Djibouti

Djibouti continued after its independence in 1977 to operate a currency board arrangement, unaugmented by any additional monetary policy, despite recurring issues of overvaluation, and successfully resisted pressure from the IMF in the first half of the 2000s for a devaluation.

YearsTargets and attainmentClassification
1977-2017currency long fixed to USD (revalued 1971, 1973), with 100%+ coverage in USD deposits in New York, and fully convertible; 1978 Djibouti Treasury takes over issue of notes and coin; several foreign-owned commercial banks which do offshore as well as local business, set interest rates jointly and do not lend to public sector; 1983 new development bank; central bank set up at independence from France 1977 takes over currency issue in 1984, monitors (more than supervises) banks, does not lend to government and has no real monetary policy instruments; fiscal deficits funded in part by foreign borrowing and in part by treasury deposits with banking system; monetary policy constrained by trade and capital openness and by fixed exchange rates, but also geared to development of Djibouti as international financial centre; periodic shocks from developments in Ethiopia and Somalia, also off-and-on domestic tensions and armed conflict in 1990s; recurring issue of fiscal deficits and weak competitiveness; central bank comes to undertake more bank supervision; liquidity issues lead to termination of two domestic banks in 1999; early 2000s IMF argues for devaluation to unwind overvaluation, while authorities prefer (but find hard to implement) structural reforms; mid-2000s entry of new banks; 2008-9 border conflict with Eritrea; recurring drought; increase in foreign military bases within country; very high unemployment, growth from FDI in port and related facilities and other large projects but little use of local labour; financial sector underdeveloped, financing trade rather than SMEs, and fragile, with inclusion low; statistical database improved in later years but still weakpure currency board PCB

Selected IMF references: RED 1980 pp25-7, 37; SR 1982 pp7-8; RED 1984 pp27-8; RED 1985 pp38, 40; SR 1987 p5; RED 1990 pp34-5, 38-9, 49; SR 1990 pp12-15; RED 1994 pp25-7; SR 1998 pp18-19; SR 2001 pp24-5, 61-72; SI 2003 pp6-12, 50-2; SR 2003 pp12-13; SISA 2005 pp6-23; SR 2005 pp9-18; SR 2007 pp8, 11, 16-17, 19; SR 2008 pp17-18; SR 2013 pp16-18; SR January 2015 p6; SR 2019 pp14-15.

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