News Brief: IMF Completes Third Review Under Djibouti's PRGF Arrangement and Approves US$6 Million Disbursement
December 20, 2002
The Executive Board of the International Monetary Fund (IMF) today completed the third review of Djibouti's performance under an economic program supported by the Poverty Reduction and Growth Facility (PRGF). As a result, Djibouti will be able to draw up to SDR 4.543 million (about US$6 million) immediately.
The Executive Board also waived Djibouti's non observance of performance criteria pertaining to the ceiling on the stock of outstanding domestic budgetary arrears, the ceiling on the stock of outstanding external arrears of the government and public enterprises, the ceiling on commercial bank net credit to the government; the floor on net international reserves of the central bank and on domestic budgetary receipts; the retirement of some civil servants and government employees eligible for retirement; the non accumulation of new external arrears; and the reporting of data on foreign trade, revenue expenditure and budgetary arrears.
Djibouti's three-year arrangement was originally approved on October 18, 1999 (see Press Release No. 99/50) under the former Enhanced Structural Adjustment Facility (ESAF) for SDR 19.082 million (about US$26 Million). So far Djibouti has drawn SDR 9.09 million (about US$12 million) under the arrangement.
The PRGF is the IMF's concessional facility for low income countries. It is intended that PRGF-supported programs are based on country-own poverty reduction strategies adopted in a participatory process involving civil society and development partners and articulated in a Poverty Reduction Strategy Paper (PRSP). This is intended to ensure that PRGF-supported programs are consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5 ½-year grace period on principal payments.
After the Executive Board's discussion on Djibouti, Mr. Shigemitsu Sugisaki, Deputy Managing Director and Acting Chair, stated:
"The Djibouti authorities are to be commended for improving fiscal discipline, introducing greater transparency in public finances, and strengthening the legal framework for financial operations. However, economic growth remains too slow to reduce widespread poverty and high unemployment, and a comprehensive strategy to promote private investment and job creation is therefore urgently needed.
"The fiscal situation improved in 2002, enabling the authorities to increase budget expenditures on priority social sectors. Going forward, a reduction of the public wage bill will be key to free additional resources for efforts to alleviate poverty. To strengthen public finances, the authorities made headway in reforming the tax system, modernizing the tax administration, and strengthening public expenditure management. They are committed to continue these efforts, including by preparing the administration for the introduction of a value added tax.
"The completion of a comprehensive audit of domestic budgetary arrears and adoption of a plan to eliminate them over ten years, as well as the progress in normalizing relations with external creditors are welcome. It will now be important to further strengthen external debt monitoring and data management with assistance from the World Bank and UNCTAD, and to avoid the accumulation of new official external arrears.
"While progress was made in reforming the pension funds and privatizing the management of the Djibouti International Airport, a broad-based and sustained structural reform effort will be needed to improve prospects for growth and poverty reduction significantly. The new institutional framework, recently established to coordinate implementation of economic policy and reform, should be effectively used toward this objective.
"The authorities made progress in preparing a full Poverty Reduction Strategy Paper (PRSP). Further steps to finalize the strategy will include deepening the participatory process, developing an effective socio-economic database and a reliable monitoring system, and costing of poverty reduction programs and its integration into a sustainable macroeconomic framework.
"The occurrence of an incident of misreporting to the Fund related to the clearance of external arrears is regrettable. As the incident was minor, the arrears have meanwhile been cleared, and the authorities are taking steps to improve external debt management, no remedial action is called for," Mr. Sugisaki said.