Document of the World Bank FOR OFFICIAL USE ONLY Report No: 23117-DJI TBE REPUBLIC OF DJIBOUTI INTERIM-POVERTY REDUCTION STRATEGY PAPER AND JOINT IDA-IMF STAFF ASSESSMENT November 6, 2001 Social and Economic Development Group Middle East and North Africa Region This document has a restricted distribution and may be used by recipients only in the performance of their | official duties. Its contents may not be otherwise disclosed without World Bank authorization. THE INTERNATIONAL MONETARY FUND AND THE INTERNATIONAL DEVELOPMENT ASSOCIATION REPUBLIC OF DJIBOUTI Interim Poverty Reduction Strategy Paper Joint Staff Assessment Prepared by the Staff of the International Monetary Fund and The International Development Association Approved by Paul Chabrier and Masood Ahmed (IMF) and Jean-Louis Sarbib and Gobind T. Nankani (IDA) November 6, 2001 1. INTRODUCTION 1. Djibouti is an extremely poor country, with more than 60 percent of its population- including nomads, refugees, and homeless-living below the poverty line.' Almost 10 percent of the population cannot acquire the minimal daily calories. Life expectancy is 50 years, and infant mortality reaches 114 per thousand. Serious malnutrition is widespread, affecting at least 14 percent of children under the age of five. Unemployment is extremely high, at about 44 percent of the active population, and affecting 58 percent of the population in the age bracket of 21 to 25 years. 2. Progress towards reversing this poor social situation was hindered by a decline in the economic environment of the country, particularly from the late 1980s to the mid-1990s,2 mainly as a result of the outbreak of an armed conflict and a deterioration of external competitiveness, in particular as compared with regional partners. Since 1996, Djibouti has made some progress in reducing macroeconomic imbalances and restructuring its economy,3 but economic growth has been modest and real per capita growth has remained negative. 1 According to the Interim Poverty Reduction Strategy Paper (I-PRSP), based on the "Enquete Djiboutienne Aupres des Menages" (EDAM 1) survey in 1996 and a complementary participatory assessment, the poverty line was defined at DF 216,450 (US$1,225) per adult per year, and the indigent poverty line stands at DF 100,229 (US$576) per adult per year. 2 During that time, real GDP growth averaged less than 1 percent, domestic payments arrears accumulated, reserves declined, and per capita income fell steadily to US$618 in 1998, down from US$1,505 twenty years before. 3 The IMF provided support under a stand-by arrangement (1996-98) and more recently under a three-year arrangement under the Poverty Reduction and Growth Facility (1999-2002). Financial assistance from the Bank is expected through a fiscal consolidation credit (FCC), slated to be considered by the Bank's Board in December 2001. - 2 - 3. In this context the government has prepared an Interim Poverty Reduction Strategy Paper (I-PRSP)4 based on two pillars: first, any meaningful poverty reduction strategy (PRS) requires measures to accelerate growth and to ensure that the population shares in its benefits; and second, country ownership and broad participation by civil society are necessary for a successful reform program. 4. More specifically, the I-PRSP proposes a strategy that focuses on: (i) strengthening political stability and peace;5 (ii) implementation of structural measures in support of a viable macroeconomic framework; (iii) efforts to strengthen sectoral policies, especially in education, water, urbanization and housing, labor and the environment; (iv) protection of vulnerable groups through the development of initiatives such as income-generating activities, high labor-content public works and micro-credit; and (v) good governance and accountability. Staff believe that fully developed, these elements will provide the basis for a comprehensive PRS that moves well beyond previous anti-poverty interventions that were more narrowly defined. The I-PRSP expresses government's commitment to poverty reduction, presents a cursory description of monetary and non-monetary aspects of poverty, outlines a proposed PRS, and presents plans to prepare a full PRSP. II. THE ELEMENTS OF A PRSP 5. The Djibouti authorities have taken seriously the preparation of the I-PRSP which was prepared under the supervision of an Interministerial Committee6 and included a number of participatory workshops. The document has a number of strengths that are worth highlighting and some areas that could be strengthened as the full PRSP is prepared. 6. First, in terms of process, preparation of the I-PRSP was more participatory than was previously the norm in Djibouti. Further, the government viewed the participation of civil society and private sector groups to be useful, and there was significant movement along the learning curve with the content and impact of the participation improving over time, even though the nature of the dialogue remained uneven within groups. Staff commend the authorities for their efforts to develop a participatory I-PRSP and encourage them to continue to broaden the process to bring in more non-government and non-traditional partners. To achieve a more active participation and ownership of all stakeholders, the authorities should 4 The I-PRSP was first submitted by the Djibouti authorities in February 2001 and revised in June 2001 to take into account comments from additional donors. Sin that context, highly commendable efforts have already been deployed which have led to the Arta Conference initiated and financed by Djibouti for the reconciliation of warring factions in Somalia and the signing of the Peace Accord between the government and the Armed Opposition Front in May 2001. 6 The IC includes representatives of the central government, local government, civil society and tCe private sector. It is seconded by a technical committee which coordinates various sectoral commissions conducting technical studies and analysis. - 3 - develop the details of the participatory process as soon as possible, and seek support of foreign donors in this process. 7. Second, while the description of poverty in the I-PRSP is weak, staff welcome that the document clearly recognizes the need for better poverty diagnostics and for collecting and analyzing comprehensive poverty data in order to understand the trends and determinants of poverty.7 The I-PRSP could have been clearer in discussing the range of activities- including timeframes-aimed at identifying and filling data gaps and building the government's capacity to update, analyze and use such data in policy making. In fact, a household survey, including coverage of nomads, refugees, and street children, is expected to be completed by May 2002. An essential analytical underpinning to the full PRSP will require analysis of the nature and trends in poverty based on these survey results. Staff encourage the authorities to widen consultation and broaden coordination among the local institutions and potential donors involved in collection and analysis of poverty data. 8. Third, the I-PRSP appropriately emphasizes most key sectoral challenges in areas such as education, health and water. Further, it emphasizes infrastructure development that focuses on transport, foreign trade, and telecommunications through the development of an "open ports and skies" policy. However, the I-PRSP does not outline a strategic direction in how to meet sectoral priorities. The PRSP will need to establish one. It should give high priority to the development of services around the transport sector, considering the expected multiplier effects in the whole economy, particularly on government revenue. Further, policies and institutional and financial requirements associated with achieving specific objectives in particular sectors need to be better specified. For example, the I-PRSP has not sufficiently highlighted the measures already developed and/or planned by the government in key human resources areas such as education. Further, critical issues such as the spread of HIV/AIDS, qat, and female genital mutilation are not discussed in the I-PRSP, and important cross-sectoral themes such as gender and the environment receive relatively little attention. Their treatment in the full PRSP will need to be deepened. The I-PRSP also did not adequately emphasize the need for implementing an efficient safety net system. 9. Fourth, staff welcome attention in the I-PRSP to institutional development and governance and agree with the broad focus on budgetary reforms (both on the expenditure and tax side), decentralization and greater participation, and reform of judicial institutions.8 7 The last overall census in Djibouti took place in 1983. Data used in the description of poverty in the I-PRSP are drawn from a survey of 2,400 households carried out in the nationally representative 1996 EDAM I household survey, which focused on the settled population. This household survey was supplemented by a participatory evaluation to gather information on groups that were not captured by that survey including street children and nomads. 8The staff commend the authorities for the recent establishment in early 2001 of an Auditor's Office, which is expected to address, inter alia, issues such as the control of budgetary execution and efficient use of public resources. - 4 - However, more attention could have been placed on issues related to the efficiency of public expenditure allocations, including both inter- and intra-sectoral allocations as well as allocations across budget chapters. In the PRSP, additional attention will lxb needed to prioritize and sequence these reforms and match them with strengthened resource mobilization and implementation capacity. 10. Fifth, the I-PRSP does not discuss any system to monitor and evaluate progress in poverty reduction. The full PRSP will need to describe: (i) a set of outcome and intermediate indicators (e.g., on budget management and efficiency of resource use) to be monitored; (ii) an information collection and access system to ensure that these indicators are regularly monitored; (iii) an evaluation system; and (iv) mechanisms by which beneficiaries and stakeholders will be informed and able to provide feedback. Effective monitoring of poverty reduction programs will require capacity building as well as a strengthened database, with more frequent collection of data to assess the impact of the upcoming social programs. The full PRSP should also emphasize the importance of carrying out the second population census as soon as possible. It will need to establish quantitative and qualitative targets for poverty reduction, which should be clearly linked. Finally, the full PRSP will need to specify detailed institutional arrangements within government agencies, donor community and involve civil society in the implementation and monitoring of social programs. 11. Sixth, the medium-term macroeconomic framework spelled out in the document illustrates the government's commitment to structural reform, prudent fisca] policy, and establishing conditions for economic growth. In particular, the I-PRSP reconfirms the government's commitment to critical reforms in the fiscal policy area that are supported by the ongoing IMF program and the upcoming IDA Fiscal Consolidation Credit. 12. However, in the staff s view, the macroeconomic scenario presented has two shortcomings. First, the targeted economic growth rate of 2 percent is too modest to reduce poverty. That will require sustained higher growth rates, which are predicated on the implementation of more ambitious macroeconomic and structural policies than currently envisaged, particularly to improve productivity and external competitiveness. Second, the I- PRSP did not address the issue of much higher factor costs in Djibouti compared with other competitors in the sub-region. The PRSP should identify the potential sources of sustainable economnic growth and to focus on the necessary policy mix to improve competitiveness and provide a sound basis for faster growth. The staff intend to raise these issues with the authorities in the context of upcoming reviews. III. PREPARATION PLANS FOR THE FULL PRSP 13. Strengthening the government policy framework. The full PRSP wil need to link the proposed policies and programs, including actions to improve governance, and transparency and accountability in public policy, with the poverty reduction goals. In this connection, the full PRSP should give more prominence to: (i) streamlining of the public sector, (ii) reinforcing Djibouti's comparative advantages related to the transport sector and its open financial and trade system, (iii) strengthening projects and programs implementation; and (iv) setting up and monitoring a safety net system (social protection strategy) targeted on the extreme poor by addressing the roots of poverty as well as distributing social subsidies. Regarding the latter, the full PRSP should benefit from the recent experience of existing programs and projects such as the IDA-supported Social Development and Public Works Project. Particular attention should be paid in the full PRSP to the identification of new sources of growth in the context of restored external competitiveness through appropriate policy actions. Moreover, measures to improve transparency and accountability of the budget process and to promote good governance need to be further developed and implemented rapidly. 14. The full PRSP should also provide a detailed analysis of the costs of the proposed poverty reduction program, and the sectoral allocations. In addition, it should be reviewed for consistency with the government's Economic and Social Orientation Law. 15. Filling knowledge gaps. A full PRS is predicated on the availability of solid data indicating poverty distribution. It also hinges upon the definition of clear sectoral strategies. Related tasks will take time to complete. In this regard, the staff encourage the authorities to indicate how they intend to fill their current knowledge gaps, and enhance their database, as soon as possible. 16. Timetable. For the elaboration of the full PRSP, the government reinforced the Steering Committee in February 2001, which now includes representatives of line ministries and members of civil society. This committee expects to have a draft PRSP ready by February 2002 to be presented for adoption at a National Round Table on Poverty. In the staff's view, however, this time line is not realistic on account of the need to: (i) strengthen the database, update the poverty profile including the completion of EDAM II, develop coherent anti-poverty sectoral strategies and define priorities, and further analyze poverty implications and costs of various policy options; and (ii) significantly improve the participatory process in order to build strong consensus among officials and the civil society for the strategy. Under these circumstances, the staff advise the government to target a more reasonable deadline to complete its full PRSP, presumably not before end-2002. 17. Donors' assistance. During the preparation phase of the I-PRSP, the donor community provided feedback during several meetings organized to assess progress in producing the I-PRSP. Key donors underscored the need for full participation of the private sector and all institutions in a position to make a contribution to poverty reduction, while encouraging the authorities to make greater use of all available studies prepared by the United Nations institutions. They also urged the authorities to include other donors operating in Djibouti. Staff of IDA, the IMF, and United Nations Development Program have provided advice and technical assistance in the preparation of the I-PRSP and will continue to do so as work on the full PRSP continues. In particular, IDA is partly financing the upcoming household survey EDAM II through two on-going projects and will also provide resources to help update the Poverty Profile. Given the country's limited institutional capacity, the staff consider it essential for development partners to provide, upon government request, - 6 - substantial and coordinated assistance to strengthen local capacities for developing the poverty reduction strategy. 18. Risks to the program. Preparing a cohesive national strategy will take time, given the country's administrative and technical capacity constraints that make it difficult to collect data and conduct survey analyses as well as to define sectoral development strategies and public investment program. Consequently, the government should identify its technical assistance needs and approach the donor community to mobilize their support. In addition, maintaining a true collaborative dialogue throughout the process will be a challenge for the government and civil society. There is a substantial risk that the broad participatory process will generate a long list of wishes and high expectations for rapid changes in economic and social conditions that could not be fulfilled in the short term, given the resource constraints and the lack of direct private investment. The authorities will need to work with all participants of civil society, development partners, and religious leaders to convince them of the real efforts being made to give everyone an opportunity to take part in the development process. The parliamentary elections scheduled for November 2002 could distract the authorities' attention from the content of the PRSP, while also delaying the implementation of the agreed upon macroeconomic and sectoral reforms, and reduce the chance of attaining the goals described in the poverty reduction strategy. Additional risks to the program include negative impacts of external shocks, as well as the possibility that the authorities may not be able to mobilize the financial resources needed to carry out their program. IV. CONCLUSION 19. Djibouti is emerging from a protracted internal armed conflict and is located in an unstable region. As such, its economic and social situation remains fragile. In addition to these constraints, there are other impediments standing in the way of the government's efforts to define a poverty reduction strategy, including an inadequate database and weak institutional capacities. With these constraints in mind, the staff are of the view that the present document meets the requirements of an I-PRSP. It represents an important step toward formulating a comprehensive poverty reduction strategy, ensuring country ownership of this strategy, and consolidating the participatory approach initiated during the preparation of the I-PRSP. This I-PRSP was prepared with limited direct contribution from the staff of the Fund and the Bank and other donors. 20. The government has made a commendable effort in preparing this I-PRSP. It has used the limited data available to analyze the current poverty situation and plans to sharpen its poverty reduction strategy on the basis of improved poverty data and analysis in the future. To prepare the full PRSP by end-2002, sustained action on the part of the government will be needed in sharpening the growth strategy, notably by formulating more ambitious policies that take into account the need to address the competitiveness issue in a forceful way, improving reforms coordination and implementation. This will facilitate the unlocking of much-needed concessional lending as well as technical assistance from the international community. - 7 - 21. The staff of IDA and the IMF consider that this I-PRSP provides a rather sufficient basis for the development of a participatory PRSP and for IDA and Fund concessional assistance. The staff recommend that the respective Executive Directors of IDA and the IMF reach the same conclusion. Key Bank/ Fund Events Related to the PRSP Institution Event Expected Date World Bank JSA of I-PRSP November 27, 2001 IMF JSA of I-PRSP November 28, 2001 IMF 2001 Article IV and Second November 28, 2001 Review under the PRGF World Bank Fiscal Consolidation Credit December 18, 2001 IMF Third Review under the May 2002 PRGF World Bank Health Project June 2002 IMF 2002 Article IV and fourth October 2002 review under the PRGF World Bank HIV/AIDS Project March 2003 IMF Presentation of the full PRSP March 2003 World Bank Presentation of the full PRSP March 2003 *~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ i~~~~~~~~~~~ REPUBLIC OF DJIBOUTI POVERTY REDUCTION STRATEGY PAPER INTERIM REPORT JUNE 2001 CONTENTS I. STATEMENT OF COMMITMENT 1. Commitment to a poverty reduction strategy II. DESCRIPTION OF POVERTY 2.1 Analytical process 2.2 Understanding and scope of the phenomenon 2.3 Major constraints on poverty reduction 2.4 Inadequate data III. STRATEGIC DIRECTIONS 3.1 Structural measures 3.2 Financial stabilization and economic restructuring 3.3 Social development and the environment 3.4 Regional integration 3.5 Pilot efforts 3.6 Policy assessment IV. PARTICIPATORY MECHANISM AND PREPARATION OF FINAL PRSP 4.1 Participatory process 4.2 Players involved 4.3 Activity timetable 4.4 Monitoring and evaluation 4.5 Assistance requirements ANNEXES * The Commission's processes and activities * Timetable for preparation of the final PRSP * Matrix of measures * List of studies carried out * List of complementary studies * Decree establishing the National Commission I. STATEMENT OF COMMITMENT *: Despite the significant efforts made by the government to achieve economic recovery in the context of the Stand-by Arrangement and the ESAF in cooperation with the IMF, the World Bank, and the AfDB, the social situation remains a source of concern and the country's poverty level remains high. Moreover, despite its emphasis on combating poverty, the Economic and Social Orientation Law (1991-2000) has not achieved the results anticipated. In addition, because of its lack of an associated social safety net, the structural adjustment program has been limited to rehabilitating public finances. *: Accordingly, the government is firmly resolved to place poverty reduction at the heart of its economic and social development policy and is eager to explore in greater depth the mechanisms whereby the country has reached its current situation, to review the scope of possible future courses of action, and to incorporate these assessments into a realistic macroeconomic framework. 4. This choice is the embodiment of a threefold conviction: * First conviction: Combating poverty cannot be reduced to a social welfare program or strengthened safety net, but instead requires rapid and sustained growth. * Second conviction: Growth is a means, not an end. It is meaningless unless it contributes to poverty reduction through job creation, improved basic social services, and correcting for social imbalances. - Third conviction: These development imperatives cannot be properly addressed without country ownership of the program and broad participation by civil society. These three convictions are also sustained by three desires: - The desire to sell and enhance the competitiveness of the Djibouti market in a regional market context. Djibouti has considerable strengths in this regard, such as its location on the most frequently used sea lanes in the world, its role as the gateway to the Ethiopian market of 60 million consumers, and its position as a link between Eastern Africa and the Arabian Peninsula. - The desire to improve the lot of the vulnerable groups, particularly youths and women, through improved knowledge and understanding of local realities so as to improve the targeting of actions at the grassroots level. - The desire to restore people's capacity to influence the development model that is suited to their natural, cultural, and social environment by involving the people more deeply in the decision making process. 1 II. DESCRIPTION OF POVERTY 2.1 Analytical process Heretofore, there was no poverty reduction strategy for the efforts deployed by Djibouti in the context of the Stand-by Arrangement and ESAF in cooperation with the IMF, the World Bank, and the AfDB. This interim paper, the jumpoff point of a dynamic process, relates specifically to the preparation of such a poverty reduction strategy paper by early 2002. It is the outgrowth of lengthy collective consideration, the major stages of which are as follows: *: Information meeting of the Interministerial Steering Committee for the Structural Adjustment Program on the nature and scope of the PRSP (April 2000). *. Working meeting of the Technical Committee for monitoring the reforms of May 2000 and June 2000. *:. Preparation of a general outline and timetable of activities (UNDP Consultation Mission, May-early June 2000) -: Support for initiation of the process of preparing the interim paper (World Bank identification mission, June 2-14, 2000). *: Three workshops for examination and brainstorming on the constraints, objectives, and strategies for combating poverty in the Republic of Djibouti: Public administration and parliament; Traditional donors resident in Djibouti; Private sector and associative movement. *: Drafting of the second revised version of the interim poverty reduction strategy paper (December 2000). *: Forum to validate the draft interim poverty reduction strategy paper (2/5/2001). *: Drafting of the final version of the interim poverty reduction strategy paper (2/6/2001). 2 2.2 Understanding and scope of the phenomenon 2.2.1 Monetary poverty *: According to the most recent assessments (EDAM-1 survey), the poverty crisis is both structural and cyclical; these evaluations made it possible to define the poor poverty line in Djibouti at DF 216,450 (US$1,225) per adult per year and the indigent poverty line at DF 100,229 (US$567) per adult per year. *: The same survey indicates that 9.8 percent of sedentary households in Djibouti live in extreme poverty and lack the resources to purchase the basic food basket corresponding to minimum caloric consumption, while 46 percent of these households live in relative poverty and have spending levels which fall below the level necessary to satisfy basic needs. When we take into account nomads, refugees, and the homeless, which ha\ e been covered by a participatory evaluation, the simulations show that roughly 60 percer.t of the Djibouti population lives in relative poverty. Alongside this high level of monetary poverty, there is a high degree of human poverty as well. 2.2.2 Human poverty - Education Although the educational infrastructure and school enrollment ratios have improved considerably since Djibouti's independence, the Djibouti educational system, an outgrowth of the French model and poorly suited to the real situation in Djibouti. remains unsatisfactory: the gross enrollment ratio remains low (35-40 percent) and the illiteracy rate high (it is estimated by the 1996 EDAM survey at 42.7 percent, and 56.9 percent for women). The school dropout rate is high, at 7.9 percent of boys and 17.3 percent of girls before the middle school (sixieme) level is reached. Tracking the students from a single class year from their first introduction to school until their final year reveals two bottlenecks: entry to sixieme (58.1 percent) and entry to the first year of final preparation for the baccalaureat (seconde) (53.1 percent), and only 8 percent of the students in a given age group successfully complete the baccalaureat. - Health Djibouti's health system is characterized by free care. Over 60 percent of the patients hospitalized in Djibouti are foreign nationals, while life expectancy, an important indicator of general health standards, is on the order of 50 years. 3 Maternal and child health is one of the major problems of the system, for while mortality remains quite high, infant mortality is a particular source of concern, with a rate of 114 per thousand and the child mortality rate is 165 per thousand while the mortality at delivery rate is 740 for every 100,000 live births, one of the highest in the world. Moreover, malnutrition constitutes a serious problem in Djibouti where, according to the Ministry of Health's 1997 report, it is the tenth highest cause for medical consultations (2.3 percent of the total). This situation is even more severe in some districts, such as Obock, where 6.14 percent of consultations are because of malnutrition. A survey conducted in 1995 by the Ministry of Health in cooperation with the WHO indicated that 14 percent of children under the age of five suffer from acute malnutrition, 31.1 percent from chronic malnutrition, and 24.4 percent from mixed malnutrition. For children in the same age group, the report adds that 52 percent of the deaths recorded in hospitals are attributable to metabolic and nutritional problems. - Employment Unemployment is one of the most severe problems in Djibouti, affecting 43.5 percent of the labor force representing 46.3 percent of the working age population (age 15 and up). Unemployment particularly affects young people from age 21 to 25 (58 percent) and women, whose employment level is only 33 percent as against 62 percent for men. Wage earners represent 75.2 percent of the work force, while 18.7 percent are self- employed and 1.2 percent are employers. The overwhelming majority of those employed work in the tertiary sector. 2.3 Major constraints on poverty reduction Any consideration of the factors behind this massive poverty must take the following determining factors into account: *: Low level of human development A services economy built around the transport sector and requiring some degree of skills in order to adapt to technological change and competitiveness in the subregion and internationally. The participatory evaluation of poverty indicates that the unemployment and precarious employment are primarily if not exclusively confined to the unskilled. In this connection, the mismatch between the requirements of the labor market and the educational system is to blame. *:* The refugee burden As a consequence of the persistent conflicts and natural disasters in the Horn of Africa, the number of refugees in Djibouti has been increasing by 2.5 percent a year. The impact of the refugee population is particularly evident as regards the medical/health system (70 4 percent of patients hospitalized in Djibouti are foreign nationals), public safety (a resurgence of robberies and assaults, etc.), and the environment. The high number of refugees increases the pressure on the underground water table in Djibouti city, which is already stretched to its operational limit for safe drinking water, and contributes to the acute water crisis that lies in store if no action is taken in the near future. In the town planning area, the pace at which lots and improved lots become available is outstripped by the population's high demand for low-cost housing, and the housing shortage is estimated at 2,000 housing units per year. There is hence a proliferation of shacks made of cardboard, wood, and scrap metal all around the capital city. The sewerage conditions are also poor. Only 15 percent of housing units are connected to a public sewer network, itself in extremely poor condition, while three-fourths of housing units have individual waste disposal arrangements which function poorly owing to the contamination of the water table, thereby exposing the population in older neighborhoods to major epidemics such as typhoid fever, malaria, and cholera. In addition, the marine environment is no longer adequately protected, as only 5.2 percent of waste water is treated before being dumped into the sea. *-3 Recurrent climatic problems Scant and irregular rainfall exacerbates the vulnerability of the rural population, which is constantly beset by thirst, and in the absence of water management measures is left with no alternative other than urban migration and the prospect of unemployment. . 'Poor management capacities On the institutional side, the situation is not promising: poor programming of activities and unconnected projects, lack of interface with the macroeconomic framework and in particular with the reforms now under way, inadequacy of statistical or financial data, and the lack of assessment and monitoring indicators and parameters. Consequently, the poorest do not always end up benefiting from the actions taken. Institutional coordination at the grassroots level must still be established, as it remains weak. The establishment of a national solidarity commission in September 1999 is a step in the right direction. 5 *. Domestic debt burden The accumulation of sizable arrears both to wage earners and suppliers is a stumbling block for the economy, impeding growth and aggravating the situation of the vulnerable groups already adversely affected by structural adjustment. The public enterprises, a growth source in the past (38 percent of investment), are experiencing severe financial problems owing to the government's failure to pay the amounts invoiced to them and its practice of drawing down the enterprises' cash holdings. This situation is so severe that these key participants in the economy are currently finding it difficult to renovate their equipment or even to cover their financial obligations. Similarly, private businesses with sizable claims on the government are unable to make orders abroad to replenish their stocks of merchandise, and are now refusing to provide goods and services to the government. The government is conscious of the need to rehabilitate public finances, and has reacted vigorously by shrinking the wage bill (by 20 percent of the nominal wages of civil service personnel and 20 percent of positions) and demobilizing military and security personnel (6,000 persons). Unfortunately, however, these efforts to stabilize the budget, laudable as they are, were not followed up by the associated measures promised by the international community, in particular the World Bank, the African Development Bank, and certain bilateral donors with a view to offsetting the negative effects of adjustment. This situation has contributed to the deterioration in the social situation in Djibouti and caused a slowdown in economic activity. 2.4 Inadequate data on the poverty phenomenon It should also be noted that there are a number of areas in which the phenomenon of poverty is poorly understood: - A population census is essential and unavoidable, given that the last general census dates back more than 20 years. - The EDAM 96 survey should be updated by carrying out a consumption budget survey which includes nomads, refugees, and street children. - Given the importance of the impact of immigration both on socioeconomic infrastructures and the environment, a comprehensive study on all facets of this problem is critical. N.B. A statement of government arrears as of July 31, 2000 is annexed hereto. (The staff did not receive such a statement). 6 III. STRATEGIC DIRECTIONS This poverty reduction policy will be based on strategic directions which make it possible to continue the financial stabilization and economic restructuring effort. 3.1 Overview of structural measures now being taken Of necessity, the poverty reduction strategy must be pursued in a stable macroeconomic environment and should naturally be regarded as a priority in the Economic and Social Orientation Law for the decade ahead (2001-2010). In order to trigger the necessary economic growth, the government intends to introduce structural measures relating to public administration, the labor market, investment, commercial relations, and the legal system. Accordingly, it is planned to review and simplify to the greatest possible extent the jurisdictions of some administrative areas such as taxation, investment, the labor market and the commercial code, public enterprises, and justice. It bears noting that reforms have already begun in the tax system, with the indirect tax that will later be VAT-based with a reduced number of rates. It is planned very shortly to simplify direct taxation with technical assistance from the IMF. Likewise, the procedures for creating new businesses will be simplified and the labor market made more flexible, while legal provisions will be updated and streamlined. A reformed justice system is also a significant strength when it comes to attracting investors and reassuring them about the protection of their assets and the functioning of their businesses. Accordingly, the government is resolved to initiate such a reform. A round table chaired by the Head of State was recently held on this subject. In addition, the privatization of the public enterprises is on track, with the sale of the assets of the milk, livestock feed, spring water, and pharmacy enterprises. In addition, the Djibouti government has signed a 20-year concession contract with the Dubai Ports International for the management of the port, and intends to associate the airport with this. Partners and investors are being sought for telecommunications, where international and domestic services have been merged, as well as separated from the postal service, and for the electricity, water, and sewerage entity. The government has decided to proceed with privatization in order to strengthen the private sector. It is all the more urgent to do so given the public sector's failure to demonstrate the qualities of efficient economic managers. 7 - Economic growth and fight against poverty The economic reform program pursued by the government calls for real GDP growth on the order of 2.1 percent with an inflation rate of about 2 percent by 2003 if all the macroeconomic parameters (budget, balance of payments, money supply) are in order. This economic growth will be possible thanks to the expansion of the private sector, its driving force. The private sector will be encouraged to invest in activities in which Djibouti has a comparative advantage, such as services: transportation, re-export, telecommunications, hotels, restaurants. The preconditions are simplification of the systems relating to taxation, foreign trade (customs clearance), the labor market, and the commercial and investment codes. The Djibouti port, in conjunction with the airport thanks to a liberal "all maritime" and "open sky" policy, is an undeniable strength. There is a link to two transcontinental telephone cables interconnecting Europe and Asia and passing through Africa thanks to Djibouti. It will be necessary to make optimal use of these two strengths in order to put Djibouti on the growth path. This will involve convincing those who invest capital and technical know-how to take an interest in these activities. The privatization of economic activities previously carried out by the public sector will be another strong point for improving economic growth, thanks to the initiative of national and international private capital. This will lead to quality human resources, technology transfers, and more efficient economic management. The promotion of services in a regional context, such as financial services and up-market tourism (deep sea fishing, diving, geological and archeological sites) may also foster sustained economic growth while protecting the environment. - Civil service reform In view of the preponderance of the state in the economy as well as its poor performance, the government intends to carry out a sweeping reform of the public administration beginning in 2001. The government will streamline the civil service and reduce staffing in keeping with a plan addressing mandatory staff retirements, voluntary departures, and accelerated demobilization, and will do so in cooperation with the World Bank, the African Development Bank, and the European Union and other donors if possible. 3.2 Fiscal consolidation Budgetary equilibrium is a key objective of the macroeconomic policy to be put in place. The government is resolved to continue reducing the wage bill, apply a strict expenditure management policy, enhance tax collections by broadening the tax base, and introduce managerial efficiency and transparency with regard to loans and to grants in kind or in cash. The government intends by 2001 to eliminate all domestic arrears through the issuance of treasury bills backed by the creation of a fiduciary fund. 8 The implementation of all these measures should be reflected in an increase in revenue (excluding grants) equivalent to 24 percent of GDP and in a stabilization of expenditure at a maximum of 33.2 percent of GDP by 2001. The financial operations deficit (payment order basis) will thus be -2.3 percent of GDP in 2002. The stock of domestic arrears, which is currently equivalent to 19.3 percent of GDP will be eliminated by the year 2002. - Improving the balance of payments The balance of payments has a structural deficit, and will improve somewhat through improvements in exports f.o.b., which will increase from DF 13.4 billion in 2000 to DF 13.7 billion in 2002. It is also projected that the deficit of the current balance will be reduced from DF -7 billion in 2000 to DF -5.3 billion in 2002. To achieve these objectives, activities are expected to be bolstered in the transportation, telecommunications, trade, banking, and other services sectors. The resurgence of services activities relating to hotel and restaurant business as well as tourism, areas where the government intends to promote private investment, should improve the balance of payments. - Stability of the currency Since 1949, the Republic of Djibouti has pursued a stable monetary policy based on the currency board approach. Accordingly, the value of the currency, the Djibouti franc (DF), is stable in terms of the U.S. dollar. The local currency is more than 100 percent covered by U.S. dollar reserves. This policy will be continued and consolidated in order also to permit price stability and thereby ensure that enterprises and households will have decent buying power. Continuing such a policy in a transparent environment may make the Djibouti marketplace attractive for possible investors in the banking sector, where there is a dearth of competition. There are two internationally recognized banks, while the third bank is quite small. Expanded financial intermediation, particularly in favor of SMEs, must be developed. The insufficient competition and financial intermediation hamper the economy, which is subject to extremely high interest rates of roughly 16 percent for borrowing by households and enterprises. In contrast, the return on deposits is low, scarcely above the rate of inflation (3 percent to 4 percent). The government intends to remedy these weaknesses and provide the greatest possible encouragement of financial activities through the introduction of greater transparency. 9 3.3 Social development and the environment Five [sic] areas of intervention have been identified by the government to ensure the promotion and social protection of these specific groups: )O> Strategy for the protection and promotion of the rights of children, and to ensure the well-being and development of children by according high priority to children's rights to survival. >? Strategy for disaster prevention and management, through the organization and coordination of activities and tasks aimed at assessing the effects of natural disasters, in particular in the context of droughts and flash flooding owing to the inability to harness torrential rains because of the lack of a water resources control infrastructure in the country. > Strategy for the socioeconomic promotion and protection of women through their participation in the production process, by organizing production cooperatives (agriculture, fisheries, crafts, local tourism) and development communities in urban and rural settings. > Strategy for improving food security and nutrition by making optimal use of natural resources through the development of farmland, pastureland for stock rearing, fisheries, and the promotion of fish as a food source. Education and training The basic education system in the Republic of Djibouti is experiencing serious problems despite the bold and substantial steps taken recently, namely the States General meetings and the formalization of the recommendations of the 10-year Economic Orientation Law adopted by the government. To translate this new policy orientation into action, the government has set the following objectives: > Increase the student capacity and internal yield of primary education. > Increase quality and student capacity for second cycle general education. > Improve opportunities for students from the districts, allowing them to continue their studies in the second cycle of secondary school without relocation. > Make technical and professional training a key component of Djibouti's educational system and promote private sector participation in educational life. > Reduce the extremely high cost of higher education and the high rate of "brain drain" abroad by creating a university center in Djibouti. 10 )0. Introduce cost considerations into the management of educational institutions in order to ensure that the WELL OFF participate financially in HELPING THOSE LESS WELL OFF. *: Health In the health area, the Republic of Djibouti has evidenced the political will to guarantee the health development of the country through the adoption of a health action program. In this perspective, the Government is resolved to carry out the following priority actions in tandem: Strengthen and improve the capacity of basic health structures, particularly those in the districts, to make them more functional. .)0- Strengthen and improve the capacities of the reference health facilities of Djibouti city. Strengthen the management and programming capacities of the Ministry of Health and of the hospital and health facilities, with management based on cost recovery. )0. Improve the quality of the services offered to the people by stressing the training of health care providers (doctors, dentists, pharmacists, etc.). Involve the private sector in promoting the development of health activities. *. Water and environment The government's objectives under the master plan for water are basically as follows: )0. Increase the supply of drinking water through increased production and improved resource mnanagement. )0. Substantially enhance access to drinking water at a reasonable cost, especially for the disadvantaged urban and rural population groups. In the capital city, the water situation is so critical that the government intends to take urgent actions with assistance from multilateral and bilateral donors. );0- Replace the rundown drillholes and expand the ONED's catchment area. Study for the management and protection of the Djibouti water table and comparative technical and economic study on water supply from the Hanl6 plain (200 km) versus seawater desalinization. 11 With regard to the urban centers in the interior, which have received scant attention for many years, the following are planned: The conduct of supplementary hydro geological studies, and modeling of the behavior of aquifers (replenishment and response to an increase in water use). )01 The drilling of exploratory wells in order to test the accuracy of the mathematical modeling results. For rural water supply, the recurrent droughts and the vital importance of livestock to the survival of rural populations make it essential that the following operations be carried out in cooperation with multilateral donors: > Improved management of water supply points by adopting a participatory approach and conducting socioeconomic surveys. > Inventory of water supply points. >; Rehabilitation and maintenance of water supply points. '; Establishment of a hydro-climatological network to improve knowledge about water resource limits. Creation of new water supply points in areas still not served. > Works to improve catchment basins, manmade hillside retention areas, and buried cisterns (Day Plateau, Oued Ambouli, etc.) as part of the National Program of Action to Combat Desertification, with the support of multilateral and bilateral donors. In this perspective, the operational activities aimed at completing a project to plant 100,000 trees throughout the national territory are about to begin. 12 *. Low-cost housing and town planning Owing to the rapid population increase (3 percent a year) and the high population concentration in the capital city and secondary urban centers, the Republic of Djibouti suffers from an extreme shortage of housing. This housing problem affects low-income and middle-income households in particular. Conscious of the seriousness of this situation, the consequence of runaway 3 percent population growth and other factors, the government has recently adopted an urban development plan which addresses the needs for lots in the capital and in the urban centers in the interior. For this housing policy to be reflected in reality, it is planned to: )01 Construct 1,000 upgradeable low-cost housing units in Balbala, with another 2,000 planned for the poorest neighborhoods, with the support of development funds from the Gulf Arab states and other donors if possible. > Improvement in approximately 20 hectares of land in the seats of the districts in the interior. > Eliminating substandard housing in the capital. 4. New income-generating and job-creating activities The first highly labor-intensive (HIMO) projects entrusted to the ADETIP agency are nearing completion. The actions taken under this program include the promotion of highly labor-intensive public works whose principal aim is to create temporary employment benefiting the poorest groups, microenterprises, and microcredit, as well as the optimal use of local materials or water and agricultural resources. In the latter area, a US$4 million project is under way in the Hanle and Gobaad plains. As regards fisheries, the new legal provisions governing the supervision of food sanitation, the forthcoming creation of a laboratory, and bringing the facilities at the fishing port up to standards, should make it possible to exploit the country's and region's fisheries resources through exports to the European Union countries. In fact, at present only 3 percent of national resources are being tapped. In the livestock area, thanks to Djibouti's port facilities it could be the principal channel for livestock exports, in particular small ruminants from Ethiopia and other countries of the Horn of Africa, intended for the countries of the Arabian peninsula. The areas of mass-market tourism and extreme tourism (ecotourism and geological tourism) should be explored. The creation of facilities for refining and developing perlite, cement, and salt constitute other promising sources of growth. 13 3.4 Transparency and good governance Decentralization In the context of the increased devolvement of the decision making system toward the regional and local levels, the government is putting a gradual decentralization policy in place. To this end, regional councils have been established in the interior districts. This new approach will make it possible to involve the people more directly in the management of local development. During a first phase, the government intends to disassociate itself from certain responsibilities in the social sphere (primary school, primary health care, village-level water supply, etc.) and turn them over to these new authorities. Later, it is planned to hold local and regional elections targeting a genuine decentralization policy, the only way to guarantee that the people will participate in the management of affairs at the local and regional levels. *:. Promotion of the associative movement For a local development process to achieve sustainable results, the active participation of the population groups concerned is required; consequently, to complement its efforts to promote deconcentration and subsequent decentralization, the government has taken steps to promote the formation of associations, and the establishment of development communities and cooperatives, to promote the participation in development of the populations concerned. After these measures, which have provided a legal and institutional framework for public service organizations (NGOs), the authorities decided to contribute to the tangible achievement of these actions in the field and to ensure that associations are more fully a part of the economic and social fabric. -- Promotion of women A strategy paper on the promotion of women and their integration into the development process is now being finalized. This paper focuses on four priority areas: women's participation in decision making and in economic development, equal access to the services of the education system, and the promotion of reproductive health. 14 *: Promotion of youth As young people under the age of 30 account for almost three-fourths of the population, improving their situation and enhancing their responsibility will be achieved through combating juvenile delinquency and unemployment, enhancing awareness of environmental problems, and affording greater access to culture, education, and health care. *. Reform of judicial institutions To enhance the efficiency of and improve access to the judicial system by the citizenry, the government has decided to undertaking a comprehensive reform of the system overall. To this end, an initial workshop of the States General meeting on Justice was recently held. In addition, it has been announced that the audit court will become operational in early 2001 as part of the good governance and transparency effort. 3.5 Pilot efforts aimed at poverty reduction (a) PRAC (Veteran Reinsertion Project) In 1994, at the end of the civil war, the government faced the enormous task of building up a war torn economy. It realized that in the absence of support for the reinsertion of veterans, the country would risk jeopardizing its security (through banditry, petty criminality, and even armed opposition). With IDA assistance, it therefore prepared a Veteran Reinsertion Project (PRAC). However, the success of the PRAC was undermined by the inadequacy of World Bank or AfDB funding for these efforts. (b) ADETIP (Djibouti Agency for Public Service Project Execution) This agency set up for the execution of a US$15 million Social Development and Public Service Works project is intended to attenuate the effects of the structural adjustment program by improving the living standards of the population, creating jobs, and building capacity and local know-how in the area of construction and public works. Its objectives are to: * Execute projects with economical and socially worthwhile outcomes. * Create a number of new jobs in the urban and peripheral urban areas of Djibouti as rapidly as possible. * Improve the labor force's know-how, enhance enterprise competitiveness, and improve the efficiency of public institutions. * Encourage broadening of the scope for carrying out highly labor-intensive (HIMO) projects. * Promote community participation. 15 (c) FSD (Social Development Fund) The Social Development Fund (FSD) project is one of the government's major instruments for bolstering the resources devoted to poverty reduction. The FSD was established with AfDB assistance in early 1999. Obiectives The US$10 million project is intended to contribute poverty reduction efforts by emphasizing: (i) the socioeconomic development of the districts in the interior; and (ii) the promotion of women's access to financing for income-generating job-creating activities. As in the case of the ADETIP, the Social Development Fund project, planned to last five years, is intended to respond immediately and exclusively to needy population groups. (d) Rehabilitation project: background and structures An order issued by decree of February 15, 1996, designated a special officer in the Office of the President of the Republic responsible for the reconstruction of the areas affected by the conflict and the reinsertion of the refugee and displaced populations. The decree also created a National Rehabilitation Commission (COMNR) to provide a legal and institutional framework for the rehabilitation program. Since late 1997, a Technical Rehabilitation Office (BTR) has been in operation to serve as the COMNR's technical secretariat. Its principal responsibility is to execute and implement the rehabilitation strategy and to coordinate activities in the districts, provide guidance and technical analyses to the COMNR, and furnished technical expertise to national and local institutions and groups while facilitating their liaison with the authorities and the district-level rehabilitation committees. This project is cofinanced by the UNDP. N.B. Appraisal studies are in progress to assess these projects and measure the impact of the various activities on poverty reduction. 3.6 Regional integration Djibouti's geostrategic position and the narrowness of its market have naturally prompted the government to adopt a policy of regional integration. It will be necessary to work with other countries in the region in order to: 16 Contribute to the restoration of peace and stability in the Horn of Africa. One component of this approach is the Conference on National Reconciliation and Restoration of the Somalian State, which began recently under the auspices of the Intergovernmental Authority on Development (IGAD). *: Introduce the legal instruments required for the startup of the Common Market for Eastern and Southern Africa (COMESA), including the adoption of the community customs tariff and the legal harmonization governing the various aspects of economic activity. *: Strengthen economic and financial relations with the Arab Gulf countries and Yemen, while promoting the Djibouti marketplace. The transport sector, the unrestncted finance system, the free trading system, and the high performance telecommunications infrastructure make Djibouti a prime choice for penetrating the COMESA market. *. Export promotion. There is an undeniable potential for promoting exports from Djibouti toward the region's common market in the COMESA context. Indeed, given Djibouti's completely unrestricted exchange and trading system, and with infrastructures like the port, the airport, and telecommunications (connected with transcontinental cables), it is an ideal destination for Gulf investors in search of Eastern African markets in the context of the COMESA. This is all the more true in that Djibouti can serve as an intermediary between Eastern and Southern Africa and the Arab Gulf countries because of its geostrategic position. 3.7 Assessment of policies implemented - Monitoring mechanisms Overall: Establishment of a commission responsible for monitoring economic reforms, which coordinates economic and social development activities and policies. Specific: Establishment of a national solidarity commission responsible for planning and monitoring the poverty reduction program (not functional owing to lack of funding). In drafting the law defining and organizing the Ministry of Employment and National Solidarity, the Unit for Coordinating and Monitoring Poverty Reduction Activities (UCSALP) evolved into a Directorate, which in addition to its new functions will continue to exercise the functions assigned to the UCSALP (Directorate of Solidarity and Social Insertion). This Directorate has two departments: - The Research, Monitoring, and Coordination Department; and 17 - The Social Insertion and Participatory Development Department. In establishing this Directorate, the Minister sought to create a structure capable of implementing the national solidarity and poverty reduction policy. However, it sorely lacks the human and logistical resources needed to carry out this mission successfully. It should be structurally strengthened as soon as possible to enhance its efficiency and make it truly operational. Transparency and govemance - Government organization (efficiency), administrative structures and procedures; - Capacity building (strategy, economic management, etc.); - Decentralization and promotion of the associative movement, etc.; and - Legal environment (courts, mediators, business law, etc.). IV. PARTICIPATORY MECHANISM AND PREPARATION OF FINAL PRSP 4.1 Participatory process The Republic of Djibouti has limited experience with taking a participatory approach. The first time this was done on a large scale was in making preparations for the General Round Table in Geneva (1997). Given the positive results achieved, the approach has been used to contribute to the monitoring of economic reform implementation under the Stand-by Arrangement and the ESAF, and the holding of the States General on Education (1999) and Justice (2000). Given the largely unstructured nature of civil society, the participatory process has been limited to the public sphere, with the exception of a few specially focused events. In the context of preparing this PRSP, the government intends to rely upon the existing structures and will spare no effort to gradually broaden the approach to all the players involved closely or at some remove in the poverty reduction effort, be these from the modem side (NGOs) or the traditional side (clan leaders, religious leaders, etc.). In this regard, the institutional mechanism for steering the economic reform program will be used as a frame of reference. It will, however, be updated to enhance its functionality. *' The Interministerial Steering Committee for the Structural Adjustment Program will serve a guidance and decision making function. The Committee is chaired by the Minister of Finance, Economy, and Planning, responsible for Privatization, and is made up of all the members of the government. It should be more functional and more active than in the past. 18 Given his strategic position with respect to the key objective of reducing poverty, the Minister of Employment and National Solidarity will serve as Vice Chairman of the Committee. This will enhance the operational effectiveness of the Committee. 4. The Technical Committee for Coordinating and Monitoring Reforms (CTCSRE) will have a technical function preparing reference materials, making arrangements ftljr the various forums, and conducting discussions. However, it will have to be more representative to include as many players as possible from those already involved in playing roles in the various aspects of implementing the reforms. This Technical Committee is made up of high level officials from the ministries, the Coordinators of Special Committees, and the directors of multisectoral projects. It may, however, pursuant to Decree No. 97-0102/P of July 6, 1997, call on such other parties as it deems appropriate, including hiring national consultants. *. The Permanent Secretariat function for the national steering structure vill1 be fulfilled by the Economic Reform Support Project (PATARE). Its primary role will be to see to the production of texts, their reproduction and filing, and the dissemination of documentation. It will also be responsible for organizing the working sessions of the Committee, and for mobilizing the resources and expertise required to support the Interministerial Steering Committee in its decision making. 1. This Technical Committee is broken down into several subcosmnittees corresponding to the different sections of the PRSP and the relevant associated measures. These are: Subcommittee 1: Macroeconomic equilibrium and structural transformation. Subconmittee 2: Job opportunities and job-creating activities in the informal and primary sectors. Subcommittee 3: Improving the welfare of vulnerable population groups. Subcommittee 4: Governance-oriented institutional reforms. Subcommittee 5: Strengthening of statistical tools and the information system. Subcommittee 6: Public information through the media about the PRSP process. 4.2 Stages and timetable for preparing the Final PRSP The government is firmly resolved to take any steps necessary to complete the preparation of its Final PRSP within a period of 71/2 months. 19 This process will be carried out in three stages: (i) Gathering and analysis of the available data in order to update the evaluation of the various facets of poverty, identify the major obstacles to be overcome in order to reduce poverty substantially, and propose the priority approaches toward achieving poverty reduction and improving the economic environment of the country. (ii) Proposing a consistent medium-term macroeconomic framework. (iii) Preparing a strategy paper that will define the priorities, objectives, strategies, and operational action plans for reducing poverty, as well as the monitoring and evaluation mechanism. There will be a consultation mechanism for each of the principal stages, which will involve all development partners and civil society. This participatory process will be carried out at two levels: (i) At the level of the technical committee on reforms, which is responsible for writing the paper; (ii) At the level of the Interministerial Steering Committee; (iii) In addition, each stage of preparing the final paper will be the subject of validation forums. However, preliminary research and documentation will be required to clear the way before beginning the process of effectively implementing the Final PRSP. The government will do everything in its power to ensure that the process involves the following players: (i) The public administration (all senior officials from the various ministries, etc.); (ii) The National Assembly (more than five Deputies serving as chairmen of parliamentary commissions); (iii) The private sector (Chamber of Commerce, representatives of employers and workers, labor unions, etc.); (iv) National and international NGOs (Djibouti Women's Union, Djibouti Red Cross, Caritas, ADEPEF, Dar Islam, Phare de Balbala, Bender Djedid, etc.); (v) Traditional and religious leaders; (vi) Socioprofessional associations; 20 (vii) International financial partners. 4.3 Monitoring and evaluation The government will set up a monitoring and evaluation system involving the following: * Monetary, economic, and social indicators; * Poverty indicators (health, education); * Degree of participation. 4.3 External aid requirements The government of Djibouti will continue its relationships with its major development partners. 21 ANNEXES 22 The Comnission's Processes and Activities Phase Relations between Activities Results to be Responsibility Produced - Reference Preparation of PRSP framework Definition background studies - Decrees and Commlssion official texts CLair - External support - Start-up workshop Comrnission Launch - Report on Chair miandate - Sectoral reports / / I \ \ \ I ~~- Public Work in N investment and Sectoral Subcommittees F expenditure Subcornn-mittees analyses I _ 0 program R - List of studies to M be carried out m~~_ _ _ _ _ =_ A _ T - Summary reports I - Selection of Subcommittees _ _ O~~~ studies to be+ Overall Synthesis of carried out Chairman diagnosis subcommittee work N - Version o of the + and PRSP T ec hnical \\ \ / // and assistance , P - Minutes of - Subcommittees U States General - Chairman National Thematic States B - Recommenda- - Society discussion studies _ General L ons and conclu- - Technical I sions of studies assistance C -Version 2 of the PRSP Consultations ~~A - Society Consultations Crossed workshops W - Version 3 of the - Chairman I A PRSP - Subccmmittees planning R E - State Validationforum N - Society E - Final version of - Commission | Decision by | S nthe PRSP Chairman Decisio I thePRS - Subcommittee government 23 DETAILS OF PHASES 3 AND 4 (SECTORAL ANALYSES AND OVERALL DIAGNOSIS) 1 - Phase 3 activities (Sectoral Analyses) Phase Relations between Results to be Duration Responsibility Observations Phase_ Activities Produced ________ ____________ Observation * Planning by * Commission Start-up of work by consensus 1 week Chairman subcommittees *Heads of I I I subcommittees IF I II II I * Complete list- *Heads of Parallel Complete staffing of ing of members 1 week subcommittees activity S working tearns by name * Methodologi- * Subcommittees C Organization and cal reports 1 week * Commission T planning of work * Work plans Chairman with timetable O ; and task distribution R * Bibliography * Subcommittees A Documentation and 1 week data gathering L __I_I * List of + Subcommittees Parallel Identification of additional studies 1 week activity A additional studies proposed * Presentation on N each study A Prz * Selection of * Commission Parallel Prioritizing and additional studies 1 week Chairman activity L programming * Terms of * Subcommittees Y llislti. reference S A* r s x + Detailed * Subcommittees Drafting of sectoral outline of sectoral 2 weeks E reports report Z Zt ZII I * Interim version * Subcommittees Writing of sectoral report 2 weeks IF 4 ; ; i , r* Final version * Subcommittees of sectoral report 1 week Finalization Note: This phase has an effective duration of 8 weeks. 24 2 - Phase 4 activities (Overall Diagnosis) Phase Relations between Results to be Duration Responsibility Observations Activities Produced * Analytical 3 to 4 days * Commission Pooling of findings summaries of chairman from sectoral studies * Subcommittees studies I -_ _ i r* Critique and 1 week * Commission O Review of sectoral inconsistency chairman strategies reports * Subcommittees E * . Critique and 1 week * Commission Parallel Review of sectoral inconsistency Chairman activity R action plans reports * Subcommittees A i * Selection of 1 week * Commission Prioritition and actions and Chairman L sumwary of sectoral measures * Subcommittees L st tegies m * Selection of 1 week * Commission Parallel Prioritization and actions and Chairman activity D summary of actions measures * Subconmmittees A * . Cost of actions 2 weeks * Commission A ~~Quantification and measures Chairman G a * Subcommittees N M n * Action plan 2 weeks * Commission Parallel Macroecd noncic Chairman activity O franming and action + Subcommittees s integratin _ .* Detailed 1 week + Commission Parallel I Drafting of outline of Chairman activity S surnumry document summary + Subcommittees document * Basic summary I week * Commission Writing document Chairman * Subcommittees _, * Version 1 of 3 to 4 days * Commission inalization the PRSP week Chairman * Subcommittees Note: This "Overall Diagnosis" phase has an effective duration of 6 weeks. 25 Timetable of Activities Updated on 6/16/2001 Activity Responsible Date Comments party Start End 1. Legal and administra- tive * Steering framework (decree creating Committee Commission, administrative provisions, etc.) * Prime Minister's Chief of Staff Finalization on schedule in March 2001 2. Preparation of a reference * Office of the Finalized on profile President schedule in March 2001 3. Workshop initiating * Steering Commission's work Committee * Commission Finalized on schedule in May 2001 4. Drafting of support documents * Office of the and preparation of additional President studies * Subcommittees May 15, 2001 July 30, 2001 In progress 5. Preparation and holding of * Commnission States General on Combating Poverty * Steering Committee Aug. 1, 2001 Sep. 10, 2001 6. Development of macroeconomic * Individual May 15, 2001 July 20, 2001 In progress framework (PIP and provisional subcommittees PDP) 7. Production of sectoral reports * Subcommittees May 15, 2001 July 30, 2001 In progress 8. Conduct of additional studies * Commission July 20, 2001 Aug. 30, 2001 Initiated 9. Summary of sectoral reports and * Office of the preparation of draft PRSP President - International assistance July 20, 2001 Sep. 30, 2001 10. Preparation and initiation of * Office of the Sep. 15, 2001 Oct. 15, 2001 validation process President 11. Process of validation by * Steering semiprofessional groups and Committee partners * Commission Oct. 10, 2001 Dec. 20, 2001 12. Public awareness campaign * Individual and rounds subcommittees * Steering Committee Mar. 1, 2001 Mar. 1, 2002 * In progress * Round in Oct. 2001 13. Final forum and validation of * Steering PRSP Committee * Office of the President Jan. 15, 2001 Feb. 15, 2001 [sic] [sic] 26 DJIBOUTI: MATRIX OF ECONOMIC REFORMS A. BUDGET Timingj Policy area and Strategies and measures StatuLs objectives 1.1 Strictly monitor the exemption systems (beneficiaries, compliance with 1 Taxation: legislative regulations) and revise the relevant procedures as well as those lEnd 2001 increase 1.2 applicable to temporary admissions. inrevene 1.2 Withhold tax on services from water, electricity, and telephone bills. l.nd 2001 1.3 Identify and send reminders to delinquent taxpayers and introduce and then + 0.8% of GDP apply a new system of penalties. and improve 1.4 Draft a low on the merger of the ITS, CP and AN as well as the merger of Lnd 2001 the efficiency the BIC, EPM and BNC. and fairness of 1.5 Draft a law on the reform of litigation procedures and the system of Sept 2001 the System penalties, then secure its passage and enforce it. 1.6 Define schedule of reforms for 2002, particularly the study on the possible IEnd 200 creation of a general turnover tax. 1.7 Draft a law creating the tax identification number (numnero d'identitW Sept200l fiscale - NIF) system and require its use in all tax-related transactions. End 2001 2.1 Staff reduction : compulsory retirement, demobilization, and modernization Elnd 2002 2 Public expen- 2.2 of the civil service. diture: 2.2 Introduce new budget and accounting nomenclature with economic and Sept 2001 operational classifications. Reduce 2.3 Integrate the special accounts annexed to the budget. current 2.4 Lower the costs of higher education. 2002 expenditure 2.5 Establish budget regulation limiting expenditure commitment to revenue Sept 200 i by 2% and collected. Sept 2001 increase 2.6 Reach understanding with IMF staff on appropriations for priority Sept 2001 investments expenditure to be included in the supplementary 2001 budget. by 1.7% 2.7 Impose tighter controls on common costs and strictly contain wages and benefits. End 2002 3.1 Allocate sufficient funds to cover utilities (water, telephone, electricity). End 2001 3 Domestic 3.2 Pay one month's wages every 30 [days] and pay current retirement contributions. July2001 debt:ulanon 3.3 Pay all (nonwage) expenses in the month following signing and release of July 2001 accumnulation the check by the Treasury. of new arrears 3.4 Complete inventory, audit, validation and classification of arrears Nov 2001 and clearance 3.5 Finalize a detailed plan and mechanisms for the clearance of arrears of existing (cancellation of cross debts, restructuring, treasury bond issues, cash Dec 200i arrears payment). 3.6 Gradual clearance of domestic arrears E . ~~~~~~~~~~~~~~~~~~~~End -2001 l 4.1 Separate functions and overhaul the budget preparation function. End 2001 4 Management: 4.2 Transfer the Sub-Directorate of Enforcement to the Directorate of Revenue End 2001 and Land. Reorganize 4.3 Establish large enterprises unit and a tax audit structure. the fluflistrY 4.4 Revise procedures for greater efficiency and simplicity. and build 4.5 Strengthen cash management. End 2002 capacities Sept 200' 27 B. EXTERNAL DEBT: CURRENCY AND BANKS Timing/ Policy area and objectives Strategies and measures Status 1.1 Keep international reserves at sufficient levels to ensure FD July 2001 1 . Monetary system: coverage. Maintain the integrity of 1.2 Avoid government recourse to loans or advances from the BND July 2001 the currency board and domestic banks. system and free-market framework 1.3 Keep the BND from financing projects in the nonfinancial July 2001 private sector. 1.4 Maintain the current free-market framework: free exchange, Jul 2001 free determination of rates, unrestricted capital movements, free 2 trade ... .etc 2 Banking System: 2.1 In cooperation with the IMF, amend laws adopted in 2000 End 2001 Strengthen the system (banking law, BND charter), in particular to strengthen anti- and make it more money laundering efforts. efficient 2.2 For the BND, monitor compliance with the regulations in force by [conducting] regular inspections and strictly applying the July 2001 established penalties in the event of [violations]. End 2001 2.3 Complete the liquidation of failed banks (BDMO and Banque AL-Baraka. 3.1 Clear arrears to multilateral creditors and arrears on debt that End 2001 3 External debt: Prudence cannot be rescheduled. and clearance of arrears 3.2 Avoid any new accumulation of arrears in the servicing of July 2001 external debt. 3.3 Limit nonconcessional external borrowing contracted or guaranteed by the government and seek concessional loans. July 2001 3.4 Request rescheduling, on Naples terms, of debt to official End 2001 bilateral creditors. 4.1 Improve external debt monitoring by computerizing the March 2002 4 Management: management thereof and adopting the UNCTAD/DMPAS Strengthen debt system. Nov 2001 mianagement and BND 4.2 Finalize the supplementary BND personnel training program to supervisory capacities strengthen staff supervision capacities. 4.3 With IMF and World Bank support, seek assistance from other March 2002 donors and lenders to support this program. 28 C. STRUCTURAL REFORMS Timing/ Policy area and objectives Strategies and measures Status 1.1 Devise an overall strategy and sectoral privatization strategies zSept 2001 1 Privatization: as well as a plan and an implementation schedule for the four Establishment of public infrastructure companies. strategic, legal and institutional framework 1.2 Prepare and secure approval of a project to revise the End 2001 pnvatization law and develop implementing regulations. 1.3 Conduct a financial analysis of the accounts of enterprises to be March 2002 privatized and determine their value. 1.4 Establish the future regulatory agency, which could be June 2002 multisectoral. 2.1 Establish a Joint Commission (Finances/Employment). Sept 2001 2 Civil Service: Integrated Data File, Payroll/Civil 2.2 Define, adopt and implement a plan for the creation of the End 2001 Service integrated data file. 3.1 Make parametric adjustments. End 2001 3 Pension Fund: Financial viability 3.2 Update contributions, particularly of 730 government contract July 2001 workers and ensure regular payment of current contributions. 3.3 Update retiree and taxpayer databases. Sept 2001 3.4 Adopt a plan for refinancing the balance of cross debt with the government so as to cover the short-term deficit. End 2001 4.1 Prepare, with IMF staff, and secure approval of a reform of the End 2001 4 Legal Framework of the Labor Code to increase market flexibility. Economy: Promotion of the private sector and of 4.2 Draft a law on competition to promote competition in all transparency markets, including the banking market. "Aarch 2002 4.3 For all new investors, establish a one-stop shop to streamline procedures and provide necessary economic information End 2001 4.4 Prepare and secure approval of a reform of the investment code, deregulating the authorization and control procedures in particular. End 2001 4.5 Prepare and secure approval of a reform of the commercial code and introduce greater transparency. March 2002 5.1 Hire a high-level legal advisor with international experience for Sept 2001 5 Conduct and Monitoring the Privatization Unit. of Reforms: Strengthen 5.2 Hire a commercial bank for operations and privatization End 2001 capacities and acommes. modernize management actiVitieS. systems 5.3 Modernize the information, management and audit systems of June 2002 Retirement Funds. 29 D. ECONOMIC SECTORS Timing/ Policy area and Strategies and measures Status objectives 1. Transport 1.1 Study and mobilization of port of Doraleh financial resources. End 2002 .Iamsprov1.2 Institutional study of road network maintenance and finalization of Imiprove technical and economic studies and agreement on the route of the efficiency, lower southern corridor. operating costs 1.3 Rehabilitation of the Dikhil-Galafi section. March 2002 and increase 1.4 Prepare with Bank assistance a long-term program for development of End 2002 capacity the national road network beginning in early 2001 with new investment outlays initially focusing on road links to Ethiopia in order to underpin End 2002 the role of the port. 1.5 Increase of transport capacity. End 2002 1.6 New institutional arrangement aimed at concluding a concession agreement with a private company. End 2002 2. Telecommunica- 2.1 Preparation of a national telecommunications strategy End 2001 tions 2.2 Reinforcement and modernization of equipment. End 2002 2.3 Review costs and pricing of services. March 2002 3. Electricity: 3.1 Prepare a long- and medium-term plan for development of the electrical March 2002 Increase access system 2001/2003 to and reduce 3.2 Make necessary investments over time end 2001 costs of 3.3 Adjust rates electricity 4. Tourism 4.1 Prepare a development program including an action plan and March 2002 implementation schedule for tourism, particularly specialized tourism (scientific or sports-related) 4.2 Study and establish a method of promoting Djibouti as a tourist March 2002 destination among international tour operators. 4.3 Strive to reduce costs in the tourism sector. End 2001 5.1 Establish a legal, institutional, and fiscal framework to support the End 2002 5. Mineral development of resources such as salt, perlite, etc. resources 5.2 Promote the use of local materials in Construction and Public Works 2001/03 branches. 6.1 Promote exports or re-exports of livestock (especially small ruminants) to 2002/03 6. Exports the Gulf countries. 6.2 Implement necessary reforms and legal instruments to better prepare for End 2001 entry into force of the COMESA and benefit from it. 6.3 Promote export of fisheries products (to Reunion, EU, etc.) by removing 200212003 existing impediments (regulations) 6.4 Make economic operators in the zone aware of the advantages of the 2002/03 Djibouti market (transport system, banking system, etc.) 7.1 Prepare a management training program for each technical ministry March 2002 7. Management aimed at strengthening planning and analysis capacities. 7.2 Initiate a process of reorganizing technical ministries and modernizing End 2002 their management procedures and tools 30 E. SOCIAL POLICY AND POVERTY REDUCTION Timing/ Policy area and Strategies and measures Status objectives 1. Employment 1.1 Programming and supervision of 2nd phase tasks 2001 and income: 1.2 Implementation of the 2nd phase (ADETIP) 2001-2003 Provide income 1.3 Programming and prioritization of 2nd phase income-generating activities 2001 support to the (FSD) Id2001/2003 supoort by the 1.4 Implementation of the 2nd phase poor by 1.5 Completion of the ex-combatants social reintegration program (PRAC) 2001/2003 expanding employment opportunities 2.1 Raise gross school enrollment rate from 52 percent to 55 percent. 2001-2003 2. Education/ 2.2 Increase number of middle school students from 14,274 to 15,832. Health: 2.3 Increase the number of general secondary students from 3,398 to 4,095 and Human the number of teachers from 165 to 198. 2001-2003 2.4 Increase the number of technical and vocational students from 1,212 to resources 1,426 and the number of teachers from 124 to 131. development 2.5 Reduce the number of students from 1,306 to 1,237, and raise the number 2001-2003 of those studying at the Pole Universitaire de Djibouti from 619 to 733. The number of national university instructors will rise during the period from 25 to 29 2001-2003 2.6 Continue rehabilitation of secondary health centers in interior districts. 2.7 Construction of a surgical care facility and rehabilitation of internal medicine, maternity (MARTIAL) and delivery units. 2001-2003 2.8 Expand material and human resources of basic health units. 2.9 Establish a health research and planning office. 2001-2003 2.10 Develop a training program for health care workers and strengthen the capacities of the Professional and Social Training Center (Centre de 2001-2003 Formation Professionnelle et sociale). 3. Rural 2.11 Formulate a long-term national agricultural development programn (focused By end-2000 Development: on livestock and oasis agriculture) to be implemented beginning 2001. Improve rural 3.2 Formulate a long-term fisheries development program to be implemented standard of beginning 2001. living 3.3 Continue the special food security program aimed at developing 10,500 hectares on the Hanle, Gobaad, Assamo and Bissidouvou plains. 4 Housing 4.1 Launch a campaign to increase awareness of the Urban Development 2002 Master Plan 4.2 Draft an urban development and construction code 2002 4.3 Build 1,000 low-cost housing units 2002 4.4 Create a Housing Fund 4.5 Study on the development of local construction materials March 2002 4.6 Revitalize interdepartmental coordination 2002/2003 31 F. WATER AND ENVIRONMENT Timing/ Policy area and objectives Strategies and measures Status 1.2 Replace ancient wells supplying the capital and develop the 2002 1 Water ONED catchment area 1.3 Conduct study on the management and protection of 2002 Djibouti's groundwater and comparative study between water supply from the Hanle plain (200 km) and seawater desalination 1.4 Carry out hydrologic studies for secondary urban centers and 2002 carry out exploratory drilling. 1.5 Through regulatory oversight, require the privatized national 2002/2003 water company to address water scarcity by adopting water pricing policies that ensure the sustainable use of natural aquifers. 1.6 Survey, rehabilitate and maintain existing water sources and 2002/2003 create new ones in areas not currently served. 2.2 Reach understanding on a long-term national environmental 2002/2003 2 Environment protection programn focusing in particular on the establishment of an Environmental Law and creation of a national environmental monitoring and control agency. 2002/2003 2.1 As part of the anti-desertification program, carry out development works in drainage basins, hillside dams, excavations, and underground tanks 2.2 Continue the <" Main Verte >> [Green Hand] Program aimed at June 2001 planting 100,000 trees throughout the country. 3.1 Create a rapid alert system. 2002/2003 3.2 Revitalize cooperation with organizations and institutions 2002/2003 3 Natural disasters: Warn involved in this field and manage 3.3 Establish a permanent coordination and monitoring structure 2002/2003 within the Ministry of the Interior 32 G. GOVERNANCE AND MONITORING POVERTY REDUCTION Timing/ Policy area and objectives Strategies and measures Status 1. Rule of Law: Strengthen 1.6 Increase awareness of democratic institutions and their 2001-2003 democratic institutions and operations. attitudes 1.7 Promote understanding of democracy through education 2001-2003 and information. 1.8 Strengthen legislative and judicial capacities. 2001-2003 1.9 Promote the development of press and information organizations. 2001-2003 2. Transparency: Build trust 2.1 Gradually transfer decision-making and the management 2001-2003 between the public and the of local affairs to regional and local councils. government 2.2 Require the civil service to listen to the public and 2001-2003 increase civil service accountability. 2.3 Revise the judicial system to better adapt it to national traditions and customs and simplify and expedite its 2001-2003 operation. 2.4 Expand and increasingly formalize the possibilities of appeal against administrative decisions. 2001-2003 3. Participatory Process: Closely 3.1 Promote debate and broad consultation in the 2001-2003 involve the public in poverty establishment and prioritization of objectives and the reduction selection of strategies and measures. 2001-2003 3.2 Widely disseminate information on the issues. 2001 2003 3.3 Fully involve representatives of civil society, civil and socio-professional associations, and development partners in the work of the PRSP Committee. 4. Monitoring mechanisms: 4.1 Transform the existing PRSP Preparation Committee into 2001-2003 Strengthen the capacities of the SPR [Poverty Reduction Strategy] Monitoring and the PRSP Commnittee and Coordination Committee. deepen the analysis of poverty 4.2 Give the public a comprehensive accounting of obstacles 2001-2003 encountered and progress made, and include it in decisions concerning adjustments and corrections. 4.3 Establish operating and liaison structures, mechanisms and procedures. 2001-2003 4.4 Provide the Primature and, more particularly, the 2001-2003 Monitoring Committee with appropriate human and material resources. 4.5 Conduct supplementary studies necessary for preparation Sept 2001 of the PRSP, then those necessary for a better understanding of the phenomenon of poverty. 2002/2003 4.6 Conduct surveys and studies to assess the impact of poverty reduction measures. 33 List of Sectoral and General Studies Carried Out Economic Policy Framework Paper (PFP) + memoranda from IMF Draft Poverty Reduction Strategy Paper (in progress) World Bank Country Assistance Strategy (CAS) (2000-2003) WTO and UNCTAD Technical Assistance Program (1999) National Report on the Environment (Rio, 1992) National Report for the Copenhagen Social Summit (1995) National Report on Women (Beijing, 1995) National Report on Population (Cairo, 1995) Framework Paper for the Geneva Round Table (1997) Household Survey Report-EDAM-IS (1996-97) National Action Plan for the Environment (PANE) (2000) National Strategy for Biological Diversity National Report on Human Development 2000 (UNDP) Economic and Social Orientation Law (1991-2000) Five-Year Plan (1991-1995) Statistical and Foreign Trade Yearbooks (1990-1999) Government Budget and Supplementary Budget Laws (1992-1999) Government Political Program (1999) Special Program for Food Security (FAO) 1999 Primary Sector Development Strategy 2000-2010 Water Master Plan Report (2000) Action Plan and Guidelines for Education (2001-2005) Health Reform Policy 2001-2010 Action Plan for Reform of the Justice System (States General) Tourism Development Plan (1999-2001) National Evaluation Report on Implementation of the Beijing Platforms, presented in Beijing on June 5, 2000 Draft National Strategy for the Integration of Djibouti's Women in Development (December 2000) Housing Report Study on Economic Development in Djibouti within the Regional Framework (1998) Proposals for the Reform of the Djibouti Public Administration (October 1999) Master Plan for Urban Planning 34 Djibouti: Selected Economic and Social Indicators, 1998-2004 1998 1999 2000 2001 2002 2003 2004 Est Revised Projections National income and prices GDP at current prices 2.3 4.2 3.1 4.1 3.6 4.1 5.2 GDP at constant prices 0.1 2.2 0.7 1.6 1.6 2.1 3.1 Consumer prices (annual average) I/ 2.2 2.0 2.4 2.5 2.0 2.0 2.0 (In percent of GDP) Goverrnment finance Total revenue and grants 34.2 31.2 31.0 29.8 30.9 30.9 31.2 Revenue 25.4 23.7 24.4 24.4 24.0 24.0 24.1 Grants 8.9 7.5 6.6 5.4 6.9 6.9 7.1 Total expenditure 33.4 33.4 32.8 30.5 33.2 31.0 30.8 Current expenditure 26.7 30.3 30.1 28.0 27.9 27.0 26.4 Capital expenditure 6.7 3.1 2.7 2.6 5.3 4.0 4.4 Overall balance (payment order basis) 0.9 -2.2 -1.8 -0.7 -2.3 0.0 0.4 Change inamars (decrease-) -0.8 1.3 0.5 -2.8 -18.6 0.0 0.0 Overall balance (cash basis) 0.1 -0.8 -1.3 -3.5 -20.9 0.0 0.4 Financing -0.1 0.8 1.3 3.5 20.9 0.0 -0.4 External 0.7 0.5 0.6 2.7 4.0 2.3 2.2 Domestic -0.9 0.3 0.7 0.9 16.9 -2.3 -2.6 Banks -0.8 0.3 0.7 0.9 1.8 -0.3 0.0 Nonbank 0.0 0.0 0.0 0.0 15.2 -2.0 -2.6 Goverrnment dorestic arrears (stock) 2/ 20.2 21.8 22.1 19.3 0.0 0.0 0.0 Excluding arrears to public enterprises 19.3 18.6 19.2 16.3 ... ... Government domestic debt 21 17.6 17.0 ... ... ... ... (Change from preceding December; in percent of broad money) Money and credit Money and quasi money 8.2 5.2 1.1 4.1 4.1 4.1 5.2 Net foreign assets -2.4 5.7 -7.3 6.6 0.4 2.9 2.1 Net domestic assets 10.6 -0.5 8.4 -2.4 3.7 1.2 3.0 Clains on the central governrnent(net) -1.1 -0.2 1.2 1.7 3.4 -0.5 0.0 Ctaims on nongovernment sector 11.0 2.7 5.2 -3.1 0.3 2.3 2.9 Interest rates (in percent) Lending rates 7.0-14.7 7.0-14.0 12.1-14.1 ... Deposit rates 2.5-5.1 2.5-5.1 3.8-5.0 ... ... ... (In miillions of U.S. dollars, unless otherwise indicated) Extemal Sector Current account -3.3 -3.0 -39.7 -30.0 -29.9 -24.1 -21.8 Exports 59.1 69.2 75.4 75.8 77.0 78.0 88.2 Inports 239.5 251.7 270.3 263.8 265.9 271.1 285.0 Services (net) 97.6 104.5 86.2 92.2 94.3 97.5 101.0 Incone (net) 10.6 12.2 15.8 12.8 11.7 17.5 16.0 Transfers (net) 68.9 62.7 53.1 52.9 53.0 54.0 58.) Capital account 22.5 -1.2 30.7 30.0 26.5 27.0 23.0 Errors and ornissions (incl. priv. capital) -26.7 12.1 -9.1 7.8 -3.7 0.0 0.0 Overall balance -7.5 7.9 -18.1 7.9 -7.1 2.9 1.2 Financing 7.5 -7.9 18.1 -7.9 7.1 -2.9 -1.2 Monetaryrnovements(increase-) 6.4 -15.8 21.3 -24.8 -13.9 -9.4 -7.2 Exceptional Financing 1.1 7.9 -3.2 16.9 21.0 6.5 6.0 35 Djibouti: Selected Econonic and Social Indicators, 1998-2004 1998 1999 2000 Revised Projections Est. 2001 2002 2003 2004 Menuorandurn Items: Currency board gross foreign assets (end-period) In millions of U.S. dollars 64.4 70.4 67.6 69.9 72.0 73.9 77.1 Monetary and LOLR cover (in percent) 111.8 112.0 114.9 119.4 118.8 118.2 117.3 Asa ratio to currency issue 1.2 1.3 1.2 1.2 1.2 1.2 1.2 In percent of GDP Current account -0.6 -0.6 -7.2 -5.2 -5.0 -3.9 -3.3 Overall balance -1.4 1.5 -3.3 1.4 -1.2 0.5 0.2 Official extemal debt 5/ Before rescheduling (in millions of U.S. dollars) 337.0 336.9 369.9 400.7 426.4 448.3 466.6 Debt service ratio To exports of goods and services 6/ Obligations basis before rescheduling 5.5 6.3 7.9 4.7 6.0 6.1 4.7 Obligations basis after rescheduling 4.9 5.4 4.8 1.5 5.1 6.1 4.7 Public sector overdue obligations In millions of U.S. dollars 5.4 10.9 7.7 0.0 0.0 0.0 0.0 Exchange rate Exchange rate (DF/US$) end-of-period 177.7 177.7 177.7 177.7 177.7 177.7 177.7 Real effective exchange rate 7/ (End-year change in percent; depreciation-) -6.4 4.1 8.0 ... ... ... ... Sources: Djibouti authorities. i1/ For 1995-98 computed using Djibouti consumption weights applied to selected sub-indices from the French expatriate CPI. Data for 1999 and projections for 2001-2004 are based on the official CPI introduced in April 1999. 21 Arrears data from 1999 include wage arrears, arrears to private and public suppliers for goods and services, prelimninary estimates of arrears to the pension funds, and the arrears of the liquidated public agency that formerly controlled the grain trade. Debt data include debt to public enterprises and to the domestic banking system only. 3/ Beginning 1998 data include only three operating banks and exclude two closed banks which are being liquidated. 5/ Public and publicly-guaranteed debt of the central government and the public enterprise sector. 6/ Exports of locally-produced goods and nonfactor services. 7/ The REER is calculated using the CPI proxy as noted in footnote 1. 36