Djibouti: Fifth Review Under the Extended Credit Facility Arrangement
Djibouti: Fifth Review Under the Extended Credit Facility Arrangement, Request for Augmentation of Access and Rephasing, Request for Waivers of Nonobservance of Performance Criteria, and Request for Waiver of Nonobservance of Performance Criterion Resulting in Noncomplying Disbursement - Staff Report; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Djibouti.
Djibouti has been hit by the drought in the Horn of Africa and the increase in global commodity prices. The drought has worsened water scarcity, reduced agricultural production and cattle stock, and accelerated refugee inflows. The higher imports caused by the drought, combined with the strong increase in food and fuel prices in 2011, widened the current account deficit from 6 percent of GDP in 2010 to 12 percent in 2011.
The authorities have requested an augmentation of access under the ECF of 60 percent of quota. As a result of the exogenous shocks, financing needs for 2011–12 are now expected to be higher than previously projected, despite the pledges from the international community to help Djibouti address the impact of the drought. The augmentation, to be disbursed in two tranches, would meet the shortfall that is projected at about $15 million.
Economic activity is picking up, but inflation is rising. The impact of the drought on growth is expected to be limited, as port business and trade are not affected. Activity is estimated to have increased from 3½ percent in 2010 to almost 4½ percent in 2011, mainly due to the recovery of transshipment and of trade to Ethiopia. Despite incomplete transmission of international food and oil prices, inflation is estimated to have risen from 4 percent in 2010 to 5 percent in 2011.
Performance under the ECF program was weak. Due to the exogenous shocks and the weak tax collection during the electoral period and the subsequent government transition, revenues in the first half of 2011 were disappointing. As a result, the end-June performance criteria on net credit to the government and on the government balance were missed. Also, with tight treasury liquidity and high oil prices, the continuous performance criteria on domestic arrears and on external arrears, and the indicative quantitative target on social spending, were missed. Progress on structural benchmarks was, overall, satisfactory.
The authorities’ program for 2011 and 2012 focuses on:
Achieving a deficit of 0.4 percent of GDP in 2011 by stepping up tax collection and maintaining spending discipline, and aiming at a balanced 2012 budget;
Taking remedial actions for the missed performance criteria, including through strengthened debt management and program monitoring; and
Continuing reinforcing bank supervision and central bank governance.
Staff supports the authorities’ requests. Staff supports the completion of the fifth review under the ECF; the waivers of nonobservance of the end-June performance criteria on the fiscal balance and net credit to the government, and of the continuous performance criteria on the non-accumulation of domestic arrears and non-accumulation of external arrears; and the augmentation of access and the related rephasing.