IMF implores Djibouti to press ahead with critical reforms aimed at translating investment

The Executive Board of the International Monetary Fund (IMF) implores Djibouti authorities to press ahead with critical reforms aimed at translating investment into strong, inclusive, and job-creating growth and returning debt to a sustainable trajectory.

Djibouti

IMF Executive Board made the assessment during consultation with Djibouti authorities on April 6, 2017.

The Executive Directors noted about 41 percent of the population is poor, 23 percent live in extreme poverty, and the unemployment rate reaches 39 percent. Thus far, the large investment projects have had a limited impact on jobs as they employ high-skilled, often foreign, labor.

Performance of the banking sector remained weak and financial inclusion limited despite recent efforts. The financial sector is characterized by a high level of nonperforming loans, high credit concentration, and low profitability, and remains vulnerable to adverse shocks.

Djibouti is expanding its transportation and utilities infrastructure to leverage its strategic location as a shipping hub and host to military bases. A small state in the arid Horn of Africa, neighboring land-locked Ethiopia, Djibouti largely depends on its deep-water harbor. The authorities’ development strategy, Vision Djibouti 2035, aims at transforming the country into a middle-income economy and a logistics and commercial hub for the whole of East Africa.

To achieve their development goals, the authorities have launched a large-scale investment program financed by external debt, which has raised public external debt from 50 to 85 percent of GDP in two years. Much of the debt consists of government-guaranteed public enterprise debt. Djibouti continues to be at high risk of debt distress, as all debt sustainability indicators are above their thresholds for a prolonged period.

Growth is estimated to have reached 6.5 percent in 2016, driven by major public sector projects, in particular the railroad to Ethiopia, the construction of several new ports and a water pipeline from Ethiopia. Inflation rose to 3 percent on average in 2016, reflecting mainly increased food and service prices.

The central government budget—which under the authorities’ definition does not include two large investment projects, the water pipeline and railroad, undertaken by public enterprises—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, down from 22 percent in 2015.

The current account deficit remained large at 29 percent of GDP, financed mainly by borrowing and foreign direct investment. The currency board’s coverage is comfortable, with the ratio of reserves-to-base money estimated at 109 percent in 2016 while official international reserves reached 3.4 months of imports.

Advertisements


Categories: Development

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: