The International Monetary Fund has approved a $ 43.4 million loan to Djibouti to support the authorities’ response to the COVID-19 crisis, as well as serve as a debt relief under the Catastrophe Containment and Relief Trust.
Additional relief covering the period from October 14, 2020 to April 13, 2022 will also be granted subject to the availability of resources in the CCRT, potentially bringing total relief on debt service to the equivalent of SDR 6.03 million; about US$8.2 million.
IMF support will also provide additional resources for the essential health and other emergency spending, including social safety nets and will also help catalyze additional donor support.
Th fund is equivalent to SDR 31.8 million (around US$ 43.4 million, 100 percent of Djibouti’s quota) to help Djibouti meet the urgent balance of payment needs stemming from the COVID-19 pandemic.
The COVID-19 pandemic has considerably weakened near-term macroeconomic prospects for Djibouti. The country is facing a large negative external demand shock due to the global recession.
Domestically, virus prevention and containment measures are further affecting demand and supply. Output is projected to contract by 1 percent in 2020 and lower exports of services and foreign direct investment have opened up an urgent balance of payments financing need of the order of US$ 164 million.
The pandemic has also created urgent spending needs, including in the health sector, and is set to affect negatively government revenue.
Mr. Mitsuhiro Furusawa, Deputy Managing Director and Acting Chair, said “The COVID-19 pandemic is having a severe impact on Djibouti, creating urgent balance of payments and fiscal financing needs. The authorities acted swiftly to contain and mitigate the spread and impact of the virus. Their prevention and containment measures and decisions to scale up health and other emergency spending to protect households and firms hit by the crisis will help limit economic and social consequences.”
He continued that “The crisis and policy response will lead to a widening of the fiscal deficit this year. The IMF’s emergency financing under the Rapid Credit Facility and debt service relief under the Catastrophe Containment and Relief Trust will provide much-needed liquidity to support the authorities’ response to the crisis and could catalyze further assistance from the international community, preferably in the form of grants. The authorities are committed to use the additional resources transparently and to ensure that expenditures are well-targeted and cost-effective.”
“Once the crisis abates, temporary measures should be unwound, with policies refocusing on promoting a strong and inclusive recovery and preserving medium-term debt sustainability. It will be critical to address and prevent the recurrence of external arrears, ramp up operations of key projects, and reduce public sector borrowing.
“Reducing tax expenditures will also be important to create space for poverty-reducing spending. Efforts to strengthen banks’ balance sheets, enhance the business environment, and improve the governance and efficiency of public enterprises will be essential to foster strong and inclusive growth.”Mr Mitsuhiro concluded.
