Press Release No. 12/110

Press Release: Statement by the IMF Mission at the Conclusion of Its Visit to Djibouti

March 29, 2012

The following statement was issued in Djibouti on March 22:

“An International Monetary Fund mission headed by Mr. Carlo Sdralevich visited Djibouti during March 6–19, 2012 to conduct the sixth and final review under the arrangement supported by the Extended Credit Facility (ECF).

“The mission team met with Mr. Ilyas Moussa Dawaleh, Minister of Economy and Finance; Mr. Amareh Ali, Minister Delegate in charge of the Budget; Mr. Abdi Elmi Ashkir, Minister Delegate to the Ministry of Economy and Finance for Trade, Industry, SMEs, Artisanal Trades, Tourism, and Formalization; Ms. Zahra Youssouf, Secretary of State for National Solidarity; Mr. Djama M. Haïd, Governor of the Central Bank of Djibouti, and other senior officials and representatives of Djibouti’s development partners. The mission would like to thank the government and the Central Bank of Djibouti for the candid, productive discussions and for their warm hospitality during its stay. The mission was pleased to strengthen cooperation with the Republic of Djibouti to help the country achieve its objectives of sustained growth and poverty reduction.

“The macroeconomic environment was difficult in 2011, a year marked by one of the most severe droughts in 60 years, which also affected other countries in the Horn of Africa, as well as soaring international food and oil prices. Despite these exogenous constraints, Djibouti’s economy grew by 4.4 percent in 2011, compared to 3.5 percent in 2010, driven by the recovery in port activity and trade with Ethiopia. The rise in international prices pushed inflation to 5.1 percent and aggravated the current account deficit, which climbed from 5.8 percent of GDP in 2010 to 12.6 percent in 2011. Central bank international reserves remained high nonetheless, at US$228 million. Reversing the strong expansionary trend of recent years, the money supply remained stable despite a modest increase in credit to the private sector.

“The outlook for growth is expected to remain favorable in 2012. Growth is projected at 4.8 percent, driven primarily by the rebound in port activity, construction, and services and increased FDI. Inflation is expected to fall to 4.3 percent as world food prices stabilize and energy prices decline. The current account deficit is expected to stabilize around 12 percent of GDP. However, substantial capital flows are expected to increase central bank reserves and help provide adequate coverage for currency issues. In parallel with the acceleration of economic activity and increased FDI flows, the banking system should also benefit from a more favorable environment.

“In 2012, in a still difficult macroeconomic context and after conclusion of the ECF program, the Republic of Djibouti intends to maintain budget discipline, rigorously manage debt, protect the financial system, and continue its reform program.

“Maintaining price stability and budget discipline remains the chief short-term challenge. The 2011 budget outturn was a deficit of 0.8 percent of GDP, the result of external shocks and slowed fiscal recovery during the transition to the new government following the presidential elections. Budget execution in 2012 may require additional effort compared to the budget balance contemplated in the initial budget law, due to the need to strengthen the government’ position vis-à-vis the banking system and at the same time continue the program of clearing domestic arrears needed to boost the national economy. In parallel, the government intends to strengthen transparency and sound budget management, including in regard to energy and food subsidies. With assistance from the IMF, it will analyze a reform of fuel subsidies that could effectively target the most disadvantaged segments through more efficient social protection mechanisms. The government is committed to rigorous debt management, in view of the high levels of external debt, relying on concessional funds to finance numerous projects currently in execution.

“Aware that the banking system’s remarkable expansion in recent years increases its vulnerabilities, the central bank has intensified efforts to strengthen supervision. With technical assistance from the IMF, it is currently implementing the banking law and related laws that will strengthen the regulatory and supervisory framework and improve licensing procedures. The central bank will also continue efforts to develop the financial sector, including access to financial services.

“Improving the economy’s competitiveness remains a major objective of Djibouti’s economic program in order to promote private sector development and foreign investment. In this context, the government is committed to pursuing structural reforms and completing reforms under way—in particular, to adopting measures to reduce the cost of energy in the context of a strategy developed with donors, increasing the water supply by reducing costs, restructuring public enterprises, and improving the population’s access to public services. In this context, interconnection with Ethiopia represents a significant opportunity to reduce energy costs.

“The Republic of Djibouti and the IMF remain determined to continue their fruitful cooperation in order to preserve the gains made by Djibouti thus far and maintain macroeconomic discipline.”