Côte d'Ivoire
Recent Economic Developments

This paper reviews economic developments in Côte d’lvoire during 1990–95. In 1994, the resumption of growth, initially concentrated in the area of some traded goods, became more widespread during the second half of 1994, offsetting the devaluation-induced contraction in the nontraded goods sectors and in the sectors sheltered from competition, which both suffered from the reduction in real disposable income. Output in volume terms increased at a rate of 4.5 percent in the primary and secondary sectors, and contracted further in the tertiary sectors.

Abstract

This paper reviews economic developments in Côte d’lvoire during 1990–95. In 1994, the resumption of growth, initially concentrated in the area of some traded goods, became more widespread during the second half of 1994, offsetting the devaluation-induced contraction in the nontraded goods sectors and in the sectors sheltered from competition, which both suffered from the reduction in real disposable income. Output in volume terms increased at a rate of 4.5 percent in the primary and secondary sectors, and contracted further in the tertiary sectors.

I. Macroeconomic Developments 1/

1. Recent economic developments in perspective

Following a period of strong and sustained economic growth during the 1970s—with GDP growing at an annual rate close to 8 percent in an environment of rising international commodity prices—Côte d’Ivoire entered into a protracted economic slump, which resulted from adverse external shocks that affected an economy marked by structural rigidities, limited diversification, and deficiencies in the implementation of macroeconomic policies. The price stabilization mechanism on cocoa and coffee, which had been put in place during the period of rising commodity prices, allowed the Government to capture a significant part of windfall profits and to boost government revenue accordingly. This allowed the authorities to launch an important public investment program in infrastructure, which accounted for up to 25 percent of GDP by 1978. Subsequently, when international commodity prices began to fall, the Government resisted adjusting its spending behavior and instead began accumulating deficits, which were financed mainly by borrowing abroad.

In the 1980s, efforts to restore internal and external balances were left to fiscal policy, as resort to an exchange rate realignment had been ruled out. The burden of adjustment was put mainly on spending, owing to weaknesses in tax collection and difficulties in implementing tax reforms. Public investment had declined to less than 4 percent of GDP by 1990. However, efforts to rein in the budget deficit and to put Côte d’Ivoire back on a sustainable growth path were thwarted by the increase in debt service, which was amplified by the hike in international interest rates during the first part of the 1980s and the collapse of cocoa and coffee prices between 1985 and 1993, as well as structural rigidities. By 1993, following several years of high budget deficits, the public debt/GDP ratio had nearly tripled compared with the level prevailing in the late 1970s, reaching 205 percent, 80 percent of which was owed to foreign creditors. Attempts to improve the fiscal balance, coupled with structural deficiencies and the deterioration in the terms of trade, heightened the economic slump, pushing GDP growth below 1 percent on average during the period 1988-93.

In view of the high costs of the internal adjustment strategy and its limited results, the Ivoirien authorities decided, in January 1994, in concert with other members of the CFA franc zone, to adopt a broadly based adjustment strategy involving a 50 percent realignment of the parity of the CFA franc in terms of the French franc. The devaluation-induced change in relative prices was instrumental in restoring Côte d’Ivoire’s competitiveness, which was also boosted by the strengthening of macroeconomic policies, substantial structural reforms, a general improvement in the world economic environment, and a strong increase in international commodity prices.

2. Output 1/

During the four years preceding the devaluation (1990-93), the overall deterioration in competitiveness brought about a decline in real GDP, at an average annual rate of 0.4 percent (Tables 1 and 2; Chart 1). The contraction was rather widespread in the secondary and tertiary sectors, which account for 65 percent of GDP, but it was somewhat alleviated by the relatively good performance of the primary sector. The declines in manufacturing were particularly concentrated in the flour mills (23 percent), mechanical and electrical industries (11.6 percent), wood mills (7.5 percent), rubber industry (5.8 percent) and oil processing (3.3 percent). In services, the major reductions in output were observed in Government services (6.8 percent) and domestic trade (1.6 percent), while activity in banking services remained broadly flat. In contrast, output in the primary sector increased at an average annual rate of 2.4 percent, reflecting to a large extent the sustained development of food crops at a rate of 3.2 percent, and export crops grew at a rate of 1.1 percent. As a result, the share of the primary sector in GDP, measured at current prices, increased from 30.4 percent in 1990 to 34.5 percent in 1993.

CHART 1
CHART 1

COTE D’IVOIRE: SELECTED ECONOMIC AND FINANCIAL INDICATORS, 1988-94

Citation: IMF Staff Country Reports 1996, 006; 10.5089/9781451807820.002.A001

Sources: Data provided by the authorities and staff estimates.

In 1994, the resumption of growth, initially concentrated in the area of some traded goods, became more widespread during the second half of 1994, offsetting the devaluation-induced contraction in the nontraded goods sectors and in the sectors sheltered from competition, which both suffered from the reduction in real disposable income. Over 1994 as a whole, the growth of real GDP is estimated to have reached some 1.7 percent. Output in volume terms increased at a rate of 4.5 percent in the primary and secondary sectors, and contracted further in the tertiary sectors. In the primary sector, the exploitation of timber increased by 24 percent, while output in agriculture increased by about 3.5 percent, despite stable cocoa and coffee production. The vigorous expansion in manufacturing activity was most conspicuous in the energy, petroleum, chemical, and rubber industries, as well as in wood processing, with output increasing between 6 percent and 11 percent compared with 1993. In contrast, agro-industries oriented mainly toward the domestic market registered a significant setback, given the contraction in domestic consumption. In the tertiary sector, the contraction in volume reflected mainly a drop in government services.

Provisional information regarding developments in 1995 confirms that the economic recovery is gaining momentum and spreading to most sectors, including services. Industrial production during the first half of 1995 increased at a rate of 11 percent compared with the same period in 1994, thanks in part to brisk activity in the energy sector, mining, and oil extraction, the latter with the coming on stream of new oil and gas fields (Annex II). In manufacturing, activity was most buoyant in textiles, mechanical and electrical engineering, and construction, whose good performance largely offset the decline recorded in agro-industries, shoes, and wood processing.

3. Consumption, investment, and saving

During 1990-93, viewed on the expenditure side, the decline in GDP reflected the contraction of domestic consumption and exports which was only partly offset by the good performance of gross investment. Final consumption declined at an average annual rate of 1.6 percent, owing to the contraction of real disposable income, while the household savings rate stabilized near 2.8 percent of GDP. In nominal terms, the composition of consumption changed markedly over the period; private consumption increased by 2 percentage points of GDP, with public consumption declining broadly by the same magnitude. In the external sector, exports retreated at an annual rate of almost 5 percent, while imports remained broadly stable. In contrast, gross investment registered a marked increase, owing to an important shift in stock building, concentrated in 1993, which was to a large extent directly linked to the anticipation of the exchange rate realignment.

In 1994, the recovery of domestic demand was led by fixed investment. The external sector ceased to be the drag on the economy that it had been in 1990-93. The contributions of domestic demand and the external sector to GDP growth were equivalent to 0.2 and 1.5 percentage points of GDP, respectively. Compared with 1993, final consumption declined by 4 percent, reflecting mainly a 2 percent reduction in real disposable income and an increase in the household savings ratio of nearly 1 percentage point, to about 3.6 percent of GDP. The ratios of gross domestic savings and national savings to GDP jumped by about 9 percentage points to 19.3 percent and 8.4 percent of GDP, respectively (Chart 1). Boosted by the restoration of competitiveness and the favorable international economic environment, fixed investment increased by 12 percent and its share in GDP by 2 percentage points, to 10.5 percent. Owing to further stock accumulation during the first half of 1994, gross investment increased by 21 percent.

In 1995, consumption is expected to recover and should provide a major contribution to the growth of domestic demand. This is suggested by recent trends in wage settlements in the industrial sectors, in the range of 5-25 percent, with an average increase of about 10 percent, as well as by the strengthening of rural incomes, which has resulted from a significantly increased pass-through of the rise in international commodity prices to producers. With a further strong expansion expected in investment, in particular in the oil sector, domestic demand should increase by about 6 percent at constant prices. If the trends of the first half are broadly sustained over the whole year, the external sector should continue to provide a positive contribution to GDP growth, which is expected to reach some 6.5 percent.

4. Prices

During 1990-93, the economic slump and the fixed peg helped keep inflationary tensions in check, with consumer inflation averaging 1.8 percent a year. In 1994, consumer inflation increased by 32 percent (Chart 2). The sharp rise in inflation during the first half of 1994 reflected the expected pass-through of the devaluation in the traded goods sectors. However, consumer inflation was subsequently swiftly brought under control, thanks to the tightening of fiscal and wage policies and the introduction of temporary price controls. 1/ Wage increases for the civil service were limited to an average of 10 percent of the base wage, while fringe benefits were frozen in nominal terms. In the private sector, wage settlements were broadly consistent with the increases granted in the public sector. 2/ The number of goods subject to price controls was raised temporarily from 22 to 34, with the intention to phase out most of these controls in the course of 1994 and 1995 (see Section IV). The largest price increases took place during the first sevem months of 1994 and were concentrated in clothing (48 percent), household equipment (21 percent), foodstuffs (18 percent), and various goods and services (43 percent).

CHART 2
CHART 2

COTE D’IVOIRE: CONSUMER PRICES AND EXCHANGE RATES

January 1990-September 1995

Citation: IMF Staff Country Reports 1996, 006; 10.5089/9781451807820.002.A001

Despite the increase in prices during 1994, the real effective exchange rate, as measured on the basis of relative consumer price indices, depreciated by almost 40 percent between December 1993 and December 1994. Although a more meaningful measure of competitiveness on the basis of relative unit labor costs is not available, the outcome of any such analysis would probably not differ significantly from the CPI approach, as the increase in unit labor costs in Côte d’Ivoire broadly mirrored the CPI increase. This is suggested by a crude decomposition of the contribution of labor costs, profits, and indirect taxes net of subsidies to the increase in the GDP deflator (see Text Table 1). Unit labor costs would have increased by 32 percent, profit per unit of output by 46 percent, and taxes net of subsidies per unit of output by 34 percent, accounting for 12.3, 24.9, and 2.7 percentage points, respectively, of the 39.9 percent increase in the GDP deflator. This decomposition suggests, in addition, that nearly two thirds of the 1994 price increases can be ascribed to the restoration of profit margins.

Table 1.

Côte d’Ivoire: Composition of Gross Domestic Product in Terms of Labor Costs and Profit at Current Prices, 1993-94

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Sources: Ministry of Economy, Finance and Planning; and staff estimates.

During the first half of 1995, consumer prices rose by 10 percent. This increase reflected some catching-up effects, following the progressive phasing out of price controls 1/ and the limited supply response of the economy in the face of a vigorous expansion of domestic and external demand, along with unfavorable climatic conditions. The most significant increases were concentrated in foodstuffs—specifically starches, fats and drinks—(19.4 percent), medicinal drugs and health services (8.2 percent), household equipment (5.4 percent), clothing (4.7 percent), and various goods and services (8.5 percent). The decline of consumer prices of 1 percent during the third quarter of 1995 suggests that inflation may have been brought back under control.

II. Public Finance

1. Overview

Large fiscal imbalances plagued Côte d’Ivoire in the second half of the 1980s, which prompted the authorities to cut expenditures, such that the budget deficit had narrowed to less than 10 percent of GDP by 1992. In 1993, however, the budget deficit worsened to 13.3 percent of GDP, mainly as a result of a first round of dismantling tariff barriers. This budgetary deterioration was accompanied by a further accumulation of domestic and external arrears, which exceeded 10 percent of GDP.

Following the CFA franc devaluation in early 1994 and the subsequent implementation of an ambitious domestic adjustment program and effective debt relief measures, Côte d’Ivoire experienced a rapid improvement in its public finance situation. The budget deficit was reduced to 7.6 percent of GDP in 1994 and is expected to reach 4.5 percent in 1995. The primary balance turned positive in 1994, to 1.7 percent of GDP; a further improvement in 1995—to about 3 percent of GDP—is within reach. Government revenue increased from 19.6 percent of GDP in 1993 to 22.7 percent in 1994 and could reach a projected level of 23.2 percent in 1995, partly as a result of the reinstatement in 1994 of export taxes on cocoa and coffee, which more than offset the cuts in other taxes. Noninterest expenditure was reduced by 2 percentage points of GDP, to 21.7 percent in 1994, and is projected to decline by an additional 0.7 percentage point in 1995, thanks to wage restraint and better control of other current expenditures.

The authorities took advantage of the improved fiscal balance, as well as of a net positive transfer from abroad of the magnitude of 4.1 percent of GDP in 1994 (and a projected 1.7 percent of GDP in 1995), to lower public domestic indebtedness. Both domestic payments arrears, which had been accumulated since the mid-1980s, and central bank advances were substantially reduced. The ratio of domestic debt/GDP dropped by 15 percentage points to 30 percent at end-1994, and is expected to fall below 20 percent at end-1995.

2. Government revenue

After a 25 percent nominal reduction during the 1987-91 period, tax collection stabilized in 1992, both in nominal terms and as a percentage of GDP, reflecting the positive impact of the efficiency-oriented reforms implemented from 1991 in the tax and customs administration. In 1993, however, tax revenue fell again by 13 percent, especially in the areas of direct and import taxation, reflecting the worsening of the overall economic climate, as well as the short-term impact of a customs tariff reform implemented in October 1993. This reform—initiated in 1991, with a view to re-establishing an adequate level of competitiveness for the export sector—substantially harmonized and lowered the effective level of protection, and also reduced the number and dispersion of rates. Nontax revenues were also lower than in 1992 because of a sharp decline in the surplus of the Equalization Price Fund, the government monopoly in charge of rice imports. 1/

In 1994, the Government embarked upon a far-reaching tax and customs reform to accompany the devaluation, so as to rationalize the tax system and broaden the tax base to include the informal and agricultural export sectors, while maintaining the overall revenue level in relation to GDP. In addition, taxes on some sensitive staples were revised downward to mitigate the initial impact of the devaluation on consumer prices. The tax and customs reform included four central elements.

First, the 1993 reform on the taxation of imports was complemented by an across-the-board reduction in the rates of the fiscal import duty (droit fiscal d’entrée), and a limitation of the aggregate maximum rate for the customs duty (droit de douane) and the fiscal import duty to 35 percent. On the whole, the level of import taxation was reduced by 5 percentage points.

Second, domestic consumer tax rates were reduced and the tax base was broadened. The highest value-added tax (VAT) rate of 35 percent was eliminated and the normal VAT rate was curtailed from 25 percent to 20 percent. The VAT base was expanded to include certain public utilities (electricity, water, and telephone) and the number of products subject to the lowest rate was reduced. With respect to petroleum products, the Government adjusted the petroleum tax system in order to limit the devaluation-induced increase in prices at the pump to 15 percent for high octane and regular gasoline, and to 10 percent for diesel fuel. Finally, the Government increased specific excise taxes on alcoholic beverages, tobacco, and cigarettes to compensate for lower customs duties.

Third, the Government embarked upon a far-reaching simplification of the income tax system, with a view to reducing tax evasion and broadening the base to gradually include informal sector activities. A global tax (impôt synthétique) was introduced to replace the business license, the tax on commercial and industrial profits, and the VAT for small noncorporate taxpayers. In addition, the Government instituted a simplified tax on industrial, commercial, and agricultural profits (BIC) for other individual taxpayers below a certain volume of annual turnover. The minimum presumptive tax was increased for the standard BIC regime. To improve the economy’s competitiveness further, the 3.2 percent payroll tax paid by employers on the wages of nationals was abolished.

Fourth, export duties on cocoa and coffee were reinstated to compensate for the above-mentioned tax cuts, and to capture part of the windfall profits brought about by the devaluation and the simultaneous rise in world market prices. The export duty was designed to tax agricultural income, pending the introduction of a more convenient form of generalized direct taxation. 1/

In September 1994, encouraged by higher-than-expected revenue results, the Government adopted additional tax cuts, lowering the excise tax on beer, and import taxes on vehicles and spare parts. In July, the Government substantially increased the customs values (valeurs mercuriales) of wood exports, so as to encourage local transformation and limiting the exploitation of these natural resources. The special tax on water distribution was reduced in the context of the new water tariff implemented in May 1994, and the structure of petroleum prices and related specific taxes were modified as of September 1, 1994. 2/

Government revenue rose to 22.7 percent of GDP in 1994, up 3.1 percentage points from 1993. The main factor accounting for this improvement was the reintroduction of export duties on cocoa and coffee; the share of levies on cocoa and coffee—export duties and the surplus of the Price Stabilization Fund for Cocoa and Coffee (CAISTAB)—in total government revenue increased from 3.5 percent in 1993 to 28.2 percent in 1994. Excluding levies on cocoa and coffee, however, government revenue declined by 2.6 percentage points of GDP to 16.3 percent. During the first half of 1995, revenue performance continued to be strong, especially on account of the good performance of corporate income tax and customs duty collection.

3. Expenditure

A number of measures introduced in the early 1990s in an attempt to consolidate the public finances started to bear fruit in 1993. The wage bill was reduced by 2 percent as a result of a continued freeze in base wages and benefits, reduction in staffing, the implementation of new retirement rules—which triggered the departure of some 3,000 civil servants—and the adoption of a new wage scale enabling the Government to recruit new teachers at a reduced cost. Discretionary expenditures on special treasury accounts slowed down further in 1993, amounting to about one sixth of their level of six years earlier. Thanks to a rapid pass-through of changes in international prices for cocoa and coffee to producers, the new stabilization system allowed the operations of CAISTAB, the price stabilization fund for cocoa and coffee, to be at least balanced. However, nonwage current expenditures for essential basic public services in the education and health sectors, as well as capital expenditures, were also trimmed further, thereby jeopardizing the long-term growth prospects of the economy.

Reversing a five-year reduction in nominal government noninterest expenditures, these outlays increased by 30 percent in 1994, and are expected to rise by another 15 percent in 1995, broadly remaining unchanged in real terms. These developments were accompanied by a substantial shift in the composition of public expenditures.

The wage bill, which drained more than 72 percent of government revenue in 1993, absorbed only 48 percent in 1994, and is projected to drop further to 40 percent in 1995. The authorities raised base wages by an average of only 10 percent in February 1994 and by another 5.5 percent in June 1995; 1/ benefits were kept unchanged. At the same time, the Government pursued its civil service reform, adopting additional measures to reduce the overstaffing of public administrations. The implementation of a voluntary departure program (VDP), the introduction of new retirement rules, and the restructuring of public agencies, mainly in the agricultural sector, led to an additional 2.9 percent reduction in the number of civil servants in 1994. Budgetary savings from the retrenchment program will materialize only in the medium term, however, owing to substantial related costs, including severance pay for public agencies, and VDP premiums. Meanwhile, the CGRAE, a nonfunded public retirement institution, has experienced significant increases in its pension liabilities vis-à-vis the early retirees who are facing the new retirement rules or benefiting from the VDP program, and is expected to need increasing budgetary support in the future.

Preliminary figures for 1995 indicate that the pace of staff reduction is slowing, with the diminishing impact of the VDP, and the postponement of certain measures, such as the nonrenewal of contracts for temporary workers. In addition, high demographic trends will require an upturn in the number of civil servants in the medium term—teachers and health professionals in particular—which will exceed the possible retrenchments in other sectors.

Over the period 1988-93, nonwage current expenditures were cut by half as a result of the declining financing capacity of the Government during the pre-devaluation period. In 1994, however, this trend was sharply reversed, with a 26 percent increase in nominal terms, that is, a stabilization in real terms. The composition of public expenditure was also reoriented between 1988 and 1993. In the late 1980s, expenditure cuts had disrupted the provision of a number of public services, especially in the area of primary education and health. Aware of the potential damage that these cuts might have on Côte d’Ivoire’s economic potential, the authorities in 1991 adopted a human resources development program, aimed mainly at shifting the allocation of resources in health and education away from tertiary level services toward basic primary services. Although this program had only a limited impact until 1993, it did yield some results in 1994. Sectors providing government primary education and health services received priority in the 1994-95 budgets. However, the actual outcome was significantly different from initial plans. In primary education, the Government’s reduction in the wage bill by about 2 percent a year, compared with the 1 percent initially planned, has allowed a higher recruitment level to address staffing needs; the share of operating expenditure devoted to primary education has increased. However, the Government was less successful in establishing the conditions for an increase in enrollment rates, and the school construction program is progressing slowly. Some progress has been made on a series of health services issues, including cost recovery, pharmaceuticals, the first elements of a strategy based on primary care, decentralization and region-level management. This resulted in better availability of low-cost medicines and consumable goods for the population.

A set of social safety net measures was implemented in January 1994 in the aftermath of the exchange rate adjustment, to protect vulnerable groups of low-income urban populations from the negative short-term effects of consumer price increases. Price increases were limited for a number of staple goods such as bread, rice, basic medications and school books; attendant costs were financed through reduction in taxation, budgetary and nonbudgetary subsidies as well as donors’ grants. In addition, tariff increases for water and electricity supply were limited for low-volume consumers.

In addition, social funds were put in place in 1994, with a view to financing projects geared toward various social targets, including the creation of labor-intensive jobs in urban and rural communities, and assistance to dismissed public workers wishing to create their own businesses. So far, however, only one fund—managed directly by a bilateral donor—has proved effective, with the others—managed by the authorities—encountering various administrative difficulties, which limited their disbursements to CFAF 3.2 billion in 1994 and in the first half of 1995, compared with a total budgetary allocation of CFAF 23.5 billion for the period 1994-95. A review of the efficiency of these funds, together with the social policy of the authorities, is scheduled to be conducted in 1996.

4. Domestic financing and domestic debt

The deterioration of the public finances during the second half of the 1980s led to an increase in public debt of about 50 percentage points of GDP, to 168 percent at end-1991. Of this amount, 35 percentage points (CFAF 980 billion) represented domestic debt, one-third of which was in arrears. Constrained in its refinancing capacity at the Central Bank, 1/ the Government defaulted on its domestic debt obligations: the debt service on public bonds was suspended and payments to local suppliers were delayed. In addition, a number of national public agencies (EPN) and local communities accumulated arrears because of lower government transfers and a partial freezing of their accounts with the Treasury.

Part of the domestic arrears buildup resulted from the nonadjustment of the producer prices of cocoa and coffee in 1988-90, following the sharp decline in world market prices for both commodities. As a consequence, over the period 1989-1992, CAISTAB accumulated substantial losses, including CFAF 165 billion in arrears to exporters, the equivalent of 5 percent of GDP. In turn, exporters were not able to repay credits granted by local commercial banks, which contributed to the weakening of the financial sector. In addition, the cost of the restructuring of the banking sector in 1990-92 added to the buildup of domestic public debt, as the Government had to assume a large part of the liabilities of liquidated banks and nonperforming public enterprises. In 1990, the BCEAO consolidated and restructured CFAF 186 billion of such debt; the remainder was rescheduled directly with domestic banks, or remained in arrears. By end-1992, about two-thirds of the domestic debt outstanding at-end 1991 had been restructured.

In 1993, though, the budgetary situation remained difficult and Côte d’Ivoire experienced a renewed shortfall in external financing; the Government thus faced an extremely tight cash-flow situation and the stock of domestic debt increased by 17 percent, reaching CFAF 1,200 billion, of which almost one fourth was in arrears. However, the debt structure by creditors had changed significantly compared with 1992: the restructuring of the debt to the banking system was almost finalized, while the nonbanking sector arrears were building up, as the Treasury’s cash difficulties resulted in the further accumulation of unpaid payment orders to government suppliers. In an attempt to solve part of the problem, the authorities carried out a number of cross-arrears settlements against tax liabilities, and securitized arrears prior to 1993 in an amount of CFAF 23 billion, in the form of the issuance of transferable tax credit certificates to be redeemed over a four year period.

The reorientation of economic policies in 1994 soon had a positive impact on net domestic financing, which turned negative for the first time since 1987. In contrast with the previous years, the Government was able to assume debt-service obligations of CFAF 178 billion, equivalent to 4.8 percent of GDP, including a CFAF 78 billion repayment of domestic arrears and a reduction in BCEAO advances of CFAF 47 billion, which represented almost half of the advances in excess of the statutory limit. Domestic arrears vis-à-vis the banking sector were fully cleared. In addition, domestic arrears amounting to CFAF 21 billion were securitized. As a result, the outstanding stock of domestic arrears declined to CFAF 1,120 billion at end-1994. The improvement in domestic debt service performance in 1994 was the reflection of fiscal tightening and the resumption of foreign financial assistance. In addition, the Government benefited from the proceeds of privatization and from the sale of assets of liquidated banks, as well as from public enterprises’ transfers to the Amortization Fund (CAA)—as a counterpart for CAA’s servicing of the publicly guaranteed external debt—which amounted to a total of CFAF 45 billion.

During the six first months of 1995, the Government pursued its debt-clearing efforts, reducing by a further CFAF 72 billion its domestic indebtedness, including the remaining recourse to Central Bank advances in excess of the statutory ceiling. In addition, as an unequivocal indication of its intention to re-establish normal relations with its domestic creditors, the Government published a program aimed at eliminating all domestic arrears by end-1996, based on specific litigation procedures and periodic reviews of progress achieved. The authorities simultaneously conducted an extensive inventory of government claims, including those that originated from extrabudgetary procedures.

III. Monetary Policy and the Financial Sector

1. Institutional framework

Côte d’Ivoire is a member of the West African Economic and Monetary Union (WAEMU) and shares a common currency—the CFA franc—and Central Bank—the BCEAO—with the other six member countries of the union. The CFA franc has been pegged to the French franc since 1948; the fixed parity has been altered only once, in January 1994, when the CFA franc was devalued from CFAF 1 = FF 0.02 to CFAF 1 = FF 0.01.

Given the size and degree of development of its economy, Côte d’Ivoire on average accounts for more than 40 percent of WAEMU’s broad money; more than 50 percent of the credits extended to the member economies; more than two thirds of credits to WAEMU member governments; almost half of the subregion’s banking activities; and three fourths of the entire central bank refinancing to commercial banks. In addition, in 1994, Côte d’Ivoire contributed almost two thirds to the improvement in the zone’s net foreign assets.

The BCEAO, which has its headquarters in Dakar and is represented in each member country through a national agency, holds the union’s pooled international reserves and conducts monetary policy at the regional level. Since October 1989, the BCEAO has been undertaking a gradual reform of its set of monetary policy instruments, by phasing out country- and bank-specific credit ceilings and selective interest rate controls and successively replacing them by indirect instruments, such as money market auctions and minimum reserve requirements; however, the reform is still incomplete, as efficient instruments for mopping up excess liquidity have yet to be developed. With this increased reliance on indirect instruments and the accompanying development of regional money and interbank markets, the BCEAO’s ability to conduct country-specific monetary policies has largely disappeared. In addition, given the constraints imposed by the fixed parity, the BCEAO enjoys only a limited degree of independence in the conduct of its monetary policy at the regional level. 1/

The Ivoirien banking system comprises 15 deposit money banks and 5 nonbank financial institutions; the latter specialize in small lending and leasing activities and normally do not accept deposits. As of September 30, 1993, banks maintained 165 branches and employed 3417 staff. The degree of concentration in the banking system is high, as four major banks account for close to 90 percent of all private sector loans, deposits, and central bank refinancing. The Ivoirien banking sector was successfully restructured in the early 1990s in the context of the World Bank-supported financial sector adjustment program (PASFI). 2/

Banking supervision in Côte d’Ivoire is conducted by the Regional Banking Commission in Abidjan, a supranational institution established by WAEMU member countries in 1990. It is assigned to enforce the new prudential regulations introduced in 1991 and to supervise the 55 banks and 19 other financial institutions of the subregion through on-site inspections and off-site analysis of monthly statistics. 1/ It is equipped with a set of sanction instruments, ranging from monitoring banks’ activities to disciplinary actions, such as removing managers and withdrawing a bank’s operating license. In addition to banks and financial institutions, the Banking Commission has also recently been mandated to inspect the national entities established for the recovery of nonperforming loans created in the context of the national programs for the restructuring of the respective banking systems; the Ivoirien recovery unit SONARECI (Société Nationale de Recouvrement de la Côte d’Ivoire) has been operational since late 1992.

The financial system in Côte d’Ivoire is complemented by the Abidjan stock exchange, which has some 60 stock and bond listings of Ivoirien companies and the government. The stock exchange is the nucleus for the regional financial market that is scheduled to begin operations in mid-1996.

2. Recent monetary and credit developments 2/

The January 1994 realignment of the exchange rate was a turning point in the development of money and credit aggregates in Côte d’Ivoire. During the six years prior to the devaluation, the downturn of the Ivoirien economy, the budgetary disequilibria, the difficulties in the banking system, and increasing capital flight had led to the following developments:

  • broad money fell by 15 percent;

  • the recourse of the Government to bank financing almost doubled, as deposits were drawn down and the statutory limits on the overdraft facility at the Central Bank were exceeded by a large margin;

  • credit to the economy fell by more than one fourth; and

  • Côte d’Ivoire’s already substantially negative net official reserve position in the operations account again deteriorated rapidly, by almost 60 percent.

During this period, the BCEAO raised its discount rate by about 4 percentage points to 12.5 percent in November 1993, to stem the flight of capital from the union and ensure a large positive interest rate differential vis-à-vis the anchor country. However, the high level of interest rates, coupled with the sluggish growth of the economy and the banks’ reluctance to extend new credits in view of the large share of non-performing loans in their portfolios, contributed to the decline in credit to the economy. In addition, crop credit suffered from the difficulties in the cocoa and coffee sectors.

After the devaluation, however, as the new parity and the Government’s domestic adjustment strategy gained credibility and flight capital started flowing back, a number of encouraging signs emerged in Côte d’Ivoire:

  • broad money growth reached 47 percent during the course of 1994, representing a rapid reconstitution of real money balances, and decelerated to a 12-month growth rate of 17 percent by August 1995, in line with developments in GDP growth;

  • net credit to the Government dropped significantly, as evidenced by the accumulation of government deposits and the decline in the Government’s use of its overdraft facility at the Central Bank by 20 percent during 1994 and by 38 percent by June 1995;

  • private sector credit demand, after having been sluggish throughout 1994, experienced a reversal of its downward trend in early 1995; and

  • the country’s net foreign assets improved dramatically and became positive in the first quarter of 1995 for the first time in decades.

In the immediate aftermath of the devaluation, the BCEAO raised its discount rate by 4 percentage points, to 14 percent, to support the credibility of the new peg. Money market and interbank rates followed this move to a much smaller extent, given the surge of liquidity in the banking system, which stemmed from the rapid and sustained inflow of flight capital and from sluggish credit demand. In view of these developments, the BCEAO was subsequently able to cut its discount rate gradually, to 10 percent by August 1994 and 8.5 percent by August 1995. During the same period, the average money market rate fell from 7.9 percent to 5.5 percent, while interbank rates were roughly halved, to an average of 6 percent; however, given the comfortable liquidity position of most banks, trading volumes in both markets were low. For the same reasons, bank deposit rates declined substantially and induced a shift from term deposits to sight deposits. Lending rates showed more stickiness, as they declined by only 2 percentage points on average, to 12-14 percent, owing to the banks’ need for provisioning for their large portfolios of nonperforming loans and increased prudence in their lending decisions; however, international competition enabled most prime customers to negotiate more advantageous rates (for example, as low as 9 percent in August 1995).

The overliquidity experienced after the devaluation was temporarily absorbed by the decision of the BCEAO, in July 1994, to securitize and sell the stock of the consolidated claims in its portfolio to banks of the union. 1/ After a decisive alteration of the sales conditions for the bonds in September 1994, 2/ demand by banks increased considerably, and by September 1995, the entire stock of securities had been sold. At that time, some 84 percent of the total amount of Ivoirien bonds under the securitization scheme were held by nonresident banks, contributing considerably to the improvement of Côte d’Ivoire’s foreign position.

3. The banking sector

After the banking crisis of the late 1980s and the subsequent successful efforts of restructuring in the context of the PASFI, the health of the Ivoirien banking system has improved significantly over the last few years. From 1992 to 1994, several favorable developments occurred:

  • banks’ profitability rose, as measured by the ratio of the banks’ net result to their capital base, from 3.51 percent to 9.89 percent; 3/

  • the interest rate margin between deposits and lending operations improved, from 4.37 percent to 6.41 percent, contributing to a rise in profitability;

  • there was a reduction in the banks’ operating costs related to the net proceeds from the banking business, from 77.43 percent to 63.09 percent; and

  • banks exhibited prudence in their lending decisions, charging high interest rates for more risky engagements, while engaging in competitive rates for prime customers.

Moreover, according to the Banking Commission, most banks increasingly succeeded in meeting the new prudential standards and showed considerable progress in cleaning up their lending portfolios, achieving adequate risk coverage, and improving their accounting.

However, in spite of these improvements, certain Ivoirien banks are still experiencing some difficulties in meeting prudential standards, particularly as a result of an inadequate capital base, and are still dealing with the losses stemming from the devaluation. Overall, the smaller banks, as well as nonbank financial institutions, have emerged far stronger from the banking crisis and the devaluation than the larger banks and generally are at comfortable levels as regards the fulfillment of the prudential norms. Two banks still have to replenish their capital base to meet the capital assets ratio; two banks slightly exceed the ratio governing loans to personnel and managers; three banks are below the minimum liquidity ratio; and one bank has a large risk exposure. In addition, gross provisioning for loans has ranged between 2 percent and 3 percent of total credits during the last few years, which is low by international standards in view of the relatively high share of nonperforming loans remaining in the portfolios of Ivoirien banks. 1/ Apart from these difficulties, Ivoirien banks as a whole are suffering under an inadequate judicial system and the lack of medium- and long-term lending opportunities.

The Banking Commission has been working with Ivoirien banks to help them make the necessary adjustments in their business structure. The Banking Commission aims at further improving the internal organization of banks and their risk management; continuing with efforts to clean up banks’ portfolios and strengthen their capital bases; and introducing a common accounting plan in January 1996.

The national unit for the recovery of nonperforming loans (SONARECI) was founded in 1992 in the context of the PASFI and was assigned to recover the nonperforming loans from liquidated or ailing banks for which the Ivoirien government had taken responsibility. Between May 1993 and June 1995, less than 4 percent of the outstanding portfolio was actually recovered. The recovery activities of SONARECI have been impaired by the insufficient judicial framework, the bankruptcy of major debtors, accounting problems, the bad condition of credit files, and slack demand in the real estate market. The net proceeds of the recoveries have been used for the repayment to former depositors of the institutions affected. In addition, a special government fund (Fonds de Rachat et d’Indemnisation, FRID), which was set up for the repayment of deposits to private depositors of the BNDA, the largest liquidated development bank, was used to settle a large share of the payments due to this group of depositors (58 percent by June 1995).

4. Financial markets

The Abidjan stock exchange, benefiting from a 1992 rehabilitation program, has since experienced a significant increase in its activities. The rehabilitation program aimed at providing medium- and long-term financing for private enterprises and supporting the government’s privatization strategy. For this purpose, admission fees were eliminated and quotation fees lowered by one third. A new stock market segment for small companies with less rigid admission and quotation rules was established, apart from the official market for larger companies. In addition, the operations of the stock exchange were streamlined and modernized, and government subsidies phased out. In 1994, an overhaul of the existing set of regulations was carried out and a new market segment for international bond issues was created. In the same year, a sixth bank was admitted as a dealer. 1/ In spite of these positive developments, the Abidjan stock exchange is still handicapped by the—according to international standards—low volume of companies listed, the limited liquidity in the market, and occasional problems with the settlement of transactions.

The volume of listings and transactions on the Abidjan stock exchange was positively influenced by the devaluation in January 1994 and the subsequent macroeconomic recovery, the return of confidence and flight capital, and the large amount of liquidity in the economy. Market capitalization reached 6 percent of GDP in 1994, after 4.6 percent in 1993. In the primary stock market, ten new companies were added to the listings from end-1991 to end-1994, among them five companies privatized by the Ivoirien Government. Several other companies increased their share capital, occasionally in the context of mergers, whereas the listing of two companies was suspended, owing to their financial difficulties. In the primary bond market, eight new series were issued from 1992 to 1994, but as some existing issues were repaid upon maturity and not renewed, bond listings dropped on a net basis. In the secondary market, transactions rose significantly, especially in the stock market, which experienced a sixfold increase. The stock market index more than doubled between 1992 and 1994. Although large-scale investors have traditionally been the major buyers of securities, the latest surge in activity can to a large extent be attributed to the demand from small private investors. 1/

The Abidjan stock exchange will be the nucleus for the new regional financial market, which is expected to begin operations in mid-1996. 2/ The new market will be fully computerbased and is intended to facilitate the national privatization programs and link investors in the seven WAEMU member countries. In addition, by providing transparency, increased liquidity, and more efficient settlement techniques, the new market is expected, in the long run, to attract international investors as well.

IV. Structural Reforms

In the 1960s and 1970s, Côte d’Ivoire used the substantial financial surpluses derived from the steady growth of export crops to initiate the development of an industrial base. The Government undertook significant industrial and commercial investments, resulting in the preponderance of the state in productive activities. In 1980, some 140 state enterprises, national public agencies, and mixed or parapublic enterprises were active in every branch of the economy; by 1989, this number had been reduced to 117, of which 80 were commercial entities. Public enterprises account for roughly two fifths of the value added in the formal sector.

This policy of state-led industrialization and promotion of import substitution resulted in structural weaknesses, however, including a misallocation of resources away from the tradeable goods sector, quantitative restrictions and other nontariff barriers to trade, a distortionary tax system, a complex regulatory framework, and labor market rigidities. Also, the rapid expansion of the parapublic sector contributed to a deterioration in public savings and rising external debt. By 1990, the sector’s net drain on the public finances, both direct and indirect, had reached almost 4 percent of GDP.

The sharp decline in the world market prices for Côte d’Ivoire’s main agricultural exports in the mid-1980s resulted in a massive drop in its terms of trade and plunged the country into recession. A number of stabilization and structural reform programs were undertaken, but they were not sufficiently comprehensive and the measures were not implemented quickly and decisively enough to overcome the effects of the adverse external environment. Though some public sector firms were privatized, restructured, liquidated, or merged, a large-scale policy of divestiture of public assets became very difficult to implement in the midst of the dramatic deterioration of Côte d’Ivoire’s macroeconomic situation.

Since 1990, Côte d’Ivoire’s structural reform efforts have taken a new turn, aimed at disengaging the state from productive activities, improving competitiveness, alleviating rigidities in certain key sectors, and increasing the role of the private sector as an engine for growth. In the early 1990s, emergency stabilization measures were adopted and a set of structural reforms were put in place, focusing on the industrial sector, the rehabilitation of the financial sector, and the restructuring of the parapublic sector. After a rather slow start, these reforms were deepened and accelerated after the adjustment of the parity of the CFA franc in early 1994.

1. The privatization program

The first effort at implementing a systematic and transparent privatization process sought to transfer a large part of the Government’s equity holdings to the private sector, starting in late 1990. A privatization committee and a technical secretariat, under the direct supervision of the Prime Minister’s office, were set up and charged with the execution of the program. The goal at the time was to privatize about 80 firms over the medium term in order to encourage private investment and to create national private shareholding. The work proceeded rather slowly, however, owing primarily to the technical difficulties of preparing the firms for divestiture, but also reflecting some skepticism from the local public, the absence of meaningful domestic savings, and the inexperience of the authorities in this area. Notwithstanding these difficulties, the first divestiture project targeted a large company, the Ivoirien Electricity Company (CIE), which was successfully privatized in 1990.

In 1992, the technical secretariat was strengthened and a new list of 58 enterprises slated for privatization was drawn up. However, only eight firms had effectively been privatized by end-1993, yielding CFAF 3.4 billion in receipts. These included enterprises in the areas of livestock, food processing, oils and soaps, publishing, and two tourism villages.

After the exchange rate realignment of early 1994—which required a reassessment of the value of the firms slated for privatization—and the adoption of a new adjustment program, the Government decided to accelerate the privatization program with a view to completing it by end-1997. A general enabling law was adopted by the National Assembly in June 1994 and the decrees of application promulgated shortly thereafter. Also, the privatization committee and the technical secretariat were reorganized and reinforced in November 1994.

After these adjustments, which took more time than expected, the privatization program regained momentum. Although only three enterprises were offered for sale in the first half of 1994, nine additional ones were added in the second half of the year. Overall, six enterprises were actually privatized during 1994, generating about CFAF 6.6 billion in receipts. These included agro-industrial complexes in the cocoa and hevea sectors, a sugar complex, spinning and weaving, electrical cables, and a protocol agreement signed with a private partner in July 1994 for privatizing the management of the railway linking Abidjan to Ouagadougou, which took effect in June 1995 (the Ivoirien railways company SICF was liquidated in August 1995).

For 1995, an ambitious program was adopted, namely: (a) to complete the process of divestiture of the enterprises offered for sale in 1994; (b) to put up for sale 10 other enterprises, including some of largest state-owned firms, such as the telecommunications company (CI-TELECOM), the holdings in the palm oil sector (PALMINDUSTRIE), the national sugar company (SODESUCRE), a major commercial bank (BIAO-CI), a gas distribution company (GDCI), and the maritime transport company (SITRAM); (c) to accelerate the sale of the state’s minority holdings in 14 mixed enterprises; and (d) to conduct preparatory studies for 10 other companies. In order to achieve as broad a base of private ownership as possible, the privatizations will to a large extent be conducted through the Abidjan Stock Exchange.

In the first six months of 1995, the improvement in the economic environment and the renewed efforts by the reorganized privatization committee and technical secretariat were reflected in the sale of 10 enterprises, yielding CFAF 19.4 billion in receipts. 1/ These firms covered a wide variety of activities, including agro-industrial complexes in the rubber and vegetable sectors, flour nmills, production and distribution of petroleum products, and an asphalt producer. Moreover, in the framework of the liberalization of the rice sector, 9 of the 11 rice silos and mills in the hands of the state were transferred to private operators against the settlement of a series of cross-debts. The two remaining mills were liquidated and the assets sold at auction. The maritime transport company (SITRAM) was liquidated. Its assets are being taken over by private operators who will continue the activity through a streamlined structure.

2. The restructuring of public enterprises

The reform of the public enterprise sector aims at reducing the burden of the parapublic sector on the public finances and at improving the efficiency of the enterprises that will remain in the government portfolio. The major objectives are to improve the control and monitoring functions of the administration and the financial and technical management at the enterprise level. In early 1992, a database of financial and economic data of the enterprises was set up by the Direction et Contrôle des Grands Travaux (DCGTx), under the direct supervision of the Prime Minister’s office, to facilitate the analysis of the enterprises’ performance. Also, a system of quarterly reporting of key financial indicators to a specialized department (DCSPPCB) of the Ministry of Finance was established, permitting a constant monitoring of the financial situation and financing requirements of the sector.

Because of the continuing deterioration of Côte d’Ivoire’s economy and organizational problems between the Ministry of Finance and DCGTx, not much progress was achieved in 1992-93. In 1994, a strengthening of the restructuring process was included as part of Côte d’Ivoire’s new adjustment program. However, owing to persistent administrative weaknesses and the highly incomplete reporting of financial data by some enterprises, the Government encountered difficulties in effectively monitoring the financial situation of public enterprises. Nevertheless, the Government succeeded in restructuring the Abidjan Urban Transport Company (SOTRA) in May 1994, and the restructuring plan for the postal savings company (SIPE) was adopted in December 1994 and implemented in April 1995.

In 1995 the supervision of the public sector enterprises was accelerated. In April, the Council of Ministers adopted a general parapublic policy statement that will serve as a guidance note governing these enterprises’ relations with the state. It indicated that the public sector enterprises would henceforth be run as commercial outfits, and that the state would substantially strengthen its supervision of the sector. Each enterprise would have to set up an internal management control system and be subject to an annual external audit. The system of performance monitoring was put into motion. The accounts for fiscal year 1993 were reviewed for about 20 state enterprises. The accounts will be regularly updated and the number of enterprises progressively enlarged to eventually cover all enterprises with state participation. New agreements were signed between several entities and the Caisse Autonome d’Amortissement (CAA), rescheduling retroceded or guaranteed debt. In addition, the cross-arrears between 35 large enterprises and the Government and among themselves have been tallied; a committee will be set up to start the settlements. Finally, the restructuring plans started in 1994 are being pursued, and others are under preparation.

3. Deregulation

a. Prices

Traditionally, prices and profit margins were extensively regulated in Côte d’Ivoire; however, in 1991, a new Law on Competition Policy and a number of decrees relative to price liberalization were adopted. All domestic prices were liberalized except for a list of 22 products, consisting primarily of staple foods, basic utilities, schoolbooks, and medicines. The temporary increase in price controls from 22 to 34 key products—introduced as an exceptional measure after the parity change of the CFA franc in January 1994—was lifted by end-April 1994. In August 1995, 4 more products, most importantly cement, were taken off the list, so that the prices of only 18 goods and services remain under administrative control. The Government intends to liberalize prices further once nontariff barriers are lifted on these goods.

b. Trade policies

Côte d’Ivoire’s policy of government-led industrialization had been accompanied by high import tariffs, a large number of quantitative restrictions, nontariff barriers and other impediments to free trade. A policy of progressive liberalization was initiated in 1993. Following the devaluation of the CFA franc, a new structure was adopted, with tariffs ranging from 0 to 35 percent and a reduction in the number of rates from 10 to 6. The average weighted tariff on taxable imports declined from 32 percent in 1989 to 19 percent in 1994, and further to about 16 percent in the first half of 1995. In 1994, the Government adopted a schedule for eliminating over a three-year period all nontariff barriers to imports, except those justified for security, public health, and environmental reasons. A number of barriers were lifted in May 1994 and January 1995, and more recently in August 1995, concerning inter alia major agricultural products such as rice, flour, coffee and tobacco. Côte d’Ivoire was one of the first countries to join the World Trade Organization. In this context, a law against unfair trading practices is under preparation.

4. Labor market

Up to the early 1990s, the labor market in Côte d’Ivoire was characterized by rigidity and high costs, stemming from high payroll taxes levied on employers and from an extensive and cumbersome regulation of employment and wages. These included the intervention of the Public Employment Office (OMOCI) for all new hiring, preliminary authorizations by the Ministry of Labor of requests for collective layoffs or any overtime work, and the prohibition of temporary work beyond a 90-day period. Moreover, the “last-hired, first fired” rule provided senior employees with nearly complete protection against layoffs. Wage increases based on seniority delinked the labor cost from changes in productivity, contributing to a 30 percent decline in employment in the formal sector when the economic crisis hit in the mid-1980s.

From 1991 onward, to stem the loss of jobs in the modern sector and to create new employment opportunities, the Government appealed to trade union representatives in the private sector to limit pay increases and started making the labor market more flexible. Payroll taxes were reduced by 50 percent (from 10 to 5 percent of payroll) for labor of nationals and lowered from 16 percent to 11 percent of payroll for expatriates in April 1991. These taxes were further reduced for labor of nationals in 1992 to 2.5 percent of payroll and eliminated in the Finance Law of 1994. The OMOCI hiring monopoly, the rule making occasional workers permanent after 90 days, the prior authorization for overtime, and the restrictions on collective layoffs for economic motives were all eliminated in 1992.

After some initial delays, a new Labor Code, introducing greater flexibility into the functioning of the labor market, was adopted in January 1995. About 20 executory decrees, which have been prepared and are being discussed with the social partners, should be adopted in the near future. In addition, several industries have started to revise the Professional Collective Bargaining Agreements to harmonize them with the new law.

V. Balance of Payments and External Debt

After a long period of steady deterioration, Côte d’Ivoire’s external competitiveness improved considerably after the devaluation of the CFA franc in January 1994. The current account deficit, which in the six years prior to the devaluation had ranged between 10 percent and 15 percent of GDP, was reduced to about 2 percent of GDP in 1994, owing to a buoyant recovery of exports and a significant contraction of imports. Moreover, thanks to a recovery of external public assistance and a repatriation of private capital, the overall balance of payments posted a large surplus in 1994, for the first time in many years, which permitted a considerable improvement in the external position of the banking system. Furthermore, Côte d’Ivoire benefited from significant debt reduction and cancellation by its bilateral creditors and was able to settle most of its external payments arrears, with the exception of commercial banks.

1. Exports 1/

Côte d’Ivoire’s export performance changed dramatically during the period under review. After several years of declining merchandise exports, owing to weak world market prices for some of Côte d’Ivoire’s main export commodities and a further deterioration in the country’s external competitiveness, exports picked up strongly in response to the change of the parity in January 1994. The strengthening of world market prices of coffee, cocoa, and logs further added to the high growth in the value and volume of exports in 1994 and 1995.

Notwithstanding policies aimed at the reduction of Côte d’Ivoire’s reliance on traditional export commodities and increased diversification into nontraditional crops and industrial products, economic performance remained highly dependent on exports of cocoa (including transformed products). The total value of cocoa exports showed considerable fluctuations during this period. The devaluation of the CFAF franc and subsequent increases in domestic producer prices had a generally positive effect on the volume and value of exports, which increased from US$861 million in 1993 to US$922 million in 1994.

Export performance in the years before the parity change was also hampered by weak world market prices for coffee, which dropped by some 31 percent in 1992. The price decline resulted in a fall in the total value of exports of beans and processed coffee, from US$239 million in 1991 to US$205 million in 1992. These unfavorable world market conditions had a detrimental effect on the production capacity in the coffee sector. Investment in the maintenance of coffee plantations was reduced, and many plantations became unprofitable. 1/ Given the time lags in the supply response to higher prices and the delayed adjustment of domestic producer prices, the pickup in world market prices for coffee in 1993 and 1994 and the devaluation of the CFA franc were unable to prevent a further strong decline in export volumes in both years. Total exports of coffee beans reached a low of 136,600 tons in 1994, down from 198,500 tons in 1991. This decline, however, was more than compensated by the price rises: the total value of coffee exports reached US$204 million in 1993 and US$225 million in 1994.

The increase in world market prices for tropical woods in recent years has had a significant impact on the volume and value of exports of logs and processed woods from Côte d’Ivoire. Notwithstanding the imposition of an export tax as part of an environmental protection policy, total exports reached US$373 million in 1994, up from US$279 million in 1993 and US$260 million in 1992. In 1994, logs and processed woods became the second most important category of export commodities in Côte d’Ivoire.

The steady deterioration in Côte d’Ivoire’s external competitiveness in the years before 1994 reduced its opportunities for developing nontraditional sectors and diversifying exports. However, the situation improved considerably after the devaluation in January 1994. After years of stagnation, the growth of the volume of exports of nontraditional agricultural commodities (e.g., natural rubber) reached growth rates of 13-15 percent, while industrial exports such as textiles and clothing picked up as well. The growth of exports of conserved fish products was particularly strong, exceeding 60 percent in 1994. The positive supply response in the nontraditional sector continued in the first half of 1995.

2. Imports

Negative rates of economic growth in 1992-94 were reflected in very low or negative growth rates for the value of imports in these years. Notwithstanding the buildup of stocks of imported goods as a result of increasing speculation against the CFA franc in 1993, the total dollar value of imports actually declined by almost 12 percent in that year. The value of imports in dollar terms further declined after the devaluation (from US$1,638 million f.o.b. in 1993 to US$1,564 million in 1994), mainly because of import substitution effects, cautious consumer attitudes, and lower real incomes in urban areas. However, the composition of imports changed markedly between 1988 and 1994. In general, import demand for consumer products remained relatively weak over the years, with declines in volumes in 1992 (3.2 percent) and especially also in 1994 (22.3 percent). On the other hand, after many years of mostly slow growth or even sharp declines, the volume of imports of intermediate products and capital goods increased significantly in 1994 (by 14.8 percent and 32.7 percent, respectively), reflecting higher investment and production in the traded goods sector. Preliminary data indicate that the growth of demand for these products continued during the first half of 1995. Also, higher incomes in the traded goods sector contributed to a pickup in demand for consumer goods.

3. Services and unrequited transfers

The services account remained in deficit during the period under review, mainly because of the continuing high level of official and private factor payments and the high costs related to imports of merchandise. Anticompetitive arrangements in the maritime transportation sector contributed to the relatively high import-related cost margin in Côte d’Ivoire: the total value of import-related costs, including insurance and freight, reached some 15 percent of the c.i.f. value of imports, well above the levels observed in neighboring countries. The liberalization of the maritime transport sector in May 1995 in the context of the World Bank’s Economic Recovery Credit is expected to result in considerably lower payments on account of transportation services. However, the reduction of overcapacity in maritime transport will also reduce earnings from the export of transportation services; the net impact on the services account is as yet unclear.

The cancellation of debt service obligations to Belgium, France, and Switzerland reduced official factor payments due in 1994 by some US$111 million, or around one sixth of total external interest payments due from the central government. On the other hand, there was a sharp increase in unrequited private transfers abroad after the devaluation in January 1994, which was due mainly to higher transfers by foreign workers in the agricultural sector, where incomes have increased considerably, as well as transfers by foreign traders who benefited from higher profits in the export sector.

4. Capital account and balance of payments financing

Although official funds continued to constitute the lion’s share of external financing during the period under review, private capital gained much in importance after the beginning of 1994. The restoration of confidence following the devaluation of the CFA franc and the regularization of relations with official multilateral and bilateral creditors was reflected in a sizable inflow of short-term capital and an increase in foreign direct investment in 1994. After years of net private capital exports or very modest inflows, total net inflows by the nonbanking sector jumped in 1994 to US$310 million, of which US$15 million was linked to foreign direct investment. The swing in the capital account allowed commercial banks to increase their foreign currency reserves by US$130 million. Preliminary data suggest that this favorable trend continued in the first half of 1995. The improved growth prospects for the Ivoirien economy and increased confidence in the payment discipline of the country have attracted foreign investors, including commercial banks, which seem to be more willing to participate in the financing of viable investment projects, albeit sometimes on a modest scale. However, Côte d’Ivoire remained highly dependent on official foreign financing in the form of program loans and project aid. France continued to be the most important bilateral source of financing, with annual program support in the range of US$219-252 million during 1992-94. Multilateral institutions contributed US$308 million in 1992, US$66 million in 1993, and US$815 million in 1994.

Owing to a serious deterioration in the public finances in 1992 and 1993, the Government was not able to avoid new payments arrears to official creditors in those years. At end-1993, the total stock of arrears to Paris Club creditors and multilateral organizations amounted to US$1,060 million. Arrears to multilateral organizations (US$60 million) were paid in the first quarter of 1994, and arrears to the Paris Club were included in a comprehensive rescheduling agreement reached at end-March 1994. In this agreement, Côte d’Ivoire benefited from enhanced Toronto terms for eligible maturities falling due during the period March 1994 to March 1997. In addition, arrears on pre-cutoff-date debt were consolidated and rescheduled on the same terms; the repayment of arrears on post-cutoff-date debt was rescheduled over two and a half years on commercial terms. Côte d’Ivoire also benefited from cancellations of ODA debt by Belgium, France, and Switzerland. The total value of arrears and current debt service obligations rescheduled or canceled amounted to US$1,245 million in 1994 and US$657 million in 1995.

The overall improvement in the balance of payments after the devaluation of the CFA franc was reflected in a strong increase in the net foreign assets of the Central Bank. In 1994, the balance in the operations account turned positive for the first time in many years as a result of an improvement of US$909 million, equivalent to one month of imports of goods and nonfactor services at end-1994.

The authorities have reopened discussions with the London Club on a comprehensive restructuring of commercial bank debt. They are aiming for an agreement with the banks well before the end of 1996. The reconciliation of data on the outstanding stock of debt, which almost exclusively consists of arrears, has been completed. At end-June 1995, the total stock, including late interest, was put at US$6.1 billion, or 89 percent of the 1994 GDP. The availability of sufficient financial support from multilateral institutions and bilateral donors for the financing of the up-front cost of a restructuring arrangement is still subject to uncertainty.

5. The stock of external debt and debt service obligations.

The external debt indicators deteriorated rapidly during the period under review, a reflection of low or negative growth of GDP and a very weak fiscal position. The total stock of debt (including private debt) in terms of GDP increased from 107 percent in 1988 to 239 percent in 1994, mainly as a result of the buildup of new arrears to commercial banks, and—before March 1994—to Paris Club creditors, as well as the valuation effects of the parity change of the CFA franc in January 1994. The public debt ratio increased from 78 percent at end-1998 to 200 percent at end-1994. The ratio of Paris Club debt to GDP increased from 24 percent at end-1988 to 68 percent at end-1994. The stock of debt to multilateral creditors increased as well: the debt-to-GDP ratio for multilateral institutions rose from 23 percent at end-1988 to 50 percent in 1994. Côte d’Ivoire has not made any payments on its debt to London Club creditors since 1987. The increase in the stock of debt to commercial banks is due exclusively to the buildup of arrears, including an estimate for late interest charges.

At end-1994, the total stock of external debt amounted to US$16.7 billion, or 239 percent of GDP. Of this amount, US$14 billion, or 200 percent of GDP, was owed by the Central Government, mainly reflecting loans and credits contracted or rescheduled on nonconcessional terms; at US$13.2 billion, the net present value of the future public debt service obligations was not much lower than the face value of the debt. Before 1994, Côte d’Ivoire had only limited access to concessional financing by multilateral institutions, and was not eligible for concessional treatment of debt service obligations in the context of Paris Club reschedulings.

Commercial banks were the most important group of creditors, with a total stock of debt of US$5.3 billion, followed by the Paris Club (US$4.7 billion) and multilateral institutions (US$3.5 billion). The debt to the commercial banks was almost entirely in arrears, including an estimated US$3.5 billion of first generation and late interest arrears. About half of the stock of debt to Paris Club creditors consisted of ODA debt. The stock of debt decreased in 1994 by US$0.9 billion as a result of a US$ 630 million debt cancellation by Belgium, France, and Switzerland, and the concessional treatment of arrears and current maturities in the context of a Paris Club agreement covering the period March 1994 through March 1997. 1/ By the end of 1994, all arrears to the Paris Club had been cleared. Among the multilateral institutions, the World Bank was the largest creditor (US$2.3 billion), of which US$0.5 billion was related to IDA loans. The African Development Bank was the second largest creditor, with a total outstanding stock of debt of US$0.7 billion, followed by the Fund (US$0.3 billion). Other multilateral creditors include the European Investment Bank, Conseil de l’Entente, ECOWAS, BOAD, and IFAD, accounting for a total stock of debt of US$ 0.2 billion. 2/

In contrast to the stock of debt/GDP ratios, debt service due in percent of exports of goods and services improved during the period under review. Total external debt service due (including private sector debt) decreased from 69 percent of exports of goods and nonfactor services in 1988 to 43 percent in 1994, mainly reflecting somewhat declining interest payments due and, more importantly, the cancellations of bilateral debt and interest obligations in 1994. Hence, the public debt service ratio declined too, from 60 percent in 1988 to 38 percent in 1994. However, total public debt service on a cash basis (that is to say, after reschedulings and changes in arrears) fluctuated between 16 percent and 20 percent of exports in 1988-93, and jumped to 25 percent in 1994. The strong increase in 1994 was due to the regularization of relations with the Paris Club. Of the debt service paid in 1994, 17 percent was due to multilateral institutions, with the World Bank being the largest creditor (10 percent). Debt service obligations to the Fund were equivalent to 2 percent of exports, and payments to Paris Club creditors reached 5 percent of exports.

Table 1.

Côte d’Ivoire: Selected National Accounts Indicators, 1988–94 1/

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Sources: Ministère de l’Économie, des Finances, et du Plan: Direction de la conjoncture et de la prévision économique; and staff estimates.

New national accounts, INS 1986–91; and estimates from the forecasting department of the Ministry of Economy, Finance and Planning for 1992–1994.

Including oil production and other extractive industries.

Including import taxes and duties and public administration.

Volume growth derived from consumer price deflators prepared by the Direction de la conjoncture et de la prévision. These deflators differ from the consumer price index.

Including changes in stocks.

Table 2.

Côte d’Ivoire: Gross Domestic Product by Origin, 1988–94 1/

(In billions of CFA francs at current market prices)

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Sources: Ministère de l’Économie, des Finances, et du Plan: Direction de la conjoncture et de la prévision économique.

New national accounts, INS 1986–91; and estimates from the forecasting department of the Ministry of Economy, Finance and Planning for 1992–1994.

Table 3.

Côte d’Ivoire: Supply and Use of Resources, 1988–94 1/

(In billions of CFA francs at current market prices)

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Sources: Ministère de l’Économie, des Finances, et du Plan: Direction de la conjoncture et de la prévision économique; and staff estimates.

New national accounts, INS 1986–91; and estimates from the forecasting department of the Ministry of Economy, Finance and Planing for 1992–1994.

Table 4.

Côte d’Ivoire: Savings and Investment by Sector, 1988–94 1/

(In billions of CFA francs at current market prices)

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Source: Ministère de l’Économie, des Finances, et du Plan: Direction de la conjoncture et de la prévision économique.

New national accounts, INS 1986–91; and estimates from the forecasting department of the Ministry of Economy, Finance and Planing. Owing to differences in coverage and sources used, the data do not match those of Table 3.

Including public enterprises.

Including private administrations and individual businesses.

Table 5.

Côte d’Ivoire: Consumer Price Index for Abidjan, 1988–94

(Percentage change from year earlier)

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Sources: Ministère de l’Économie, des Finances, et du Plan; Institut National de la Statistique; and staff estimates.

European–type household.

African–type household, headed by a professional.

Based on a basket of goods derived from a new household consumption survey. The old Moderate Price Index was discontinued in 1988.

No CPI data were compiled between September 1989 and February 1990; the data for period thus represent staff extrapolations.

Table 6.

Côte d’Ivoire: Decomposition of Consumer Price Index, 1994–95 1/

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Source: Institut National de la Statistique

Low Income price Index (average November 1992–October 1993=100)

Table 7.

Côte d’Ivoire: Price Structure of Oil and Gas Products, 1993–95

(In CFA francs per liter)

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Sources: Ministry of Economy and Finance
Table 8.

Côte d’Ivoire: Deflators of Sectoral Output, 1988–94 1/

(Annual percentage changes; base year–1986)

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Sources: Ministère de l’Économie, des Finances, et du Plan: Direction de la conjoncture et de la prévision économique; and staff estimates.

New national accounts, INS 1986–91; and estimates from the forecasting department of the Ministry of Economy and Finance for 1992–1994.

Table 9.

Côte d’Ivoire: Estimates of Food Crop Production, 1988–94

(In thousands of metric tons)

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Sources: Ministère de l’Agriculture, des Eaux et Forêts; and Ministère de l’Économie, des Finances, et du Plan: Direction de la conjoncture et de la prévision économique.
Table 10.

Côte d’Ivoire: Production and Exports of Cash Crops, 1988–94

(In thousands of metric tons)

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Sources: Ministère de l’Économie, des Finances, et du Plan: Direction de la conjoncture et de la prévision économique; and Ministère de l’Agriculture, et des Eaux et Forêts.

Bean equivalent.

Table 11.

Côte d’Ivoire: Export Costs of Cocoa and Coffee, 1988–94 1/

(In CFA francs per kilo)

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Source: Agricultural Price Stabilization Fund (CSSPPA).

The data for 1991–94 reflect the cost structure for the crop season beginning in October of the year indicated.

The export tax was suspended in 1989 and reintroduced in January 1994.

Prior to 1991, the data indicate the value of cherries. After 1991, the data refer to the green coffee equivalent.