Republic of Djibouti Public Expenditure Review Expenditure Public Djibouti of Republic Report No.34624-DJI Report No
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Report No.34624-DJIReport No. Republic of Djibouti34624-DJI Public Expenditure Review Republic of Djibouti Public Expenditure Review MakingPublic Disclosure Authorized Public Finances Work for Growth and Poverty Reduction April 2006 Social and Economic Development Group Middle East and North Africa Region Public Disclosure Authorized Public Disclosure Authorized Document of the World Bank Public Disclosure Authorized ABBREVIATIONS AND ACRONYMS ADETIP Agence djiboutienne d’exicution de travaux d’intirtt publics (Public Works Agency) BCI Banquepour le Commerce et I’lndustrie (Trade and Industry Bank) BDD Banque djiboutienne de diveloppement (Development Bank) BND Banque nationale de Djibouti (Central Bank) MTEF Medium-term Expenditure Framework CFPA Centre de Formation Professionnelle des Adultes (Vocational Training Center for Adults) CMR Caisse Militaire de Retraite (Military Pension Fund) CNR Caisse Nationale de Retraite (National Pension Fund) CNSS Conseil National de SecuritC Social UNCTAD United Nations Centre for Trade and Development COMESA Common Market for Eastern and Southern Afnca CREDES Centre de Recherche et d ’Etudespour le Diveloppement de la Santi (Health Research Center) DEN0 Dipenses engagies non ordonnancies (Committed Expenditures Without Order to Pay) PRSP Poverty Reduction Strategy Paper EDAM Enqugte djiboutienne auprBs des minages (Djibouti household survey) EDD Electriciti de Djibouti (Electricity company) PER Public Expenditure Review O&M Operations and Maintenance DF Djibouti Franc IMF International Monetary Fund GFS Global Finance Statistiques ICOR Incremental Capital Output Ratio FDI Foreign Direct Investment MFI Microfinance institutions MESN Ministry ofEmployment and National Solidarity MNESUP Ministry of Higher Education MS Ministry ofHealth MDG Millenium Development Goal WHO World Health Organization ONED Office National des Eaux de Djibouti (Water company) OPS Organisme de Protection Sociale (Social Protection) GDP Gross Domestic Product UNDP United Nations Development Program NPL Non-performing loans GNI Gross National Income SFP SystBme de laformation professionnelle (Vocational Training ) SMI Service Midicale Interentreprises (Inter-firm Medical Service) SNA Service National Adapte‘ (National Adapted Military Service) SRD Tax Collection Unit (Sous-direction de Recouvrement) REER Real Effective Exchange Rate TOFE Table ofGovernment Financial Operations VAT Value Added Tax HIV Human Immunodeficiency Virus REPUBLIQUE OF DJIBOUTI PUBLIC EXPENDITUREREVIEW TABLEOF CONTENTS ACKNOWLEDGMENTS ................................................................................................................... i INTRODUCTION................................................................................................................................ i EXECUTIVE SUMMARY ................................................................................................................. i PART I. AGGREGATE FISCAL ANALYSIS ................................................................................ 1 CHAPTER 1: MACROECONOMIC AND FISCAL PERFORMANCE .................................... 1 1.1. Macroeconomic performance..................................................................................................................................... 1 I .I . 1. Recent economic performance ............................................ 1.1.2. What explains Djibouti’s mixed and volatile growth perfo 1.1.3. Conclusions and policy implications ................................................................................................................... 9 1.2. Fiscal performance: main features of fiscal adjustment ........................................................................................ 11 1.2.1. Introduction ....................................................................................................................................................... 11 1.2.2. Size of the Fiscal Adjustment .................................................................... ............................................... 11 1.2.3. Quality of the Fiscal Adjustment ..... ............................................................................................................ 12 1.2.4. Conclusions and policy implications ................................................................................................................. 14 1.3. Medium-term economic outlook and policy goals .................................................................................................. 18 1.3.1. Medium Term Economic outlook ......................................................................................................... 18 1.3.2. Djibouti PRSP: Objectives. Strategy and Financing Assumptions ................................................................... 18 1.3.3. Evaluation of the PRSP: Joint World BanWIMF Assessment......................................... CHAPTER 2: ASSESSING PUBLIC EXPENDITURE PERFORMANCE ............................... 21 2.1. Criteria for assessing public expenditures .............................................................................................................. 21 2.2. Fiscal Sustainability Analysis ................................................................................................................................... 22 2.2.1 . Introduction ....................................................................................................................................................... 22 2.2.2. Overview of level and composition of debt .............................................. 2.2.3. Debt Sustainability Analysis ...................... ................................................................................ 23 2.2.4. Broadening the analysis offiscal sustainability: contingent liabilities ........................... 2.3. Inter-Sectoral Analysis of Public Expenditure ....................................................................................................... 38 2.3.I . Introduction ....................................................................................................................................................... 38 2.3.2. Overall level of government expenditure ....................................... .................. ...............38 2.3.3. Functional composition of expenditures: levels. shares and pe e....................................................... 39 2.3.4. Economic composition of expenditures: levels. shares andperformance ......................................................... 45 2.3.5. A closer look to the composition of current expenditures ................................................................. 2.3.6. Capital expenditures : levels. sources offinancing and sectoral composition .................... 2.3.7. Conclusions and policy implications ........................................................... .......... CHAPTER 3: ASSESSING REVENUE PERFORMANCE ........................................................ 65 3.1. Criteria for assessing revenue performance............................................................................................................ 65 3.2. Level and composition of tax revenue ...................................................................................................................... 65 3.2.1. Level of Tax Revenue ......................................................................................................................................... 66 3.2.2. Composition of Tax Revenue .............................................. overnance ...................................................... ........................................................................ 3.3.2. Tax arrears .. ................................................................................................. 75 3.4. The role of official grants and military-related receipts ........................................................................................ 75 3.5. Tax administration .................................................................................................................................................... 77 i 3.5. I . Direct tax collection .. .......... 78 3.5.2. Indirect tax collection ........................................................................................................................................ 79 3.6. Revenue reform agenda: current status and challenges ahead ............................................................................. 80 PART I1. GOVERNANCE AND PUBLIC FINANCE MANAGEMENT .................................. 83 CHAPTER 4: ASSESSING THE QUALITY OF GOVERNANCE ............................................ 83 4.1. Djibouti’s position in global governance data ......................................................................................................... 84 4.2. Internal Accountability: National Checks and Balances ....................................................................................... 85 4.3. External Accountability: Elections, the Media and Civil Society Oversight ........................................................ 86 4.4. Assessing the impact of governance on service delivery and the business climate .............................................. 87 4.4.1. Governance and sewice delively ......................................................... :............................................................ 87 4.4.2. Governance and the business climate ..............................................................................................................