Press Release No. 08/66

Press Release: Statement of an IMF Staff Mission at the Conclusion of a Visit to Djibouti

March 31, 2008

The following statement was issued on March 29, 2008 by a mission of the International Monetary Fund (IMF) at the conlcusion of a visit to Djibouti:

"An IMF mission led by Mr. Fernando L. Delgado visited Djibouti during March 15-29, 2008, to conduct discussions for the 2008 Article IV consultation and to start negotiations on a new arrangement under the Poverty Reduction and Growth Facility (PRGF). The mission expresses its gratitude for the open and frank discussions and the warm hospitality offered by the authorities during the mission's stay.

"The macroeconomic environment has improved significantly over the last few years. Annual real GDP growth accelerated from an annual average of 3 percent in 2001-05 to 4.8 percent in 2006 and further to an estimated 5.3 percent in 2007, mainly driven by large foreign domestic investments (FDI) in the port, tourism, and construction sectors. Investment as share of GDP doubled within two years, rising from 23 percent in 2005 to over 40 percent in 2007. However, inflation accelerated to 8.1 percent in 2007, compared with 3.5 percent in 2006, mainly on account of the higher international food and oil prices. After remaining stagnant for several years, credit to the private sector increased by 23 percent in 2007, owing in part to a real estate and construction boom. The recent arrival of new foreign banks has fostered competition by reducing intermediation spreads.

"Fiscal policy remained expansionary, with an estimated overall deficit of 2.6 percent of GDP in 2007, above the revised budget target of 1 percent. Nonetheless, the increase in external financing allowed repaying domestic arrears for an estimated amount equivalent to 0.7 percent of GDP.

"The surge in FDI-related imports led to the strengthening of the external position, despite a deterioration of the trade and current account balances. Based on preliminary data, the current account deficit is estimated to have increased from 14.7 percent in 2006 to 24.1 percent in 2007. This was more than offset by the large capital and financial account surplus, resulting in an increase in gross official reserves to US$130 million at end-2007 (equivalent to 2.1 months of imports of goods and services, and a currency board cover of 116 percent).

"Progress has been made in implementing structural reforms. The new Labor Code adopted in December 2005 has been implemented, increasing labor market flexibility. Preparations for the introduction of a value-added tax in 2009 are well under way. Drafting of a new Commerce Code is in its final stages and is expected to be sent to the National Assembly within 2008. The audited financial statements of key public enterprises¹ were posted on the website of the ministry of finance, thus increasing fiscal transparency. Finally, the online implementation of a single registry of civil servants at the ministry of employment and civil service and the ministry of finance was completed in January 2008, providing an important tool for the completion of the civil service reform undertaken by the authorities.

"The mission has started negotiations on a new arrangement under the PRGF to support the National Strategy for Social Development (INDS) that was launched by the authorities in January 2007 with the aim to broaden the base of economic growth and alleviate poverty. Negotiations on the program are expected to continue in Washington during the forthcoming Spring Meetings of the IMF and the World Bank in April."

¹ Électricité de Djibouti (EDD), Office National des Eaux de Djibouti (ONEAD), and Djibouti-Telecom.