- "The economy and the social situation in Djibouti remain fragile," the government holds in a letter to the International Monetary Fund (IMF). And this was despite seven years of reform and anti-poverty efforts under IMF-supported programmes. Nevertheless, Djibouti authorities want to renew their abandoned IMF programmes, the letter says.
Djibouti's Minister of Economy, Finance and Planning, Yacin Elmi Bouh, gives a bleak description of the economic and social situation in the country in a recent 'letter of intent' to the IMF. While regretting the relatively poor results of IMF-initiated reforms so far, Mr Bouh nevertheless observes some progress.
After three years of implementing the IMF's poverty reduction programme, the government of Djibouti had been empowered to "stabilise tax revenues, rationalise budgetary outlays and increase social spending." Consequently, the government believed it "essential to continue its partnership with the IMF" under a renewed programme, which ended prematurely in 2002.
However, the IMF's structural reform programmes for Djibouti intended to remove obstacles to growth had not been completed, "and as a result, economic growth has not been strong enough to foster job creation and reduce poverty," Minister Bouh admitted. Thus, a renewed structural reform programme needed to be agreed upon with the Fund, the Minister said.
Last year, the Djiboutian government approached IMF staff to negotiate a second poverty reduction programme. However, the IMF thus concluded that because of substantial additional budgetary resources from military agreements with France and the US, the government of Djibouti would not, for the time being, need a renewed IMF programme.
The IMF had also been disappointed with the slow progress in introducing structural reforms, seen as painful by the Djiboutian government. In his letter to the IMF, Minister Bouh says that authorities now had reached a "political commitment to pursuing reforms," thus hoping to be considered by the Fund.
Despite new incomes from the military agreements with the US and France, economic growth had slowed in the first half of 2004. This was probably a result of "a slump in port activity, despite a sharp increase in private investment in projects such as the Doraleh oil facility," according to the Finance Ministry.
Government revenues were however steadily increasing in 2003 and 2004, the Ministry revealed. This was in particular due to a large increase in revenues from direct taxes and the domestic consumption tax. But also expenditures had increased very much, in particular for new health and education programmes financed by the government and for pensions for disabled ex-combatants.
National statistics revealed that "military revenue" now accounted for 5.6 percent of GDP. These revenues stem from the large bases for American and French troops in Djibouti. Taxes and other government revenues account for 22.0 percent of GDP and grants for 7.5 percent.
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