For Djibouti, Infrastructure Investment Paves Way to Regional Hub

IMF News, April 6, 2017

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Canonical URL: For Djibouti, Infrastructure Investment Paves Way to Regional Hub

Publication date: April 6, 2017.
Main message: Djibouti’s recent investment boom in infrastructure has the potential to transform the economy into a regional hub for East Africa, creating more jobs and helping the country return to a sustainable level of debt, according to the IMF assessment.
Strategic aim: Vision Djibouti 2035 seeks to transform the country into a logistics and commercial hub for East Africa through large-scale public sector investments.

Population: 999,300 (2016 est.)
Capital: Djibouti city
Currency: djiboutian franc
GDP per capita: $1,908 (2016 EST.)
Unemployment rate: 39% (2015)
Poverty: about 41 percent of the population is poor; 23 percent live in extreme poverty.

Early results of investments: Growth is estimated to have reached 6.5 percent in 2016, driven by public sector investments.
Medium-term projections: For 2017–19, growth is projected to increase to 7 percent supported by the railroad, the multipurpose port, and other public investment, which should stimulate private sector activity and foreign direct investment.
Vision Djibouti 2035 targets: medium-term growth of 7.5–10 percent per year, tripling per capita income, and reducing unemployment.

External debt increase: External debt rose from 50 to 85 percent of GDP in just two years.
Fiscal impact: Rising debt service obligations present considerable fiscal risks and could hamper priority social spending.
2016 government budget deficit: including spending on the water pipeline and the railroad, reached about 16 percent of GDP.
Debt assessment: The country is now at a high risk of debt distress.

Major financiers: Chinese investors finance many of the large-scale infrastructure projects.
Strategic assets leveraged: deep-water harbor, railroad to Ethiopia, multipurpose port, water pipeline, host to military bases—supporting the objective to serve as a transshipment hub and regional logistics center.

Debt strategy:
- Develop a coordinated debt strategy aimed at establishing debt sustainability, given the high risk of debt distress.
- Adopt a public debt law and set an explicit debt anchor, such as public debt-to-GDP ratio.
Fiscal policy:
- Continue reforming the tax system based on the recommendations of the 2015 National Tax Conference.
- Launch a comprehensive review of tax expenditures, exemptions, and special tax regimes with a view to phasing them out.
Structural reforms:
- Reform public enterprises to enhance their efficiency, strengthen governance, and improve their capacity to manage investment projects.
- Pursue reforms to improve the business climate and strengthen competition.
Financial sector:
- Focus monetary and financial policies on the stability of the banking system, financial inclusion, and external stability.
Data and statistics:
- Improve statistics, in particular GDP calculations and financial statements of the public sector to improve decision-making.
Implementation imperative: "The authorities should advance rapidly with critical reforms aimed at translating investment into strong, inclusive, and job-creating growth," says the IMF’s mission chief for Djibouti Eric Mottu.

International Monetary Fund