- The Djiboutian government has presented a new strategy to combat poverty, using traditional means of stimulating economic growth and the private sector. The strategy was however not approved by the International Monetary Fund (IMF) and World Bank, who were asking for an even stronger focus on privatisation.
The IMF today announced that its executive board on Friday had reviewed "and welcomed" Djibouti's new Poverty Reduction Strategy Paper (PRSP), although not approving it. The Fund usually demands a PRSP to enhance its financial support to a developing country, something opening up for the coordinated inflow of financing from the World Bank, foreign development agencies and other sources.
The anti-poverty strategy presented by the Djiboutian government mostly follows the general lines of the prevailing economic theory promoted by the IMF. It focuses on the need for rapid economic growth as a basis for reducing poverty. This again is to be achieved by promoting the private sector through a liberal business climate and privatisation.
According to IMF Deputy Managing Director Agustín Carstens, the new Djiboutian strategy had been defined through a thorough consultative and participatory process within the country. This had assured a "national ownership" of the strategy, but the IMF was nevertheless not totally pleased with the result.
Djibouti's anti-poverty strategy "recognises the need to create the conditions for higher and sustainable economic growth and greater job creation by stimulating private sector development and reducing the cost of doing business in Djibouti," noted Mr Carstens, after analysing the Djiboutian government paper.
Djibouti's strategy to fight poverty however also strongly focuses on the "softer" sectors, aiming at developing the country human resources at a faster speed. The Djiboutian government plans to invest more in education, health, including the fight against the HIV/AIDS pandemic, social protection and reducing gender disparities.
To achieve these aims of higher economic growth and substantial investments in the education and health sectors, Djiboutian authorities plan to reform public administration. According to the new plan, the strengthening of both institutional capacity building and governance have been identified as "key elements to enhance economic and social development."
The IMF's Mr Carstens said the Fund and the World Bank in a Friday meeting had welcomed the advances anti-poverty strategy presented by Djiboutian authorities. In moving forward towards an IMF approval, "several challenges" however would "need to be addressed," he said.
This included "further refinement of the poverty reduction strategy, better prioritisation of policies and projects, and forceful carrying out of structural reforms to improve Djibouti's competitiveness," according to Mr Carstens. The Fund thus demanded a stronger focus on economic reform in line with the IMF's drive for privatisation.
Djiboutian authorities earlier have been criticised for moving too slow on these "structural reforms" and in particular privatisation. An attempt to commercialise and privatise the desert country's water utility - as prescribed by the IMF - had to be revised during a regional drought as social costs were too high. The IMF and Djiboutian authorities remain in disagreement.
Other structural reforms demanded by Mr Carstens to approve the anti-poverty strategy included "strengthening public finances, redirecting public expenditure more toward social expenditures, curbing burdensome administrative procedures, improving the judicial system, making the labour market more flexible, and facilitating investment."
- Additional donor support and technical assistance will be critical to achieving the [anti-poverty strategy's] objectives, the IMF leader said. "However, given the limits to absorptive capacity and the already relatively large public sector, it will be important to reform the public expenditure management system to ensure that any additional funds provided to finance the development strategy are used effectively," Mr Carstens advised.
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