Press Release No. 10/437

Press Release: Statement at the Conclusion of an IMF Mission to the Republic of Djibouti

November 15, 2010

An International Monetary Fund mission led by Mr. Carlo Sdralevich visited Djibouti during October 30–November 13, 2010 to hold annual Article IV discussions¹ and discuss the second and third review of the three-year arrangement supported by the Extended Credit Facility (ECF). During the visit, IMF staff held discussions with the Minister of Finance and the Governor of the Central Bank. The team also met with senior economic and financial officials, legislators, and representatives from the diplomatic, banking, and business communities. At the conclusion of the visit, the mission issued the following statement:

“The mission reviewed recent economic developments and the challenges faced by the Djiboutian economy. The lease of military bases to strategic partners, the transit trade with Ethiopia, a booming port, and sustained flows of foreign direct investment (FDI) have enabled Djibouti’s economy to mitigate the effects of the global economic and financial crisis. Economic growth remains strong and is expected to reach about 4.5 percent in 2010, favoring sound budget- and external-account performance in 2010. In contrast, inflationary pressures in the international food and energy markets will have an impact on the consumer price index in Djibouti, where inflation is expected to reach 4.5 percent this year.

“Against this backdrop, discussions focused on the policies implemented by the authorities to encourage diversification of economic activity, strengthen the competitiveness of the economy, attract more FDI flows, strengthen the country’s capacity to resist exogenous shocks, and create the conditions for stronger economic growth to bring down unemployment and reduce poverty. In this regard, the mission was pleased with the authorities’ agreement that the key to resolving these challenges lies in budget discipline, development of the financial system, and accelerated structural reforms, particularly in the areas of public financial management and the financial sector. The authorities and the mission also agreed that an improved business climate and strengthened social policies are essential to the sustained high growth needed to create jobs and reduce poverty.

“The second aspect of the mission addressed the evaluation of the economic and structural reforms supported by the ECF arrangement, which covers the period September 2008 – August 2011. The two main focuses of discussion were the execution of the test program (covering the period April-September 2010) established in June 2010 to correct the 2009 fiscal slippages, and finalization of the second and third review under the ECF. The exchanges addressed continued budget discipline; the program of public financial management reforms; strengthened bank supervision, made urgent by the expansion of the banking sector; and improvement of the business climate. Of equal importance was the emphasis placed on the need for careful management of Djibouti’s domestic and external debt policy to preserve macroeconomic stability.

“At this stage, the Djiboutian authorities and mission agreed, ad referendum, on a macroeconomic and structural program covering end-2010 and 2011 in the context of the ECF arrangement. The program’s principal objectives are to achieve growth of 5.5 percent, maintain budget balance, and contain inflation and at around 3.5 percent.

“The IMF staff report concerning consultations and conclusion of the second and third review under the ECF should be submitted for review by the IMF Executive Board at end-2010.

“The mission would like to express its thanks to the authorities for their hospitality and its appreciation of the spirit of candid cooperation that prevailed throughout the team’s stay. The mission was pleased to strengthen its cooperation with the authorities to help Djibouti achieve its objectives of sustained growth and thereby reduce poverty.”

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 the discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of the Executive Directors, and the summary is transmitted to the country’s authorities.