## 1. Affordable and Reliable Electricity to Foster Investment and Growth ## Source details **Canonical URL:** [1. Affordable and Reliable Electricity to Foster Investment and Growth](https://www.imf.org/-/media/files/publications/cr/2025/english/1djiea2025001-source-pdf.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2025/english/1djiea2025001-source-pdf.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2025/english/1djiea2025001-source-pdf.pdf.json) --- ### Context - Djibouti doubled GDP per capita between 2013 and 2023 through investments in ports and high-quality infrastructure (railway and water pipeline to Ethiopia), propelling average growth rates to about 6 percent. - Fewer than one third of the working-age population are formally employed. - Government revenues have fallen as a share of GDP due to widespread tax exemptions for port activities, free economic zones, and military bases, as well as tax evasion. - Grant support decreased amid a global decline in development aid. - External public debt rose from nearly 40 percent of GDP a decade ago to 70 percent of GDP currently. - As of March 2025, the country remains in arrears to eleven creditors with outstanding obligations totaling about 2.7 percent of GDP. - A debt service moratorium with Exim Bank China defers significant principal and interest payments until 2028. ### Recent developments - 2024 growth estimated to have surpassed 6½ percent, supported by: - 7.4 percent increase in overall port activity. - Rebounds in construction, commerce, telecommunications, and tourism. - Port activity detail: dominated by a 98 percent surge in transshipments as shipping operators rerouted to circumvent Red Sea tensions. - Railway and road traffic to Ethiopia slowed; port traffic for Djibouti registered modest growth. - Inflation and prices: - Headline inflation rose to 2.1 percent (from 1.4 percent in 2023). - Core inflation accounted for approximately one-third of the overall acceleration; food and energy inflation accounted for two-thirds. - Inflation averaged -1½ percent from January to May 2025. - Fuel subsidies temporarily reduced to about 0.25 percent of GDP in 2024, down from about 1 percent of GDP in 2022. - Fiscal 2024 outcomes: - Fiscal deficit: 2.6 percent of GDP, reflecting a 1 percentage point of GDP reduction in the primary deficit. - Revenues from the business profit tax rose by 0.7 percentage points of GDP; SOE dividends rose by almost 1 percentage point of GDP. - Military lease revenues increased by 0.13 percentage point of GDP. - External arrears amounted to 2.7 percent of GDP as of March 2025. - Current account: deteriorated by 4 percentage points to 14.2 percent of GDP in 2024. - Reserves and central bank: - Reserves fell by 15 percent year-on-year in December 2023 and by 31½ percent year-on-year in December 2024. - Treasury overdrafts at the CBD cumulatively amounted to about 5 percent of GDP (or 32 percent of the CBD’s total assets). - Reserves rebounded by 5.2 percent in December 2024 following fiscal consolidation. - As of March 2025, reserves stood at 2.5 months of imports. - Coverage ratios: 108.7 percent for currency in circulation and 67.2 percent for the monetary base (as of March 2025). - Banking sector: - Capital adequacy ratio rose from 18.7 percent in 2023 to 23.3 percent in 2024 (regulatory minimum 12 percent). - Nonperforming loans declined by roughly a quarter to approximately 3.1 percent in 2024. - Loan-to-deposit ratio: 62 percent. - Banking sector profitability increased (return on assets and equity rose). - External position: Djibouti’s external position in 2024 was substantially stronger than justified by fundamentals and desirable policies (Annex II), but analysis affected by data quality issues. ### Outlook and risks - Baseline projections: - Growth: projected to stay strong at around 6 percent this year, moderating to 5½ percent over the medium term. - Inflation: projected to ease to 1.4 percent over the medium term. - Current account surplus: expected to narrow to about 8 percent of GDP over the medium term. - Planned fiscal consolidation and reduction in government consumption (share of GDP) expected to result in positive reserves accumulation. - Key risk factors: - Regional: renewed conflict in Tigray and worsening Ethiopia–Eritrea relations could increase refugee flows and strain food supplies and social conditions. - Fiscal/external: delays in fiscal consolidation, debt negotiations, and the development of the Berbera port in Somaliland could lead to continued declines in foreign reserves. - Currency: a potential depreciation of the dollar (and thus the Djiboutian franc) could enhance competitiveness of service exports but increase inflationary and/or fiscal pressures depending on pass-through. - Upside risks: expedited debt renegotiations, revenue mobilization, stronger SOE governance, and higher private sector investment given Djibouti’s stable economy, currency board, modern port infrastructure, and connectivity to Ethiopia. - Policy priorities to mitigate risks: build fiscal space, better target social protection, diversify the economy. ### Fiscal policies: enhancing consolidation, SOE reform, and debt renegotiation - Overall assessment: - Despite continued fiscal consolidation, overall and external public debt remain in debt distress and are unsustainable (Debt Sustainability Analysis) primarily due to outstanding arrears. - Authorities pursue a 2024–27 fiscal reform Action Plan aimed at consolidation. - Revenue measures and projections: - Projected non-tax revenues reflect gains from new military lease agreements. - Macroeconomic framework includes 0.2 percent of GDP of additional tax revenues in 2025 (0.1 percent less than the authorities’ projection) and a cumulative 0.4 percent of GDP over 2026–30. - In 2025, direct, indirect taxation measures, and the digitalization of the payment of some taxes are expected to generate around 0.27, 0.01, and 0.03 percent of GDP, respectively. - Authorities’ action plan includes land sales, stricter tax compliance controls, and additional staffing at the General Directory for Taxes. - Over 2026–30, plans include IMF and donor TA, establishment of a tax policy unit (TPU), finalize tax system digitalization and integration, operationalize the large taxpayer office (LTO), and introduce additional SME, property, and VAT taxation measures. - Expenditure consolidation measures: - Projected primary current expenditure restraint and reversal of fiscal overruns in goods and services. - Return 2030 expenditure to 2022 levels through stricter expenditure controls. - Measures to lower non-essential current expenditures: meter checks and installing solar panels in public buildings; asset inventory and sales; restricting travel abroad; freezing contracts with non-essential providers; ensuring timely retirement and promoting early, non-replacement retirements; reviewing civil servants’ hiring and benefits; continuing restructuring of administrative public entities (EPAs); pausing lower-priority investments. - Quarterly caps on non-essential spending have been set and are monitored digitally. - Public wage bill projected to keep declining by about 0.1 percent of GDP annually (trend for a decade). ### Fiscal consolidation: additional recommendations - Revenue-side recommendations: - Further expand the capital income tax base. - Accurately cost major tax expenditures. - Significantly narrow tax exemptions under the derogatory regimes. - Design and implement programs to promote voluntary compliance. - Asset sales guidance: - Prioritize impact on public sector net worth over short-term cash generation. - Expenditure-side recommendations: - Thorough expenditure monitoring by the Ministry of Budget. - Operationalization of the Treasury Single Account (TSA). - Improved cash forecasting to support timely adjustments if spending deviates from the budget. - Consider phasing out fuel subsidies and expanding targeted cash transfers to households identified as most vulnerable. - SOE-related fiscal measures: - Accelerate SOE governance reforms to unlock sustainable dividend contributions and mitigate fiscal risks. - Liquidation of the Sovereign Wealth Fund (SWF) provides opportunity to mobilize dividends from profitable SOEs. - Enforce gradual debt reduction for highly-indebted SOEs, most of whose debt is government-guaranteed. ### Debt negotiations and medium-term debt strategy - Creditor context and recent agreements: - As of end-2024, China was the country's primary creditor. - Agreed debt service moratorium with Exim Bank China limits interest payments for the railway and water projects to about USD 20 million over 2024– 27 (compared to USD 276 million previously). - Authorities aim to renegotiate debt terms with Exim Bank China in 2025 and anticipate positive discussions with Exim Bank India and Paris club creditors. - Medium-term strategy and governance enhancements: - Enact a new organic law on the financial regime of the state as part of the Strategy for the Reform of Public Financial Management, setting indicative golden rules on expenditures, revenues, fiscal balances and debt. - Develop a national strategy to manage medium-term public debt and outline annual borrowing plans. - Set a debt target with a multi-year fiscal deficit path and enforce borrowing limits for the central government and SOEs, including their participation in PPPs. - Public Sector Debt Committee should issue reasoned opinions and ensure prudent debt management. - Ministry of Budget should consistently assess fiscal impact and risks of all PPP projects as required by the current legal framework. ### SOE governance reform - Rationale: - Advancing SOE governance reform is essential for fiscal sustainability, limiting fiscal risks, and enhancing public services. - Well-managed and profitable SOEs can contribute to national fiscal consolidation and help restore reserves at the CBD following the dissolution of the SWF. - Progress and near-term actions: - Continued implementation of the code adopted in 2016 to enhance SOE governance. - SEPE has established a register of all SOEs, begun training accountants and board members to enhance SOE financial information in line with IPSAS standards, and completed the first phase of restructuring EPAs (eliminating eight entities and consolidating twelve). - In 2025: mandate timely disclosure of financial statements from all SOEs, expand KPI-based performance contracts beyond ONEAD, establish transparent dividend policies, finalize review of SOE independent boards, and train at least 70 leaders as SOE administrators. - In 2026: finalize Code implementation by reviewing the SOE portfolio to determine retention, restructuring, or divestment; establish a clear framework for the state’s financial interactions with SOEs. - Additional measures: - Gradual deleveraging of highly indebted SOEs. - Mobilizing dividends from profitable SOEs to the budget. - Limiting fiscal transfers to loss-making SOEs and restructuring or closing them to ensure sector profitability. ### Monetary and financial sector policies - Central Bank of Djibouti (CBD) governance and currency board: - Strengthen CBD law in line with the 2023 safeguards assessment recommendations to enhance CBD’s autonomy. - Key amendments recommended: redefine the coverage ratio to encompass the monetary base and government deposits; enhance eligibility criteria for Board members; specify the governing body responsible for appointing the external auditor; enhance financial statement transparency. - Implement safeguards recommendations on financial reporting, audit, risk management and internal controls. - Develop a reimbursement plan between the CBD and the Ministry of Budget to strengthen CBD’s balance sheet and deter further monetary financing. - CBD should use future profits to pay off outstanding overdrafts before distributing dividends. - Reserve requirements: - Phasing in reserve requirements would strengthen the currency board by offsetting absence of a deposit guarantee fund, stabilizing FX reserves, providing a liquidity buffer, and encouraging an interbank market. - METAC-supported capacity development has established a dedicated unit for preparation, implementation, and monitoring of reserve requirements. - BCD should finalize the draft regulation and adopt a phased approach in setting policy parameters. - AML/CFT and banking oversight: - Implement MENAFATF recommendations; 2024 Mutual Evaluation Report rated Djibouti “Largely Compliant” and “Compliant” in 18 of the 40 recommendations, placing the country under "enhanced monitoring". - Priorities: strengthen customer due diligence, regulate virtual asset service providers, and enforce sanctions related to terrorism financing. - Banking sector context: total assets reached USD 3½ billion (81½ percent of GDP) by end-2024, with a substantial offshore component and increasing exposure to the government. - Continue implementing 2020 FSSR recommendations, including liquidity coverage ratio reporting, establishing internal audit, and reviewing foreign exposure limits. - Authorities’ stance: - CBD endorsed recommendations to amend statutes, gradually introduce reserve requirements, enhance AML/CFT compliance, and strengthen financial sector oversight. - Plan to formally request TA from the Fund. - Reserve requirements ratio is being finalized in consultation with commercial banks with phased implementation expected. - Authorities aim to achieve full compliance with MENAFATF recommendations by June 2026. ### Structural reforms to boost private investment, diversification, and jobs - Strategic objectives under Djibouti Vision 2035: - Continue economic transformation, modernize the public sector, and address informality. - Advance economic diversification across logistics and connectivity, tourism, agribusiness, and fisheries. - Develop a roadmap with specific actions and timelines to enhance the business environment. - Priority reform areas: - Utilities services: - Improve reliability and access and reduce the cost of electricity and telecommunication services. - Expand cost-efficient green electricity generation and large international data connectors. - Lower cost-recovery electricity tariffs to the private sector by improving bill collection (including from the public sector), simplifying tariff structure, modernizing and expanding the grid, and enhancing technical efficiency. - Level playing field: - Broaden the tax base by limiting tax exemptions in scope and duration, unifying effective tax rates, and removing market entry barriers. - Establish an SOE ownership strategy to determine which SOEs will remain public, undergo restructuring, or be divested. - Market regulation and human capital: - Streamline administrative procedures and improve access to finance for SMEs to encourage formal business creation and employment. - Safeguard fiscal space to invest in health and education and improve workforce skills by effectively implementing the national education masterplan (2021–35). - Electricity sector specifics (Box 1 highlights): - Average sales price stands at 29 US cents per kWh, nearly triple the estimated supply cost of 9–11 US cents per kWh. - Electricity costs can be as high as 25 percent of operating expenses for businesses. - Over one-third of the population remained unconnected to the national grid as of 2022. - Measures: expand grid access and last-mile connectivity; simplify tariff structure based on cost recovery; improve payment discipline, especially in the public sector. ### Data, statistics, and evidence-based policymaking - Data adequacy and planned improvements: - Djibouti’s data submitted to the Fund have some shortcomings and correspond to a “C” overall rating under the Data Adequacy Assessment (DAA). - Monetary and financial statistics have some shortcomings but are overall adequate for surveillance. - National Accounts (NA) data provide detailed GDP by activity and expenditure; adoption of e-GDDS and publication of the National Data Summary Page (NDSP) will enable more frequent and timely NA dissemination. - Fiscal data reported according to GFSM 1986 standards encompass only the central government budget. - Authorities provide information on SOE dividends, publicly guaranteed debt, and arrears; PPPs still pose fiscal risks. - Improving goods statistics and accurate recording of financial account transactions related to re-exports proceeds can help reduce net errors and omissions (NEOs). - Authorities plan to develop an international transactions reporting system (ITRS) with IMF TA support. - Staff and authorities actions: - Launch e-GDDS and publish NSDP to meet recommended data dissemination standards and improve DAA score. - Incorporate SOEs into government finance statistics and work towards adoption of GFSM 2014 with IMF TA. - Investigate source of low DAA consistency rating, partly due to large BOP NEOs—re-exports to Ethiopia and settlement mismatches noted. - ESS mission scheduled: April 2026; National Accounts mission: November 2025; GFS mission on GFSM 2014 transition: Fall 2025. ### Debt sustainability, DSA findings, and vulnerabilities - Debt distress and classification: - Risk of external debt distress: In debt distress. - Overall risk of debt distress: In debt distress. - Granularity in the risk rating: Unsustainable. - Current composite indicator (CI): 2.10 — CI rating: Weak. - Key debt stocks and arrears: - Debt-to-GDP increased from 34.9 percent in 2013 to 68.9 percent by end-2024. - Debt stock (end-2024): Total 2,958.8 (US$ mn) = 68.9 percent of GDP. - Stock of arrears as of end-December 2024: around 3 percent of GDP (2.2 percent for principal repayments and 0.7 percent for interest payments). - As of March 2025, arrears due to eleven creditors total 2.7 percent of GDP (2 percent for principal repayments and 0.7 percent for interest payments). - Creditor shares of stock of arrears (percent): Exim Bank India 35.2; Exim Bank China 22.9; Exim Bank Iran 7.4; Abu Dhabi Fund for Development 7.0; Others 27.5. - Moratorium and financing: - Four-year moratorium with Exim Bank China (October 2023) limits total payments for railway and water projects to about USD 20 million over 2024–27 (previously about USD 276 million) and reprofiles USD 314 million (8 percent of GDP) of arrears. - Major infrastructure projects (2013–2024) financed by Exim Bank China loans totaling USD 1.2 billion (approximately 59 percent of GDP). - DSA projections and stress tests: - Weighted-average interest rate on external debt projected to rise from 1 percent in 2024 to an average of 2 percent over the ten-year projection horizon. - Total PPG debt service expected to increase from 2.6 percent of GDP in 2024 to an average of 4 percent over the next decade, peaking at 5 percent in 2028 upon expiration of Exim Bank China moratorium. - Under baseline: PV of external debt-to-GDP ratio expected to peak at 54.5 percent in 2025, decline to 27.9 percent by 2032, and remain below threshold from 2033 onward. - Exports shock (stress test): PV of external debt-to-GDP ratio rises to 147 percent in 2027 and stays above 100 percent until 2032; debt service-to-revenues ratio rises to a 31 percent average over 2028–2035 under that shock. - Tailored stress test on contingent liabilities: totals 16.2 percent of GDP composed of: - USD 200 million awarded to DP World by a US court in July 2024 = 5 percent of GDP. - Potential additional SOE external liabilities at default value = 2 percent of GDP. - Potential additional PPPs contingent liabilities = 4.2 percent of GDP. - Financial sector contingent liability at default value = 5 percent of GDP. ### Policy priorities from staff appraisal - Restore debt sustainability and rebuild reserves: - Clear all arrears and finalize debt negotiations. - Contain public and publicly guaranteed debt through quantified and enforced ceilings on SOE and central government debt. - Complement containment with durable fiscal consolidation and effective implementation of 2024–27 Action Plan. - Rationalize tax expenditures associated with the derogatory regimes. - SOE governance: - Swiftly implement Code of Good SOE Governance; collect financial statements from all SOEs; enforce transparent dividend policy; gradually deleverage highly indebted SOEs; review SOE portfolio for retention, restructuring, or divestment. - Strengthen currency board and monetary framework: - Amend the CBD law to enhance autonomy; implement reserve requirements incrementally; CBD should retain future profits to bolster reserves; develop reimbursement plan with Ministry of Budget to clarify arrangements. - Structural reforms: - Speed up reforms to boost private investment, diversify the economy, create jobs, level the playing field between general and special regimes, lower electricity costs by curbing government agencies' overuse and improving bill collection, enhance SME financing, and strengthen education and job training under the 2021–35 education master plan. ### Selected macroeconomic and fiscal projections (2021–2030, selected series) - Real GDP (annual growth, percent): 2021: 4.4; 2022: 5.2; 2023: 7.4; 2024: 6.5; 2025: 6.0; 2026: 6.0; 2027: 6.0; 2028: 5.5; 2029: 5.5; 2030: 5.5. - Consumer prices (annual average, percent): 2021: 1.2; 2022: 5.2; 2023: 1.4; 2024: 2.1; 2025: 1.6; 2026: 1.5; 2027: 1.4; 2028: 1.4; 2029: 1.4; 2030: 1.4. - Fixed capital investment (percent of GDP): 2021: 29.7; 2022: 29.0; 2023: 24.5; 2024: 26.1; 2025: 26.1; 2026: 26.0; 2027: 26.0; 2028: 26.1; 2029: 26.5; 2030: 26.7. - Gross national savings (percent of GDP): 2021: 23.1; 2022: 47.9; 2023: 42.6; 2024: 40.2; 2025: 34.2; 2026: 33.6; 2027: 33.9; 2028: 34.2; 2029: 34.8; 2030: 35.0. - Central government revenues and grants (percent of GDP): 2024: 18.0; 2025: 19.0; 2026: 18.8; 2027: 18.6; 2028: 18.5; 2029: 18.4; 2030: 18.2. - Expenditure (percent of GDP): 2024: 20.6; 2025: 20.1; 2026: 19.6; 2027: 19.2; 2028: 18.8; 2029: 18.5; 2030: 18.1. - Overall balance (commitment basis, percent of GDP): 2024: -2.6; 2025: -1.0; 2026: -0.8; 2027: -0.6; 2028: -0.3; 2029: -0.1; 2030: 0.1. - Overall Central Government and Publicly Guaranteed Debt (percent of GDP): 2024: 68.9; 2025: 67.2; 2026: 62.3; 2027: 56.9; 2028: 50.1; 2029: 44.0; 2030: 38.5. - Gross official reserves (millions of US$): 2024: 338; 2025: 393; 2026: 444; 2027: 483; 2028: 527; 2029: 569; 2030: 609. - Gross official reserves (in months of next year's imports of goods and services, exc. re-exports): 2024: 2.4; 2025: 2.6; 2026: 2.9; 2027: 3.0; 2028: 3.1; 2029: 3.2; 2030: 3.3. - Exchange rate (DF/US$, end of period): 177.7 in each year 2021–2030 (177.7 repeated). *International Monetary Fund — Djibouti staff report (excerpts as provided in the source content).* ### 1. Affordable and Reliable Electricity to Foster Investment and Growth __________________________ 16 ### 1. Affordable and Reliable Electricity to Foster Investment and Growth __________________________ 16 ### Context - Leveraging its strategic location, Djibouti doubled GDP per capita between 2013 and 2023 through investments in ports and high-quality infrastructure (railway and water pipeline to Ethiopia), propelling average growth rates to about 6 percent. - Despite high growth, fewer than one third of the working-age population are formally employed. - Government revenues have fallen as a share of GDP due to widespread tax exemptions benefiting port activities, free economic zones, and military bases, as well as tax evasion. - Grant support has decreased amid a global decline in development aid. - Escalating external public debt: from nearly 40 percent of GDP a decade ago to 70 percent of GDP currently. - As of March 2025, the country remains in arrears to eleven creditors with outstanding obligations totaling about 2.7 percent of GDP. - A debt service moratorium with Exim Bank China defers significant principal and interest payments until 2028. ### Recent Developments - 2024 growth: estimated to have surpassed 6½ percent, supported by a 7.4 percent increase in overall port activity and rebounds in construction, commerce, telecommunications, and tourism. - Port activity detail: dominated by a 98 percent surge in transshipments as shipping operators rerouted to circumvent Red Sea tensions. - Railway and road traffic to Ethiopia slowed; port traffic for Djibouti registered modest growth. - Inflation: - Headline inflation rose to 2.1 percent (from 1.4 percent in 2023). - Core inflation accounted for approximately one-third of the overall acceleration; food and energy inflation accounted for two-thirds. - Inflation averaged -1½ percent from January to May 2025. - Fuel subsidies temporarily reduced to about 0.25 percent of GDP in 2024, down from about 1 percent of GDP in 2022. - Fiscal 2024: - Successful fiscal effort: restrained capital expenditure and mobilized revenue. - Revenues from the business profit tax rose by 0.7 percentage points of GDP; SOE dividends rose by almost 1 percentage point of GDP. - Military lease revenues increased by 0.13 percentage point of GDP. - Fiscal deficit stood at 2.6 percent of GDP, reflecting a 1 percentage point of GDP reduction in the primary deficit. - External arrears amounted to 2.7 percent of GDP as of March 2025. - Current account: deteriorated by 4 percentage points to 14.2 percent of GDP in 2024. - Reserves: - Fell by 15 percent year-on-year in December 2023 and by 31½ percent year-on-year in December 2024. - Treasury overdrafts at the CBD cumulatively amounted to about 5 percent of GDP (or 32 percent of the CBD’s total assets). - Reserves rebounded by 5.2 percent in December 2024 following fiscal consolidation. - As of March 2025, reserves stood at 2.5 months of imports. - Coverage ratios: 108.7 percent for currency in circulation and 67.2 percent for the monetary base (as of March 2025). - Banking sector: - Capital adequacy ratio rose from 18.7 percent in 2023 to 23.3 percent in 2024 (regulatory minimum 12 percent). - Nonperforming loans declined by roughly a quarter to approximately 3.1 percent in 2024. - Loan-to-deposit ratio: 62 percent. - Banking sector profitability increased (return on assets and equity rose). - External sector: Djibouti’s external position in 2024 was substantially stronger than what is justified by fundamentals and desirable policies (Annex II), but analysis is affected by data quality issues. ### Outlook and Risks - Baseline projections: - Growth projected to stay strong at around 6 percent this year, moderating to 5½ percent over the medium term. - Inflation projected to ease to 1.4 percent over the medium term. - Current account surplus expected to narrow to about 8 percent of GDP over the medium term. - Reduction in government consumption (share of GDP) as planned fiscal consolidation is expected to result in positive reserves accumulation. - Key risk factors: - Regional: renewed conflict in Tigray and worsening Ethiopia-Eritrea relations could increase refugee flows and strain food supplies and social conditions. - Fiscal/external: delays in fiscal consolidation, debt negotiations, and the development of the Berbera port in Somaliland could lead to continued declines in foreign reserves. - Currency: a potential depreciation of the dollar (and thus the Djiboutian franc) could enhance competitiveness of service exports but increase inflationary and/or fiscal pressures depending on pass-through. - Upside risks: expedited debt renegotiations, revenue mobilization, stronger SOE governance, and higher private sector investment given Djibouti’s stable economy, currency board, modern port infrastructure, and connectivity to Ethiopia. - Policy priorities to mitigate risks: build fiscal space, better target social protection, diversify the economy. ### Policy Discussions — Fiscal Policies: Enhancing Fiscal Consolidation, Reforming SOEs, and Renegotiating Debt Terms - Overall assessment: - Despite continued fiscal consolidation, overall and external public debt remain in debt distress and are unsustainable (Debt Sustainability Analysis) primarily due to outstanding arrears. - Authorities pursue a 2024–27 fiscal reform Action Plan aimed at consolidation. - Revenues (projections and measures): - Projected non-tax revenues reflect gains from new military lease agreements. - Macroeconomic framework includes 0.2 percent of GDP of additional tax revenues in 2025 (0.1 percent less than the authorities’ projection) and a cumulative 0.4 percent of GDP over 2026–30. - In 2025, direct, indirect taxation measures, and the digitalization of the payment of some taxes are expected to generate around 0.27, 0.01, and 0.03 percent of GDP, respectively. - Authorities’ action plan includes land sales, stricter tax compliance controls, and additional staffing at the General Directory for Taxes. - Over 2026–30, authorities plan to leverage IMF and donor TA, establish a tax policy unit (TPU), finalize digitalization and integration of tax information systems, operationalize the large taxpayer office (LTO), and introduce additional SME, property, and VAT taxation measures. - Expenditures (consolidation measures): - Projected consolidation entails primary current expenditure restraint and reversal of fiscal overruns in goods and services. - Return 2030 expenditure to 2022 levels through stricter expenditure controls. - Measures to lower non-essential current expenditures include: meter checks and installing solar panels in public buildings to reduce water, phone, fuel, and electricity costs; asset inventory and sales plans; restricting travel abroad; freezing contracts with non-essential providers; ensuring timely retirement and promoting early, non-replacement retirements; reviewing civil servants’ hiring and benefits; continuing restructuring of administrative public entities (EPAs); and pausing lower-priority investments. - Quarterly caps on non-essential spending have been set and are monitored digitally. - Projections assume the public wage bill will keep declining by about 0.1 percent of GDP annually (trend for a decade). *International Monetary Fund — Djibouti staff report (excerpts as provided in the source content).* ### 13. Achieving lasting fiscal consolidation through steadfast implementation, together with ### 13. Achieving lasting fiscal consolidation through steadfast implementation, together with ### Fiscal consolidation: revenue and expenditure measures - Revenue-side recommendations: - Further expand the capital income tax base. - Accurately cost major tax expenditures. - Significantly narrow tax exemptions under the derogatory regimes. - Design and implement programs to promote voluntary compliance. - Asset sales guidance: - Prioritize impact on public sector net worth over short-term cash generation. - Expenditure-side recommendations: - Effective implementation of the authorities’ 2024–27 action plan requires: - Concerted efforts from all governmental entities. - Thorough expenditure monitoring by the Ministry of Budget. - Operationalization of the Treasury Single Account (TSA). - Improved cash forecasting to support timely adjustments if spending deviates from the budget. - Consider phasing out fuel subsidies and expanding targeted cash transfers to households identified as most vulnerable as a more efficient and equitable alternative to existing fuel subsidies. - SOE-related fiscal measures: - Accelerate SOE governance reforms to unlock sustainable dividend contributions and mitigate fiscal risks. - Liquidation of the Sovereign Wealth Fund (SWF) provides opportunity to mobilize dividends from profitable SOEs. - Enforce gradual debt reduction for highly-indebted SOEs, most of whose debt is government-guaranteed. ### Debt negotiations, medium-term debt strategy, and fiscal governance - Finalizing debt negotiations with major creditors: - As of end-2024, China was the country's primary creditor. - Agreed debt service moratorium with Exim Bank China limits interest payments for the railway and water projects to about USD 20 million over 2024– 27 (compared to USD 276 million previously). - Authorities aim to renegotiate debt terms with Exim Bank China in 2025. - Authorities anticipate positive discussions with Exim Bank India and Paris club creditors. - Medium-term debt strategy and fiscal governance enhancements: - Enact a new organic law on the financial regime of the state as part of the Strategy for the Reform of Public Financial Management, setting indicative golden rules on expenditures, revenues, fiscal balances and debt. - Develop a national strategy to manage medium-term public debt and outline annual borrowing plans. - Set a debt target with a multi-year fiscal deficit path and enforce borrowing limits for the central government and SOEs, including their participation in PPPs. - Public Sector Debt Committee should issue reasoned opinions and ensure prudent debt management. - Ministry of Budget should consistently assess fiscal impact and risks of all PPP projects as required by the current legal framework. - Continue reforms to enhance fiscal transparency and strengthen public financial management as outlined in the approved Public Finance Management Reform Strategy. ### Authorities’ views on fiscal policy and debt - Revenue mobilization: - Authorities concurred on urgent need to mobilize revenue to create fiscal space and improve debt sustainability. - Highlighted measures: digitalizing tax administration, the TPU, LTO, organizing national tax conferences, and standardizing the VAT payment threshold. - Emphasized focus on streamlining expenditures rather than ending tax exemptions, citing concerns about investment attractiveness. - Reviewing options to improve targeting of the current fuel subsidy program to decrease budget exposure to international energy price changes. - Plan to implement a new budget policy in 2026 to boost SOE dividend contributions, including from former SWF-managed entities, following the Organic Law for Public Finances and updated accounting and transparency standards. - Debt context: - Authorities acknowledged high debt levels and noted they stem from substantial investments in drinking water and railway sectors. - Fiscal reforms in the 2025 Finance Law, adjustments to military base rental agreements, and ongoing negotiations with major creditors aim to facilitate long-term debt restructuring and sustainability. ### State-Owned Enterprise (SOE) governance reform - Rationale: - Advancing SOE governance reform is essential for fiscal sustainability, limiting fiscal risks, and enhancing public services. - Well-managed and profitable SOEs can contribute to national fiscal consolidation and help restore reserves at the CBD following the dissolution of the SWF. - Progress to date: - Continued implementation of the code adopted in 2016 to enhance SOE governance. - SEPE has established a register of all SOEs, begun training accountants and board members to enhance SOE financial information in line with IPSAS standards and governance, and completed the first phase of restructuring administrative public entities (EPAs), eliminating eight entities and consolidating twelve. - A second phase planned in 2026 will pursue deeper reform of these entities. - Additional required measures: - Gradual deleveraging of highly indebted SOEs. - Mobilizing dividends from profitable SOEs to the budget. - Limiting fiscal transfers to loss-making SOEs and restructuring or closing them to ensure sector profitability. - Key priorities and timeline: - In 2025: - Use the existing SOE governance structure to mandate timely disclosure of financial statements from all SOEs, including those formerly under the dissolved SWF. - Expand KPI-based performance contracts beyond ONEAD to advance SOE transformation. - Establish transparent dividend policies based on financial performance. - Finalize review of SOE independent boards by implementing updated candidate qualification criteria. - In 2026: - Finalize implementation of the Code on Good SOE governance by reviewing the SOE portfolio to determine whether to retain, restructure, or divest each entity. - Establish a clear framework for the state’s financial interactions with SOEs to enable SOEs to operate commercially and prevent buildup of expenditure arrears to SOEs. - Authorities’ commitments: - Campaign in April 2025 promoted SEPE’s role and Code implementation in all ministries. - Aim to train at least 70 leaders as SOE administrators by 2025. - SEPE will collect data from all SOEs and review the SOE portfolio in 2026 based on the KPI performance framework. - Plan to improve fiscal transparency and risk management through a shareholder policy and regular audits. ### Monetary and financial sector policies - Central Bank of Djibouti (CBD) governance and currency board: - Strengthen CBD law in line with the 2023 safeguards assessment recommendations to enhance CBD’s autonomy. - Key amendments recommended: - Redefine the coverage ratio to encompass the monetary base and government deposits to reinforce fiscal discipline. - Enhance eligibility criteria for Board members by requiring expertise in financial institutions oversight. - Specify the governing body responsible for appointing the external auditor. - Enhance financial statement transparency. - Implement safeguards recommendations on financial reporting, audit, risk management and internal controls. - Develop a reimbursement plan between the CBD and the Ministry of Budget to strengthen CBD’s balance sheet and deter further monetary financing. - CBD should use future profits to pay off outstanding overdrafts before distributing dividends, as allowed by its statutes. - Reserve requirements: - Phasing in reserve requirements would strengthen the currency board by: - Offsetting the absence of a deposit guarantee fund. - Stabilizing FX reserves (by generating yields on actively managed reserves). - Providing a liquidity buffer against shocks and encouraging an interbank market. - METAC-supported capacity development has established a dedicated unit for preparation, implementation, and monitoring of reserve requirements. - BCD should finalize the draft regulation and adopt a phased approach in setting policy parameters to enhance liquidity management and reinforce banking sector stability. - AML/CFT and banking sector oversight: - Implement MENAFATF recommendations to strengthen the AML/CFT framework. - 2024 Mutual Evaluation Report rated Djibouti “Largely Compliant” and “Compliant” in 18 of the 40 recommendations, placing the country under "enhanced monitoring". - Priorities include strengthening customer due diligence, regulating virtual asset service providers, and enforcing sanctions related to terrorism financing. - Banking sector context: - Total assets reached USD 3½ billion (81½ percent of GDP) by the end of 2024, with a substantial offshore component and increasing exposure to the government. - Continue implementing 2020 Financial Sector Stability Review (FSSR) recommendations, including liquidity coverage ratio reporting, establishing an internal audit function, and reviewing foreign exposure limits. - Authorities’ stance: - CBD endorsed recommendations to amend statutes, gradually introduce reserve requirements, enhance AML/CFT compliance, and strengthen financial sector oversight. - Plan to formally request TA from the Fund. - Reserve requirements ratio is being finalized in consultation with commercial banks with phased implementation expected. - Authorities aim to achieve full compliance with MENAFATF recommendations by June 2026. ### Structural reforms for private investment, diversification, and jobs - Strategic objectives under Djibouti Vision 2035: - Continue economic transformation, modernize the public sector, and address informality. - Advance economic diversification across logistics and connectivity, tourism, agribusiness, and fisheries. - Develop a roadmap with specific actions and timelines to enhance the business environment. - Priority reform areas: - Utilities services: - Improve reliability and access and reduce the cost of electricity and telecommunication services. - Continue to expand cost-efficient green electricity generation and large international data connectors. - Lower cost-recovery electricity tariffs to the private sector by improving bill collection (including from the public sector), simplifying tariff structure, modernizing and expanding the grid, and enhancing technical efficiency. - Level playing field: - Broaden the tax base by limiting tax exemptions in scope and duration, unifying effective tax rates, and removing market entry barriers. - Establish an SOE ownership strategy to determine which SOEs will remain public, undergo restructuring, or be divested. - Market regulation and human capital: - Streamline administrative procedures and improve access to finance for SMEs to encourage formal business creation and employment. - Safeguard fiscal space to invest in health and education and improve workforce skills by effectively implementing the national education masterplan (2021–35). - Electricity sector challenges and measures (Box 1 highlights): - Average sales price stands at 29 US cents per kWh, nearly triple the estimated supply cost of 9–11 US cents per kWh. - Electricity costs can be as high as 25 percent of operating expenses for businesses. - Over one-third of the population remained unconnected to the national grid as of 2022. - Measures: expand grid access and last-mile connectivity; simplify tariff structure based on cost recovery; improve payment discipline, especially in the public sector. ### Data, statistics, and evidence-based policymaking - Data adequacy and improvements: - Djibouti’s data submitted to the Fund have some shortcomings and correspond to a “C” overall rating under the Data Adequacy Assessment (DAA). - Monetary and financial statistics have some shortcomings but are overall adequate for surveillance. - National Accounts (NA) data provide detailed GDP by activity and expenditure; adoption of e-GDDS and publication of the National Data Summary Page (NDSP) will enable more frequent and timely NA dissemination. - Fiscal data reported according to GFSM 1986 standards encompass only the central government budget. - Authorities furnish information on SOE dividends, publicly guaranteed debt, and arrears; PPPs still pose fiscal risks. - Improving goods statistics and accurate recording of financial account transactions related to re-exports proceeds can help reduce net errors and omissions (NEOs). - Authorities plan to develop an international transactions reporting system (ITRS) with IMF TA support. - Authorities’ views: - Recognized need to accelerate structural reforms to enhance diversification, growth, and job creation in line with Vision 2035. - Committed to strengthening human capital via the 2021–35 education masterplan. - Reported telecom coverage: Djibouti Telecom provides mobile and data services to over 95 percent of the population and covers 80 percent of the country. - Working with the World Bank and other donors to reduce electricity consumption in government facilities and expand green electricity generation and distribution capacity. *Source: IMF staff and Djibouti authorities (chapter content).* ### 29. The authorities welcomed staff recommendations to improve statistics with IMF TA. ### 1djiea2025001-source-pdf - 29. The authorities welcomed staff recommendations to improve statistics with IMF TA. ### Statistics and Data Dissemination - The authorities welcomed staff recommendations to improve statistics with IMF TA. - Plans and measures: - Launch e-GDDS and publish the NSDP to help Djibouti meet recommended data dissemination standards and improve its DAA score, especially by improving the frequency and timeliness of NA releases. - Incorporate SOEs into government finance statistics and work towards the adoption of GFSM 2014, with IMF TA support, aiming for greater transparency in government-SOE financial flows. - Investigate the source of low DAA consistency rating, partly due to significant BOP NEOs, with TA from the IMF. ### External Sector Statistics (Box 2 highlights) - Main challenge: consistency of Djibouti’s ESS, evidenced by large BOP NEOs, reaching up to 31 percent of GDP over 2013–24. - Re-exports and settlement issues: - A significant proportion of NEOs reflects the recording of re-exports primarily to Ethiopia (representing over 90 percent of Djibouti’s goods exports) and their settlement handled by Ethiopian importers. - Difficulty matching imports and re-exports in the same year because imports may be re-exported several months later, sometimes in a different year. - High re-exports and related valuation effects have contributed to heightened volatility in the current account balance, ranging from -30.8 percent of GDP in 2013 to 14.1 percent of GDP in 2024. - Challenges in fully accounting for re-export proceeds from Ethiopia, some paid through informal channels, are recorded in NEOs — suggesting inflows are understated or outflows overstated. - Institutional observations: - Customs seems to accurately record trade activity in the free trade zone, but further clarity is needed on settlement of re-exports. - A better understanding of free trade zone enterprises and their transactions with banks could clarify the discrepancy between the current and the financial accounts. - Increasing full-time staff for ESS could enhance follow-up with source data providers and investigation of NEOs. - Comparative note: Djibouti shares traits with Belize, Cabo Verde, and Comoros; collective experience indicates progress in periodicity and timeliness of BOP compilation, including the IIP. ### Staff Appraisal — Macroeconomic resilience and outlook - Recent performance and strengths: - Djibouti has handled recent shocks well, maintaining solid growth despite Red Sea tensions, with moderate inflation and rising reserves. - Logistics investments over the past decade have boosted growth and economic transformation but increased external debt, leaving limited fiscal space given development needs. - Growth and inflation projections: - Growth expected to have surpassed 6½ percent of GDP in 2024, driven by higher transshipment activity and expansion in construction, commerce, telecommunications and tourism. - Growth projected to remain strong at about 6 percent in 2025, then to stabilize near 5½ percent in the medium term, largely driven by Ethiopia’s strong demand for port services. - Inflation is projected to remain subdued in line with global energy and food prices. - Risks to outlook: - External risks include heightened instability in the Horn of Africa with increased migration, reduced development aid, new competition from nearby ports, and global policy shifts possibly weakening the dollar and Djibouti franc — which could spur service exports but raise inflation. ### Fiscal, Debt, and SOE Recommendations - Restore debt sustainability and rebuild reserves: - Clearing all arrears and finalizing debt negotiations is key to restore debt sustainability. - Contain public and publicly guaranteed debt through quantified and enforced ceilings on both SOE and central government debt. - Complement containment with durable fiscal consolidation. - Ensure effective implementation of revenue and expenditure measures in the authorities’ 2024–27 Action Plan for fiscal reforms and rationalize tax expenditures associated with the derogatory regimes. - SOE governance and reform: - Swiftly implement the Code of Good SOE Governance, including collecting financial statements from all SOEs to allow performance monitoring. - Enforce a transparent dividend policy and gradually deleverage highly indebted SOEs. - Review the SOE portfolio to determine whether to retain, restructure, or divest each entity to improve sector efficiency. - Apply a market-based approach to financial settlement practices between SOEs and the state. - Staff welcomes the authorities’ commitment to accelerate SOE governance reform. ### Monetary framework and reserves - Strengthen the currency board: - Pursue a comprehensive strategy to strengthen the currency board. - Amend the CBD law to enhance its autonomy and implement reserve requirements incrementally. - CBD should retain future CBD profits to further bolster reserves. - Sustain fiscal consolidation and leverage dividends from profitable SOEs, including ex-SWF entities, to prevent recurrence of overdrafts. - Develop a reimbursement plan with the Ministry of Budget to clarify arrangements to strengthen reserves. - Recent fiscal consolidation in 2024 aided in rebuilding reserves and partially offset the decline seen since late 2023; however, reserve levels remain below the monetary base. - Authorities’ plan: maintain strong fiscal consolidation, aiming for a government surplus this year and a balanced budget in the medium term. ### Structural reforms to boost private investment and jobs - Recommended measures: - Speed up reforms to boost private investment, diversify the economy, and create jobs. - Level the playing field between companies operating under the general and special regimes. - Lower electricity costs by curbing government agencies' overuse and improving bill collection. - Enhance SME financing and strengthen education and job training under the 2021–35 education master plan to support private sector growth and Vision 2035 implementation. ### Data quality and surveillance - High quality data coverage will support policymaking and strengthen surveillance. - Authorities have taken steps to improve dissemination and quality of macroeconomic statistics and are determined to further improve coverage and consistency of national, fiscal, and external accounts data in line with DAA requirements. - Advancements in data compilation methods and timely publication of statistics will enhance economic analysis and policymaking. *Source: 1djiea2025001-source-pdf - 29. The authorities welcomed staff recommendations to improve statistics with IMF TA.* ### 38. Staff recommends that the next Article IV consultation with Djibouti be held on the ### 1djiea2025001-source-pdf - 38. Staff recommends that the next Article IV consultation with Djibouti be held on the standard 12-month cycle. ### Consultation timing - Staff recommends that the next Article IV consultation with Djibouti be held on the standard 12-month cycle. ### Macroeconomic outlook and selected indicators - Real GDP (annual growth, percent): 2021: 4.4; 2022: 5.2; 2023: 7.4; 2024: 6.5; 2025: 6.0; 2026: 6.0; 2027: 6.0; 2028: 5.5; 2029: 5.5; 2030: 5.5. - Consumer prices (annual average, percent): 2021: 1.2; 2022: 5.2; 2023: 1.4; 2024: 2.1; 2025: 1.6; 2026: 1.5; 2027: 1.4; 2028: 1.4; 2029: 1.4; 2030: 1.4. - Consumer prices (end of period, percent): 2021: 2.5; 2022: 3.6; 2023: 3.7; 2024: -0.6; 2025: 1.8; 2026: 1.6; 2027: 1.5; 2028: 1.4; 2029: 1.7; 2030: 1.6. - Fixed capital investment (percent of GDP): 2021: 29.7; 2022: 29.0; 2023: 24.5; 2024: 26.1; 2025: 26.1; 2026: 26.0; 2027: 26.0; 2028: 26.1; 2029: 26.5; 2030: 26.7. - Gross national savings (percent of GDP): 2021: 23.1; 2022: 47.9; 2023: 42.6; 2024: 40.2; 2025: 34.2; 2026: 33.6; 2027: 33.9; 2028: 34.2; 2029: 34.8; 2030: 35.0. - Savings/investment balance (percent of GDP): 2021: -6.6; 2022: 19.0; 2023: 18.1; 2024: 14.1; 2025: 8.1; 2026: 7.6; 2027: 7.9; 2028: 8.1; 2029: 8.3; 2030: 8.3. ### Central government fiscal profile (2021–2030) - Revenues and grants (percent of GDP): 2021: 20.1; 2022: 19.5; 2023: 18.1; 2024: 18.0; 2025: 19.0; 2026: 18.8; 2027: 18.6; 2028: 18.5; 2029: 18.4; 2030: 18.2. - Tax revenues (percent of GDP): 2021: 11.6; 2022: 11.7; 2023: 11.1; 2024: 11.0; 2025: 11.2; 2026: 11.3; 2027: 11.4; 2028: 11.4; 2029: 11.5; 2030: 11.6. - Nontax revenue (percent of GDP): 2021: 6.7; 2022: 6.8; 2023: 5.2; 2024: 5.9; 2025: 6.7; 2026: 6.4; 2027: 6.1; 2028: 5.9; 2029: 5.7; 2030: 5.5. - Grants (percent of GDP): 2021: 1.8; 2022: 1.1; 2023: 1.7; 2024: 1.1; 2025–2030: 1.1 each year. - Expenditure (percent of GDP): 2021: 23.1; 2022: 21.0; 2023: 21.5; 2024: 20.6; 2025: 20.1; 2026: 19.6; 2027: 19.2; 2028: 18.8; 2029: 18.5; 2030: 18.1. - Current expenditure (percent of GDP): 2021: 15.8; 2022: 15.7; 2023: 14.9; 2024: 15.3; 2025: 15.0; 2026: 14.1; 2027: 13.7; 2028: 13.3; 2029: 13.0; 2030: 12.7. - Capital expenditure (percent of GDP): 2021: 7.3; 2022: 5.2; 2023: 6.6; 2024: 5.3; 2025: 5.0; 2026: 5.5; 2027: 5.5; 2028: 5.5; 2029: 5.4; 2030: 5.4. - Overall balance (commitment basis, percent of GDP): 2021: -3.1; 2022: -1.5; 2023: -3.5; 2024: -2.6; 2025: -1.0; 2026: -0.8; 2027: -0.6; 2028: -0.3; 2029: -0.1; 2030: 0.1. - Overall balance (cash basis, percent of GDP): 2021: -2.7; 2022: -0.3; 2023: -3.7; 2024: -3.1; 2025: -1.0; 2026: -0.8; 2027: -0.6; 2028: -0.3; 2029: -0.1; 2030: 0.1. - Overall Central Government and Publicly Guaranteed Debt (percent of GDP): 2021: 71.5; 2022: 69.0; 2023: 69.9; 2024: 68.9; 2025: 67.2; 2026: 62.3; 2027: 56.9; 2028: 50.1; 2029: 44.0; 2030: 38.5. ### External sector and reserves (selected) - Current account balance (millions of US$): 2021: -224; 2022: 675; 2023: 708; 2024: 604; 2025: 373; 2026: 381; 2027: 427; 2028: 469; 2029: 509; 2030: 545. - Current account (percent of GDP): 2021: -6.6; 2022: 19.0; 2023: 18.1; 2024: 14.1; 2025: 8.1; 2026: 7.6; 2027: 7.9; 2028: 8.1; 2029: 8.3; 2030: 8.3. - Underlying current account balance 1/ (millions of US$): 2021: -224; 2022: 192; 2023: 298; 2024: -157; 2025: 369; 2026: 110; 2027: 152; 2028: 194; 2029: 238. - Gross official reserves (millions of US$): 2021: 578; 2022: 581; 2023: 494; 2024: 338; 2025: 393; 2026: 444; 2027: 483; 2028: 527; 2029: 569; 2030: 609. - Gross official reserves (in months of next year's imports of goods and services, exc. re-exports): 2021: 5.5; 2022: 5.6; 2023: 3.7; 2024: 2.4; 2025: 2.6; 2026: 2.9; 2027: 3.0; 2028: 3.1; 2029: 3.2; 2030: 3.3. - Exchange rate (DF/US$, end of period): 177.7 in each year 2021–2030 (177.7 repeated). ### Balance of payments highlights (2021–2030) - Exports of goods and services (millions of US$): 2021: 5,160; 2022: 5,674; 2023: 5,877; 2024: 5,249; 2025: 6,652; 2026: 7,104; 2027: 7,660; 2028: 8,292; 2029: 8,978; 2030: 9,719. - Imports of goods and services (millions of US$): 2021: -5,483; 2022: -5,096; 2023: -5,269; 2024: -4,768; 2025: -6,380; 2026: -6,830; 2027: -7,346; 2028: -7,942; 2029: -8,595; 2030: -9,307. - Trade balance (millions of US$): 2021: -323; 2022: 578; 2023: 607; 2024: 481; 2025: 272; 2026: 274; 2027: 313; 2028: 350; 2029: 383; 2030: 412. - Foreign direct investment (millions of US$): 2021: 167; 2022: 187; 2023: 137; 2024: 68; 2025: 102; 2026: 120; 2027: 128; 2028: 133; 2029: 135; 2030: 136. - External public and publicly guaranteed debt (millions of US$): 2021: 2,423; 2022: 2,455; 2023: 2,738; 2024: 2,985; 2025: 2,951; 2026: 2,823; 2027: 2,691; 2028: 2,549; 2029: 2,394; 2030: 2,260. - External public and publicly guaranteed debt (percent of GDP): 2021: 71.4; 2022: 68.9; 2023: 69.9; 2024: 69.9; 2025: 64.0; 2026: 56.4; 2027: 49.8; 2028: 44.1; 2029: 39.0; 2030: 34.5. ### Monetary and banking sector indicators - Broad money (annual change, percent): 2021: 5.3; 2022: -1.7; 2023: 7.8; 2024: 3.4; 2025: 4.7; 2026: 5.0; 2027: 5.1; 2028: 5.7; 2029: 5.5; 2030: 5.9. - Credit to non-government (in percent of GDP): 2021: 26.8; 2022: 29.9; 2023: 30.9; 2024: 32.0; 2025: 32.4; 2026: 32.5; 2027: 32.8; 2028: 33.5; 2029: 34.5; 2030: 35.2. - Total bank assets (percent of GDP, 2024): shown in figure (percent values for Djibouti/LIC/PRGTSSA indicated in chart but numeric table not provided in text). - Non-performing loans (NPL) to total gross loans (percent): 2018: 17.6; 2019: 15.4; 2020: 13.8; 2021: 9.1; 2022: 5.2; 2023: 4.0; 2024: 3.1. - Tier 1 capital to risk-weighted assets (percent): 2018: 15.2; 2019: 15.0; 2020: 15.1; 2021: 14.3; 2022: 19.8; 2023: 18.7; 2024: 23.3. - Return on assets (percent): 2018: 0.9; 2019: 1.2; 2020: 0.6; 2021: 1.2; 2022: 1.9; 2023: 1.4; 2024: 1.8. - Return on equity (percent): 2018: 8.4; 2019: 11.5; 2020: 4.7; 2021: 11.2; 2022: 17.3; 2023: 11.5; 2024: 15.3. - Customer deposits (billions of DJF) and percent of total loans: displayed in figure; numerical series present but not restated here outside the tables. ### Banking system aggregate accounts (selected) - Net foreign assets (millions of DJF): 2021: 83,192; 2022: 84,807; 2023: 69,307; 2024: 42,105; 2025: 52,464; 2026: 63,008; 2027: 71,577; 2028: 80,784; 2029: 89,751; 2030: 97,569. - Gross foreign reserves (millions of DJF): 2021: 102,743; 2022: 103,293; 2023: 87,793; 2024: 60,140; 2025: 69,763; 2026: 78,832; 2027: 85,927; 2028: 93,660; 2029: 101,153; 2030: 108,234. - Base money (end-period, millions of DJF): 2021: 96,055; 2022: 96,082; 2023: 90,579; 2024: 85,258; 2025: 87,981; 2026: 91,856; 2027: 96,278; 2028: 101,319; 2029: 106,644; 2030: 112,271. - Broad money (M3, end-period, millions of DJF): 2021: 478,419; 2022: 470,338; 2023: 507,135; 2024: 524,407; 2025: 549,292; 2026: 576,776; 2027: 606,378; 2028: 641,151; 2029: 676,391; 2030: 716,314. - Credit to the private sector (end-period, millions of DJF): 2021: 112,134; 2022: 125,588; 2023: 151,198; 2024: 170,479; 2025: 189,232; 2026: 210,047; 2027: 233,152; 2028: 258,799; 2029: 287,267; 2030: 318,866. - Foreign currency deposits (end-period, millions of DJF): 2021: 220,685; 2022: 207,125; 2023: 232,504; 2024: 243,962; 2025: 256,711; 2026: 270,821; 2027: 285,983; 2028: 303,693; 2029: 319,435; 2030: 338,468. ### Financial soundness indicators (2018–2024) - Regulatory capital to risk weighted assets (percent): 2018: 15.2; 2019: 15.0; 2020: 15.1; 2021: 14.3; 2022: 19.8; 2023: 18.7; 2024: 23.3. - Non-performing loans to total gross loans (percent): 2018: 17.6; 2019: 15.4; 2020: 13.8; 2021: 9.1; 2022: 5.2; 2023: 4.0; 2024: 3.1. - Liquid assets to total assets (percent): 2018: 64.2; 2019: 63.3; 2020: 63.4; 2021: 60.7; 2022: 55.1; 2023: 42.2; 2024: 43.4. - Capital to assets (leverage ratio, percent): 2018: 5.9; 2019: 5.1; 2020: 6.2; 2021: 6.5; 2022: 7.7; 2023: 7.8; 2024: 7.9. - FX loans to total loans (percent): 2018: 43.4; 2019: 31.5; 2020: 40.7; 2021: 38.1; 2022: 54.8; 2023: 62.9; 2024: 73.1. ### Memorandum and other salient figures - Nominal GDP (millions of Djibouti francs): 2021: 602,971; 2022: 633,187; 2023: 696,160; 2024: 762,621; 2025: 819,904; 2026: 889,110; 2027: 960,745; 2028: 1,027,130; 2029: 1,089,802; 2030: 1,165,581. - Nominal GDP (millions of US dollars): 2021: 3,393; 2022: 3,563; 2023: 3,917; 2024: 4,291; 2025: 4,613; 2026: 5,003; 2027: 5,406; 2028: 5,779; 2029: 6,132; 2030: 6,558. - Nominal GDP per capita (US dollars): 2021: 3,385; 2022: 3,506; 2023: 3,804; 2024: 4,114; 2025: 4,369; 2026: 4,681; 2027: 5,000; 2028: 5,286; 2029: 5,546; 2030: 5,873. - Population (million): 2021: 1.002; 2022: 1.016; 2023: 1.030; 2024: 1.043; 2025: 1.056; 2026: 1.069; 2027: 1.081; 2028: 1.093; 2029: 1.106; 2030: 1.117. *Sources: Djibouti authorities; and IMF staff estimates and projections.* ### Annex I. Djibouti Reforms to Mobilize Revenues ### Annex I. Djibouti Reforms to Mobilize Revenues ### Overview and Context - Djibouti’s tax-to-GDP ratio was about 11 percent in 2024. - This ratio is several percentage points below the 15 to 16 percent averages observed in other lower middle-income countries, or in non-oil exporters in the MENA and sub-Saharan Africa. - It is also below the 12¾ percent of GDP threshold, which the empirical literature shows is linked to improved economic growth and development. - Djibouti’s declining tax ratio since 2015 suggests room for enhanced tax design and administration. - To support revenue mobilization, staff has provided technical assistance in several areas described below. ### Tax Policy Unit - Objective: support institution building and the implementation of sustained and meaningful tax reforms over the medium-term by creating and fully operationalizing a dedicated tax policy unit. ### Tax Policy Reform — Objectives and Key Areas - Aim: generate equitable revenues in a fair and efficient manner, while ensuring simplicity in administration and compliance. - Key reform areas include: - Direct taxation - Income tax on salaries: - Revise rates to enhance progressivity. - Properly account for in-kind benefits. - Initiate discussions on taxing pensions. - Tax on professional profits: - Broaden the tax base by eliminating tax exemptions. - Offer more targeted and cost-efficient incentives within the tax code (e.g., longer loss carry-forwards, investment tax credits with sunset clauses). - Simplify taxation for small businesses by removing exemptions and introducing a presumptive regime based on turnover for businesses below the VAT threshold. - Tax rental income and capital earned by businesses under the professional profits tax. - Other direct taxes: - Introduce a moderate tax on investment income. - Implement a new rental income tax. - Reform the property tax system by moving away from using rental values as the tax base. - Eliminate the patente, with corresponding adjustments to other taxes to make up for the revenue loss. - Indirect taxation - VAT: - Increase VAT threshold. - Eliminate poorly-targeted VAT exemptions. - Refrain from offering VAT exemptions as investment incentives, conditional on improving the efficient processing of VAT refunds. - Consumption tax: - Replace the TIC with a customs tariff with a coherent rate structure. - Improve the transparency of the prevailing tariff structure and remove customs duty exemptions without legal basis. - Excise taxes and other levies: - Use excise taxes as instruments to correct for externalities (and possibly improve progressivity in the case of motor vehicles). - Consider using both ad valorem and specific duties on some goods (tobacco, alcohol sugary drinks). - Consolidate the various levies on khat to enhance transparency and improve policy coherence. ### Tax Expenditures - Objective: improve the quality of the tax expenditures report through: - (I) addressing data access, coverage, including systematic evaluation of all major tax exemptions, and clearer governance and enforcement mechanisms; and - (II) updating the list of tax expenditures to expand coverage while avoiding misclassifications. ### Tax Administration - Aim: increase efficiency and enhance voluntary compliance through measures including: - Strengthening the performance of the newly established Large Taxpayers Directorate (LTO). - Reducing taxpayer compliance costs through simplification and modernization of procedures—particularly via the introduction of electronic filing for large enterprises. - Professionalizing tax administration staff and improving taxpayer services. - Modernizing Djibouti’s customs code to align with the COMESA framework, the WCO Revised Kyoto Convention, and the WTO Trade Facilitation Agreement. - Developing a robust stakeholder engagement and communication strategy to foster trust and encourage cooperative relationships between the tax administration and taxpayers. ### 2024–27 Action Plan Highlights - Operationalization of the LTO. - Simplification of taxation for small businesses with a synthetic regime based on turnover. - Standardization of the threshold for companies to have to pay VAT to DJF 50 million. - Replacement of the consumption tax by a customs tariff in line with COMESA standards. *Source: Annex I. Djibouti Reforms to Mobilize Revenues (from the provided IMF content).* ### Annex IV. Data Issues ### Annex IV. Data Issues ### Overall data adequacy assessment - The data provided to the Fund have some shortcomings but are broadly adequate for surveillance. - Rationale for staff assessment: Overall, the data provided to the Fund has shortcomings that somewhat hamper surveillance. Monetary and financial statistics (MFS) have some shortcomings but are broadly adequate for surveillance. There are insufficiencies in the National Accounts (NA), Government Finance Statistics (GFS) and External Sector Statistics (ESS) that somewhat hamper surveillance. ### Sectoral findings and data characteristics - National Accounts (NA) - NA provide granularity for GDP by economic activity and expenditure. - NA data are typically released with a delay of up to 12 months. - The release of the 2024 data was postponed on an ad hoc basis to accommodate priority census activities. - The use of 2013 as the base year somewhat limits the precision of current economic assessments. - Staff note capacity-development priority: METAC will support the production and publication of quarterly national accounts. - National Accounts mission scheduled: November 2025. - Prices - Consumer price data on inflation are published monthly on the website of INSTAD and are granular. - Government Finance Statistics (GFS) - Fiscal data are reported according to GFSM 1986 standards and encompass only the central government budget. - Authorities provide information on SOE dividends, publicly guaranteed debt, and arrears. - Debt data are granular but do not include SOEs' domestic debt. - There have sometimes been inconsistencies between the fiscal and debt file. - Corrective action: STA is supporting the authorities' transition from GFSM 1986 to GFSM 2014 with plans to extend beyond the central government. - GFS mission on transition to GFSM 2014 scheduled: Fall 2025. - Capacity-development priority: expand GFS coverage to include SOEs after transition to GFSM 2014. - External Sector Statistics (ESS) - BOP and IIP data provided by the Central Bank of Djibouti have shortcomings that somewhat hamper surveillance. - Authorities do not submit a granular breakdown of goods trade, but provide a detailed breakdown of services exports and imports. - Better tracking of reexports proceeds could reduce the large net errors and omissions; rail and road traffic data to Ethiopia provided by the authorities serve as good proxies for monitoring reexports. - Some data gaps need to be addressed, especially in the financial account "other investments", to reduce the discrepancy between the BOP and the IIP. - Changes since last Article IV: BOP and IIP data were provided in a timely manner compared to last year when estimates had to be made. - ESS mission scheduled: April 2026. - Capacity-development priority: enhance coverage and granularity of the balance of payments statistics and ensure consistency between BOP and IIP. - Monetary and Financial Statistics (MFS) and Financial Soundness Indicators (FSI) - Data provided are sufficiently comprehensive for analysis of the monetary policy stance. - FSI data provided are adequate for analysis of financial stability risks. - Data on reserves and its components, critical under the currency board arrangement, are adequately provided. - No MFS mission is planned. - Inter-sectoral consistency and granularity - Insufficiencies noted in consistency between fiscal and debt files and between BOP and IIP. - Granularity: staff assessed granularity across sectors (specific granular ratings shown in table within source). ### Data provision, dissemination, and initiatives - Djibouti participates in the enhanced General Data Dissemination System (e-GDDS). - First posted metadata in February 2012 but had not disseminated the data recommended under the e-GDDS until recently. - The National Summary Data Page (NSDP) was launched in June 2025. - Table of Common Indicators Required for Surveillance (As of July 2025) contains multiple observation and receipt dates cited in the source (examples appearing in the table): - Mar-25 / Jun-25 - Dec-24 / Jun-25 - May-25 / Jun-25 - Dec-23 / Dec-24 - These entries reflect the dates of latest observations and dates received for various indicators as reported in the source table. - Use of alternative data - PortsWatch data (satellite-based vessel data from the UN Global Platform) may provide a preliminary indication of port activities at the beginning of a shock or crisis; PortsWatch covers 1,730 ports and 24 chokepoints. - PortsWatch data are not essential for surveillance or addressing delays in GDP reporting but may provide early indications of port and trade activity. - Other data gaps - Authorities are improving employment data; staff will assess labor market data availability in upcoming missions. ### Corrective actions, capacity development, and technical assistance priorities - Immediate and planned TA and capacity development activities: - STA supporting transition from GFSM 1986 to GFSM 2014 (plans to extend beyond central government). - METAC support to produce and publish quarterly national accounts. - Capacity development should prioritize: - Enhancing coverage and granularity of balance of payments statistics. - Ensuring consistency between BOP and IIP. - Mission schedule referenced in source: - GFS mission on transition to GFSM 2014: scheduled Fall 2025. - National Accounts mission (quarterly accounts): November 2025. - ESS mission: April 2026. - No MFS mission planned. - Summary of capacity development needs (selected from annexes) - Fiscal: tax policy efficiency; revenue administration and governance; medium-term debt management. - Legal: Financial and institutional autonomy—amendment of BCD statutes; AML/CFT legal and regulatory framework. - Monetary/Financial: Financial supervision and regulation—regulatory & prudential framework; risk-based supervision. - Statistics: Compilation and dissemination—Balance of Payments Statistics; Government Finance Statistics. ### Key judgments and follow-up - Overall judgment: data shortcomings somewhat hamper surveillance, notably in NA, GFS, and ESS; MFS and FSI data are broadly adequate for respective policy and stability analyses. - Staff will continue to monitor improvements in timeliness (noting improved timeliness in BOP and IIP), coverage, and inter-sectoral consistency as TA and capacity development proceed. *Source: Annex IV. Data Issues, Djibouti — Staff Report for the 2025 Article IV Consultation (text as provided).* ### 2023. It found that the BCD needs to strengthen governance arrangements, amend the BCD Law to ### DJIBOUTI — STAFF REPORT FOR THE 2025 ARTICLE IV CONSULTATION—DEBT SUSTAINABILITY ANALYSIS ### Governance and financial sector findings - The BCD needs to strengthen governance arrangements, amend the BCD Law to reinforce autonomy, and enhance the transparency of the financial statements through the adoption of IFRS and the timely publication of audited financial statements. - The internal audit and the risk management functions are not yet operational. - Capacity constraints at the BCD contribute to weak controls in many areas such as currency management. - Progress on addressing these recommendations has been slow and concerted efforts are needed. - FSAP / FSSR findings (January 2020 and follow-up): - Banks’ large foreign exposures with uncertain liquidity profiles exacerbate banks’ risk profiles. - Few banks have locally designed liquidity risk management frameworks (including formalized liquidity risk appetite, tolerance, limits and contingency plans). - Absence of a CBD system wide liquidity monitoring; CBD 2013 instruction on liquidity has been suspended. - No Liquidity Coverage Framework in place. - CBD is in the process of addressing these shortcomings; an FSSR follow-up TA program included a resident advisor placed by MCM in 2022-2024. ### Exchange arrangements and consultations - Exchange rate arrangement: currency board; Djibouti franc pegged to the U.S. dollar at the rate of DJF 177.721 = US$1. - Djibouti has accepted the obligations under Article VIII, Sections 2(a), 3 and 4, and maintains an exchange system free of restrictions on payments and transfers for current international transactions and multiple currency practices. - Article IV Consultation: On March, 22 2024 the Executive Board of the IMF concluded the 2024 Article IV consultation with Djibouti (IMF Country Report No. 24/59). ### Debt sustainability assessment and risk ratings - Risk of external debt distress: In debt distress. - Overall risk of debt distress: In debt distress. - Granularity in the risk rating: Unsustainable. - Application of judgment: No. - Djibouti’s overall and external public debt is assessed to be in distress and unsustainable, reflecting accumulation of sizeable external arrears and protracted breaches of the PV of overall and external debt-to-GDP and external debt service-to-revenues thresholds. - Djibouti’s current composite indicator (CI) is 2.10, which corresponds to a weak debt-carrying capacity. ### Key debt stock, arrears, and contingent liabilities - Debt-to-GDP increased from 34.9 percent in 2013 to 68.9 percent by the end of 2024. - Debt stock (end-2024): Total 2,958.8 (US$ mn) = 68.9 percent of GDP. - External debt (end-2024): 2,958.0 (US$ mn) = 68.9 percent of GDP. - Stock of arrears as of end-December 2024: around 3 percent of GDP (2.2 percent for principal repayments and 0.7 percent for interest payments). - As of March 2025, arrears were due to eleven creditors, total amount 2.7 percent of GDP (2 percent for principal repayments and 0.7 percent for interest payments). - Creditor shares of stock of arrears (percent): - Exim Bank India 35.2 - Exim Bank China 22.9 - Exim Bank Iran 7.4 - Abu Dhabi Fund for Development 7.0 - Others 27.5 - Tailored stress test on contingent liabilities: totals 16.2 percent of GDP, composed of: - USD 200 million awarded to DP World by a US court in July 2024 = 5 percent of GDP. - Materialization of potential additional SOE external liabilities at the default value = 2 percent of GDP. - Materialization of potential additional PPPs contingent liabilities = 4.2 percent of GDP. - Financial sector contingent liability at the default value = 5 percent of GDP. - Public guarantees (memo): 2,259.4 (US$ mn) = 27.9 percent of GDP (Text Table figures). ### Recent financing, borrowing, and creditor developments - Major infrastructure projects (2013–2024) financed by Exim Bank China loans totaling USD 1.2 billion (approximately 59 percent of GDP). - In 2023, public sector borrowing amounted to about 8 percent of GDP, including: - EUR 79.2 million loan from the European Investment Bank (EIB) for water desalination and wastewater treatment. - Government guarantees for Great Horn Investment Holding: USD 120 million with Afreximbank and USD 35 million with BCIMR. - USD 95.5 million from Invest International for the Ship Repair Yard. - No further borrowing in 2024. - Authorities plan to borrow EUR 79.2 million more from the EIB in 2025 for water projects. - A four-year moratorium was agreed with Exim Bank China in October 2023, limiting total payments for the railway and water projects to about USD 20 million over 2024–27 (previously about USD 276 million) and reprofiling payment of USD 314 million (8 percent of GDP) of arrears on these projects. - Following the moratorium, Exim Bank India has become the creditor to whom Djibouti owes the highest amount of arrears. ### Interest rate exposure and debt service projections - Weighted-average interest rate on Djibouti’s external debt stock projected to rise from 1 percent in 2024 to an average of 2 percent over the ten-year projection horizon. - Total PPG debt service expected to increase from 2.6 percent of GDP in 2024 to an average of 4 percent over the next decade, peaking at 5 percent in 2028 upon expiration of Exim Bank China moratorium. ### Baseline macroeconomic outlook and fiscal projections (selected) - Growth: projected to moderate to its pre-pandemic average of 5½ percent by 2030. - Inflation: projected to ease to 1.4 percent over the medium term. - Current account surplus: expected to narrow to approximately 8.3 percent of GDP. - Central government balance: expected to average around 0.11 percent of GDP over the next decade. - Primary surplus: expected to average 0.04 percent of GDP. - Revenue efforts incorporated: measured tax revenue increase of 0.2 percent of GDP in 2025 (0.1 percentage point less than the authorities’ estimates), followed by 0.08 percentage points of GDP increase annually from 2026 to 2030. - Non-tax revenues incorporate increase from military leases; dissolution of the SWF presents upside via higher dividends and devolution of military base payments. - Expenditures: expected to decrease as share of GDP through reduction in current expenditure to GDP ratio and stabilization of capital expenditure to GDP ratio; 2024–27 fiscal reform action plan includes multiple consolidation measures. - SOEs: expected to remain broadly balanced in the medium term; baseline assumes SOEs generate sufficient cash flow to service project-related debt. - Financing: projections incorporate planned EIB loan for 2025, conservative IDA assumptions, and planned projects totaling USD 227 million; uncertainty remains given lack of a Medium-Term Debt Strategy. ### Risks, vulnerabilities, and climate considerations - Main external vulnerabilities: susceptibility to exports and depreciation shocks; prolonged shocks would pose downside risks to the debt outlook. - Political/region-related risks: resurgence of conflict in Tigray or deteriorating Ethiopia–Eritrea relations could increase refugee flows and strain food supply and social conditions. - Delays in fiscal consolidation, debt negotiations, or development of Berbera port could lead to continued declines in foreign reserves. - Upside: expedited debt renegotiations, stronger SOE governance, and revenue mobilization could enhance fiscal space. - Climate change risks: - World Bank’s 2024 CCDR estimates climate impacts could amount to a permanent annual loss of up to 6 percent of GDP by mid-century. - Priority adaptation investments and policies could reduce these losses to 1 to 3 percent of GDP. - Estimated funding required for the CCDR’s adaptation scenario: USD 1.1 billion. - DSA excludes adaptation investments due to uncertainty. ### Policy priorities and recommendations (implied by analysis) - Finalize debt negotiations with major creditors and pursue a medium-term debt strategy with explicit ceilings covering all public and publicly guaranteed debt. - Strengthen SOE governance and secure ambitious revenue mobilization and SOE dividend payments to the budget. - Continue fiscal consolidation and complete measures in the 2024–27 fiscal reform action plan. - Enhance debt transparency and continue publishing information on new or restructured public or publicly guaranteed loans, including those to SOEs. - Operationalize internal audit and risk management functions at the BCD; adopt IFRS and timely publication of audited financial statements to enhance transparency. - Address banking sector liquidity framework gaps and implement system-wide liquidity monitoring and a Liquidity Coverage Framework. *Prepared by the staff of the International Monetary Fund and the International Development Association. August 20, 2025.* ### 12. Djibouti’s debt-carrying capacity is classified as weak. The debt sustainability framework ### Djibouti’s debt-carrying capacity is classified as weak. The debt sustainability framework ### Debt-carrying capacity and Composite Indicator (CI) - The underlying composite indicator (CI) accounts for the CPIA, real GDP growth rate, import coverage of reserves, remittances and world economic growth. - Current CI estimated at 2.10; final CI score components and contributions: - CPIA: coefficient 0.385; 10-year average value 3.; CI Score component 1.215; Contribution 58% - Real growth rate (in percent): coefficient 2.7; 10-year average value 1.95; CI Score component 0.268; Contribution 0.147% - Import coverage of reserves (in percent): coefficient 4.05; 10-year average value 28.76; CI Score component 1.165; Contribution 17% - Import coverage of reserves^2 (in percent): coefficient -3.99; 10-year average value 0.768; CI Score component -0.03; Contribution -1% - Remittances (in percent): coefficient 2.0; 10-year average value 2.1.; CI Score component 0.034; Contribution 0.021% - World economic growth (in percent): coefficient 13.5; 10-year average value 2.97; CI Score component 0.401; Contribution 19% - CI Score: 2.10 — CI rating: Weak - Final classification: Weak (current vintage, previous vintage, two previous vintages all "Weak"). - Note on measurement: About two thirds of Djibouti’s imports are re-exported to Ethiopia. Since these reexports are not expected to be a direct draw on the country’s reserves, the value of the CI score appears underestimated. ### Baseline external debt dynamics and key thresholds - Under the baseline scenario: - PV of external debt-to-GDP ratio expected to peak at 54.5 percent in 2025. - PV of external debt-to-GDP ratio projected to decline to 27.9 percent by 2032 and remain below the threshold from 2033 onward. - Debt service-to-revenue ratio projected to remain above the threshold until 2032 included, and fall below the threshold in 2033. - PV of debt-to-exports and debt service-to-exports ratios are projected to remain consistently below their relevant thresholds across the projection horizon. - Thresholds used in External Debt Sustainability Assessment: - PV of debt in % of GDP: 35 - PV of total public debt in percent of GDP: 140 (Exports?), GDP: 30 (table headings fragmented in source) - Debt service in % of Exports: 10 - Debt service in % of Revenue: 14 ### Stress test results and vulnerability to shocks - Standard stress tests applied for shocks to real GDP growth, primary balance, exports, other external financing flows and the exchange rate. - Given the Djibouti franc’s stability vis-à-vis the dollar under the currency board, the DSA exchange rate stress scenario should be considered a tail risk event. - Stress-test outcomes: - The most extreme shock for both PV of external debt-to-GDP and debt service-to-revenues is the exports shock (e.g., slowdown in growth in Ethiopia or slowdown in international trade). - Under the exports shock: - PV of external debt-to-GDP ratio rises to 147 percent in 2027 and stays above 100 percent until 2032, before progressively decreasing to 79 percent in 2035. - Debt service-to-revenues ratio rises from an 18 percent average over 2025–27 to a 31 percent average over 2028–2035. - Overall baseline sensitivity: - PV of debt-to-GDP ratio is above the 35 percent threshold until 2030 included; it peaks at 54.5 percent in 2025 and declines continuously to 31.5 percent in 2031 (below threshold). ### Overall risk rating and assessment of sustainability - Djibouti remains in debt distress, and debt is deemed unsustainable. - Temporary measures such as the moratorium with Exim Bank China and increased revenues from military leases create only temporary fiscal room. ### Policy recommendations and actions to restore debt sustainability - Finalize debt negotiations and adopt a medium-term debt strategy: - Complete debt negotiations with Exim Bank China in 2025 while advancing engagements with Exim Bank India and Paris Club creditors. - Establish a medium-term public debt strategy that includes binding annual borrowing limits for the central government and SOEs — encompassing their participation in Public-Private Partnerships — and ensure enforcement by the Public Sector Debt Committee. - Sustain fiscal consolidation and strengthen revenue mobilization (building on the Strategy for the Reform of Public Financial Management and the 2024–27 action plan): - Priorities in 2025: - Finalization of the digitalization and integration of information systems across tax administrations. - Operationalization of the large taxpayer office (LTO). - Establishment of the tax policy unit (TPU) to strengthen tax policy and enhance reform efficiency. - Medium-term: conduct a thorough review of the substantial fiscal cost of tax expenditures and fuel subsidies as a basis for rationalization. - Advance SOE governance reforms to create fiscal space: - Continue implementation of the Code on Good SOE Governance adopted in 2016. - SEPE has established a register for SOEs and started agreeing objectives and KPI-based performance contracts with some SOEs; additional measures needed to strengthen performance and monitoring. - In 2025: - Mandate submission of all SOE financial statements to the SEPE, including those formerly under the dissolved SWF. - Establish a dividend policy grounded in financial performance. - Finalize review of SOE independent boards by implementing updated candidate qualification criteria. - In 2026: complete the review of the SOE portfolio and determine whether to retain, restructure, or divest each entity. - Prioritize access to concessional loans and grants and restrict new borrowing: - Reduce the scope for new borrowing; if additional borrowing is necessary, undertake it solely on concessional terms. - Enhanced access to grants would support a more rapid restoration of debt sustainability. - Factors mitigating debt vulnerabilities include lack of roll-over risks associated with short-term debt and relatively modest interest rates on most obligations. *Source: Authorities' data and IMF Staff calculations* ### 22. The authorities acknowledged that debt had reached a high level. They also noted that ### 22. The authorities acknowledged that debt had reached a high level. They also noted that ### Authorities' assessment and policy actions - The authorities acknowledged that debt had reached a high level. - They noted that current debt levels were attributable to substantial investments in two strategic sectors: - the drinking water sector, aimed at mitigating Djibouti’s persistent water stress; and - the railway sector, designed to connect the country’s logistics platform to its primary market, Ethiopia. - They emphasized that within this framework the following measures were intended to facilitate long-term restructuring and promote debt sustainability: - fiscal reforms introduced by the 2025 Finance Law; - adjustments to military base rental agreements; and - ongoing negotiations with major creditors. ### External Debt Sustainability Framework — baseline indicators (selected entries as presented) - Table title: Djibouti: External Debt Sustainability Framework, Baseline Scenario, 2022–2045 (In percent of GDP, unless otherwise indicated) - External debt (nominal) 1/: 68.969.968.967. 262.356.950.144.038.518.53.467.840.7 - of which: public and publicly guaranteed (PPG): 68.969.968.967.262.356.950.144.038.518.53.467.840.7 - Change in external debt: -2.51.0-1.0-1.7-4.9-5.4-6.8-6.0-5.5-3.1-0.6 - Identified net debt-creating flows: -27.6-27.8-21.8-14.2-13.7-13.7-13.3-13.1-12.7-9.3-6.1-20.3-12.0 - Non-interest current account deficit: -19.6-18.6-14.7-9.4-8.7-8.9-9.3-9.3-9.2-6.6-4.1-12.1-8.3 - Deficit in balance of goods and services: -302.3-284.5-233.4-282.5-278.5-277.6-280.9-286.6-290.1-248.5-193.6-276.9-273.9 - Exports: 159.3150.0122.3144.2142.0141.7143.5146.4148.2126.497.9 - Imports: -143.0-134.5-111.1-138.3-136.5-135.9-137.4-140.2-141.9-122.1-95.7 - Net current transfers (negative = inflow): -4.6-4.2-3.5-3.4-3.3-3.3-3.2-3.2-3.2-3.0-2.8-6.0-3.2 - of which: official: 0.0-3.9-3.1-3.1-3.0-3.0-2.9-2.9-2.9-2.7-2.5 - Other current account flows (negative = net inflow): 287.3270.1222.2276.5273.2272.0274.8280.5284.1244.9192.3270.8268.8 - Net FDI (negative = inflow): -5.2-3.5-1.6-2.2-2.4-2.4-2.3-2.2-2.1-2.0-1.8-5.0-2.1 - Endogenous debt dynamics 2/: -2.8-5.7-5.5-2.6-2.6-2.5-1.7-1.6-1.4-0.7-0.1 - Contribution from nominal interest rate: 0.60.50.61.31.11.01.21.00.80.40.1 - Contribution from real GDP growth: -3.5-4.6-4.2-3.9-3.7-3.5-2.9-2.6-2.3-1.1-0.2 - Contribution from price and exchange rate changes: 0.1-1.6-1.9........................ - Residual 3/: 25.128.820.812.58.88.36.57.17.16.25.523.67.4 - of which: exceptional financing: 0.00.00.00.00.00.00.00.00.00.00.0 ### External sustainability indicators (selected) - PV of PPG external debt-to-GDP ratio: ......55.454.551.348.143.439.235.119.14.9 - PV of PPG external debt-to-exports ratio: ......45.337.836.233.930.226.823.715.15.0 - PPG debt service-to-exports ratio: 1.00.82.23.23.02.83.53.22.72.00.6 - PPG debt service-to-revenue ratio: 6.25.111.117.217.516.519.519.316.911.13.3 - Gross external financing need (Million of U.S. dollars): -829.2-820.4-585.6-323.2-339.2-392.2-385.8-415.5-472.0-539.4-886.4 ### Key macroeconomic assumptions (selected) - Real GDP growth (in percent): 5.27.46.56.06.06.05.55.55.55.55.55.55.6 - GDP deflator in US dollar terms (change in percent): -0.12.42.81.42.31.91.30.61.41.00.01.31.3 - Effective interest rate (percent) 4/: 0.90.91.02.01.81.72.32.12.01.91.51.52.0 - Growth of exports of G&S (US dollar terms, in percent): 10.03.6-10.726.76.87.88.38.38.33.73.86.67.5 - Growth of imports of G&S (US dollar terms, in percent): -7.13.4-9.533.87.17.68.18.28.34.24.07.28.2 - Grant element of new public sector borrowing (in percent): .........41.547.644.853.753.753.753.70.0...51.2 - Government revenues (excluding grants, in percent of GDP): 24.822.723.926. 624.724.125.424.523.923.018.9 26.324.1 - Aid flows (in Million of US dollars) 5/: 164.5376.3141.3265. 4231.2180.799.2103.1107.8135.0220.0 - Grant-equivalent financing (in percent of GDP) 6/: .........3.82.82.11.41.41.41.31.1...1.8 - Grant-equivalent financing (in percent of external financing) 6/: .........50.160.263.183.684.385.088.084.1...78.2 - Nominal GDP (Million of US dollars): 3,563 3,917 4,291 ..................... - Nominal dollar GDP growth: 5.09.99 .57.58.48.16.96.17.06.65.56.87.0 ### Public Sector Debt Sustainability Framework — baseline indicators (selected) - Table title: Djibouti: Public Sector Debt Sustainability Framework, Baseline Scenario, 2022–2045 (In percent of GDP, unless otherwise indicated) - Public sector debt 1/: 69.069.968.967.262.356.950. 144.038.518.53.468.240.7 - of which: external debt: 68.969.968.967.262.356.950.144.038.518.53.467.840.7 - Change in public sector debt: -2.60.9-1.0-1.7-4.9-5.4-6.8-6.0-5.5-3.1-0.6 - Identified debt-creating flows: -2.33.1-2.8-4.3-4.3-4.2- -5.3-5.2-5.0-3.5-3.48.8-4.6 - Primary deficit: 0.58.82.60.0-0.3-0.5- -1.8-2.1-2.3-2.1-3.212.0-1.8 - Revenue and grants: 25.924.525.027.725.825.226.525.625.024.120.029.025.2 - of which: grants: 1.11.71.11.11.11.11.11.11.11.11.1 - Primary (noninterest) expenditure: 26.433.227.727.725.524.724.723.522.722.016.941.023.4 - Automatic debt dynamics: -2.8-5.7-5.5-4.3-4.1-3.6-3.4-3.1-2.8-1.4-0.3 - Contribution from interest rate/growth differential: -7.5-6.4-5.2-4.3-4.1-3.6-3.4-3.1-2.8-1.4-0.3 - of which: contribution from average real interest rate: -4.0-1.7-0.9-0.4-0.3-0.1-0.5-0.5-0.5-0.3-0.1 - of which: contribution from real GDP growth: -3.5-4.7-4.3-3.9-3.8-3.5-3.0-2.6-2.3-1.1-0.2 - Contribution from real exchange rate depreciation: 4.70.7-0.3........................ - Residual: -0.2-2.11.92.6-0.6-1.3-1.5-0.9-0.50.42.9-5.50.1 ### Public sector sustainability indicators (selected) - PV of public debt-to-GDP ratio 2/: ......55.454.551.348.143. 439.235.119.14.9 - PV of public debt-to-revenue and grants ratio: ......221.3196.8199.2190.7163.5153.3140.779.124.4 - Debt service-to-revenue and grants ratio 3/: 6.14.910.716.616.715.818.718.516.110.63.1 - Gross financing need 4/: 2.010.05.33.43.02.52.31.91.30.4-2.5 ### Stress tests and sensitivity analysis (high-level) - Figures and tables present indicators of Public and Publicly Guaranteed External Debt under alternative scenarios, 2025–2035, including: - Most extreme shock selection rules and borrowing assumptions on additional financing needs generated by stress tests. - Charts for debt service-to-revenue ratio, PV of debt-to-exports ratio, PV of debt-to-GDP ratio, debt service-to-exports ratio under most extreme shock (Exports), and other stress outcomes. - Table 3. Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2025–2035 (In percent) — selected rows as presented: - Baseline: 5451484339353128252219 - A. Alternative Scenarios - A1. Key variables at their historical averages in 2025-2035 2/: 544944362923158200 - B. Bound Tests - B1. Real GDP growth: 5453524742383430272321 - B2. Primary balance: 5465757066615753494541 - B3. Exports: 5486147138130122115107978880 - B5. Depreciation: 5465948882767165595348 - B6. Combination of B1-B5: 54468847873686358524742 - C. Tailored Tests - C1. Combined contingent liabilities: 5460575349454137343027 - Thresholds and baseline benchmarks are provided (examples: Threshold 30 30 30 30 ... ; Baseline series 3836343027242220191715 etc.) as tabulated and charted in the source. *Sources: Country authorities; and staff estimates and projections.* ### 2. Primary balance33343333433 ### 2. Primary balance33343333433 ### Sensitivity Analysis for Key Indicators of Public Debt, 2025–2035 - Table context: sensitivity analysis reported for Djibouti, projections 2025–2035. - Baseline (2025–2035) — PV of debt-to-exports / related indicator: 54, 51, 48, 43, 39, 35, 31, 28, 25, 22, 19 - A. Alternative Scenarios - A1. Key variables at their historical averages in 2025-2035 2/: 54, 57, 60, 61, 63, 65, 69, 71, 74, 76, 79 - A1. (alternate row): 0#N/A#N/A#N/A#N/A#N/A#N/A#N/A#N/A#N/A#N/A#N/A - B. Bound Tests - B1. Real GDP growth: 54, 53, 52, 47, 43, 40, 37, 34, 31, 29, 26 - B2. Primary balance: 54, 63, 72, 66, 62, 57, 53, 49, 44, 41, 37 - B3. Exports: 54, 68, 94, 88, 83, 78, 74, 68, 62, 56, 51 - B4. Other flows 3/: 54, 53, 51, 46, 42, 38, 34, 31, 27, 24, 21 - B5. Depreciation: 54, 65, 60, 53, 47, 41, 36, 32, 27, 23, 20 - B6. Combination of B1-B5: 54, 68, 65, 40, 35, 30, 27, 23, 20, 17, 15 - C. Tailored Tests - C1. Combined contingent liabilities: 54, 58, 54, 49, 45, 40, 37, 33, 32, 26, 23 - C2. Natural disaster: n.a. - C3. Commodity price: n.a. - C4. Market Financing: n.a. - TOTAL public debt benchmark: 35, 35, 35, 35, 35, 35, 35, 35, 35, 35, 35 ### PV of Debt and Debt-Service Indicators (selected series; projections 2025–2035) - PV of Debt-to-GDP Ratio — Baseline (2025–2035): 197, 199, 191, 163, 153, 141, 129, 115, 100, 90, 79 - A. Alternative Scenarios - A1. Key variables at their historical averages in 2025-2035 2/: 197, 221, 238, 231, 247, 262, 282, 293, 300, 315, 327 - A1. (alternate row): 0, 195, 195, 185, 157, 146, 133, 121, 107, 93, 83, 73 - B. Bound Tests - B1. Real GDP growth: 197, 204, 204, 177, 168, 158, 150, 137, 125, 117, 109 - B2. Primary balance: 197, 245, 286, 250, 241, 228, 217, 200, 180, 167, 154 - B3. Exports: 197, 264, 373, 333, 326, 313, 302, 281, 252, 233, 212 - B4. Other flows 3/: 197, 205, 203, 175, 165, 152, 141, 126, 110, 99, 88 - B5. Depreciation: 197, 255, 238, 200, 184, 166, 150, 130, 111, 96, 82 - B6. Combination of B1-B5: 197, 264, 257, 149, 136, 122, 109, 95, 81, 71, 61 - C. Tailored Tests - C1. Combined contingent liabilities: 197, 226, 216, 185, 175, 162, 150, 135, 119, 108, 97 - C2. Natural disaster: n.a. - C3. Commodity price: n.a. - C4. Market Financing: n.a. ### Debt Service-to-Revenue and PV of Debt-to-Revenue (selected series) - Baseline (2025–2035) — Debt service / revenue series: 17, 17, 16, 19, 18, 16, 15, 14, 13, 12, 11 - A. Alternative Scenarios - A1. Key variables at their historical averages in 2025-2035 2/: 17, 17, 17, 20, 20, 18, 17, 18, 18, 19, 19 - A1. (alternate row): 0, 17, 17, 16, 19, 19, 16, 15, 15, 13, 12, 11 - B. Bound Tests - B1. Real GDP growth: 17, 17, 17, 20, 20, 18, 16, 16, 15, 14, 13 - B2. Primary balance: 17, 17, 17, 20, 20, 17, 16, 18, 19, 18, 16 - B3. Exports: 17, 17, 17, 21, 21, 18, 17, 20, 24, 22, 20 - B4. Other flows 3/: 17, 17, 16, 19, 19, 16, 15, 15, 14, 13, 11 - B5. Depreciation: 17, 19, 21, 25, 24, 21, 20, 19, 17, 16, 14 - B6. Combination of B1-B5: 17, 16, 16, 18, 18, 16, 15, 14, 13, 12, 10 - C. Tailored Tests - C1. Combined contingent liabilities: 17, 17, 16, 19, 19, 17, 15, 17, 15, 14, 13 - C2. Natural disaster: n.a. - C3. Commodity price: n.a. - C4. Market Financing: n.a. ### Figures and Drivers of Debt Dynamics (baseline scenario) - Figure 3 highlights drivers of external debt dynamics under the baseline: - Components shown include Gross Nominal PPG External Debt, Debt-creating Flows, Unexpected Changes in Debt (difference between anticipated and actual contributions on debt ratios). - Decomposition elements referenced: Price and exchange rate, Real GDP growth, Nominal interest rate, Current account + FDI, Change in PPG debt. - Historical and projected 5-year changes displayed for residual, price and exchange rate, real GDP growth, nominal interest rate, current account + FDI, and change in PPG debt. - Figure 4: Realism Tools - Shows Gov. Invest. — Prev. DSA vs Curr. DSA; Priv. Invest. — Prev. DSA vs Curr. DSA; contribution of government capital and other factors. - Fiscal adjustment and possible growth paths: bars show annual projected fiscal adjustment (right-hand scale) and lines show possible real GDP growth paths under different fiscal multipliers (left-hand scale). - Fiscal multipliers illustrated: Multiplier = 0.2, 0.4, 0.6, 0.8 and Baseline. - Projected 3-year adjustment in primary balance (percentage points of GDP) and distribution across Fund-supported LIC programs since 1990, with note: "3-year PB adjustment greater than 2.5 percentage points of GDP in approx. top quartile." ### Notes and Data Definitions (as presented) - Sources: Country authorities; and staff estimates and projections. - 1/ A bold value indicates a breach of the benchmark (or threshold where indicated). - 2/ Variables include real GDP growth, GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows (in earlier table); in another note variables include real GDP growth, GDP deflator and primary deficit in percent of GDP. - 3/ Includes official and private transfers and FDI. - Several tailored tests (Natural disaster, Commodity price, Market Financing) are reported as n.a. where not applicable or not available. *Sources: Country authorities; and staff estimates and projections.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1djiea2025001-source-pdf.pdf_