Press Release No. 12/38

Press Release: IMF Executive Board Completes Fifth Review Under Djibouti's Extended Credit Facility Arrangement and Approves Request for Augmentation of Access and US$ 9.7 Million Disbursement

February 6, 2012

The Executive Board of the International Monetary Fund (IMF) completed today the fifth review of Djibouti’s economic performance under the Extended Credit Facility¹ arrangement (ECF) and approved the authorities’ request for an augmentation of access of SDR 9.54 million (US$14.7 million, 60 percent of quota) to meet the additional external financing needs created by the increase in global commodity prices and the drought in the Horn of Africa. The augmentation will be disbursed in equal parts upon completion of the fifth and sixth reviews.

The Board’s decision enables the immediate disbursement of SDR 6.246 million (about US$9.7 million), bringing total disbursements under the program to SDR 16.014 million (US$24.75 million).

The Board also approved the authorities' request for two waivers of nonobservance of the end-June 2011 performance criteria on the fiscal balance and on net banking system credit to the government. Furthermore, the Board granted waivers of nonobservance on the continuous performance criteria on the non-accumulation of external arrears and the accumulation of new domestic arrears (related to delays in the payment of salaries and pensions), which were not observed in the second semester as a result of the tight cash flow situation. These waivers were granted on the grounds of temporary or minor deviations from the program objectives or the corrective measures undertaken by the authorities. The Board also granted a waiver for the non-observance of the external payments arrears performance criterion following minor data revision after the completion of the fourth review under the ECF arrangement.

The ECF arrangement for Djibouti was approved in September 17, 2008 (see Press Release No. 08/211) for an amount to SDR 12.72 million (about US$19.66 million, or 80 percent of the country’s quota in the Fund). On January 7, 2011, the ECF arrangement was extended by 9 months, through June 16, 2012 (see Press Release No. 11/3).

After the Executive Board's discussion, Ms. Nemat Shafik, Deputy Managing Director and Acting Chair, said:

“Djibouti has been hit hard by the spike in commodity prices and the Horn of Africa drought, which have affected particularly the poorest households. These shocks have hiked imports, especially on food and fuel, thus increasing the current account and external financing needs, and have put pressure on fiscal space through lower tax revenues and higher fuel subsidies. The augmentation of access of 60 percent of quota under the ECF will help Djibouti meet the additional financing needs stemming from the two exogenous shocks.

“Looking ahead, strong commitment to the ECF-supported program is necessary to maintain macroeconomic stability and reduce poverty. Fiscal policy should focus on increasing revenues and controlling expenditure, while protecting priority social expenditure and capital investment. Further progress on public financial management will strengthen the budget process. Pursuing prudent debt policies, including avoiding non-concessional borrowing remain critical for maintaining debt sustainability.

“Strengthening bank supervision and regulation will help address the challenges posed by the rapid development of the financial sector. Structural reforms should aim at improving competitiveness and fostering private sector development. Reforming the state-owned energy company will lower energy costs and reduce government transfers.”

¹ The Extended Credit Facility (ECF) has replaced the Poverty Reduction and Growth Facility (PRGF) as the Fund’s main tool for medium-term financial support to low-income countries by providing a higher level of access to financing, more concessional terms, enhanced flexibility in program design features, and more focused streamlined conditionality. Financing under the ECF currently carries a zero interest rate, with a grace period of 5½ years, and a final maturity of 10 years (http://www.imf.org/external/np/exr/facts/ecf.htm). The Fund reviews the level of interest rates for all concessional facilities every two years.