The paper reviews Djibouti’s macroeconomic reforms aimed at achieving middle-income status as envisaged in Vision Djibouti 2035, the authorities’ development strategy. In this context, the paper reviews policy options available to the authorities in three critical reform areas: translating the investment boom into strong and inclusive growth to reduce poverty and unemployment; fiscal policy to support growth while preserving debt sustainability; and the important role of the business climate in growth acceleration.

The paper reviews Djibouti’s macroeconomic reforms aimed at achieving middle-income status as envisaged in Vision Djibouti 2035, the authorities’ development strategy. In this context, the paper reviews policy options available to the authorities in three critical reform areas: translating the investment boom into strong and inclusive growth to reduce poverty and unemployment; fiscal policy to support growth while preserving debt sustainability; and the important role of the business climate in growth acceleration.

Le présent document examine les réformes macroéconomiques que Djibouti doit opérer en vue de devenir un pays à revenu intermédiaire comme prévu dans la stratégie de développement des autorités, Vision Djibouti 2035. Il passe en revue les options dont disposent les autorités dans trois domaines de réforme essentiels : traduire l’essor de l’investissement en une croissance vigoureuse et inclusive pour réduire la pauvreté et le chômage ; mener une politique budgétaire propice à la croissance tout en préservant la viabilité de la dette, et le rôle important du climat des affaires dans l’accélération de la croissance.

This paper reviews the significant macro-fiscal challenges posed by climate change in Djibouti and the costs of mitigation and adaptation policies. The paper concludes that Djibouti is susceptible to climate change and related costs are potentially large. Investing now in adaptation and mitigation has large benefits in terms of reducing the related costs in the future. Reforms to generate the fiscal space are therefore needed and investment for mitigation and adaptation to climate change should be built into the long-term fiscal projections. Finally, concerted international efforts and stepping up regional cooperation could help moderate climate-related macro-fiscal risks.

This paper examines the significance and impact of broad-based and industrial policies on economic diversification in developing economies, supported by a literature review, case studies, and IMF analyses. Economic diversification entails shifting from traditional sectors, like agriculture and mining, to a variety of high-quality services and sectors. This transition is crucial for adapting to global market fluctuations and promoting sustainable growth and improved living standards. A literature review, including many IMF contributions, reveals a strong correlation between economic diversification and improved macroeconomic performance in developing countries, such as faster economic growth and higher incomes per capita. Factors influencing economic diversification include macroeconomic stability, infrastructure quality, workforce skills, credit access, regulatory environment, and income equality. Six case studies highlight the experiences of Costa Rica, Gabon, Georgia, India, Senegal, and Vietnam, demonstrating that successful diversification strategies require a long-term commitment and effective broad-based policies. Industrial policies can support diversification by addressing market failures, but they must be well-designed and effectively implemented. Common lessons include the necessity of maintaining macroeconomic stability, investing in human capital, and fostering competition. Sector-specific mechanisms like Special Economic Zones should be used cautiously, emphasizing underlying bottlenecks and minimizing fiscal costs. Country-specific insights include Costa Rica's strategic policy shift towards export orientation, Gabon's reduced dependence on oil, Georgia's market-friendly policies, India's skilled labor and software clusters, Senegal's infrastructure and business environment improvements, and Vietnam's transition from an agrarian to an industrial economy. The IMF's engagement in diversification emphasizes improving human capital, infrastructure, reducing trade barriers, and promoting international trade integration. Policymakers, researchers, and international organizations increasingly recognize the importance of economic diversification for resilient, sustainable, and inclusive growth, requiring nuanced policy interventions tailored to each country's context and capabilities.

The modern economy of the Republic of Djibouti is based on rents directly or indirectly originating from the international port of Djibouti and from the country’s strategic position. The Poverty Reduction Strategy Paper discusses that the growth recorded over the last five years is essentially driven by the increase in foreign direct investment—but especially by the activities of the Port of Djibouti. The informal economy constitutes a major proportion of the economic activities of Djibouti and provides a livelihood for much of the Djibouti population.

Throughout the past two decades, Morocco has faced several external and domestic shocks, including large swings in international oil prices, regional geopolitical tensions, severe droughts, and most recently the impact of the pandemic and the economic fallout from Russia's invasion of Ukraine. Despite rough waters, the government stayed the course and remained focused not only on immediate stability, but also on the long-term needs of the Moroccan economy. This involved the adoption of a series of difficult measures, like the elimination of energy subsidies, and a strategy aimed at improving the country's infrastructure, diversifying the production and export bases by attracting foreign investment, and modernizing the governance structure of the public administration. The road to higher and more inclusive growth, however, remains steep. Despite gains in poverty reduction, literacy and lifespans, Morocco economy continues to face a high share of inactive youth, large gaps in economic opportunities for women, a fragmented social protection system, and remaining barriers to private sector development. An ambitious reform agenda is needed to better meet the aspirations of Moroccans, by making economic growth stronger, more resilient and more inclusive, particularly to provide greater opportunities for young, women, and entrepreneurs. Morocco appears well positioned to address these challenges, and indeed, the country has recently sought to define and pursue a new "model of development", through national debates and a more inclusive approach to reform. Significant reforms have been announced recently that revamp both the social protection system and the SOEs business model. This book draws lessons from the reforms Morocco has implemented in the past few decades and charts a course for Morocco by addressing key areas for reform.