## Djibouti’s National Initiative for Social Development (INDS)

## Source details

**Canonical URL:** [Djibouti’s National Initiative for Social Development (INDS)](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr09204.pdf)

## Other formats

- [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr09204.pdf.md)
- [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr09204.pdf.json)

---

### Strategy overview and pillars
- INDS completed in January 2008; covers period 2008–11.
- Builds on PRS-I (presented to IMF and World Bank Executive Boards in May 2004) and maintains its thrust with added emphasis on spatial planning and environmental preservation.
- Four pillars:
  - (a) accelerating growth while maintaining macroeconomic stability;
  - (b) achieving universal access to basic services and development of human capital;
  - (c) promoting a harmonious and balanced local development that preserves the environment;
  - (d) and improving governance and capacity building.

### Implementation record, participatory process, and M&E
- PRSP-I implementation: only 17 percent of priority actions fully implemented; about thirty percent partially implemented.
- INDS development involved sectoral ministries, parliamentary representatives, the Chamber of Commerce, trade unions, nongovernmental organizations, and international donors; discussed in several workshops open to the press.
- INDS includes intention to strengthen civil society participation under pillar four.
- Improving monitoring and evaluation (M&E) is essential:
  - Institutional developments since the launch of the initiative have established a framework for an M&E system, but capacity strengthening is required.
  - Capacity of the Directorate for Statistics and Demographic Studies (DISED) must be improved for sustainability and effectiveness of the M&E system.
  - Differences in monitoring capacity across government agencies implementing the INDS are a key concern.
  - Sector targets are poverty-focused and aligned with the MDGs; depth, detail and accuracy of indicators could be improved by re-calibrating and updating them once the census and the planned surveys are carried out.
  - Government is encouraged to set specific annual indicators and link them to the annual budgeting exercise.
  - Staffs welcome the authorities’ strategy for improvement of the national statistics system outlined in the INDS and recent progress in establishing a famine early warning system.

### Poverty analysis, data gaps, and surveys
- No poverty analysis in INDS due to lack of recent household surveys.
- Existing surveys:
  - EDAM–IS2 (latest survey 2002) and EDIM (2006) conducted for PRSP and MDGs.
- Survey-based poverty measures (2002):
  - Incidence of extreme poverty (defined in Djibouti at $1.8 per day) in 2002: 42.2 percent.
  - Incidence of relative poverty (defined at US$3 per day by the national poverty line) in 2002: surpassed 74.4 percent.
- Additional facts and timing:
  - A 2007 poverty map indicates significant regional heterogeneity; poverty rate much higher in rural than in urban areas where about 80 percent of the population is located.
  - Authorities intend to conduct a new household survey (EDAM-3) following the population census; completion of census and surveys expected in 2009.
  - Authorities communicated intent to implement the census and a household survey in 2008 and improve poverty analysis.
- Data constraints:
  - Last population census was more than three decades ago; demographic statistics based on a 1991 survey.
  - Improved statistical framework and building local capacity for data analysis and coordination are priorities and elements of the second PRGF arrangement requested by the authorities.

### Social outcomes and program shortcomings
- Reported improvements (EDIM 2006):
  - Primary education enrollment rates increased from 42.7 percent in 2000 to 66.2 percent in 2006.
  - Increased literacy among young females.
  - Reduced infant mortality.
  - Economic growth increased from 1.6 percent in 2004 to 4 percent in 2006.
- Reasons for limited success:
  - Resource gaps, administrative capacity constraints, and lack of effective monitoring and evaluation systems hindered social program implementation.

### Macroeconomic framework, growth prospects, and risks
- INDS medium-term economic program aims to:
  - Foster sustainable and balanced economic growth and reduce poverty.
  - Maintain macroeconomic stability, improve competitiveness, reduce inflation, and strengthen the external position.
  - Balance the budget in the medium term to create fiscal space for poverty-reducing expenditures.
- Risks and constraints:
  - Negative impact of food and oil price shocks since INDS elaboration may delay inflation target achievement.
  - Current account deficits likely higher than targeted given large foreign and domestic investments and higher food and oil prices in the short term.
- Growth drivers and policy priorities:
  - Large inflows of FDI in the port, construction, and related infrastructure have improved activity.
  - Growth projected to increase gradually over the medium term, boosted by FDI, structural reforms (new commerce and labor codes), and sound macro policies.
  - Emphasis on maintaining macro stability and promoting private investment.
  - Need for continuation of structural reforms and realization of pipeline large investment projects to transform Djibouti into a regional trade and services hub.
  - Importance of preventing enclave-style growth around the port and enhancing competitiveness.
- Specific staff policy recommendations:
  - Reduce high unit labor costs to levels in line with neighboring and competing countries.
  - Fiscal tightening including through lower public sector labor costs.
  - Structural reforms to reduce other production costs, particularly utilities.
  - Future Annual Progress Reports should elaborate on these issues once census and surveys completed.

### Structural and sectoral policy gaps and staff recommendations
- Labor market and employment:
  - Very high unemployment estimated at 40 percent.
  - Among those aged 15–24, more than 90 percent are inactive; enrolment rates for this cohort are very low.
  - INDS supports employment programs via ‘Observatoire de l’emploi et des qualification’ and ‘Agence nationale de l’emploi, de la formation et de l’insertion professionnelle (ANEFIP)’.
  - Staff recommendations:
    - Rigorous assessment of past efforts and international experience before scaling up.
    - Greater specificity on how new agencies will be used.
    - Emphasize long-term vision and sequencing of labor market interventions.
- Private sector and competitiveness challenges:
  - Main constraints: excessively high energy costs, severe water scarcity and recurrent droughts, weak public administration capacity for service delivery.
  - INDS actions exist but may not be far-reaching enough to induce structural change.
  - Staff suggests future APRs elaborate on energy sector reforms (including steps to privatize the public electricity company) and financial sector reform using upcoming FSAP findings.
  - Consider lifting structural divide between growth poles (free zone and port) and onshore economy governed by different incentive frameworks.
- Social protection and food crisis response:
  - INDS lacks a clear vision for mitigating urban vulnerability to shocks; the imminent food crisis reveals gaps.
  - Government’s food security strategy (developed in 2007, updated in 2008) is not integrated into INDS, risking conflicting priorities (e.g., investing in agricultural production abroad versus domestic agriculture and fisheries).
  - Staff recommendation: include the government’s food security strategy in INDS to ensure coherence during crises.
  - Current INDS social protection actions emphasize a privately funded cash transfer system; concerns exist about coverage, sustainability, accountability, incentives, and targeting mechanisms.
  - Staff recommends stronger effort to develop well-targeted social protection programs and dialogue with the World Bank on improving the social safety net.
- Governance and public administration:
  - INDS envisages judicial reform and improvements in governance and transparency, but administrative reform implementation needs further elaboration.
  - Priorities: public service delivery improvements, better efficiency in use of public financial resources, human resource and financial management, procurement, and decentralization.
  - Personnel management reforms should focus on implementing existing statutes, improving coordination between Ministry of Finance and Ministry of Employment on recruitment/promotion/retirement, planning personnel requirements, and targeting resources where most needed.
  - Authorities signal strong commitment: President indicated improving governance as one of highest government priorities; expansion of work expected with World Bank and development partner support.

### Public Investment Program (PIP), financing, and debt sustainability
- Staff projection for PIP to achieve INDS targets:
  - Large public investment program of about $700 million (equivalent to 80 percent of 2007 GDP) for 2008 to 2011.
  - Financing breakdown:
    - About one-fifth of total expenditure expected to be domestically financed through budgetary resources.
    - Rest (about $600 million) would be externally financed.
  - Authorities have secured external financing for about $400 million—of which about one-half in the form of grants.
  - Financing needs would be higher if all INDS projects implemented regardless of priority.
  - Authorities recognize need for a large increase in external aid to cover fiscal and external financing gaps, both projected to reach about 2 percent of GDP in the period 2008–11.
- Debt and investment management recommendations:
  - Implement an investment and debt management strategy consistent with reducing high risks of debt distress identified in the recent DSA.
  - DSA highlighted vulnerability of debt sustainability to lower-than-projected growth and less-favorable financing terms.
  - Temporary suspension of disbursements caused by occasional accumulation of new external arrears underscores need to improve debt management to boost donor confidence and ensure financing on highly concessional terms.
  - Authorities intend to rely on grants and highly concessional loans; some form of future debt relief may be needed to strengthen external debt sustainability.
- Sectoral allocation and expenditure programming:
  - Unclear whether priority actions were evaluated by sectoral Ministries to determine investment costs and facilitate financing acquisition.
  - Recommendation to initiate multi-year public expenditure frameworks and a medium-term expenditure framework as soon as possible to improve programming and monitoring of investments.
  - Development of evaluation systems for public investment project implementation is important to improve project efficiency and governance.

### PIP spending priorities and implementation risks
- PIP spending shares:
  - Education share in expenditure: 16.7 percent.
  - Health share in expenditure: 17.4 percent.
  - Water and sanitation share in total PIP spending: 11.2 percent.
- Staffs welcome the reallocation and share the view that the quality and access to water and sanitation have an important bearing on poverty reduction.
- Fiscal and external financing gap context (staffs' note):
  - The fiscal financing gap is expected to be filled by budget support grants and loans as well as debt rescheduling.
  - The external financing gap is defined as the amount of additional financing (including exceptional financing under the program) that would be needed to ensure that the gross foreign assets coverage of the currency board remains above 105 percent.
  - These gaps are estimated on the assumption that all external project financing necessary to finance the PIP would be available; a shortfall in project financing would result in wider fiscal and external financing gaps.

### Conclusions, key implementation risks, and questions for Directors
- Suggested broadening and strengthening of INDS:
  - Expand and elaborate structural measures to promote economic development and domestic private sector growth.
  - Expand and re-consider forms of social assistance to the poor given vulnerability to external price volatilities and droughts.
  - Evaluate active labor market policies and investment in employment programs; place greater emphasis on public administration reform.
- Key implementation risks identified by staffs:
  - Institutional weaknesses may delay implementation of the INDS.
  - Achievement of INDS objectives hinges on availability of grants, highly concessional external resources, and favorable treatment of external debt to avoid threatening debt sustainability.
  - Any shortfalls in external financing or debt treatment would seriously compromise Djibouti’s proposed development strategy, which is highly dependent on scaled-up foreign financing.
  - Continued failure to obtain adequate poverty diagnostics due to lack of M&E instruments is an additional key risk.
  - Organization of a donors’ conference in the last quarter of 2008 is particularly welcome.
- Question for Executive Directors:
  - Whether they agree with the main areas identified by the staffs as priorities for strengthening the strategy and its implementation, and areas identified as key implementation risks.

*Source: IMF staff report on Djibouti’s INDS (January 2008; sections I–VI as provided).*

### 1. Djibouti’s National Initiative for Social Development (“Initiative Nationale pour

### Djibouti’s National Initiative for Social Development (“Initiative Nationale pour le Développement Social”—INDS)

### Strategy overview and pillars
- INDS completed in January 2008; covers period 2008–11.
- Builds on PRS-I (presented to IMF and World Bank Executive Boards in May 2004) and maintains its thrust with added emphasis on spatial planning and environmental preservation.
- Four pillars:
  - (a) accelerating growth while maintaining macroeconomic stability;
  - (b) achieving universal access to basic services and development of human capital;
  - (c) promoting a harmonious and balanced local development that preserves the environment;
  - (d) and improving governance and capacity building.

### Implementation record and participatory process
- PRSP-I implementation: only 17 percent of priority actions fully implemented; about thirty percent partially implemented; many objectives, particularly in the second pillar (developing human capital), were not achieved.
- INDS development involved sectoral ministries, parliamentary representatives, the Chamber of Commerce, trade unions, nongovernmental organizations, and international donors; discussed in several workshops open to the press.
- INDS includes intention to strengthen civil society participation under pillar four.

### Poverty analysis and data gaps
- No poverty analysis in INDS due to lack of recent household surveys.
- Existing surveys:
  - EDAM–IS2 (latest survey 2002) and EDIM (2006) conducted for PRSP and MDGs.
- Survey-based poverty measures:
  - Incidence of extreme poverty (defined in Djibouti at $1.8 per day) in 2002: 42.2 percent.
  - Incidence of relative poverty (defined at US$3 per day by the national poverty line) in 2002: surpassed 74.4 percent.
- Additional facts:
  - A 2007 poverty map indicates significant regional heterogeneity; poverty rate much higher in rural than in urban areas where about 80 percent of the population is located.
  - Authorities intend to conduct a new household survey (EDAM-3) following the population census; completion of census and surveys expected in 2009.
- Data constraints:
  - Last population census was more than three decades ago; demographic statistics based on a 1991 survey.
  - Improved statistical framework and building local capacity for data analysis and coordination are priorities and elements of the second PRGF arrangement requested by the authorities.

### Social outcomes and program shortcomings
- Reported improvements (EDIM 2006):
  - Primary education enrollment rates increased from 42.7 percent in 2000 to 66.2 percent in 2006.
  - Increased literacy among young females.
  - Reduced infant mortality.
  - Economic growth increased from 1.6 percent in 2004 to 4 percent in 2006.
- Reasons for limited success:
  - Resource gaps, administrative capacity constraints, and lack of effective monitoring and evaluation systems hindered social program implementation.

### Macroeconomic framework and growth prospects
- INDS medium-term economic program aims to:
  - Foster sustainable and balanced economic growth and reduce poverty.
  - Maintain macroeconomic stability, improve competitiveness, reduce inflation, and strengthen the external position.
  - Balance the budget in the medium term to create fiscal space for poverty-reducing expenditures.
- Risks and constraints:
  - Negative impact of food and oil price shocks since INDS elaboration may delay inflation target achievement.
  - Current account deficits likely higher than targeted given large foreign and domestic investments and higher food and oil prices in the short term.
- Growth drivers and policy priorities:
  - Large inflows of FDI in the port, construction, and related infrastructure have improved activity.
  - Growth projected to increase gradually over the medium term, boosted by FDI, structural reforms (new commerce and labor codes), and sound macro policies.
  - Emphasis on maintaining macro stability and promoting private investment.
  - Need for continuation of structural reforms and realization of pipeline large investment projects to transform Djibouti into a regional trade and services hub.
  - Importance of preventing enclave-style growth around the port and enhancing competitiveness.
- Specific policy actions recommended by staff:
  - Reduce high unit labor costs to levels in line with neighboring and competing countries.
  - Fiscal tightening including through lower public sector labor costs.
  - Structural reforms to reduce other production costs, particularly utilities.
  - Future Annual Progress Reports should elaborate on these issues once census and surveys completed.

### Structural and sectoral policy gaps and recommendations
- Labor market and employment:
  - Very high unemployment estimated at 40 percent.
  - Among those aged 15–24, more than 90 percent are inactive; enrolment rates for this cohort are very low.
  - INDS supports employment programs via ‘Observatoire de l’emploi et des qualification’ and ‘Agence nationale de l’emploi, de la formation et de l’insertion professionnelle (ANEFIP)’.
  - Staff recommendations:
    - Rigorous assessment of past efforts and international experience before scaling up.
    - Greater specificity on how new agencies will be used.
    - Emphasize long-term vision and sequencing of labor market interventions.
- Private sector and competitiveness challenges:
  - Main constraints: excessively high energy costs, severe water scarcity and recurrent droughts, weak public administration capacity for service delivery.
  - INDS actions exist but may not be far-reaching enough to induce structural change.
  - Staff suggests future APRs elaborate on energy sector reforms (including steps to privatize the public electricity company) and financial sector reform using upcoming FSAP findings.
  - Consider lifting structural divide between growth poles (free zone and port) and onshore economy governed by different incentive frameworks.
- Social protection and food crisis response:
  - INDS lacks a clear vision for mitigating urban vulnerability to shocks; the imminent food crisis reveals gaps.
  - Government’s food security strategy (developed in 2007, updated in 2008) is not integrated into INDS, risking conflicting priorities (e.g., investing in agricultural production abroad versus domestic agriculture and fisheries).
  - Staff recommendation: include the government’s food security strategy in INDS to ensure coherence during crises.
  - Current INDS social protection actions emphasize a privately funded cash transfer system; concerns exist about coverage, sustainability, accountability, incentives, and targeting mechanisms.
  - Staff recommends stronger effort to develop well-targeted social protection programs and dialogue with the World Bank on improving the social safety net.
- Governance and public administration:
  - INDS envisages judicial reform and improvements in governance and transparency, but administrative reform implementation needs further elaboration.
  - Priorities: public service delivery improvements, better efficiency in use of public financial resources, human resource and financial management, procurement, and decentralization.
  - Personnel management reforms should focus on implementing existing statutes, improving coordination between Ministry of Finance and Ministry of Employment on recruitment/promotion/retirement, planning personnel requirements, and targeting resources where most needed.
  - Authorities signal strong commitment: President indicated improving governance as one of highest government priorities; expansion of work expected with World Bank and development partner support.

### Public investment program (PIP), financing, and debt sustainability
- Staff projection for PIP to achieve INDS targets:
  - Large public investment program of about $700 million (equivalent to 80 percent of 2007 GDP) for 2008 to 2011.
  - Financing breakdown:
    - About one-fifth of total expenditure expected to be domestically financed through budgetary resources.
    - Rest (about $600 million) would be externally financed.
  - Authorities have secured external financing for about $400 million—of which about one-half in the form of grants.
  - Financing needs would be higher if all INDS projects implemented regardless of priority.
  - Authorities recognize need for a large increase in external aid to cover fiscal and external financing gaps, both projected to reach about 2 percent of GDP in the period 2008–11.
- Debt and investment management recommendations:
  - Staffs recommend implementing an investment and debt management strategy consistent with reducing high risks of debt distress identified in the recent DSA.
  - DSA highlighted vulnerability of debt sustainability to lower-than-projected growth and less-favorable financing terms.
  - Temporary suspension of disbursements caused by occasional accumulation of new external arrears underscores need to improve debt management to boost donor confidence and ensure financing on highly concessional terms.
  - Authorities intend to rely on grants and highly concessional loans; some form of future debt relief may be needed to strengthen external debt sustainability.
  - Future APRs could cover authorities’ plans and progress on this front.
- Sectoral allocation and expenditure programming:
  - Unclear whether priority actions were evaluated by sectoral Ministries to determine investment costs and facilitate financing acquisition.
  - Recommendation to initiate multi-year public expenditure frameworks and a medium-term expenditure framework as soon as possible to improve programming and monitoring of investments.
  - Development of evaluation systems for public investment project implementation is important to improve project efficiency and governance.

*Source: IMF staff report on Djibouti’s INDS (January 2008; sections I–VI as provided).*

### 20. The PIP gives priority to education and health as evidenced by their high share

### 20. The PIP gives priority to education and health as evidenced by their high share

### PIP spending priorities
- Education share in expenditure: 16.7 percent.
- Health share in expenditure: 17.4 percent.
- Water and sanitation share in total PIP spending: 11.2 percent.
- Staffs welcome the reallocation and share the view that the quality and access to water and sanitation have an important bearing on poverty reduction.

### Implementation risk and monitoring
- Improving monitoring and evaluation (M&E) is essential for the success of the INDS.
- Institutional developments since the launch of the initiative have established a framework for an M&E system, but capacity strengthening is required:
  - Capacity of the Directorate for Statistics and Demographic Studies (DISED) must be improved for sustainability and effectiveness of the M&E system.
  - Differences in monitoring capacity across government agencies implementing the INDS are a key concern; addressing these capacity constraints should be part of M&E framework and strategy design.
- Poverty focus and indicator design:
  - Sector targets are poverty-focused and aligned with the MDGs.
  - Depth, detail and accuracy of indicators could be improved by re-calibrating and updating them once the census and the planned surveys are carried out.
  - Government is encouraged to set specific annual indicators and link them to the annual budgeting exercise to ensure resource availability within the established timeframe.
  - Selected indicators across sectors should adequately reflect the different socioeconomic dimensions of poverty spelled out in the INDS.
- Statistical system improvements:
  - Authorities’ emphasis on improving the statistical system is shared by the staffs.
  - Sound and regularly updated data is needed to monitor economic and social progress.
  - Staffs welcome the authorities’ strategy for improvement of the national statistics system outlined in the INDS and recent progress in establishing a famine early warning system.
  - Progress indicates capacity to produce quality data exists and can be enhanced with donor-supported technical assistance.
- Fiscal and external financing gap context (staffs' note):
  - The fiscal financing gap is expected to be filled by budget support grants and loans as well as debt rescheduling.
  - The external financing gap is defined as the amount of additional financing (including exceptional financing under the program) that would be needed to ensure that the gross foreign assets coverage of the currency board remains above 105 percent.
  - These gaps are estimated on the assumption that all external project financing necessary to finance the PIP would be available.
  - A shortfall in project financing compared to projections would result in wider fiscal and external financing gaps.

### Conclusions and issues for discussion
- Data and planned surveys:
  - Authorities recognize available data does not provide a solid basis for precise poverty analysis.
  - Authorities communicated intent to implement the census and a household survey in 2008 and improve poverty analysis.
  - Authorities are elaborating a strong M&E strategy with sectoral and local government involvement, including regular reporting of the status of implementation.
- Suggested broadening and strengthening of INDS:
  - INDS could benefit from further elaboration on structural measures to promote economic development and domestic private sector growth.
  - INDS could be substantially strengthened by expanding coverage and re-considering forms of social assistance to the poor, in light of Djibouti’s vulnerabilities to external price volatilities and droughts.
  - It could be beneficial to evaluate active labor market policies and investment in employment programs and place greater emphasis on public administration reform.
- Key implementation risks identified by staffs:
  - Institutional weaknesses may delay implementation of the INDS.
  - Achievement of INDS objectives hinges on availability of grants, highly concessional external resources, and favorable treatment of external debt to avoid threatening debt sustainability.
  - Any shortfalls in external financing or debt treatment would seriously compromise Djibouti’s proposed development strategy, which is highly dependent on scaled-up foreign financing.
  - Organization of a donors’ conference in the last quarter of 2008 is particularly welcome.
  - Continued failure to obtain adequate poverty diagnostics due to lack of M&E instruments is an additional key risk.
- Question for Executive Directors:
  - Whether they agree with the main areas identified by the staffs as priorities for strengthening the strategy and its implementation, and areas identified as key implementation risks.

*Source: _cr09204 - 20. The PIP gives priority to education and health as evidenced by their high share*

---


_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr09204.pdf_