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Statement by Laurean W. Rutayisire, Executive Director for Côte d’Ivoire

Author(s):
International Monetary Fund
Published Date:
September 2007
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On behalf of my Ivorian authorities, I would like to express my appreciation to Management and staff for maintaining a constructive policy dialogue with Côte d’Ivoire over the past years admist the challenging political crisis facing the country. The authorities are in broad agreement with and welcome the staff appraisal of the recent economic developments as well as the policy advice on macroeconomic and structural reforms conducive to sustained growth and poverty reduction.

The March 2007 Ouagadougou Peace Accord resulted in a new government, paving the way to peace and national reconciliation. The Peace Accord is centered on disarmament, reunification of the country, identification of the population, and elections. Furthermore, by establishing the basis for power-sharing at the highest level of the country, the Ouagadougou Peace Accord has provided reassurances to populations all over the country, including the main political parties, and gained support from the international community. Since the new cabinet took office, important steps have been taken to implement the peace road map. Notably, the following achievements have been registered:

  • In May 2007, disarmament of the militias in the West was carried out;

  • On May 31, the 2007 budget was approved by the Government;

  • In June, prefects and judges were installed all over the country. These two categories of public servants not only materialize the presence of the government and the state institutions over the whole country, but they also are the key officials who will conduct the reunification and identification processes prior to the scheduled 2008 elections;

  • On July 25, international donors pledged a total of 193 billion CFA francs (about 406 million U.S. dollars) in support of Côte d’Ivoire’s peace process during a roundtable organized by the authorities;

  • On July 30, an historic ceremony of “the flame of peace” was held in Bouaké to announce officially the end of the civil conflict and the reunification of the country.

These achievements need to be underpinned by stepped-up actions towards rehabilitation of social and economic infrastructure, and economic recovery.

Economic Developments, Outlook, and Challenges Ahead

The political crisis that started in 1999 and aggravated by the now five-year long conflict has taken a huge toll on economic performance and human development in Côte d’Ivoire. Staff estimates cumulative output losses around 20-30 percent, owing to a declining demand and its subsequent effects on industry, construction and trade, the most affected sectors. Per capita income is estimated to have fallen 15 percent during the crisis. Social conditions have deteriorated, along with thousands of displaced populations compounded by shortfalls in the delivery of public services, notably health and education. Moreover, the conflict in Côte d’Ivoire has had adverse impacts on the economy of neighboring countries and on the whole West African Economic and Monetary Union.

In this situation of severe economic and social hardship, my authorities have done their best to handle the country’s basic liabilities as well as unanticipated and manifold crisis-related expenses. Furthermore, especially since discussions began with staff in 2006, the authorities have shown strong commitment to sound macroeconomic management as well as to reforms. As a result of their efforts, the economy showed resilience, and the relatively good fiscal stance kept the country away from collapsing.

Recently, the economic fundamentals have begun to regain ground, ensuring overall macroeconomic stability. After registering the most adverse effects with negative growth rates over the 2002-03 period, the economy slightly recovered at rates of 1.5%, 1.8%, and 1% in 2004, 2005, and 2006 respectively. Inflation remained subdued albeit upward pressures stemming from food and housing prices. While poverty and social conditions have deteriorated following the displacement of populations and the subsequent impact on agricultural production, my authorities have taken various actions to minimize the impact of these negative developments. Many social safety nets (cash transfers, food, first aid equipments) were put in place since the start of the conflict to help rural populations escaping from war zones.

Going forward, my authorities’ initial actions will be sustained through the policy measures set forth in their memorandum for the 2007 EPCA-supported program, which aims at national reconciliation, sustained recovery of economic growth, improved social conditions, and poverty reduction. These include broad measures in the fiscal, debt management, monetary, financial and structural reform areas.

Fiscal Policy and Debt Management

The huge pressures exerted by the conflict-related spending on public finances render the overall macroeconomic situation fragile. My authorities are aware of the need to raise government revenue further to support the implementation of the peace road map. The reforms in the tax and customs administration over the past years have yielded noticeable performance in revenue collection, unfortunately overshadowed by rising crisis generated public spending. A number of these reforms and management systems introduced within the customs administration have recently been commended by international customs organizations and selected to be extended to other countries in the region.

The specific actions ahead are centered on extending tax collection to the whole country, by broadening the tax base to at least its pre-crisis size. In addition, the introduction of a “standardized invoice” should help cover a large share of informal activities. The authorities have also begun to reinforce their actions against fraud and corruption by giving more equipment to control officers. Especially targeted is the developing fraud on customs duties stemming from weak control over borders due to the conflict.

On the expenditure side, commendable budget management kept overall deficit in check amidst daunting spending pressures tied to the crisis. As for the slippages recorded in 2006, in my authorities’ view, these slippages are largely attributed to unanticipated spending occasioned by the fleeing of rural populations to the capital city and related requests for public assistance. In addition, the expenditures related to the dumping of toxic waste in Abidjan in July 2006 contributed to the overrun in the primary basic spending.

For the period ahead, my authorities are determined to maintain continued grip on spending pressures as the country makes further progress towards peace. For instance, the reunification of the army will help reduce front-line bonuses and other current military expenditures. This will leave room for the necessary spending related to the resumption of public service in the CNW zones. Under the 2007 budget, my authorities are committed to achieve a primary basic surplus of 1.0 percent of GDP. Apart from the measures stressed above, additional revenue is expected from petroleum product taxation, and oil/gas products to help meet this target.

As for debt management, the authorities made a priority of assisting the private sector, and thus reduced domestic arrears to 5 % of GDP at end-2006, along with a set of measures to strengthen the balance sheets of companies that suffered the most from collateral damages. On the external front, an agreement was reached with multilateral creditors including the World Bank and the African Development Bank on arrears. Following this agreement, the World Bank recently resumed its assistance to Côte d’Ivoire. Still, the country’s external debt is unsustainable and remains one of the urgent issues to address in the post-conflict era.

Monetary Policy and Financial Sector Issues

The monetary policy under the fixed rate CFA Franc/Euro is conducted by the BCEAO, the central bank serving the 8 countries of the WAEMU. The overall good stance of the union, as well as the relatively favorable health of Ivorian exports has helped preserve the countries’ external position, the major threat being the appreciation of the Euro against the dollar.

Regarding the financial sector, the long stalled weaknesses have been worsened by the conflict. Though the number of banks has increased, credit to the private sector, especially to small new investment projects and established SMEs remain far below demand if not inexistent. The credit generally benefits large enterprises and commodity exports activities. My Ivorian authorities are determined to strengthen bank supervision and to carry out needed structural reforms so as to deepen the financial sector.

Structural Reforms and Governance Issues

Despite an unfavorable environment, my authorities have made important progress in structural reforms regarding mainly the cocoa/coffee and oil sectors. The government has created committees of senior officials to monitor closely the quasi-fiscal levies in the cocoa/coffee sector and financial flows in the oil sector.

The cocoa/coffee committee assesses programs and projects proposed by the sector’s agencies, and that are implemented in production zones at the benefit of farmers. This mechanism has helped improve the governance in the sector as well as the services - roads, and other basic needs - to the producers. Yet, more needs to be done and the authorities intent to conduct a thorough assessment of the liberalization aiming at reorganizing the cocoa/coffee sector, when the conflict is over and the social climate more conducive to such reforms.

As for the oil sector, in addition to the oversight of the committee, the World Bank is financing a number of audits that will provide the basis for a government strategy and an action plan to improve the management of the sector. Furthermore, my authorities are taking actions to adhere to the EITI.

Regarding the financial sector reforms, the Banque Nationale d’Investissement–BNI–has made important steps towards unwinding its ties to the central government. It does not extend direct money to the government anymore, thus improving its ratios.

The process of transforming Caisse d’Epargne et de Chéques Postaux into a bank is at its final stage. Upon completion, the public treasury will no longer funnel money into this institution. Moreover, the overall disengagement of the state from the banking sector is proceeding.

On the general issue of governance, my authorities acknowledge the huge challenges posed by the conflict and a number of decisions taken out of normal procedures owing to the urgency of situations. However the authorities have insisted before staff that they have faced challenging trade-offs over the past years between financial orthodoxy and preventing the country from falling apart irremediably. Maintaining a relative stability of the country has been at the cost of some isolated weaknesses that should not be taken for structural weaknesses in governance and transparency.

Conclusion

My Ivorian authorities are committed to consolidate peace and pave the way for stronger and sustained growth. In that regard, they intend to take actions to diversify the economy away from the export of traditional commodities. A clear option of strengthening the industrial sector will be key to creating more jobs in the modern sector and raise the employment potential of the economy for youths.

Along with this endeavor, addressing the debt issue in a sustainable manner remains a big concern for my authorities. That is why they view the EPCA as a transition towards further steps that are debt relief under the enhanced HIPC initiative and the MDRI. Debt relief will remove heavy bottlenecks and unleash considerable possibilities for Côte d’Ivoire. Before the conflict, the country used to allocate almost half of its annual budget to repay the debt service. Such a trend over decades displaced public investment and undermined the basis for long term growth.

My authorities have achieved commendable results in maintaining an overall macroeconomic stability amidst manifold challenges posed by a complex civil conflict. The Ouagadougou Peace Accord has brought hope of reconciliation and reunification of the country and the peace process is back on track. My Ivorian authorities are committed to implementing all the axes of this accord in order to achieve a full restoration of peace, national reconciliation, and complete economic rehabilitation. The assistance of the international community will be key in accompanying this momentum. In view of the efforts made at both political and economic management fronts, my authorities will appreciate the Board s support for an EPCA program.

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