Djibouti and the IMF
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The International Monetary Fund (IMF) today approved a three-year loan for Djibouti under the Enhanced Structural Adjustment Facility (ESAF)1 in an amount equivalent to SDR 19.082 million (about US$26.5 million) to support the government's three-year economic reform program beginning July 1999. The first annual loan will be disbursed in three installments. The first installment in an amount equivalent to SDR 2.726 million (about US$3.8 million) will be available shortly.
In commenting on the Executive Board's discussion of Djibouti's request for the loan arrangement, Mr. Shigemitsu Sugisaki Deputy Managing Director of the IMF, made the following statement:
"Directors welcomed Djibouti's authorities' decision to pursue a comprehensive medium-term adjustment program under the ESAF arrangement, aimed at strengthening macroeconomic policies and deepening structural reforms, in order to accelerate growth, raise employment levels, reduce poverty, and strengthen the external position.
"Directors commended the authorities' intentions to continue a tight fiscal policy stance, while still increasing outlays for social programs and infrastructure investment. In particular, noting the importance of poverty reduction, they underscored the need to provide adequate expenditure allocations for health, education and social safety nets. Directors noted that realizing the program's fiscal objectives would require steadfast implementation of the envisaged tax reform program, the containment of non-priority expenditures--particularly through reductions in the wage bill and the implementation of the demobilization and civil service reform programs. Directors also urged the authorities to accelerate the settlement of arrears in a timely manner.
"Directors encouraged the authorities to persevere in their economic restructuring program, which they considered essential for a fundamental improvement in competitiveness and overall economic performance. In this regard, they underscored the importance of pressing ahead with the privatization program, the freeing up of markets--including in particular the labor market--and reforms in tax, pension, and financial sector.
"Directors recognized that the ambitious reform agenda represented a major challenge for the authorities, and that timely financial assistance on concessional terms and substantial technical assistance from the international community would be essential for the success of the program," Sugisaki said.
During 1996-98, Djibouti made substantial progress, under an IMF-supported reform program, in reducing macroeconomic imbalances. Inflation declined, and in 1998 the price level was relatively stable. The government implemented important structural measures, in particular the demobilization of military and security personnel, civil service downsizing, reduction in the government wage structure, and banking system reforms.
The medium-term reform program aims at establishing an environment conducive to private sector-led role in the growth process, as well as to an enhancement of the country's social indicators. The authorities recognize that the strengthening of macroeconomic policies and far-reaching structural reforms directed at a restructuring of the economy are essential for realizing their overall policy goals of accelerating economic growth and raising per capita income, increasing employment, reinforcing domestic financial stability, and strengthening the external position.
Macroeconomic objectives for the 1999-2002 period entail real GDP growth of 3% on average, annual inflation limited to 2%, and an overall balance of payments deficit contained at 2.5% of GDP on average.
The medium-term fiscal stance will be directed at maintaining macroeconomic stability and strengthening the external position. To this end, the authorities will pursue fiscal restraint to limit the budget deficit to 3% of GDP on average.
The structural reform program includes tax, revenue administration, and budget management reforms, as well as completion of the demobilization program; adoption of a retirement program; and a civil service reform, which together would ensure a further lowering of the wage bill. It also entails the reorientation of budget outlays toward priority purposes--particularly for the education and health sectors and the social safety nets; pension fund reform; banking sector reforms; significant privatization program; deregulation; and legal reforms--including those of the labor and commercial codes and the establishment of commercial courts.
The authorities' poverty reduction strategy encompasses three components: higher economic growth, increased outlays for education and health and the social safety net. In the latter area an employment-creation program will be implemented over 2000-03, and a re-insertion program will provide training for demobilized personnel. A Social Fund Program will address the rehabilitation of education and health infrastructure.
Djibouti joined the IMF on December 29, 1978 and its quota is SDR 15.90 million (about US$22.08 million). Its outstanding use of IMF financing currently totals SDR 6.91 million (about US$9.60 million).
1 The ESAF is a concessional IMF facility for assisting eligible members that are undertaking economic reform programs to strengthen their balance of payments and improve their growth prospects. ESAF loans carry an interest rate of 0.5% and are payable over 10 years with a 5 ½-year grace period.
IMF EXTERNAL RELATIONS DEPARTMENT