Press Release No. 10/253

Press Release No. 10/253
June 22, 2010

A mission from the International Monetary Fund (IMF) visited Djibouti from June 2-9, 2010 to discuss progress under the Extended Credit Facility (ECF), which replaced the Poverty Reduction and Growth Facility (PRGF) approved in September 2008. Mr. Carlo Sdralevich, IMF Mission Chief for Djibouti, issued the following statement today:

“The Fund mission had constructive discussions with the Djibouti authorities focusing on the economic challenges faced by the country in the context of the difficult security situation and large social needs of the population, most notably in relation to food security. Due in part to the government’s response to these challenges, spending overruns pushed the 2009 budget deficit to 4.9 percent of Gross Domestic Product (GDP), compared with a program target of 1.8 percent of GDP. And while tax revenues have increased, also thanks to the successful introduction of the value added tax (VAT) in 2009, external support has fallen short of expectations. These financing pressures have forced the government to accumulate domestic arrears to the public utilities companies amounting to about 1.4 percent of GDP. The deviation from the 2009 program targets resulting from this weak fiscal performance has held up the completion of the second and third reviews of the ECF.

“In this context, we have worked with the authorities to strengthen policies to help Djibouti deal with its economic challenges, and allow the program to move forward. To this end, we agreed that Djibouti would establish a track-record during the period April-September 2010. During this period, the authorities will focus on two main issues. First, the government is committed to improve the fiscal balance in 2010 compared to 2009, to ensure that government expenditures are properly financed and social spending is protected. Additionally, the government will implement structural measures to strengthen fiscal expenditure planning and control through better cash management and coordination of the Ministry of Finance with line ministries. The slippage in 2009 has also underlined that further reform of public financial management, and in particular of the budgetary process, will be needed over the medium term.

“Good performance through end-September 2010 on these fronts would pave the way for completion of the second and third reviews by the end of the year. In this regard, policy implementation in the first months of 2010 is encouraging, as end-March performance in the fiscal and monetary areas was satisfactory. Progress was also made on structural reforms, particularly in the financial sector (with the strengthening of the supervisory capacity of the Central Bank of Djibouti), statistics (with the publication of the population census), and the energy sector (with progress made on the interconnection with the Ethiopian network and the preparation of a report to reorganize the electricity company).

“The authorities and IMF staff agreed that economic growth in 2010 will likely slow marginally from 2009 due to a downward revision of foreign direct investment levels but will remain strong on the back of port activity. For 2011, growth should improve as foreign direct investments rebound. Inflation will likely remain low despite rising international prices. However, poverty continues to remain a challenge.

“The IMF team is looking forward to continue its collaboration with the Djiboutian authorities to help the country reach its goals of sustained growth and poverty reduction.”