans to gross loans rose from 8.3 percent at end-2010 to 9.4 percent at end-2011.2

Figure 2.
Figure 2.

Djibouti: Bank Deposits, 2007–12

(In DF millions)

Citation: IMF Staff Country Reports 2013, 078; 10.5089/9781484355923.002.A001

Sources: Djibouti authorities; and Fund staff estimates and projections.

22. Risks remain significant. Rapid credit growth and the strong increase in number of banks in recent years, together with rising exposure to the real estate sector, raise concerns about a possible further deterioration in credit quality. The increase in the minimum capital requirement has already led some banks to strengthen their capital, but is putting many of the smaller banks under severe pressure to find funding. Moreover, continued dominance of the two leading banks, which account for more than 80 percent of total deposits and place a significant portion of their assets abroad (traditionally Europe, but now also increasingly African countries) remains a potential source of instability, in light of the risks arising from the concentration of their bank loan portfolios, the exposure to interest rate risk abroad, and the tail risk of a European financial crisis, which might cause siphoning of liquidity out of the country.

23. These vulnerabilities may be exacerbated by possible governance problems in the banking sector. Despite significant improvement, there are still weaknesses in the prudential and regulatory framework, the size of the banking sector is relatively large compared with the small Djiboutian economy, and most banks are small and recently established. As a result, credit concentration remains excessive (in 2011, seven banks exceeded the single-borrower limit of 25 percent of net capital), connected lending is believed to be pervasive, and internal governance structures are often weak, especially in the smaller banks.

24. The authorities continue their efforts to strengthen bank supervision. With the support of Fund technical assistance, the CBD is introducing regulation that puts into effect the 2011 banking law. The CBD now also requires banks to submit prudential ratios and income statements on a quarterly basis, which will allow the CBD to compile financial soundness indicators more frequently. The CBD has conducted onsite inspection of five banks and one micro-finance institution in 2011, and, in 2012, intends to conduct onsite inspection of five banks, five foreign-exchange bureaus (of which three have already been inspected), and two micro-finance institutions.

25. Central bank governance has improved, but the recent update safeguards assessment underlined persisting weaknesses. In particular, the update safeguards assessment pointed to a limited oversight by the board of directors, continued lack of an internal audit function, and statutory noncompliance. Nevertheless, the CBD has implemented some of the key 2009 safeguards assessment recommendations, including the adoption of the official timetable for quarterly meetings (structural benchmark for end-June 2011) and the full publication of the 2010 audited financial statements of the CBD (structural benchmark for end-December 2011), which was completed in April 2012.

IV. Program Issues and Risks

26. The authorities are requesting waivers on the basis of the performance criteria set up during the fourth review of the program (CR/12/169, 6/24/2011). Since the end-December performance criteria could not be modified to include the revised targets discussed during the fifth review mission, the authorities request waivers for nonobservance of end-December 2011 performance criteria for the government balance (the performance criterion set in CR/12/169 was missed by about 0.4 percent of GDP), net credit to the government (the performance criterion set in CR/12/169 was missed by 1.1 percent of GDP), and non-accumulation of domestic arrears (missed by less than 0.01 percent of GDP in December 2011, by 0.05 percent in January 2012, and by 0.09 percent in February 2012). The waiver on the government balance is justified by the corrective actions (commitment to a budget surplus in 2012 guided by quarterly targets beyond program end, agreed with staff). The waiver on net credit to the government is justified by the temporary nature of the deviation, which was caused by the one-off increase in the annual domestic arrears repayment, and the remedial actions (commitment to a budget surplus which would lead to the strengthening the government’s position vis-à-vis the banking system). The waiver on domestic arrears is justified by the minor deviation from program objectives.

27. The authorities confirmed their strong interest in a successor program. During the mission, the authorities and staff held preliminary discussions on the objectives and timing of a possible successor arrangement. Staff underlined the importance of pursuing sound policies after the end of the ECF, and to this end, proposed quarterly quantitative indicative targets to end-2012, which the authorities agreed to follow.

28. The program is fully financed. Over the remaining program period, the authorities are expected to mobilize sufficient exceptional financing from multilateral and bilateral creditors on concessional terms. Donors will continue to support Djibouti mainly through grant and loan project financing, while expected budget support is relatively limited. However, given the high current account deficit and the possible delays in the donor meeting, financing needs may arise in the second half of 2012.

29. The program and policy implementation beyond the ECF expiration in June are vulnerable to a number of risks:

  • Wavering political commitment, resulting from vested interests or a flare-up of domestic social unrest, among other causes;

  • Administrative capacity constraints, combined with shortfalls in technical assistance from donors, which could possibly affect the authorities’ ability to implement reform;

  • Slowdown in growth driven by a fall in activity in Ethiopia or a worldwide growth slump, given Djibouti’s economic reliance on traffic through the Suez Canal;

  • Diversion of shipping to other ports in the region, in particular Aden following the improvement of security in Yemen; and

  • Fall in international reserves to unsustainable levels—threatening currency board coverage—in case capital inflows and official financing are insufficient to finance the high current account deficit.

V. Staff Appraisal

30. The program is broadly on track. Despite the impact of the commodity price shock and the drought—which keeps affecting Djibouti—the authorities have maintained spending discipline, made sufficient progress on their structural reform program, and committed to strong policies for 2012. The 2011 program outcome deviated from the end-December 2011 performance criteria for the budget balance and net credit to the government set in CR/12/169 (6/24/11). However, staff considers that the broad objectives of the program continue to be met given that the 2011 outcome is in line with the revised framework agreed with the authorities and endorsed by Directors at the approval of the fifth review.

31. Staff therefore supports the authorities’ requests for the completion of the sixth review and the waivers of nonobservance of performance criteria. Staff supports the waivers for the nonobservance of the end-December performance criteria on the budget balance and net credit to the government, and of the continuous performance criterion on the non-accumulation of domestic arrears, in light of the minor deviations from the program objectives and the corrective actions undertaken by the authorities.

32. Under the currency board regime, which has served the country well, macroeconomic stability hinges on sound fiscal policy. Staff welcomes the authorities’ commitment to a budget surplus of 0.5 percent of GDP for 2012, which will depend on continued efforts to raise tax collection and resist spending pressures. The higher-than-programmed repayment of domestic arrears in 2011 will help restore the public enterprises’ balance sheets, but financing from the budget rather than the banking sector would have been preferable. The lack of consultation with staff before taking this major decision is disappointing.

33. Reform of the fiscal sector is essential. Given the importance of exemptions reform, it is unfortunate that the obligation for tax-exempted companies to submit tax returns could not be enforced, even though the publication of the list of these enterprises has to be welcome as a step toward the calculation of tax expenditures. The plans for reform of the fuel subsidy will help to contain budget spending and better target the needs of the poor. However, the authorities should also improve transparency of the opaque food subsidy system.

34. The CBD should continue focusing on the implementation of the banking law and the possible governance issues in the banking sector. The financial system appears sound, but, in light of high credit growth and the increase in the number of banks in recent years, the authorities should carefully monitor banking sector developments and be vigilant toward the increase in risks and possible governance issues in the banking sector. They should also be alert to a possible reversal in the positive money and credit trends, which may be heralded by last year’s contraction in broad money.

35. Staff is ready to discuss a possible successor program. The completion of the review presents an important opportunity for the authorities to take stock of the implementation of the ECF and reflect on the objectives for a successor program. In the period before a new arrangement, the implementation of sound policies, particularly in the fiscal area, the continued reliance on concessional financing, and the completion of the outstanding structural benchmarks will be critical.

Table 1.

Djibouti: Selected Economic and Financial Indicators, 2009–17

(Quota: SDR 15.9 million)

(Population: 0.818 million; 2009)

(Per capita nominal GDP: $1,383; 2010)

(Poverty rate: 42 percent; 2002)

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Sources: Djibouti authorities; and IMF staff estimates and projections.

In 2009 includes externally financed projects of public enterprises guaranteed by the government, amounting to 3.7 percent of GDP.

Does not include repayment of arrears to public enterprises accumulated in 2009. Repayment of these arrears is included in current expenditure in 2010–12.

In 2009, includes special and general allocation of SDR 14 million.

Gross foreign assets of the CBD in percent of monetary liabilities (reserve money and government deposits at CBD).

Table 2.

Djibouti: Central Government Fiscal Operations, 2009–12

(In millions of Djibouti francs)

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Sources: Djibouti authorities; and IMF staff estimates and projections.

Includes €7.5 million of ITS personal income taxes from the French millitary, as per leasing agreement.

Annual leasing fees from French (€30 million) and US (US$30 million) military bases, which include the payment of TIC. on behalf of French soldiers. From Q3 2010, includes US$3 million from Japanese military base.

In 2009, includes externally financed projects of public enterprises guaranteed by the government, amounting to 3.7 percent of GDP.

In 2010–12 includes the repayment of arrears to public enterprises accumulated in 2009.

Includes €5 million (out of a total of €30 million) of foreign-financed current spending from French military as per leasing agreement. The budget classifies this amount as domestic investment spending.

Excludes housing subsidies.

Revised from 2010 to exclude salaries. In 2011 includes only social spending as defined in TMU.

Defined as domestic revenue minus expenditure financed from domestic sources.

Table 3.

Djibouti: Central Government Fiscal Operations, 2009–12

(In percent of GDP)

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Sources: Djibouti authorities; and IMF staff estimates and projections.

Includes €7.5 million of ITS personal income taxes from the French military, as per leasing agreement.

Annual leasing fees from French (€30 million) and United States (US$30 million) military bases, which include the payment of TIC on behalf of French soldiers. From Q3 2010, includes US$3 million from Japanese military base.

In 2009, includes externally financed projects of public enterprises guaranteed by the government amounting to 3.7 percent of GDP.

In 2010–12 includes the repayment of arrears to public enterprises accumulated in 2009.

Includes €5 million (out of a total of €30 million) of foreign-financed current spending from French military as per leasing agreement. The budget classifies this amount as domestic investment spending.

Excludes housing subsidies.

2010 GDP was revised compared to program.

Defined as domestic revenue minus expenditure financed from domestic sources.

Table 4.

Djibouti: Balance of Payments, 2009–12

(In millions of U.S. dollars, unless otherwise indicated)

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Sources: Djibouti authorities; and IMF staff estimates and projections.

Includes the French and U.S. contributions for the military bases and outflows of interest due on Paris and non-Paris Club debt.

Excludes exceptional financing.

In 2009, includes special and general allocation of SDR 14 million.

Table 5.

Djibouti: Monetary Survey and Banking Sector Indicators, 2008–12

(End-of-period, in millions of Djibouti francs, unless otherwise indicated)

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Sources: Djibouti authorities; and IMF staff estimates and projections.

In 2009, includes special and general allocation of SDR 14 million.

Table 6.

Djibouti: Financial Soundness Indicators, 2000–11

(In percent, unless otherwise indicated)

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Source: Central Bank of Djibouti; and IMF staff estimates.

Nonperforming loans include three loan classifications: watch, doubtful, and loss. Revised from 2006 to exlcude old NPLs of a liquidated bank.

Maximum single borrower limit is defined as 25 percent of capital (K3-1).

Based on minimum capital.