Press Release: IMF Executive Board Approves US$20 Million PRGF Arrangement for Djibouti
IMF News, September 18, 2008
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- Published: September 18, 2008
Approval and Financing
- The Executive Board approved a three-year, SDR 12.72 million (about US$20 million) arrangement under the Poverty Reduction and Growth Facility (PRGF) for Djibouti.
- Immediate disbursement: an amount equivalent to SDR 3.864 million (about US$6 million) to help strengthen Djibouti's external position against the effects of the food and oil price shocks.
- The new PRGF arrangement implies access to funds amounting to SDR 12.72 million (about US$20 million), corresponding to 80 percent of Djibouti's IMF quota.
Executive Summary of Authorities' Program and IMF Assessment (Mr. Murilo Portugal)
- Growth performance and prospects have improved significantly, driven by large foreign direct investments in the port and other key sectors.
- Rapid expansion combined with the surge in food and oil import prices has pushed up domestic prices.
- Key challenges: reduce widespread unemployment and poverty by expanding growth beyond an enclave around the port, while ensuring fiscal and debt sustainability.
- Program objectives: foster sustained, broad-based economic growth through macroeconomic stability, improved competitiveness, and a strengthened external position.
- The Fund's financial assistance under the PRGF arrangement with an augmented access will help Djibouti cope with the impact of the food and oil price shocks.
Policy Measures, Structural Reforms, and Recommendations
- Short-term poverty relief: authorities acted quickly with temporary measures to contain hardship on the poor; these measures will be replaced by a system of targeted subsidies to be implemented with World Bank assistance.
- Competition and efficiency: competition-enhancing measures will be stepped up to improve efficiency and reduce profit margins.
- Fiscal policy and tax reform:
- Authorities committed to bringing the overall fiscal position to a balance in the medium term by containing current expenditure (excluding social expenditures) and broadening the tax base.
- Tax reforms and improvements in tax administration aimed to reverse the decline in tax revenue and bring it back to about 20 percent of GDP by 2011.
- Public expenditure composition:
- Increase in share of social and infrastructure projects in total spending.
- Current expenditure on social programs targeted to increase to about 12 percent in 2011.
- Public investment program to be financed mainly by external grants and concessional loans.
- Public sector and SOE reforms:
- Decisive restructuring of loss-making state-owned enterprises to reduce domestic production costs.
- Containment of the wage bill via civil service reform, including completion of organizational and strategic audits.
- Competitiveness and business climate:
- Permanent solution needed to the shortage and high price of electricity power.
- Planned adoption of a new commerce code and implementation of the new labor code to help improve the business climate.
- Monetary and financial sector:
- In the context of the currency board arrangement, taming inflation will depend heavily on fiscal discipline, complemented by the introduction of new monetary instruments to mop up structural liquidity and improved oversight of the expanding banking system.
- External financial assistance from the Fund and other donors to help fill the medium term financing gap and contribute to financial stability.
- Debt management should be strengthened to ensure that Djibouti's risk of debt distress follows a downward trajectory towards sustainability, while limiting new financing to grants and external borrowing on highly concessional terms.
- Social and statistical capacity:
- Djibouti's National Initiative for Social Development noted as a significant step to address key structural bottlenecks.
- Expected completion of the new population census and household expenditure survey will be key to monitoring the effects of macroeconomic and poverty reduction policies.
Recent Economic Developments (Annex)
- Growth and investment:
- Real GDP growth: 4.8 percent in 2006 to 5.3 percent in 2007.
- Share of investment in GDP: 23 percent in 2005 to about 42 percent in 2007.
- Inflation and price measures:
- Inflation: from 3.5 percent in 2006 to 13.9 percent year-on-year in June 2008.
- Authorities eliminated consumption tax rates on five basic food items and reached agreement with importers and retailers to cap profit margins on these and other basic items.
- Fiscal balances and debt:
- Overall fiscal deficit: about 2.5 percent of GDP in 2007.
- Basic fiscal deficit (excludes externally-financed revenue and expenditure): narrowed from 7.2 percent in 2006 to 4.9 percent in 2007.
- Large increase (3.7 percent of GDP) in public investment explained slight rise in the overall deficit in 2007.
- External public and publicly-guaranteed debt remained at about 60 percent of GDP.
- External sector and reserves:
- External current account estimated to have shifted from a small surplus in 2003 to a deficit of about 25 percent of GDP in 2007.
- Large capital and financial account surplus more than offset the current account deficit, resulting in a small increase in gross official reserves to US$130 million at end-2007.
- Import cover reduced to less than two months.
- Real effective exchange rate (REER) depreciated by a cumulative of 24 percent in 2001-07 relative to its 2000 average.
- Competitiveness constraints:
- Electricity, labor, and other domestic production costs are high; skill level is low; institutional environment is weak.
Program Summary (Objectives and Targets)
- Program focus:
- (i) Bring overall fiscal position to a balance in the medium term while increasing share of social and infrastructure projects.
- (ii) Strengthen financial sector soundness.
- (iii) Improve competitiveness mainly through reduction in domestic production costs.
- (iv) Build institutional capacity, particularly strengthening the statistical framework, fiscal transparency, and public sector governance.
- Fiscal path:
- Overall deficit (on a commitment basis) to be brought to balance by 2011.
- Current expenditure on social programs to increase to about 12 percent in 2011.
- Tax revenue to return to about 20 percent of GDP by 2011.
- Access and rationale:
- Access level of SDR 12.72 million reflects Djibouti's status as a second-time PRGF user and projected financing needs, taking into account the impact of the food and oil price shocks, and is consistent with Djibouti's projected capacity to repay the Fund.
Selected Economic and Financial Indicators, 2005-09 (Selected exact figures)
- Nominal GDP (in millions of Djibouti francs): 125,976 (2005); 136,645 (2006); 151,033 (2007); 172,882 (2008); 195,826 (2009).
- Nominal GDP per capita (in U.S. dollars): 894 (2005); 946 (2006); 1,020 (2007); 1,139 (2008); 1,259 (2009).
- Real GDP per capita: 552 (2005); 564 (2006); 579 (2007); 599 (2008); 625 (2009).
- Real GDP per capita (annual percentage change): 1.4 (2005); 2.3 (2006); 2.7 (2007); 3.4 (2008); 4.3 (2009).
- Real GDP (annual change in percent): 3.2 (2005); 4.8 (2006); 5.3 (2007); 5.9 (2008); 6.9 (2009).
- Consumer prices (annual average): 3.1 (2005); 3.6 (2006); 5.0 (2007); 8.1 (2008); 6.0 (2009).
- Consumer prices (end of period): 3.5 (2005); 8.2 (2006); 7.5 (2007); 5.5 (2008); [no 2009 end-of-period figure given].
- Total fixed capital investment (In percent of GDP): 23.2 (2005); 35.0 (2006); 42.1 (2007); 43.7 (2008); 41.9 (2009).
- Private investment (percent of GDP): 13.9 (2005); 27.5 (2006); 30.9 (2007); 33.2 (2008); 29.7 (2009).
- Public investment (percent of GDP): 9.3 (2005); 11.2 (2006); 10.4 (2007); 12.3 (2008); [no 2009 public figure given].
- Gross national saving (percent of GDP): 20.0 (2005); 20.4 (2006); 17.3 (2007); 10.1 (2008); 9.1 (2009).
- Savings/investment balance: -3.2 (2005); -14.7 (2006); -24.8 (2007); -33.5 (2008); -32.9 (2009).
- Total revenue and grants (percent of GDP): 37.1 (2005); 34.9 (2006); 35.1 (2007); 32.9 (2008); 34.8 (2009).
- Of which: Tax revenue (percent of GDP): 20.3 (2005); 20.5 (2006); 18.4 (2007); 18.6 (2008); [2009 figure not shown].
- Expenditure and net lending (percent of GDP): 36.8 (2005); 37.4 (2006); 37.7 (2007); 36.6 (2008); [2009 figure not shown].
- Balance (payment order basis): 0.2 (2005); -2.5 (2006); -2.6 (2007); -1.9 (2008); -1.8 (2009).
- Net foreign assets (annual change in percent): 12.0 (2005); 15.3 (2006); 3.7 (2007).
- Net domestic assets (annual change in percent): 8.7 (2005); -11.9 (2006); 41.4 (2007); 47.2 (2008); 40.6 (2009).
- Claims on the private sector (annual change in percent): 1.2 (2005); 23.1 (2006); 28.6 (2007).
- Broad money (annual change in percent): 11.3 (2005); 10.2 (2006); 9.6 (2007); 13.0 (2008).
- Commercial lending interest rate (in percent): 11.7 (2005); 11.8 (2006); ... (2007).
- Exports of goods and services (in millions of U.S. dollars): 288 (2005); 312 (2006); 363 (2007); 420 (2008); 503 (2009).
- Imports of goods and services (in millions of U.S. dollars): -391 (2005); -489 (2006); -641 (2007); -815 (2008); -938 (2009).
- Current account balance (in millions of U.S. dollars): -23 (2005); -113 (2006); -211 (2007); -326 (2008); -362 (2009).
- FDI in percent of GDP: 8.3 (2005); 21.3 (2006); 23.0 (2007); 24.3 (2008).
- Stock of external public and publicly guaranteed debt (in millions of U.S. dollars): 440 (2005); 435 (2006); 504 (2007); 573 (2008); 655 (2009).
- External public and publicly-guaranteed debt (percent of GDP): 62.0 (2005); 56.6 (2006); 59.3 (2007); 58.9 (2008); 59.5 (2009).
- Gross official reserves (in millions of U.S. dollars): 88 (2005); 117 (2006); 130 (2007); 132 (2008); 143 (2009).
- Gross official reserves (in months of imports of goods and services): 2.2 (2005); 1.9 (2006); 1.7 (2007); 1.8 (2008).
- Gross foreign assets of commercial banks (in millions of U.S. dollars): 431 (2005); 480 (2006); 508 (2007); 528 (2008); 541 (2009).
- Gross foreign assets of commercial banks (percent of GDP): 10.6 (2005); 9.0 (2006); 6.8 (2007); 6.6 (2008).
- Currency board cover (in percent): 107.6 (2005); 108.7 (2006); 116.3 (2007); 103.5 (2008); 104.5 (2009).
- Exchange rate (DF/US$) end-of-period: 177.7 (2005).
- Real effective exchange rate (annual average; 2000 = 100): 88.8 (2005); 88.2 (2006); 84.5 (2007).
- Real effective exchange rate (End-year change in percent; depreciation -): -4.2 (2005).
Source: IMF Press Release No. 08/211, September 18, 2008.