A mission of the International Monetary Fund (IMF) led by Mr. Fernando L. Delgado visited Djibouti during March 7-21, 2009 to hold discussions for the first review of Djibouti’s arrangement under the Poverty Reduction and Growth Facility (PRGF).

On March 21, at the conclusion of the mission, Mr. Delgado made the following statement:

“The economy of Djibouti performed strongly in 2008. Real GDP grew by 5.8 percent, driven mainly by foreign direct investments (FDI) and robust activity in construction and maritime services. Inflation was 9.2 percent at year-end after a run up in food and oil prices in the early part of the year. Private sector credit increased by more than 27 percent and the external position strengthened.

The large current account deficit caused by high commodity prices and FDI-related imports was more than offset by the large financial inflows, resulting in an increase in gross official reserves to a level equivalent to 2.9 months of prospective imports. In October 2008, Djibouti reached an agreement to reschedule its debt obligations with Paris Club (PC) creditors and clear its external arrears.

“Fiscal performance strengthened despite the increase in expenditure related to the border conflict with Eritrea. Foreign grants increased sharply, resulting in a surplus equivalent to 1.3 percent of GDP, a much stronger consolidation than programmed. This strong outturn, together with the increase in external financing, allowed net repayments of domestic arrears equivalent to an estimated 3.2 percent of GDP. The recently introduced value-added tax and the revised Free Trade Zone and Investment codes will help broaden the revenue base. Fiscal transparency has been strengthened through the publication of the monthly fiscal accounts. The new Commerce Code is expected to be sent to the National Assembly by mid-2009.

“Like other African countries, Djibouti will be affected by the crisis, but the sound economic policies implemented by the authorities in context of the PRGF-supported program will mitigate its impact. The global slowdown will materialize mainly through some delays in FDI projects and deceleration in the growth of the volume of trade with Ethiopia.

Nonetheless, strong externally-financed public investment and the growing diversification of services will support real GDP growth of about 5 percent in 2009. Declining global food and oil prices will contribute to a continued decline ininflation, and lower import prices and FDI-related imports will considerably narrow the current account deficit.

Medium-term growth is expected to gradually accelerate, sustained by a rebound of FDI along with the global economy and associated enhancements in Djibouti’s export potential.

“The mission expresses its gratitude for the open and frank discussions and the warm hospitality offered by the authorities during the mission's stay.

“The IMF’s Executive Board is expected to consider the completion of the first review of the PRGF-supported program in mid-May 2009.”