Press Release No. 18/486

IMF Staff Concludes the 2018 Article IV Consultation Mission in Djibouti

December 19, 2018

• The strategy aimed at positioning Djibouti as a logistics and commercial hub offers great opportunities for economic growth and development.
• Ensuring debt sustainability is a priority. This requires strengthening the returns on public investment projects and reforming the governance of state-owned enterprises, public finance and debt management, and the tax system.
• Djibouti needs to expedite reforms to facilitate the transition to private sector-led growth to create jobs and reduce poverty.

A team from the International Monetary Fund (IMF) led by Stéphane Roudet visited Djibouti from December 4-17 to hold Article IV consultation discussions. At the end of the visit, Mr. Roudet made the following statement:

“The Djiboutian authorities’ strategy of investing in infrastructure to transform the economy and position the country as a logistics and commercial hub offers great opportunities for economic growth and development. However, the financing of this strategy through a build-up of debt has resulted in debt distress, which poses significant risks. Public and publicly guaranteed debt is expected to be around 104 per cent of GDP at end-2018. Despite sustained growth in recent years, the unemployment rate remains high.

“The authorities have begun to implement reforms to manage the inherent risks of their development strategy and maintain robust levels of growth. These reforms should be deepened and accelerated to ensure the sustainability of public debt and to enable the transition to more inclusive and sustained economic growth, that is driven by private sector investment and development, creates jobs, and reduces poverty.

“Economic growth has slowed—from close to an average of 9.5 per cent in 2014-16 to around 6.5 per cent this year—owing to the sizable drop in public investment in infrastructure. It should nevertheless remain robust in the medium term at around 6 per cent, driven by sustained growth in exports and private investment, provided progress continues to be made on structural reforms.

“To achieve debt sustainability, reforms need to ensure that the various projects implemented bring economic and social returns. Sufficient public sector primary surpluses should be generated to reduce public debt. All of this will require reforms to state-owned enterprises, public finance and debt management, taxation, the business climate and human development policies.

“Generating more resources for the government by reforming state-owned enterprises, reducing tax expenditures and improving spending efficiency would make it possible to not only bring about an improvement in debt sustainability but also to create space for priority spending to reduce poverty.

“Significant progress has been made in recent years to improve the business climate. The authorities are encouraged to pursue their efforts in this area and to further promote competition. Bold reforms in the telecom and electricity sectors are essential to reduce prices and improve the quality of services offered. It is also important to sustain efforts to improve education outcomes and boost labor productivity. These reforms are essential to stimulate private sector investment and competitiveness. Ongoing efforts to strengthen banking supervision and financial inclusion play are important to underpin financial stability and growth and to reduce poverty.

"Strengthening governance is necessary to foster macro-financial stability and inclusive growth. In particular, implementation of the legal and institutional frameworks aimed at improving public financial management and the governance of state-owned enterprises and preventing and combatting corruption and money laundering should be encouraged.

“The IMF staff would like to thank to the Djibouti authorities for their hospitality, excellent cooperation and the very fruitful discussions held during the mission.”