1. Our Ivorian authorities would like to thank the Board, Management and Staff for the Fund’s continued support to Côte d’Ivoire. The Extended Credit Facility (ECF) and the Extended Fund Facility (EFF) arrangements have been instrumental in the authorities’ efforts to strengthen macroeconomic stability and move the country towards emerging market status. The authorities appreciate the policy dialogue with Staff and broadly share the thrust of their report, which properly highlights the major achievements in the recent period as well as the policy challenges for the period ahead.
2. Côte d’Ivoire’s solid growth momentum has continued throughout the 5th reviews of the ECF/EFF. The authorities’ reforms, especially in improving the business climate have bolstered private investment, which is contributing more substantially to growth. As well, prudent fiscal management has helped keep deficits in check and sustain a steady path towards achieving the WAEMU fiscal deficit target of 3 percent in 2019. These efforts have underpinned the good performance under the program.
3. Going forward, the authorities are committed to maintaining this reform momentum to further enhance macroeconomic stability and support the development of the private sector. To this end, they intend to improve the quality of fiscal consolidation by increasing domestic resource mobilization and creating space for capital outlays and social expenditures while reinforcing spending efficiency and maintaining debt sustainability. Further strengthening the financial sector and keeping pace with structural reforms also rank high on their agenda, with the view to buttress strong private sector-led growth and bolster living standards for the population.
Recent Developments, Program Performance and Outlook
4. Recent developments have displayed appreciable macroeconomic achievements. Real GDP growth stood at 7.4 percent at end-2018, driven by robust consumption and buoyant agri-business, construction, and retail commerce. Inflation remained low over the period, at 0.4 percent y-o-y. However, the current account deficit deteriorated from 2.7 percent of GDP in 2017 to 4.7 percent in 2018, mainly as a result of lower cocoa exports.
5. In this context, program performance continues to be strong, thus maintaining the momentum since the installment of the ECF/EFF arrangements. All end-December and continuous performance criteria and almost all indicative targets were met. Amid a revenue shortfall at end-2018, an adjustment in non-priority spending helped meet program targets on the primary basic balance, pro-poor spending and domestic arrears clearance. Furthermore, the authorities have taken remedial measures to address slowed customs procedures that caused the underperformance in tax revenue. Good results were also achieved on the structural front. Five out of six structural benchmarks (SBs) were met. A milestone was reached with the finalization of the debt restructuring of the national oil refinery SIR, which was programmed for end-2017 and completed in December 2018. The authorities have also implemented other key structural reforms, including the adoption at end-March 2019 of the plan to rationalize tax exemptions, which should boost tax revenue going forward. Likewise, they expect a better functioning of the automatic fuel pricing mechanism in the period ahead, with the view to increase fuel tax revenue.
6. Looking forward, activity should continue to be sustained by strong consumption and private investment, bringing growth to a projected 7.5 percent in 2019–20. The fiscal deficit is anticipated to fall to 3 percent of GDP in 2019 and below in subsequent years. Inflation will remain under control while the current account deficit should improve on the back of more favorable terms of trade, increased exports of services and higher value-added of agriculture exports. The authorities are committed to continue enhancing the business climate and further improving the economy’s competitiveness. They also take note of the balance of risks, including the potential impact that a sharp tightening of global financial conditions could have on Côte d’Ivoire’s access to international debt markets. They remain engaged in taking preemptive measures where needed to improve economic resilience, as well as formulating appropriate policy responses, should the risks materialize. As regards the sociopolitical environment, the authorities are determined to take the necessary steps to hold a peaceful and transparent presidential election in 2020.
Policies for 2019 and Beyond
7. Our authorities share the view that maintaining macroeconomic stability is critical to advance their economic transformation agenda. In this vein, they will pursue further fiscal consolidation with an emphasis on domestic revenue mobilization and spending prioritization. Macroeconomic stability geared on quality adjustment will be accompanied by structural reforms aimed at creating an enabling environment for a more diverse and thriving private sector. The authorities remain confident that macroeconomic stability will continue to be underpinned at the regional level by sound monetary policy anchored in the currency union which has served this economy well.
Meeting fiscal targets through quality adjustment and meaningful reforms
8. The authorities have reiterated their commitment to meeting the WAEMU fiscal deficit target of 3 percent of GDP as the central objective of their adjustment effort in 2019. In doing so, they have designed a strategy geared at raising the quality of fiscal consolidation while preserving capital outlays and social spending. The consolidation package is worth an additional one percent of GDP compared to 2018 and half of it will come from tax revenue. Administrative measures include enhanced quality controls at the customs and expanding digitalization for tax collection. Tax policies encompass measures such as the elimination of some VAT exemptions; the introduction of a cocoa registration duty; and the increase of the Single Export Duty on cashew nuts from 3.5 percent to 7.0 percent. Efforts on the expenditure side include reductions of subsidies, the wage bill and other current spending. The authorities also stand ready to preserve the deficit target by making further spending cuts, should revenue underperform.
9. Important structural reforms are underway to support fiscal discipline and improve public financial management (PFM). The 2014 wage bill strategy is maintained with the “one new hire for two retirees” policy, except for the education and health sectors. New tools and enhanced procedures are being put in place for public procurements, investment programming and public-private partnerships (PPPs). In addition, the implementation of the Treasury Single Account (TSA) is progressing well with the closing of most accounts in commercial banks and more operations done through the TSA.
Balancing the financing mix to maintain debt sustainability
10. Preserving debt sustainability over the medium-to-long term is a top priority to the Ivorian authorities. Their strategy is twofold in this regard. First, they are determined to make every effort to broaden the tax base and substantially raise the tax-to-GDP ratio to finance key investments. Second, for 2019 and the medium-term, they have recommitted to borrowing from a balanced mix of domestic and foreign currency sources. Furthermore, an array of actions has been taken recently to closely monitor debt from state-owned enterprises (SOEs), the issuance of guarantees and other fiscal risks. Such measures should help keep public debt in check and maintain the country’s moderate risk of debt distress.
Strengthening the financial sector
11. The banking sector is sound and has further strengthened with the introduction since 2018 of new standards aligned with the Basel II/III principles. All but a few small banks meet the BCEAO’s new minimum capital requirement. The restructuring of public banks has proceeded well. In particular, two institutions, Banque Nationale d’Investissement (BNI) and Caisse Nationale des Caisses d’Epargne (CNCE), underwent new developments recently; the former benefited from fresh capital from the social security fund as a new shareholder while the latter should make a critical step with the sales of properties to consolidate its financial position. The authorities’ strategy for financial inclusion should also be enhanced with the inception of a new agency for financial inclusion overseen by the ministry of economy and finance. It is meant to support diversification towards innovative financial services and products such as FinTech and mobile banking. Similar efforts are also made in the supervision of the restructuring of microfinance institutions.
Improving the business climate to promote private sector development
12. The authorities’ ambition to transform Côte d’Ivoire into an emerging market economy leans on promoting a large, diverse and flourishing private sector as the engine of growth. Progress made thus far in enhancing the business environment include setting a one-stop shop for creating business and cutting red tape, establishing industrial zones, digitalizing many government services, improving access to credit, enforcing contracts including through commercial courts, and facilitating the delivery of public utilities. As a result of these strides, Côte d’Ivoire has gained 25 places in its World Bank Doing Business ranking since 2015 and placed twice among the top ten reformers, most recently in 2018.
13. Going forward, the authorities are committed to making further progress, notably in delivering public services to enterprises mainly through digitalized procedures. In this regard, the issuance of a Single Taxpayer Identification Number (STIN) to all new firms and soon to existing ones is aimed at creating a unified online one-stop portal for delivering services such as construction permits, business licenses and certificates, property transfers, tax declaration and payments, and communication of legal decisions. Complemented with other reforms, including in governance, and an improved access to finance, these efforts should further ease the doing of business, help attract more foreign direct investment (FDI) and spur the development of local Start-ups and small-and medium-sized enterprises (SMEs).
Sharing growth dividends through social policy
14. The authorities are cognizant of the need to make growth more inclusive. They adopted earlier this year, the “2019–20 Government Social Program” aimed at “improving the well-being of the population through high-quality public services”. The program is built around 67 projects, of which 12 are quick-to-implement projects with a broad impact in the areas of employment, health, education, housing and access to water and electricity. The cost for 2019 is estimated at CFAF 376 billion, of which 13 percent are already in the budget and 59 percent covered by donor financing identified by this time. In addition, the government continues to implement other initiatives such as the social safety nets through cash transfers and the deployment of the Universal Health Coverage.
15. Côte d’Ivoire’s economy continues its strong growth momentum underpinned by the authorities’ unwavering reform commitment. The Fund’s support under the ECF and EFF arrangements is instrumental in enhancing macroeconomic stability and implementing transformative reforms. Performance continues to be strong and the authorities are on track to meeting the WAEMU fiscal target in 2019 and hence contribute to strengthening regional stability. In addition, they remain steadfast in pursuing their debt strategy which is critical to ensure debt sustainability. They also stay the course with their structural reform agenda whose implementation is bearing fruit in paving the way for robust and sustained private sector-led growth.
16. In view of Côte d’Ivoire’ strong economic performance and the authorities’ renewed commitment to the objectives of the program, we would appreciate Executive Directors’ support for the completion of the fifth reviews under the ECF and the EFF arrangements.