## 1djiea2019002 ## Source details **Canonical URL:** [1djiea2019002](https://www.imf.org/-/media/files/publications/cr/2019/1djiea2019002.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2019/1djiea2019002.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2019/1djiea2019002.pdf.json) --- ### Recent macro-financial developments - Official reserves decreased by $112 million in 2018, bringing reserve coverage to 3.2 months of imports (excluding imports for re-exports). - Staff’s broad measure of the fiscal deficit (including investment spending for two large projects—railway and water pipeline) fell from 15.7 percent of GDP in 2015 to 2.5 percent of GDP in 2018. - Public and publicly guaranteed debt rose from 34 percent of GDP in 2013 to about 71 percent in 2018. - Real GDP growth (annual percentage change): 2015: 7.7; 2016: 6.9; 2017: 5.1; 2018: 5.5. - Consumer prices (annual average): 2015: -0.8; 2016: 2.7; 2017: 0.6; 2018: 0.1. - Financial sector: NPLs about 18 percent of total claims in Q1 2019; ratio of capital to risk-weighted assets about 13½ percent at end‑March 2019; credit to the private sector grew by 8 percent in 2018 and 10.7 percent in Q1 2019; only one in four adults have a bank account. ### Fiscal stance, debt vulnerabilities, and public investment - Investment-led development strategy delivered strong growth but increased debt vulnerabilities. - Domestically-financed capital spending constrained by: - lower budget support (declined from 2.9 to 0.9 percent of GDP during 2015–18); - a reduction in the tax-to-GDP ratio reflecting widespread tax exemptions (tax revenue: 14.2 percent of GDP in 2015 → 13.3 percent of GDP in 2018); - rising debt service costs. - Railway loan: - Represents about 16 percent of GDP. - Initially scheduled to start amortizing in 2020; delays prompted discussions with Exim Bank of China. - Memorandum of understanding reported to extend the loan’s grace period and maturity substantially, reduce the interest rate, and restructure past due interests; new terms reduced the present value of the debt-to-GDP ratio by 4 percentage points. - Other external PPG arrears: 1.6 percent of GDP as of end-June (with 0.8 percent pending conversion/cancellation, 0.5 percent diplomatic disputes, 0.2 percent technical arrears). - Executive Directors’ recommendations (selected): - develop a medium-term fiscal policy framework with a policy anchor consistent with debt sustainability; - reduce the pace of borrowing, including strict limits on government guarantees and SOE borrowing; - prioritize concessional financing; - enhance domestic resource mobilization by reducing tax exemptions and special regimes; - continue Fund assistance on capacity development for tax collection and customs administration; - strengthen fiscal governance, public procurement, and SOE governance (including performance contracts). ### Monetary, external, and financial sector issues - Currency board arrangement provides an effective nominal anchor; maintain currency board at current parity (DF 177.721 = US$1). - External position: - Staff’s analysis: external position weaker than implied by fundamentals; REER overvaluation estimated between 5 and 26 percent (Annex VI). - Underlying current account balance (excluding re-exports) hovered around -2 percent of GDP over 2013–18; estimated at -0.8 percent in 2018. - Errors and omissions averaged -23 percent of GDP over 2013–18; large negative errors and omissions (-33 percent of GDP on average over 2014–18 in some analyses) signal BoP data weaknesses. - Reserves and NIIP: - Gross official reserves (US$ millions): 2017: 556 → 2018: 445. - Gross official reserves (months of next year's imports, exc. re-exports): 2017: 4.3 → 2018: 3.2. - NIIP weakened from US$-0.48 billion in 2013 (-23 percent of GDP) to an estimated US$-2.15 billion (-73 percent of GDP in 2018). - Financial sector reforms and risks: - Some banks lost correspondent banking relationships (CBRs) but new CBRs were rapidly established, increasing cost and time for transactions. - Directors urged upgrading banks’ regulatory environment and strengthening supervision; improving AML/CFT framework to limit corruption opportunities and preserve CBRs; improving access to finance and reinforcing risk‑based supervision. ### Structural reforms and social outcomes - Structural reform priorities: - strengthen contract enforcement and property rights; - reduce production costs, particularly in electricity and telecommunications; - raise skills of Djiboutian nationals to enhance labor productivity; - fully implement the anti‑corruption framework and strengthen institutional capacity to stimulate private investment. - Social outcomes and labor market: - 2017 household survey: about half of the working‑age population is not in the labor force, and 47 percent of those in the labor force are unemployed. - A fifth of the population lives in extreme poverty. - Poverty indicators (selected): Poverty headcount ratio at $3.20/day (2017): 40.0 and 56.4 (two-column presentation); GINI Index (2017): 41.6 and 40.5. ### Outlook, risks, and policy priorities - Staff baseline assumptions and projections (selected): - Significant reduction in debt-financed public investment; no additional mega-projects financed through external debt are incorporated. - Overall budget deficit projected to reach 1.2 percent of GDP by 2024. - External PPG debt projected to decline to about 60 percent of GDP by 2024. - Real GDP growth projected to remain about 6.0 percent annually over 2019–2024. - Underlying current account expected to improve to 2.6 percent of GDP by 2024. - Assumes SOEs will generate necessary cash flows to repay project-related loans. - Debt service: projected to increase over the next few years despite railway loan restructuring and water pipeline loan amortizing from 2022. - Downside risks (selected): - Domestic: delays in reform implementation; engagement in new debt-financed mega-projects; failure to raise returns on infrastructure and SOE profitability. - External: regional geopolitical strains; slowdown in Ethiopia’s trade; cancellation of DP World contract with reputational and fiscal costs; worsening global financial conditions raising interest costs; renewed pressures on CBRs; higher global oil prices. - Key policy priorities: - reduce debt vulnerabilities and borrowing; develop a medium-term fiscal framework and debt strategy; improve public investment and debt management; strengthen SOE oversight; reduce tax expenditures to create fiscal space for poverty‑reducing spending; enhance AML/CFT framework and banking supervision to preserve CBRs and financial stability; rapidly operationalize key projects to generate revenues for debt service. ### Debt sustainability assessment and debt management recommendations - DSA conclusions: - Staff’s Bank‑Fund DSA concludes Djibouti is at high risk of debt distress. - Debt is assessed sustainable under current terms (authorities expected to be able to service debt), but the PV of external debt-to-GDP and debt service-to-revenue ratios breach thresholds during most of the projection period. - Coverage and data issues: - DSA coverage is public and publicly guaranteed (PPG) debt; SOEs’ non-guaranteed external debt and domestic SOE debt not fully consolidated. - Financing and restructuring specifics: - Railway loan: loan represents about 16 percent of GDP; memorandum of understanding extends grace period by 5 years, extends maturity by 10 years, reduces interest rate to LIBOR + 210 bps (from LIBOR + 300 bps); arrears on interest accumulated during discussions equal 1.2 percent of GDP and were restructured into principal. - New terms reduced PV of debt-to-GDP ratio by 4 percentage points and smoothed total debt service (peak now expected at 4.5 percent of GDP in 2025 versus 5.3 percent of GDP in 2022 before restructuring). - Key debt management and policy recommendations: - Develop a medium-term debt strategy and strengthen debt management capacity. - Introduce a formal ceiling on external PPG debt (staff suggested) and strict limits on government guarantees and SOE borrowing. - Aim to bring the NPV of PPG debt-to-GDP and debt service-to-revenue ratios back to “moderate” risk levels within 5–6 years. - Example target: NPV of PPG external debt-to-GDP ratio below 35 percent (equivalent to a nominal debt-to-GDP ratio of about 47 percent). - Estimated requirement: an overall public sector primary surplus of around 0.9 percent of GDP annually (compared to an implicit public-sector primary balance of -1½ in the baseline). - With a central government primary deficit projected at about 0.1 percent of GDP, SOEs would need to achieve a surplus of about 1 percent of GDP. - Prioritize concessional financing and FDI; strengthen public investment management, SOE governance, public procurement, cash management (TSA), and transparency. ### Select key statistics and projections (historical and medium-term) - Broad measure of deficit (including large projects): 2015: 15.7 percent of GDP → 2018: 2.5 percent of GDP. - Public and publicly guaranteed debt: 34 percent of GDP in 2013 → about 71 percent of GDP in 2018. - Gross official reserves (US$ millions): 2017: 556 → 2018: 445 → 2019 (projection): 422. - Gross official reserves (months of next year's imports, exc. re-exports): 2017: 4.3 → 2018: 3.2 → 2019: 3.0 → 2024: 3.2. - External public and publicly guaranteed debt (US$ millions): 2017: 1,951 → 2018: 2,087 (71.4 percent of GDP). - Real GDP (annual growth): 2015: 7.7; 2016: 6.9; 2017: 5.1; 2018: 5.5; 2019: 6.0; 2020–2024: 6.0 each year. - Investment (Fixed capital investment, percent of GDP): 2015: 32.4; 2016: 29.9; 2017: 22.8; 2018: 16.6; 2019: 17.1; 2024: 14.7. - Tax revenues (percent of GDP): 2015: 14.2; 2016: 13.9; 2017: 13.5; 2018: 13.3; 2024: 11.9. - Overall balance (cash basis, percent of GDP): 2015: -15.7; 2016: -8.6; 2017: -4.6; 2018: -2.5; 2024: -1.2. - External public and publicly guaranteed debt (percent of GDP): 2015: 49.8; 2016: 62.9; 2017: 70.5; 2018: 71.4; 2024: 59.5. - PV of PPG external debt-to-GDP ratio (select projections): 2019: 53.1; 2020: 52.8; 2021: 53.1; 2022: 53.4; 2024: 49.2; 2029: 32.5; 2039: 17.8. - PPG debt service-to-revenue ratio (select years): 2019: 13.1; 2020: 16.6; 2021: 16.2; 2022: 18.8; 2024: 19.5. ### Policy recommendations (prioritized actions) - Rapidly ramp up operations of key projects to generate revenues for debt service (e.g., operationalize rail connections to ports; secure railway and electricity supply; finalize commercial agreements with large water customers). - Reduce the pace of borrowing and prioritize concessional financing and FDI for suitable projects. - Develop and implement a medium-term fiscal framework with a debt anchor; introduce limits on guarantees and SOE borrowing; consider a formal PPG debt ceiling. - Strengthen public investment management, SOE governance (audit coverage, performance contracts), public procurement, and cash management (implement a Treasury single account). - Enhance domestic resource mobilization: design a strategy to rationalize special tax regimes and exemptions (tax expenditure implicit costs identified at more than 7 percent of GDP), broaden the tax base, and build tax and customs capacity. - Improve AML/CFT effectiveness, bolster bank supervision, modernize payment systems and the credit bureau, and operationalize the credit guarantee fund to improve access to finance and preserve correspondent banking relationships. - Improve BoP and trade statistics, expand coverage of fiscal accounts beyond central government, and collect SOE financial information to better monitor public sector liabilities. ### Geopolitical and social context - Instability in neighboring countries generated significant refugee flows; refugees account for about 3 percent of the population. - Tense relations with DP World following the government’s decision to break a container terminal management contract; in February 2018 the government seized control of the container terminal and the London Court of International Arbitration ruled the contract could not be revoked; authorities contested the decision and were not represented in court. - Recent improvements in diplomatic relations between Eritrea, Djibouti, Ethiopia, and Somalia could ease regional tensions. *Source: Content unit 1djiea2019002 (IMF).* ### 2018. Official reserves decreased by $112 million in 2018, bringing the reserve coverage to ### 2018. Official reserves decreased by $112 million in 2018, bringing the reserve coverage to ### Recent macro-financial developments - Official reserves decreased by $112 million in 2018, bringing reserve coverage to 3.2 months of imports (excluding imports for re-exports). - Staff’s broad measure of the fiscal deficit (including investment spending for two large projects—railway and water pipeline) fell from 15.7 percent of GDP in 2015 to 2.5 percent of GDP in 2018, driven by reduced spending related to these projects. - Public and publicly guaranteed debt rose from 34 percent of GDP in 2013 to about 71 percent in 2018. - On the Djibouti‑Addis Ababa railway project, delays prompted discussions with the creditor and an agreement has been reached to smooth the debt repayment profile. ### Fiscal stance, debt vulnerabilities, and public investment - Investment-led development strategy delivered strong growth but increased debt vulnerabilities. - Domestically-financed capital spending has been constrained by: - lower budget support; - a reduction in the tax-to-GDP ratio due to widespread tax exemptions; - rising debt service costs. - Authorities have initiated restructuring discussions and reached an agreement to smooth the railway loan repayment profile. - Executive Directors recommended: - developing a medium-term fiscal policy framework with a policy anchor consistent with debt sustainability; - reducing the pace of borrowing, including strict limits on government guarantees and SOE borrowing; - prioritizing concessional financing; - enhancing domestic resource mobilization by reducing tax exemptions and special regimes; - continued Fund assistance on capacity development for tax collection and customs administration; - strengthening fiscal governance, public procurement, and SOE governance (including performance contracts). ### Monetary, external, and financial sector issues - Currency board arrangement provides an effective nominal anchor and was judged appropriate by Directors. - The external position is weaker than implied by fundamentals and desired policy settings; reforms to enhance external competitiveness were highlighted. - Financial sector remains fragile despite progress cleaning up bank balance sheets; financial inclusion is low. - Some banks lost correspondent banking relationships (CBRs) but new CBRs were rapidly established, helping preserve financial flows and stability. - Directors urged: - upgrading banks’ regulatory environment and strengthening supervision; - making the AML/CFT framework more effective to limit corruption opportunities and preserve correspondent banking relationships; - improving access to finance and reinforcing risk‑based supervision. ### Structural reforms and social outcomes - Structural reforms prioritized to achieve broad-based private‑sector led growth, job creation, and poverty reduction: - strengthen contract enforcement and property rights; - reduce production costs, particularly in electricity and telecommunications; - raise skills of Djiboutian nationals to enhance labor productivity; - fully implement the anti‑corruption framework and strengthen institutional capacity to stimulate private investment. - Social outcomes: - Despite high growth and improved access to public services, unemployment and poverty remain high. - 2017 household survey: about half of the working‑age population is not in the labor force, and 47 percent of those in the labor force are unemployed. - A fifth of the population lives in extreme poverty. ### Outlook, risks, and policy priorities - Staff baseline assumes a significant reduction in debt‑financed public investment while growth remains strong, supported by expansion in Ethiopia’s trade and a pickup in private investment. - Expected improvements in the underlying current account balance, but debt service is set to increase over the medium term. - Downside risks: delays in addressing debt vulnerabilities, regional geopolitical tensions, and a slowdown in Ethiopian trade. - Key policy priorities: - reduce debt vulnerabilities and borrowing; - ramp up operations of key projects given projected debt service increases; - develop a medium‑term fiscal framework, improve public investment and debt management, and strengthen SOE oversight; - reduce tax expenditure to create fiscal space for poverty‑reducing spending and debt reduction; - enhance the AML/CFT framework and banking supervision to preserve CBRs and financial stability. ### Select key statistics (2015–18 and related) - Broad measure of deficit (including large projects): 15.7 percent of GDP in 2015 → 2.5 percent of GDP in 2018. - Public and publicly guaranteed debt: 34 percent of GDP in 2013 → about 71 percent of GDP in 2018. - Gross official reserves (US$ millions): 556 in 2017 → 445 in 2018. - Gross official reserves (months of next year's imports, exc. re-exports): 4.3 in 2017 → 3.2 in 2018. - External public and publicly guaranteed debt (US$ millions): 1,951 in 2017 → 2,087 in 2018 (71.4 percent of GDP). - Overall balance (cash basis): -15.7 (2015) → -2.5 (2018) [percent of GDP]. - Real GDP growth (annual percentage change): 7.7 (2015), 6.9 (2016), 5.1 (2017), 5.5 (2018). - Consumer prices (annual average): -0.8 (2015), 2.7 (2016), 0.6 (2017), 0.1 (2018). - Gross foreign assets of commercial banks (US$ millions): 1,423 in 2017 → 1,345 in 2018 (9.7 months of next year's imports in 2018). *DJIBOUTI — STAFF REPORT FOR THE 2019 ARTICLE IV CONSULTATION* ### 5. In addition, Djibouti faces a complex geopolitical environment. Instability in some ### 1djiea2019002 - 5. In addition, Djibouti faces a complex geopolitical environment. ### Geopolitical and social context - Instability in some neighboring countries has generated a significant flow of refugees, with the latter now accounting for about 3 percent of the population. - Recent improvements in diplomatic relations between Eritrea, Djibouti, Ethiopia, and Somalia could ease regional tensions and conflicts. - Relations with DP World became tense after the government’s decision to break a contract regarding the management of a container terminal; in February 2018 the government seized control of the container terminal. The London Court of International Arbitration ruled that the contract could not be revoked; the authorities indicated they were contesting the decision and were not represented in court. ### Recent macro-financial developments - Real GDP growth decreased to 5.1 percent in 2017 and recovered to an estimated 5.5 percent last year. - Inflation was 0.1 percent in 2018, driven by declining food prices. - The real effective exchange rate depreciated by about 3 percent since early 2017, supported by declining inflation and the U.S. dollar’s depreciation against the euro. - Staff’s broad measure of the overall fiscal deficit (including expenditures associated with two large SOE projects) fell from 15.7 percent of GDP in 2015 to 2.5 percent of GDP in 2018, driven by the reduction in spending related to these projects. ### Fiscal developments and public finances - Budget support declined from 2.9 to 0.9 percent of GDP during 2015–18. - Tax revenue decreased from 14.2 to 13.3 percent of GDP over 2015–18, reflecting special tax regimes and exemptions for large and fast-growing sectors (FTZs, military bases, investment code). - Domestically-financed capital expenditure was cut by close to 4 percent of GDP. - The interest bill has picked up significantly due to government servicing of SOE-related loans and interest indexed to LIBOR. - The railway loan represents about 16 percent of GDP and was initially scheduled to start amortizing in 2020; delays prompted discussions with Exim Bank of China to restructure the loan. - The memorandum of understanding on the railway loan restructurings is reported to extend the loan’s grace period and maturity substantially, reduce the interest rate, and restructure past due interests; the new terms reduced the present value of the debt-to-GDP ratio by 4 percentage points. - Other arrears on external PPG debt amounted to 1.6 percent of GDP as of end-June (described as delays in conversion/cancellation agreements and arrears of a technical or diplomatic nature). ### Current account, reserves, and external flows - The overall current account balance swung between -30 and +30 percent of GDP over 2013–17, driven by changes in inventories associated with re-export activities. - Staff’s estimated underlying current account balance (excluding re-export trade) hovered around -2 percent of GDP over the period. - The current account balance reached 15 percent of GDP in 2018 due to a reduction in inventories for re-exports. - The underlying current account balance is estimated to have reached -0.8 percent, driven by an increase in imports for the domestic market, repatriation of investment revenues, and a decrease in official grants. - Errors and omissions averaged -23 percent of GDP over 2013–18, indicating possible over-estimation of balances and weaknesses in trade and balance of payments statistics. - Official reserves decreased by $112 million in 2018, bringing reserve coverage to 3.2 months of imports (excluding imports for re-exports). ### Financial sector and inclusion - Nonperforming loans (NPLs) peaked at 22½ percent in 2016 following the bankruptcy of two private oil companies and tightened loan classification; NPLs were about 18 percent of total claims in Q1 2019. - The ratio of capital to risk-weighted assets was about 13½ percent at end-March, above the regulatory threshold of 12 percent. - Credit to the private sector grew by 8 percent in 2018 and 10.7 percent in Q1 2019, but remains only one third of GDP. - Financial inclusion remains low: only one in four adults have a bank account. - Correspondent banking relationships (CBRs) have come under pressure; some banks lost relationships but new CBRs have been rapidly established, increasing the cost and time for transactions. ### Outlook and risk scenarios - Baseline assumptions: - Significant reduction in debt-financed public investment over the coming years; no additional mega-projects financed through external debt are incorporated. - Broadly stable government balance excluding foreign-financed expenditures over the medium term. - Overall budget deficit projected to reach 1.2 percent of GDP by 2024. - External PPG debt projected to decline to about 60 percent of GDP. - Real GDP growth projected to remain about 6 percent annually over the projection period, supported by pick-up in Ethiopia’s trade, increased transshipment, and a pickup in private-sector investment. - Underlying current account expected to improve to 2.6 percent of GDP by 2024. - Assumes SOEs will generate necessary cash flows to repay project-related loans. - Debt service: - Despite restructuring of the railway loan and a water pipeline loan set to start amortizing in 2022, debt service is projected to increase over the next few years. - Downside risks highlighted: - Domestic: delays in reform implementation to ensure debt sustainability; engagement in new debt-financed mega-projects; failure to raise returns on infrastructure and SOE profitability; limited space for central government consolidation. - External: regional geopolitical strains; rising trade tensions; slowdown in international or Ethiopia’s trade; cancellation of DP World contract with reputational and fiscal costs; worsening global financial conditions raising interest costs; renewed pressures on CBRs causing financing disruptions; higher global oil prices than in the baseline. - Authorities’ view: - Authorities were more optimistic, envisaging real GDP growth increasing to about 8½ percent by 2024, and expressed confidence in mobilizing SOE resources to service project debt and in the water pipeline project’s ability to pay for itself according to existing schedules. ### Policy discussions and recommendations - Main development challenge: turn public infrastructure investments into broad-based, private-sector-led growth, job creation and poverty reduction while addressing mounting debt vulnerabilities and the risk of a dual economy where fast-growing trade/logistics sectors do not sufficiently increase fiscal revenues, jobs, or poverty reduction. - Staff emphasized macroeconomic and structural policies to: - Maintain macroeconomic stability and reduce debt vulnerabilities. - Create space for poverty-reducing expenditure. - Ensure monetary, financial, and external stability. - Foster private sector investment and job creation. - Governance reforms emphasized across state functions to: - Strengthen fiscal governance, including management and oversight of SOEs, public procurements, and cash management to improve spending efficiency and reduce fiscal risks. - Ensure regulatory frameworks foster a level playing field. - Promote AML/CFT and anti-corruption frameworks to encourage transparency and accountability. - Specific measures recommended to address debt vulnerabilities and preserve macro stability: - Rapid ramp up of operations of key projects to generate revenues for debt service (operationalize rail connections to ports; secure railway and electricity supply; finalize commercial agreements with large water customers; strengthen regional cooperation on projects). - Reduce the pace of borrowing and prioritize concessional financing and FDI for suitable projects to limit fiscal consequences. - Strengthen the fiscal framework, public investment management, SOE oversight, and debt management capacity. - Better prioritize spending and mobilize more revenues through tax policy. - Authorities broadly agreed with staff recommendations, acknowledged capacity constraints, and recognized the importance of structural reforms and governance strengthening (noting efforts under Vision 2035). ### Debt sustainability assessment - Staff’s Debt Sustainability Analysis (Bank-Fund DSA) concludes Djibouti is at high risk of debt distress. - Despite the railway loan restructuring easing near-term debt service prospects and debt being assessed as sustainable under current terms, the PV of external debt-to-GDP and the debt service-to-revenue ratios still breach thresholds during most of the projection period. *Source: Content unit 1djiea2019002 (IMF).* ### 25. Staff recommended developing a medium-term debt strategy and strengthening debt ### 25. Staff recommended developing a medium-term debt strategy and strengthening debt management ### Debt management and fiscal framework - Develop a medium-term debt strategy and strengthen debt management to anchor macroeconomic management. - Introduce a formal ceiling on external PPG debt (staff suggested this as part of high-level debt policy priorities). - In cooperation with the World Bank, authorities prepared a reform plan to: - improve coordination between agencies that contract and manage debt, - increase transparency, - develop a medium-term strategy. - Operationalize the recently-created national committee in charge of public debt issues. - Strengthen capacity to perform DSAs, publish regular reports, and modernize accounting practices. - Authorities broadly agreed with staff’s assessment but did not prioritize the debt ceiling immediately, preferring to strengthen inter-agency coordination first; staff noted both aspects were important. - Authorities saw a role for Fund capacity development support in these areas. Key numeric and calibration guidance: - Aim to bring the net present value (NPV) of PPG debt-to-GDP and debt service-to-revenue ratios back to levels consistent with “moderate” risk of external (and overall) debt distress within 5–6 years. - Example target: reach an NPV of PPG external debt-to-GDP ratio below 35 percent (well below the 40 percent threshold established in the DSA and equivalent to a nominal debt-to-GDP ratio of about 47 percent). - Estimated requirement: an overall public sector primary surplus of around 0.9 percent of GDP annually, compared to an implicit public-sector primary balance of -1½ in the baseline scenario. - With a central government primary deficit projected at about 0.1 percent of GDP over this period, SOEs would need to achieve a surplus of about 1 percent of GDP. - Staff analysis: REER overvaluation of between 5 and 26 percent (Annex VI). - International reserves coverage currently stands at 3.2 months of imports (excluding re-exports flows). ### Tax policy, revenue mobilization, and spending prioritization - Tax policy reforms to enhance domestic resource mobilization and generate fiscal space for priority spending and debt reduction. - With IMF TA support, authorities prepared their first report on tax expenditures and published a summary with the 2019 budget law. - Staff encouraged broadening the report’s scope, notably to analyze the impact of FTZs regimes. - The report identified implicit costs of more than 7 percent of GDP. - Staff recommended designing a strategy to rationalize special tax regimes and exemptions and broaden the tax base, while preserving attractiveness for investment through structural reforms. - Continue building capacity in tax and customs administrations, strengthen controls, and ensure effective dispute management systems. - Reforms to enhance SOEs profitability would help mobilize additional resources through higher taxes and dividends. - On spending: scope for better prioritization—recommend a functional expenditure review to identify staffing needs and prioritize recruitment. - Commendation for introducing the Social Program Registry and completing the 2017 household survey to improve targeting of poverty-reduction programs. ### SOE governance, public investment management, procurement, and cash management - SOE governance: - Strengthen governance and oversight of SOEs to reduce costs, improve service quality, and control debt accumulation. - Authorities have started auditing a few large SOEs to identify SOEs that no longer fulfil a public purpose and those that require support. - Progress in implementing the Code of Good Governance for SOEs (adopted in 2016) has been limited; staff recommended accelerating implementation, preparing performance contracts, and reinforcing the ministry of finance’s monitoring capacity. - Advise introducing limits on public guarantees and requiring SOEs to obtain formal government authorization to contract debt without a guarantee. - Public investment management: - Improve procedures for selecting, evaluating, planning, implementing, and managing future investments, including PPPs, to ensure projects are economically profitable and limit fiscal risks. - Public procurement: - Strengthen procurement practices (including for SOEs) to preserve government resources and foster efficiency gains. - Note: 2009 procurement law better aligned legal framework with international practices, but vulnerabilities remain (risk of conflicts of interest, absence of civil society role in complaints). - Staff welcomed a World Bank-supported evaluation (MAPS) and the authorities’ plan to set up an online platform for public procurements. - Cash management: - Improve cash forecasting and consolidate government accounts into a Treasury single account (TSA) to limit domestic and external arrears. - Prerequisites: analyze existing bank agreements and accounts, review IT capabilities of the central bank and concerned ministries. - Authorities have started making an inventory of bank accounts and expressed interest in follow-up TA. ### Monetary, external, and financial stability - Currency board: - The currency board arrangement is appropriate; it provides an effective nominal anchor and predictability in international transactions. - Authorities and staff agree to maintain the currency board at the current parity. - Strengthen the external position through structural reforms to improve external competitiveness and policies addressing debt vulnerabilities. - External position and reserves: - International reserves coverage: 3.2 months of imports (excluding re-exports flows). - Staff analysis suggests the external position is weaker than implied by fundamentals, with REER overvaluation between 5 and 26 percent. - Financial stability and supervision: - Central Bank of Djibouti (CBD) implementing a multiyear action plan to strengthen banking regulation and supervision; progress on Basel Committee standards (capital definition, internal controls, risk management, asset classification and provisioning). - Staff recommended implementing newly-adopted regulations (asset classification and provisioning of old claims; governance; capital adequacy buffers; exposures to affiliated parties) and sustained efforts to clean up banks’ balance sheets. - Fund’s Financial Sector Stability Review (FSSR) scheduled for later this year to assess vulnerabilities and design a capacity development plan. - AML/CFT: - Progress made: upgraded legislative and regulatory framework; Djibouti became a member of MENAFATF. - CBD strengthening AML/CFT supervision; FIU stepped up suspicious transaction analysis. - Areas needing improvement: - enhance AML/CFT risk-based supervision and compliance (beneficial ownership verification, detection/reporting of suspicious activities related to PEPs), - enhance transparency and availability of beneficial ownership information, including in the free trade zone, - strengthen FIU operational independence and capacity, - ensure law enforcement properly uses financial intelligence, - properly prosecute ML/TF offenders and apply effective sanctions. - Staff encouraged CBD to continue monitoring correspondent banking relationships (CBRs) and maintain communication with foreign regulators. - Authorities aim to strengthen AML/CFT effectiveness ahead of MENAFATF mutual evaluation scheduled for 2023. - Central bank governance: - Progress in response to 2012 safeguards assessment: audit function developed, audit committee created, efforts to publish audited financial statements. - Staff recommended further strengthen board oversight and autonomy, bolster internal control and audit, and adopt an action plan for implementation of International Financial Reporting Standards. - Authorities noted need to prioritize reforms due to resource constraints. ### Structural reforms to foster higher and more inclusive growth - Priority: private sector development and job creation given limited fiscal space, need to bolster external competitiveness, and reduce poverty. - Djibouti’s Vision 2035 aims to strengthen economic diversification via reforms (improving business climate, reducing factor costs, supporting SMEs, and large-scale infrastructure projects). - Business climate: - Significant progress in simplifying business creation, facilitating access to finance, protecting minority investors, and registering property. - Doing Business rank improved from 171st to 99th between 2017 and 2019. - Staff encouraged further reforms to strengthen contract enforcement and property rights. - Lowering production costs and raising labor productivity: - Electricity and telecommunication prices are high. - Support for strengthening Djibouti Telecom governance and setting up an independent regulator as a step toward opening the telecommunications sector to competition. - Electricity: improve governance and management of the national operator to encourage private investment, lower costs, and improve service quality. - Labor costs are high compared to regional peers; prudent public sector wage policy and improved education quality to raise labor productivity. - Anti-corruption: - Perception of corruption is a major obstacle to private sector activity. - Staff recommended: assess corruption risks and develop a strategy, strengthen independence and capacity of the National Anti-Corruption Commission, improve law enforcement and courts capacity to enforce against corruption, and enhance implementation of asset declaration system (ensure all senior officials submit disclosures and publish them in the official gazette as required by law). - Leverage the AML framework to detect and deter corruption and proceeds of corruption. - Access to finance: - Improve access to and reduce cost of financing to support private sector development. - Creation of a national register of loan guarantees welcomed. - Encourage modernization of the credit bureau and operationalization of the new credit guarantee fund. - Streamline judicial procedures for commercial cases. - CBD efforts to modernize payment systems and strengthen financial stability to reduce transaction risks and costs. ### Statistics and capacity development - Progress made in national accounts statistics and financial soundness indicators; improvements in exchange of information and coordination between government bodies. - Remaining shortcomings: balance of payments statistics (large errors and omissions), and further progress needed on gathering SOEs’ financial information to monitor the public sector’s financial situation. - Authorities developing surveys of firms in the FTZs to improve understanding of trade and financial flows. - Staff and authorities agreed on a capacity-development (CD) strategy (Annex VII) for the next 18 months with priority CD activities including: - Debt management TA on developing a medium-term debt strategy / Training on debt-sustainability analysis. - Public financial management TA on developing a medium-term fiscal framework and cash management (including implementing a Treasury single account). - Tax policy follow-up TA on tax expenditure report and TA on tax policy diagnosis and strategy. - Bank supervision and regulation follow-up TA and a Financial Sector Stability Review. - Statistics TA and training on external sector, government finance and public sector debt, national accounts statistics, and data dissemination. *Source: DJIBOUTI — INTERNATIONAL MONETARY FUND (staff report excerpts).* ### 43. The newly-developed infrastructures present an opportunity for Djibouti. They position ### 1djiea2019002 - 43. The newly-developed infrastructures present an opportunity for Djibouti. They position ### Opportunity and growth prospects - The newly-developed infrastructures position the country well to become a regional logistics and trade hub and leverage the rapid expansion in Ethiopia’s trade and transshipment activities. - This should allow growth to remain robust over the medium term, at about 6 percent annually. ### Debt vulnerabilities and strategy - Debt is assessed to be sustainable, as the authorities are expected to be able to service it under current terms. - Djibouti faces a high risk of debt distress in light of the high net present value of external debt and debt service-to-government revenue ratio. - Policy recommendations: - Ramp up operations of key projects and boost their profitability to generate the resources necessary for debt service. - Develop high-level debt policy objectives supported by efforts to: - (i) reduce the pace of borrowing, including through strict limits on government guarantees and SOE borrowing embedded in an explicit debt strategy; and - (ii) prioritize concessional financing and FDI. - Advance reforms to develop a medium-term fiscal framework and a fiscal anchor consistent with debt sustainability. - Implement institutional reforms to strengthen public investment management, SOEs oversight, and debt management capacity. ### Fiscal policy, revenues, and spending priorities - Tax revenues have lagged due to large tax expenditure, limiting the government’s ability to redistribute the growth dividends more widely. - Enhancing domestic resource mobilization is necessary to create fiscal space for poverty-reducing spending and debt reduction. - Policy recommendations: - Design and implement a strategy to reduce the significant implicit costs from tax exemptions and special regimes. - Enhance tax collection and customs administration (authorities’ plans are welcome). - Better prioritize spending to create space for spending targeted at the most vulnerable households. ### Fiscal governance and public sector efficiency - Strengthening fiscal governance would help enhance government efficiency. - Measures to pursue: - Improve SOEs governance, including by expanding the coverage of audits and accelerating preparation of performance contracts. - Continue efforts to assess the public procurement framework and enhance its effectiveness. - Improve cash management, including by adopting a treasury single account. ### Exchange rate regime and external competitiveness - The currency board arrangement has remained appropriate; it has provided an effective nominal anchor, fostering low inflation and confidence. - The external position is weaker than implied by fundamentals and desired policy settings. - Recommendation: Bolster the external position through reforms aimed at enhancing external competitiveness via a reduction in internal costs and continued efforts to strengthen the business environment. ### Financial sector stability and inclusion - Financial sector policies should continue to focus on strengthening stability and inclusion. - Recommended actions: - CBD should continue to upgrade banks’ regulatory environment and reinforce risk-based supervision. - Continue efforts to modernize the credit bureau, operationalize the credit guarantee fund, and modernize the payment system to improve access to, and reduce the cost of, finance. - Place emphasis on making the AML/CFT framework more effective to limit opportunities for corruption and preserve CBRs. ### Private sector investment and competitiveness - Authorities should continue to address impediments to private sector investment. - Areas of focus: - Sustain reforms to improve the business environment to strengthen contract enforcement and property rights. - Lower production costs by fostering competition in the telecommunications’ sector and making the national electricity company more efficient to boost external competitiveness and job creation. - Raise labor productivity by enhancing the skills of Djiboutian nationals. - Fully implement the anti-corruption framework, including by strengthening the capacity of relevant institutions, to reduce the perception of corruption and enhance private investment. ### Capacity building priorities - Continued efforts to strengthen capacity are important to enhance policy analysis and implementation. - Priority areas include tax policy, public financial and debt management, financial sector regulation and supervision, and statistics, particularly for the external sector. *Source: 1djiea2019002 - 43.* ### 52. Staff recommends that the next Article IV consultation with Djibouti be held on the ### 1djiea2019002 - 52. Staff recommends that the next Article IV consultation with Djibouti be held on the ### Recommendation - Staff recommends that the next Article IV consultation with Djibouti be held on the standard 12-month consultation cycle. ### Selected economic indicators and projections (high-level) - Real GDP (annual growth): 2015: 7.7; 2016: 6.9; 2017: 5.1; 2018: 5.5; 2019: 6.0; 2020–2024: 6.0 each year. - Consumer prices (annual average): 2015: -0.8; 2016: 2.7; 2017: 0.6; 2018: 0.1; 2019: 2.2; 2020–2024: 2.0 each year. - Investment (Fixed capital investment, percent of GDP): 2015: 32.4; 2016: 29.9; 2017: 22.8; 2018: 16.6; 2019: 17.1; 2020: 18.4; 2021: 18.3; 2022: 16.2; 2023: 15.2; 2024: 14.7. - Gross national savings (percent of GDP): 2015: 60.1; 2016: 28.9; 2017: 19.3; 2018: 31.6; 2019: 16.9; 2020: 19.0; 2021: 19.4; 2022: 17.9; 2023: 17.5; 2024: 17.3. - Saving/investment balance (percent of GDP): 2015: 27.7; 2016: -1.0; 2017: -3.6; 2018: 15.1; 2019: -0.3; 2020: 0.6; 2021: 1.1; 2022: 1.7; 2023: 2.3; 2024: 2.6. - Unemployment rate and labor force participation (historical series shown in figures; detailed table not provided as numeric series in text). ### Fiscal accounts (central government) - Revenues and grants (percent of GDP): 2015: 26.3; 2016: 24.2; 2017: 23.6; 2018: 23.9; 2019: 23.1; 2020: 21.7; 2021: 20.7; 2022: 20.3; 2023: 19.6; 2024: 19.0. - Tax revenues (percent of GDP): 2015: 14.2; 2016: 13.9; 2017: 13.5; 2018: 13.3; 2019: 12.9; 2020: 12.7; 2021: 12.3; 2022: 12.3; 2023: 12.1; 2024: 11.9. - Nontax revenue (percent of GDP): 2015: 7.2; 2016: 7.2; 2017: 8.3; 2018: 7.2; 2019: 6.9; 2020: 6.7; 2021: 6.3; 2022: 6.1; 2023: 5.7; 2024: 5.5. - Grants (percent of GDP): 2015: 4.9; 2016: 3.2; 2017: 1.8; 2018: 3.4; 2019: 3.3; 2020: 2.3; 2021: 2.1; 2022: 1.9; 2023: 1.8; 2024: 1.7. - Expenditure (percent of GDP): 2015: 41.6; 2016: 32.5; 2017: 28.1; 2018: 26.7; 2019: 24.6; 2020: 23.4; 2021: 23.1; 2022: 21.1; 2023: 20.5; 2024: 20.0. - Current expenditure (percent of GDP): 2015: 16.3; 2016: 17.7; 2017: 17.7; 2018: 17.7; 2019: 16.7; 2020: 15.8; 2021: 15.2; 2022: 14.7; 2023: 14.3; 2024: 13.8. - Capital expenditure (percent of GDP): 2015: 25.3; 2016: 14.7; 2017: 10.4; 2018: 9.0; 2019: 8.0; 2020: 7.6; 2021: 7.9; 2022: 6.4; 2023: 6.3; 2024: 6.2. - Overall balance (commitment basis, percent of GDP): 2015: -15.3; 2016: -8.3; 2017: -4.5; 2018: -2.9; 2019: -1.5; 2020: -1.7; 2021: -2.4; 2022: -0.8; 2023: -0.9; 2024: -1.0. - Overall balance (cash basis, percent of GDP): 2015: -15.7; 2016: -8.6; 2017: -4.6; 2018: -2.5; 2019: -1.8; 2020: -1.9; 2021: -2.7; 2022: -1.0; 2023: -1.1; 2024: -1.2. - Financing composition (percent of GDP): Domestic financing: 2015: 0.0; 2016: 0.5; 2017: -0.5; 2018: 0.1; 2019: -1.0; 2020: -0.2; 2021: -0.2; 2022: 0.0; 2023: 0.0; 2024: 0.0. External financing: 2015: 15.7; 2016: 8.1; 2017: 5.1; 2018: 2.4; 2019: 2.8; 2020: 2.2; 2021: 2.8; 2022: 1.0; 2023: 1.1; 2024: 1.2. - Memo: Overall balance, excluding large projects (percent of GDP): 2015: -0.6; 2016: -2.0; 2017: -0.3; 2018: -1.6; 2019: -1.6; 2020: -1.5; 2021: -2.0; 2022: -1.0; 2023: -1.1; 2024: -1.2. ### External sector and balance of payments - Current account (US$ millions): 2015: 678; 2016: -26; 2017: -99; 2018: 441; 2019: -821; 2020: 40; 2021: 679; 2022: 9; 2023: 121; 2024: (table shows 121 for 2023 and unclear spacing; primary series above). - Current account (percent of GDP): 2015: 27.7; 2016: -1.0; 2017: -3.6; 2018: 15.1; 2019: -0.3; 2020: 0.6; 2021: 1.1; 2022: 1.7; 2023: 2.3; 2024: 2.6. - Underlying current account balance (US$ millions and percent of GDP defined as excluding re-exports): series provided in Table 1 (e.g., underlying CA levels and percent GDP shown; preserve source tables for detail). - Exports of goods and services (US$ millions): 2015: 3,438; 2016: 2,620; 2017: 4,067; 2018: 4,494; 2019: 4,755; 2020: 5,161; 2021: 5,610; 2022: 5,980; 2023: 6,374; 2024: 6,804. - Imports of goods and services (US$ millions): 2015: -2,982; 2016: -2,848; 2017: -4,306; 2018: -4,188; 2019: -4,935; 2020: -5,296; 2021: -5,722; 2022: -6,067; 2023: -6,426; 2024: -6,832. - Trade balance (US$ millions): 2015: 456; 2016: -228; 2017: -239; 2018: 307; 2019: -180; 2020: -135; 2021: -113; 2022: -87; 2023: -53; 2024: -28. - Foreign direct investment (FDI, US$ millions and percent of GDP): 2015: 124 (5.1 percent of GDP); 2016: 160 (6.1); 2017: 165 (6.0); 2018: 170 (5.8); 2019: 222 (7.0); 2020: 240 (7.0); 2021: 259 (7.0); 2022: 280 (7.0); 2023: 303 (7.0); 2024: 327 (7.0). - Gross official reserves (US$ millions): 2015: 355; 2016: 398; 2017: 556; 2018: 445; 2019: 422; 2020: 443; 2021: 466; 2022: 480; 2023: 516; 2024: 564. - Gross international reserves (months of next year's imports of goods and services, excl. re-exports): 2015: 3.1; 2016: 3.2; 2017: 4.3; 2018: 3.2; 2019: 3.0; 2020: 3.0; 2021: 3.0; 2022: 3.0; 2023: 3.1; 2024: 3.2. - External public and publicly guaranteed debt (US$ millions): 2015: 1,218; 2016: 1,647; 2017: 1,951; 2018: 2,087; 2019: 2,231; 2020: 2,342; 2021: 2,476; 2022: 2,602; 2023: 2,704; 2024: 2,783. - External public and publicly guaranteed debt (percent of GDP): 2015: 49.8; 2016: 62.9; 2017: 70.5; 2018: 71.4; 2019: 70.5; 2020: 68.4; 2021: 66.9; 2022: 65.0; 2023: 62.5; 2024: 59.5. ### Monetary and financial sector indicators - Broad money (end-period, millions of Djibouti francs): 2015: 279,448; 2016: 303,944; 2017: 370,565; 2018: 349,879; 2019: 379,255; 2020: 418,240; 2021: 456,760; 2022: 500,133; 2023: 551,069; 2024: 607,453. - Broad money growth (annual change, percent): 2015: 19.0; 2016: 8.8; 2017: 21.9; 2018: -5.6; 2019: 8.4; 2020: 10.3; 2021: 9.2; 2022: 9.5; 2023: 10.2; 2024: 10.2. - Net foreign assets (annual change, percent): 2015: 15.4; 2016: 8.0; 2017: 20.7; 2018: -6.2; 2019: 4.0; 2020: 6.5; 2021: 6.7; 2022: 6.4; 2023: 7.4; 2024: 7.9. - Net domestic assets (annual change, percent): 2015: 3.6; 2016: 0.7; 2017: 1.2; 2018: 0.6; 2019: 4.4; 2020: 3.7; 2021: 2.5; 2022: 3.0; 2023: 2.8; 2024: 2.3. - Credit to non-government (percent of GDP): 2015: 23.7; 2016: 22.6; 2017: 23.1; 2018: 24.5; 2019: 24.7; 2020: 24.9; 2021: 25.1; 2022: 25.3; 2023: 25.5; 2024: 25.7. - Currency board cover (ratio, percent): 2015: 104; 2016: 107; 2017: 104; 2018: 108; 2019: 109; 2020: 109; 2021: 109; 2022: 108; 2023: 108; 2024: 108. - Central bank gross foreign assets (US$ millions, memorandum): 2015: 355.4; 2016: 398.2; 2017: 557.2; 2018: 445.2; 2019: 422.2; 2020: 442.9; 2021: 466.4; 2022: 480.2; 2023: 515.5; 2024: 564.4. ### Banking sector soundness (selected indicators) - Regulatory capital to risk-weighted assets (percent): 2013: 9.4; 2014: 11.0; 2015: 13.5; 2016: 13.3; 2017: 14.1; 2018: 14.9; 2019Q1: 13.5. - Nonperforming loans to gross loans (percent): 2013: 15.3; 2014: 18.5; 2015: 19.8; 2016: 22.3; 2017: 16.3; 2018: 17.8; 2019Q1: 18.2. - Return on assets (ROA, percent): 2013: 1.3; 2014: 0.8; 2015: 0.8; 2016: 1.1; 2017: 0.7; 2018: 0.7; 2019Q1: 1.3. - Liquid assets to total assets (percent): 2013: 65.3; 2014: 62.9; 2015: 66.9; 2016: 67.5; 2017: 69.2; 2018: 64.2; 2019Q1: 61.2. - Liquid assets to short-term liabilities (percent): 2013: 70.5; 2014: 67.8; 2015: 71.9; 2016: 73.0; 2017: 74.9; 2018: 75.9; 2019Q1: 67.2. ### Sustainable Development Goals and inclusive growth indicators (selected) - Poverty: Prevalence of undernourishment (%) — 2005: 32.2; 2010: 22.3; 2015: 19.4; 2016: 19.7. - Health and education: Maternal mortality ratio — 2005: 341.0; 2010: 275.0; 2015: 229.0. Under-five mortality (per 1,000): 2005: 89.3; 2010: 76.7; 2015: 65.7; 2016: 63.7; 2017: 61.7. - Access and inclusion: Proportion of population with access to electricity (%) — 2005: 55.0; 2010: 53.3; 2015: 52.0; 2016: 51.8. Internet users per 100 inhabitants — 2005: 1.0; 2010: 6.5; 2015: 11.9; 2016: 13.1; 2017: 55.7. - Inclusive growth (selected): GDP per capita growth (2016-18 average): 3.7; Unemployment rate (2018): 11.1 (table also shows alternate series 5.6 in a two-column format); Gross Fixed Capital Formation (2016-18 average, percent of GDP): 39.9 and 23.6 in the two-column presentation. - Poverty headcount ratio at $3.20/day (percent of population; 2017): 40.0 and 56.4 (two-column presentation). - GINI Index (2017): 41.6 and 40.5 (two-column presentation). - Human Development Index (2017): 0.50 and 0.5 (two-column presentation). - Access to electricity (2016): 51.8 and 52.1 (two-column presentation). - Individuals using internet (2016): 13.1 and 19.5 (two-column presentation). - Female seats in Parliament (share of total seats, 2018): 26.2. *Sources: Djibouti authorities; and IMF staff estimates and projections.* ### Annex I. Data Revisions ### Annex I. Data Revisions ### Overview of the revision process - The authorities have overhauled national account and balance of payments (BoP) statistics, supported by technical assistance (TA) from the IMF and the World Bank. - The new national account and BoP data cover the period 2013–17. The authorities are planning to extend the revisions back to 2008. - Revisions reflect new information on activity in the ports and free trade zones (FTZs) and apply the general trade system to large trade flows channeled through Djibouti’s FTZs—mainly re-exports to neighboring countries, especially Ethiopia. - Improvements were also made to financial account statistics. ### Key empirical revisions and magnitudes - Nominal GDP was revised up by 38 percent compared to the last Article IV consultation. - Real GDP growth over 2014–16 was revised from 6.3 percent (at the time of the 2016 Article IV) to 7.3 percent. - Value added generated in the FTZs grew by about 10½ percent during 2014–17, and FTZ activity now accounts for one-fifth of the economy. - Imports and exports of goods and services were revised up significantly: about 3.5-fold for imports and about 6-fold for exports. - Current account statistics: - The current account balance was revised from an average deficit of US$366 million over 2013–16 to a surplus of US$140 million. - Staff estimates that the underlying current account balance (which excludes re-export activities) averaged about US$80 million over 2013–16. - Fiscal ratio revisions: - The revenue to GDP ratio over 2015–18 is now estimated at 24.5 percent against 32.6 percent in the last Article IV consultation staff report. - Coverage and volatility: - The latest statistics point to higher current account balance volatility, reflecting large variations in inventories associated with re-export activities. ### Remaining shortcomings and data quality issues - Information on activity in the FTZs is still incomplete. - BoP errors and omissions are very large: -23 percent of GDP on average over 2013–18, which points to a possible overestimation of the current account balance. - The statistical agency (INSD) is conducting surveys in the FTZs to better capture and classify trade flows and activity. - Improving the compilation of trade and financial flows is key to addressing shortcomings and facilitating analysis of the external position. _International Monetary Fund staff summary from Annex I. Data Revisions._ ### Annex V. Updated Risk Assessment Matrix ### Annex V. Updated Risk Assessment Matrix ### Global Risks — Findings and Recommended Policy Responses - Rise in protectionism and retreat from multilateralism - Relative Likelihood: High - Potential Impact: Medium. This could affect Djibouti’s export and real GDP growth prospects given the country’s dependence on transport and logistics services. - Recommended Policy Response: Accelerate structural reforms to promote private sector investment and diversify the sources of growth. - Sharp rise in risk premium - Relative Likelihood: High - Potential Impact: Medium-High. This could increase the interest payment burden (part of the debt is indexed to the LIBOR) and put renewed pressures on CBRs. - Recommended Policy Response: Adopt a debt strategy anchored on ensuring debt sustainability; limit new borrowing and avoid financing on non-concessional terms. Strengthen public debt management and SOEs governance. - Weaker-than-expected global growth in the Euro Area, the US, China or emerging markets - Relative Likelihood: Medium-High - Potential Impact: Low. This could affect Djibouti’s export and real GDP growth prospects through weaker service activities related to ports. It could also lower FDI and external financing prospects. - Recommended Policy Response: Diversify the economy and the sources of investment finance. - Large swings in energy prices (risks broadly balanced) - Relative Likelihood: Medium - Potential Impact: Medium. Fluctuations in oil prices would affect the budget and external position. - Recommended Policy Response: Create fiscal space and strengthen the external position. - Higher frequency and severity of natural disasters - Relative Likelihood: Medium-Low - Potential Impact: High. Djibouti is vulnerable to climate change. It faces an arid climate and most of the production capacity is located in coastal and other low-lying areas. - Recommended Policy Response: Create fiscal buffers for mitigation and adaptation policies. ### Regional Risks — Findings and Recommended Policy Responses - Intensification of security risks and conflicts in the region - Relative Likelihood: High - Potential Impact: Medium. This could affect foreign direct investment and growth and put further pressure on the budget in the case of additional security costs and refugee inflows. - Recommended Policy Response: Diversify the sources of growth and maintain a prudent fiscal policy to better absorb shocks. Seek donors’ assistance. - Slowdown in Ethiopian growth or reduced reliance on Djibouti ports by Ethiopia - Relative Likelihood: Low - Potential Impact: High. This would affect export, investment, real GDP growth, and fiscal prospects as Djibouti is the main access to the sea for Ethiopia and its activity is highly dependent on Ethiopia’s international trade. - Recommended Policy Response: Diversify economic activity (to reduce dependence on ports) and trade partners (expand trade networks to new markets in Africa and elsewhere – transshipment). ### Domestic Risks — Findings and Recommended Policy Responses - Failure to implement reforms needed to ensure debt sustainability - Relative Likelihood: Medium - Potential Impact: High. Notably if the authorities engage in new debt-financed mega-projects or fail to raise the return on infrastructures—would increase further debt vulnerabilities. - Recommended Policy Response: Adopt a medium-term fiscal framework with a debt anchor to ensure debt sustainability, strengthen debt management, improve governance of SOEs, strengthen investment management including selection and implementation of projects. - Lack of implementation of structural reforms - Relative Likelihood: Medium - Potential Impact: High. Resistance from vested interests to strengthen governance and foster private sector participation could reduce investment and export and GDP growth; weaken reserves coverage and maintain or increase poverty and inequalities. - Recommended Policy Response: Continue reform effort to improve the business environment, foster private sector activity, including foreign investment, and promote inclusive growth. *The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path. “Low” indicates probability below 10 percent, “medium” between 10 and 30 percent, and “high” between 30 and 50 percent. “Short term (ST)” and “medium term (MT)” indicate risks could materialize within 1 year and 3 years, respectively.* --- ### Annex VI. External Sector Assessment ### Summary Assessment - The currency board remains appropriate and has provided an effective nominal anchor. - On balance, staff’s analysis suggests the external position is weaker than implied by fundamentals and desired policy settings, with the magnitude of the current account gap and exchange rate misalignment subject to considerable uncertainty. - Import and export price elasticities are low; there is significant room to improve external competitiveness through structural reforms aimed at improving the business environment and reducing internal costs (especially electricity and telecommunications). - International reserve coverage is broadly in line with the estimated optimal benchmark for low-income countries. ### Key Findings and Statistics - Current account balances experienced large swings over 2013–18: balances ranged from -30 to +30 percent of GDP (overall current account). - Underlying current account balance (excluding import/re-export activities) hovered around 2 percent of GDP over 2013–18 (about -1 percent last year). - Underlying trade balance averaged about -15 percent of GDP. - Service balance averaged 11 percent of GDP, driven by transport and logistics services exports associated with the ports and free zone activity. - Errors and omissions were large and mostly negative (except in 2013), amounting to -33 percent of GDP on average over 2014–18. - Official reserves decreased by $112 million last year, lifting the currency board’s coverage to 108 percent of reserve money. ### Medium-Term Projections and Dynamics - Underlying current account balance projected to improve over the medium term: - Imports growth (goods and services, excluding re-exports) expected to gradually decline to about 4.5 percent annually as large-scale publicly-financed investment projects come to an end. - Export growth (goods and services, excluding re-exports) projected to rise from 5 percent in 2018 to about 6 percent annually over the medium term. - Overall current account balance projected to be 2.6 percent of GDP by 2024. - Foreign direct investment (FDI) projected to pick up gradually over the medium term and support reserves; international reserves expected to increase by about $25 million a year despite rising amortizations on external loans. ### Net International Investment Position (NIIP) and Reserves - NIIP weakened from US$-0.48 billion in 2013 (-23 percent of GDP) to an estimated US$-2.15 billion (-73 percent of GDP in 2018). - Djibouti has no portfolio investments; however, large external public debt (partly variable rate) and very large errors and omissions present risks to external sustainability. - Optimal reserve benchmark for low-income countries estimated at 3.4 months of imports (based on a marginal product of capital of 6.2 percent). - As of end-2018, Djibouti’s international reserves covered 3.2 months of imports (excluding imports for re-exports). - Reserve coverage projected to fall to 3 months of imports in 2019 and to gradually increase back to 3.2 months of imports by 2024. ### Real Effective Exchange Rate (REER) and External Position Assessment - REER broadly stable over the past decade, with about 3 percent depreciation since the last external sector assessment (2016); NEER broadly stable (+2 percent). - Staff’s EBA-lite analysis indicates REER overvaluation estimates vary by method, reflecting uncertainty: - EBA-lite regression-based REER model: small REER overvaluation of about 5 percent. - External sustainability approach: REER overvaluation of about 26 percent to stabilize the NIIP at its 2018 level. - EBA-lite regression-based CA model (given BOP uncertainties) suggests REER undervaluation of about 15 percent when using underlying CA; however, assuming large errors and omissions (-31 percent of GDP in 2018) correspond to unrecorded imports, the CA model would suggest an overvaluation of 57 percent. - Tabled model outputs (selected figures): - Net IIP (%GDP, 2018): -80.9 or -57.1 (rows reflect alternative assumptions) - CA Actual (2018): *-0.6 and -32.0 (cyclically adjusted marked with *) - CA Norm: *-5.9 and -5.9 - CA Gap: 5.4 and 26.0 - Elasticity: -0.36 and -0.46 and -0.36 - Ln(REER) Actual: 4.66; Ln(REER) Norm: 4.61; REER Gap: -14.75 7.15 5.02 26.1 (table entries reflect model variants) ### Policy Implications and Recommendations - Strengthen external sector position primarily by slowing the build-up of public sector external liabilities and implementing structural reforms to improve external competitiveness. - Given low import elasticity and that main foreign exchange sources (port services and military base rental fees) are not exchange-rate sensitive, focus on structural reforms to lower the cost of services (electricity, water, telecommunications) and improve the business and investment environment rather than relying on nominal exchange rate changes. - Improve the quality of BoP statistics to allow more precise external sector analysis. --- ### Annex VII. Capacity Development Strategy ### Macroeconomic Challenges (Assessment) - Overarching objective: turn infrastructure investments into broad-based and private sector-led growth and job creation, while ensuring debt sustainability. - Key challenges: foster higher and more inclusive growth with limited fiscal space; ensure debt sustainability; improve public financial management and spending efficiency; curtail tax expenditure; improve financial sector regulation and supervision. - Governance weaknesses (public procurement, PFM, central bank governance, regulatory frameworks, contract enforcement, AML/CFT) are cross-cutting constraints. ### Assessment of Recent Capacity Development (CD) Efforts and Achievements - IMF TA provided in fiscal issues (public financial management; tax policy and administration), banking supervision (including Islamic banking), and statistics (all sectors) through HQ-based and METAC missions. - Key accomplishments in the past year: - Preparation of tax expenditure report - Continued progress on upgrading bank regulatory and supervisory environment - Preparation of national account estimates for 2015–17 - Production of financial stability indicators consistent with international standards - Constraints: Low capacity to implement TA recommendations; slower progress in public financial management and statistical areas (trade and balance of payment statistics). - Authorities have used CEF training and other Fund courses, including on the new debt sustainability analysis framework; potential to better use IMF e-learning platforms. ### Main Priorities for IMF Technical Assistance and Training (next 18 months) - Tax policy: possible follow up on tax expenditure report and tax reform strategy to address widespread tax exemptions and special regimes (STX visits throughout FY2020). - Public financial management: cash management (cash forecasting, single treasury account); public investment management (capital budgeting short term; PIMA later); SOE governance; development of a medium-term fiscal framework. - Debt management: ongoing training on new IMF-WB DSA framework; TA to develop a medium-term debt strategy. - Macroeconomic statistics: (i) standards (e-GDDS), (ii) national accounts statistics (ongoing METAC program); (iii) BoP (follow up to recent BPM6 missions); (iv) government finance statistics (expand coverage of fiscal accounts beyond central government; public sector debt, including SOEs). - Financial regulation and supervision: risk-based financial supervision (ongoing METAC program); FSSR (FY2020) to provide overall diagnosis and underpin broader medium-term TA program. - AML/CFT framework: IMF Legal department expert participated in Article IV Consultation mission to identify weaknesses and make policy recommendations; further TA could be envisaged once progress has been made. --- ### Debt Sustainability Analysis — Key Conclusions and Policy Implications - A recent agreement in principle to restructure a large loan for a railway project has eased short-term debt service constraints, giving more time for the project to generate necessary resources. - The Debt Sustainability Analysis (DSA) concludes Djibouti is at high risk of debt distress. Rationale: - The PV of the external debt-to-GDP ratio breaches its threshold during 2019–26. - The debt service-to-revenue ratio increases and stays above its threshold from 2022 onward. - The DSA also concludes that authorities are expected to be able to service their debt under current debt terms and thus that debt is sustainable. - Recommended multifaceted approach to underpin debt sustainability: - Rapid ramp up of operations of several key projects to generate revenues necessary for debt service. - Reduce the pace of borrowing and prioritize concessional financing and FDI. - Reforms to strengthen the fiscal framework, public investment management, SOEs oversight, and debt management capacity. - Risk ratings reported: - Risk of external debt distress: High risk of debt distress - Overall risk of debt distress: High risk of debt distress - Granularity in the risk rating: Sustainable - Application of judgment: No - Date on document: September 10, 2019 *Prepared by the staffs of the International Monetary Fund and the International Development Association.* ### 1. The coverage of public debt used for this DSA is public and publicly guaranteed (PPG) debt. ### 1djiea2019002 - 1. The coverage of public debt used for this DSA is public and publicly guaranteed (PPG) debt. ### Coverage of public debt used in the DSA - The DSA coverage is public and publicly guaranteed (PPG) debt. - Specifically covered: - Central government external debt (accounted for 30 percent of total public debt at end-2018, excluding the loans contracted for the railway and the water pipeline). - Government guarantees on state-owned enterprises’ (SOEs) external debt. - Excluded or only partially captured: - SOEs’ non-guaranteed external debt is not consolidated at the central government level and therefore not included. - Domestic SOE debt is not captured. - Domestic debt contracted by the central government appears covered by authorities’ data (and hence included) and remains small. - As of December 2018: - Gross domestic credit to public nonfinancial corporations amounted to some 3.1 percent of GDP (monetary survey). - It is unclear whether this is guaranteed by the central government and the debt service is unknown, as neither the Ministry of Finance nor the Ministry of Budget track these debts and this is not captured in debt statistics. ### Data availability and definitional issues - Private external debt stocks and flows are largely unavailable, except for a 2017 loan by a company related to the Djibouti Free Trade Zone (FTZ) expected to be guaranteed when refinanced in 2019–20. - External debt is defined based on residency; there is a material difference with the criterion of currency denomination because domestic financial institutions can issue credits in foreign currency—mainly U.S. dollars—to local counterparts. - There is no domestic debt market open to foreign investors. - Footnote treatment: government guarantees on SOE external debt stem from loans contracted by the government that have been on-lent (accords de rétrocession); treated in the DSA as guaranteed by the government because the government remains borrower of record and payer of last resort. ### Sub-sectors covered (as presented) - Central government: X - State and local government: X - Guarantees (to other entities in the public and private sector, including to SOEs): X - Other elements in the general government: not captured (0 percent of GDP) - SoE's debt (guaranteed and not guaranteed by the government): 1/2 percent of GDP2 - PPP: 35 percent of PPP stock 15.43 (Based on the World Bank's PPP database) - Financial market: 5 percent of GDP - Total (2+3+4+5) (in percent of GDP): 22.4 ### Debt management capacity and institutional developments - Debt management capacity could be strengthened (World Bank’s DeMPA noted weaknesses). - Strengthening coverage of public debt, including recording and monitoring all SOE debt, is crucial for better risk assessment. - Authorities plan to establish a debt committee in 2019 to improve coordination between government entities that contract and manage debt and to address shortcomings in SOE debt oversight. ### Contingent liability stress test (method and assumptions) - Stress test accounts for risks from PPPs and financial markets. - The stress test applies a one-off increase in the debt-to-GDP ratio in the second year of projection composed of: - A starting value of 5 percent of GDP (average cost to the government of a financial crisis in a low-income country). - An additional value capturing PPPs contingent liabilities. - PPPs in Djibouti are limited to a few projects (mainly ports and a submarine broadband cable). - PPP contribution in the DSA: raises its contribution to the total contingent liability tailored shock by about 15½ percent of GDP, which corresponds to 35 percent of the total PPP stock as reported in the World Bank’s Private Participation in Infrastructure Database. ### Debt and budgetary developments (historical drivers) - Rapid debt accumulation since 2013 mainly reflects loan disbursements for three large infrastructure projects: - 2013: two large loans for Addis Ababa–Djibouti railway and a water pipeline from Ethiopia totaling US$814 million. - 2016: government-guaranteed loan of US$345 million to finance construction of a multipurpose port. - During 2014–18, disbursements related to these projects reached cumulative US$1.1 billion (around 71 percent of total disbursements over the period). - Consequences by end-2018: - Total PPG debt increased from 34 percent of GDP in 2013 to 72 percent of GDP. - External debt increased to 76 percent of GDP. - Share of government-guaranteed SOE debt—including debt for the railway and water pipeline—rose from 30 percent to 65 percent of external debt. - Share of central government domestic debt as percent of total public debt has been declining and is now marginal. ### Currency composition, interest rate exposure, and grant element - Currency composition shifts: - 2014 external debt denomination: Kuwaiti dinar 22 percent, U.S. dollar 20 percent, euro 10 percent. - 2018: dollar-denominated debt share increased to 60 percent. - Interest rate exposure: - Share of external debt with variable interest rate terms increased; interest on railway loan is tied to LIBOR. - Grant element on new external borrowing: - Average grant element on disbursements estimated at 31½ percent at end-2018. - Projected to peak at 37 percent in 2021 (due mainly to concessional financing from IDA and the Saudi Fund for Development). - Thereafter projected to decrease to 31 percent and remain stable in the medium term. ### Restructuring, arrears, and debt-service profile - Railway loan restructuring understanding: - Loan represents about 16 percent of GDP; was being serviced by the government and due to start amortizing in 2020. - Memorandum of understanding to extend grace period by 5 years, extend maturity by 10 years, and reduce interest rate to LIBOR + 210 bps (from LIBOR + 300 bps). - Arrears on interest accumulated during restructuring discussions (1.2 percent of GDP) restructured and integrated into principal to be repaid over extended period. - New terms reduced PV of debt-to-GDP ratio by 4 percentage points and smoothed total debt service: peak now expected at 4.5 percent of GDP in 2025 versus 5.3 percent of GDP in 2022 before restructuring. - External debt arrears as of end-June 2019: - External debt arrears on PPG external debt: 1.6 percent of GDP (reflecting delays in conversion/cancellation agreements and diplomatic/technical issues). - Breakdown: arrears pending conversion/cancellation or creditor conversion discussions: 0.8 percent of GDP; diplomatic disputes: 0.5 percent of GDP; technical arrears: 0.2 percent of GDP. - IMF staff assessment (excluding technical or diplomatic arrears per paragraph 90 of the LIC DSF guidance): external debt arrears stand at 0.9 percent of GDP and are assessed below the de minimis threshold of 1 percent of GDP. - IMF staff recommended quick capacity improvements in cash management, including technical assistance. ### Macroeconomic statistics revision and analytical adjustments - DSA based on newly revised national accounts and balance of payments statistics: - New national accounts reflect expanded information on ports and key enterprises in FTZs. - Nominal GDP revised upward by close to 38 percent compared to data used for last DSA (2017). - Imports and exports revised up significantly (3.5- and 6-fold respectively) due to inclusion of FTZ re-exports. - For debt-burden, debt-servicing capacity indicators and reserve adequacy: - Ratios exclude re-exports from total exports and imports of goods and services. - Underlying current account balance used adjusts for re-export-related large changes in imports and exports. ### Baseline projections and assumptions - Baseline assumes significant reduction in debt-financed infrastructure projects (no additional mega-projects). - Baseline envisages: - Broadly stable government balance excluding foreign-financed spending. - Primary fiscal deficit about ¼ percent of GDP on average over the medium-term. - Overall public sector primary deficit (including SOEs) about 1⅓ percent of GDP on average over the medium-term. - Nominal PPG debt projected to decline gradually to about 60 percent of GDP by 2024. - Growth projections: - Growth projected to remain at about 6 percent over the medium term, driven by strong export growth and pickup in FDI. - Underlying current account balance expected to improve to about 1⅓ percent of GDP on average in the medium term. - Long-term (2025–39) baseline: growth projected to hover at about 5 percent, primary fiscal balance and overall public sector primary balance assumed to improve to slightly below zero percent of GDP, and current account surplus to average 2½ percent of GDP. - Debt service path: - Despite railway loan restructuring, water pipeline loan starts amortizing in 2022 and debt service is set to increase over the medium term. - Baseline assumes SOEs will generate cash flow to repay project-related debt they manage. ### Risks (tilted to the downside) - Domestic risks: - Delays in implementing reforms to ensure debt sustainability (e.g., engaging in new debt-financed mega-projects or failing to raise returns on infrastructure and SOEs profitability) could worsen debt prospects. - Limited space for consolidation at central government level. - Slowdown in structural reforms, weaker governance, business climate deterioration, or reduced external competitiveness could reduce FDI and export growth, lower growth, and weaken reserves. - External risks: - Regional geopolitical tensions or slowdown in international or Ethiopia’s trade would adversely affect exports, investment, growth, and fiscal prospects. - Cancellation of DP World contract could cause reputational risks and fiscal costs. - Worsening global financial conditions could increase interest costs and worsen external financing prospects. - Renewed pressures on CBRs could create financing disruptions. - Higher global oil prices than in the baseline could weigh on the budget and external position. ### Selected numeric snapshots and projections (as reported) - Central government external debt accounted for 30 percent of total public debt at end-2018 (excluding railway and water pipeline loans). - Gross domestic credit to public nonfinancial corporations: some 3.1 percent of GDP (December 2018). - Cumulative disbursements related to the three large projects during 2014–18: US$1.1 billion (around 71 percent of total disbursements over the period). - Total PPG debt: 34 percent of GDP in 2013 → 72 percent of GDP at end-2018. - External debt: 76 percent of GDP at end-2018. - Share of government-guaranteed SOE debt in external debt: rose from 30 percent to 65 percent over 2013–18. - Dollar-denominated share of external debt: increased to 60 percent in 2018. - Average grant element on disbursements: 31½ percent at end-2018; projected to peak at 37 percent in 2021; thereafter projected to decrease to 31 percent. - Railway loan: represents about 16 percent of GDP; arrears on interest accumulated during restructuring discussions equal 1.2 percent of GDP. - Restructuring effects: PV of debt-to-GDP ratio reduced by 4 percentage points; debt service peak revised to 4.5 percent of GDP in 2025 from 5.3 percent of GDP in 2022 before restructuring. - External debt arrears on PPG external debt as of end-June 2019: 1.6 percent of GDP; excluding technical/diplomatic arrears: 0.9 percent of GDP. - Baseline fiscal balances: primary fiscal deficit about ¼ percent of GDP; overall public sector primary deficit about 1⅓ percent of GDP (medium-term average). - Nominal PPG debt projected to decline to about 60 percent of GDP by 2024. - Medium-term and long-term growth projections: about 6 percent (medium term) and about 5 percent (2025–39 long term). - Underlying current account balance: about 1⅓ percent of GDP (medium term); current account surplus averaging 2½ percent of GDP (long term). *Source: 1djiea2019002 - 1. The coverage of public debt used for this DSA is public and publicly guaranteed (PPG) debt.* ### 17. Financing assumptions have been updated to integrate more granularity on financing ### 17. Financing assumptions have been updated to integrate more granularity on financing terms ### Financing assumptions and projections - Debt service projections are based on the financing terms of the loans for which disbursements have started and loans for which borrowing agreements have already been signed. - Financing terms are aggregated by creditors to allow for more granularity in the assessment of concessionality. - The discount factor remains fixed at 5 percent, as approved by the IMF and World Bank Executive Boards in October 2013. - New disbursements for the central government and the SOEs through 2039 are broadly in line with past disbursements excluding the three recent mega projects—the Doraleh multipurpose port, the railway and the water pipeline—averaging about 3 percent of GDP annually. - Terms of new disbursements are assumed broadly consistent with past loans, excluding the loans for the large infrastructure projects. - The average grant element of new borrowing is projected to stabilize at 31 percent in the medium term. ### Realism tools, growth assumptions, and risks - The realism tools added to the new LIC DSA framework signal risks around the baseline projections. - The projected three-year primary balance adjustment stands at 3.5 percentage points of GDP. - The projected adjustment lies within the top quartile of past adjustments of primary balances in LIC countries under Fund-supported programs. - The realism tools flag optimism on GDP growth projections in the baseline given the magnitude of the fiscal adjustment. - Past forecast errors have been very large. - Baseline growth projections assume: - Decrease in capital expenditure will weigh on growth. - The underlying fiscal multiplier is low due to the substantial import content of the large projects. - Development in trade and transport infrastructure positions the country well to leverage rapid growth in Ethiopia’s trade. - Improved business climate is expected to give a more prominent role to private investment, including FDI, and exports in driving growth over the medium term. ### Country classification and stress test scenarios - Djibouti’s debt carrying capacity is classified as medium. - The composite indicator for debt carrying capacity accounts for the CPIA, real GDP growth rate, import coverage of reserves–adjusted for reexports–remittances and world economic growth. - Largest contributions to the composite indicator come from import coverage of reserves and the CPIA. - Calculation of the CI Index (as presented): - Components, Coefficients (A), 10-year average values (B), CI Score components (A*B) = (C), Contribution of components - CPIA: 0.385 | 2.988 | 1.154 | 1% - Real growth rate (in percent): 2.719 | 6.21 | 0.176 | % - Import coverage of reserves (in percent): 4.052 | 47.469 | 1.9268 | % - Import coverage of reserves^2 (in percent): -3.990 | 22.533 | -0.90 | -32% - Remittances (in percent): 2.022 | 0.000 | 0.000 | % - World economic growth (in percent): 13.520 | 3.579 | 0.4817 | % - CI Score: 2.831 | 100% - CI rating: Medium - Final: Medium | Medium | Medium | 2.83 | 2.74 - Standard stress tests applied: shocks on real GDP growth, the primary balance, exports and other external financing flows. - A shock on the exchange rate considered: a one-time 30 percent nominal depreciation. - Tailored stress tests on contingent liabilities include a shock from a financial market crisis and the materialization of a PPPs contingent liability. - Natural disaster, commodity price and market financing tailored stress tests do not apply to Djibouti. ### External debt sustainability findings - Based on the Bank-Fund LIC DSF guidance note, the external DSA indicates Djibouti is at high risk of debt distress. - This reflects: - The present value (PV) of external debt-to-GDP breaches its threshold during 2019–26. - The debt service-to-revenue ratio increases and stays above its threshold from 2022 onward. - Embedded numeric indicators (as presented): - PV of debt in % of Exports180 - GDP40 - Debt service in % of Export15 - Revenue18 - PV of total public debt in percent of GDP 55 - The DSA also concludes debt is sustainable as authorities are expected to be able to service their debt under current terms. - The debt-service-to-revenue liquidity ratio for external debt stands above its threshold after 2022, reflecting increased debt service as amortizations on the two loans contracted for the railway and water pipeline projects start falling due. - A recent understanding on the restructuring of the railway loan has considerably eased the debt service constraint in the short term, giving more time for the project to generate necessary resources. - The bound tests show: - The most extreme shock for the PV of external debt-to-GDP is contingent liabilities, which would raise the PV of the external debt-to-GDP ratio to 70 percent. - The most extreme shock for the debt service-to-revenues is the primary balance. - A shock to export revenues (e.g., slowdown in Ethiopia or international trade) would be the most extreme for PV of debt-to-exports and debt service-to-exports, although in both cases the ratios would remain below their thresholds. ### Public debt sustainability findings - Total public debt dynamics reflect the large share of PPG external debt in total public debt. - Under the baseline: - Overall public debt is projected to increase from 34 percent of GDP in 2013 to 72 percent at end-2018. - The PV of debt-to-GDP stands below the 55 percent benchmark throughout the projection horizon. - Simulations: - Under the historical scenario, public debt dynamics worsen as the primary fiscal deficit is wider than in the baseline. - Stress tests: - Solvency indicators are most vulnerable to combined contingent liabilities. - The liquidity indicator is most vulnerable to a one-time depreciation shock. - Exchange rate considerations: - Given the Djibouti franc’s exceptional stability vis-à-vis the dollar under the currency board, the DSA exchange rate stress scenario should be considered a tail risk event. - Bilateral movement of the U.S. dollar vs. other major currencies could contribute to adverse valuation effects, but this should be limited given the currency board linked to the U.S. dollar and the recent increase in the share of U.S. dollar-denominated debt. - A tightening of global financing conditions could pose important risks, as a sizeable share of external debt is linked to the LIBOR—particularly the debt related to the railway project. ### Risk rating, vulnerabilities, and policy recommendations - Overall assessment: - Djibouti is at high risk of external and overall debt distress (rating unchanged from the 2016 DSA). - The memorandum of understanding on restructuring the railway loan and clearance of external arrears (except de minimis arrears) has eased potential liquidity pressures over the next few years. - Under the baseline, the PV of external debt-to-GDP ratio and the debt service-to-revenue ratio stand above respective thresholds for prolonged periods. - Debt dynamics are particularly vulnerable to adverse contingent liabilities and overall public sector primary balance shocks. - While debt is considered sustainable under current terms, a multifaceted policy and reform approach is recommended: - Reduce the scope for new borrowing, especially on non-concessional terms. - Implement strict limits on guarantees and on-lending to contain contingent liabilities; embed these limits in an explicit debt strategy that lays out high-level policy priorities and anchors macroeconomic management. - Introduce a ceiling on PPG debt. - Adopt a medium-term fiscal framework to target medium-term objectives consistent with debt sustainability. - Reduce tax expenditure and enhance spending prioritization to generate fiscal space for poverty-reduction spending and debt reduction. - Improve public investment management and raise returns on existing and new investments to allow for additional resources to repay debt. - Strengthen governance and oversight of state-owned enterprises to control accumulation of debt and improve returns on investments. - Adopt a framework to identify, monitor and manage fiscal risks from contingent liabilities of SOEs. - Prioritize strengthening debt and cash management to bring Djibouti’s debt back to a sustainable trajectory and avoid the incurrence of arrears. - Accelerate reforms to improve the business climate and foster high private-sector led growth to contribute to re-establishing debt sustainability. *Source: 1djiea2019002 - 17. Financing assumptions have been updated to integrate more granularity on financing terms* ### 27. The authorities broadly agreed with staff assessment. They recognized the importance of ### 1djiea2019002 - 27. The authorities broadly agreed with staff assessment. They recognized the importance of ### Authorities’ assessment and policy stance - The authorities broadly agreed with staff assessment and recommendations, recognizing the importance of reducing debt vulnerabilities. - They expressed confidence about their capacity to service debt contracted for various projects by mobilizing resources from the SOEs managing them. - They highlighted that the restructuring of the railway project had contributed to ease pressures on the budget and expected the project to rapidly generate the revenues necessary to service the related debt. - The authorities did not see the debt ceiling as an immediate priority, preferring to strengthen inter-agency coordination first. - While acknowledging that reducing debt and debt service is important, the authorities felt that the DSA thresholds were overly conservative for a small economy with large investment needs, many related to projects aimed at fostering regional integration with large potential economic returns. ### Key external debt and DSA projections (selected series and indicators) - External debt (nominal) 1/ (Historical and Projections, select years; in percent of GDP unless otherwise indicated): - 2016: 62.9 - 2017: 75.7 - 2018: 76.3 - 2019: 70.5 - 2020: 68.4 - 2021: 66.9 - 2022: 65.0 - 2023: 62.5 - 2024: 59.5 - 2029: 41.9 - 2039: 21.4 - Of which: public and publicly guaranteed (PPG) (select years): - 2016: 62.9 - 2017: 70.5 - 2018: 71.4 - 2019: 70.5 - 2024: 59.5 - 2029: 41.9 - 2039: 21.4 - Change in external debt (select years): - 2016: 13.1 - 2017: 12.8 - 2018: 0.6 - 2019: -5.9 - 2020: -2.1 - 2021: -1.5 - 2022: -1.9 - 2023: -2.5 - 2024: -3.0 - 2029: -3.1 - 2039: 1.3 - Identified net debt-creating flows (select years): - 2016: -15.7 - 2017: -9.2 - 2018: -9.1 - 2019: -11.0 - 2020: -11.5 - 2021: -11.9 - 2022: -12.4 - 2023: -12.9 - 2024: -13.0 - 2029: -11.9 - 2039: -10.6 - Non-interest current account deficit (select years): - 2016: -7.6 - 2017: -1.1 - 2018: -0.3 - 2019: -0.9 - 2020: -2.3 - 2021: -2.9 - 2022: -3.4 - 2023: -4.0 - 2024: -4.2 - 2029: -3.4 - 2039: -2.7 - Deficit in balance of goods and services (select years): - 2016: 1.4 - 2017: 5.2 - 2018: 5.4 - 2019: 5.7 - 2020: 3.9 - 2021: 3.0 - 2022: 2.2 - 2023: 1.2 - 2024: 0.6 - 2029: 0.6 - 2039: 0.6 - Exports (percent of GDP, select years): - 2016: 44.3 - 2017: 47.9 - 2018: 47.8 - 2019: 46.7 - 2020: 46.1 - 2024: 43.3 - 2029 and 2039: 42.3 - Imports (percent of GDP, select years): - 2016: 45.8 - 2017: 53.1 - 2018: 53.2 - 2019: 52.3 - 2020: 50.0 - 2024: 44.5 - 2029 and 2039: 42.9 - Net FDI (negative = inflow) (select years): - 2016: -6.1 - 2017: -6.0 - 2018: -5.8 - 2019: -7.0 - Projections: consistently -7.0 through 2029 (with -6.3 in one average) - Endogenous debt dynamics (select years): - 2016: -2.1 - 2017: -2.1 - 2018: -3.0 - 2019: -3.1 - 2020: -2.2 - 2021: -2.0 - 2022: -2.0 - 2023: -1.9 - 2024: -1.9 - 2029: -1.4 - 2039: -0.9 - Contribution from nominal interest rate (select years): - 2016: 1.2 - 2017: 1.3 - 2018: 1.1 - 2019: 1.1 - 2020: 1.7 - 2021: 1.8 - 2024: 1.7 - 2029: 0.9 - 2039: 0.1 - Contribution from real GDP growth (select years): - 2016: -3.2 - 2017: -3.0 - 2018: -3.9 - 2019: -4.2 - 2020: -3.9 - 2021: -3.8 - 2029: -2.3 - 2039: -1.1 - Residual 3/ 4/ (select years): - 2016: 28.8 - 2017: 22.0 - 2018: 9.7 - 2019: 5.1 - 2020: 9.5 - 2021: 10.4 - 2022: 10.5 - 2023: 10.3 - 2024: 10.0 - 2029: 8.8 - 2039: 9.3 ### DSA sustainability and risk indicators (selected) - PV of PPG external debt-to-GDP ratio (select years): - 2019: 53.1 - 2020: 52.8 - 2021: 53.1 - 2022: 53.4 - 2023: 51.5 - 2024: 49.2 - 2029: 32.5 - 2039: 17.8 - PV of PPG external debt-to-exports ratio (select years): - 2019: 111.1 - 2020: 113.3 - 2021: 115.1 - 2022: 117.1 - 2023: 115.8 - 2024: 113.5 - 2029: 76.7 - 2039: 42.0 - PPG debt service-to-exports ratio (select years): - 2016: 6.0 - 2017: 4.9 - 2018: 4.7 - 2019: 6.2 - 2020: 7.9 - 2021: 7.5 - 2022: 9.0 - 2023: 8.9 - 2024: 9.3 - 2029: 9.0 - 2039: 3.5 - PPG debt service-to-revenue ratio (select years): - 2016: 11.6 - 2017: 10.1 - 2018: 10.2 - 2019: 13.1 - 2020: 16.6 - 2021: 16.2 - 2022: 18.8 - 2023: 18.7 - 2024: 19.5 - 2029: 19.5 - 2039: 7.5 - Gross external financing need (Million of U.S. dollars) 4/ (select years): - 2016: -288.6 - 2017: -130.8 - 2018: -114.6 - 2019: -157.7 - 2020: -195.7 - 2021: -239.3 - 2022: -256.8 - 2023: -308.2 - 2024: -337.2 - 2029: -454.9 - Memorandum: -1128.1 (context: large negative errors and omissions noted) - PV of external debt (memorandum; select years): - 2019: 58.0 - 2020: 52.8 - 2021: 53.1 - 2022: 53.4 - 2023: 51.5 - 2024: 49.2 - 2029: 32.5 - 2039: 17.8 ### Key macroeconomic assumptions used in projections (select) - Real GDP growth (in percent): - 2016: 6.9 - 2017: 5.1 - 2018: 5.5 - 2019: 6.0 - 2020–2024 (projections): 6.0 (2020–2024), 5.5 (2029), 5.0 (2039), with various years at 5.5 and 6.0 in the projection window - Averages/projections include 5.5 and 6.0 entries in the table - GDP deflator in US dollar terms (change in percent) (select): - 2016: 0.1 - 2017: 0.6 - 2018: 0.1 - 2019: 2.2 - 2020 onward: 2.0 (consistent in many projection years) - Effective interest rate (percent) 5/ (select): - 2016: 2.7 - 2017: 2.1 - 2018: 1.5 - 2019: 1.6 - 2020: 2.7 - 2021: 2.8 - 2024: 2.8 - 2029: 2.6 - Growth of exports of G&S (US dollar terms, in percent) (select): - 2016: 1.6 - 2017: 14.2 - 2018: 5.4 - 2019: 5.7 - 2020: 6.8 - 2021: 7.0 - 2029: 6.0 - Growth of imports of G&S (US dollar terms, in percent) (select): - 2016: -13.2 - 2017: 22.7 - 2018: 5.7 - 2019: 6.6 - 2020: 3.3 - 2021: 5.1 - 2029: 4.4 - Grant element of new public sector borrowing (in percent) (select): - 2019 onward: 31.9, 36.3, 37.1, 34.6, 33.7, 33.4, 30.7, 30.7, ... , 34.5 (table entries) - Government revenues (excluding grants, in percent of GDP) (select years): - 2016: 22.7 - 2017: 23.2 - 2018: 21.9 - 2019: 22.3 - 2020: 21.8 - 2024: 20.6 - 2029: 19.5 - 2039: 19.5 - Aid flows (Million of US dollars) 6/ (select years): - 2016: 97.1 - 2017: 77.7 - 2018: 147.9 - 2019: 169.0 - 2020: 172.4 - 2021: 198.1 - 2022: 164.0 - 2023: 137.9 - 2024: 136.8 - 2029: 113.4 - Memorandum: 225.8 (context in table) - Nominal GDP (Million of US dollars) (select projections/memorandum): - 2019: 2,619 (table shows 2,619 then later runs of projected nominal GDP including 2,767, 2,923, 3,166, 3,423, 3,701, 4,002, 4,327, 4,678, 6,847, 13,661) - Nominal dollar GDP growth (select): - 2016: 7.1 - 2017: 5.7 - 2018: 5.7 - 2019: 8.3 - 2020 onward projection entries: 8.1, 8.1, 8.1, 8.1, 8.1, 7.6, 7.1, 7.8, 8.2 ### Public sector debt framework (selected) - Public sector debt 1/ (select years; percent of GDP): - 2016: 63.9 - 2017: 71.2 - 2018: 72.2 - 2019: 70.9 - 2020: 68.6 - 2021: 66.9 - 2022: 65.0 - 2023: 62.5 - 2024: 59.5 - 2029: 41.9 - 2039: 21.4 - Change in public sector debt (select years): - 2016: 14.1 - 2017: 7.3 - 2018: 0.9 - 2019: -1.2 - 2020: -2.3 - 2021: -1.7 - 2022: -1.9 - 2023: -2.6 - 2024: -3.0 - 2029: -3.1 - 2039: -3.1 - Identified debt-creating flows (public) (select years): - 2016: 14.1 - 2017: 7.4 - 2018: 1.0 - 2019: -1.2 - 2020: -2.3 - 2021: -1.7 - 2022: -2.0 - 2023: -2.6 - 2024: -3.1 - 2029: -3.1 - 2039: -1.3 - Primary deficit (select years; percent of GDP): - 2016: 16.1 - 2017: 9.5 - 2018: 3.7 - 2019: 3.1 - 2020: 1.3 - 2021: 1.7 - 2024: 0.6 - 2029: -0.8 - 2039: 0.0 - Revenue and grants (percent of GDP, select years): - 2016: 25.9 - 2017: 25.1 - 2018: 25.3 - 2019: 25.6 - 2020: 24.0 - 2024: 22.3 - 2029: 21.1 - Automatic debt dynamics (select years): - 2016: -2.1 - 2017: -2.1 - 2018: -2.7 - 2019: -4.4 - 2020: -3.6 - 2021: -3.4 - 2029: -2.3 - 2039: -1.4 - PV of public debt-to-GDP ratio (select years): - 2019: 53.8 - 2020: 53.3 - 2021: 53.3 - 2022: 53.4 - 2023: 51.5 - 2024: 49.2 - 2029: 32.5 - 2039: 17.8 - Debt service-to-revenue and grants ratio 3/ (select years): - 2016: 11.1 - 2017: 10.5 - 2018: 9.9 - 2019: 12.3 - 2020: 16.0 - 2021: 15.4 - 2024: 17.3 - 2029: 17.3 - 2039: 17.9 - Gross financing need 4/ (percent of GDP; select years): - 2016: 17.7 - 2017: 10.8 - 2018: 6.2 - 2019: 6.3 - 2020: 5.1 - 2021: 5.2 - 2024: 4.5 - 2029: 4.1 - 2039: 3.0 ### Stress tests and sensitivity analysis (high-level results) - Alternative scenarios and bound/tailored tests are presented for 2019–2029 with key outcomes reported for PV of debt-to-GDP, PV of debt-to-exports, debt service-to-exports, debt service-to-revenue, and debt service-to-revenue and other ratios. - Example baseline and stress outcomes (PV of PPG external debt-to-GDP ratio, select entries from Table 5): - Baseline 2019–2029: 52.8 (2019), 53.1 (2020), 53.4 (2021), 51.5 (2022), 49.2 (2023), 46.5 (2024), 43.5 (2025), 40.4 (2026), 37.7 (2027), 35.0 (2028), 32.5 (2029) - Bound tests and tailored tests can raise ratios substantially (e.g., Combined contingent liabilities C1 reaches 70.0 in 2020 and 69.7 in 2021, then declines across the projection period). - Sensitivity analysis highlights vulnerability to shocks such as lower real GDP growth, primary balance deterioration, export shocks, one-time 30 percent nominal depreciation, and combined contingent liabilities, with many tests producing higher debt ratios than baseline trajectories. ### Notable methodological notes and memoranda (selected) - Footnotes and methodological points in the DSA: - 1/ Includes both public and private sector external debt. - 2/ Endogenous debt dynamics derived as [r - g - ρ(1+g) + Ɛα(1+r)]/(1+g+ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate; ρ = growth rate of GDP deflator in U.S. dollar terms; Ɛ = nominal appreciation of the local currency; α = share of local currency-denominated external debt. - 3/ Residual includes exceptional financing (changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections it also includes contribution from price and exchange rate changes. - 4/ Residual debt-creating flows and large negative gross external financing need arise because of the large and systematically negative errors and omissions in the historical data of the balance of payment. - 5/ Current-year interest payments divided by previous period debt stock. - 6/ Defined as grants, concessional loans, and debt relief. - 7/ Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt). - 8/ Assumes that PV of private sector debt is equivalent to its face value. - 9/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projection averages are over the first year of projection and the next 10 years. *Sources: Country authorities; and staff estimates and projections.* ### 2012. The assessment recommended that the CBD: (i) strengthen independent oversight through a ### 1djiea2019002 - 2012. The assessment recommended that the CBD: (i) strengthen independent oversight through a ### Central Bank of Djibouti (CBD) — governance and safeguards - Assessment recommendations (2012): - (i) strengthen independent oversight through a review of the legal framework and establishment of an audit committee; - (ii) enhance transparency of its financial reporting practices by timely publication of the financial statements and adoption of International Financial Reporting Standard (IFRS); - (iii) establish an internal audit function to ensure the effectiveness of internal controls. - Progress reported: - An internal audit function has been developed. - An audit committee has been created. - Efforts have been made to publish audited financial statements. - Remaining/ongoing actions: - Continued implementation of remaining recommendations under the safeguard assessment to buttress governance and adopt international financial reporting standards. ### Exchange arrangements and monetary framework - Exchange arrangement: - Djibouti has a currency board arrangement. - The Djibouti franc is pegged to the U.S. dollar at the rate of DF 177.721 = US$1. - External sector openness: - Djibouti is an Article VIII member and maintains an exchange system that is free of restrictions on payments and transfers for current international transactions. - Monetary conditions and indicators: - Inflation: 0.1 percent (reported for 2018 and as a low-inflation environment). - External reserves: cover 3.2 months of imports. - Currency board continues to serve the economy. ### Recent macroeconomic developments and outlook - Growth: - Real GDP growth: 5.1 percent in 2017. - Real GDP growth: 5.5 percent in 2018. - Authorities' projection: real GDP growth of 7 percent this year and to remain between 7–8 percent in the medium-term. - Public finances: - Fiscal deficit: fell from 15.7 percent of GDP in 2015 to 2.5 percent of GDP in 2018. - Financial sector: - Nonperforming loans (NPLs): down from 22.5 percent in 2016 to 18 percent in 2018. - Private sector credit growth: 8.0 percent in 2018 and 10.7 percent in the first quarter of this year. - Major projects and anticipated drivers of growth: - $4-billion gas pipeline, LNG plant and export terminal projects financed through foreign direct investments (FDI). - Launch of the Djibouti International Free Trade Zone (DIFTZ) adjacent to the Doraleh Multi-Purpose Port. ### Fiscal and debt policy stance and recommendations - Authorities’ policy intentions: - Raise domestic revenue mobilization through enhanced tax collection and tax administration. - Broaden the tax base, informed by Fund TA on tax expenditures. - Contain current expenditures and improve public spending efficiency while increasing social safety net, health and human capital outlays. - Debt strategy: - Aim to put debt-to-GDP ratio on a downward path through reduced borrowing pace and prioritizing concessional financing and FDI. - Strengthen debt management capacity with Fund TA. - Curtail public debt-financed investments in favor of FDI and increased public-private partnerships (PPPs). - Noted actions: - Agreement to restructure the railway project loan to significantly ease debt service. ### Financial sector stability and supervision - Reforms and capacity building: - Progress in alleviating pressures on correspondent banking relationships (CBRs) by improving the AML/CFT framework and strengthening the Financial Intelligence Unit (FIU). - Upgrading banking regulatory and supervisory framework including strengthened prudential regulations in accordance with Basel II/III. - Measures to address corporate governance, enhance credit risk management, reduce foreign exchange exposure, and improve interbank risk management. - Development of a national financial inclusion strategy with UNDP assistance. - Planned work: - Financial Sector Stability Review (FSSR) scheduled during FY2020 to elaborate a capacity building roadmap. ### Structural reforms and governance - Structural priorities: - Reduce the high cost of electricity and ICT services; progress on renewable energy to diversify the energy mix and reduce electricity costs. - Leverage Djibouti’s position as a landing point for international fiber optics to become a regional ICT hub. - Liberalize the telecommunication sector to stimulate private sector activity and SME development. - Governance reforms: - Promote good governance and transparency in public processes in line with Vision 2035. - Enhance governance related to SOEs, ameliorate public procurement practices, and create a Treasury Single Account (TSA). - Further align AML/CFT framework with international standards; Djibouti became a full member of the Middle East and North Africa Financial Action Task Force (MENA-FATF). ### Statistics, data gaps, and capacity building - General: - Data provided to the Fund are broadly adequate for surveillance, but shortcomings remain. - Djibouti began participating in the General Data Dissemination System (GDDS) in February 2012. - National accounts: - New national account statistics finalized for 2013–2017; estimates being prepared for 2018. - Revisions incorporate ports and free trade zone activity; population census completed 2009; household survey in 2013; CPI index and weights updated to 2013; new household survey completed in 2017. - Balance of payments and external sector: - Central Bank improving BOP statistics with IMF TA as part of a JSA-funded project. - Adoption of the general trade system for trade in goods statistics led to significant revisions. - Need to finalize the BOP survey, implement the BOP data validation committee, and enhance staff capacity; large errors and omissions persist. - Government finance statistics: - Fiscal data available monthly with about a 3-month lag. - Chart of accounts broadly aligned to GFSM 2001 since 2012; TOFE remains aligned to GFSM 1986. - Coverage omissions: extrabudgetary units, social security funds, broader public-sector debt liabilities. - No data currently submitted for the IMF’s annual GFS database; public dissemination of fiscal statistics has lapsed. - Monetary and financial statistics: - Djibouti reports MFS for the central bank and other depository corporations using SRFs in accordance with MFSMCG. - Reports some Financial Access Survey indicators and started regular submission of FSIs in May 2018, reporting all 12 core and 7 encouraged FSIs for deposit takers. - Table of Common Indicators Required for Surveillance (as of July 2019) — selected entries (dates preserved exactly): - International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Date of Latest Observation March, 2019; Date Received June, 2019; Frequency of Data M; Frequency of Reporting M. - Reserve/Base Money: Date of Latest Observation March, 2019; Date Received June, 2019; Frequency of Data M; Frequency of Reporting M; Frequency of Publication M. - Broad Money: Date of Latest Observation March, 2019; Date Received June, 2019; Frequency of Data M; Frequency of Reporting M; Frequency of Publication M. - Consumer Price Index: Date of Latest Observation June 2019; Date Received July 30, 2019; Frequency of Data M; Frequency of Reporting M; Frequency of Publication M. - External Current Account Balance: Date of Latest Observation December 2017; Date Received September 2018; Frequency of Data A; Frequency of Reporting A; Frequency of Publication A. ### Bank–Fund collaboration, technical assistance, and work programs - FSAP and related: - The FSAP, including the assessment of the AML-CFT framework, was approved by the Board in June 2009. - A Financial System Stability Review (FSSR) is scheduled during FY2020. - Recent technical assistance (past two years; dates preserved exactly as listed): - MCM- Improving Regulatory Framework February 2017 - STA- Multi-sector Statistical Assistance April 2017 - STA/MCM- Monetary and Financial Statistics/ Islamic Banking Supervision May 2017 - FAD- Budget Preparations and Diagnostic May 2017 - MCM- Improving Regulatory Framework November 2017 - FAD- Review of Tax Expenditure and Operations December 2017 - STA/METAC- National Accounts, Balance of Payments, and Trade Statistics January 2018 - STA- National Accounts and Prices Statistics March 2018 - MCM/STA- Improving Regulatory Framework and Financial Soundness Indicators March 2018 - FAD- Tax Policy October 2018 - STA- Balance of Payments Statistics October 2018 - MCM/METAC- Improving Regulatory Framework November 2018 - STA- Balance of Payments Statistics April 2019 - Joint Management Action Plan (August 2019–December 2020) — selected deliverables and timelines preserved exactly: - Bank work program items (Advisory Services and Analytics, Development Policy Operation) with dates including January 2017, Late 2019-early 2020, July 2018, July 2021, July 2020, December 2022, July 2022, 2021. - Fund work program technical assistance schedules (FSSR, Financial Supervision and Regulation, Statistics, Tax Expenditure Reform, Public Financial Management, Debt Management) with timing entries including Q3 2020, Q3-Q4 2019, FY 2020, Nov 2020, Q1 2020. - Joint products in the next 18 months: Debt sustainability analysis Q3 2020 Nov 2020. - Information sharing and coordination: - Fund requests to Bank: Periodic update on activities; Reports, macroeconomic and financial data to be shared regularly; Fund staff to participate in review of key analytical work (Ongoing). - Bank requests to Fund: Periodic update on technical assistance activities; Macroeconomic and financial data to be shared regularly (Ongoing). ### Authorities’ statement and priorities (September 30, 2019) - Authorities thank IMF for support and broadly share staff’s policy recommendations. - Development agenda: - Pursue Vision 2035 to enhance intraregional interconnectedness and become a transport and logistics hub. - Expect acceleration in trade, investment and growth from DIFTZ and infrastructure. - Risks acknowledged: - Debt overhang, regional geo-political tensions, escalating international trade disputes, and slowdown in main trading partners. - Authorities’ commitments: - Tackle debt vulnerabilities, preserve macroeconomic and financial stability, create fiscal space for poverty-reducing spending, and advance structural reforms to strengthen governance and foster job creation. - Seek timely delivery of Fund and partners’ technical assistance to address capacity constraints. *Source: 1djiea2019002 - 2012. The assessment recommended that the CBD: (i) strengthen independent oversight through a* --- _Source: https://www.imf.org/-/media/files/publications/cr/2019/1djiea2019002.pdf_