São Paulo – After evaluating the economic scenario in Djibouti from March 6 to 19, technicians from the International Monetary Fund (IMF) concluded that the country is facing a challenge: lowering its current account deficit, which increased from 5.8% of the Gross Domestic Product (GDP) in 2010 to 12.6% in 2011 due to the 5.1% inflation rate increase. This is the main challenge for a country which, on the other hand, succeeded in overcoming the world economy and adverse weather conditions in order to grow in 2011.
“Maintaining price stability and budget discipline remains the chief short-term challenge. The 2011 budget outturn was a deficit of 0.8% of GDP, the result of external shocks and slowed fiscal recovery during the transition to the new government following the presidential elections,” according to a report issued by the Fund this Thursday (29).
The IMF mission, headed by Carlo Sdralevich, claims that even though it was plagued by one of worst droughts to hit the Horn of Africa in the last 60 years, Djibouti grew by 4.4% in 2011, as against 3.5% in the preceding year. The country’s economy grew mostly because there was a pickup in port activity and an increase in trade with neighbouring Ethiopia.
The report goes on to state that that country’s international reserves remain high at US$ 228 million, and that reversing a “strong” expansionary trend, the money supply remained stable, despite a modest increase in credit to the private sector.
“The outlook for growth is expected to remain favourable in 2012. Growth is projected at 4.8%, driven primarily by the rebound in port activity, construction, and services and increased FDI. Inflation is expected to fall to 4.3% as world food prices stabilize and energy prices decline. The current account deficit is expected to stabilize around 12% of GDP,” according to the IMF.
The institution also claims that substantial capital flows are expected to increase central bank reserves and help provide adequate coverage for currency issues. In parallel with the acceleration of economic activity and increased FDI flows, the banking system should also benefit from a more favourable environment.
The IMF believes Ethiopia may be an important trade to Djibouti, and a neighbour which is able to help it cut costs. The Fund claims it would be interesting if a reduction in energy spending were to result from an interconnection with the Ethiopians. The IMF also advises local authorities to carry out structural reforms that will help them increase foreign investment and promote the private sector, and calls for the restructuring state-owned companies and an increase in the roughly 1 million-strong population access to public services.
*Translated by Gabriel Pomerancblum
