TY - BOOK AU - Anos Casero,Paloma AU - Anos Casero,Paloma AU - Seshan,Ganesh TI - Fiscal And Social Impact of A Nominal Exchange Rate Devaluation In Djibouti PY - 2006/// CY - Washington, D.C. PB - The World Bank KW - Accounting KW - Bank Policy KW - Currencies and Exchange Rates KW - Currency Devaluation KW - Debt Markets KW - Devaluation KW - Developing Countries KW - Economic Development KW - Economic Stabilization KW - Economic Theory and Research KW - Emerging Markets KW - Exchange KW - Exchange Rate KW - Expenditures KW - Finance and Financial Sector Development KW - Financial Literacy KW - Fiscal and Monetary Policy KW - Foreign Currency KW - Goods KW - Government Expenditure KW - Government Revenue KW - Labor Markets KW - Local Currency KW - Macroeconomics and Economic Growth KW - Poverty KW - Poverty Reduction KW - Private Sector Development KW - Public Sector Development KW - Real Exchange Rate KW - Revenues KW - Rural Development KW - Rural Poverty Reduction KW - Safety Nets KW - Taxes N2 - Limited fiscal space limits Djibouti's ability to meet the Millennium Development Goals and improve the living conditions of its population. Djibouti's fiscal structure is unique in that almost 70 percent of government revenue is denominated in foreign currency (import taxes, foreign aid grants, and military revenue) while over 50 percent of government expenditure is denominated in local currency (wages, salaries, and social transfers). Djibouti's economic structure is also unusual in that merchandise exports of local origin are insignificant, and the country relies heavily on imported goods (food, medicines, consumer and capital goods). A currency devaluation, by reducing real wages, could potentially generate additional fiscal space that would help meet Djibouti's fundamental development goals. Using macroeconomic and household level data, the authors quantify the impact of a devaluation of the nominal exchange rate on fiscal savings, real public sector wages, real income, and poverty under various hypothetical scenarios of exchange-rate pass-through and magnitude of devaluation. They find that a currency devaluation could generate fiscal savings in the short-term, but it would have an adverse effect on poverty and income distribution. A 30 percent nominal exchange rate devaluation could generate fiscal savings amounting between 3 and 7 percent of GDP. At the same time, a 30 percent nominal devaluation could cause nearly a fifth of the poorest households to fall below the extreme poverty line and pull the same fraction of upper middle-income households below the national poverty line. The authors also find that currency devaluation could generate net fiscal savings even after accounting for the additional social transfers needed to compensate the poor for their real income loss. However, the absence of formal social safety nets limits the government's readiness to provide well-targeted and timely social transfers to the poor UR - http://elibrary.worldbank.org/doi/book/10.1596/1813-9450-4028 ER -