News Brief: IMF Completes Djibouti's Review Under the PRGF Arrangement and Approves US$5 Million Disbursement
November 30, 2001
IMF Completes Djibouti's Review Under the PRGF Arrangement and Approves US$5 Million Disbursement
The Executive Board of the International Monetary Fund (IMF) today completed the second review of Djibouti's performance under the Poverty Reduction and Growth Facility (PRGF)1. As a result, Djibouti will be able to draw up to SDR 3.635 million (about US$5 million).
Djibouti's three-year arrangement was originally supported under the Enhanced Structural Adjustment Facility (ESAF) approved on October 18, 1999 (see Press Release 99/50), for SDR 19.082 million (about US$24 million). So far, Djibouti has drawn SDR 5.452 million (about US$7 million) under the arrangement.
After the Executive Board's discussion on Djibouti, Eduardo Aninat, Deputy Managing Director and Acting Chairman, stated:
"Following fiscal slippages in 2000 and delays in implementing structural reforms, the Djibouti authorities have implemented a set of corrective measures to regain control of public finances through the adoption of a cash flow plan, a revised budget for 2001, and a number of reforms in the areas of direct taxation and expenditure management. These measures and reforms were instrumental in sharply reducing the level of budgetary arrears, keeping spending under control since April 2001, and bringing the PRGF-supported program back on track. On that basis, waivers were granted for the nonobservance of performance criteria in 2000 and the second review was completed.
"At the same time, economic growth remains sluggish, unemployment high, and poverty widespread. To establish the conditions for sound and lasting growth, policy implementation should be strengthened in the context of the program, which aims at fiscal consolidation and broad-based structural reforms. Fiscal discipline, the cornerstone of this program, is predicated on a reduction of the wage bill through the civil service retirement and military demobilization programs so as to support higher expenditure on social programs as well as the clearing of budgetary arrears. Fiscal consolidation will hinge in particular on the pension funds reform which aims at making the financial position of the pension funds sustainable over the long term and allow quick implementation of the civil service retirement plan. The adoption in early 2002 of a plan to repay gradually the entire stock of budgetary arrears, following an audit of those arrears, as well as additional transparency in public sector operations will be important steps toward restoring credibility in government operations. The steadfast implementation of the recently adopted privatization strategy together with the streamlining of preferential tax systems will contribute to a durable improvement in the business climate and growth prospects in general.
"The authorities have prepared a comprehensive Interim Poverty Reduction Strategy Paper, which provides a sufficient basis for the development of a full PRSP and concessional support from the IMF under the Poverty Reduction and Growth Facility. The authorities are encouraged to build upon this commendable effort and to broaden the participatory process, improve poverty data and analysis, and sharpen the growth strategy in order to formulate a comprehensive poverty reduction strategy in 2002," Mr. Aninat said.
1 On November 22, 1999, the IMF's facility for low income countries, the Enhanced Structural Adjustment Facility (ESAF), was renamed Poverty Reduction and Growth Facility (PRGF), and its purposes were redefined. It is intended that PRGF-supported program will in time be based on country-owned poverty reduction strategies articulated in a Poverty Reduction Strategy Paper (PRSP). This is intended to ensure that each PRGF-supported program is consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. The Djibouti authorities' policies for supporting the poverty reduction efforts are in line with the interim PRSP. PRGF loans carry an annual interest rate of 0.5 percent, and are repayable over 10 years with a 5 ½-year grace period for principal payments.