DJIBOUTI ECONOMIC MONITOR Strengthening the Sustainability and Equity of Public Finances Fall 2024 Djibouti Economic Monitor Strengthening the Sustainability and Equity of Public Finances Fall 2024 Middle East and North Africa Region © 2024 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. 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TABLE OF CONTENTS Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .vii Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix Résumé . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiii ‫الموجز التنفيذي‬ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xvii Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xix 1. Recent Economic Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Real sector: Experienced an upturn in economic activity driven by Ethiopian demand for port and logistics services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 Inflation: A downward trend attributable to the slowdown in world oil and food prices and to government intervention. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Public finances: The budget remains under pressure due to the increase in tax exemptions and the rise in public debt servicing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 Public debt: The level of external public debt is increasing following the subscription of new non-concessional loans in March and July 2023. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Monetary sector: Currency board coverage remains adequate despite a significant drop in gross reserves following the cessation of pandemic-related international aid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 External sector: The balance of payments current account improved by the end of 2023 due to the recovery in Ethiopian demand. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 Labor market: Djibouti’s economic growth has not been accompanied by a significant reduction in poverty and unemployment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2. Medium-term Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15 Real sector: Foreign trade and public works will remain the main growth drivers in the medium term . . . . .15 Public finances: Despite the Government’s ongoing adjustment efforts, additional measures will be needed to ensure the sustainability of public finances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 iii External sector: The current account balance is set to further deteriorate slightly due to increased imports of hydrocarbons and materials for infrastructure projects. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16 Risks: The medium-term economic outlook faces risks such as fiscal deterioration, regional tensions, climate shocks, and worsening conflict in the Middle East. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 3. Strengthening the Redistributive Effects of Djibouti’s Fiscal System: Opportunities for Efficiency Gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Overview of Djibouti’s fiscal system in 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22 Analysis of the implications of fiscal and social expenditure policies on equality and poverty in Djibouti . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27 4. The Efficiency of Public Spending in the Road Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29 Financing mechanisms for the road sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Better scheduling through a road agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 The need to secure financing for the transport sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Training is key . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 List of Figures Figure 1 The volume of goods handled in Djibouti’s ports in 2023 increased by around 14 percent compared with 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Figure 2 The number of containers handled in Djibouti’s ports in 2023 exceeded 890,000 units . . . . . . .2 Figure 3 Cement sales surge in 2023 as pandemic-induced construction resumes . . . . . . . . . . . . . . . . . . 2 Figure 4 Electricity consumption and number of customers up by 7 percent and 5 percent respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 Figure 5 The service sector remains the leading contributor to GDP in 2023 . . . . . . . . . . . . . . . . . . . . . . . .3 Figure 6 On the demand side, household consumption is the main contributor to GDP . . . . . . . . . . . . . . .3 Figure 7 The fall in inflation that began in August 2022 has continued into 2023 . . . . . . . . . . . . . . . . . . . . 4 Figure 8 The rise in the consumer price index was driven by food and non-alcoholic beverages (+5.9 percent), housing, water and energy (+2.4 percent) and health services (+4.3 percent) . .4 Figure 9 The primary budget balance has deteriorated since 2020, requiring immediate action to restore financial equilibrium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 Figure 10 40 percent of budget spending is allocated to infrastructure, reflecting the priority given to this sector in the State budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 Figure 11 The stock of foreign debt will continue to grow in 2023, with state-guaranteed debt of public enterprises accounting for 76 percent of the total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Figure 12 The bulk of non-Paris Club bilateral and multilateral debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Figure 13 Debt service doubled in 2022 following the end of the G20 Initiative and the maturity of the Djibouti-Ethiopia water pipeline loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Figure 14 The stock of arrears on external debt, mainly with EXIMBANK CHINA and EXIMBANK INDIA, reached 6 percent of GDP at the end of September 2023 . . . . . . . . . . . . . . . 7 iv DJIBOUTI ECONOMIC MONITOR – STRENGTHENING THE SUSTAINABILITY AND EQUITY OF PUBLIC FINANCES Figure 15 Currency board coverage remains at an adequate level, although official reserves have continued to fall since the end of 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 Figure 16 The decline in the loan-to-deposit ratio between December 2022 and December 2023 reflects customers’ growing preference for term accounts . . . . . . . . . . . . . . . . 10 Figure 17 The banking system remains solvent… . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Figure 18 ... but its profitability has declined partly due to pressure on interest margins . . . . . . . . . . . . . .11 Figure 19 Current account improved in 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12 Figure 20 Falling reserve levels in 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Figure 21 Despite a downward trend, the poverty rate remains high after a decade of reduction . . . . . . .12 Figure 22 Effects of tax interventions on income inequality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25 Figure 23 Impact of tax measures on poverty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25 Figure 24 Distribution of benefits and payments by tax instrument for each quintile (2017) . . . . . . . . . . . . 26 Figure 25 Concentration (distribution of kerosene subsidies by market income quintile) . . . . . . . . . . . . . . 27 Figure 26 Impact (kerosene subsidy as a share of market revenue (%) by quintile) . . . . . . . . . . . . . . . . . . . 27 List of Tables Table 1 Djibouti faces budgetary challenges marked by a downward trend in revenues, mainly attributable to an increase in tax exemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Table 2 Selected Economic Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20 Table 3 Revenues and expenses included in the analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Table 4 Number of beneficiaries and public spending under different scenarios . . . . . . . . . . . . . . . . . . .24 Table 5 Examples of road agency resources in 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Table 6 Road fund expenditure, in millions of euros . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 List of Boxes Box 1 Simulations of Djibouti’s external debt sustainability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Box 2 Economic impact of the Red Sea crisis in Djibouti . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 Box 3 Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24 Box 4 Players in road sector governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Box 5 A more appropriate allocation of income would benefit the transport sector . . . . . . . . . . . . . . . 32 Box 6 The importance of diversifying funding sources for the transport sector . . . . . . . . . . . . . . . . . . . 33 TABLE OF CONTENTS  v ACKNOWLEDGEMENTS T his edition of the Djibouti Economic Monitor Chapter III is a synthesis of a report1 on the was prepared by a team led by Rick Emery tax incidence on poverty and equity prepared by Bilal Tsouck Ibounde (Senior Economist for Malaeb, Sandra Martinez, Cristina Carrera, Giorgio Djibouti) under the guidance of Stéphane Guimbert Maarraoui, and Idriss Okiye Waais. Chapter IV is a syn- (Regional Director of Operations for Djibouti, Egypt, thesis of work conducted by Clotilde Minster, Nouhayla and Yemen), Nadir Mohammed (Regional Director for Boubekri, and Nada Bona, funded by the Quality North Africa and the Middle East, Equitable Growth, Infrastructure Investment Partnership, for which the Finance, and Institutions), Éric Le Borgne (Head of authors are thankful. The World Bank team would like to the Macroeconomics, Trade, and Investment Division thank numerous governmental entities for their collabo- for North Africa and the Middle East), Salman Zaidi ration, in particular, the Ministry of Infrastructures and (Head of the Poverty and Equity Division), Fatou Fall Equipment; the Djiboutian Road Agency; Djibouti Ports (Resident Representative for Djibouti), and Mark Corridor Roads SA; the Ministry of Social Affairs and Eugene Ahern (Chief Economist, Equitable Growth, Solidarity; the Central Bank of Djibouti; the Directorate Finance, and Institutions Division for Djibouti, Egypt, of Economy and Planning; the Directorate of Customs and Yemen). and Indirect Rights; the Directorate of Public Debt; the The team that prepared this edition of the Djibouti Economic Monitor comprised Rick Emery Tsouck Ibounde (Senior Economist for Djibouti), Bilal Malaeb 1 This chapter is a synthesis of an in-depth analysis (Poverty Economist), Clotilde V. Minster (Transport prepared by the World Bank’s Poverty and Equity team: Specialist), Malik Garad (Consultant, Economist), Bilal Malaeb, Sandra Martinez, Cristina Carrera, Giorgio Basile Keita (Consultant), Chimène Djapou Fouthe Maarraoui and Idriss Okiye Waais. The team would like to thank the teams at the Ministry of the Budget, the Ministry (Consultant, Economist), Moulaye Bamba (Consultant), of Economy and Finance and the Institut National de la Ali Souag (Consultant), and Giorgio Maarraoui Statistique de Djibouti (INSTAD) for their collaboration, (Consultant). information and advice in drafting the analyses used The report has been enriched by the comments in this report. The team would also like to thank Alan and suggestions from Zeljko Bogetic (Lead Economist Fuchs, Johannes Hoogeveen, Rick Tsouck Ibounde, for Macroeconomics, for Egypt, Djibouti, and Yemen); Federica Marzo, Anne Marie Duplantier, Federica Alfani, Alex Kamurase and Asli Mohamed for their support, Arturo Ardila Gomez (Lead Transport Economist), and comments, and suggestions. The link to the full analysis Affouda Leon Biaou (Program Leader, Infrastructure is: https://documents1.worldbank.org/curated/en/099​ for Egypt, Djibouti, and Yemen). Diderot Guy D’Estaing 062223112522461/pdf/P1745720795cc20d10b03e00​ Sandjong Tomi Senior Economist for Djibouti. aeaea566192.pdf/. vii Directorate of Budget; the National Institute of Statistics For more information on the World Bank and of Djibouti (INSTAD); and the Port Authority and Free its activities in Djibouti, please visit https://www.world- Zones of Djibouti (APZFD), who provided the neces- bank.org/en/country/djibouti. sary data and information for this update. If you have any questions or comments on the The findings, interpretations, and conclusions content of this publication, please email Rick Emery expressed in this report are those of the authors alone Tsouck Ibounde (rtsouckibounde@worldbank.org) and in no way reflect the views of the members of the and Éric Le Borgne (eleborgne@worldbank.org). Board of Directors of the World Bank or the countries they represent. viii DJIBOUTI ECONOMIC MONITOR – STRENGTHENING THE SUSTAINABILITY AND EQUITY OF PUBLIC FINANCES EXECUTIVE SUMMARY D jibouti’s economy achieved an impressive 2019 to 11.4 percent of GDP. In 2023, despite a nominal rebound in 2023, outperforming forecasts increase in revenues, tax revenues slightly increased with GDP growth estimated at 6.7 percent. to 11.5 percent of GDP thanks to economic recovery, The country benefited from a recovery in Ethiopia’s but were offset by a decline in non-tax revenues. The growing demand for port and logistics services follow- increase in public spending, especially in capital, and ing the country’s political stabilization. This demand the rise in LIBOR led to a budget deficit of 1.9 percent boosted the volume of goods and containers handled of GDP, financed by external borrowing. The primary in Djibouti’s ports. In addition, domestic demand deficit, which went from 0.7 percent of GDP in 2022 to remained strong, supported by a recovery in private 1.1 percent of GDP in 2023, confirms the deterioration investment and government measures to mitigate the of the budgetary situation, exacerbated by rising inter- effects of inflation caused by the Russian invasion of est payments. This situation underscores the need for Ukraine. Improvements were also seen in the primary measures to increase domestic revenues and better sector, particularly due to the resumption of livestock manage public spending. exports to Gulf countries. The debt situation remains concerning After peaking at 11 percent in June 2022, despite a debt-to-GDP ratio of 67 percent in 2023, inflation stabilized at 3.8 percent in December which might seem moderate. The stock of arrears 2023, with a reduction in core inflation. This sta- on external debt reached about 6 percent of GDP at bilization is partly attributed to government measures the end of June 2023, suggesting cash flow tensions. to preserve purchasing power, such as awareness This accumulation, mainly vis-à-vis China Eximbank campaigns, strict price controls on basic foodstuffs, and EXIMBANK India suggests challenges in cash and VAT exemptions for certain products. Energy flow management. The end of the G-20 Debt Service prices showed little change, while fresh food prices Suspension Initiative (DSSI), the maturity of the loan rose sharply, mainly due to shortages of imports from for the Djibouti-Ethiopia water pipeline, and the eco- Ethiopia. On an annual average basis, consumer nomic repercussions of the war in Ethiopia and the prices rose moderately by 1.4 percent, reflecting a Russian invasion of Ukraine have exacerbated these year-on-year decline. tensions. The Djiboutian government announced on Djibouti faces budgetary challenges October 18, 2023, that it had reached an agreement marked by a structural decline in revenues, nota- with China Eximbank regarding the treatment of its bly due to the increase in tax exemptions which debt to this institution. The agreement would include reached 19 percent of GDP in 2022, reducing tax a four-year moratorium starting in 2024, during which pressure. Tax revenues fell from 13 percent of GDP in Djibouti would only pay the equivalent of 20 percent of ix the service due during this period and would continue first quarter of 2024, mainly affecting value-added tax negotiations with China Eximbank on a debt restruc- and excise duties on tobacco and alcohol imports, turing. However, to get out of this over-indebtedness exacerbating budgetary challenges already increased situation, Djibouti will need to fully clear its external by the costs of oil subsidies. arrears, including those vis-à-vis India Eximbank and The medium-term outlook is positive, with the Paris Club. Moreover, the results of the simulation annual GDP growth expected at 5.1 percent from conducted by the World Bank team on the sustain- 2024 to 2026, supported by foreign trade and ability of Djibouti’s public debt show that returning to a major public works projects. However, the contin- sustainable debt level would require a freeze on non- ued accumulation of public debt and regional tensions concessional borrowing, a deep restructuring of the are risks that require prudent management to ensure entire portfolio of Djibouti’s bilateral external debt, as Djibouti’s future financial stability. Moreover, Djibouti’s well as intensified efforts to mobilize state revenues. growth model faces several vulnerabilities, notably a The banking sector has shown resilience to strong dependence on global maritime transport and external shocks, with an increase in credit to the exposure to regional conflicts, including those of its private sector and a significant reduction in non- neighbors. To strengthen the viability and equity of performing loans. However, international reserves public finances, particular attention must be paid to have decreased by 14.7 percent compared to the optimizing fiscal efficiency and prudent management previous year. The balance of payments improved at of public finances. This will support economic growth the end of 2023, with a notable surplus in the current while reducing vulnerabilities related to external account balance of more than 32 percent, mainly due shocks and debt. to an increase in exports of goods and services. The The first special chapter of the Djibouti trade balance recorded a surplus of nearly 80 billion Economic Outlook examines the redistributive DJF, an increase of 64.5 percent year-on-year. effects of the country’s fiscal system, analyzing Ongoing disruptions in the Red Sea how different taxes and transfers affect poverty have mixed impacts on Djibouti’s economy. and inequality. The study includes simulations such Transshipment activity at the port of Djibouti has been as the expansion of cash transfers, the rising costs strengthened, leading to a 39 percent increase in of stabilizing kerosene prices, and an increase in container volume handled in March 2024 compared public spending on health. The analysis reveals that, to November 2023. The container volume more than despite promoting equality, the system exerts upward doubled compared to March 2023, reaching 110,000 pressure on poverty. Direct taxes prove progressive, TEU and surpassing pre-pandemic levels. This rapid improving equity, while VAT, despite being crucial growth results from a strategy by carriers to minimize for revenue mobilization, increases the burden on risks related to crossing the Red Sea. They have thus the poorest given its regressive nature. The National shifted their transshipment operations to Djibouti, Family Solidarity Program (PNSF) effectively targets strategically located south of this area, to bypass low-income households, reinforcing its progressive regions controlled by the Houthi movement. On the nature. However, kerosene subsidies, while sig- other hand, the crisis has led to a significant increase nificant, mainly benefit the wealthiest households. in maritime freight costs, which is reflected in the Precisely, while these subsidies benefit the poorest in prices of consumer goods in Djibouti. In March 2024, absolute terms due to the cost burden of kerosene inflation in Djibouti reached 5 percent, its highest level being relatively heavier on their budgets, the ben- since December 2022, mainly due to a 6.1 percent efits are disproportionately accrued to the wealthier increase in the prices of food and non-alcoholic households in relative terms due to their higher beverages, affecting different regions of the country consumption of the kerosene product. Transfers in differently. Moreover, tensions in the Red Sea affect kind, such as education and health spending, while Djibouti’s customs revenues, which fell by about 910 advantageous, do not always reach the poorest in an million Djiboutian francs (0.1 percent of GDP) in the equitable manner. The need for tax reforms targeting x DJIBOUTI ECONOMIC MONITOR – STRENGTHENING THE SUSTAINABILITY AND EQUITY OF PUBLIC FINANCES more equitable redistribution and increased revenues and examines what institutional reform in the road sec- without exacerbating poverty is underlined, notably tor would bring in terms of the budgetary efficiency of by rethinking kerosene subsidies and maximizing the road infrastructure investments. This analysis reveals benefits of social programs such as the PNSF, which three main challenges: (1) an inefficient institutional exclusively targets the poor populations. organization with overlapping responsibilities, (2) a At the same time, a study of public spend- poorly maintained road network and a lack of small ing in the road sector—an essential sector for local enterprises for maintenance, and (3) insufficient the competitiveness of Djibouti’s ports—reveals and poorly managed funding, with high salary costs. major financing and management challenges. To improve efficiency, it would be useful to clarify insti- Institutional reform could clarify roles, strengthen local tutional roles, develop the local maintenance sector, maintenance, and diversify funding sources, thereby and diversify funding sources, notably by creating a significantly improving the efficiency of public spend- road fund and a road agency. These reforms require ing in this vital sector. The second chapter presents strong political will and could significantly transform the current mechanisms for financing the road sector Djibouti’s transport sector. Executive Summary xi RÉSUMÉ L ’économie de Djibouti a réalisé un rebond Djibouti fait face à des défis budgétaires impressionnant en 2023, surpassant les marqués par une baisse structurelle des recettes, prévisions avec une croissance du PIB notamment en raison de l’augmentation des exo- estimée à +6,7 %. Le pays a bénéficié d’une reprise nérations fiscales qui ont atteint 19 % du PIB en de la demande croissante de l’Éthiopie pour les ser- 2022, réduisant la pression fiscale. Les recettes vices portuaires et logistiques après la stabilisation fiscales ont baissé de 13 % du PIB en 2019 à 11,4 % politique dans ce pays. Cette demande a stimulé le du PIB. En 2023, malgré une hausse nominale des volume des marchandises et des conteneurs traités revenus, les recettes fiscales ont légèrement aug- dans les ports djiboutiens. Par ailleurs, la demande menté à 11,5 % du PIB grâce à la reprise économique, intérieure est restée forte, soutenue par la reprise de mais ont été contrebalancées par une baisse des l’investissement privé et les mesures gouvernemen- recettes non fiscales. L’augmentation des dépenses tales visant à atténuer les effets de l’inflation causée publiques, surtout en capital, et la hausse du LIBOR par l’invasion russe. En outre, des améliorations ont ont conduit à un déficit budgétaire de 1,1 % du PIB, été observées dans le secteur primaire, notamment financé par des emprunts extérieurs. Le déficit grâce à la reprise des exportations de bétail vers les primaire, passé de 0,7 % du PIB en 2022 à 1.1% du pays du Golfe. PIB en 2023, confirme la détérioration de la situation Après avoir atteint un pic de 11 % en budgétaire, exacerbée par des paiements d’intérêts juin 2022, l’inflation s’est stabilisée à 3,8 % en croissants. Cette situation souligne la nécessité de décembre 2023, accompagnée d’une baisse de mesures pour augmenter les recettes intérieures et l’inflation sous-jacente. Cette stabilisation est attri- mieux gérer les dépenses publiques. buée en partie aux mesures gouvernementales de La situation d’endettement demeure pré- préservation du pouvoir d’achat, telles que des cam- occupante malgré un ratio dette/PIB de 67 % pagnes de sensibilisation, un contrôle strict des prix en 2023 qui pourrait sembler modéré. Le stock de produits alimentaires de base, et des exonérations des arriérés sur la dette extérieure a atteint environ de TVA pour certains produits. Les prix de l’énergie 6 % du PIB à la fin juin 2023, suggérant ainsi des ont peu varié, tandis que les prix des produits alimen- tensions de trésorerie. Les autorités nationales ont taires frais ont connu une forte hausse, notamment toutefois rapporté qu’à la fin mars 2024, le stock des en raison de pénuries d’importations de l’Ethiopie. arriérés de la dette extérieure avait diminué à 1,6 % En moyenne annuelle, les prix à la consommation ont du PIB, légèrement au-dessus du seuil de surendet- augmenté de façon modérée de 1,4%, reflétant une tement. Cette accumulation, principalement vis-à-vis baisse par rapport à l’année précédente. EXIMBANK Chine et EXIMBANK Inde, indique des xiii défis significatifs en matière de gestion de la tréso- volume des conteneurs a plus que doublé comparé rerie. La fin de l’Initiative de suspension du service à mars 2023, atteignant 110 000 TEU et surpassant de la dette (ISSD) du G-20, l’arrivée à maturité du les niveaux pré-pandémiques. Cette croissance prêt pour le pipeline d’eau Djibouti-Éthiopie, et les rapide résulte d’une stratégie des transporteurs répercussions économiques de la guerre en Éthiopie visant à minimiser les risques liés à la traversée de et de l’invasion russe en Ukraine ont exacerbé ces la mer Rouge. Ils ont ainsi déplacé leurs opérations tensions. Le Gouvernement djiboutien a annoncé, de transbordement à Djibouti, situé stratégiquement le 18 octobre 2023, avoir conclu un accord avec au sud de cette zone, afin de contourner les régions EXIMBANK Chine concernant le traitement de sa contrôlées par le mouvement houthi. En revanche, dette envers cette institution. L’accord inclurait un la crise a conduit à une hausse significative des moratoire sur quatre ans à partir de 2024, période au coûts du fret maritime, qui se répercute sur les prix cours de laquelle Djibouti ne paierait que l’équivalent des biens de consommation à Djibouti. En mars de 20 % du service dû pendant cette période et 2024, l’inflation à Djibouti a atteint 5 %, son plus haut poursuivrait les négociations avec EXIMBANK Chine niveau depuis décembre 2022, principalement en sur une restructuration de sa dette. Cependant, pour raison de la hausse de 6,1 % des prix des produits sortir de cette situation de surendettement, Djibouti alimentaires et des boissons non alcoolisées, affec- devrait procéder à un apurement complet de ses arrié- tant différemment les régions du pays. Par ailleurs, rés extérieurs, y compris ceux vis-à-vis d’ EXIMBANK les tensions en mer rouge affectent les recettes Inde et du Club de Paris. Par ailleurs, les résultats douanières de Djibouti, qui ont chuté d’environ de la simulation effectuée par l’équipe de la Banque 910 millions de francs djiboutiens (0.1% du PIB) au mondiale sur la soutenabilité de la dette publique de premier trimestre 2024, affectant principalement la Djibouti montrent que le retour à un niveau d’endet- taxe sur la valeur ajoutée et les droits d’ accises sur tement soutenable nécessiterait un gel des emprunts les importations de tabac et d’alcool, exacerbant non concessionnels, une restructuration profonde les défis budgétaires déjà accrus par les coûts des de l’ensemble du portefeuille de la dette extérieure subventions pétrolières. bilatérale de Djibouti, ainsi qu’une intensification des Les perspectives à moyen terme sont efforts de mobilisation des revenus de l’État. positives, avec une croissance annuelle du PIB Le secteur bancaire a démontré une prévue à 5,1% de 2024 à 2026, soutenue par le résilience face aux chocs externes, avec une commerce extérieur et des projets majeurs de augmentation des crédits au secteur privé et travaux publics. Cependant, l’accumulation conti- une réduction significative des prêts non perfor- nue de la dette publique et les tensions régionales mants. Cependant, les réserves internationales ont sont des risques qui requièrent une gestion prudente diminué de 14,7% par rapport à l’année précédente. pour garantir la stabilité financière future de Djibouti. La balance des paiements s’est améliorée fin 2023, Par ailleurs, le modèle de croissance de Djibouti fait avec un excédent notable du solde des transactions face à plusieurs vulnérabilités, notamment une forte courantes de plus de 32%, principalement dû à une dépendance vis-à-vis du transport maritime mondial augmentation des exportations de biens et services. et une exposition aux conflits régionaux y compris de La balance commerciale a enregistré un excédent de ses voisins. Pour renforcer la viabilité et l’équité des près de 80 milliards de FDJ, une hausse de 64,5% finances publiques, une attention particulière doit sur un an. être portée à l’optimisation de l’efficacité fiscale et à Les perturbations en cours dans la mer la gestion prudente des finances publiques. Cela per- Rouge produisent des impacts mitigés sur l’éco- mettra de soutenir la croissance économique tout en nomie de Djibouti. L’activité de transbordement réduisant les vulnérabilités liées aux chocs externes au port de Djibouti a été renforcée, entraînant une et à la dette. augmentation de 39 % du volume de conteneurs trai- Le premier chapitre spécial de ce Bulletin tés en mars 2024 par rapport à novembre 2023. Le de Conjoncture de Djibouti examine les effets xiv DJIBOUTI ECONOMIC MONITOR – STRENGTHENING THE SUSTAINABILITY AND EQUITY OF PUBLIC FINANCES redistributifs du système fiscal du pays, en ana- notamment en repensant les subventions au kéro- lysant comment différents impôts et transferts sène et en maximisant les bénéfices des programmes affectent la pauvreté et les inégalités. L’étude inclut sociaux comme le PNSF, qui cible exclusivement les des simulations, telles que l’expansion des transferts populations pauvres. monétaires, l’augmentation des coûts de stabilisation En parallèle, une étude de la dépense des prix du kérosène, et une hausse des dépenses publique dans le secteur routier—secteur essentiel publiques de santé. L’analyse révèle que, malgré les pour la compétitivité des ports djiboutiens—révèle efforts de promotion de l’égalité le système exerce d’importants défis de financement et de gestion. une pression à la hausse sur la pauvreté. Les impôts Une réforme institutionnelle pourrait clarifier les rôles, directs s’avèrent progressifs, améliorant l’équité renforcer l’entretien local et diversifier les sources tandis que la TVA, bien qu’elle soit importante pour de financement, améliorant ainsi significativement la mobilisation des recettes, alourdit le fardeau des l’efficacité des dépenses publiques dans ce secteur plus pauvres, compte tenu de sa nature régressive. vital. Le deuxieme chapitre spécial présente les Le Programme National de Solidarité Famille (PNSF) mécanismes actuels de financement du secteur cible efficacement les ménages à faible revenu, routier et examine ce qu’apporterait une réforme renforçant son caractère progressif. Cependant, les institutionnelle dans le secteur routier à la lumière de subventions au kérosène, bien qu’importantes, béné- l’efficacité budgétaire des investissements dans les ficient principalement aux ménages les plus aisés. infrastructures routières. Cette analyse révèle trois Précisément, alors que ces subventions pro- défis principaux : (1) une organisation institutionnelle fitent aux plus pauvres en termes absolus en raison inefficace avec des chevauchements de responsabili- du coût du kérosène qui pèse relativement plus lourd tés, (2) un réseau routier mal entretenu et un manque sur leurs budgets, les bénéfices profitent de manière de petites entreprises locales pour l’entretien, ainsi disproportionnée aux ménages les plus riches en (3) qu’un financement insuffisant et inadapté avec termes relatifs en raison de leur consommation plus des coûts salariaux élevés. Pour améliorer l’efficacité, élevée de kérosène. il serait utile de clarifier les rôles institutionnels, de Les transferts en nature, tels que les dépenses développer le secteur local de l’entretien routier et de éducatives et de santé, bien qu’avantageux, n’at- diversifier les sources de financement, notamment teignent pas toujours de manière équitable les plus par la création d’un fonds routier et d’une agence démunis. La nécessité de réformes fiscales ciblant routière. Ces réformes nécessitent une forte volonté une redistribution plus équitable et une augmentation politique et pourraient significativement transformer des recettes sans aggraver la pauvreté est soulignée, le secteur des transports à Djibouti. Résumé xv ‫الموجز التنفيذي‬ ‫املحيل اإلجاميل عام ‪2022‬إىل ‪ -1.1%‬عام ‪ ،2023‬تدهور وضع املوازنة‪،‬‬ ‫والذي تفاقم بسبب زيادة مدفوعات الفائدة‪ .‬ويسلط هذا الوضع الضوء‬ ‫عىل الحاجة إىل اتخاذ تدابري لزيادة اإليرادات املحلية وتحسني إدارة‬ ‫ح‬ ‫قق اقتصاد جيبويت انتعاشً ا مثريًا لالهتامم يف عام ‪ ،2023‬متجاوزًا‬ ‫التوقعات حيث يقدر منو الناتج املحيل اإلجاميل بنسبة ‪.+6.7%‬‬ ‫وقد استفادت جيبويت من انتعاش الطلب املتزايد يف إثيوبيا عىل‬ ‫اإلنفاق العام‪.‬‬ ‫خدمات املوانئ والخدمات اللوجستية بعد االستقرار السيايس الذي شهده‬ ‫وال يزال وضع الديون مثريا للقلق عىل الرغم من أن نسبة‬ ‫ذلك البلد‪ .‬وقد أدى هذا الطلب إىل زيادة حجم البضائع والحاويات التي‬ ‫الدين إىل الناتج املحيل اإلجاميل ستبلغ ‪ 67%‬يف عام ‪ ،2023‬وهو ما قد‬ ‫يتم مناولتها يف املوانئ الجيبوتية‪ .‬فضال عن ذلك‪ ،‬ظل الطلب املحيل‬ ‫يبدو معتدال‪ .‬وبلغ رصيد متأخرات الديون الخارجية نحو ‪ 6%‬من الناتج‬ ‫قويا‪ ،‬مدعوما باستئناف االستثامر الخاص والتدابري الحكومية الرامية إىل‬ ‫املحيل اإلجاميل يف نهاية يونيو ‪ ،2023‬مام يشري إىل قيود التدفق النقدي‪.‬‬ ‫تخفيف آثار التضخم الناجمة عن الغزو الرويس ألوكرنيا‪ .‬وباإلضافة إىل‬ ‫ويكشف هذا الرتاكم‪ ،‬بشكل رئييس يف مواجهة ‪EXIMBANK China‬‬ ‫ذلك‪ ،‬لوحظت تحسينات يف القطاع الرئييس‪ ،‬ال سيام بفضل استئناف‬ ‫و‪ ،EXIMBANK India‬عن توترات حادة يف التدفق النقدي‪ .‬وقد أدى‬ ‫صادرات املاشية إىل دول الخليج‪.‬‬ ‫انتهاء مبادرة تعليق خدمة الديون ملجموعة العرشين‪ ،‬واستحقاق قرض‬ ‫وبعد أن بلغ التضخم ذروته عند ‪ 11%‬يف يونيو ‪ ،2022‬استقر‬ ‫خط أنابيب املياه بني جيبويت وإثيوبيا‪ ،‬والتداعيات االقتصادية الناجمة‬ ‫عند ‪ 3.8%‬يف ديسمرب ‪ ،2023‬مع انخفاض التضخم األسايس‪ .‬ويعزى هذا‬ ‫عن الحرب اإلثيوبية والغزو الرويس ألوكرانيا‪ ،‬إىل تفاقم هذه التوترات‪.‬‬ ‫االستقرار جزئيا إىل التدابري الحكومية للحفاظ عىل القوة الرشائية‪ ،‬مثل‬ ‫وأعلنت الحكومة الجيبوتية‪ ،‬يف ‪ 18‬أكتوبر ‪ ،2023‬عن توصلها إىل اتفاق‬ ‫حمالت التوعية‪ ،‬والرقابة الصارمة عىل أسعار املنتجات الغذائية األساسية‪،‬‬ ‫مع بنك ‪ EXIMBANK‬الصيني بشأن معالجة ديونه لهذه املؤسسة‪.‬‬ ‫واإلعفاءات من رضيبة القيمة املضافة لبعض املنتجات‪ .‬ومل تتغري أسعار‬ ‫ءا من عام ‪،2024‬‬ ‫وسيتضمن االتفاق وقفًا اختياريًا ملدة أربع سنوات بد ً‬ ‫الطاقة إال بشكل بسيط‪ ،‬يف حني ارتفعت أسعار املواد الغذائية الطازجة‬ ‫تدفع خاللها جيبويت ما يعادل ‪ 20٪‬فقط من الخدمة املستحقة خالل‬ ‫بشكل حاد‪ ،‬ويرجع ذلك جزئيا إىل نقص الواردات من إثيوبيا‪ .‬ويف املتوسط​​‬ ‫تلك الفرتة وتستمر يف املفاوضات مع ‪ EXIMBANK China‬بشأن‬ ‫السنوي‪ ،‬ارتفعت أسعار االستهالك بشكل معتدل بنسبة ‪ ،1.4%‬مام‬ ‫إعادة هيكلة ديونها‪ .‬ومع ذلك‪ ،‬للخروج من حالة املديونية املفرطة هذه‪،‬‬ ‫يعكس انخفاضا مقارنة بالعام السابق‪.‬‬ ‫سيتعني عىل جيبويت سداد متأخراتها الخارجية بالكامل‪ ،‬مبا يف ذلك تلك‬ ‫وتواجه جيبويت تحديات تتعلق بامليزانية تتسم بانخفاض هيكيل‬ ‫املستحقة عىل بنك ‪ EXIMBANK India‬ونادي باريس‪ .‬عالوة عىل‬ ‫يف اإليرادات‪ ،‬ال سيام بسبب زيادة اإلعفاءات الرضيبية التي وصلت إىل‬ ‫ذلك‪ ،‬تظهر نتائج املحاكاة التي أجراها فريق البنك الدويل بشأن استدامة‬ ‫‪ 19%‬من الناتج املحيل اإلجاميل يف عام ‪ ،2022‬مام قلل من الضغوط‬ ‫الدين العام لجيبويت أن العودة إىل مستوى دين ميكن تحمله سيتطلب‬ ‫الرضيبية‪ .‬وانخفضت اإليرادات الرضيبية من ‪ 13%‬من الناتج املحيل‬ ‫تجميد االقرتاض غري امليرس‪ ،‬وإعادة هيكلة عميقة لكامل محفظة الديون‬ ‫اإلجاميل عام ‪ 2019‬إىل ‪ 11.4%‬من الناتج املحيل اإلجاميل‪ .‬ويف عام ‪،2023‬‬ ‫الخارجية الثنائية لجيبويت ‪ ،‬فضال عن تكثيف جهود تعبئة إيرادات الدولة‪.‬‬ ‫وعىل الرغم من الزيادة االسمية يف الدخل‪ ،‬ارتفعت اإليرادات الرضيبية‬ ‫وأظهر القطاع املرصيف مرونة يف مواجهة الصدمات الخارجية‪،‬‬ ‫بشكل طفيف إىل ‪ 11.5%‬من الناتج املحيل اإلجاميل بفضل االنتعاش‬ ‫مع زيادة االئتامن املقدم للقطاع الخاص وانخفاض كبري يف القروض‬ ‫االقتصادي‪ ،‬ولكن تم تعويضها من خالل انخفاض اإليرادات غري الرضيبية‪.‬‬ ‫املتعرثة‪ .‬ومع ذلك‪ ،‬انخفضت االحتياطيات الدولية بنسبة ‪ 14.7%‬مقارنة‬ ‫وأدى ارتفاع اإلنفاق العام‪ ،‬خاصة يف رأس املال‪ ،‬وارتفاع سعر الليبور‪ ،‬إىل‬ ‫بالعام السابق‪ .‬وتحسن ميزان املدفوعات يف نهاية عام ‪ ،2023‬مع فائض‬ ‫عجز يف املوازنة بلغ ‪ 1.9%‬من الناتج املحيل اإلجاميل‪ ،‬بتمويل من االقرتاض‬ ‫ملحوظ يف الحساب الجاري بنسبة تزيد عن ‪ ،32%‬ويرجع ذلك أساسا إىل‬ ‫الخارجي‪ .‬ويؤكد عجز امليزان األويل‪ ،‬الذي انخفض من –‪ 0.7‬من الناتج‬ ‫‪xvii‬‬ ‫يتناول الفصل الخاص األول من هذه النرشة االقتصادية لجيبويت‬ ‫زيادة صادرات السلع والخدمات‪ .‬وسجل امليزان التجاري فائضاً يقارب ‪80‬‬ ‫آثار إعادة التوزيع للنظام الرضيبي يف البالد‪ ،‬مع تحليل كيفية تأثري‬ ‫مليار جنيه‪ ،‬أي بزيادة قدرها ‪ 64,5%‬خالل سنة واحدة‪.‬‬ ‫الرضائب والتحويالت املختلفة عىل الفقر وعدم املساواة‪ .‬وتتضمن‬ ‫تؤدي االضطرابات املستمرة يف البحر األحمر إىل تأثريات مختلطة‬ ‫الدراسة عمليات محاكاة‪ ،‬مثل التوسع يف التحويالت النقدية‪ ،‬وزيادة‬ ‫عىل اقتصاد جيبويت‪ .‬تم تعزيز نشاط إعادة الشحن يف ميناء جيبويت‪ ،‬مام أدى‬ ‫تكاليف تثبيت أسعار الكريوسني‪ ،‬وزيادة اإلنفاق العام عىل الصحة‪.‬‬ ‫إىل زيادة بنسبة ‪ 39٪‬يف حجم الحاويات التي متت مناولتها يف مارس ‪2024‬‬ ‫ويكشف التحليل أنه عىل الرغم من تعزيز املساواة‪ ،‬فإن النظام ميارس‬ ‫مقارنة بنوفمرب ‪ .2023‬وتضاعف حجم الحاويات مقارنة بشهر مارس ‪،2023‬‬ ‫ضغوطا تصاعدية عىل الفقر‪ .‬واتضح أن الرضائب املبارشة تصاعدية‪،‬‬ ‫حيث وصل إىل ‪ 110.000‬حاوية مكافئة لعرشين قدم متجاوزًا مستويات‬ ‫حيث تعمل عىل تحسني العدالة يف حني أن رضيبة القيمة املضافة‪ ،‬عىل‬ ‫ما قبل الجائحة‪ .‬ويأيت هذا النمو الرسيع نتيجة السرتاتيجية رشكات النقل‬ ‫الرغم من أهميتها يف جلب اإليرادات‪ ،‬تزيد العبء عىل الفئات األشد‬ ‫التي تهدف إىل تقليل املخاطر املرتبطة بعبور البحر األحمر‪ .‬وهكذا لجأت‬ ‫فقرا‪ ،‬نظرا لطبيعتها التنازلية‪ .‬يستهدف الربنامج الوطني للتضامن األرسي‬ ‫تلك الرشكات إىل تحويل عمليات إعادة الشحن الخاصة بها إىل جيبويت‬ ‫بشكل فعال األرس ذات الدخل املنخفض‪ ،‬مام يعزز طبيعته التقدمية‪.‬‬ ‫ذات املوقع االسرتاتيجي جنوب هذه املنطقة‪ ،‬من أجل تجاوز املناطق التي‬ ‫ومع ذلك‪ ،‬فإن دعم الكريوسني‪ ،‬عىل الرغم من أهميته‪ ،‬يفيد بشكل رئييس‬ ‫تسيطر عليها جامعة الحويث‪ .‬ومن ناحية أخرى‪ ،‬أدت األزمة إىل ارتفاع كبري‬ ‫األرس األكرث ثراء‪ .‬وعىل الرغم من أن التحويالت العينية‪ ،‬مثل اإلنفاق عىل‬ ‫يف تكاليف الشحن البحري‪ ،‬وهو ما انعكس عىل أسعار السلع االستهالكية‬ ‫التعليم والصحة‪ ،‬مفيدة‪ ،‬إال أنها ال تصل دامئا إىل أشد الناس فقرا بشكل‬ ‫يف جيبويت‪ .‬ويف مارس ‪ ،2024‬وصل معدل التضخم يف جيبويت إىل ‪ ،5%‬وهو‬ ‫عادل‪ .‬وقد تم تسليط الضوء عىل الحاجة إىل إصالحات رضيبية تستهدف‬ ‫أعىل مستوى له منذ ديسمرب ‪ ،2022‬ويرجع ذلك ً‬ ‫أساسا إىل ارتفاع أسعار‬ ‫إعادة توزيع أكرث إنصافا وزيادة اإليرادات دون تفاقم الفقر‪ ،‬وخاصة‬ ‫املواد الغذائية واملرشوبات غري الكحولية بنسبة ‪ ،6.1%‬مام أثر عىل مناطق‬ ‫من خالل إعادة النظر يف إعانات دعم الكريوسني وتعظيم فوائد الربامج‬ ‫البالد بشكل مختلف‪ .‬إضافة إىل ذلك‪ ،‬فإن التوترات يف البحر األحمر تؤثر‬ ‫االجتامعية مثل الصندوق الوطني للضامن االجتامعي‪.‬‬ ‫عىل إيرادات الجامرك الجيبوتية‪ ،‬التي انخفضت بنحو ‪ 910‬مليون فرنك‬ ‫ويف الوقت نفسه‪ ،‬كشفت دراسة لإلنفاق العام يف قطاع الطرق‬ ‫جيبويت (‪ 0.1٪‬من الناتج املحيل اإلجاميل) يف الربع األول من عام ‪،2024‬‬ ‫‪ -‬وهو قطاع أسايس للقدرة التنافسية للموانئ الجيبوتية ‪ -‬عن تحديات‬ ‫مام أثر بشكل رئييس عىل رضيبة القيمة املضافة والرسوم غري املبارشة عىل‬ ‫كبرية يف مجايل التمويل واإلدارة‪ .‬ومن املمكن أن يؤدي اإلصالح املؤسيس‬ ‫واردات التبغ والكحول‪ ،‬مام أدى إىل تفاقم تحديات امليزانية التي زادت‬ ‫إىل توضيح األدوار‪ ،‬ويعزز الصيانة املحلية‪ ،‬وينوع مصادر التمويل‪ ،‬وبالتايل‬ ‫بالفعل بسبب التكاليف الناجمة عن دعم النفط‪.‬‬ ‫تحسني كفاءة اإلنفاق العام يف هذا القطاع الحيوي بشكل كبري‪ .‬ويعرض‬ ‫وتعد التوقعات عىل املدى املتوسط​​إيجابية‪ ،‬حيث من املتوقع‬ ‫الفصل الخاص الثاين آليات التمويل الحالية لقطاع الطرق ويبحث ما‬ ‫أن يبلغ منو الناتج املحيل اإلجاميل السنوي ‪ 5.1%‬يف الفرتة من ‪ 2024‬إىل‬ ‫ميكن أن يحققه اإلصالح املؤسيس يف قطاع الطرق يف ضوء كفاءة امليزانية‬ ‫‪ ،2026‬بدعم من التجارة الخارجية ومشاريع األشغال العامة الكربى‪.‬‬ ‫لالستثامرات يف البنية التحتية للطرق‪ .‬يكشف هذا التحليل عن ثالثة‬ ‫ورغم ذلك‪ ،‬فإن الرتاكم املستمر للدين العام والتوترات اإلقليمية هي من‬ ‫تحديات رئيسية‪ )1( :‬تنظيم مؤسيس غري فعال مع مسؤوليات متداخلة‪،‬‬ ‫املخاطر التي تتطلب إدارة حذرة لضامن االستقرار املايل املستقبيل لجيبويت‪.‬‬ ‫(‪ )2‬شبكة طرق سيئة الصيانة واالفتقار إىل رشكات محلية صغرية للصيانة‪،‬‬ ‫فضال عن ذلك‪ ،‬يواجه منوذج النمو يف جيبويت العديد من نقاط الضعف‪،‬‬ ‫باإلضافة إىل (‪ )3‬عدم كفاية التمويل وسوء إدارته‪ ،‬مع تكاليف عالية‬ ‫مبا يف ذلك االعتامد القوي عىل النقل البحري العاملي وتأثره بالرصاعات‬ ‫للرواتب‪ .‬ولتحسني الفعالية‪ ،‬سيكون من املفيد توضيح األدوار املؤسسية‪،‬‬ ‫اإلقليمية‪ ،‬مبا يف ذلك رصاعات الدول املجاورة‪ .‬ولتعزيز استدامة ومساواة‬ ‫وتطوير قطاع الصيانة املحيل‪ ،‬وتنويع مصادر التمويل‪ ،‬ال سيام من خالل‬ ‫املالية العامة‪ ،‬يجب إيالء اهتامم خاص لتحسني الكفاءة الرضيبية واإلدارة‬ ‫إنشاء صندوق للطرق ووكالة للطرق‪ .‬وتتطلب هذه اإلصالحات إرادة‬ ‫الحكيمة للاملية العامة‪ .‬ومن شأن ذلك أن يدعم النمو االقتصادي مع‬ ‫سياسية قوية وميكن أن تحدث تحوال كبريا يف قطاع النقل يف جيبويت‪.‬‬ ‫الحد من نقاط الضعف املرتبطة بالصدمات الخارجية والديون‪.‬‬ ‫‪xviii‬‬ ‫‪DJIBOUTI ECONOMIC MONITOR – STRENGTHENING THE SUSTAINABILITY AND EQUITY OF PUBLIC FINANCES‬‬ INTRODUCTION T his edition of the Djibouti Economic Monitor Djibouti’s ambition to leverage its unique (DEM) is part of a program of biannual reports geographical position at the entrance to the Red analyzing Djibouti’s development trends and Sea and become a major transport and logistics constraints. The aim of each issue is to present the hub continues to face challenges. Heavy depen- country’s recent economic developments (chapter dence on imports exposes the economy to world 1), as well as the medium-term economic outlook price fluctuations and transport disruptions. Moreover, and the main risks that accompany it (chapter 2). Djibouti’s fuel price subsidy is a burden on public This edition also includes two thematic chapters finances without effectively reducing poverty. This is of interest to the public. The first deals with the all the truer as the fuel subsidy is mainly consumed redistributive effects and potential efficiency gains by wealthier households. Nevertheless, poverty rates of Djibouti’s budgetary system (chapter 3). The are expected to have fallen from their baseline of second deals with the efficiency of public spend- 19 percent in 2017 to around 14.7 percent in 2024. ing in the road sector (chapter 4). The ECB aims This reduction is slower than expected, mainly due to to share information and stimulate debate among factors influenced by COVID-19 and regional instabil- those interested in and working to improve Djibouti’s ity. Poverty at the lower middle-income poverty line economic management. It seeks to be accessible remains high, at around 36 percent, down from 44 to non-specialists to be useful to a wide range of percent in 2017. stakeholders. Ongoing disruptions in the Red Sea are Djibouti enjoyed rapid economic growth, having mixed effects on Djibouti’s economy. On averaging over 4 percent per year over the period the one hand, Djibouti’s port activity has increased 2000–21, thanks to major investments in trans- due to the detour of vessels, particularly for transship- port and port infrastructure. However, this upturn ment services, to the point of exceeding its (new) port has also been a source of growing vulnerability. This capacity. On the other hand, escalating sea freight growth, financed by borrowing on increasingly oner- costs and higher insurance premiums due to maritime ous terms, has increased debt vulnerability, limiting risks are likely to lead to higher prices for consumer budgetary leeway for essential social spending. The goods, exacerbating Djibouti’s vulnerability to these COVID-19 pandemic, the conflict in neighboring fluctuations. In addition, tensions in the Red Sea have Ethiopia, and the Russian invasion of Ukraine have significant fiscal implications, with a potential impact exacerbated economic and budgetary tensions on customs revenues and fuel pricing strategies. through foreign trade, finance, and commodity prices, On February 13, 2022, the Government of making debt unsustainable since February 2022. Djibouti launched the National Development Plan xix (NDP) entitled “Djibouti ICI” for the period 2020– the NDP aims to strengthen the country’s human and 2024, to boost growth and exploit the country’s institutional capacities, while consolidating democ- full potential. This second five-year plan of Vision racy, public transparency, and social cohesion. 2035 aims to make Djibouti a trade and logistics hub It remains paramount for national authori- in Africa, and is built around three strategic axes: ties to maintain and intensify their efforts to inclusion, connectivity, and institutions. The first axis promote growth that is both inclusive and resilient. of the NDP aims to adopt a more inclusive economic This will include improving the business environment development model to ensure a better distribution of and governance of public enterprises to attract private the fruits of growth. The second strategic axis aims investment and reduce the costs of key services to the to make the country a regional and continental eco- economy, improving revenue mobilization to restore nomic hub, and to improve national integration and fiscal sustainability, and rationalizing untargeted coverage of socioeconomic services. The third axis of subsidies to create space for higher social spending. xx DJIBOUTI ECONOMIC MONITOR – STRENGTHENING THE SUSTAINABILITY AND EQUITY OF PUBLIC FINANCES 1 RECENT ECONOMIC DEVELOPMENTS Real sector: Experienced an upturn and 2022 due to the conflict in Ethiopia and the in economic activity driven by Russian invasion of Ukraine. This rebound has also Ethiopian demand for port and been made possible by increased productivity at the logistics services Doraleh container terminal, following the acquisition in 2022 of four new gantry cranes and the expansion Djibouti’s economy recorded a remarkable of the terminal. This now enables Doraleh Container rebound in 2023, exceeding initial growth Terminal Management Company (SGTD) to operate forecasts. This recovery is largely attributable to the latest generation of vessels, with a capacity of the upturn in demand from Ethiopia, Djibouti’s main over 23,000 Twenty-Foot Equivalent Units (TEU). trading partner, for port and logistics services. The Domestic demand remained robust, stimu- gradual normalization of the political and social lated by ongoing public works and construction situation in Ethiopia, following the peace agreement projects, and their positive impact on the economy signed in November 2022 between the Ethiopian as a whole. Production in the “Building-Public Works” government and the Tigray rebel movement, was sector, estimated through cement sales, doubled in a key factor in this improvement. By the end of 2023 compared with 2022 (figure 3). This significant December 2023, the total volume of goods handled increase stems from several factors, including the at Djibouti’s ports had increased by around 14 continuation of construction work on the Damerjog percent compared with the same period in 2022. oil port by the Djibouti Ports and Free Zones Authority Ethiopian demand, which accounts for 80 percent of (APZFD), the resumption of private investment in the the volume handled, increased by 13 percent, while tourism and trade sectors after a pause due to the local demand grew by around 20 percent over the pandemic and the war in Ethiopia, and efforts to reno- same period (see figure 1). This positive trend is also vate road corridors. Government initiatives to promote confirmed by a notable 36 percent increase in the social housing have also contributed to this growth. total number of containers handled in Djibouti’s ports Electricity consumption and the number of subscrib- in 2023, exceeding 890,000 units (see Figure 2). ers also rose by 7 percent and 5 percent respectively This increase comes after a steady decline in 2021 over the same period, reflecting Electricity of Djibouti 1 The volume of goods handled in FIGURE 1 •  The number of containers handled FIGURE 2 •  Djibouti’s ports in 2023 increased by in Djibouti’s ports in 2023 exceeded around 14 percent compared with 2022 890,000 units 65 900,000 40 800,000 Percentage growth 15 700,000 –10 600,000 –35 –60 500,000 2019 2020 2021 2022 2023 Volume processed for local demand Volume processed for Ethiopian demand 400,000 2019 2020 2021 2022 2023 Source: National authorities and team estimates. Source: National authorities and team estimates. Cement sales surge in 2023 as FIGURE 3 •  Electricity consumption and number of FIGURE 4 •  pandemic-induced construction customers up by 7 percent and 5 percent resumes (2021 = 100) respectively (in thousands of MWH) 160 750,000 85,000 140 700,000 120 80,000 100 650,000 80 75,000 60 550,000 40 500,000 65,000 2019 2020 2021 2022 2023 20 Number of subscribers (right axis) 0 Production (left axis) 2021 2022 2023 Consumption (left axis) Source: National authorities and team estimates. Source: National authorities and team estimates. (EDD) investments to increase access to electricity Overall, real GDP growth in 2023 reached services. The continued rise in electricity production 6.7 percent, 3 percentage points up compared and consumption, averaging 5 percent and 6 percent to 2022. The service sector remained predominant, between 2019 and 2023 despite high consumer contributing 4.6 percentage points to GDP (figure 5). prices, is the result of several converging factors, The secondary sector contributed 1.6 points in 2023, including public and private investment in the power up from 1.3 points in 2022. There was also an improve- grid that has increased electricity generation capacity, ment in the agricultural sector, with a contribution of and growing urbanization and initiatives to promote 0.1 points versus stagnation in 2022. This increase rural electrification that have improved access to is partly attributable to the resumption of livestock electricity throughout the country (see figure 4). exports to Gulf countries, following the lifting of 2 DJIBOUTI ECONOMIC MONITOR – STRENGTHENING THE SUSTAINABILITY AND EQUITY OF PUBLIC FINANCES The service sector remains the FIGURE 5 •  On the demand side, household FIGURE 6 •  leading contributor to GDP in 2023 consumption is the main contributor to GDP 7.0 7.0 6.0 6.0 5.0 5.0 4.0 3.0 2.0 Percentage Percentage 4.0 1.0 0.0 3.0 –1.0 –2.0 2.0 –3.0 –4.0 –5.0 1.0 –6.0 2019 2020 2021 2022 2023 0.0 2019 2020 2021 2022 2023 Net exports Gross Fixed Capital Formation Agriculture Industry Services Government consumption Net taxes GDP Private consumption GDP Source: National authorities and team estimates. Source: National authorities and team estimates. restrictions linked to the COVID-19 pandemic. On the highest rise since June 2022 (almost 15 percent). demand side (figure 6), private investment picked up This sharp rise in fresh produce prices was due to a following the resumption of public works and construc- combination of factors, including periodic shortages of tion projects interrupted during the pandemic, while imports from Ethiopia. In addition, to reduce the loss private consumption was sustained by the continua- of revenue from taxes and excise duties on petroleum tion of government support measures to counter the products, the government decided to raise the price of a inflationary effects of the Russian invasion of Ukraine. liter of diesel (+2.5 percent), super diesel (+1.6 percent), and kerosene (+7.7 percent) in July 2023. These prices had been frozen since January 2022, resulting in high Inflation: A downward trend tax expenditure (see below). Considering the above attributable to the slowdown in trends, the general level of consumer prices rose by world oil and food prices and to a moderate 1.4 percent on an annual average, down government intervention 3.7 percentage points on the previous year’s level. After peaking at 11 percent in June 2022, inflation stood at 3.8 percent year-on-year in December Public finances: The budget remains 2023 (figure 7). Core inflation eased (–0.5 percent under pressure due to the increase in December 2023 versus +4.5 percent for the same in tax exemptions and the rise in period in 2022), partly reflecting the continuation of public debt servicing some of the government measures adopted in 2022 to preserve consumer purchasing power. These include: Djibouti continues to face budgetary challenges (i) a campaign to raise awareness among importers, marked by a downward trend in revenues, mainly local wholesalers, and retailers; (ii) strict control and attributable to an increase in tax exemptions (table monthly publication of approved prices for seven 1). The tax burden declined steadily between 2015 essential food staples (wheat, sugar, cooking oil, flour, and 2022, from 14.3 percent to 11.4 percent of GDP rice, milk, and pasta); and (iii) a VAT exemption for the in 2022, mainly due to the rise in tax exemptions, esti- national palm oil refinery. Energy prices were virtually mated at 19 percent of GDP in 2022. This decline is a stagnant (–0.2 percent), reflecting the slowdown in cause for concern, particularly in relation to the Afri- international prices, while food products saw their can average of 16 percent of GDP and the Sustainable Recent Economic Developments 3 The fall in inflation that began in FIGURE 7 •  The rise in the consumer price index FIGURE 8 •  August 2022 has continued into 2023 was driven by food and non-alcoholic (Annual variation in %) beverages (+5.9 percent), housing, water and energy (+2.4 percent) and 55 60 health services (+4.3 percent) 50 45 50 40 40 40 35 30 30 20 25 20 20 15 0 10 10 5 0 0 –20 –5 –10 2019 2020 2021 2022 2023 –10 –20 Miscellaneous goods and services Restaurants and hotels –15 Teaching Leisure and culture –20 –30 Communication Transport –25 Health Furniture and household –30 –40 items Housing, water, and energy Jan-22 Feb-22 Mar-22 Apr-22 May-22 Jun-22 Jul-22 Aug-22 Sep-22 Oct-22 Nov-22 Dec-22 Jan-23 Feb-23 Mar-23 Apr-23 May-23 Jun-23 Jul-23 Aug-23 Sep-23 Oct-23 Nov-23 Dec-23 Alcoholic beverages, tobacco Clothing and footwear and narcotics Food and non-alcoholic Energy prices (left axix) Overall index beverages Headline CPI (left axis) Core inflation (left axis) Fresh products prices (right axis) Source: National authorities and World Bank estimates. Source: National authorities and World Bank estimates. Development Goals (SDGs) target of 15 percent of GDP, interest rate of Djibouti’s bilateral creditors, have and especially in view of the country’s unsustainable led to an increase in public spending, mainly in sovereign debt. By the end of 2023, although revenues capital expenditure. To offset this significant rise had increased nominally by 4 percent on the previous in capital expenditure, the government renewed year, they are estimated to have remained stable as a measures to reduce current expenditure in the 2023 proportion of GDP, at 18.5 percent in 2023. This stagna- Finance Act, such as freezing promotions, not filling tion is the result of opposing trends in tax and non-tax vacant posts (except for the Ministries of Education, revenues. Tax revenues enjoyed an increase of 0.2 per- Health, Agriculture, the Interior, and Higher Education), centage points of GDP, reaching 11.5 percent of GDP, creating a central purchasing unit and launching thanks to the upturn in economic activity mainly result- global tenders for the needs of the administration. ing from higher indirect taxes, such as VAT, TIC, khat However, these measures only partially offset the taxes, and taxes on petroleum products. However, this increase in capital expenditure. As a result, the bud- upward trend in tax revenues was offset by a decline get balance based on scheduling recorded a larger in non-tax revenues, due to lower income from secu- variance. For 2023, the overall budget deficit declined rities and military base rents, whose nominal amounts to 1.9 percent of GDP, an increase of 0.3 percentage have not increased since 2016. Furthermore, despite points compared to 2022, mainly financed by new receiving exceptional budget support of DF 2 billion bilateral and multilateral external borrowing. (equivalent to USD 11.3 million) from Saudi Arabia, The evolution of the primary balance since which partially offset the decline in government reve- 2020 reveals a worsening of debt management nues, grants stabilized at 1 percent of GDP. However, challenges. Initially at –1.5 percent of GDP in 2020, grants have sharply declined from nearly 4 percent of this balance has evolved to reach –2.9 percent of GDP in 2021 following the suspension of COVID-19-re- GDP in 2021, before compressing to –1.9 percent in lated financial aid. 2023 (figure 9). This trend shows that the government The acceleration in the implementation of is finding it difficult to rebalance the budget balance NDP-ICI projects and the rise in LIBOR, the main independently of debt interest payments, which remain 4 DJIBOUTI ECONOMIC MONITOR – STRENGTHENING THE SUSTAINABILITY AND EQUITY OF PUBLIC FINANCES Djibouti faces budgetary challenges marked by a downward trend in revenues, mainly TABLE 1 •  attributable to an increase in tax exemptions 2019 2020 2021 2022 2023 Overall budget balance –0.9 –1.7 –2.9 –1.4 –1.9 Primary balance 0.4 –1.6 –2.7 –0.7 –1.1 Total revenues and donations 23.5 23.4 20.0 18.9 18.9 Tax revenues 13.0 11.6 11.5 11.3 11.5 Non-tax revenues 6.9 8.2 6.7 6.5 6.4 Donations 3.6 3.6 1.8 1.0 1.0 Total expenditure 24.4 25.2 22.9 20.3 20.8 Current expenses 16.0 14.6 14.2 15.3 14.7 Wages and salaries 6.5 6.3 6.2 5.8 5.7 Goods and services 5.6 5.6 5.3 5.7 5.3 Interest payments 1.3 0.2 0.2 0.7 0.8 Current transfers 2.6 2.6 2.5 3.1 2.9 Capital expenditure 7.7 7.1 7.1 5.1 6.1 Financing 0. 9 1.7 2.9 1.4 1.9 Exterior (Net) 1.5 1.4 1.8 1.1 1.1 Domestic (Net) –0.6 0.3 1.1 0.3 0.8 Source: National authorities and World Bank estimates. The primary budget balance has FIGURE 9 •  40 percent of budget spending FIGURE 10 •  deteriorated since 2020, requiring is allocated to infrastructure, immediate action to restore financial reflecting the priority given to this equilibrium sector in the State budget 1.0 Social protection 0.5 Education Recreation, culture 0.0 and religion Health –0.5 Housing and community amenities –1.0 Infrastructures Public order and safety –1.5 Defense –2.0 General public services –2.5 0% 10% 20% 30% 40% 50% –3.0 LFI 2023 LFR 2022 2021 2019 2020 2021 2022 2023 Source: National authorities and team estimates. Source: 2021 Original Finance Law and 2022 and 2023 Amended Finance Law. a major challenge. When interest payments are added of interest payments to revenues, a key indicator of a to the equation, the budget deficit widens even further country’s ability to service its debt, remains high for the in 2023, as previously mentioned. In addition, the ratio Djibouti economy in 2023, reaching 5 percent. Although Recent Economic Developments 5 The stock of foreign debt will FIGURE 11 •  The bulk of non-Paris Club bilateral FIGURE 12 •  continue to grow in 2023, with and multilateral debt state-guaranteed debt of public enterprises accounting for 76 percent of the total Non Paris club 450 76 74 350 FDJ Millions 72 Paris club 250 Thousands 70 150 68 66 Multilateral 50 64 –50 62 0 200 400 2019 2020 2021 2022 2023 Est Thousands Debt of public companies Central government debt (in millions of FDJ, left axis) (in millions of FDJ, left axis) Sept.-2023 2022 2021 2020 2019 Total external debt (as% of GDP, right axis) Source: National authorities and authors’ estimates. Source: National authorities and authors’ estimates. relatively low, this represents a five-fold increase on the the end of December 20232, equivalent to 2020 ratio. This significant increase underscores the 67 percent of nominal GDP forecast for 20233. need to take significant measures to reduce the budget Djibouti’s outstanding public external debt increased deficit, mainly through an increase in domestic rev- significantly in 2023 due to the disbursement of enues, moderate recourse to non-concessional debt, three new loans contracted this year, as well as the and more effective management of public expenditure integration of arrears accumulated in 2022, which to stabilize the country’s financial situation. could raise the public external debt ratio to at least Sectoral allocations of the state budget show 67 percent of GDP. Borrowings in 2023 include that priority is given to infrastructure spending, with financing for the shipyard project (USD 92.2 million), around 40 percent of budget expenditure. Education the Damerjog oil pipeline (USD 155 million) and the is the second largest item of state expenditure, account- Doraleh desalination plant (EUR 91.9 million). ing for 15 percent of the total. General public services Debt to public enterprises accounts for and defense allocations are estimated at 13–14 percent around 76 percent of public external debt (figure of budget expenditure. Health care spending will peak 11). The composition of public external debt by at 7 percent of public spending in 2023, while security beneficiary shows that 76 percent of public debt is spending will rise to 6 percent of total spending. Social made up of state-guaranteed loans to large public protection receives a budget allocation of 3 percent of enterprises working on regional infrastructure proj- total government expenditure (figure 10). ects. The main public-sector creditors are: Djiboutian Railway Company—SDCF—(25 percent), The Djibouti National Office for Water and Sanitation—ONEAD—(21 Public debt: The level of external percent), Djibouti Ports and Free Zones Authority public debt is increasing following the subscription of new non-concessional 2 Bulletin Statistique de la Dette Publique -quatrième loans in March and July 2023. 2023, Direction de la Dette Publique. 3 According to World Bank GDP estimates, public Official data indicate an increase in outstanding debt represented 66.9 percent of GDP, while national public debt, reaching USD 2,745.9 million at authorities put it at 68 percent of GDP. 6 DJIBOUTI ECONOMIC MONITOR – STRENGTHENING THE SUSTAINABILITY AND EQUITY OF PUBLIC FINANCES Debt service doubled in 2022 FIGURE 13 •  The stock of arrears on external FIGURE 14 •  following the end of the G20 debt, mainly with EXIMBANK CHINA Initiative and the maturity of and EXIMBANK INDIA, reached the Djibouti-Ethiopia water 6 percent of GDP at the end of pipeline loan September 2023 5% Iran, 0.2 Others, 0.1 4% 3% India, 1.0 2% China, 4.7 1% 0% 2019 2020 2021 2022 2023 Source: Authors’ calculations based on data from the Bulletin Public Debt Statistics for Source: Authors’ calculations based on data from Economic of Outlook Note of the the fourth quarter of 2023. fourth quarter of 2023 from the Ministry of Finance (MEFI). (APZFD) and Djibouti Port Corridor Roads SA (APZF debt in the portfolio (68 percent of total debt) and 32.6 percent + DPCR 10.8 percent of the total). the fixed parity between the Djibouti franc and the External borrowings were mainly directed toward US dollar. Currency risk is further reduced by the fact the infrastructure sector (76 percent), in line with the that a significant proportion of the loan portfolio is government’s 2035 vision of transforming the country denominated in currencies correlated to the US dollar, into a commercial, logistics, and financial hub for the such as the Saudi Riyal (SAR) and the Emirati Dirham Horn of Africa region. (AED). Other currencies account for a more modest Most of Djibouti’s external public debt is share, notably the Kuwaiti Dinar (5 percent), the Euro held by bilateral creditors who are not members (8 percent), and the Yuan (4 percent). of the Paris Club (Figure 12). In September 2023, Public debt servicing, estimated at 4.6 per- these non-member countries accounted for around cent of GDP in 2023, had doubled by 2022 with 69 percent of total external debt, while multilateral the end of the G-20 Debt Service Suspension partners held 31 percent (figure 12). Non-Paris Club Initiative (DSSI) and the maturity of the members include major players such as China, EXIMBANK China loan for the Djibouti-Ethiopia India, and Iran. China has become the largest lender, water pipeline (figure 13). In addition to the freeze accounting for almost 50 percent of total external on public debt servicing under the DSSI, Djibouti had debt, mainly through commercial loans from the benefited from IMF debt relief thanks to the Disaster State Export-Import Bank of China (EXIMBANK Assistance and Response Trust Fund designed to China). Key multilateral lenders include the World help the country cope with the COVID-19 pandemic. Bank (10 percent), the Arab Fund for Economic and These reliefs had reduced public debt servicing from Social Development-FADES- (8 percent), the African 3.4 percent of GDP in 2019 to 1.7 percent of GDP Development Bank-AfDB- (5 percent), and the Islamic in 2021. In addition, the IMF’s disbursement of USD Development Bank-IDB- (5 percent). 43.4 million under the Rapid Credit Facility, as well The breakdown of public external debt by as an ADB grant of USD 41.16 million to Djibouti to currency indicates a low foreign exchange risk, due mitigate the impacts of the COVID-19 pandemic, had to the predominance of US dollar-denominated helped address cash flow pressures resulting from Recent Economic Developments 7 the depressive economic impact of the pandemic on of Djibouti’s entire bilateral external debt portfolio, as public finances. well as an intensification of efforts to mobilize state rev- The end of international pandemic aid, enues to return to pre-COVID-19 levels of tax pressure. combined with the loan maturity for the Ethiopia- Djibouti water pipeline and the effects of the war in Ethiopia and the Russian invasion of Ukraine, Monetary sector: Currency board has led to cash flow tensions. These tensions have coverage remains adequate despite resulted in an accumulation of external debt arrears, a significant drop in gross reserves which reached approximately USD 211 million by the following the cessation of pandemic- end of September 2023, equivalent to around 6 per- related international aid. cent of the projected GDP for 20233 (figure 14). The Djibouti’s monetary system is distinguished arrears were accumulated mainly vis-à-vis EXIMBANK by its currency board arrangement, which is China (around USD 162.4 million) and EXIMBANK characterized by its longevity and stability. Set India (around USD 34.3 million). On October 18, up on March 20, 1949, this specific system, with a 20234, the Government of Djibouti announced an fixed parity between the national currency and the US agreement with EXIMBANK China that included a dollar, has enabled the country to contain inflationary four-year moratorium starting in 2024, during which pressures and build the confidence of international Djibouti would pay only the equivalent of 20 percent investors. However, the currency board system does of the service due during this period. The government will continue negotiations with EXIMBANK China on restructuring the debt. 4 Note de conjoncture économique du troisième trimestre The results of simulations carried out by 2023-DEP (MEFI), August 2023. 5 https://x.com/Ilyasdawaleh/status/171450192668197​ the World Bank team on the sustainability of 3083. Djibouti’s public debt (Box 1), show that a return to https://www.adi.dj/index.php/site/Plus/11353#:~:text=​ a sustainable level of debt would require a freeze on Dileita%20de%20la%20d%C3%A9cision%20de,are%20​ non-concessional borrowing, a thorough restructuring in%20course%20of%C3%A9study. BOX 1: SIMULATIONS OF DJIBOUTI’S EXTERNAL DEBT SUSTAINABILITY The aim of this exercise is to simulate the conditions under which Djibouti’s debt overhang situation could improve, during which the external debt sustainability analysis indicators would not exceed their respective critical thresholds. The reference scenario for this exercise is the public debt sustainability analysis (February 2023), whose debt burden indicators revealed that the country was in debt distress. A scenario based on the preliminary agreement reached with China in October 2023, which considers a 4-year moratorium starting in 2024, during which Djibouti would pay only 20 percent of the debt service due to EXIMBANK China has been considered . In the absence of details on the terms of the debt restructuring for the railway and water pipeline projects that would take place at the end of the 4-year moratorium, this scenario assumes that Djibouti could benefit from favorable terms similar to those obtained by some countries under the G20 common framework for debt treatment of low-income countries. These conditions include an average interest rate of 1 percent, an average grace period of 5 years, and a maturity of 25 years. The results of the simulations show that under that scenario , the risk of debt distress would remain high (Figure 1.1). In this scenario, the country’s tax revenues would be able to cover debt servicing over the projection period (2024–2042). Indeed, although the net present value of external debt would improve compared to the baseline scenario, with the ratio of net present value of debt to GDP falling from 57.3 percent in 2022 to 30.0 percent in 2024 and 2025, it would return above the critical threshold from 2026 until the end of the projection period. The other two indicators in the analysis of external debt sustainability show trends below their respective thresholds. Simulation results show the scale of the debt overhang challenge facing Djibouti. It emerges that despite initial improvements, Djibouti would remain at high risk of debt distress. It appears that a return to a sustainable level of public debt would require a freeze on non-concessional borrowing, a thorough restructuring of Djibouti’s entire bilateral external debt portfolio, and an intensification of resource mobilization efforts to regain, at the very least, the levels of fiscal pressure seen prior to the COVID-19 pandemic. (continued on next page) 8 DJIBOUTI ECONOMIC MONITOR – STRENGTHENING THE SUSTAINABILITY AND EQUITY OF PUBLIC FINANCES BOX 1: SIMULATIONS OF DJIBOUTI’S EXTERNAL DEBT SUSTAINABILITY (continued) FIGURE 1.1 • Indicators of External Public and publicly guaranteed debt under scenario 1, 2022–2032 PV of debt-to GDP ratio Debt service-to-revenue ratio 70 25 60 Baseline DSA Baseline DSA 20 50 40 15 30 10 20 5 10 Active scenario 1 Active scenario 1 0 0 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 Baseline DSA 2023 Active scenario 1 Threshold Source: World Bank, DSA framework, World Bank staff calculations. not allow the Central Bank of Djibouti to pursue an Currency board coverage remains FIGURE 15 •  active monetary policy and act as lender of last resort. at an adequate level, although official reserves have continued to Its main tasks are to ensure that foreign exchange fall since the end of 2022 reserves cover 100 percent of the banknote issue, to monitor banks’ liquidity risks, and to strengthen their 108 8 control and management of these risks. The level of the country’s official reserves, which are almost 107 6 entirely held in US dollars, is largely determined by Percentage capital movements and rental income from foreign 106 4 military bases in Djibouti. The currency board coverage is robust 105 2 despite declines in money supply and interna- tional reserves (figure 15). Money supply growth was mainly driven by the increase in time deposits 104 0 Dec.2018 Dec.2019 Dec.2020 Dec.2021 Dec.2022 Dec.2023 and, to a lesser extent, sight deposits, reflecting the Currency hedging ratio for money market issues rebound in growth observed in 2023. The monetary Coverage of reserves in months of imports (right axis) authorities’ gross foreign assets fell by 14.7 percent at Source: Central Bank of Djibouti and World Bank team estimates. end-December 2023 compared with end-December 2022, to almost USD 496 million. Currency board cov- erage remained above 105 percent, which is above the required minimum threshold of 100 percent. credit to the private sector was 20.4 percent higher at International reserves, which had been rising sharply the end of 2023 than at the end of 2022, while claims since 2020 thanks to financial support from the IMF on the central government jumped 103.1 percent over and the AfDB, have been falling steadily since the the same period. beginning of 2023, reflecting the country’s current There has been a significant increase in cash flow problems. With the upturn in growth in 2023, bank deposits and loans in 2023, with a strong Recent Economic Developments 9 The decline in the loan-to-deposit ratio between December 2022 and December 2023 FIGURE 16 •  reflects customers’ growing preference for term accounts 500,000 70% 450,000 60% 400,000 350,000 50% 300,000 40% 250,000 30% 200,000 150,000 20% 100,000 10% 50,000 0 0% Dec-18 Jun-19 Dec-19 Jun-20 Dec-20 Jun-19 Dec-21 Jun-22 Dec-22 Jun-23 Dec-23 Gross loans (Millions FDJ) Customer deposits (Millions FDJ) Transformation ratio (right scale) Source: Central Bank of Djibouti and World Bank team estimates. preference for term accounts. The transformation high international interest rates, as well as the general ratio of loans to bank deposits fell from 56 percent to deterioration in banks’ financial performance. 53.6 percent between December 2022 and December The liquidity level of Djibouti’s banks 2023 (figure 17) due to a significant increase in depos- remains relatively high, and the rate of non- its, particularly in term accounts, reflecting a growing performing loans in the banking sector continues customer preference for these savings instruments. This to fall. The banking sector’s consolidated non-per- preference may be motivated by the attractive interest forming loans (NPLs) have continued to fall, from 22.4 rates offered on term accounts, encouraging customers percent of total credit distributed in December 2016 to invest more funds over the long term, thereby reduc- to just 4.2 percent in December 2023 (figure 18). This ing the availability of immediate funds for bank lending. significant reduction can be attributed to the banks’ Overall, the banking sector remains stable efforts to clean up their loan portfolios, with the pro- and resilient to the multiple exogenous shocks visioning rate for NPLs falling steadily to 72.7 percent that have affected the Djiboutian economy in in December 2023. The decrease in the stock of recent years. The solvency ratio of the Djiboutian provisions on past-due loans, accompanied by a fall banking system has maintained a position well above in consolidated NPLs, reflects a steady improvement the minimum regulatory threshold of 12 percent, in the quality of Djibouti banks’ assets and reinforces indicating solid financial stability despite the recent their long-term financial stability. economic shocks (figure 17). However, bank profitabil- ity declined, with the return on assets (ROA) ratio falling External sector: The balance of from 1.67 percent to 1.43 percent between December payments current account improved 2022 and December 2023. Similarly, the return on by the end of 2023 due to the equity (ROE) ratio increased temporarily to 22.02 per- recovery in Ethiopian demand. cent in September 2023, before falling back to 19.15 percent in December 2023. This decline in profitability Djibouti’s balance of payments showed a marked can be attributed to a combination of factors, including improvement at the end of December 2023, mainly lower interest margins on banking products due to thanks to an acceleration in exports of goods and 10 DJIBOUTI ECONOMIC MONITOR – STRENGTHENING THE SUSTAINABILITY AND EQUITY OF PUBLIC FINANCES The banking system remains FIGURE 17 •  ... but its profitability has declined FIGURE 18 •  solvent… partly due to pressure on interest margins 25% 35% 1.8% 20% 30% 1.6% 1.4% 25% 15% 1.2% 20% 1.0% 10% 15% 0.8% 0.6% 10% 5% 0.4% 5% 0.2% 0% 0% 0% Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 Dec-18 Jun-19 Dec-19 Jun-20 Dec-20 Jun-21 Dec-21 Jun-22 Dec-22 Jun-23 Dec-23 Déc-15 Juin-16 Déc-16 Juin-17 Déc-17 Juin-18 Déc-18 Juin-19 Déc-19 Juin-20 Déc-20 Juin-21 Déc-21 Juin-22 Déc-22 Juin-23 Déc-23 Solvency ratio (CAR) Return on equity (ROE) Non-performing loans (PNP) Return on assets (ROA)-right-hand axis Source: Central Bank of Djibouti and team estimates. Source: Central Bank of Djibouti and team estimates. services, according to 2023 estimates. The current in international financing. On the other hand, the account balance increased by over 32 percent in one balance of financial operations declined slightly over year, boosted by notable improvements in both the the last 12 months. After a sharp fall in 2022, support trade and services balances (figure 19). from international partners more than doubled in In particular, the trade balance, which has 2023, with a particular surge in foreign direct invest- been in surplus since 2021 has consolidated, ment and long-term loans, which recorded an annual achieving an impressive positive balance of growth of 10 percent. Other investments, however, fell almost DF 80 billion by the end of 2023 mark- by over 57 percent between the end of 2022 and the ing a year-on-year increase of 64.5 percent. This end of 2023. In addition, the official reserve assets significant increase in the trade surplus was mainly of the Central Bank of Djibouti fell by over DF 26.8 due to export growth outstripping import growth. This billion by December 2023, after a modest gain of DF dynamic was largely attributable to the economic 479 million in 2022 (figure 20). recovery in Ethiopia, with annual export growth of 9.6 percent, dominated by reexports of livestock and Labor market: Djibouti’s economic Ethiopian products. Imports, meanwhile, rose by a growth has not been accompanied moderate 6 percent. The services balance had also by a significant reduction in poverty seen an annual rise of 7.8 percent by the end of 2023, and unemployment. supported by an increase in service exports, notably in the shipping sector, which had grown by over 6 Despite strong economic growth prior to recent percent annually. However, the primary income deficit shocks, there has been no significant improve- in the balance of payments deteriorated slightly by ment in Djibouti’s labor market. The Djibouti 2.2 percent between December 2022 and December Economic Memorandum, recently produced by the 2023, while current transfers to the general govern- World Bank4, highlights the persistent challenges ment increased by 8.7 percent. Despite a significant decline since 2021, 6 https://documents1.worldbank.org/curated/en/099013​ the capital account surplus is estimated to have 124082525843/pdf/P17794913d0f7c0d319c7d125f26​ consolidated in 2023, supported by an increase 432112d.pdf. Recent Economic Developments 11 FIGURE 19 • Current account improved in 2023 Falling reserve levels in 2023 FIGURE 20 •  20 35 14 10 30 12 8 15 10 6 25 10 4 8 20 2 5 6 0 15 4 0 –2 10 2 –4 –5 5 0 –6 –2 –8 –10 0 2018 2019 2020 2021 2022 2023 2018 2019 2020 2021 2022 2023 Balance of trade Balance of services Foreign direct inv. Portfolio inv. Primary income balance Balance of transfers Other investments Foreign exchange Balance of financial operations (right axis) reserves Current account balance (right axis) Source: Central Bank of Djibouti and World Bank team estimates. Source: Central Bank of Djibouti and World Bank team estimates. associated with job creation despite strong economic workers and an oversupply of low-skilled workers, growth. These concerns are particularly pronounced contribute to keeping unemployment at high levels. in a context where the labor force participation rate These factors combine to fuel Djibouti’s persistent remains alarmingly low, with 40 percent of people labor market challenges and underscore the need for of working age neither employed nor actively seek- targeted policy action to stimulate job creation and ing work, or enrolled in an educational institution. improve economic prospects for the population as In addition, unemployment remains high, affecting a whole. around half of the working population, 60 percent Djibouti also continues to face high levels of whom are discouraged workers. These findings of poverty and inequality. According to international underline the urgent need for Djibouti to meet the poverty lines, 19 percent of Djibouti’s population lives challenge of creating sufficient employment oppor- tunities for its growing workforce, particularly for young people, women, and people living outside Dji- Despite a downward trend, the FIGURE 21 •  bouti city. Djibouti’s precarious labor market situation poverty rate remains high after a stems from several factors. First, the underdevel- decade of reduction oped private sector is a major obstacle, as it limits employment opportunities in a context where capital- Prosperity Gap Index intensive sectors dominate the economy. In addition, the challenges of an expanding working-age popula- tion combined with persistent public health problems Poverty Rate such as malaria and low life expectancy, hamper the (at $3.65 per person per day) country’s economic potential by limiting the avail- ability of skilled workers. Furthermore, despite some progress in access to education, enrolment rates Poverty Rate (at $2.15 per in secondary education remain low, and the qual- person per day) ity of education is insufficient to adequately prepare 0 10 20 30 40 50 60 the workforce for the demands of the modern labor 2017 2013 market. Finally, mismatches between labor supply and demand, characterized by a demand for skilled Source: Poverty and Inequality Platform, World Bank (2024). 12 DJIBOUTI ECONOMIC MONITOR – STRENGTHENING THE SUSTAINABILITY AND EQUITY OF PUBLIC FINANCES below the poverty line for low-income countries ($2.15 separating individuals from a prosperity threshold set per person per day) and 44 percent below the poverty at US $25 dollar per person per day, weighing par- line for lower-middle-income countries ($3.65 per per- ticularly heavily on the poorest. In 2019, this gap was son per day) (figure 21). A new prosperity gap index, estimated at 8.06 for Djibouti, meaning that people’s developed by the World Bank, shows that this gap, incomes would have to be multiplied by 8 to reach this although reduced over the last decade, remains sub- prosperity threshold, an improvement on a decade stantial. This index measures the financial distance earlier, when the gap stood at 9.33. Recent Economic Developments 13 2 MEDIUM-TERM OUTLOOK Real sector: Trade and public works Domestically, fixed capital investment will remain the main growth drivers is stimulated by major infrastructure projects. in the medium term These include the development of the Damerjog industrial park, the construction of a new fuel storage Djibouti’s economic outlook remains promising terminal and oil jetty, the extension of the Ghoubet despite regional uncertainties, including onshore wind farm to boost electricity production, proximity to conflict-ridden neighbors, unforeseen and the completion of the third phase of the Ali Sabieh inflationary pressures, and a possible slowdown cement plant. These projects will support economic in consumption. The Ethiopian Prime Minister’s activity in the medium term and boost domestic pro- visit to Lamu, Kenya, in February 2024 to sign a duction capacity. Although these projects will support memorandum of understanding for direct access to economic activity in the medium term and enhance the sea underlines this dynamic7. domestic production capacity, growth is expected to In the medium term, Djibouti’s GDP should remain below Djibouti’s potential. To optimize growth, grow solidly at 5.1 percent annually between Djibouti must address the constraints highlighted in 2024 and 2026, driven by foreign trade and the World Bank’s Country Economic Memorandum public works (Table 2). Djibouti will continue to published in February 2024. These include the benefit from its strategic position and world-class port high costs of basic services such as electricity and complex which has been strengthened over the past telecommunications, which pose significant barriers three decades. Although forecast to slow slightly in the medium term compared with 2023, Ethiopia’s economic growth is expected to remain high, averag- 7 https://www.theeastafrican.co.ke/tea/news/east-africa​ /abiy-ahmed-visit-kenya-improved-ties-addis-ababa-nairo​ ing 7 percent between 2024 and 20268. This pace of bi-4537244. growth should be sufficient to support sustained and 8 https://thedocs.worldbank.org/en/doc/bae48ff2fefc5​ growing demand for Ethiopia’s transport and logistics a869546775b3f010735-0500062021/related/mpo-eth​ services. .pdf. 15 to private sector development. Other identified con- from EXIMBANK China. This financing strategy reflects straints in the CEM involve limited human capital, a prudent approach, aimed at minimizing financing characterized by low secondary school enrollment costs while ensuring the sustainable development of rates, particularly among girls, and poor-quality edu- essential infrastructures, such as those connecting cation, resulting in a mismatched labor market with Djibouti to Ethiopia. an oversupply of low-skilled workers and a shortage Nevertheless, the fiscal consolidation of skilled labor. Furthermore, the substantial pres- efforts initiated by the Government of Djibouti ence of state-owned enterprises, crucial for growth, since 2022 are a positive step, but further mea- presents challenges such as monopolistic practices, sures are necessary to ensure the sustainability high debt levels, and governance issues, which hin- of public finances. According to the debt sustain- der the competitiveness and economic efficiency of ability analysis, significant efforts will be required the private sector. in the medium and long term to increase revenue mobilization, enhance the efficiency of public spend- ing, and undertake a comprehensive restructuring of Public finances: despite the public debt. Government’s ongoing adjustment efforts, additional measures will be needed to ensure the sustainability External sector: The current account of public finances. balance is set to further deteriorate slightly due to increased imports Tax revenues and total government revenues of hydrocarbons and materials for are expected to remain stable in 2024–2025, infrastructure projects. representing 11.7 percent and 18.9 percent of GDP, respectively. This nevertheless represents a decrease Between 2024 and 2025, a slight deterioration of 1.3 percentage points and 4.6 percentage points in the current account balance is forecast. This is compared with pre-pandemic levels. This stability is mainly due to an increase in imports of hydrocarbons underpinned by targeted tax reforms, including the and equipment required for infrastructure projects. reintroduction of the quarterly instalment payment This rise could also be encouraged by increased system and the introduction of new surcharges on demand for logistics and transport services from certain luxury goods. These measures are designed to Ethiopia, which would boost re-export activity in offset revenue losses due to previous tax exemptions the free trade zones and boost exports of services and to mobilize additional revenue. This underlines the such as transport, logistics and telecommunications. continuing importance of reform efforts to improve tax A return to stability in Ethiopia and a recovery in oversight and debt collection. household consumption and investment would also On the expenditure side, the budget calls boost GDP growth and capital goods imports via for a freeze on promotions and reclassifications, Djibouti’s ports. except in priority social sectors. Total expenditure The capital account position should improve should stabilize at 20.2 percent of GDP. Efforts also between 2024 and 2025. On the other hand, the include the centralization of public procurement and financial transactions account could contract during a strict reprioritization of capital expenditure, leading this period. Current negotiations on capital transfers, to better resource management and a reduction in including debt cancellations, should play a positive non-priority spending. role for the capital account in the medium term. At The budget deficit is set to contract slightly, the same time, the financial account is expected to reaching 1.3 percent of GDP in 2024 and 1.4 shrink during 2024–2025, due to a decline in foreign percent in 2025. This deficit will be financed by direct investment and a slowdown in other forms of concessional borrowing from multilateral and bilateral investment, attributable to persistent uncertainties in lenders, as well as a four-year moratorium on loans the region. 16 DJIBOUTI ECONOMIC MONITOR – STRENGTHENING THE SUSTAINABILITY AND EQUITY OF PUBLIC FINANCES Risks: The medium-term economic change, notably droughts and floods. These condi- outlook faces risks such as fiscal tions can affect the primary and secondary sectors, deterioration, regional tensions, as well as disrupt trade and logistics, particularly with climate shocks, and worsening Ethiopia, a key trading partner. conflict in the Middle East. Economic conditions in Ethiopia, including constraints on trade and transport activities, have Djibouti’s medium-term economic outlook, while a direct impact on Djibouti’s economy. A slowdown promising some positive developments, remains subject in Ethiopia could reduce road and rail traffic, thus to several significant risks that could compromise the affecting the supply of water and fresh produce, and country’s stability and growth. These risks include increasing budgetary tensions due to humanitarian public debt accumulation and fiscal vulnerabilities; and security expenses linked to migratory movements. regional instability and climate impacts; and risks Escalating conflicts, particularly between Israel linked to relations with Ethiopia and conflicts in the and Hamas, could degenerate into a wider regional Middle East. Djibouti’s fiscal situation gives cause for conflict, with potential negative repercussions for concern due to the continued accumulation of public Djibouti, particularly in terms of import costs. Djibouti debt and the extension of tax exemptions, which could relies heavily on imports of agricultural products, pro- limit the government’s ability to respond effectively to cessed foods, and fuels. Any disruption to commodity future shocks and finance essential public services markets could therefore have severe economic con- such as education and public health. This trend is likely sequences for the country. to lead to a deterioration in human development and These factors require careful monitoring and an increase in inequalities in the country. management by Djibouti’s decision makers to navi- Regional tensions continue to represent a gate through these uncertainties and secure a more major risk, exacerbated by the impacts of climate stable economic future for the country (Box 2). BOX 2: ECONOMIC IMPACT OF THE RED SEA CRISIS IN DJIBOUTI Regional political and geopolitical context. Djibouti, strategically located at the entrance to the Bab el-Mandeb Strait, plays a crucial role in ensuring the security of this vital maritime trade route. Faced with escalating threats to maritime security in the region, including attacks on commercial vessels by the Houthis since November 2023, Djibouti has stepped up its coastal security measures. Recent reports from the Djibouti Coast Guard confirm the intensification of patrols and the strengthening of cooperation with international maritime security forces. This proactive attitude reflects Djibouti’s commitment to safeguarding regional stability and protecting vital maritime routes. Ongoing disruptions in the Red Sea have boosted transshipment activity in Djibouti’s ports. As a result of these tensions, Maersk, one of the two main shipping operators serving the port, suspended its routes through the area. At the same time, MSC, the second major shipping line operating in Djibouti, has ceased direct sailings through the Red Sea, but continues to use the port as one of its main transshipment hubs. This situation has also prompted other companies to step up their operations in the port. It is important to note that around 80 percent of shipping to and from Djibouti comes from China and India. The volume of containers handled at the Djibouti container terminal, which had already seen a spectacular 41 percent increase in 2023 compared with 2022, continued to grow in the first quarter of 2024. In March 2024, container volume rose by 39 percent compared with November 2023, a month marked by the start of the Houthi movement’s attacks on ships in the Red Sea. This volume now exceeds the levels recorded prior to the COVID-19 pandemic (see figure 2.1). Compared with March 2023, container volume more than doubled, reaching 110,000 TEU. This increase is mainly attributable to growth in transshipment activity, which rose by 35 percent between November 2023 and January 2024. This rapid growth is the result of a strategy by carriers to minimize the risks associated with crossing the Red Sea. They have moved their transshipment operations to Djibouti, strategically located to the south of this area, to bypass the regions controlled by the Houthi movement. Djibouti’s port authorities anticipate that the share of transshipment activity will reach 60 percent in the medium term. As a result, the share of transshipped containers, which averaged 21 percent of total container volume in 2023, has doubled to 47 percent by early 2024. Société de Gestion du Terminal de Doraleh (SGTD) is also benefiting from increased productivity at the Doraleh container terminal, following the acquisition of four new gantry cranes in 2022 and the expansion of the terminal. This has enabled SGTD to operate the latest generation of vessels, with a capacity of over 23,000 TEUs. SGTD plans to increase the share of transshipment activity to 60 percent in the medium term. SGTD’s diversification strategy is proving to (continued on next page) Medium-term outlook 17 BOX 2: ECONOMIC IMPACT OF THE RED SEA CRISIS IN DJIBOUTI (continued) Volume of containers (TEU) handled at the Djibouti container terminal (SGTD) from FIGURE 2.1 •  January 2019 to March 2024 120,000 100,000 80,000 60,000 40,000 20,000 0 Jan-18 Mar-18 May-18 Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19 Sep-19 Nov-19 Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 Mar-21 May-21 Jul-21 Sep-21 Nov-21 Jan-22 Mar-22 May-22 Jul-22 Sep-22 Nov-22 Jan-23 Mar-23 May-23 Jul-23 Sep-23 Nov-23 Jan-24 Mar-24 Import Export Transshipment Reshuffle Total Source: Authors’ calculations based on SGTD data. be an effective bulwark against market fluctuations, reducing Djibouti’s dependence on reexports to Ethiopia. By increasing its capacity to accommodate new-generation vessels, SGTD is strengthening the country’s economic resilience and regional competitiveness. The rising cost of sea freight, caused by tensions in the Red Sea, is affecting the prices of consumer goods in Djibouti and impacting household purchasing power. The main shipowners serving the port of Djibouti reported that by February 2024, the cost of sea freight per TEU on seven main shipping lines had doubled between Djibouti and Sokhna (Egypt), and by four and a half times between Djibouti and Qingdao (China). This increase has had repercussions on the prices of basic consumer goods, leading to a marked and steady rise in the price of rice, an essential staple food for Djiboutians. As shown in Figure 2.2, the price of a 50-kilogram bag of imported rice, which had remained relatively stable since 2022, began to rise in October 2023. This rise became more pronounced, reaching DF 3,463 at the end of March 2024, an increase of 22 percent compared with the end of November 2023. The latest Consumer Price Index (CPI) data from INSTAD indicates that, following several months of stability, the CPI increased by 5 percent in March 2024 compared to the same period the previous year. This inflation rate is the highest observed since December 2022, driven primarily by a 6.1 percent rise in food and non- alcoholic beverage prices. Prices for housing, water, electricity, gas, and other fuels also rose by 3.7 percent. Alcoholic beverages, tobacco, and narcotics saw a 3.2 percent increase, while health services prices went up by 6.7 percent. According to the June 2024 edition of the Integrated Food Security Phase Classification (IPC) and Malnutrition in Djibouti report published by the United Nations system, price increases have varied across regions. In Dikhil and Ali Sabieh, there was a significant rise in the price of rice in January 2024, whereas Tadjourah was more affected by the increase in pasta prices. Sugar prices also surged by over 10 percent in Tadjourah, Arta, and Dikhil compared to the previous year. Regarding fuel, kerosene prices rose by 13 percent in northern Djibouti between February and March 2024, and between 7 percent and 18 percent across all regions over the past 12 months. In Djibouti City, sugar prices increased by 6 percent compared to November 2023 and by 20 percent compared to the previous year. Food insecurity has worsened over the past six months, with a concerning outlook ahead. The June 2024 edition of the UN system’s Integrated Food Security Phase Classification (IPC) and Malnutrition report reveals that from April to June 2024, approximately 221,000 people, or 19 percent of the analyzed population (1.18 million people), face acute food insecurity (IPC IAA Phase 3 or higher). Among these, 38,000 individuals (3 percent) are in emergency situations (IPC IAA Phase 4), and 183,000 are in crisis situations (IPC IAA Phase 3). Rural populations are disproportionately affected due to limited dietary diversity, challenging economic conditions, low purchasing power, and restricted access to subsistence activities. Looking ahead to July to December 2024, a period marked by high temperatures and transhumance movements, an estimated 285,000 people (24 percent of the analyzed population) are projected to experience acute food insecurity. This includes 53,000 people in emergency situations (IPC IAA Phase 4) and 232,000 in crisis situations (IPC IAA Phase (continued on next page) 18 DJIBOUTI ECONOMIC MONITOR – STRENGTHENING THE SUSTAINABILITY AND EQUITY OF PUBLIC FINANCES BOX 2: ECONOMIC IMPACT OF THE RED SEA CRISIS IN DJIBOUTI (continued) 3). Approximately 34 percent of the rural population will face acute food insecurity, with notable challenges in refugee camps such as Markazi (Obock), Holl-Holl, and Ali Addeh (Ali Sabieh). In urban areas, including Djibouti City, 15 percent of the analyzed population will be food insecure, primarily affecting the poorest and those reliant on daily wage labor. The main drivers of this food insecurity are price shocks, limited employment opportunities, and inadequate rainfall in certain regions. In response to this situation, it is recommended that the Government bolster food security efforts, particularly by enhancing resources for programs targeting the most vulnerable populations. This includes expanding food assistance and cash transfer initiatives. Tensions in the Red Sea are having a significant impact on Djibouti’s budget, adversely affecting customs revenues. For the first quarter of 2024, the preliminary and fragmentary data available show financial results below the forecasts in the initial finance law for the year. These reveal a drop in customs revenues of around DF 910 million (around US$5 million, or 0.1 percent of GDP). This decline is particularly noticeable in revenues from VAT and excise duties on tobacco and alcohol products, which are mainly imported. This decline is partly explained by the economic repercussions of the conflict that broke out on October 7, 2023, between Israel and Hamas, which is delaying imports from Europe, forcing ships to bypass Africa, with a direct impact on imports for the domestic market and customs revenues. These budgetary tensions are nothing new, as Djibouti had already suffered a $500 million shortfall by the last quarter of 2023, mainly due to subsidies on refined petroleum products. In 2022, despite global fluctuations in fuel prices following the Russian invasion of Ukraine, Djibouti maintained fixed kerosene and gasoline prices to support low-income earners. This policy, while guaranteeing affordable prices, has nevertheless exacerbated the budget deficit. Revenue losses will worsen with the continuation of these subsidies in 2023 and 2024. Rising sea freight costs, due to tensions in the Red Sea, affect prices of consumer FIGURE 2.2 •  goods in Djibouti, particularly rice a. Evolution of sea freight costs per TEU transported b. Djibouti prices for basic foodstuffs By main shipping line (index: base 100, January 2022) 190 Jebel Ali - Djibouti Sokhna - Djibouti Qingdao - Djibouti 140 Djibouti - Jebel Ali… Djibouti-Le Havre… 90 Nov-22 Jan-23 Mar-23 May-23 Jul-23 Sep-23 Nov-23 Jan-24 Mar-24 Djibouti-Quindao… Djibouti - Sokhna… 0 1000 2000 3000 Rice bag 25 kg Flour bag 25 kg Sugar 50 kg Local spaghetti Imported spaghetti Oil 5L imported February 2024 Before the Red Sea crisis (1 box) Source: CMA/CGM. Source: World Bank staff calculations, based on data from data from INSTAD (National Institute of Statistics of Djibouti) a https://thedocs.worldbank.org/en/doc/5d903e848db1d1b83e0ec8f744e55570-0350012021/related/CMO-Pink-Sheet-April-2024.pdf. Medium-term outlook 19 TABLE 2 • Selected Economic Indicators 2019 2020 2021e 2022p 2023p 2024p 2025p 2026p Real economy: annual percent change, unless indicated otherwise Real GDP g 5.5 1.2 4.5 3.7 6.7 5.1 5.1 5.2 Private Consumption (growth) g 5.0 —5.0 9.6 –0.6 4.4 5.0 5.0 5.0 Government Consumption g —3.9 —2.1 –2.5 –14.3 8.1 2.9 2.2 2.2 Gross Fixed Investment (growth) g 7.3 1.0 4.9 2.7 12.4 8.5 6.8 7.6 Exports (growth) g 9.2 –29.7 29.5 –12.5 8.4 9 10 10 Imports (growth) g 10.1 –29.5 18.2 –6.2 10.4 11 11.3 11.3 Contributions to Real GDP Agriculture % PIB 0.2 0.2 0.3 0.0 0.1 0.1 0.1 0.1 Industry % PIB 1.9 –0.6 1.6 1.1 1.6 1.6 1.7 1.8 Services % PIB 3.5 2.4 1.9 2.6 4.5 3.0 3.0 3.0 Consumer Price Index (end of period) g 3.3 1.0 1.5 5.1 1.4 2.6 2.0 2.5 Fiscal Account, percent of GDP unless otherwise indicated Total Revenues and Grants % PIB 23.5 23.4 20.0 18.9 18.9 18.9 18.9 18.8 Tax Revenues % PIB 13.0 11.6 11.5 11.3 11.5 11.6 11.7 11.7 Non-Tax Revenues % PIB 6.9 8.2 5.7 6.5 6.4 6.3 6.2 6.1 Grants % PIB 3.6 3.6 1.8 1.0 1.0 1.0 1.0 1.0 Total Expenditures % PIB 24.4 25.1 22.9 20.3 20.8 20.2 20.3 20.2 Current Expenditures % PIB 15.9 14.6 14.2 15.3 14.7 14.7 14.7 14.7 Wages and Compensation % PIB 6.5 6.3 6.2 5.8 5.7 5.7 5.7 5.7 Goods and Services % PIB 5.6 5.6 5.3 5.7 5.3 5.3 5.3 5.3 Interest Payments % PIB 1.3 0.2 0.2 0.7 0.8 0.8 0.8 0.8 Current Transfers % PIB 2.6 2.6 2.5 3.1 2.9 2.9 2.9 2.9 Capital Expenditures % PIB 7.6 7.1 7.1 5.1 6.1 5.5 5.5 5.5 Overall Balance (comittment basis) % PIB —0.9 —1.7 —2.9 —1.4 —1.9 —1.3 —1.4 —1.4 Government Financing % PIB 0.9 1.7 2.9 1.4 1.9 1.3 1.4 1.4 External (Net) % PIB 1.5 1.4 1.8 1.1 1.1 1.0 1.3 1.3 Domestic (Net) % PIB –0.6 0.3 1.1 0.3 0.8 0.3 0.1 0.1 Money and Prices Real Exchange Rate Index (2015=100) l 104.6 99.4 97.9 96.6 94.8 Domestic Credit to the Private Sector ( % of GDP) % PIB 22.4 20.9 18.6 20.1 18.5 Balance of Payments, percent of GDP unless indicated otherwise Current Account Balance % PIB 20.1 14.2 31.2 17.9 15.6 13.0 12.3 17.10 Imports, Goods and Services % PIB 154.2 107.5 121.0 139.2 141.1 151.5 162.4 174.2 Exports, Goods and Services % PIB 166.7 115.8 149.4 154.4 154.5 162.9 172.5 182.9 External Government Debt % PIB 70.3 74 71.3 66.5 67.0 66.6 63.7 61.0 Exchange rate (per USD, average) l 177.7 177.7 177.7 177.7 177.7 177.7 177.7 177.7 Other memo items GDP nominal in US$ (millions) l 3,088.9 3,185.2 3,385.8 3,674.3 4,098.6 4,306.9 4,543.6 4,788.9 Source: Government data and World Bank staff calculati 20 DJIBOUTI ECONOMIC MONITOR – STRENGTHENING THE SUSTAINABILITY AND EQUITY OF PUBLIC FINANCES 3 STRENGTHENING THE REDISTRIBUTIVE EFFECTS OF DJIBOUTI’S FISCAL SYSTEM: OPPORTUNITIES FOR EFFICIENCY GAINS T his special chapter of Djibouti’s Economic Moni- its regressive nature. The National Family Solidarity Pro- tor examines the redistributive effects of the gram (PNSF) which is designed to target low-income country’s fiscal system, analyzing how different households, reinforces its progressive nature. However, taxes and transfers affect poverty and inequality. Using kerosene subsidies, while significant, mainly benefit the Commitment to Equity (CEQ) methodology (Box 3) wealthier households. Precisely, while these subsidies based on the 2017 Djibouti Household Budget Survey benefit the poorest in absolute terms due to the cost (EDAM) survey and administrative data, the study burden of kerosene being relatively heavier on their assesses the efficiency and equity of the fiscal system, budgets, the benefits are disproportionately accrued to and explores the impact of fiscal elements such as sub- the wealthier households in relative terms due to their sidies on different groups. It includes simulations for higher consumption of the kerosene product. Transfers 2022, such as the expansion of cash transfers, the rising in kind, such as education and health spending, while costs of stabilizing kerosene prices, and an increase in advantageous, do not always reach the poorest in an public spending on health. Analysis of Djibouti’s fiscal equitable way. The need for fiscal reforms targeting system in 2017 reveals that, despite promoting equality, more equitable redistribution and increased revenues the system exerts upward pressure on poverty. Direct without exacerbating poverty is underlined, notably taxes prove progressive, therefore improving equity, by rethinking kerosene subsidies and maximizing the while VAT, despite its importance for revenue mobiliza- benefits of social programs such as the PNSF, which tion, does increase the burden on the poorest, given exclusively targets the poor populations. 21 Overview of Djibouti’s fiscal system salaried workers, the self-employed, employees and in 2017 pensioners. In addition, the Social Health Assistance Program (PASS) targets those not eligible for AMO. Despite significant economic growth over the past Income and expenditure included in this analysis are decade, Djibouti faces persistent challenges of summarized in Table 3. poverty and inequality. The poverty rate in Djibouti Djibouti’s fiscal incidence analysis for stands at 21 percent, with a high Gini coefficient of 2017 led to the development of two simulated over 0.4, indicating an unequal distribution of wealth. scenarios in addition to the base scenario. The Growth, mainly driven by services and port trade, first scenario (S1) reflects conditions in 2022, with an has not been sufficiently inclusive, and the COVID-19 increase in cash transfers similar to that of the PNSF, pandemic revealed the economy’s vulnerability to a rise in the number of PASS beneficiaries, and an global shocks. Fiscal policy, including taxation and increase in kerosene subsidies from DF 24.4 to DF social spending, is a key lever for sustainable and 94.84 per liter, in response to soaring international inclusive growth, enabling an equitable redistribution energy prices10. The second scenario (S2) proposes a of resources. However, challenges such as pandem- fiscally neutral reallocation of kerosene subsidy funds ics, regional conflicts and debt limit the fiscal space to targeted cash transfers, thereby increasing the needed to achieve these objectives. This analysis of number of beneficiary households without increasing fiscal incidence on poverty and inequality, based on total expenditure, in response to macroeconomic 2017 data, aims to identify avenues for reform to com- challenges and social needs. The different scenarios bat poverty and inequality, while assessing the impact are summarized in Table 4. of taxes and social spending on the latter. Compared with other countries, Djibouti’s The fiscal system has a positive effect dependence on non-tax revenues is higher and on equality social spending is lower. Djibouti’s budget relies heav- The fiscal system as a whole improved equality, ily on non-tax revenues, which make up 43.3 percent reducing inequality by 8 Gini points in 2017; of total revenues (according to 2017 data), significantly however, the effects of each individual tax inter- higher than the MENA average, and allocates a mod- vention vary. Tax measures and direct transfers est 8 percent of GDP to social spending, significantly reduced the Gini coefficient, a measure of inequality, lower than the global average for low-income countries. Nevertheless, the main source of revenue comes from 9 Between 2 percent (for income up to DF 360,000) and tax revenue. The tax system includes a progressive 30 percent (for income over DF 7,200,000), except for income tax for wage earners9 and a 25 percent flat-rate salaried workers earning DF 50,000 or less per month, tax on the profits of self-employed workers, with a univer- who pay no income tax. sal VAT of 10 percent on most transactions, exempting 10 The initial price of kerosene (as imported) is called the essential products such as food and medicines. Social free on board (FOB) price. The final price, as received security contributions, capped at DF 400,000 per by households, is called the pump price. Price adjust- ments, as well as other charges and taxes, are added month, are shared between employers and employees to the FOB price according to specific formulas. Unlike and cover retirement, health, family allowances, and most costs and taxes, the price adjustment for 2017 (and industrial accidents. The PNSF program provides direct 2022) is not available in government figures. To calcu- transfers to the extremely poor, and discretionary fuel late the price adjustment for kerosene, we average the price adjustments counteract the volatility of interna- FOB price, pump price, costs and taxes for all months tional energy prices, acting either as a subsidy or a of 2017 (and 2022), then revert to the price adjustment. Whenever specific items related to costs and taxes are tax. Djibouti’s health and education systems are mainly not available, assumptions are made about what costs financed by public expenditure, in addition to health should be by looking at data from subsequent years. contributions from salaried workers. Djibouti’s universal These costs and taxes have hardly changed over time, compulsory health insurance system (AMO) covers if at all. 22 DJIBOUTI ECONOMIC MONITOR – STRENGTHENING THE SUSTAINABILITY AND EQUITY OF PUBLIC FINANCES TABLE 3 • Revenues and expenses included in the analysis Public revenues, Administrative social security data: Data Survey: Total Survey: % of contributions and Total (Millions administrative: Administrative (Millions DF administration Included in Allocation subsidies DF 2017) % of total data: % of GDP 2017) data the analysis? method Total 123,413 33.3 % Revenue 114,490 92.8 % 30.9 % Partially Tax on wages and 11,337 9.2 % 3.1 % 5,712 50 % Yes Identification salaries Income, profit, and 10,705 8.7 % 2.9 % 4,192 39 % Partially Identification capital gains taxa V.A.T. 14,863 12.0 % 4.0 % 6,878 46 % Yes Identification Help 8,923 7.2 % 2.4 % No Administrative data: Total Survey: Total Survey: % of Government (Million DF Administrative Administrative (Millions DF administration Included in Allocation spending 2017) data: % of total data: % of GDP 2017) data the analysis? method Social expenses 27,143 22.0 % 7.3 % Social protection 4,859 3.9 % 1.3 % PNSF 403b 0.33 % 0.01 % 407 101 % Yes Simulation Education 18,054 14.6 % 4.9 % Preschool 121 0.1 % 0.03 % No Primary 5,900 4.8 % 1.6 % 6,494 110 % Yes Allocation Secondary 8,860 7.2 % 2.4 % 9,752 110 % Yes Allocation Commercial 3,173 2.6 % 0.9 % 3,493 110 % Yes Allocation Health 4,230 3.4 % 1.1 % Social Health 1,000c 0.8 % 0.3 % 507 51 % Yes Simulation Assistance Program (PASS) Stabilization of 398d 0.32 % 0.1 % 192 48 % Yes Identification kerosene prices Source: Authors’ calculations and compilation based on data from EDAM (2017), UNICEF (2020), MASS (2019), Revenue Law (2017) and Ministry of Education and Vocational Training (2020).. a This figure for the CEQ analysis includes taxes on the profits of self-employed workers. b This figure is calculated manually by taking the total number of households benefiting from the PNSF and multiplying by DF 120,000, which is the annual amount of cash transfers received by each household. c This value corresponds to that of 2016, but as the data available for 2016 (DF 1,000 million) and 2019 (DF 1,093 million) show that there is not much change over time, this assumption is thought to be reasonable. d This figure is not taken directly from the administrative records, but rather is calculated manually using the total quantity (in liters) of kerosene consumed in 2017 in Djibouti, obtained from the customs service, and multiplying this amount by the amount of the average kerosene subsidy in 2017, which is imputed manually. from 0.44 at market income to 0.41 at disposable when moving from disposable to consumable income. income, as Figure 22 shows. The PNSF program In-kind transfers, such as public spending on educa- played a key role in this reduction. However, indirect tion and health, reduced inequality, lowering the Gini taxes and subsidies did not alter the Gini coefficient coefficient by a further 5 points. Simulations S1 and STRENGTHENING THE REDISTRIBUTIVE EFFECTS OF DJIBOUTI’S FISCAL SYSTEM: OPPORTUNITIES FOR EFFICIENCY GAINS 23 BOX 3: METHODOLOGY The CEQ methodologya develops different income concepts resulting from various fiscal interventions and analyzes their profiles in terms of poverty and inequality. This method comprises five income concepts, as detailed in Figure 3.1: i) market incomeb, which refers to the income an individual earns on the market, ii) net market income, which results from the deduction of direct taxes and social security contributions from market income, iii) disposable income, which includes direct transfers (e.g., cash transfers) to net market income, iv) consumable income, which includes subsidies and from which indirect taxes (such as VAT) are deducted, and v) final income, which compared to consumable income, includes transfers in kind (such as public spending on education and health). Poverty and inequality are calculated at the level of each income concept, using respective headcounts of the population living below the national poverty line and the Gini coefficient. The attribution method for each tax intervention is defined either by (i) direct identification, when the survey indicates the benefit recipient or tax payer as well as the amount received, or by (ii) imputation, when the survey indicates the benefit recipient but not the amount received, or by (iii) simulation, when none of the above methods can be used, in which case the recipients and amounts received must be calculated according to program rules in line with administrative data. The results obtained for specific tax items are described by quintile of consumption distribution. The analysis is based on the EDAM 2017 as well as administrative data. FIGURE 3.1 • Income concepts used in CEQ analysis In-Kind Transfers Direct Transfers (Education/Health) Market Income Net Market Income Disposable Income Consumable Income Final Income Direct Taxes Indirect Taxes Contributions Subsidies Source: Lustig (2018). Note: This analysis is based on fiscal data of 2017 due to the availability of EDAM household survey data for 2017. This is a relatively stable year compared to the later period, which was affected by the COVID-19 pandemic. The main objective of this report is to map the country’s main tax policies and assess their effects on poverty and inequality with a view to examining whether they can be made more effective by adjusting the various tax elements. The tax elements used by the Djibouti government are direct taxes and social security contributions for salaried and non-salaried workers, indirect taxes (VAT) on consumption, a program of direct cash transfers, fuel subsidies and spending on health and education. a Lustig, N. (2018). N.B. Although this analysis is instructive in assessing the effects of the fiscal system in Djibouti on poverty and inequality, there are several caveats and limitations worth mentioning: 1) The assessment excludes certain tax and expenditure items likely to have an effect on household welfare, notably excise taxes due to lack of data availability; 2) The CEQ analysis is based on an accounting framework, so it does not incorporate behavioral, intertemporal and second-order effects; 3) The analysis of benefits in kind measures the transfer at its average cost of provision and does not take account of the quality of services; 4) Tax policy is analyzed solely from the distributional angle. Indeed, while redistribution is a key objective of tax policy and an important tool for poverty reduction, tax policy may have broader objectives that are not taken into account in this type of analysis; 5) The availability and quality of data in Djibouti posed a significant challenge to the analysis. b It should be noted that contributory pensions can be treated either as a government transfer or as deferred income—an issue on which there is no agreement in the tax literature. The CEQ methodology takes a neutral stance on such treatment by performing the tax incidence analysis for both scenarios. For this tax analysis, pensions are treated as deferred income, which means that the reference income is market income plus pensions. However, for the sake of simplicity, market income plus pensions are referred to as market income. TABLE 4 • Number of beneficiaries and public spending under different scenarios Base S1 S2 PNSF beneficiary households 3,362 14,361 21,195 PASS households 9,270 32,000 32,000 Total beneficiary households 12,632 46,361 53,195 Kerosene subsidy (in DF per liter) 24,4 94,84 0 Source: Authors’ calculations based on EDAM (2017) and administrative data. Note 1: The number of PNSF and PASS beneficiaries is calculated using data from the Ministry of Social Affairs’ administrative social register for 2017 (baseline) and 2022 (S1). The number of beneficiaries for S2 is calculated by the total savings on the kerosene subsidy in the event of abolition, divided by the annual transfer per household in the PNSF. Note 2: The kerosene subsidy per liter is calculated by adjusting the average price over the whole year on the basis of FOB prices and the kerosene price structure. 24 DJIBOUTI ECONOMIC MONITOR – STRENGTHENING THE SUSTAINABILITY AND EQUITY OF PUBLIC FINANCES Effects of tax interventions on FIGURE 22 •  FIGURE 23 • Impact of tax measures on poverty income inequality National Poverty Headcount Ratio Gini 26% 0.48 23.9% 24% 21.8% 21.5% 0.46 21.8% 0.44 22% 19.7% 0.44 19.8% 0.42 20% 19.7% 21.8% 0.42 0.44 0.40 0.40 19.6% 18% 19.7% 16.9% 0.40 0.42 16% 0.38 0.40 0.40 0.34 15.9% 14% 0.36 Market Net market Disposable Consumable income income income income 0.34 0.34 Base S1 S2 0.32 Market Net Market Disposable Consumable Final Income Income Income Income Income Source: Authors’ calculations based on EDAM (2017). Note: The results assume perfect targeting of direct transfers. As is standard practice Base S1 S2 in the CEQ methodology, the poverty rate is not calculated for transfers in kind (e.g., education and health). Source: Authors’ calculations based on EDAM (2017). S2, which provided for higher levels of beneficiaries, reduce poverty11, but their impact is small (0.003 and succeeded in lowering the Gini from 0.44 to 0.40, 0.001 respectively), especially when compared to the surpassing the effect of the baseline scenario, which negative effect of indirect taxes such as VAT (–0.027), had a reduction of 8 Gini points. These simulations direct taxes (–0.015) and contributions (–0.011). The also increased the number of PASS beneficiaries, poorest people, often in the informal sector, are less leading to a further 6-point reduction in inequality. affected by direct taxes and contributions, but bear Spending on education reduces inequality, but this the impact of indirect taxes. The latter fall into poverty effect diminishes as the level of education increases, when this income is converted into adult equivalents, with a decreasing impact from primary to tertiary despite some incomes exceeding the tax allowance. level, mainly because poorer households participate Thus, taxes tend to increase poverty, while transfers less in higher levels of education. Finally, the effect attempt to reduce it, with indirect taxes being the most of VAT exemptions on reducing inequality is limited, penalizing and direct transfers the most beneficial for as consumption of both exempted and non-exempted poverty reduction. products varies little between quintiles. The effectiveness of the PNSF program12 in the fight against poverty improves markedly with Although the fiscal system exerts upward pressure on poverty, increased 11 These effects are measured through marginal contribu- social transfers reduce it tions, with final income as the reference income. As in many other countries, while the fiscal system 12 From a purely technical point of view, the headcount reduces inequality (in 2017), it exerts upward pres- reduction between net market income and disposable sure on the poverty rate (Figure 23). This is because income is made up of an income reduction (from direct taxes and contributions have a greater negative taxes, which is observable and included), another impact on poverty than the positive effects of transfers income reduction (from savings, which is unobservable and not included), and an income supplement (from the and subsidies. In detail, the poverty rate, measured on PNSF, which is observable and included). Nevertheless, market incomes, increases slightly when consumable it may be reasonable to assume that the marginal incomes are taken into account, although this increase propensity to save for the poorest quintile, who are the is not statistically significant. The PNSF and subsidies main beneficiaries of the PNSF, is very low, if not zero. STRENGTHENING THE REDISTRIBUTIVE EFFECTS OF DJIBOUTI’S FISCAL SYSTEM: OPPORTUNITIES FOR EFFICIENCY GAINS 25 its expansion in 2022, following a modest impact Distribution of benefits and FIGURE 24 •  in 2017. Initially, the PNSF reduced poverty by just payments by tax instrument for each quintile (2017) 0.3 percentage points from net market income to dis- posable income, as illustrated in Figure 23. However, 70% 60% recent simulations show a notable change: poverty 50% 45% has slightly increased by 0.1 percentage points in S1, % of market revenue 40% while it has decreased by 0.1 percentage points in 30% 21% 20% 10% S2, as a result of redirecting kerosene subsidies to 10% 0% 1% –5% the PNSF. This marks a significant improvement in the –7% –11% –23% –10% –16% –23% program’s impact on poverty reduction. –20% –7% –13% –17% –22% –30% –28% –40% 1 2 3 4 5 Analysis of the Implications of Fiscal Fuel subsidy Direct taxes Indirect taxes and Social Expenditure Policies on Direct transfers Contributions Education Equality and Poverty in Djibouti Health Final income Consumable income Disposable income Some elements of Djibouti’s fiscal system are Source: Authors’ calculations based on EDAM (2017). progressive, while other elements do not benefit poor households sufficiently. Here is a summary of the results: on the assumption of perfect targeting. However, this effectiveness is conditioned by the precision • In general, wealthier households contribute of the targeting; in fact, imperfect targeting could more to the fiscal system than they benefit reduce its impact on the target populations. from it, while poorer households are the main • Education: Overall, education spending beneficiaries. The poorest households receive becomes less progressive at higher levels of transfers equivalent to 45 percent of their mar- education, reflecting inequitable access to ket income, mainly in the form of education and higher education opportunities in Djibouti in health services (52 percent of these transfers), 2017. Spending on primary education is evenly and direct transfers via the PNSF program (6 distributed, reflecting equitable access at this percent). Conversely, the richest pay 23 percent level. Lower secondary education shows an more than they receive, reducing their net inverted U-shaped distribution of spending, income by 23 percent, according to Figure 24. concentrated in the middle class. However, if consumable and disposable income, • Health: The impact of PASS on household including all taxes and transfers, are considered, income was initially low in 2017 due to the low even the poorest end up paying a considerable number of beneficiaries, but has increased proportion of their market income in taxes, thus over time. also becoming net contributors. • Kerosene subsidy: The Djibouti government • Direct and indirect taxes: The richest 40 operates a mechanism to stabilize the price percent, consuming 60 percent of total con- of kerosene, the fuel product most consumed sumption, pay the majority of taxes and benefit by households13. Although intended to protect most from VAT exemptions. Direct taxes are progressive, increasing with income, while VAT is regressive, despite its importance in revenue 13 Only a tiny segment of EDAM households reported consuming diesel or gasoline in 2017. Moreover, as mobilization, impacting low-income earners diesel and gasoline are used for production services, more despite similar consumption structures. any change in the subsidy structure requires a broader • Direct cash transfers: PNSF allocations are analysis of the effects on production, form benefits, designed to benefit mainly the poorest, based corporate taxes, and end-user prices. 26 DJIBOUTI ECONOMIC MONITOR – STRENGTHENING THE SUSTAINABILITY AND EQUITY OF PUBLIC FINANCES Concentration (distribution of FIGURE 25 •  Impact (kerosene subsidy as a share FIGURE 26 •  kerosene subsidies by market of market revenue (%) by quintile) income quintile) 0.30% 35% 0.26% 33% 0.25% 30% 0.22% 0.20% 0.20% Concentration (% of revenue market) % of total consumption 25% 0.20% 25% 0.15% 20% 19% 0.12% 16% 15% 0.10% 10% 0.05% 7% 5% 0.00% 1 2 3 4 5 0% Source: author’s calculations based on EDAM (2017). 1 2 3 4 5 Source: author’s calculations based on EDAM (2017). poor households against fluctuations in fuel points. However, redirecting all subsidies to direct prices, the subsidies mainly benefit wealthier cash transfers under the PNSF does not reduce households, who consume more kerosene. inequalities any further, with the reduction remaining The results show that, although the poorest at 10 Gini points. Finally, it appears that investment quintile benefit more from these subsidies in lower levels of education has a greater impact on in absolute terms, the richest households reducing inequality than investment in higher levels of concentrate the majority of the benefits, education. as shown in Figure 25. However, in relative Although Djibouti’s fiscal system reduces terms, expenditure on kerosene weighs more inequality, it exerts upward pressure on poverty, heavily on the budgets of poor households, increasing it by 4 percentage points in 2017, as illustrated in Figure 26. This indicates that though this is a non-statistically significant increase. kerosene subsidies are not the most effective This pressure stems mainly from the regressive nature means of reducing poverty and inequality. The of VAT. However, the expansion of the PNSF and PASS resulting analysis, simulating the reallocation programs in 2022 could lead to a significant reduction of the budget to direct cash transfers, which in extreme poverty of 1.2 percentage points in terms exclusively target the poor, shows that this type of disposable income, as a result of the increase in of targeted transfers yields better results in the number of beneficiaries. Nevertheless, the scale terms of poverty reduction. of transfers, which represent on average 40 percent of market income for the poorest quintile, is not enough to balance out the burden of indirect taxes Conclusions or enable an overall reduction in poverty. Since 2017, and more intensely after the COVID-19 pandemic, Thanks to direct taxes and in-kind transfers, the government has significantly stepped up its cash the fiscal system plays a key role in reducing transfer program, despite the budgetary implications inequality, lowering the Gini coefficient by 8 points. of these expansions, including a budget deficit of 1.4 The analysis also shows that when the number percent of GDP in 2022. of beneficiaries of the PNSF and PASS programs Kerosene subsidies, although intended increases, the reduction in inequality reaches 10 Gini to stabilize fuel prices, have a limited impact STRENGTHENING THE REDISTRIBUTIVE EFFECTS OF DJIBOUTI’S FISCAL SYSTEM: OPPORTUNITIES FOR EFFICIENCY GAINS 27 on reducing inequality and poverty, being three objective of kerosene subsidies is to protect the times less effective than direct transfers from the poor, and that the majority of kerosene imports PNSF, which target the poor. Wealthier households are consumed by households (as opposed to consume more kerosene and therefore benefit more value chain inputs), this subsidy may not be from these subsidies than poorer households. This the most efficient use of resources. While this suggests that these subsidies do not really favor the subsidy may protect the poorest segment of poorest, despite their intention to protect them against the population from price fluctuations, more price volatility. Targeted cash transfers to the poorest substantial poverty gains may be derived from prove to be a far more effective strategy for combating more targeted transfers. Indeed, this paper inequality and poverty. The results of the simulations reveals that this tax instrument is not pro-poor. in this chapter support the notion that reallocating Policy reform analysis requires more data and funds from kerosene subsidies to direct cash trans- an assessment of the indirect and general equi- fers, similar to those of the PNSF, could achieve a far librium effects of the subsidy. Furthermore, the more significant reduction in poverty and inequality. implementation of such reforms requires strong Unlike in many other countries, even the governance systems and the building of public poorest households are among the net payers confidence that the resulting budget savings will when only consumable and disposable income is be used in programs that protect the poorest taken into account. However, when in-kind transfers segment of the population (e.g., cash transfers). such as education and health care are included, only • Continuing to invest in social protection and the richest households remain net payers. Indeed, at the the provision of services that boost human level of final income, which incorporates these in-kind capital, both essential to stimulate poverty transfers, the poorest households benefit greatly from reduction and shared prosperity. One of the the fiscal system, becoming net recipients, while the key findings of the analysis is the progressive, richest contribute progressively more to the financing of pro-poor nature of this spending. Expanding the taxes and transfers. This highlights how essential public coverage of the cash transfer program (PNSF) services such as health and education can reverse the from 2017 to its 2022 levels has shown consid- tax burden of the most disadvantaged households, erable effects on poverty reduction. Similarly, offering them a net advantage in their tax contribution. spending on health and education has had a For greater effectiveness in the fight positive impact on reducing inequality. These against poverty, the results of this analysis sug- underline the importance of continuing efforts gest potential avenues for subsidy and social to invest in human capital and social protection protection reform. While this analysis provides an to promote inclusive growth. overview of Djibouti’s fiscal system and its effects • Expanding pro-poor social programs, on poverty and inequality in 2017, policy changes, whether in the form of direct transfers or budgetary pressures and the global food and com- in-kind. This requires substantial resource modity price shocks of regional and international mobilization. Given Djibouti’s heavy depen- conflicts, require more up-to-date data and analysis to dence on non-tax revenues, it is advisable to inform policy reforms. Moreover, it is important to note explore ways of increasing tax revenues and that fiscal policy is only one of several areas that can mobilizing domestic resources by progres- contribute to the fight against poverty (encouraging sive means. Policy solutions for revenue a more dynamic private sector, institutional and legal mobilization that have been recommended for reforms that guarantee greater equality of opportunity, government consideration include reducing are examples of other areas). Some of the avenues for tax exemptions and increasing efficiency in tax reform are : public enterprises14. • Implementing targeted transfers to use 14 International Monetary Fund Article IV Mission 2022 to resources more efficiently. Assuming that the Djibouti, December 16, 2022. Press release no. 22/437. 28 DJIBOUTI ECONOMIC MONITOR – STRENGTHENING THE SUSTAINABILITY AND EQUITY OF PUBLIC FINANCES 4 THE EFFICIENCY OF PUBLIC SPENDING IN THE ROAD SECTOR R oad infrastructure is essential to development. good connectivity between seaports and their hin- On a regional scale, roads contribute to the terlands. Roads are therefore crucial to the country’s competitiveness of Djibouti’s ports by ensur- competitiveness as a port of entry to the sub-region, ing good connectivity with the hinterland. Transport and to Ethiopia in particular. infrastructure requires substantial investment. It is Financing the construction and maintenance therefore essential that public spending on road of road infrastructure is an important part of a coun- infrastructure is as efficient as possible. This chapter try’s transportation system. Roads are generally built presents the mechanisms for financing the road sec- by public authorities. All over the world, governments tor and examines the benefits of institutional reform are faced with the need to build new roads and maintain in the road sector in the light of the budgetary effi- existing ones. In general, however, transport infrastruc- ciency of road infrastructure investments. Analysis of tures require a singularly high level of investment in Djibouti’s road sector reveals three main challenges: relation to the revenue generated by their use, particu- inefficient institutional organization with overlapping larly in the road sector. The scale of capital expenditure responsibilities, a poorly maintained road network calls for large-scale public or concessionary contribu- and a lack of small local enterprises to maintain, tions to finance road infrastructure development. Thus, secure, and diversify revenues and insufficient and governments, users, the private sector, and external poorly managed funding, with high salary costs. sources all contribute to financing the construction These reforms require strong political will and could and maintenance of road infrastructures. Against this significantly transform Djibouti’s transport sector. backdrop, and given the constraints on national public Because of its location and the presence finances, it is essential that public spending on road of its ports, the road infrastructure that links its infrastructure is as efficient as possible. ports to its hinterland is crucial for Djibouti. The A high-quality road network is crucial to the emergence of other ports in the region could, how- continued competitiveness of Djibouti’s ports. ever, alter the balance. The quality and durability of Djibouti’s road network is 1,793 km long, 66 percent road infrastructure is therefore essential to ensure of which are national roads and 34 percent urban 29 roads, mainly in the city of Djibouti. Corridor roads to the country’s economy. On a national scale, urban are crucial for the country, as they ensure accessibil- roads are also in poor condition. Annual maintenance ity between seaports and their hinterland. And yet, requirements for Djibouti’s urban roads are estimated according to the data collected during interviews, 66 at DF 1.5 billion, with expenditure in 2022 amounting percent of these roads are in poor condition. As a to just DF 258 million. Spatial accessibility to economic result of low tax revenues in relation to GDP, the gap opportunities is therefore not easy for the population, between financial needs and required resources is and this can slow down economic development. considerable for the road sector. In the case of roads This chapter presents the current mechanisms of regional importance, i.e. those linking ports to for financing the road sector, and then examines the the hinterland, only around 50 percent of needs are benefits of institutional reform in the road sector in the covered. The poor condition of corridor roads leads light of the budgetary efficiency of road infrastructure to higher transport costs, particularly in terms of pre- investments. mature wear and tear of rolling stock and increased risks for users. In addition, the lack of enforcement of legislation controlling the axle load of trucks travelling Financing mechanisms for the road along the corridor linking Djibouti’s ports to Ethiopia sector means that the roads have a shorter life cycle than anticipated. All these factors lead to higher transport The corridor road network is a key element costs, prevent the road sector from playing its role in ensuring the competitiveness of Djibouti’s as a generator of economic development, and could ports. The value of road assets and the financial undermine the competitiveness of Djibouti’s ports. consequences of delayed maintenance for the Institutional fragmentation and overlapping economy and for users mean that road maintenance responsibilities in road sector management are is a high priority, particularly in Sub-Saharan African not conducive to efficient public spending (Box 4). countries. This is true in Djibouti, where road transport This situation affects the country on two levels. At the accounts for around 90 percent of the movement national level, corridor roads in poor condition pose of goods and people in the country, underlining a risk to the competitiveness of ports, which are vital the economic importance of roads on a national BOX 4: PLAYERS IN ROAD SECTOR GOVERNANCE The current institutional organization of the road sector is sometimes difficult to read, as the functions and responsibilities of the institutions in charge of the road sector overlap. The Ministry of Infrastructure and Equipment (MIE) is responsible for implementing and coordinating policy on road, rail, sea and air transport infrastructure and services. The Djibouti Roads Agency (ADR) and Djibouti Ports Corridor Road (DPCR SA) are under its supervision. In terms of road sector management, MIE’s main missions are to design and implement the government’s road infrastructure policy, coordinate transport policy, and develop and maintain roads serving production zones and tourist sites. The ADR, created in 2013 by Decree, is the result of the merger of the Road Maintenance Fund (FER) and the Department of Equipment of the former MIE. It has the status of a public company and is the delegated contracting authority for roadworks. The agency is responsible for both road agencies and roadwork contractors. Roadworks in Djibouti are carried out by ADR (partnership contract) and by large public works companies, often of foreign origin. ADR generally works with large international companies and design offices. Small and medium- sized companies and engineering firms are not yet well developed in Djibouti. Routine maintenance work on urban roads, other national roads, and tracks is financed by the national budget. Road rehabilitation and construction work is financed by the national budget and donors. DPCR SA was created by Presidential Decree on February 23, 2017, as a public industrial and commercial establishment (EPIC) with the status of a state-owned company. The two shareholders are Great Horn Investment Holding (GHIH), with 65 percent of the capital, and ADR, with 35 percent of the capital. DPCR SA has had exclusive management (rehabilitation, modernization, and development) of the road corridor network since 2018. DPCR also holds the exclusive right to collect road fees from traffic using the corridor roads. 30 DJIBOUTI ECONOMIC MONITOR – STRENGTHENING THE SUSTAINABILITY AND EQUITY OF PUBLIC FINANCES and regional scale. While sourcing funding for road road agency, and a road fund. Optimal functioning construction is important, it is essential to mobilize of the institutional context of the road sector raises resources for road maintenance to maximize the life the question of better defining the responsibilities of cycle and profitability of investments in roads. the institutions and organizations involved in road It is currently difficult to obtain precise management in Djibouti. Assessment studies of road figures on the total amount of fees and taxes funds and agencies, such as those by S. Brushett in collected from Djibouti’s road sector and the sec- 2004 and the European Union in 2009, have shown tor’s needs. Interviews highlighted the fragmentation that when these structures are in place, the funds of the players involved. At present, sources of funding devoted to road construction and maintenance for road maintenance (urban roads, national roads, increase, and the quality of the road network also and corridor roads) are: improves. Reforming Djibouti’s road sector by allocat- ing funds to the road sector, clarifying the roles of the i. The road user fee (tax on loaded trucks), road agency and the road fund, and ensuring strong collected by DPCR on the corridor routes governance, would enable better control of the fund- from Djibouti’s ports to neighboring countries ing earmarked for the road sector. (mainly Ethiopia). The fee is set at US$20 per loaded truck, and applies to the round trip of the truck. The rate is set by the Joint Commission Better scheduling through a road agency of Djibouti and Ethiopia. DPCR collects cor- ridor road user fees directly on its own behalf, The creation of road agencies enables a clear at points and stations located at port exits and division of management functions between the along corridor roads; road administration (administrative functions) ii. Income from related activities (crane lifting and the management of public contracts by proceeds, penalties and fines collected by the the executing agencies (operational functions Road Safety Squadron); delegated by the administration). This division of iii. Direct subsidies from the State (national bud- responsibilities and activities between the State and get) via ADR finance for routine maintenance the road agency must be clearly defined. The activities work on Djibouti’s urban and national roads; transferred concern the construction, rehabilitation, and iv. Fees levied by the Ministry of the Budget, i.e., maintenance of main roads in general. The agencies’ charges paid by users in return for the use of a core business is programming and contracting, which public service, and taxes, i.e., charges paid by includes awarding contracts, monitoring contract the taxpayer on certain transactions. Taxes or performance, supervising works, and managing road royalties on fuels/lubricants, insurance, vehicle databases. Road agencies’ revenues come from road registration fees, and driving licenses are paid funds, the state budget, and donor funding. Table 5 into the general budget and allocated to other highlights examples of road agency resources. sectors of the country’s economy. Road agencies are government agencies in which the public authorities have retained their The contribution of governance reform influence and power. The overwhelming majority in the road sector of road agency expenditure is for road maintenance Governance reforms in the road sector would or construction. In Tanzania and Ghana, for example, increase the efficiency of public spending. 92 percent of national road agency expenditure is The Infrasap study conducted by the World Bank devoted to road maintenance or construction while in highlighted that ADR and DPCR are below their Zambia it is 84 percent; however, in Djibouti, less than 25 comparators in Sub-Saharan Africa in terms of percent of revenues are allocated to road maintenance accountability and autonomy. (see Box 5). It is essential to note that the operating costs International experience shows that roads of road agencies generally remain below 10 percent of are often managed by the Ministry of Transport, a expenditure. The ratio of the number of kilometers per The efficiency of public spending in the road sector 31 TABLE 5 • Examples of road agency resources in 2007 Tanzania Zambia Ghana TANROADS RDA GHA (Tanzania Road Agency) (Zambia Road Agency) (Ghana Road Agency) Total resources 192 83 141 In millions of euros Resources from: Road fund 42.7 % 38.6 % 23.4 % State budget 47.9 % 25.3 % 58.2 % Lessors 9.4 % 36.1 % 18.4 % Km/agent 123 224 7 Source: European Union, 2009. agent speaks to the allocation of implied resources and taxes and fees to a predetermined expenditure item in Djibouti, this ratio is 2.9 if ADR and DPCR employ- may be justified in the context of Djibouti’s road sector. ees are combined. As their functions overlap, a strict In Djibouti, the a priori allocation of revenues would comparison is not possible. However, this ratio gives make it possible to increase the budget dedicated to the a sense of the difference between Djibouti and other sector and thus the country’s competitiveness. Since countries. Efficient public spending in the road sector the revenues in question are limited in amount (Box 5) requires maximum investment in the sector to enable and already collected, this strategy would provide the the maintenance of a quality road network and make it long-term visibility needed for transport investments, possible to attract additional sources of funding from, and could help mobilize private-sector financing. for example, the private sector. The majority of countries with a road agency also have a road fund which aims to col- lect revenues for road maintenance (routine and The need to secure financing for the periodic maintenance) of the entire national network transport sector (urban and pre-urban, interurban, and regional), make funds available to companies on a regular and stable Earmarking revenues for the road sector would help basis, and ensure efficient and transparent manage- secure funding. Although the solution is not ideal from ment of these funds to ensure their exclusive use for a fiscal policy point of view, earmarking revenues from road maintenance. BOX 5: A MORE APPROPRIATE ALLOCATION OF INCOME WOULD BENEFIT THE TRANSPORT SECTOR The team’s interviews with road sector players revealed that the total amount of fees and taxes collected from the road sector by DPCR and the Ministry of Budget amounts to DFA 3.6 billion per year, equivalent to USD 20 million or 0.6 percent of GDP. According to the figures provided, road maintenance requirements amount to DFA 2.5 billion. The amount of revenue generated by the road sector would therefore exceed road maintenance requirements. At present, only 21 percent to 23 percent of revenues collected are used for road maintenance, despite the fact that road infrastructures require major investment to rehabilitate them to maintain the country’s connectivity and competitiveness. In terms of public spending, ADR and DPCR have high payroll costs, representing 47 percent and 37 percent of total expenditure, respectively. In the light of the figures gathered in interviews, it would appear that the a priori under-financing of the road sector is partly linked to a less- than-optimal allocation of financial resources within institutions. The issue of under-financing in the transport sector raises the question of the country’s connectivity and competitiveness. Investment in logistics and port activities has played a key role in the country’s economic growth. The sector is therefore at the forefront of the country’s efforts to maintain its economic engine and competitiveness. 32 DJIBOUTI ECONOMIC MONITOR – STRENGTHENING THE SUSTAINABILITY AND EQUITY OF PUBLIC FINANCES BOX 6: THE IMPORTANCE OF DIVERSIFYING FUNDING SOURCES FOR THE TRANSPORT SECTOR When it comes to financing transport infrastructure, implementing the “user pays” principle is a sound approach in terms of public finance. Ardila-Gomez and Ortegon-Sanchez identify three categories of transport infrastructure beneficiaries: direct, indirect, and the general public (2016). It is therefore essential to identify the various beneficiaries, ensure that their contributions are commensurate with the service received, and determine the terms and conditions of their contributions. The most natural source of funding for road transport is toll revenue, thus applying the “beneficiary pays” principle. But these revenues are not enough. Many countries have introduced a fuel tax, the proceeds of which are used directly to finance, even partially, transport infrastructure. In the United States, part of the federal fuel tax goes into the Highway Trust Fund, which was set up to finance highways. Since 1983, part of the fuel tax has been paid into the Mass Transit Trust Fund, which helps finance public transport services (U.S. Department of Transportation, 2024). Fuel taxes are also based on the “beneficiary pays” principle. A good transport infrastructure project will have a multiplier effect. Ardila-Gomez and Ortegon-Sanchez point out that a good transport project will transform cities by launching a virtuous circle. As cities become more attractive, they attract a variety of funding sources, further enhancing their attractiveness. The authors point out that a good investment will help to modify both the supply and demand for transport (2016). Similar reasoning can be applied to the road sector, particularly in Djibouti, where the road sector supports the country’s economic engine—the ports. The resources likely to be collected and allo- resources allocated to the road fund could include cated to the road fund depend on the resources crane hoisting revenues, taxes or surcharges on fuels available in each country. It is worth noting, however, and lubricants, taxes or fees on insurance, registration that road fund resources mainly come from fuel lev- fees, taxes on port goods, and direct government con- ies (or taxes). For example, the share of these fees tributions. These taxes are already levied in Djibouti. in total revenues is 94 percent in Ghana, 95 percent All that is needed is for these revenues to be allocated in Tanzania and 97 percent in Zambia. However, the strictly to the road sector. total resources mobilized remain below network main- Road funds are extremely lean structures tenance requirements. To ensure sustainability from a in terms of personnel. Table 6 highlights the low public finance perspective, it is necessary to diversify level of expenditure on operating costs in four African funding sources (Box 6). countries. Once again, these expenses can be For Djibouti, resources could come from compared with the operating expenses of the institu- taxes dedicated to financing the road sector and tions currently in place in Djibouti. The ratio of road road user fees, which is crucial in a context where network kilometers per agent employed by the road corridor roads are of regional interest. In Djibouti, the fund is 7,128 in Tanzania, 3,760 in Zambia, 5,094 in TABLE 6 • Road fund expenditure, in millions of euros Tanzania Zambia Ghana Burkina Faso (2008) (2007) (2007) (2008) Operating expenses 1.06 0.26 Not available 0.13 Priority network maintenance 84.8 37.26 20.1 22.3 Local authority network 37.4 11.16 43.2 0.30 maintenance Costs incurred by Ministries for 8.70 0 3.2 0.98 road maintenance Consulting and other fees 0 3.68 0.63 0.3 Total 131.96 52.36 67.1 24.0 Source: European Union, 2009. The efficiency of public spending in the road sector 33 Ghana and 4,093 in Burkina Faso. Once again, the sector overlap. These overlaps need to be eliminated comparison is not optimal due to the different areas to improve clarity and efficiency. of responsibility. However, by way of illustration, this The current road network is poorly main- ratio is 3.6 for the DPCR, considering that the agency tained and inadequate. The country does not have operates nine corridor roads with a total length of 532 a solid fabric of small and medium-sized enterprises km and a workforce of 149 employees in 2023. and design offices for road maintenance. These short- Setting up a road fund must be a long-term comings prevent the road sector from maximizing its process to ensure its stability. The effectiveness of role in Djibouti’s economic and social development. a road fund is linked to the solidity of its governance The development of local small and medium-sized system, the transparency of its management, and enterprises and design offices would help reduce coordination with the road agency and the Ministry Djibouti’s high road maintenance costs and develop of Transport. the national economy. Finally, financing is not sufficiently developed, controlled, or diversified. Financing Training is key requirements for investments and road maintenance are high, yet only 21 percent to 23 percent of rev- The clarification of roles between the functions enues collected are devoted to road maintenance. dedicated to a road agency and those of a road Payroll costs are also high, representing 47 percent fund requires the presence of a strong Ministry of and 37 percent of total expenditure. The optimization Transport, which retains all administrative functions. of the institutional structure of the sector would allow Setting up these governance structures requires for a more efficient use of funds allocated to the road prioritizing work, so that resources are allocated in sector. An effective institutional organization is also order of priority. All players need to be properly trained, key to facilitating the mobilization of private financing to ensure that staff are as qualified as possible, and sources. The private sector could find its place in the to enable coordination between the various players. Djiboutian road landscape in the form of Performance- Based Road Contracts, as recently introduced by the Conclusion country, or through Public-Private Partnerships, or eventually, by the increase of companies operating in A situational analysis highlights three challenges the sector. in the road sector which currently prevent efficient A thorough review of the road sector’s public spending in the road sector. The situation players, their responsibilities, and their revenues raises the strategic question of institutional reform of and expenditure, is needed to identify where effi- the road sector, taking into account the simultaneous ciency gains are possible. Increasing the efficiency development of private sector involvement. of the road sector’s institutional organization could The institutional organization of the road be achieved by improving governance of the sector, sector could be improved, thereby enhancing the clarifying functions and roles, and setting up a road efficiency of public spending. A country’s ability to fund and a road agency that act in a coordinated and manage its road sector well depends on the efficiency transparent manner. Strong political will is required with which it can use resources—in other words, to bring these long-term reforms to fruition. Properly efficiency depends on institutional capabilities. 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