On September 30, 2019, the Executive Board of
the International Monetary Fund (IMF) concluded the Article IV
The government has in recent years implemented large-scale investments
to develop transport and logistics infrastructures with the aim of
positioning Djibouti as a regional trade and logistics hub. Combined
with reforms to improve the business climate, this development strategy
has fueled a strong economic expansion. There has also been some
progress on social indicators, although unemployment and poverty remain
Real GDP growth averaged close to 7 percent during 2014–17. After a
slowdown in 2017, a recovery in trade flows has lifted growth—to an
estimated 5.5 percent last year. Growth is projected to remain strong
over the medium term, at around 6 percent annually. Inflation has been
low, driven by declining food prices.
The overall current account balance has experienced large swings over
the past few years, driven by changes in inventories associated with
re-export activities. The underlying current account balance, excluding
re-export activities, is estimated to have amounted to -0.8 percent of
GDP in 2018. Official reserves decreased by $112 million in 2018,
bringing the reserve coverage to 3.2 months of imports (excluding
imports for re-exports).
The overall fiscal deficit has declined significantly in recent years.
Staff’s broad measure of the deficit—which includes investment spending
for two large projects (railway and water pipeline) has fallen from
15.7 percent of GDP in 2015 to 2.5 percent of GDP in 2018, driven by
the reduction in spending related to these projects. However,
domestically-financed capital spending has been under increasing
pressure due to lower budget support, a reduction in the tax-to-GDP
ratio due to widespread tax-exemptions, and rising debt service costs.
The development strategy based on large scale investments has come at
the cost of rising debt vulnerabilities. Public and publicly guaranteed
debt has increased from 34 percent of GDP in 2013 to about 71 percent
in 2018. On the back of delays in operationalizing the Djibouti-Addis
Ababa railway project, the authorities have launched discussions with
their creditor to restructure this loan. They have recently reached an
agreement that will smooth the debt repayment profile.
Notwithstanding progress in cleaning up banks’ balance sheets, the
financial sector remains fragile, and financial inclusion is low.
Some banks have lost correspondent banking relationships (CBRs) with international
banks in recent years but new CBRs have been rapidly established, hence
preserving financial flows and stability.
Executive Board Assessment
Executive Directors welcomed the strong economic growth, low inflation,
and improved business environment, but noted the heightened debt
vulnerabilities, as well as high poverty and unemployment. In this
context, Directors underscored the need for a multi‑faceted approach to
reduce debt vulnerabilities combined with accelerated structural
reforms. Steadfast implementation of this strategy is
paramount to leverage the country’s location as a regional trade hub
and to ensure sustainable and inclusive long‑term growth.
Directors called for the development of a medium‑term fiscal policy
framework, with a policy anchor consistent with debt sustainability.
They noted that the infrastructure boom had been accompanied by a rapid
increase in external public and publicly guaranteed debt, and
recommended reducing the pace of borrowing, including through strict
limits on government guarantees and SOE borrowing, and prioritizing
Noting that tax revenues had lagged growth due to large tax
expenditures, Directors highlighted the need to enhance domestic
resource mobilization to create fiscal space for poverty‑reducing
spending and debt reduction. They welcomed the authorities’ plans to
enhance tax collection and customs administration and urged them to
design and implement a strategy to reduce tax exemptions and special
regimes. In this regard, Directors supported continued Fund assistance
on capacity development.
Directors noted that strengthening fiscal governance would help enhance
government efficiency. They welcomed ongoing efforts to enhance the
public procurement framework effectiveness and called on the
authorities to improve SOEs governance to reduce their risks to debt
sustainability, including by implementing performance contracts, in
order to reduce costs, improve public services quality, and control
Directors also stressed that deepening structural reforms was critical
to achieve broad‑based private‑sector led growth, job creation, and
poverty reduction. They welcomed the improved business environment and
called for strengthened contract enforcement and respect for property
rights. They recommended further efforts aimed at reducing production
costs, particularly in the electricity and telecommunications sectors,
and at raising skills of Djiboutian nationals to enhance labor
productivity. They called for full implementation of the
anti‑corruption framework, including by strengthening the institutional
capacity, to stimulate private investment.
Directors concurred that the currency board arrangement had provided an
effective nominal anchor for Djibouti and remained appropriate. With
the external position weaker than implied by fundamentals and desired
policy settings, they highlighted the importance of reforms aimed at
enhancing external competitiveness.
Directors noted that financial sector policies should continue to focus
on strengthening stability and inclusion, including by upgrading banks’
regulatory environment and strengthening supervision. They recommended
making the AML/CFT framework more effective to limit opportunities for
corruption and preserve correspondent banking relationships.
Under Article IV of the IMF’s Articles of Agreement, the IMF holds
bilateral discussions with members, usually every year. A staff
team visits the country, collects economic and financial
information, and discusses with officials the country’s economic
developments and policies. On return to headquarters, the staff
prepares a report, which forms the basis for discussion by the