## IMF Executive Board Concludes 2016 Article IV Consultation with Djibouti

_IMF News, April 6, 2017_

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## Bibliographic details
- Published: April 6, 2017

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### Overview
- On February 22, 2017, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Djibouti.
- Djibouti is expanding transportation and utilities infrastructure to leverage its strategic location as a shipping hub and host to military bases.
- The authorities’ development strategy is Vision Djibouti 2035, aiming to transform the country into a middle-income economy and a logistics and commercial hub for East Africa.
- A large-scale investment program financed by external debt has raised public external debt from 50 to 85 percent of GDP in two years.
- Djibouti continues to be at high risk of debt distress, as all debt sustainability indicators are above their thresholds for a prolonged period.

### Growth and Inflation
- Growth is estimated to have reached 6.5 percent in 2016, driven by major public sector projects, in particular:
  - the railroad to Ethiopia,
  - construction of several new ports,
  - a water pipeline from Ethiopia.
- Inflation rose to 3 percent on average in 2016, reflecting mainly increased food and service prices.
- Despite strong growth, poverty and unemployment remain high:
  - About 41 percent of the population is poor.
  - 23 percent live in extreme poverty.
  - The unemployment rate reaches 39 percent.
- The large investment projects have had a limited impact on jobs to date because they employ high-skilled, often foreign, labor.

### Fiscal Position and Public Debt
- Under the authorities’ central government definition (which excludes two large investment projects undertaken by public enterprises—the water pipeline and railroad), the central government budget aimed at a small deficit of 0.4 percent of GDP in 2016.
- Including the two projects, the overall fiscal deficit is estimated at 16 percent of GDP in 2016, down from 22 percent in 2015.
- Much of the debt consists of government-guaranteed public enterprise debt.
- Directors urged:
  - adoption of a public debt law,
  - setting an explicit debt anchor (such as public debt-to-GDP ratio along with a debt path),
  - reducing the pace of government borrowing and avoiding borrowing on non-concessional terms, including by public enterprises,
  - minimizing direct financial participation in PPPs and avoiding explicit guarantees and implicit contingent budget liabilities,
  - strengthening debt management capacity and coordination of institutions involved in contracting debt,
  - building capacity to evaluate PPP-related fiscal risks,
  - staying current on all debt service obligations.

### Tax Policy and Expenditure
- Directors called for further tax reforms to mobilize revenues and reduce wide-ranging exemptions and special regimes.
- They urged a comprehensive review of tax expenditures, exemptions, and special tax regimes to broaden the tax base and increase government revenue, thereby generating space for debt service and priority social spending.

### Structural Reforms and Public Enterprises
- Directors urged acceleration of structural reforms to support broad-based, inclusive, and private-sector-led growth.
- Public enterprise reforms should:
  - enhance efficiency,
  - strengthen governance,
  - improve capacity to manage investment projects,
  - open public monopolies to competition.
- Other recommended reforms:
  - improve the business climate,
  - strengthen competition,
  - address the distributional dimension of growth,
  - support private sector development,
  - invest in human capital and education.

### Monetary Policy, Financial Sector, and Currency Board
- Performance of the banking sector remained weak and financial inclusion limited despite recent efforts.
- Financial sector characteristics and vulnerabilities:
  - high level of nonperforming loans,
  - high credit concentration,
  - low profitability,
  - vulnerability to adverse shocks.
- Directors encouraged the authorities to focus monetary and financial policies on banking and external stability as well as financial inclusion.
- Specific recommendations for the Central Bank of Djibouti:
  - strengthen risk-based bank supervision,
  - reduce credit concentration,
  - better enforce prudential ratios,
  - introduce a minimum reserve requirement and bank resolution mechanisms,
  - strengthen the AML-CFT framework.
- Directors observed the currency board arrangement has served Djibouti well and should be maintained at an unchanged parity.
- They noted the exchange rate may be somewhat overvalued in real effective terms, but the extent is subject to considerable uncertainty, and called for strengthened competitiveness through structural reforms.

### Selected Economic and Financial Indicators (2014–18)
- National accounts (Annual percentage change)
  - Real GDP: 2014: 6.0, 2015: 6.5, 2016: 7.0 (Est./Proj. labels as in original table)
  - Consumer prices (end of period): 2014: 2.8, 2015: 1.9, 2016: 3.0
- Central government (In percent of GDP)
  - Revenues and grants: 2014: 30.9, 2015: 37.2, 2016: 32.5, 2017: 30.8, 2018: 29.9
  - Expenditure: 2014: 40.5, 2015: 58.9, 2016: 48.3, 2017: 32.4, 2018: 30.6
  - Overall balance (commitment basis): 2014: -9.6, 2015: -21.7, 2016: -15.8, 2017: -1.5, 2018: -0.6
  - Change in arrears: 2014: -0.5, 2015: -0.4
  - Overall balance (cash basis): 2014: -10.1, 2015: -22.2, 2016: -16.3, 2017: -2.0, 2018: -1.1
  - Memo: Overall balance excluding large projects: 2014: -4.0, 2015: -0.9, 2016: 0.3
- Monetary sector (Annual change in percent of broad money)
  - Broad money: 2014: 19.0, 2015: 8.0, 2016: 8.7, 2017: 8.3
  - Currency board cover (in percent): 2014: 110, 2015: 107, 2016: 109
- External sector (In millions of US dollars)
  - Current account balance: 2014: -399, 2015: -549, 2016: -542, 2017: -436, 2018: -444
  - Current account balance (percent of GDP): 2014: -25.1, 2015: -31.8, 2016: -28.6, 2017: -20.9, 2018: -19.3
  - External public and publicly guaranteed debt (US$ millions): 2014: 792, 2015: 1,197, 2016: 1,606, 2017: 1,814, 2018: 2,008
  - External public and publicly guaranteed debt (percent of GDP): 2014: 49.9, 2015: 69.3, 2016: 84.8, 2017: 86.9, 2018: 87.3
  - Gross official reserves (US$ millions): 2014: 381, 2015: 355, 2016: 373, 2017: 419, 2018: 435
  - Gross official reserves (In months of next year's imports of goods and services): 2014: 3.4, 2015: 3.1, 2016: 3.7, 2017: 3.6
  - Exchange rate (DF/US$, end of period): 2014: 177.7
  - Real effective exchange rate (yearly average, 2005=100): 2014: 96.4, 2015: 102.7, 2016: 103.8
  - Change in real effective exchange rate (percent; depreciation -): 2014: 0.5, 2015: 6.6, 2016: 1.1
- Sources: Djibouti authorities and IMF staff estimates and projections.

*IMF Executive Board Concludes 2016 Article IV Consultation with Djibouti — Press Release No. 17/122*

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## References

- [The Executive Board](http://www.imf.org/external/np/sec/memdir/eds.aspx)
- [PRESS CENTER](http://presscenter.imf.org/)
- [http://www.imf.org/external/np/sec/misc/qualifiers.htm](http://www.imf.org/external/np/sec/misc/qualifiers.htm)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2017/04/06/pr17122-djibouti-imf-executive-board-concludes-2016-article-iv-consultation_