Djibouti - Food Crisis Response Development Policy Grant

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The proposed Food Crisis Response Development Policy Grant of US$5 million, subject to approval of the Food Price Crisis Response Trust Fund, is a development policy operation intended to support the Government's program to mitigate the impact of the food prices on the poor, while maintaining fiscal stability. Achieving these goals will reduce hunger, help avoid an increase in poverty, help prevent social unrest, and ensure the fiscal stability needed to foster social and economic development. The policy measures supported by this grant are: Reduction to zero of the domestic consumption taxes on five basic food items consumed by the poor (rice, sugar, cooking oil, wheat flour and powder milk). Expansion of food aid and existing social assistance programs (e.g. school feeding, mother-child programs and workfare programs). Ramping up programs which help to improve food security and access to water of the drought-affected population. Developing an action plan to improve targeting of the poor and create more cost-effective, direct social protection mechanisms. There are a number of risks associated with the grant. Djibouti remains vulnerable to commodity price changes and droughts. A further rise in the prices of food and energy could undermine the impact of the Government's program on the poor and may require additional measures to sustain the fiscal balance and macroeconomic stability. However, the Government is currently negotiating a Poverty Reduction and Growth Facility (PRGF) facility with the International Monetary Fund (IMF) and is preparing a number of measures to maintain fiscal stability and debt sustainability even under stronger exogenous shocks. There are also moderate institutional weaknesses which could result in delays in the implementation of the Government's program. In addition, fiduciary risks are significant. These risks are currently being tackled by the Government, in collaboration with the Bank, mainly through technical assistance which addresses budget management, procurement and transparency issues.