Country Report Djibouti November 2006

Summary

Outlook for 2007-08

The president, Ismaël Omar Guelleh, and the government of his coalition, Union pour la majorité présidentielle (UMP), will remain firmly in power over the forecast period. However, the UMP's unity could be threatened by ethnic tensions between its members. The Economist Intelligence Unit expects that the IMF is likely to await the outcome of the 2007 budget-planning process before reaching a decision on a new poverty reduction and growth facility for Djibouti. Real GDP growth is forecast at 4.7% in 2007 and 5% in 2008, reflecting the military presence of the US and France, and construction work on the new port at Doraleh. The Djibouti franc will remain pegged to the US dollar at the current rate of Dfr177.72:US$1, but-in line with the US dollar-it is expected to depreciate against the euro in 2007-08.

The political scene

Opposition parties have announced plans for a series of demonstrations during the summit of the Common Market for Eastern and Southern Africa (Comesa) in Djibouti in November, but these are likely to be suppressed by the government. Djibouti has been trying to mediate in the conflict in Somalia by seeking to persuade both sides, and neighbouring countries, to engage in dialogue without the involvement of foreign forces. A court in France has issued international arrest warrants against two senior Djibouti officials as part of its enquiry into the death of a French judge, Bernard Borrel, in 1995. Djibouti has condemned the move and the case continues to cloud relations with France.

Economic policy

International bodies have warned that the level of rainfall over the summer months was insufficient to restore food security in the Horn of Africa, including Djibouti. The continued rise in prices of essential food and non-food items, along with the resumption of education-related expenses, has hit Djibouti's poor especially hard. The government has started the 2007 budget process against a background of a growing fiscal deficit and borrowing requirement. The IMF has called for action to curb the fiscal deficit.

The domestic economy

Real GDP growth has been estimated at 4.2% in 2006 as the effects of port investment make themselves felt. Engineers have been appointed to start the construction of an interconnection cable to make cheap Ethiopian hydro-electric power available in Djibouti. The government has given an exclusive concession to a local company, Société d'exploitation du Lac Assal (Selac), for the large-scale exploitation of the vast salt flats around Lake Assal.

Foreign trade and payments

Djibouti has been preparing for the arrival of the Comesa heads of state for their annual summit on November 6th-16th. Customs revenue grew by 31% in September 2005-September 2006 as a result of privatisation and new investment.

© 2006 The Economist lntelligence Unit Ltd. All rights reserved
Whilst every effort has been taken to verify the accuracy of this information, The Economist lntelligence Unit Ltd. cannot accept any responsibility or liability for reliance by any person on this information
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