Interview: Ahmed Osman Ali

How have the BCD’s intervention plans helped improve the country’s economic indicators?

AHMED OSMAN ALI: The priority of the BCD’s interventions is to preserve the integrity of Djibouti’s monetary system, which dates back to 1949. Our currency board regime is bound by strict rules, issuing a freely convertible and stable currency pegged to the US dollar. Accordingly, the Djibouti franc continues to secure the nation’s robust macroeconomic performance and, in particular, help curb inflation. The characteristics of our monetary system, which prohibits any financing by the BCD of budget deficits, have always made it possible to contain inflation of internal origin. Indeed, that has remained below 3% on average over a long period, dispelling fears over price instability among economic stakeholders.

Conversely, the global economy is grappling with a plethora of headwinds, from the pandemic and the Russia-Ukraine conflict to climate change. These have resulted in supply chain disruptions, mounting inflation and a tightening of monetary policy. The Djiboutian economy has nevertheless remained resilient, recording growth of 2.5% in 2022, a figure set to reach 4% in 2023 and average 5.3% over the 2024 -26 period. Inflation, however, reached 6% at the end of 2022, compared to 2.5% at the end of 2021. The authorities have implemented strategic measures to contain inflationary pressures and mitigate their impact on the population. These include tax reductions on basic necessities, the strengthening of strategic stocks and price controls. To accelerate the economic recovery, the BCD is pursuing reforms to fuel the country’s growth sustainably and consolidate the expansion of the financial sector. Which key actions have been taken to enhance the resilience of the banking sector?

ALI: The banking sector has undergone significant change in recent years due to the presence of new entrants and the diversification of financial activities. To support this robust expansion, the BCD has implemented major reforms to strengthen the capitalisation of banks. Accordingly, regulations governing the liquidity ratio, as well as the treatment of non-performing loans (NPLs) and their provisioning, have been revised. The new liquidity rule, for example, requires banks to have high-quality, unencumbered liquid assets to cover their needs. Meanwhile, revised regulations regarding NPLs have significantly reduced the number of outstanding loans.

What are the main developments underpinning the growth of digital banking?

ALI: The adoption of a new legal framework on digital payments and the modernisation of financial infrastructure has attracted new players to the market and deepened the pool of digital financial services. Among the key growth drivers of this trend is banks’ embrace of technology for activities such as account management, and online and mobile payments, in parallel with its use in their traditional activities. Another factor is the market entry of new electronic money issuers approved by the BCD.

To support digital transformation and promote a robust financial technology (fintech) ecosystem, the BCD will continue modernising the sector’s financial infrastructure, including through the upcoming implementation of an electronic payment switch to integrate networks, as well as various players such as banks, electronic money issuers and fintech entities.

An important challenge related to fostering a mature digital financial market is ensuring that our legal and regulatory framework is carefully calibrated to keep pace with evolving fintech. To that end, the recent establishment of a designated ministry in charge of the digital economy and innovation portfolio reflects the government’s commitment to facilitate the country’s continued digital transformation.