Document of The World Bank Report No. 21414-DJI MEMORANDUM OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A COUNTRY ASSISTANCE STRATEGY FOR THE REPUBLIC OF DJIBOUTI February 8, 2001 Middle East Department Middle East and North Africa Region CURRENCY EQUIVALENTS (Exchange rate fixed under currency board arrangement) US$1.00 = 177.7 Djibouti Francs (DF) FISCAL YEAR January 1-December 31 ABBREVIATIONS AND ACRONYMS AFD = Agence Francaise de Developpement AfDB = African Development Bank ADETIP = Agence Djiboutienne d'Execution de Travaux d'Interet Public AMLDBS = Arab Multilateral Development Banks CAS = Country Assistance Strategy CPPR = Country Portfolio Performance Review DF = Djibouti Franc ESAF = Enhanced Structural Adjustment Facility EU = European Union FGM = Female Genital Mutilation GDP = Gross Domestic Product GEF = Global Enviromnental Fund IDA = International Development Association IGAD = Inter-Governmental Authority on Development IMF = International Monetary Fund MNA = Middle East and North Africa OED = Operations Evaluation Department OPEC = Organization of Petroleum Exporting Countries PATARE = Projet d'Assistance Technique a la Reforme Economique PPP = Purchasing Power Parity PRGF = Poverty Reduction and Growth Facility PRSP = Poverty Reduction Strategy Paper SAC = Structural Adjustment Credit SBA = Stand-by Arrangement UN = United Nations UNDP = United Nations Development Programme UNEP = United Nations Environmental Fund UNFPA = United Nations Fund for Population Activities Vice President: Jean-Louis Sarbib Director: Inder K. Sud Task Team Leader: Osman S. Ahmed ii DJIBOUTI COUNTRY ASSISTANCE STRATEGY Contents Executive Summary .............................................. iii I. Country Context ...............................................1 A. Political and Social Milieu ...............................................1 Background ...............................................1 Recent Economic Trends ...............................................2 Poverty Dimensions and Trends ...............................................3 Other Social Issues ...............................................5 B. Structural and Environmental Issues ...............................................7 Structural Issues ...............................................7 Environmental Issues .............................................. 10 II. Country Development Program and Prospects .............................................. 11 Government Development Priorities and Strategic Goals ................................. 11 Medium-Term Outlook (2000-2003) .............................................. 12 III. Bank Group Assistance Strategy .............................................. 14 A. Lessons From the Past .............................................. 14 B. Strategic Focus of the CAS .............................................. 15 Supporting Poverty Reduction and Human Development ................................. 15 Restoring Growth and Fiscal Sustainability .............................................. 17 Partnership-building/Donor Coordination .............................................. 19 Portfolio Management ............................................... 21 C. Lending and Nonlending Services .............................................. 23 IFC, MIGA, and Collaboration with the IMF .............................................. 24 D. Performance Monitoring and Evaluation .............................................. 24 IV. Major Risks and Their Management .............................................. 25 Boxes Box 1: Poverty in Djibouti .........................................4 Box 2: Selected Social Indicators .........................................5 Tables Table 1. Recent Trends in Selected Economic Indicators ..........................................3 Table 2. Base Case Economic Scenario .............................................. 13 Table 3. External Assistance .............................................. 21 Table 4. Portfolio Performance and Targets .............................................. 22 Table 5. Triggers for Moving Between Lending Scenarios ..................................... 24 i Annexes 1 Nonlending Services FY2001-03 Al Djibouti at a Glance BI CAS Matrix B2 Selected Indicators of Bank Portfolio Performance and Management B3 Bank Group Program Summary B4 Summary of Nonlending Services B5 Djibouti Social Indicators B6 Key Economic Indicators B7 Key Exposure Indicators B8 Status of Bank Group Operations Map Executive Summary i. Djibouti is a small state, strategically located at the southern end of the Red Sea. Its principal asset is its port. The country has a poor physical and human resource base. Its relatively high per capita income masks some of the highest rates of poverty, illiteracy, morbidity, and maternal and infant mortality in the world. It faces the constraints of most small states-susceptibility to external developments, limited scope for diversification, limited production capacity, and income volatility. Over the past two decades, Djibouti's situation has become increasingly precarious, with stark declines in per capita income, severe structural problems, and declining external assistance. The country's regional economic importance-built on its relative stability and open economic policies that gave it a comparative advantage in external trade and capital account transactions-has declined in recent years as neighboring countries have adopted market-oriented policy reforms and Djibouti's own economic situation has deteriorated. Structural Reform Is Ongoing ii. The main objectives of the government's current reform program are to achieve macroeconomic stability and fiscal sustainability; address poverty by reallocating resources to priority areas such as education, health, and social protection; and stimulate private sector-led growth by reducing the role of the state and liberalizing the business environment. iii. To reverse the country's recent economic decline and capitalize on its strategic assets, the government of Djibouti concluded an IMF Stand-By Arrangement (1996-98) to stabilize and reform its economy. It is now in the midst of an IMF-supported Poverty Reduction and Growth Facility (1999-2003). A complementary Bank structural adjustment credit in the amount of $15 million is being prepared. The Country Assistance Strategy Complements the Reform Efforts iv. The purpose of this CAS-the Bank's first for Djibouti-is to design an assistance strategy for FYO1-03 that has the ultimate objective of a sustainable reduction in poverty. This strategy is based on two pillars: * Direct interventions to reduce poverty which will focus on reversing the extremely low enrollment rate in education; addressing overwhelming needs in health, particularly those related to epidemic rates of HIV/AIDS and tuberculosis; and preparing a program of assistance for vulnerable groups to cushion the impact of adjustment. * Measures to provide the basis for growth and employment generation supported through structural reforms designed to restore competitiveness and create opportunities for private investment, and developing associated infrastructure services for the port to take full advantage of increased traffic transit to and from Ethiopia. v. The structural adjustment program will reduce poverty in several ways over the medium and the long term. Improved budget management and financial sustainability will remove a source of vulnerability for the poor by generating a stable fiscal and macro framework for development. Improving the financial sustainability of government pension funds will address iii the very real problem of old-age poverty by helping to ensure that pensioners do not fall below the poverty line. Finally, privatization will generate productive employment, gradually offsetting short-term job losses and reducing poverty in a sustainable way. Lending Scenarios vi. The program stipulates credits of $22 million in the base case' and $30 million in the high case over the FY01-03 period. The base case lending program includes an adjustment operation to support the government's structural reform program, a health project, and an education APL-School Access and Improvement Program-which is accompanying this CAS. The high case adds a structural adjustment operation with a social protection component to deepen the adjustment program. In the case of a significant deterioration in stabilization and structural reforms, lending will drop to $10 million-the low case-and will be limited to the education APL. vii. The principal difference between the base and high cases is the rate of progress in policy reforms and portfolio implementation. Criteria for measurement of the base case include improvement in portfolio performance, satisfactory progress in implementing stabilization and structural reforms, and concrete steps in improving governance. Performance criteria for the high case include a significant adjustment in the overall cost-price structure to enhance the country's competitiveness and progress in improving governance, including improved transparency and accountability in public resource management. viii. The CAS includes a range of nonlending services to assist the government in implementing structural reforms, reducing poverty, and mobilizing donors while building the Bank's knowledge base. Planned nonlending services during FYO1-03 include: (a) a privatization strategy and implementation support note; (b) a pension fund reform strategy note focusing on measures to strengthen the financial viability of pension funds and to enable the government to carry out broader civil service reform; (c) analytical notes to assist the government in preparing a poverty reduction strategy paper; (d) a public expenditure review; (e) an education sector strategy note; (f) a health sector strategy note; (g) a social protection strategy note; (h) a country financial and auditing assessment; and (i) donor coordination to mobilize resources around development objectives in poverty reduction and human development. ix. An important feature of the proposed assistance strategy is a regular evaluation of the strategy's impact in key areas of poverty reduction. The CAS therefore proposes to focus on indicators such as poverty ratios, infant and maternal mortality, and child malnutrition. Because the full impact of interventions on these indicators can be observed only in the longer term, the Bank will use intermediate indicators such as job creation, private investment, enrollment in basic education, and the proportion of the population with access to health services during the interim period. The benchmarks for these indicators, with the exception of those for education already agreed upon with the government, will be developed during the preparation of the Poverty Reduction Strategy Paper (PRSP). IThe Structural Adjustnent Credit which was scheduled for FY00, slipped to FY01. As a result, actual lending in FYO1-03 under the base case will be $30 miUlion and $38 million under the high case to reflect the carryover. iv The Bank's Comparative Advantage x. The Bank's comparative advantage in Djibouti is three-fold: first, to complement the government's stabilization and structural adjustment efforts; second, to mitigate the likely short- term effects of adjustments and develop human resources through selected investments in the social sectors; and third, to mobilize and coordinate donor support around well-articulated poverty-reduction strategies, a particularly important catalytic role given the massive development needs of the country. xi. The main risks to this assistance strategy are the country's weak institutional capacity, possible erosion of political support for structural reforms, and adverse regional developments that could affect Djibouti. To address issues of weak capacity, the Bank will focus on a few key institutions, and will provide technical assistance through its lending and nonlending program. To help build support for reforms, the Bank will work with the government and the civil society to conduct public discussions of needed reforms. The Bank will also assist the government in implementing the structural reform program by mobilizing support for targeted assistance to the poor and vulnerable groups. The most important external risk remains the impact of adverse regional developments, including spillover from regional conflicts and influxes of refugees from neighboring countries. To contain the sources of regional instability, Djibouti has started to play a more active role in mediating regional conflicts. Issues for Board Discussion xii. The following issues are suggested for Board discussion: * Is the mix of assistance consistent with the country's development problems as identified? * Is the proposed program of assistance sufficiently focused? * Is the level of assistance commensurate with country performance and needs? MEMORANDUM OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A COUNTRY ASSISTANCE STRATEGY FOR THE REPUBLIC OF DJIBOUTI I. Country Context A. Political and Social Milieu Background 1. Djibouti, located at the southern entrance of the Red Sea, covers an area of 23,000 sq. km and has an estimated population of 700,000, about two-thirds of whom live in the city of Djibouti. Most of the remaining people live in a handful of secondary towns. The average annual rate of population growth during 1993-99 was 2.8, including the impact of refugees from neighboring countries. The natural rate of population growth is estimated at about 2.3 percent. 2. France established the port of Djibouti in 1892 as a coaling station for ships traveling to its possessions in the Indian Ocean and Far East. Four years later, Djibouti became a French territory. In 1977, after 80 years of colonial rule, Djibouti gained independence from France. At the time of independence, an agreement between France and Djibouti provided for a French military presence and development assistance, including sizable budgetary support. Recent cutbacks in this rnilitary presence and aid, as well as other external assistance have hurt the economy. 3. Djibouti's population is composed of Issas, a Somali sub-clan, and Afars, who also extend into Ethiopia and Eritrea. The country experienced a civil war in 1991-94 as a result of dissatisfaction among the Afars-who constitute about 35 percent of the population. With the exception of the 1991-94 civil war, Djibouti has been a stable country in the Horn of Africa, a fact that has tended to increase Djibouti's regional importance far beyond its size and resource base. 4. Djibouti has a relatively open political and economic system, with an elected president, a parliament, and an independent judiciary. The country's economy has been quite open, with a liberal trade and exchange system free of capital and exchange restrictions. Those characteristics made Djibouti an important economic center in the region, particularly for external trade and capital account transactions. Exports of goods and services as a share of GDP are 47 percent. The country has a currency board arrangement, under which currency in circulation cannot exceed the amount of foreign exchange reserves. Since 1949 the nominal value of the Djibouti franc has been linked to the U.S. dollar at a fixed parity of DF177.7/US$1. This has important implications for economic policy, as it imposes strict limits on the ability of the government to finance its fiscal deficit. In recent years, the adoption of market-oriented policies by neighboring countries and the deterioration in Djibouti's own economic situation have undermined the country's regional importance. 5. Djibouti's economic base reflects its poor resource base and strategic location. Services account for about 70 percent of GDP, centered on the activities of the port and associated road and railroad links. The share of public administration in value added amounts to 27 percent, while transport and telecommunications account for another 18 percent. Agriculture and industry account for only 3 and 17 percent of GDP, respectively. With infertile soil and low rainfall (less than 0.3 percent of the land is cultivable), and agriculture plays a very limited role. Fisheries, a potentially important resource, remain untapped due to lack of domestic demand and noncompetitive labor and pricing policies. Recent Economic Trends 6. Djibouti's economy has experienced severe internal and external shocks, including a civil war during which the size of the armed forces jumped from 4,000 to 16,000 in one year alone; influxes of refugees from neighboring countries estimated at 120,000 in 1996, which constituted some 20 percent of the population at the time; continuing regional conflicts (most recently between Ethiopia and Eritrea); and sharp declines in external assistance. 7. Public investments financed by external grants following independence boosted growth to 4.2 percent during 1978-84; but this economic expansion was not sustainable, and the economy stagnated for much of the ensuing period. Real GDP grew by less than 1 percent per year on average over the past decade and a half, while natural population growth averaged 2.8 percent per annum during the same period. Despite a modest pick-up of economic activity in 1998-99, per capita income growth remained negative. Large external transfers and foreign savings have helped to finance fiscal and current account deficits. 8. Following independence, there was a large increase in the size and role of government, which embarked on a large and externally financed public investment program and became the employer of last resort. This led to a substantial increase in public sector employment, with wages and salaries rising to 68 percent of current outlays by 1995. Despite high fiscal revenues-amounting to an average of about 30 percent of GDP since the early 1980s-the overall fiscal balance on a commitment basis continued to deteriorate, reaching -8.1 percent of GDP in the wake of the civil war in 1994. 9. The worsening fiscal position was also accompanied by a deterioration in control and management of public expenditures. The growing stock of domestic arrears has led to a loss of credibility in claims on the state and an escalation in the use of ad hoc procedures, such as uncontrolled advanced payments, that often circumvented the normal accounting and control system. Moreover, such procedures have reduced transparency and accountability, contributing to further overruns. 10. In an attempt to reverse the economic decline, the government began a macroeconomic adjustment program in 1996-98 with the support of an IMF Stand-By Arrangement (SBA). Under the program, which relied mainly on cuts in public expenditure, the government succeeded in reducing macroeconomic imbalances temporarily. The fiscal deficit was reduced from 8.1 percent of GDP in 1995 to a small surplus in 1998, owing to reductions in the wage bill combined with a demobilization program for military personnel. The improvements in the fiscal situation could not be sustained, however, and the budget position slipped back to a deficit of 2.1 percent in 1999, compared to a target deficit of 0.4 percent. The stock of domestic arrears- which was to be reduced under the SBA-actually increased by 1 percent of GDP in 1999, reflecting continued difficulties in stabilizing the budget. At the end of 1999, the total stock of domestic budgetary arrears amounted to about 23 percent of GDP. Growth in 1998 and 1999 improved slightly to about 1.5 percent on average per year, reflecting Ethiopia's decision in mid- 2 1998 to divert its transit trade from Eritrea to Djibouti. This appears to have opened new avenues for growth that have yet to be fully exploited. 11. To deepen the stabilization effort (which has been only partially successful under the SBA) and lay the basis for sustainable growth, the government initiated a medium-term (1999- 2002) structural adjustment program supported by an IMF Poverty Reduction and Growth Facility (PRGF). In the last quarter of FY00, the government also requested Bank support for its stabilization and structural adjustment program, also supported by the 1MF and other donors. The main objectives of the program are: (a) to strengthen public finance, contain the budget deficit, and achieve macroeconomic stability; (b) trim expenditures and reallocate resources to priority areas such as education, health, social protection, and operations and maintenance; and (c) implement a series of structural reforms aimed at removing impediments to private sector-led growth. Table 1. Recent Trends in Selected Economic Indicators 1995 1996 1997 1998 1999 (Annual change in %lo) Real GDP at market prices -3.6 -1.5 0.0 1.7 1.4 Inflation (CPI) 4.5 2.6 1.6 0.1 2.0 (In % of GDP) Government revenue & grants 31.1 30.6 31.0 34.2 31.2 Of which grants 2.0 1.8 3.8 8.9 7.5 Recurrent expenditures 35.6 30.6 31.0 26.7 30.2 Current surplus/deficit (-) -4.4 0.0 0.0 7.5 1.0 Investment expenditures 3.7 3.9 4.3 6.7 3.1 Overall fiscal balance -8.1 -3.9 -4.3 0.9 -2.1 (In millions of US dollars) Exports of goods & services 229.1 227.8 231.0 265.5 271.1 Of which merchandise 37.6 39.6 42.6 59.1 69.2 Imports of goods & services 295.1 291.0 294.7 337.6 351.4 Of which merchandise 206.8 200.7 204.0 239.5 264.4 Net current transfers 49.0 46.9 52.2 68.9 61.8 Current account balance -17.0 -16.2 -11.5 -3.2 -18.5 (In % of GDP) Official external debt 57.4 59.5 54.2 56.1 54.1 Stock of domestic debt 18.7 19.0 18.8 17.6 17.0 Stock of domestic arrears 23.1 22.0 23.9 22.4 23.4 Official exchange rate (DFIUS$) 177.7 177.7 177.7 177.7 177.7 Source: Official data (Ministry of Economy and Finance). Poverty Dimensions and Trends 12. Incidence of Poverty. A 1997 World Bank poverty assessment reports that approximately 45 percent of the population is poor, and 10 percent are extremely poor (not able to buy the food required for a minimum caloric intake). Although poverty is deeper in rural areas, most of the poor (52 percent) and extremely poor (72 percent) live in the city of Djibouti. Poverty is exacerbated by the presence of a high number of refugees (currently representing 28 percent of the population) from neighboring countries, who further tax the country's already overstretched social service capacity. In addition to refugees, nomads (19 percent), the homeless, and a small but growing number of street children are the most vulnerable groups. 3 13. Poverty is highly correlated with education, employment, household size, and gender of the head of household (Box 1). Households with lower levels of education are at a higher risk of being poor. Those with household members employed in the formal sector are much less likely to be poor. Households with large numbers of children and those headed by females are more likely to be poor. Box 1. Poverty in Djibouti The Bank assessed poverty in Djibouti in 1997 (Djibouti: Crossroads of the Horn of Africa). The poverty profile that underpinned the report was constructed in 1996 from a household survey and complemented by a community-based participatory poverty assessment. Two poverty lines were defined. The "indigent poverty line" was equivalent to DF100,229 per year per adult (about $1.50 a day) and corresponded to the cost of the food required to provide 2,100 calories per day per adult. The "poor poverty line" was equivalent to DF216,450 per year per adult (about $3 a day), calculated by augmenting the indigent poverty line by an allowance for non-food consumption. The results of the 1997 poverty assessment, which remains generally valid, can be summarized as follows: * Ten percent of the population fall below the "indigent poverty line," and 45 percent are below the "poor poverty line." Poverty in rural areas is as high as 86 percent. * The high concentration of poor households in urban areas presents certain policy advantages in the fight against poverty. * A poor household in Djibouti is most likely headed by an older woman, with fewer than two unskilled adults employed in low-paying jobs, and a relatively large number of children who cannot afford to attend school. * About 60 percent of families (90 percent of the poor) do not have access to in-house tap water, and the poor often pay twice as much for water (from water trucks) than families connected to the urban water supply system. * Because of lack of access, the poor do not seek medical care except in very serious cases. Dispensaries and other primary health care facilities are in generally poor condition. Poverty appears to be deepening with Djibouti's poor economic performance, rising unemployment, and fiscal imbalances, all of which reduce the government's ability to honor its financial obligations, including wages, and to deliver essential public services. 14. Social Indicators. Despite its relatively high nominal per capita income of $780 (compared to an average of $510 for Sub-Saharan Africa, $320 for Yemen, and $110 for Ethiopia), Djibouti has one of the poorest sets of social indicators in the world. Gross primary school enrollment is less than half the average for Africa (39 percent of school age population, compared to 78 percent for Sub-Saharan Africa). Health indicators are below regional standards. Approximately 33 percent of the population lacks access to potable water, and sanitary conditions, especially in the city of Djibouti, are very poor. The incidence of infectious diseases such as tuberculosis and HIV/A1DS is high and rising. The AIDS prevalence rate is 10 percent. Infant mortality is 106 per thousand live births, compared to an average of 92 for Sub-Saharan Africa, 45 for the Middle East and North Africa, and 82 for Yemen. High maternal mortality (740 per 100,000 live births) can be largely attributed to high fertility rates, anemia caused by malnutrition, and the widespread practice of female circumcision (FMG). Overall life 4 expectancy of 50 is the average for Box 2. Selected Social Indicators Sub-Saharan Africa but below that of Djibouti Sub- Yemen Yemen (56), which has a much lower Saharan Africa per capita GDP. Life expectancy at birth 50 50 56 Infant mortality (per 1,000 live births) 106 92 82 15. Employment. The sharp Unemployment 45% - 9.6% Gross primary enrollment 39% 78% 70% decline in per capita income and rising Male 44% 85% 100% unemployment have worsened poverty. Female 32% 40% Unemployment is officially estimated Mortality at delivery (per 100,000) 740 --- 350 at about 45-50 percent, but it is believed that the true rate could be considerably higher. Almost 80 percent of those aged 15-20 are unemployed. The public sector accounts for 56 percent of employment, followed by the informal sector (24 percent) and the formal private sector (20 percent). Public sector reforms, including privatization of major public enterprises and downsizing of the civil service and security services as envisaged under the government's economic reform program, are likely to increase unemployment in the near term. With respect to core labor standards, Djibouti is a signatory to International Labour Organization (ILO), Conventions on Freedom of Association, Collective Bargaining, Forced Labor, Equal Treatment, and the Recent (1998) convention on Harmful Child Labor. ILO is assisting the government in revising the labor law. 16. High Cost of Living and Skewed Distribution of Income. Djibouti's per capita income figures tend to understate the extent of underlying poverty. First, standards of living are below nominal incomes, reflecting Djibouti's high price-cost structure and low social services. Because the country is almost entirely dependent on imports and the Djibouti Franc has been tied to the U.S. dollar since 1949, the cost of living is relatively high. Second, according to the 1997 poverty assessment, income distribution is highly skewed. The lower 80 percent of the population receive less than a third of income. Those able to find employment in the formal sector have incomes at least three times higher than the national average. Third, formal safety- net mechanisms are almost nonexistent, and the pension funds are insolvent. Strong family ties appear to provide a mechanism for redistribution of income, whereby the relatively high wages paid to civil servants trickle down to a larger base. Other Social Issues 17. Education. Given the low level of primary school enrollment and poor quality of the educational syst^,m, education is a top priority sector for the government and the Bank. The government has developed a national education strategy that aims to reach 80 percent primary enrollment by 2010. The Bank is preparing an education strategy note as an additional input into that process. The strategy will support the education APL -School Access Improvement Program that is accompanying this CAS- as well as help coordinate donor support around a coherent, prioritized road map for the sector. The Bank has supported the government in mobilizing support from other donors, including a donor roundtable that took place in October 2000. The objective of the strategy will be to expand access to primary school to all Djiboutians, narrowing the existing gender gap in school participation and upgrading quality by making available school materials and qualified teachers. The ongoing, Bank-financed social fund and public works project (Agence Djiboutienne d'Ex6cution de Travaux d'Interet Public, ADETIP) is helping to rehabilitate schools and is expected to be used in the construction of new classrooms. 5 18. Health. As indicated above, health indicators are very poor and deteriorating, and infectious diseases, HIV/AIDS, and malnutrition all appear to be increasing. The available health care facilities are swamped by patients coming from neighboring Ethiopia and Somalia. Free health care contributes to the influx of refugees seeking treatment in Djibouti. Although the country spends about 7 percent of GDP on health, well above the regional average, service delivery is very poor. External assistance, notably from France, Italy and Spain, accounts for 30 percent of expenditures on health care, but assistance has declined, putting additional pressure on an overtaxed and inefficient system. 19. Gender. Women represent a very vulnerable segment of the Djiboutian population. Mortality at delivery is 740 per 100,000, one of the highest rates in the world. This problem is due to high fertility rates, anemia caused by malnutrition, and the widespread practice of female genital mutilation (FGM). About 99 percent of women have been subjected to female circumcision, which tends to exacerbate other health problems. A law prohibiting the practice was adopted in 1995, but it is difficult to enforce it because of private nature of the procedure. UNICEF, the Ministry of Health, CARITAS (a Catholic charity NGO) and UNFPA in 1999 jointly initiated a project to eradicate female circumcision. A multi-institutional professional team conducted awareness meetings with a number of decision-makers. In addition, sensitization meetings were conducted with religious leaders to address the problem of female circumcision and to identify ways to stop it. 20. Gender gaps in literacy and access to education are significant but narrowing. There are about 80 girls for every 100 boys attending primary and mniddle school, and 70 for every 100 boys in secondary school. Female illiteracy is twice as high as that for men in the 20-40 age group. Although women play an active role in the informal sector, especially trade and commerce, and as herders in nomadic communities, few hold formal-sector jobs and very few are in management positions. A newly created Ministry for Gender is attempting to implement the national laws against FGM, encourage greater female participation in national issues, and foster the development of women's NGOs. 21. The UNDP and UNFPA provide some assistance to the Ministry of Gender, mainly in capacity building. The Bank-financed social fund and public works project (AGETIP) supports capacity building for women's NGOs and provides credit to micro-enterprises, many run by women. The School Access and Lmprovement Program has explicit targets for reducing the gender gap in schooling. A health project (FY02) would target the country's high rates of infant and maternal mortality. The Bank will continue to work closely with other donors, including specialized UN agencies, to address critical gender issues. 22. The Problem of Qat. Considerable time and resources are devoted to chewing qat, an amphetamine-based stimulant grown mainly in Ethiopia and Yemen. Most adult males in Djibouti chew qat in all-male gatherings for up to 5-6 hours a day, taking time from work and family life and adversely affecting labor productivity. While precise figures are not available, it is estimated that qat absorbs up to 30 percent of family budgets. Even the poorest families spend a considerable share of their budget on qat. Official import figures show that about 4,000 tons, valued at DF3.00 billion ($17 million), were imported in 1998, among the highest import items. Long-term use of qat has been shown in other countries to be associated with mouth cancer and 6 other health problems, including child malnutrition and mortality. Despite demonstrable costs, there is little public discussion or effort by the authorities to reduce qat consumption.2 B. Structural and Environmental Issues 23. Djibouti's poverty stems in part from its poor resource endowments-a severe shortage of water, a hot and arid climate with summer temperatures as high as 50°C, and little arable land. These constraints have been compounded by a set of political, social, and econoniic factors that hamper growth and deepen poverty. Labor, for example, is costly but largely unskilled, a fact that reduces prospects for development of the trading sectors. Structural Issues 24. Fiscal Imbalances. One of the main policy challenges facing Djibouti is its continuing weak fiscal position, which poses difficult challenges for macroeconomic stability. The country has yet to reach the key objective of macroeconomic stabilization in spite of a five-year effort to implement an IMF-supported SBA and more recently, a PRGF. Accumulation of domestic arrears (notably unpaid salaries and pensions) has continued since 1995. By the end of 1999, arrears amounted to DF20.8 billion ($117 million)-23.4 percent of GDP-of which DF6.8 billion ($38 million) were wages and salaries, DF3.6 billion ($20 million) were to private suppliers, DF2.9 billion ($16 million) were to public enterprises, and DF7.3 billion ($41 million) were to the pension funds. Despite the SBA, under which Djibouti was to have begun reducing these arrears, progress has been limited. While the 1999 budget was to have reduced arrears by DF1.2 billion (6.8 million), the most recent IMF fiscal review suggests that the level may have increased by a further DF200 million ($1 million) in 1999, indicating increasing difficulties in stabilizing the budget. 25. The government appears to have little margin left to deal with the declining fiscal position despite corrective measures under the SBA. The possibility of raising revenues through taxation is limited by the fact that taxes are already high. At around 25 percent, Djibouti's ratio of fiscal receipts to GDP is one of the highest in Sub-Saharan Africa. On the expenditure side, there is no room for further compression of development expenditures. Adjustment efforts have so far focused on controlling recurrent expenditures, especially the wage bill. Although measures such as military demobilization and wage and hiring freezes have been implemented, broad structural measures that could bring down the wage bill irreversibly and correct the structurally high cost of labor have not been fully adopted. Such measures include cutting the value of the wage index [valeur indiciaire], reducing the size of the civil service with the adoption of an early retirement program, and reducing the real value of the wage bill by taking measures to enhance Djibouti's competitiveness. 26. Competitiveness. The combination of high wage rates and low labor productivity erodes the country's competitive position and reduces domestic production and investment. The average monthly wage in the public sector is about $600, several times the average civil service wage in neighboring Ethiopia ($100) and Yemen ($150). The downward inflexibility in 2 The absence of efforts to discourage qat consumption in Djibouti contrasts with recent moves in Yemen, where the authorities have started a public campaign to discourage consumption. 7 domestic wages and prices is a major cause of Djibouti's poor competitive position and needs to be addressed as a priority issue. 27. The authorities intend to address Djibouti's high cost structure through structural reforms, such as labor market reforms, to allow for greater flexibility in setting wage rates. Complementary policies to boost the country competitiveness would also foster fiscal stabilization, and allow room for re-orienting budget expenditures towards priority areas of education and health. 28. Private Sector Development. Despite its open economic policies, Djibouti's formal private sector is relatively small, accounting for only 20 percent of total value added.3 Poor competitiveness, restrictive labor laws, and dominance of public enterprises having favored access to limited resources appear to have limited the scope for private activities. The government's planned structural reforms aim to reduce the role of the public sector and improve the environment for private sector development by (i) privatizing major public enterprises to enhance competition and increase the scope for private activities; (ii) reforming labor laws; (iii) reforming the investment law, including streamlining investment procedures and licensing requirements; (iv) liberalizing trade and pricing of items such as petroleum products and grain, which have been controlled and dominated by public enterprises; and (v) establishing commercial courts to adjudicate business disputes and enforce contracts. Hoping to encourage foreign direct investment aimed at regional markets, the government has designated an area adjacent to the port for a free-trade zone. It has also created an Investment Promotion Council in the president's office to promote investment and assist potential investors. 29. The government has taken steps to implement the reforms described above. A draft privatization law was approved by the cabinet in 1999. Management of the port was recently turned over to a private operator. A draft labor law has been prepared and is expected to be reviewed by labor unions with assistance from the International Labour Organization. Price controls on petroleum products and grain have been lifted, and the public agencies in charge of their pricing and distribution have been dismantled. However, the country's low institutional capacity, poor resource base, and unfavorable competitive position continue to limit private investor response. 30. Financial Sector. Djibouti's financial system consists of the central bank (Banque Nationale de Djibouti, BND), three commercial banks, and a development bank. Two of the three commercial banks are subsidiaries of major French banks. They are in a strong financial position and meet international accounting, auditing, and capital adequacy standards. The third commercial bank-a subsidiary of a regional bank-faces prudential issues that the BND is trying to resolve in cooperation with the parent bank. Two other commercial banks that had been experiencing prudential difficulties recently closed. The operations of the development bank (BDD), the only specialized bank in the country, were frozen in April 1999 because of mounting nonperforming loans. The bank will be liquidated or its portfolio restructured. 31. Djibouti's financial sector suffers from weak intermediation and noncompetitive behavior by the commercial banking system. Interest rates, which are not controlled by the government, are presently positive in real termns. However, close similarities in commercial bank interest rate 3 Precise figures on the size of the formal private sector are not available. However, the Bank believes that the largest sectors are "commerce and tourism" (15 percent of GDP), the "primary sector," (3 percent), and "other services" (4 percent). 8 structures and their large spreads have given rise to concerns about collusion and other noncompetitive behavior. Difficulties in enforcing loan contracts due to weaknesses in the judicial system have led commercial banks to concentrate on servicing a narrow client base consisting of large, well-established trading customers, essentially excluding small borrowers from the domestic financial market. 32. Under the ongoing PRGF, the government plans to undertake financial sector reforms aimed at maintaining the soundness of the commercial banking system, promoting the development of the sector, and increasing competition. Measures are expected to include tightening prudential regulations and strengthening the supervision capability of the central bank, maintaining the present free-market determination of interest rates while preventing collusion within the banking system, and reducing restrictions on entry of new banks to increase competition. 33. Size-related Vulnerabilities. In addition to its low levels of physical and human resources, Djibouti faces constraints and vulnerabilities common to most small states, defined as those with a population of less than 1.5 million.4 These include: (a) vulnerability to external developments; (b) limited scope for diversification of production and exports; (c) weak capacity, reflecting indivisibilities in the provision of basic public services; and (d) limited competition and economies of scale in the private sector. The combination of a low resource base and a small size poses special challenges for Djibouti. 34. Proximity to Conflict-prone States. Djibouti's proximity to countries that have suffered repeated natural disasters and political upheavals for two decades has hurt the country. These countries have much lower per capita incomes and wage rates and are much larger than Djibouti in population and land area, facts that tend to increase Djibouti's vulnerability to developments in those countries. Djibouti is attempting to play a leadership role through the Djibouti-based Intergovernmental Authority for Development (IGAD), a conflict resolution and development organization with six East African countries as members. Assistance is provided to IGAD by a donor support group. 35. Governance. The election of a new president in multi-party elections in mid-1999 is evidence of a relatively inclusive and open system of governance. The new president has made it clear that he intends to improve the way government does business. On the other hand, the poor quality of Djibouti's civil service and public sector performance represents a major constraint to economic growth and poverty reduction, as noted previously. Inadequate incentives, with rewards tied more to connections than to performance, undermine efficiency. To lay the basis for civil service reform, the government plans to reform the pension funds to achieve financial viability and sustainability. In addition, privatization of some of the major public services is expected to enhance competition and increase transparency. 36. Although little hard evidence exists, there is a widespread perception of mismanagement of public resources. To provide the public with a channel for complaints about the delivery of public services, the government created an ombudsman's office. The Bank supported a November 1999 forum to inform the public about the role and functions of the new office. Next, a conference to discuss the quality and capacity of the judicial system is expected to be held at the end of this year with civil society participation. The objective is to diagnose the 4Small States: Meeting Challenges in the Global Economy (World Bank, October 1999). 9 shortcomings of the system and recommend needed reforms. In addition, a series of public discussions and conferences held over the past year, many chaired by the president, focused on reforms to improve performance of the education sector. These conferences culminated in a national education strategy that was discussed at a roundtable conference in October 2000 with Bank participation. Similar approaches are expected to be to be taken to develop national consensus on health and poverty reduction. 37. Although the government's capacity for effective implementation of governance-related reforms is limited, the open manner in which crucial policy issues are being discussed is indicative of a new desire for greater openness and inclusion. The Bank will work with the government to improve institutional capacity and, through targeted surveys of households, enterprises, and public officials, to identify the sources and extent of corruption. The Bank's support in this area would include: (a) ensuring adequate financial management arrangements for Bank-financed projects; (b) requiring transparency and disclosure through audits; and (c) promoting the use of nongovernmental organizations where feasible. In addition, the Bank intends to address the governance issue systemically through a country review of financial management and accountability in FY02 and regular public expenditure reviews, starting in FY02. Environmental Issues 38. Djibouti faces several major environmental problems. Overgrazing of extremely limited and fragile arable and pasture land has resulted in desertification and severe degradation of soil and vegetation. High demand for fuel-wood further exacerbates the problem. Potable water is limited by low and irregular precipitation and rapid evaporation. Ground and underground water resources are severely limited-there is no permanent river-and exploration and exploitation of underground water sources are difficult. The high rate of urbanization and the influx of refugees have further damaged the environment through concentration of wastes and pollutants, degradation of an already inadequate sewerage system, and increased pressure on the scarce water resources. Unmanaged development in the coastal zone and pollution of the port, the country's main asset for growth, are emerging as important environmental issues. The lack of adequate facilities to collect and process ship wastes results in illegal dumping that harms ecologically sensitive coastal and marine resources. Pollution also reduces the potential for eco- tourism and related tourist facilities. 39. The government has taken several steps to address environmental issues. The Ministry of Housing, Urban Affairs, and Regional Planning, established in 1997, was recently given the mandate for environmental management and renamed the Ministry of Housing, Urban Affairs, and Environment. A national environment action plan, completed in 1999, lays out the following priority actions: * Enactment and strengthening of the environmental legal framework and establishment of an information and knowledge management center for educators, the private sector, and the general public. * Creating and disseminating in schools an educational curriculum to raise awareness of the environment. 10 + Actions in all sectors to improve water supply, water quality, and wastewater services with a view to protect public health, reduce ecological damage, and control adverse economic impacts. Specific actions recommended include: rehabilitation of wastewater sewers in the city of Djibouti, and improvements in solid waste management to address clinical and hospital waste issues. * Closer regional cooperation in coastal zone management. Currently the Strategic Action Program for the Red Sea and Gulf of Aden provides a cooperatively developed framework for the long-term conservation and management of coastal and marine resources. The program is being implemented by the three GEF implementing organizations, UJNEP, UTNDP and World Bank. A follow-on activity in coastal zone management recommended by the action plan is a capacity-building and training program to strengthen protection of terrestrial and marine biodiversity. 40. The Bank recognizes the importance of environm nital issues for sustainable development and will coordinate closely with other donors in addressing environmental constraints while mainstreaming environmental concerns into all its operations. For selectivity reasons, the Bank does not plan to undertake separate stand-alone actions but to seek opportunities for collaboration with other donors. Bank participation in seeking regional approach to coastal and maritime pollution under the Strategic Action Program for the Red Sea and Gulf of Aden is an example of donor collaboration around specific environmental concerns. The Bank will look for similar collaborative opportunities in the overall assistance program. II. Country Development Program and Prospects Government Development Priorities and Strategic Goals 41. Although the government has identified its priority development objectives-reducing poverty and unemployment, improving access to basic services such as health and education, and laying the basis for sustainable, private sector-led growth-it has not yet produced action plans to meet those objectives. Discussions have been ongoing through the preparation of this CAS and the Interim PRSP and will continue within the framework of the full PRSP, the PRGF, as well as preparation of the proposed Bank-supported structural adjustment operation. Based on the discussions to date, the government considers the following as key actions: * Achieving a more sustainable macroeconomic environment and improving competitiveness. In particular, overcoming the current fiscal crisis and reducing arrears is needed to restore the solvency of the government and ensure resumption of normal delivery of public services. Improving the investment law, freeing labor markets and establishing free zones are planned to enhance competitiveness. * Restoring growth by improving the environment for private investment and taking maximum advantage of the increased Ethiopian transit traffic through the port. Improving the efficiency of the port and its associated infrastructure is a key objective. The turnover of port operation to a private operator should improve the investment environment and increase opportunities for the private sector. 11 + Improving human development indicators by raising school enrollment, improving access to health services, and containing the spread of infectious diseases such as tuberculosis and HIV/AIDS, as well as improving access of the poor to basic services and economic opportunities and targeting assistance to the most vulnerable. * Addressing the problems of water scarcity and power shortages by privatizing and commercializing state-owned water and power utilities, exploring alternative sources of drinking water, and exploring alternatives to fuel oil such as geothermal energy, which Djibouti appears to have in abundance but has not yet commercially exploited. 42. The government has taken, or has indicated a willingness to take, a number of the measures noted above as part of the stabilization and structural reforms. Weak institutional capacity, however, will continue to limit the government's ability to translate willingness into policy changes. The Bank's assistance strategy has been formulated with this constraint in mind. Medium-Term Outlook (2000-2003) 43. The External Environment. As a small country with very limited natural resource endowments, Djibouti depends, and will continue to depend, on external assistance and transit and transshipment revenues. Developments in the Horn of Africa are both a source of instability and an avenue for complementarity. Djibouti is a natural outlet for land-locked Ethiopia with its population of 60 million and increasingly open economy. But dependence on external assistance and events will remain a source of vulnerability for the country's fiscal and balance of payments positions. 44. Base Case Scenario. The base case assumes the full implementation of the IMF- supported economic and financial program (PRGF). The quantitative targets of that program appear in Table 2. In this scenario, growth picks up gradually over the medium term toward levels that would allow a modest recovery in per capita income. This outlook envisages a growth rate of 4.2 percent by 2002 (compared with an average of 1.5 percent during 1998-99), and a gradual reduction in the fiscal deficit to about one-half of one percentage point of GDP over 2001-03. However, the external balance is expected to remain fragile, with the current account deficit widening sharply in the 1999-2001 period to average 6-7 percent of GDP before stabilizing at about 3 percent by 2003. 45. The base case scenario is based on progress in implementing stabilization and structural reforms. Growth would come primarily from private investment, including foreign direct investment aimed at regional markets. The ongoing and planned structural reforms, including privatization and reform of labor and investment laws are expected to improve the environment for private investment. On the fiscal front, the base case assumes a gradual containment of recurrent expenditures-the wage bill in particular; a steady increase of capital expenditures for basic social infrastructure; and the implementation of a credible arrears clearance program. Given the government's intention to undertake significant reforms, and barring any unforeseen changes in the external environment, the base case appears achievable. The associated risks are described in Section IV. 46. High Case Scenario. Higher levels of economic growth are possible with the implementation of a more comprehensive policy package, including an aggressive stance on competitiveness. The high case assumes a steeper reduction in unproductive public expenditures 12 coupled with a cost-effective reallocation of spending toward basic infrastructure and human capital. Although growth under this scenario is not expected to be significantly higher than for the base case over the CAS period, the basis for faster growth would have been laid. The benefits of such policies would take time to materialize. 47. Low Case Scenario Growth would continue to stagnate in the event of backtracking on stabilization or on issues such as privatization, civil service, pension fund reform, and public enterprise refonn. Stalled growth would lead to further accumulation of arrears, exacerbate fiscal and external account imbalances, further erode investor confidence, and possibly cause international assistance to cease. Under this scenario, growth rates would not recover from the depressed levels of recent years (ranging from 1 to 2 percent per annum), per capita income would continue its downward slide, and poverty would worsen. Adverse developments in the region could exacerbate the situation. Table 2. Base Case Economic Scenario Estimate Projections 1999 2000 2001 2002 2003 (Annual change in 9o) Real GDP at market prices 1.4 2.3 3.2 4.2 4.2 Inflation (CPI) 2.0 2.0 2.0 2.0 2.0 (In % of GDP) Government revenue & grants 31.2 33.7 33.1 32.4 31.7 of which grants 7.5 8.6 7.9 7.5 6.7 Recurrent expenditures 30.2 28.8 29.1 28.1 27.3 Current surplus/deficit (-) 1.0 4.8 4.0 4.3 4.4 Investment expenditures 3.1 4.8 4.6 4.8 4.8 Overall fiscal balance -2.1 0.0 -0.6 -0.5 -0.5 (In millions of U.S. dollars) Exports of goods & services 271.1 278.4 290.5 307.4 326.9 Of which merchandise 69.2 73.2 79.9 89.3 99.0 Imports of goods & services 351.4 373.4 393.0 399.6 407.5 Of which merchandise 264.4 280.9 296.6 302.4 309.1 Net current transfers 61.8 58.8 59.5 58.7 56.6 Current account balance -18.5 -36.2 -43.1 -33.5 -23.9 (In % of GDP) Official external debt 54.1 53.2 50.0 46.4 41.8 Stock of domestic debt* 17.0 ... ... ... Stock of domestic arrears* 23.4 ... ... ... Official exchange rate (DFIUS$) 177.7 177.7 177.7 177.7 177.7 Source: Official data (Ministry of Economy and Finance); staff estimates and projections Projected stock of domestic debt and arrears will depend on a restructuring and refinancing plan that is being developed. 13 III. Bank Group Assistance Strategy A. Lessons From the Past 48. Bank assistance to date amounts to 12 projects with a total net value of $80 million. No credits were made during 1991-96; four projects totaling $39 million were approved during 1997-2000. There has been only limited economic and sector work, and little policy dialogue with the Bank. Nevertheless, a few clear lessons have emerged from the work to date, notably from OED project performance audit reports which provide some guidance for future operations: * Institutional and implementation capacity are weak, as are planning, coordination, and monitoring of development projects and programs. External technical assistance has not always been geared to strengthening local institutions or transferring appropriate skills to nationals. * Past investments and efforts, especially in infrastructure, have not been sustainable, due partly to inadequate funding for operations and maintenance and partly to overall budgetary constraints. * The Bank has overestimated the borrower's readiness to implement projects and the borrower's familiarity with Bank procedures, especially in procurement and disbursement matters. As a result, projects have been implemented with delays. + Djibouti is highly vulnerable to developments in the volatile Horn of Africa and Middle East. 49. Participation. The strategy underpinning the CAS was developed in consultation with the country's leadership, senior policymakers, and donors. The discussions with the last two groups were conducted in conjunction with the ongoing process of preparing a Poverty Reduction Strategy Paper. Representatives of the civil society were also consulted. There is widespread agreement among stakeholders on the country's major developmental goals and constraints. 50. Djibouti's civil society does not have a deep tradition of participation in development issues. Most ongoing and planned Bank projects and programs have components designed to encourage such participation. The Social Development and Public Works Project, approved by the Board on May 25, 1999, is being implemented by ADETIP, a nongovernmental agency. ADETIP receives proposals for subprojects from various stakeholders; NGO and private consultants help beneficiary communities prepare subproject briefs. The ongoing Ex- Combatants Reintegration Project (1998) involves local NGOs and community associations in the design and implementation of microprojects aimed at helping ex-combatants return to civilian life. A Bank-administered trust fund from Norway is being used to facilitate a national dialogue on education sector reforms. Led by Djibouti's president, the dialogue includes community organizations and other segments of civil society. Lastly, the PRSP process will continue to be highly participatory. The government prepared a draft interim PRSP in early 14 September that will be the basis for discussion at a national workshop on poverty reduction planned for December 2000. B. Strategic Focus of the CAS 51. Poverty reduction-the cornerstone of the Bank's assistance strategy-can be achieved only by promoting economic growth and ensuring that the poor benefit from that growth through improved basic social services. Given the country's weak institutional capacity, Bank assistance during the CAS period (FYO1-03) will have to be focused on a few areas where it can have the greatest impact in the short-term on growth and poverty, where Bank support can catalyze other donors, and where quick progress can be made in improving the government's limited institutional capacity. Given the lessons noted above, which point clearly to the need to view Djibouti's development over a longer period of time, this CAS must be seen as the first phase of a long-term strategy. Based on these considerations, the strategy is based on two pillars: * Direct interventions to reduce poverty which will focus on reversing the extremely low enrollment rate in education; addressing overwhelming needs in health, particularly those related to epidemic rates of H1V/AIDS and tuberculosis; and preparing a program of assistance for vulnerable groups to cushion the impact of adjustment. The rapid population growth (averaging about 2.8% per annum, including immigration) further complicates the task of reducing poverty and addressing the tremendous needs in the social sectors. Population issues are accorded a high priority in the CAS and addressed through specific components in appropriate IDA operations. * Measures to provide the basis for growth and employment generation supported through structural reforms designed to restore competitiveness and create opportunities for private investment, and developing associated infrastructure services for the port to take full advantage of increased traffic transit to and from Ethiopia. Supporting Poverty Reduction and Human Development 52. Poverty Reduction Strategy Paper (PRSP). To underpin support in this critical area, the Bank is assisting the government, in coordination with other donors, in preparing a poverty reduction strategy that will articulate consensual strategies for poverty reduction and provide a framework for mobilizing donor support around those strategies. The Djiboutians have already prepared a draft interim paper that is expected to be finalized shortly. A full PRSP is planned for FY02. The Bank is assisting the authorities in preparing several analytical studies-including a detailed diagnosis of poverty in the country and a public expenditure review-to underpin the government's effort to design an appropriate safety net to cushion the impact of planned structural reforms. 53. Education. Given the low level of primary school enrollment and poor quality of the educational system, education is a top priority sector for the government and the Bank. The government has developed, with Bank assistance and donor funding, a national education strategy that is designed to achieve 80 percent primary enrollment by 2010, expanding access to all Djiboutians, narrowing the existing gender gap in school participation, and upgrading quality by making available school materials and qualified teachers. In addition to providing support for 15 the School Access Improvement Program, the Bank is preparing an education sector strategy note as an additional input into that process. The national education strategy is expected to underpin future Bank assistance as well as serve as a vehicle for donor support. The ongoing, Bank-financed social fund and public works project administered by ADETIP is helping rehabilitate schools and is expected to be used in the construction of new classrooms. 54. Health. The health situation in the country is precarious, and health care facilities are inadequate. Constraints to increased service coverage include: (a) absence of a sector policy framework to guide the financing, management, and delivery of health care services, including reproductive health services, and absence of a primary health care strategy that is based on burden of disease; (b) weak sector organization and institutional capacity; (c) heavy dependence on curative care, with budget priorities accorded to hospitals, which are less cost effective than health centers as providers of most essential services; (d) lack of basic health information, including patient and epidemiological data; and (e) inadequate budgetary allocations, poor resource management, and over-dependence on external financing, which poses the problem of sustainability. 55. The focus of Bank assistance in this area will be to: (i) assist the government in developing a sector strategy; (ii) work with the government, within the framework of the public expenditure review to improve the efficiency of allocations to the health sector as a priority; (iii) mobilize donor support around that strategy; and (iv) help the government prepare a health operation, with an emphasis on public health and infectious disease control for Bank financing in FY02. The proposed health project will also explore appropliate measures for addressing the problem of female genital mutilation (FGM) based on the results of programs being implemented in other countries, as well as the issue of population growth. To address the clitical issue of HIV/AIDS, Djibouti will be included under the on-going Multi-Country EIlV/AIDS Program (MAP) for Africa. 56. Social Protection. Poverty, already widespread and very visible, is likely to rise with the implementation of planned policy reforms. Unemployment could rise from its present rate of 45 percent following civil service reform and privatization. Any reduction in the public sector wage bill, whether through reduction in numbers or wage rates, could affect the poor, who receive transfers from employed relatives. In addition, because the consumption basket is highly import- intensive even among the poorest families, any possible adjustment in the exchange rate without adequate social protection would have an adverse impact on the most vulnerable. Refugees fleeing from conflicts in the Horn of Africa add to the overall level of poverty and overwhelm public services. New social protection programs could further attract economic refugees from neighboring countries, a fact that must be borne in mind as the programs are designed. 57. The existing social protection system supports mainly those in the formal sector and government service. It includes a pension plan and various forms of legislative and regulatory protection applying to those in the formal sector. Shortcomings of the existing system include: (a) limited coverage that excludes most of the poor and benefits primarily the non-poor; (b) benefits that are too high to be sustained in the long-term (some programs are already unable to meet their obligations); (c) weak information and administrative systems for the design, implementation, and monitoring of social protection programs in general and for the poorest in particular; (d) evasion of payments; and (e) lack of proper fund management, with resources frequently being diverted to finance the government's current expenditure obligations. The Bank 16 will support the government in designing a social protection system that is more in line with the country's financing capacity and that provides coverage to those most in need. 58. The specifics of Bank intervention in this area will be more clearly defined in the PRSP, including Bank assistance in analyzing the characteristics and outcomes of the formal social protection system (from employment and assistance programs to pensions) so that that system can be made more sustainable and effective in reducing poverty. The proposed structural adjustment credit will address some of the macroeconomic imbalances in the social protection system, particularly in pensions. But adjusting social protection systems typically requires long periods of consistent reforms, systematic institutional changes, and capacity building. In the meantime, thie Bank will also work closely with other partners in addressing the consequences of adjustment, including a social protection strategy note (early FY02) to lay the basis for social protection suppOrt to mitigate the impact of adjustment. A strong social protection support component of a second structural adjustment credit in the high case in FY03 designed to implement the needed institutional reforms is also envisaged. Restoring Growth and Fiscal Sustainability 59. Sustained growth that reverses the decline in per capita income and extends benefits to the poor is the primary vehicle for poverty reduction. Regaining fiscal sustainability and restoring competitiveness to the economy are essential first steps toward sustained growth. The Bank is working closely with the IMF to assist Djibouti's government with the stabilization and structural reform program. Given the country's weak institutional capacity and related governance issues, the Bank is reinforcing local capacity and providing advice through an ongoing project, Technical Assistance for Economic Reform (Projet d'Assistance Technique a la Reforme Economique, PATARE). 60. Bank support for structural reform during the CAS period will focus on (i) improving the environment for private investment, reducing the role of the state in the economy, and improving overall efficiency through privatization; (ii) reforming the structure of public expenditures, including the public sector wage issue5; and (iii) improving the efficiency of the port and associated infrastructure as a growth pole. The development of the service sector, fisheries, and possibly tourism could provide opportunities for diversification and as potential new sources of growth. The private sector is best positioned to identify and exploit investment opportunities in these and other areas. The improvement in the investnment environment envisaged under the on- going structural reforms, could enhance private sector interest. In the meantime, private sector involvement is more likely to come from private sector participation in infrastructure, the main component of the Government's privatization program. 61. Privatization. The objectives will be to improve the overall performance of enterprises slated for privatization and of downstream activities that depend on those enterprises for inputs or services, and to reduce the burden of inefficient enterprises on the budget. Privatization will signal the government's commitment to the private sector and help attract private investment, including foreign direct investment. 5The first step in this process will be to reform the pension funds to lay the basis for an early retirement program and other aspects of civil service reform. 17 62. Several of the major public enterprises, particularly the water and electricity companies (ONED and EDD), offer service of poor quality, with occasional disruptions in delivery and rapidly deteriorating finances. With the exception of the port, all public enterprises are financially insolvent. This situation is explained by (a) a very high level of customer arrears, averaging 15 months of sales; (b) a widening gap between stagnating sales, a limited customer base, operating costs that are three times the regional average, and high technical losses; and (c) the lack of competitive pressure on these monopolies, accompanied by their inability to set and revise tariffs freely, resulting in a disconnect between production costs and prices. 63. To turn these enterprises around, the government has moved to implement a privatization program. The two national telecommunications companies have been merged into a joint-stock company as a first step toward privatization. The government has committed itself to incorporating all other public enterprises into joint-stock companies by early 2001. 64. Some analytical work on the individual enterprises was prepared in 1998 under a Bank- supported technical assistance project. With Bank support, the government is preparing a privatization strategy that will provide a framework for the divestiture process. That strategy envisages preparing the legal and regulatory framework for privatization while proceeding with divestiture. The steps required for the legal and regulatory framework include (a) adopting a privatization law; (b) separating regulatory activities from company operations; and (c) enacting legislation to establish sector regulatory agencies responsible for monitoring compliance of private operators with technical and economic regulations. The government has already privatized or liquidated four small enterprises (July-September 1999). It recently signed a 20- year concession agreement with the Dubai Port Authority to manage the port of Djibouti. The Bank will work with the government to prepare the remaining enterprises-the airport, telecommunications company, and water and power utilities-for sale or to seek management contracts for those that may not be in a position to attract private investors. 65. Civil Service and Pension Fund Reform. Reform of pension funds is intended to lay the basis for civil service reform by making possible a program of early retirement. At present, the pension funds cannot accommodate existing beneficiaries on a sustainable basis, let alone new retirees. Addressing the funds' problems of financial viability and management is therefore critical to the government's planned civil service reform. The Bank plans to work with the government to restructure the pension fund system and reform the pension laws to ensure long- term sustainability and effectiveness. Actions will include: clearing government arrears to the pension funds and adjusting the parameters of the contribution and benefit systems (contribution rate, benefit rate and basis, benefits ceiling), with the aim of ensuring the viability of the system in the long run. The reforms will be made in light of the recommendations of an ongoing study of the pension fund reform conducted by the Bank. 66. In the meantime, the Bank, in collaboration with the IMF, will support the government in laying the basis for a more comprehensive civil service and administrative reform to help rationalize the civil service's institutional arrangements, staffing, and salary structure. As a first step, the Bank is supporting a census of the civil service through its ongoing technical assistance project. The Bank is also supporting reductions in security forces through the Ex-Combatants Demobilization Project. Both projects include a capacity-building component. 67. The FY01 structural adjustment credit will support reform efforts in the above-mentioned areas. Bank financing will complement the support being provided by the IMEF (and possibly the 18 African Development Bank) to meet the financing gap for FYO1-03. However, the structural adjustment credit will be contingent upon the government presenting a satisfactory framework for achieving fiscal sustainability. 68. Supporting Growth Through Development of Services Related to the Port. The port and its associated service infrastructure currently represent the most significant avenue of growth for the Djibouti economy. Prior to 1998, about 85 percent of the traffic into and out of Ethiopia moved through the port of Assab, while only 15 percent moved through Djibouti. The four-fold increase in transit traffic to and from Ethiopia after that country's 1998 war with Eritrea gave Djibouti a new opportunity to capitalize on its strategic location. At the same time, however, two new regional load-center ports (Aden and Salalah) began operations, attracting shipping companies that had been using the port of Djibouti as a local hub for transshipping containers. Djibouti's loss was more than compensated by the increase in transit traffic to and from Ethiopia. 69. Bank support will focus on assisting the government to improve the efficiency of the port and associated infrastructure. While sufficient investments are ongoing or planned for the development of the port, increased attention needs to be paid to the transport system linking the port with its hinterland. If Djibouti is to take full advantage of the increased transit traffic, it must repair and upgrade the transport corridor leading from the port to the Ethiopian border. Ethiopia has repaired and upgraded the spur of the Addis Ababa-Assab road that leads to the Djibouti border. The current famine in Ethiopia and the need to transport large quantities of food aid through the Djibouti-Ethiopia corridor have added urgency to the need for upgrades. To address the problem, an International Road Corridor Project was prepared on an accelerated schedule and approved by the Board on June 22, 2000. Partnership-building/Donor Coordination 70. Other development agencies and donors are also helping Djibouti to meet the challenge of developing its strategic assets and addressing its basic needs requirements. The largest volume of support is provided by France (including budgetary support), Japan, Italy, and the African Development Bank. Donors already coordinate their assistance to a degree, as exemplified in the October 2000 meeting at which education sector donors discussed and agreed with the government on a unified strategy to guide support. Norway financed preparation of the strategy paper that the government presented at the donors meeting. External nonbudgetary aid is concentrated primarily in the education and transport sectors, which received 27 percent and 26 percent of aid, respectively, during 1993-99. The transport sector (mainly port development and roads) offers a good illustration of donors working in parallel. The French Ministry of Foreign Affairs is supporting road rehabilitation and providing technical assistance for infrastructure, particularly in the road sector. The Agence Francaise de Developpement is conducting studies on rail and rolling stock rehabilitation to explore the potential for railway concessions. Japan and several Arab nations have provided financing for roads in the city of Djibouti and elsewhere in the country. Italy has financed a section of the highway to Addis Ababa and provided gantry cranes for the port. The World Food Programme is helping the port of Djibouti to build storage facilities and to maintain the road to Addis Ababa. The European Union is financing a study to build a more permanent road corridor between Addis Ababa and the port of Djibouti. The Bank's recent International Road Corridor project is also intended to rehabilitate and upgrade this corridor. 19 71. Total external assistance to Djibouti has declined by 62 percent in recent years (Table 3) from DF15.6 billion ($88 million) in 1993 to DF6.5 billion ($37 million) in 1999. This decline resulted from donor concerns over the effectiveness of their aid, given the government's weaknesses, and from domestic pressures on donor aid budgets. Although overall external support is not likely to be restored to pre-1993 levels, sectors essential to future growth and human welfare-transport, education, and health-have seen a smaller reduction in donor support than most other sectors. The main donors have indicated interest in future support especially in the social sectors and capacity building. In addition to its direct budgetary aid, France provides technical assistance in education and health and finances salaries of teachers and medical personnel. In the health sector, where donor funding has been strikingly low at only 1.6 percent of total aid, France, Italy, and Spain finance about 30 percent of spending. The African Development Bank, the Islamic Development Bank, and the Japanese government have committed to continued support of education and health. Arab financial institutions (especially the Arab Fund for Economic and Social Development) have shown renewed interest in raising the level of their support to Djibouti, again mainly in education and health. The Emirate of Abu Dhabi has also expressed interest in providing support for higher education to help reduce the high cost of overseas scholarships. 72. Building partnerships with other external financing agencies is an important component of the assistance strategy, made necessary by the need to focus the Bank's limited assistance on key priorities. The Bank would aim to achieve two goals in this area. First, it would try to improve the coherence of donor and government approaches to Djibouti's most serious development problems. To do this, it would encourage and contribute to regular meetings of donors and government to consider analysis of sectoral and macro problems and reach consensus on strategies to address them. Its support to the government's PRSP process will also contribute to an overall framework within which donor assistance could fit effectively. Second, it would work to catalyze greater financial support from other donors. This will require that the Bank assist the government in implementing broad structural reforms and in developing sector strategies (particularly in health, education, and social protection) and improved governance (e.g., through improvement of accounts and auditing), to address donor concerns about the overall efficiency of resource use. Depending on progress in the implementation of the ongoing economic reform program, a Donors' Meeting for Djibouti will be considered for mid-FY02. 20 Table 3. External Assistance External Assistance by Sector (annual disbursements, in millions of Djibouti Francs) 1993 1994 1995 19% 1997 1998 1999 Total Infrastructure 3,735 1,498 267 190 75 449 554 6,768 Housing 631 986 923 52 2,592 Transport 3,896 4,229 3,610 3,097 737 3,720 1,627 20,916 of which Port 1,441 1,469 2,713 2,983 296 120 9,022 Urban Development 551 138 155 578 1,263 1,715 146 4,546 Rural Development 1,141 861 232 865 842 138 202 4,281 Education 3,802 3,432 3,468 2,778 3,325 2,778 2,172 21,755 Health 190 178 171 162 249 164 183 1,297 Finance/Commerce & Industry 481 360 788 154 125 90 123 2,121 Pubhc Administration 309 315 169 150 214 388 283 1,828 Others 1,538 2,525 2,310 2,079 2,596 2,004 1,210 14,262 Total 15,643 13,536 11,801 11,039 10,349 11,498 6,500 80,366 External Assistance by Donor (annual disbursements, in millions of Djibouti Francs) 1993 1994 1995 1996 1997 1998 1999 Total IDA 713 158 466 470 424 507 267 3,005 Japan 1,728 2,307 2,919 2,562 766 2,930 1,279 14,491 Italy 3,602 3,254 885 71 71 71 90 8,044 Cluna 802 135 153 350 523 367 279 2,609 African Development Bank 1,685 1,485 1,635 1,577 807 803 338 8,330 Islamic Development Bank 13 4 13 106 1,129 541 246 2,052 European Development Fund 608 55 408 133 548 810 64 2,626 France 4,142 4,223 3,852 3,802 5,162 4,831 3,291 29,303 Of which Ministry of Cooperation 3,900 4,082 3,717 3,246 2,842 2,613 2,827 Arab Fund for Economic & Social Dev t 618 447 - - - - 300 1,365 Kuwaiti Fund 853 684 587 1,170 296 - 84 3,674 Saudi Fund for Development 879 784 883 798 622 638 262 4,866 Total 15,643 13,536 11,801 11,039 10,349 11,498 6,500 80,366 Source: Ministry of Economy and Finance, Djibouti. Portfolio Management 73. The Bank's Djibouti portfolio consists of four active projects: Technical Assistance for Economic Reform (PATARE), Reintegration of Ex-Combatants, Public Works and Social Development (ADETIP), and International Road Corridor. The road corridor project was approved in June 2000. On October 31, 2000, total commitments for the current portfolio stood at $39 million, of which $6.4 million had been disbursed. The elapsed time between Board presentation and effectiveness averages eight months. The average age of the portfolio is only 22 months. 74. Portfolio performance in Djibouti during FY00 is considerably lower than the average for MNA (Table 4). 21 Table 4. Portfolio Performance and Targets Actual Projected Targets for Djibouti Indicator Performances FY01-FY03 FY 00OO_ _ _ _ _ _ Djibouti MNA FY01 FY02 FY03 Disbursement Ratio 6 18 10 15 18 % Projects at Risk 75 19 50 20 20 % Problem Projects 50 17 20 10 10 Realism Index 67 88 67 100 100 Proactivity Index 100 84 85 85 85 75. As of October 31, 2000, 75 percent of the portfolio was at risk, and two out of four projects were in "unsatisfactory" status. Cross-sectoral and project-specific issues-such as complicated and lengthy government procedures, and weaknesses in implementation capacity- have affected implementation and performance. Other problems have included procurement delays and lack of familiarity with Bank procurement procedures. 76. After operational responsibility for Djibouti was transferred from AFR to MNA in October 1999, the Yemen Country Office was assigned responsibility for managing the portfolio. The close proximity of Yemen and Djibouti is facilitating frequent interaction with the implementing agencies and the government to ensure that projects remain on track and assistance is provided on a just-in-time basis. As a second step, the portfolio has been thoroughly reviewed, in preparation for a full CPPR during the third quarter of FY01. The CPPR will assess each project against its development objectives, performance indicators, and the likelihood of achieving its development objectives. The follow-up actions will include restructuring with detailed action plans and clear performance indicators for each project. The PATARE project has already been assessed in depth with the government, and the action plan that has been agreed upon is being monitored closely by both the government and the Bank. On the Reintegration Project, the implementation has improved but the government and the Bank believe that the development objectives may no longer be valid, given the elapsed time since the end of the civil war, and work is underway to restructure the project. 77. The portfolio management plan for FY01 includes the following elements: (i) the staff of the implementing agencies will be trained in April/May 2001 in Bank procurement and financial management procedures in a two-week seminar conducted by staff from Bank headquarters, the Yemen Country Office, and the Egypt Country Department based in Cairo; (ii) the Yemen Office is already in the process of establishing a procurement resource center to provide quick response to queries from implementing agencies; (iii) close supervision of the portfolio will be continued; and (iv) the Bank will help the government in carrying out impact assessments as part of the PRSP process in order to determine the impact of the portfolio. As the last poverty assessment was done in 1997, these impact assessments will be important in prioritizing objectives of new operations, as well as making appropriate modifications to the portfolio. 22 C. Lending and Nonlending Services 78. Proposed Lending. The proposed Bank lending program for FY01-03 is presented in Table 5. Bank lending will support the strategy's two major objectives with a mixture of adjustment and investment credits. Structural adjustment lending would lay the bases for private sector-led growth with a safety net for vulnerable groups. Investment lending in the social sectors would address directly the extremely low social indicators. The Bank will aim to catalyze support from other donors in these key areas. In line with the Bank allocation, total lending is estimated to be US$10 million in the low case, US$22 million in the base case6, and US$30 million in the high case. 79. The base case envisages three operations: an adjustment operation to support the government's reform effort, the education APL to help raise primary school enrollment presented for Board's consideration together with the CAS, and improve access for all Djiboutians, especially girls, and a health project focusing on primary and preventive health care. The high case would include, in addition, a second structural adjustment operation with a well- developed social protection component to cushion the impact of adjustment. If the reform program is abandoned, lending over the CAS period will be limited to just one operation-the education APL. Table 5 shows the criteria for moving between the different lending scenarios. 80. The structural adjustment program will help reduce poverty in several ways over the medium and the long term. Improved budget management and financial sustainability will remove a source of vulnerability for the poor by generating a stable fiscal and macro framework for development. Regular payment of salaries will help put delivery of basic services on track. Improving the financial sustainability of the pension funds will address the problem of old-age poverty by helping to ensure that pensioners do not fall below the poverty line. Finally, privatization should generate employment, offsetting short-term job losses and reducing poverty in a sustainable way. 81. Nonlending Services. The Bank's knowledge base for designing growth and poverty- reduction strategies for Djibouti is limited. With the government's adoption of a stabilization and structural reform program, and given its desire to develop poverty-reduction strategies, the Bank intends to increase the level, range, and frequency of analytical and advisory support. These nonlending services will improve the Bank's knowledge of the country, deepen dialogue with the government on current policy matters, and enable the Bank to respond to the government's requests for policy advice and best-practice examples from around the world. The CAS includes analytical and advisory activities that will focus on structural reforms, poverty reduction, and donor mobilization. 82. The activities to be completed in FY01-03 include support for the preparation of a poverty reduction strategy paper and education and health sector strategy notes. In addition, the strategy includes a public expenditure review to improve fiscal sustainability and targeting of public expenditures to the needs of the poor, country financial and auditing assessment, a privatization strategy note, a social protection strategy note, and a pension fund reform strategy. Ongoing country economic monitoring would keep the overall program sensitive to emerging developments. The work program is shown in Annex 1. 6 The Structural Adjustment Credit which was scheduled for FY0O, slipped to FY01. As a result, actual lending in FYY1-03 under the base case will be $30 million and $38 million under the high case to reflect the carryover. 23 IFC, MIGA and Collaboration with the IMF 83. EFC does not have any activity in Djibouti and Djibouti is not a member of MIGA. The lack of IFC activity is reflective of the overall investment climate in the country. Once the macroeconomic situation improves and planned reforms in the legal and regulatory framework are in place, IFC-supported activities could develop. Djibouti is on annual consultation cycle with the IMF. The Bank and the IMF cooperate closely within the context of these consultations. The last Article IV consultation report was discussed by the IMF Board on October 18, 1999. The first year review under the PRGF was successfully concluded in July, 2000. The IMF has also extended technical assistance on monetary, fiscal, and exchange rate issues. Table 5. Triggers for Moving Between Lending Scenarios Case Lendingtamount Triggers Low Case $10 mllion * Education APL * Base case triggers not met Base Case $22 mnilhon * Structural adjustment credit I * Satisfactory progress on structural reforms: + Education APL * IMP fiscal program targets met * Health Project * At least 4 public enterprises in infrastructure brought to point of sale * Improvement in portfolio performance: * Disbursement ratio as indicated in Table 4 * Projects at risk as indicated in Table 4 * Progress on governance: * Strengthen the capacity of office of ombudsman, to handle complaints about the delivery of public services * Establish a national office of inspector-general High Case $30 mullion * Base case lending program, plus: * Base Case Tnggers, plus: * Structural adjustment II (with social protecton + Introduction of additional reforms for improving component) competitiveness and fiscal sustainability as defined in the upcomung PRSP * Improved budgetary allocation for social sectors (education, healti, social protection) as defined in the upconung PRSP * Initiate implementation of the key recommendations of the Country Financial Management and Auditing Assessment planned for FY02 * Better transparency and accountability in public resource management, including regular audits of key agencies, notably public utilities. D. Performance Monitoring and Evaluation 84. To measure progress in key areas of poverty reduction, the CAS proposes to focus on poverty ratios, infant and maternal mortality, and child malnutrition. However, because the impact of interventions on these indicators can be observed only in the longer term, the Bank will use interim or leading indicators such as job creation, private investment, enrollment in basic education, and proportion of the population with access to health services. More specific benchmarks will be developed as part of the PRSP process. Close monitoring of progress in those areas will measure the overall success of the government's efforts, including those supported by the Bank. Monitoring progress will require adequate baseline data. Building on the 1997 Poverty Assessment, the Bank will assist the government establish the needed baseline as part of its advisory and assistance activities, for the preparation of the PRSP. 24 IV. Major Risks and Their Management 85. The principal risks in the proposed CAS are: * Weak institutional capacity and absence of performance incentives for public sector employees, combined with relatively low skill levels, are likely to make implementation slow and difficult. To address these issues, the strategy will keep the design of projects and programs, including the adjustment operation, as simple as possible. Thus, the structural adjustment operation will focus on three key components-privatization, pension fund reform to pave the way for civil service reform, and improvement in budget management. Successful implementation of this operation could lead to further assistance to address other reform measures. For implementation of investment operations, our strategy is to use existing implementation units such as ADETIP wherever possible (for example, to construct schools under the education project). * Political support for structural reforms, especially public sector reforms, may not be sustainable. In a small, urbanized state where the bulk of the urban population depends directly or indirectly on the public sector, major reforms that aim at achieving fiscal sustainability-mainly reduction in the wage bill-would face stiff opposition that could exacerbate existing internal tensions. The Bank will work with the government to promote public discussion and understanding of needed structural reforms and policy adjustments. * Adverse regional developments and their possible spillover into Djibouti constitute a risk. As a small state in a conflict-prone region, Djibouti is vulnerable to natural and man-made disasters in neighboring countries. The presence of French troops has partially insulated Djibouti from regional instabilities, and the new President is attempting to take a leadership role in mediating regional conflicts, for example, in recent reconciliation talks between warring factions in Somalia and in mediation of the conflict between Ethiopia and Eritrea. Djibouti is also attempting to assume a regional leadership role through the Djibouti-based Inter-governmental Authority for Development (IGAD), a conflict resolution and development organization composed of six East African countries, and a donor support group. James D. Wolfensohn President by Zhang Shengman Washington, D.C. February 8, 2001 25 Annex 1 NONLENDING SERVICES FY01-03 Product Completion FY Audiencea Objective" Underwav/Completed 1. Country Assistance Strategy 01 Bank, govemment, Basis for Bank assistance, donors, pubhc input into government development policies; public debate on major economrc and social issues. 2. Pnvatization Strategy and 01-03 Govemment, Bank Provide options to Implementation Support government, help prepare enterprises for divestiture as an uiput into the Bank's proposed structural adjustment credit. 3. Pension Fund Reform Strategy 01 Government, Improve financial viabihty pension fund and sustainability of pension authonties funds Settlement of government arrears to pension funds 4. Port Tariff Adjustment accompanying 00/01 Government Enhance benefits of the port TA in implementation to the economy from increased port traffic, equal treatment of port users, and maintammg port competitiveness. Part of strctural adjustment credit. 5. Education Sector Strategy 01 Government, Bank, Complement govemment's donors sector strategy, lay basis for Bank/donor assistance. Ultimate goal is to improve access and raise primary school enrollment rate and improve quality. Planned 1. Support to the govemment for the I-PRSP m 01; Government, Bank, Government to lay out its Poverty Reduction Strategy Paper Full PRSP in 02 IMF, donors, civil vision for reducmg poverty, society, public Bank/Fund/donor assistance around that vision. 2. Public Expenditure Review 02 Government, public Debate about expenditure pnonties, efficiency and equity of public expenditures. 3 Health Sector Strategy 02 Govenmment, Bank, Articulate Government donors strategy for sector, lay basis for Bank/donor support. 4 Country Financial Management and 02 Govemment, Bank, Assess adequacy of financial Auditing Assessment donors management and control; and in-country capacity 5. Social Protection Strategy Note 02 Govemment, Bank, Articulate govemment donors strategy for sector, lay basis for Bank/donor support. 6 Country Portfolio Performance Annual Govemment, Bank Improve project performance Review Reeular Products 1. Economic Momtonng Annual Bank, govemrnment Update in-country economic developments 2. Donor Coordcnation Ongoing Govemment, Bank, Mobilize resources around donors key development objectives, especially human development; synergy among donor activities. a Government, donor, Bank, pubhc dissemination. b. Knowledge generation, public debate, problem-solving. 26 Djibouti at a glance CAS Annex Al : f V r . / *. . !, ,2 ~~~~~~~~~age1 f M. East Lower- POVERTY and SOCIAL & North middle- DJlbouti Africa Income Development dlamond 1999 005 ; Population, mid-year (millions) 0.67 291 2,094 Life expectancy GNP per capita (Atlas meftod US$) 780 2,060 1,200 GNP (Atlas method, US$ biMlons) 0.52 599 2,513 Avwrage annual growth, 1993-99 Population (%) 2,8 2.1 1.1 Labor force (%M 3.0 1.2 GNP Gross per primary Most recent estimate (latest year available, 1993-99) capita enrollment Poverty f% of population below national poverty fine) 45 Urban population (% of total population) 83 58 43 life expectancy at birth (yeais) 50 68 69 Infant mortality (per 1,000 iveabirths) 106 45 33 Child malnutrition (% of children under 5) 15 15 Access to safe water Access to improved water source (86 cf population) 67 71 86 Illiteray ( of population age 15+) 37 36 16 Gross pnfary enrollment (% of school-age population) 39 95 114 Djibouti Male 44 102 114 Lower-middle-income group Female 32 88 116 r __ _ KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1979 1989 1998 1999 Economic ratloe GDP (US$ billions) 0.41 0.51 0.53 Gross domestic investmenttGDP 15.3 11.9 Exports of goods and services'GDP 45.4 47.0 Trade Gross domestic savIngs/GDP -3.0 -5A4 Gross national savings/GDP 12.5 0.4 CuiTent account balane/GODP -0.6 -344 oI Interest.payments/GDP - 0.5 0.6 0.6 Sains Investment Total debtGDP - 43.5 561 54.1 avigs Total debt serviWexports 6.0 6.3 Present value of debtWGDP Present value of debtexports .. Indebtedness 1979-89 1989-99 1998 1999 19993 (average annual growth) GDP . -1 7 1.7 1.4 3.1 Djifoutu GNP per capita -2.2 -3.7 0.5 Lower-middle-income group Exports of goods and services 9.8 3.9 6.2 STRUCTURE of the ECONOMY (factor cost) 1979 1989 1998 1999 Growth of Invesatment and GDP (%) (% of GDP) Agriculture 3.3 3.1 3.2 e0 industry 18.1 18.3 17.3 40 Manufacturing 5.5 5.2 5.2 20 Services 67.6 68.0 68.0 oa _ -20 ta94 95 957 9e Private consumption 79.5 79.0 -40 General govemment consumption 23.6 26.4 GD GD Imports of goods and services 63.8 64.3 I P 197989 1989-9 1998 1999 Growth of exports and Imports I%) (average annual growth) Agriculture -0.2 0.2 0.1 is Industry -1.7 -2.0 0.4 10 Manufacturing -1.4 -6.7 Services .. -1.6 2.5 1.4 s Private consumption 0.7 -0.1 0 General govemment consumption -15.2 13.5 94 95 698 99 Gross domestic investment 62.8 -21.4 Imports of goods and services 11.0 0.7 Exports :Irniports Gross national product -0.3 1.4 Note: 1999 data are preliminary estimates. The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete. CAS Annex Al Page 2 of 2 Djibouti PRICES and GOVERNMENT FINANCE Domeste prices 1979 1989 1998 1999 Inflation (%) (% change) B T Consumer prces .. 3.0 0.1 2.0 - Implicit GDP deflator .. 4.7 0.1 2.0 4 Government t,nance 2 (% of GDP, includes curent grants) | Current revenue .. .. 34.2 31.2 1 94 95 96 97 98 99 Current budget balance 7.5 1.0 GDP deflatr *CPI Overall surplus/deficit 0.9 -2.1 _ GDP deflator CPI TRADE (US$Smillions) 1979 1989 1998 1999 Export and Import levels (US$ mill.) Total exports (fob) .. .. 59 69 300 Food & live animals .. .. 4 5 250 Coffee and derivatives .. .. 4 5 . Manufactures .. .. 39 46 200 Total imports (cif) .. .. 240 264 150 Food .. .. 72 78 100* Fuel and energy .. .. 11 14 so Capital goods .. .. 77 84 Export price index (1995--100) . .. 114 119 93 94 ss Be 97 98 90 Importprice index (1995=100) .. .. 112 117 mExports elImports Terms of trade (1995=100) .. .. 101 102 BALANCE of PAYMENTS (US$ millions) 1979 1989 1998 1999 Current account balance to GDP (%) Exports of goods and servces .. .. 244 250 0 Imports of goods and services .. .. 327 341 3 94_ Resource balance .. .. -83 -91 n1 Net income .. .. 11 12 Net current transfers 0 0 69 62 -2 I 1 1 1 Current account balance .. .. -3 -19 Financing items (net) .. .. . 1 Changes in net reserves .. .. .. -1 .-4 Memo: Reserves induding gold (US$ millions) .. . 66 65 Conversion rate (DEC, locai'JS$) 177.7 177.7 177.7 177.7 EXTERNAL DEBT and RESOURCE FLOWS 1979 1989 1998 1999 (USS millions) Composition of 1999 debt (USS mill.) Total debt outstanding and disbursed 26 178 243 255 IBRD 0 0 0 0 IDA 0 26 49 50 G: 32 s: 50 Totaldebtservice 2 14 16 17 0: c IBRD 0 0 0 0 IDA 0 0 1 1 Composition of net resource flows Offidcal grants 5 32 68 64 Official creditors -1 3 31 191 Private creditors 0 -1 0 ... :1t4100 Foreign direct investment .. -. 4 4 Portfolio equity 0 0 World Bank program Commitments 0 9 3 15 A - IBRD E - Bilateral Disbursements 0 2 2 1 s - IDA D - Other multilateral F - Private Principal repayments 0 0 0 0 C - IMF G - Short-term Net flows 0 2 2 1 Interest payments 0 0 0 0 Net transfers 0 2 1 0 Development Economics 2114/01 X,~~~~~ nz N gtQA 0 cd <> z -o M m z S @ S:v m v v ;v b v v :0S~~~c _ :_E - ol n; > S E _ ; j CD a4 _ )O D e ::~~ ~~~~ e) 'O v=> a # > . > D C) O r L'~~. W. ,. > _~~~~~~~~I t 0~~~~~~~~~~~~ 4 2 0-d ~ ~ ~ - z -0 ol o '~ r 0 L'a 0. 0 .2 III; jj - s. 710 ._ mK C g .S - &e 3 'G ' 3 -00 0 ~c4 0 ~ 4C.) m ~ ~ ~ ~ ~ - U,C 2d0 -0 -o o c > E 0) 0 C, in~~~~~~~~~~~~~~~~~~~~~~~U In> s. 5 *0n o C - -~~~~~~~ ~~~~ 0~I T)~~~~~~c 0 C00 ~~~~~~~~~~~~~~ 2~~~bD0 C./ 0C4 ,O~.0 O ,0b@b U _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __4-o 0 3Q~~~~~~~~~~0 0 .- e ~ ~~~ . _ _ >~~~~ co= t U}rx, OC D u w~~~i F) Ln te)Cj *E 0 *- Ctr M r, e ed E In 0 ° g E< |aN° ~ * iXO ;0 * * m * m ; * ; * * Q H9}}ASSti, - ........ Cr-* *w ~ 0 =O a Mu d) 0~~~I- 01 I~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~I 0 cuI~~~~~~~~~~~~~~~ 0 ~~ ~~~~~~ C'0 0 CO U20)~~~~~~~~~~~~~~~~~~~~~~~~~t OD> I-~~~~~~~~~~~~~~~I C,3 O0 .0 0~~~~~~~~~~~~~~ 'n 0 41~~~~~0 o~ O ~ ~ ~ ~ ~ ~ ~ 1 0 8-9 .0 ~~0 U, 0 e 0 0~~ 00CA 00 2t U 0 0 0 0 0 00 cd 0 6. Cd M r- bo 0 Cj 0 0 0 E 66 tz 'a, z 0 z 0 0. 0 'S t! 0 0 o -S > 40. 0 -00 cn ci U 00 9:6 co 0 9 0 . ',Z, .0 .4 'A v cn U, .2 "4 .0 2 0 0 t 0 > 0 .0 0 co 0 0 .> 0 0 00 0- A to CO 10 Sol 0 0 . .5 p., 0 0 > -0 -0 'a U o 0 Ln 0 M 0 In 0 u o 0 51 0 > 0 Z5 7fi 0 PR 0 En Cd o m -14 0 P. 4. 00 0 r. 0 0 lu - , 0 0 0 Q r. 0 O' 0 ba u 0. ".0 5-r, En Ei F.-. .0 -0 OL 0 0 0 a (:, ci > 0 0 0 ti 6 o CAS Annex B2 CAS Annex B2 - Djibouti Selected Indicators* of Bank Portfolio Performance and Management As of February 12, 2001 Indicator 1998 1999 2000 2001 Portfolio Assessment Number of Projects Under Implementation a 1 3 4 5 Average Implementation Period (years) b 1.5 1.1 1.5 1.7 Percent of Problem Projects by Number a, c 0 33.3 50 40 Percent of Problem Projects by Amount a, c 0 27.1 23.6 18.8 Percent of Projects at Risk by Number a, d 100 33.3 75 60 Percent of Projects at Risk by Amount a, d 100 27.1 61.5 49 Disbursement Ratio (%) e 33.6 19.1 6 5.6 Portfolio Management CPPR during the year (yes/no) no no no planned Supervision Resources (total US$'000 328 185 210 375 Average Supervision (US$'000/project) 109 46 70 75 Memorandum Item Since FY 80 Last Five FYs Proj Eval by OED by Number 8 1 Proj Eval by OED by Amt (US$ millions) 40.5 11.2 % of OED Projects Rated U or HU by Number 50 100 % of OED Projects Rated U or HU by Amt 46.6 100 a. As shown in the Annual Report on Portfolio Performance (except for current FY). b. Average age of projects in the Bank's country portfolio. c. Percent of projects rated U or HU on development objectives (DO) and/or implementation progress (IP). d. As defined under the Portfolio Improvement Program. e. Ratio of disbursements during the year to the undisbursed balance of the Bank's portfolio at the beginning of the year: Investment projects only. * All indicators are for projects active in the Portfolio, with the exception of Disbursement Ratio, which includes all active projects as well as projects which exited during the fiscal year. CAS Annex B3 CAS Annex B3 - Bank Group Program Summary - DJibouti As of February 12, 2001 Proposed IBRDIIDA Base-Case Lending Program a Strategic Implementation b Fiscal year Proj ID US$(M) Rewards b Risks (HIMIL) 2001 School Access & Improvement Program (APL) (A) 10.0 H L 2001 Structural Adjustment Credit 15.0 H H Subtotal 25.0 2002 National AIDS Control Project 7.0 H L 2002 Djibouti Health System Support Project 5.0 H L Subtotal 12.0 2003 - Total 37.0 a. This table presents the proposed program for the next three fiscal years. b. For each project, indicate whether the strategic rewards and implementation risks are expected to be high (H), moderate (M), or low (L). CAS Annex B4 CAS Annex B4 - Summary of Nonlending Services - Djibouti As of November 1, 2000 Product Completfon FY Cost'000 Audiencea Objectiveb Recent completions Poverty Assessment 1997 382 GovemmentVBank Knowledge generation/ Problem-solving Public Expenditure Review 1997 30 Government/Bank Problem-solving Policy Framework Paper 2000 108 Government/Bank Knowledge generation/ Problem-solving Port Tariff Adjustment 2000-01 20 Bank Problem-solving Country Assistance Strategy 2001 130 GovemmentVBank Knowledge generation/ Problem-solving Underway Pension Fund Reform 2001 80 Government Problem-solving Privatization Strategy and 2001-03 100 GovernmenVBank Knowledge generation/ Implementation Support Problem-solving Education Sector Strategy 2001 90 Government/Bank Knowledge generation/ Support for the PRSP 2001-02 230 Government Problem-solving Planned Country Financial Management and 2002 50 GovemmenVBank Knowledge generation/ Auditing Assessment Problem-solving Country Portfolio Performance Review Annual 50 Government/Bank Problem-solving GovernmenV/Bankl Public Expenditure Review 2002 150 Publi DseminVat Public Debate Public Dissemination GovernmenV/Bank Social Protection Strategy Note 2002 150 Donors n Problem-solving Donors Government/Bank Knowledge generation/ Health Sector Strategy 2002 150 Dnr rbe-ovn Donors Problem-solving a. Government, donor, Bank, public dissemination. b. Knowledge generation, public debate, problem-solving. CAS Annex B5 Djibouti Social Indicators Latest single year Same region/income group Lower- Middle East & middle- 1970-75 1980-85 1993-98 North Africa income POPULATION Total population, mid-year (millions) 0.2 0.4 0.7 285.7 886.5 Growth rate (% annual average) 6.5 6.6 2.8 1.8 0.9 Urban population (% of population) 68.5 77.5 82.8 57.4 57.7 Total fertility rate (births per woman) 6.7 6.6 5.2 3.5 2.5 POVERTY (% of population) National headcount index .. .. 45.0 Urban headcount index .. .. Rural headcount index .. .. INCOME GNP per capita (US$) .. .. .. 2,030 1,740 Consumer price index (1995=100) .. 100 .. 111 131 Food price index (1 995=100) .. .. INCOME/CONSUMPTION DISTRIBUTION Gini index .. .. 38.6 Lowest quintile (% of income or consumption) .. .. 6.3 Highest quintile (% of income or consumption) .. .. 45.4 SOCIAL INDICATORS Public expenditure Health (% of GDP) .. .. .. 2.4 3.0 Education (% of GNP) .. .. .. 5.2 4.9 Social security and welfare (% of GDP) .. .. Net primary school enrollment rate (% of age group) Total .. 32 32 87 94 Male .. 37 36 91 95 Female .. 26 27 84 93 Access to safe water (% of population) Total .. 43 67 Urban .. 50 Rural .. 21 Immunization rate (% under 12 months) Measles .. 27 59 88 89 DPT .. 30 62 90 89 Child malnutrition (% under 5 years) .. .. Life expectancy at birth (years) Total 41 45 50 68 68 Male 39 43 48 66 65 Female 43 47 51 69 72 Mortality Infant (per thousand live births) 154 132 106 45 35 Under 5 (per thousand live births) 241 199 176 55 44 Adult (15-59) Male (per 1,000 population) 586 527 390 187 244 Female (per 1,000 population) 470 428 337 159 137 Maternal (per 100,000 live births) .. .. .. 2000 World Development Indicators CD-ROM, World Bank CAS Annex B6 Djibouti - Key Economic Indicators Page 1 of 2 National accounts (as % of GDP) Gross domestic producta 100 100 100 100 100 100 100 100 100 Netindirecttaxes 15 13 13 11 11 12 12 12 13 Agriculture 3 3 3 3 3 3 3 3 3 Industry 17 17 18 18 17 17 17 17 16 Services 66 66 66 68 68 68 68 68 68 Total Consumption 109 107 106 103 105 105 105 103 100 Gross domestic fixed investment 9 9 9 15 12 14 15 14 1 4 Government investment 4 4 4 7 3 5 5 5 5 Private investment 5 5 5 9 9 10 10 9 9 (includes increase in stocks) Exports (GNFS)b 41 40 41 45 47 46 45 45 46 Imports (GNFS) 58 57 57 64 64 65 65 62 60 Gross domestic savings -9 -7 -6 -3 -5 -5 -5 -3 0 Gross national savings' 5 5 7 12 8 8 8 9 10 Memorandum items Gross domestic product 491 496 504 513 531 554 583 620 659 (US$ million at current prices) GNP per capita (US$, Atlas method) 800 810 785 780 780 ... ... ... ... Real annual growth rates (%, calculated from 1998 prices) Gross domestic product at market prices -3.6 -1.5 0.0 1.7 1.4 2.3 3.2 4.2 4.2 Gross Domestic Income -3.5 -1.4 0.1 1.8 1.5 2.3 3.2 4.2 4.2 Real annual per capita growth rates (%, calculated from 1998 prices) Gross domestic product at market prices -6.2 -4.1 -2.6 -0.9 -1.2 -0.3 1.1 2.1 2.1 Total consumption -8.5 -5.2 -3.8 -4.0 1.1 -0.5 0.7 0.1 -0.4 Private consumption -10.7 -18.4 -18.0 -16.2 -1.7 0.9 2.2 1.4 0.7 Balance of Payments (US$ millions) Exports of goods and services 229 228 231 266 271 278 290 307 327 Merchandise FOB 38 40 43 59 69 73 80 89 99 Imports of goods and services 295 291 295 338 351 373 393 400 407 Merchandise FOB 207 201 204 240 264 281 297 302 309 Resource balance -66 -63 -64 -72 -80 -95 -103 -92 -81 Net current transfers 49 47 52 69 62 59 60 59 57 Current account balance -17 -16 -12 -3 -19 -36 -43 -34 -24 Net private foreign direct investment 3 3 2 4 4 9 14 12 8 Long-term loans (net) 6 16 18 19 5 6 0 3 5 Official 16 26 24 31 19 19 12 16 18 Private ... ... ... ... ... ... ... ... Other capital (net, incl. errors & ommissions) -2 -37 -21 -27 7 -11 0 0 0 Change in reservesd -8 33 8 6 0 0 0 0 1 AMemorandum items Resource balance (% of GDP) -17.0 -15.9 -15.1 -16.1 -:17.3 -19.5 -19.9 -17.0 -14.1 Real annual growth rates ( YR98 prices) Merchandise exports (FOB) -35.3 2.2 4.5 34.8 [3.6 2.7 6.0 8.6 7.6 Locally produced primary goods -31.7 -1.9 -8.8 4.4 -2.0 0.6 0.4 3.2 3.6 Transit trade (re-exports) -37.2 4.6 11.5 48.0 18.4 3.2 7.3 9.8 8.5 Merchandise imports (CIF) -14.9 -5.3 -0.9 14.6 7.7 3.6 3.0 -0.5 -0.3 CAS Annex B6 (Continued) Page 2 of 2 Djibouti - Key Economic Indicators (Continued) Public finance (as % of GDP at market prices)e Current revenues, including grants 31.1 30.6 31.0 34.2 31.2 33.7 33.1 32.4 31.7 Current expenditures 35.6 30.6 31.0 26.7 30.2 28.8 29.1 28.1 27.3 Current account surplus (+) or deficit(-) -4.4 0.0 0.0 7.5 1.0 4.8 4.0 4.3 4.4 Capital expenditure 3.7 3.9 4.3 6.7 3.1 4.8 4.6 4.8 4.8 Foreign financing 1.6 3.3 1.4 0.8 0.4 1.9 2.2 2.2 2.0 Monetary indicators M2/GDP 65.8 58.5 56.8 59.3 59.3 59.3 59.3 59.3 59.3 Growth ofM2 (%) 2.4 -10.0 -1.4 6.3 3.5 4.4 5.2 6.3 6.3 Private sector credit growth / total credit growth (%) 80.4 104.9 -22.1 124.5 103.7 103.0 102.6 102.2 102.2 Price indices( YR98 =100) Merchandise export price index 91.5 94.3 97.1 100.0 103.0 106.1 109.3 112.6 115.9 Merchandise importprice index 92.9 95.2 97.6 100.0 102.5 105.1 107.7 110.4 113.1 Merchandise terms oftrade index 98.6 99.0 99.5 100.0 100.5 101.0 101.5 102.0 102.5 REER (% change; - = depreciation) f -4.3% -0.4% 10.2% -6.4% 4.1% ... ... ... ... Real interest rates Consumer price index (% change) 4.5 2.6 1.6 10.1 2.0 ... ... ... GDP deflator (% change) 4.5 2.6 1.6 0.1 2.0 2.0 2.0 2.0 2.0 a. GDP at market prices b. "GNFS" denotes "goods and nonfactor services." c. Includes net unrequited transfers excluding official capital grants. d. Includes use of IMF resources. e. Consolidated central government. f. IMF staff estimates. CAS Annex B7 Djibouti - Key Exposure Indicators Total debt outstanding and 282 295 273 243 255 295 292 287 276 disbursed (TDO) (US$m)a Net disbursements (US$m)a 17 20 9 5 1 8 7 6 7 Total debt service (TDS) 14 13 11 16 17 18 18 20 20 (US$m)a Debt and debt service indicators (%) TDO/XGSb 123.1 129.5 118.2 108.5 105.9 105.9 100.4 93.5 84.4 TDO/GDP 57.4 59.5 54.2 56.1 54.1 53.2 50.0 46.4 41.8 TDS/XGS 6.0 5.9 4.9 6.0 6.3 6.4 6.1 6.4 6.2 Concessional/TDO 98.0 97.8 99.0 99.2 99.5 99.5 99.7 99.8 99.8 IBRD exposure indicators (%) IBRD DS/public DS - - - - - - - - - Preferred creditor DS/public 36.4 44.7 26.6 17.7 32.9 59.7 54.9 59.5 48.6 DS (%) IBRD DS/XGS - - - - - - - - - TBTtD TDO (US$m)C Of which present value of guarantees (US$m) Share of IBRD portfolio (%) - - - - - - - - - IDA TDO (US$m)t 46.0 46.0 46.0 49.0 50.0 51.5 53.0 54.2 56.2 IFC (US$m) - - - - - - - - Loans Equity and quasi-equity d MIGA - - - MIGA guarantees (UiS$m)___ a. Includes public and publicly guaranteed debt, private nonguaranteed, use of IMF credits and net short- term capital. b. "XGS" denotes exports of goods and services, including workers' remittances. c. Includes present value of guarantees. d. Includes equity and quasi-equity types of both loan and equity instruments. CAS Annex B8 CAS Annex B8 - Djibouti Status of Bank Group Operations (Operations Portfolio) As of February 12, 2001 Closed Projects Active Projects Last PSR Difference Between Supervision Original Amount Expected and Actual Rating in US$ Min Disbursements a/ Project ID Project Name DO IP FY IDA Cancel. Undisb. Orig. Frm Revd P044174 Technical Assistance (PATARE) U U 1997 6.5 0.0 3.4 3.7 0.2 P056419 Ex-Combatants Reintegration U S 1999 2.7 0.0 2.3 2.5 1.4 P044584 Public Works/Social Development S S 1999 14.8 0.0 10.9 -0.4 0.0 P069930 Intl Road Corridor Rehabilitation S S 2000 15.0 0.0 14.8 5.1 0.0 P044585 School Access and Improvement S S 2001 10.0 0.0 10.1 0.0 0.0 Total 49.0 0.0 41.5 10.9 1.6 Active Projects Closed Projects Total Total Disbursed 6.8 45.7 52.4 Of which repaid 0.0 2.4 2.4 Total now held by IDA - - 48.0 Total Undisbursed 41.4 0.0 41.4 MAP SECTION IBRD 23069R Red 23 300 E R ; tS REPUBLIC 4 420 050 REPBLI YEMEN etm . ERITREA U*VMee*le ETHIOPIA / al 21 230' SOMALIA ''~ This -trp weprepared 42!00. by theMap Llnit of the Worl Sok. Th. b.ao_.riea, .-, other infomotion ahoon o0 this a 6p do ndt ri.pl, on the Paor of The World Sank G-cp, any jadprne-t an the legal atatra Ter of any territory Nbo31Coi or LE an endora c020 norrent ondres 2 $3sn ivn Wds oracptanc of -h ckI _00' ETHIOPIA I 4/" SO~~~~~~ ~ ~ ~~~~~MALIA - lrpraned Earth Roads PLAIN OF t obo ~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~- MaKe Tracs (National) (Si.pl Co ~~~~~~~~~~~~~Other Traks rca Grea,terh- 100 Ri-l aloe.d ETHIOPIA 800 - 1,000 C Selectd Villages and Town 4. lat-nti-al Airporti 1,. 600 -800 + Airfields cod Airstrips 400 - 600 ®D District Capitals n,Qa0sETr 0 0 20200 or 400 Nationl Capitals S . w.(d, I I ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~District Boundaries AILtOS 20 3 0 -200 SaltPFlat .I287n Spat El-ai-na aMeters DrnigWater 42'00' 42230' 43100' DECEMBER199P6