IMF Executive Board Concludes 2019 Article IV Consultation with Djibouti
October 23, 2019
On September 30, 2019, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with Djibouti.
The government has in recent years implemented large-scale investments to develop transport and logistics infrastructures with the aim of positioning Djibouti as a regional trade and logistics hub. Combined with reforms to improve the business climate, this development strategy has fueled a strong economic expansion. There has also been some progress on social indicators, although unemployment and poverty remain high.
Real GDP growth averaged close to 7 percent during 2014–17. After a slowdown in 2017, a recovery in trade flows has lifted growth—to an estimated 5.5 percent last year. Growth is projected to remain strong over the medium term, at around 6 percent annually. Inflation has been low, driven by declining food prices.
The overall current account balance has experienced large swings over the past few years, driven by changes in inventories associated with re-export activities. The underlying current account balance, excluding re-export activities, is estimated to have amounted to -0.8 percent of GDP in 2018. Official reserves decreased by $112 million in 2018, bringing the reserve coverage to 3.2 months of imports (excluding imports for re-exports).
The overall fiscal deficit has declined significantly in recent years. Staff’s broad measure of the deficit—which includes investment spending for two large projects (railway and water pipeline) has fallen from 15.7 percent of GDP in 2015 to 2.5 percent of GDP in 2018, driven by the reduction in spending related to these projects. However, domestically-financed capital spending has been under increasing pressure due to lower budget support, a reduction in the tax-to-GDP ratio due to widespread tax-exemptions, and rising debt service costs.
The development strategy based on large scale investments has come at the cost of rising debt vulnerabilities. Public and publicly guaranteed debt has increased from 34 percent of GDP in 2013 to about 71 percent in 2018. On the back of delays in operationalizing the Djibouti-Addis Ababa railway project, the authorities have launched discussions with their creditor to restructure this loan. They have recently reached an agreement that will smooth the debt repayment profile.
Notwithstanding progress in cleaning up banks’ balance sheets, the financial sector remains fragile, and financial inclusion is low. Some banks have lost correspondent banking relationships (CBRs) with international banks in recent years but new CBRs have been rapidly established, hence preserving financial flows and stability.
Executive Board Assessment [2]
Executive Directors welcomed the strong economic growth, low inflation, and improved business environment, but noted the heightened debt vulnerabilities, as well as high poverty and unemployment. In this context, Directors underscored the need for a multi‑faceted approach to reduce debt vulnerabilities combined with accelerated structural reforms. Steadfast implementation of this strategy is paramount to leverage the country’s location as a regional trade hub and to ensure sustainable and inclusive long‑term growth.
Directors called for the development of a medium‑term fiscal policy framework, with a policy anchor consistent with debt sustainability. They noted that the infrastructure boom had been accompanied by a rapid increase in external public and publicly guaranteed debt, and recommended reducing the pace of borrowing, including through strict limits on government guarantees and SOE borrowing, and prioritizing concessional financing.
Noting that tax revenues had lagged growth due to large tax expenditures, Directors highlighted the need to enhance domestic resource mobilization to create fiscal space for poverty‑reducing spending and debt reduction. They welcomed the authorities’ plans to enhance tax collection and customs administration and urged them to design and implement a strategy to reduce tax exemptions and special regimes. In this regard, Directors supported continued Fund assistance on capacity development.
Directors noted that strengthening fiscal governance would help enhance government efficiency. They welcomed ongoing efforts to enhance the public procurement framework effectiveness and called on the authorities to improve SOEs governance to reduce their risks to debt sustainability, including by implementing performance contracts, in order to reduce costs, improve public services quality, and control debt accumulation.
Directors also stressed that deepening structural reforms was critical to achieve broad‑based private‑sector led growth, job creation, and poverty reduction. They welcomed the improved business environment and called for strengthened contract enforcement and respect for property rights. They recommended further efforts aimed at reducing production costs, particularly in the electricity and telecommunications sectors, and at raising skills of Djiboutian nationals to enhance labor productivity. They called for full implementation of the anti‑corruption framework, including by strengthening the institutional capacity, to stimulate private investment.
Directors concurred that the currency board arrangement had provided an effective nominal anchor for Djibouti and remained appropriate. With the external position weaker than implied by fundamentals and desired policy settings, they highlighted the importance of reforms aimed at enhancing external competitiveness.
Directors noted that financial sector policies should continue to focus on strengthening stability and inclusion, including by upgrading banks’ regulatory environment and strengthening supervision. They recommended making the AML/CFT framework more effective to limit opportunities for corruption and preserve correspondent banking relationships.
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Table 1. Djibouti: Selected Economic and Financial Indicators, 2015–24 |
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|
Est. |
Proj. |
|||||||||
|
2015 |
2016 |
2017 |
2018 |
2019 |
2020 |
2021 |
2022 |
2023 |
2024 |
|
|
National accounts |
(Annual percentage change) |
|||||||||
|
Real GDP |
7.7 |
6.9 |
5.1 |
5.5 |
6.0 |
6.0 |
6.0 |
6.0 |
6.0 |
6.0 |
|
Consumer prices (annual average) |
-0.8 |
2.7 |
0.6 |
0.1 |
2.2 |
2.0 |
2.0 |
2.0 |
2.0 |
2.0 |
|
Consumer prices (end of period) |
-1.6 |
2.4 |
-0.8 |
2.0 |
2.0 |
2.0 |
2.0 |
2.0 |
2.0 |
2.0 |
|
Saving and investment |
(In percent of GDP) |
|||||||||
|
Fixed capital investment |
32.4 |
29.9 |
22.8 |
16.6 |
17.1 |
18.4 |
18.3 |
16.2 |
15.2 |
14.7 |
|
Non-government |
7.0 |
15.2 |
12.4 |
7.5 |
9.2 |
10.9 |
10.5 |
9.8 |
8.9 |
8.5 |
|
Central government |
25.3 |
14.7 |
10.4 |
9.0 |
8.0 |
7.6 |
7.9 |
6.4 |
6.3 |
6.2 |
|
Gross national savings |
60.1 |
28.9 |
19.3 |
31.6 |
16.9 |
19.0 |
19.4 |
17.9 |
17.5 |
17.3 |
|
Savings/investment balance |
27.7 |
-1.0 |
-3.6 |
15.1 |
-0.3 |
0.6 |
1.1 |
1.7 |
2.3 |
2.6 |
|
Central government |
(In percent of GDP) |
|||||||||
|
Revenues and grants |
26.3 |
24.2 |
23.6 |
23.9 |
23.1 |
21.7 |
20.7 |
20.3 |
19.6 |
19.0 |
|
Tax revenues |
14.2 |
13.9 |
13.5 |
13.3 |
12.9 |
12.7 |
12.3 |
12.3 |
12.1 |
11.9 |
|
Nontax revenue |
7.2 |
7.2 |
8.3 |
7.2 |
6.9 |
6.7 |
6.3 |
6.1 |
5.7 |
5.5 |
|
Grants |
4.9 |
3.2 |
1.8 |
3.4 |
3.3 |
2.3 |
2.1 |
1.9 |
1.8 |
1.7 |
|
Expenditure |
41.6 |
32.5 |
28.1 |
26.7 |
24.6 |
23.4 |
23.1 |
21.1 |
20.5 |
20.0 |
|
Current expenditure |
16.3 |
17.7 |
17.7 |
17.7 |
16.7 |
15.8 |
15.2 |
14.7 |
14.3 |
13.8 |
|
Capital expenditure |
25.3 |
14.7 |
10.4 |
9.0 |
8.0 |
7.6 |
7.9 |
6.4 |
6.3 |
6.2 |
|
Domestically financed |
7.1 |
4.8 |
3.7 |
3.3 |
3.9 |
3.2 |
3.2 |
2.9 |
2.9 |
2.9 |
|
Foreign-financed |
18.3 |
10.0 |
6.7 |
5.7 |
4.0 |
4.4 |
4.6 |
3.5 |
3.4 |
3.3 |
|
Overall balance (commitment basis) |
-15.3 |
-8.3 |
-4.5 |
-2.9 |
-1.5 |
-1.7 |
-2.4 |
-0.8 |
-0.9 |
-1.0 |
|
Change in arrears |
-0.4 |
-0.4 |
-0.1 |
0.4 |
-0.3 |
-0.3 |
-0.3 |
-0.2 |
-0.2 |
-0.2 |
|
Overall balance (cash basis) |
-15.7 |
-8.6 |
-4.6 |
-2.5 |
-1.8 |
-1.9 |
-2.7 |
-1.0 |
-1.1 |
-1.2 |
|
Financing |
15.7 |
8.6 |
4.6 |
2.5 |
1.8 |
1.9 |
2.7 |
1.0 |
1.1 |
1.2 |
|
Domestic |
0.0 |
0.5 |
-0.5 |
0.1 |
-1.0 |
-0.2 |
-0.2 |
0.0 |
0.0 |
0.0 |
|
External |
15.7 |
8.1 |
5.1 |
2.4 |
2.8 |
2.2 |
2.8 |
1.0 |
1.1 |
1.2 |
|
Disbursements |
16.3 |
8.7 |
5.8 |
3.3 |
2.9 |
3.4 |
3.7 |
2.6 |
2.6 |
2.6 |
|
Amortization |
-0.7 |
-0.6 |
-0.7 |
-0.7 |
-0.9 |
-1.2 |
-0.9 |
-1.5 |
-1.4 |
-1.3 |
|
Other |
0.0 |
0.0 |
0.0 |
-0.2 |
0.7 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
|
Memo: Overall balance, excluding large projects |
-0.6 |
-2.0 |
-0.3 |
-1.6 |
-1.6 |
-1.5 |
-2.0 |
-1.0 |
-1.1 |
-1.2 |
|
Monetary sector |
(Annual change in percent of broad money) |
|||||||||
|
Broad money |
19.0 |
8.8 |
21.9 |
-5.6 |
8.4 |
10.3 |
9.2 |
9.5 |
10.2 |
10.2 |
|
Net foreign assets |
15.4 |
8.0 |
20.7 |
-6.2 |
4.0 |
6.5 |
6.7 |
6.4 |
7.4 |
7.9 |
|
Net domestic assets |
3.6 |
0.7 |
1.2 |
0.6 |
4.4 |
3.7 |
2.5 |
3.0 |
2.8 |
2.3 |
|
Of which : Claims on government (net) |
0.3 |
0.7 |
-0.7 |
0.5 |
-0.4 |
-0.4 |
-0.3 |
0.0 |
0.0 |
0.0 |
|
Of which : Claims on non-government sector |
4.3 |
0.8 |
2.8 |
3.7 |
3.3 |
3.3 |
3.3 |
3.3 |
3.2 |
3.2 |
|
Credit to non-government (in percent of GDP) |
23.7 |
22.6 |
23.1 |
24.5 |
24.7 |
24.9 |
25.1 |
25.3 |
25.5 |
25.7 |
|
Currency board cover (in percent) 2/ |
104 |
107 |
104 |
108 |
109 |
109 |
109 |
108 |
108 |
108 |
|
External sector |
(In millions of US dollars) |
|||||||||
|
Current account balance |
678 |
-26 |
-99 |
441 |
-8 |
21 |
40 |
67 |
99 |
121 |
|
(In percent of GDP) |
27.7 |
-1.0 |
-3.6 |
15.1 |
-0.3 |
0.6 |
1.1 |
1.7 |
2.3 |
2.6 |
|
Underlying current account balance 3/ |
-15.1 |
165.3 |
-4.4 |
-22.1 |
-8.3 |
20.8 |
40.0 |
66.9 |
99.3 |
120.6 |
|
(In percent of GDP) |
-0.6 |
6.3 |
-0.2 |
-0.8 |
-0.3 |
0.6 |
1.1 |
1.7 |
2.3 |
2.6 |
|
External public and publicly guaranteed debt |
1,218 |
1,647 |
1,951 |
2,087 |
2,231 |
2,342 |
2,476 |
2,602 |
2,704 |
2,783 |
|
(In percent of GDP) |
49.8 |
62.9 |
70.5 |
71.4 |
70.5 |
68.4 |
66.9 |
65.0 |
62.5 |
59.5 |
|
Foreign direct investment |
124 |
160 |
165 |
170 |
222 |
240 |
259 |
280 |
303 |
327 |
|
(In percent of GDP) |
5.1 |
6.1 |
6.0 |
5.8 |
7.0 |
7.0 |
7.0 |
7.0 |
7.0 |
7.0 |
|
Exports of goods and services (percent change) |
-2.0 |
-23.8 |
55.3 |
10.5 |
5.8 |
8.5 |
8.7 |
6.6 |
6.6 |
6.8 |
|
Imports of goods and services (percent change) |
-4.5 |
-4.5 |
51.2 |
-2.8 |
17.8 |
7.3 |
8.1 |
6.0 |
5.9 |
6.3 |
|
Gross official reserves |
355 |
398 |
556 |
445 |
422 |
443 |
466 |
480 |
516 |
564 |
|
(In months of next year's imports of goods and services, exc. re-exports) |
3.1 |
3.2 |
4.3 |
3.2 |
3.0 |
3.0 |
3.0 |
3.0 |
3.1 |
3.2 |
|
Gross foreign assets of commercial banks |
1,157 |
1,190 |
1,423 |
1,345 |
1,435 |
1,539 |
1,658 |
1,795 |
1,953 |
2,134 |
|
(In months of next year's imports of goods and services, exc. re-exports) |
10.0 |
9.7 |
11.0 |
9.7 |
10.1 |
10.3 |
10.7 |
11.2 |
11.7 |
12.0 |
|
Exchange rate (DF/US$, end of period) 4/ |
177.7 |
177.7 |
177.7 |
177.7 |
… |
… |
… |
… |
… |
… |
|
Real effective exchange rate (yearly average, 2005=100) 4/ |
101.4 |
101.9 |
101.0 |
100.7 |
… |
… |
… |
… |
… |
… |
|
(Change in percent; depreciation -) |
4.7 |
0.5 |
-0.9 |
-0.3 |
… |
… |
… |
… |
… |
… |
|
Memorandum items |
||||||||||
|
Nominal GDP (in millions of Djibouti francs) |
434,612 |
465,375 |
491,728 |
519,540 |
562,724 |
608,417 |
657,820 |
711,235 |
768,988 |
831,429 |
|
Nominal GDP (in millions of US dollars) 4/ |
2,445 |
2,619 |
2,767 |
2,923 |
3,166 |
3,423 |
3,701 |
4,002 |
4,327 |
4,678 |
|
Nominal GDP per capita (US dollars) 4/ |
2,533 |
2,638 |
2,711 |
2,787 |
… |
… |
… |
… |
… |
… |
|
Population (million) |
0.966 |
0.993 |
1.020 |
1.049 |
1.078 |
1.109 |
1.138 |
1.167 |
1.196 |
1.226 |
|
Sources: Djibouti authorities and IMF staff estimates and projections. |
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|
1/ Ratio of central bank gross total assets over liabilities (except the government deposits at the central bank). |
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|
2/ Reflects the resources allocated by the SOEs managing the rail and water pipeline projects for the servicing of related loans. The latter have been contracted by the government and are yet to be formally on-lent to these SOEs. |
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|
3/ Current account balance excluding imports and exports associated with re-export activities. |
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|
4/ Latest available. |
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[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm .
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