Press Release No. 98/21

Press Release: IMF Approves Extension and Augmentation of Stand-by Credit to Djibouti

June 1, 1998

The International Monetary Fund (IMF) today approved a request by the Government of Djibouti to extend the current stand-by credit through end-March 1999, and to augment the amount available under it by SDR 1.65 million (about US$2.2 million) in support of Djibouti’s economic adjustment and reform program. The IMF’s Executive Board took the decision in conjunction with the completion of the second review under the stand-by credit that was approved on April 15, 1996 (see Press Release No. 96/16) and augmented on May 21, 1997 (see Press Release No. 97/25) to SDR 6.6 million (about US$8.8 million). The current augmentation brings the total amount of the stand-by credit to SDR 8.25 million (about US$11.0 million).

Background

The program supported by the stand-by credit was designed to address Djibouti’s rapidly growing macroeconomic imbalances and a range of structural weaknesses. Significant progress on the fiscal front and in a number of structural areas were achieved in 1996, and efforts were intensified in 1997 to reduce further current expenditures, and improve the quality of the tax system as well as budgetary execution. However, these adjustment efforts were undermined by expenditure overruns in the last quarter of 1997 ahead of legislative elections. The resulting accumulation of new domestic arrears contributed to the spreading of cross-arrears and non-payment of taxes, further undermining the fiscal situation. Against this background, the authorities have shown a new determination to surmount these difficulties by adopting strong corrective measures aimed at reducing markedly the fiscal imbalances, remaining current on external obligations, and reducing domestic arrears in an orderly fashion. If sustained, such efforts should contribute to restoring fiscal credibility, domestic credit-worthiness, and tax compliance. The authorities are also committed to pursue a firm monetary policy consistent with their objective of maintaining the currency board arrangement. These policies will be supported by continued actions on the structural front, including an in-depth financial and economic diagnosis of the nine major public enterprises with a view to restructuring them. The policies have been designed in a medium-term framework and should contribute to improving the competitiveness in various sectors of the economy, such as regional transit and financial activities, and also increasing the diversification of the economy.

Djibouti joined the IMF on December 29, 1978. Its quota is SDR 11.5 million (about US$15.4 million). Its outstanding financial obligations to the IMF currently total the equivalent of SDR 3.98 million (about US$5.3 million).