Côte d'Ivoire
2007 Article IV Consultation and Request for Emergency Post-Conflict Assistance-Staff Report; Staff Statement; Staff Supplement; Public Information Notice and Press Release on the Executive Board Discussion;

This 2007 Article IV Consultation highlights that Côte d’Ivoire’s crisis has taken a heavy toll on growth and social conditions. Per capita income fell by one-sixth, poverty rose, and many social indicators worsened. These developments have also hurt regional trade and output. The external current account has remained in surplus, helped by resilient cocoa production and favorable prices. The outlook for 2007 is for a modest recovery to 1½ percent output growth, depending on progress in political normalization and the restoration of public services throughout the country.

Abstract

This 2007 Article IV Consultation highlights that Côte d’Ivoire’s crisis has taken a heavy toll on growth and social conditions. Per capita income fell by one-sixth, poverty rose, and many social indicators worsened. These developments have also hurt regional trade and output. The external current account has remained in surplus, helped by resilient cocoa production and favorable prices. The outlook for 2007 is for a modest recovery to 1½ percent output growth, depending on progress in political normalization and the restoration of public services throughout the country.

I. Introduction

1. Côte d’Ivoire is emerging from a political crisis that began in 1999 and erupted in civil conflict in September 2002 (Table 1). The conflict divided the country into the center, north, and west (CNW), occupied by the rebel forces (Forces Nouvelles (FN)), and the south, controlled by the government. With the deployment of French troops, the conflict abated, and in January 2003, a government of national transition was formed under the Linas-Marcoussis Accord. However, progress in restoring peace and political stability, after faltering under successive transition governments, stalled in late 2006.

Table 1.

Côte d’lvoire: Key Political Developments, 1999–April 2007

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Table 2.

Côte d’lvoire: Selected Economic and Financial Indicators, 2004-07

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Sources: lvoirien authorities; and IMF staff estimates and projections.

Based on end-of-period changes in relative consumer prices and the nominal effective exchange rate.

Defined as total revenue minus total expenditure, excluding all interest and foreign-financed investment expenditure.

Table 3.

Côte d’Ivoire: National Accounts and Savings-Investment Balance, 2005-09

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Sources: Ivoirien authorities; and IMF staff estimates and projections.

2. In early 2007, to restart the peace process, President Gbagbo and FN leader Soro began a direct dialogue, facilitated by Burkina Faso President Compaoré. The talks culminated in the Ouagadougou Accord of March 7, 2007, which has received the support of the international community. The Accord sets out a roadmap for DDR, the dismantling of militias, reunification of the country, and preparations for elections by February 2008. A new transition government, with FN leader Soro as prime minister, was formed in early April; an integrated command center for the army and rebel forces was set up; and prefects for all districts and judges for the nationality identification hearings were appointed. This would permit the start of the cantonment of armed forces, the dismantling of militias, and the identification of the population in late July.1

3. Implementing the roadmap in time for the presidential elections, as targeted, will be challenging. Progress will require firm political consensus among the major stakeholders and strong international support. A high-level consultation committee, which includes the president, prime minister, leaders of the major political parties, and President Compaore, is expected to reinforce the political consensus underpinning the roadmap; progress is also monitored by another high-level committee, which includes representatives of the international community.

II. Legacy of the Conflict, Challenges Ahead

A. Impact of the Conflict

4. The conflict and political instability have taken a heavy toll on growth, poverty, and economic policies. In 2000–06, average economic growth turned negative; it was well below the rates in the rest of WAEMU and sub-Saharan Africa (SSA). Public and private investment dropped below earlier and comparator levels, as concerns about the political and security situation grew and external finance dwindled. Private sector activity was scaling back, especially in industry, and by 2006 real GDP was some 35 percent below its pre-crisis trend level. The partition of the country disrupted trade within the country and diminished Côte d’Ivoire’s role as a regional hub. Export volume growth fell between 1994–99 and 2000–06. The external current account held up, thanks to an increase in oil exports since 2002 and overall favorable terms of trade. While private and official inflows declined sharply, sizable external arrears were accumulated, and international reserves remained adequate.

A01ufig01

Côte d’lvoire: Macroeconomic Developments, 1994-2006

Citation: IMF Staff Country Reports 2007, 312; 10.5089/9781451807899.002.A001

Sources: IMF, Regional Outlook.1/ Sub-Saharan Africa, excluding South Africa and Nigeria; WAEMU, excluding Côte d’lvoire.
Text Table 1.

Côte d’lvoire, WAEMU, and SSA Economic Performance Indicators, 1994-2006

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Sources: IMF, African Regional Economic Outlook and World Economic Outlook.

2001-06 for credit/GDP in SSA and 1995-99 for credit/GDP in Côte d’lvoire.

Weighted GDP at PPP prices.

WAEMU excluding Côte d’lvoire.

SSA, excluding South Africa and Nigeria.

5. Côte d’lvoire accounts for almost 40 percent of GDP in the WAEMU and is an important driver of growth in other WAEMU countries. While economic performance in other WAEMU countries has held up since 2000, developments in Côte d’Ivoire have undercut investor confidence and hurt regional trade and output.

6. Fiscal performance and transparency have suffered, owing to falling revenue and crisis-related expenditure pressures as well as internal divisions and a lack of accountability. As growth slowed and the tax base eroded, total revenue fell; tax revenue, meanwhile, dropped below the WAEMU convergence criterion (Box 1). Pressures for defense, discretionary presidential, and other sovereignty spending rose. While overall fiscal deficits narrowed (reflecting some spending discipline), because of limited donor financing, domestic and external arrears increased. The composition of spending deteriorated as health and education spending fell as a share of GDP. Budget management weakened: expenditure was partly executed outside budget procedures and some oil revenue stayed off-budget.

A01ufig02

Tax revenue increased less than in the rest of the region.

Citation: IMF Staff Country Reports 2007, 312; 10.5089/9781451807899.002.A001

Source: IMF, Regional Outlook.1/ Sub-Saharan Africa, excluding South Africa and Nigeria; WAEMU, excluding Côte d’lvoire.2/ The fiscal balance includes MDRl relief in 2006.

WAEMU Convergence Criteria

Côte d’Ivoire joined the WAEMU Pact on Convergence, Stability, Growth, and Solidarity in 1999.1 The Pact calls for the observance of quantitative criteria to improve the efficiency of regional monetary policy, reduce domestic and external vulnerabilities, and enable each member to reach a stable growth path. With almost 40 percent of the WAEMU’s GDP, Côte d’Ivoire is of key importance to the region’s stability and development. In 2005 and 2006, Côte d’Ivoire met two of the nine criteria.

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Sources: lvoirien authorities, WAEMU, and IMF staff estimates and projections.1/ WAEMU countries are Benin, Burkina Faso, Côte d’lvoire, Guinea-Bissau, Mali, Niger, Senegal, and Togo.

Total revenue (excluding grants) minus total expenditure, excluding foreign-financed capital spending.

Excluding Côte d’lvoire, GDP at PPP-weighted average.

A01ufig03

Financial intermediation fell behind.

Citation: IMF Staff Country Reports 2007, 312; 10.5089/9781451807899.002.A001

Source: IMF, Regional Outlook.1/ Sub-Saharan Africa, excluding South Africa and Nigeria; WAEMU, excluding Côte d’lvoire.

7. In the cocoa/coffee and cotton sectors, output declined, structural reforms stalled, and financial conditions deteriorated. The cocoa/coffee sector is a major source of exports and income; together with the cotton sector, it supports some 9 million people, half the population. Coffee and cotton outputs declined sharply and cocoa activity stagnated owing to crisis-related disruptions, stalled reforms, and low investment. Financial management and transparency have been weak: quasi-fiscal levies on cocoa and coffee have not been used to benefit producers as intended, and, as world prices declined, financial conditions weakened and producer incentives shrunk.

8. The development of the financial sector has been adversely affected by the crisis. Since 2002 all bank branches have been closed in the CNW. The quality of bank loan portfolios also declined, in part, because government domestic arrears to the private sector surged. The crisis has also exacerbated longer-standing weaknesses, particularly in small-and medium-sized banks, where compliance with prudential ratios has declined. The share of Ivoirien banks in total WAEMU bank assets has declined from 40 percent in 2000 to around 30 percent in 2005, and private credit-to-GDP ratios in Côte d’Ivoire fell below levels in other WAEMU and SSA countries. Intermediation was also affected by the deterioration of an already weak judicial system.

9. Poverty, social conditions, and governance worsened (Figures 1 and 2). The poverty rate is estimated to have increased from 35 percent in 2000 to 43 percent in 2006, and Côte d’Ivoire’s ranking on the UN Human Development Index has declined since the late 1990s. The government’s ability to deliver public services, notably health and education, was disrupted, especially in the CNW. Most indicators of governance worsened.

Figure 1.
Figure 1.

Côte d’Ivoire: Governance Indicators, 1996-2005

(Point estimates = -2.5 to +2.5)

Citation: IMF Staff Country Reports 2007, 312; 10.5089/9781451807899.002.A001

Source: Daniel Kaufmann, Aart Kraay, and Massimo Mastruzzi, Governance Matters V: Governance Indicators for 1996-2005, available via the Internet: http://www.worldbank.org/wbi/governance.
Figure 2a.
Figure 2a.

Côte d’Ivoire: Progress Toward the Millennium Development Goals, 1993-2002.

Citation: IMF Staff Country Reports 2007, 312; 10.5089/9781451807899.002.A001

Source: Ivoirien authorities.1/ Percentage of population living under the national poverty line, defined as US$1 per day.
Figure 2b.
Figure 2b.

Côte d’Ivoire: Progress Toward Millennium Development Goals, 1993-2002 (concluded)

Citation: IMF Staff Country Reports 2007, 312; 10.5089/9781451807899.002.A001

Source: Ivoirien authorities.2/ No target formulated for this indicator; no data available for 1993 to 1996.
A01ufig04

Human Development Index stagnated and poverty rose.

Citation: IMF Staff Country Reports 2007, 312; 10.5089/9781451807899.002.A001

Sources: World Bank, World Development Report; and UNDP, Human Development Report.1/ Defined as percent of population living below the poverty line of US$1 a day.

B. Recent Economic Developments

10. Since 2003 the economy has grown modestly, despite stagnant investment. Rising outputs of oil/gas, petroleum products, and telecommunication services have been the main source of growth. Informal sector activity partly offset a sharp decline in industry. The external current account has remained in surplus, as a pick-up in imports was offset by strong oil exports. In 2006 growth weakened as activity in the secondary sector, notably in hydroelectricity and agro-industries, fell further. The external current account surplus widened as imports slowed and the terms of trade (owing to higher oil prices) improved.

A01ufig05
Sources: lvoirien authorities; and IMF staff estimates and projections.

11. Inflation has remained subdued. Average consumer price inflation was around 2½ percent in 2004–06. The real effective exchange rate has trended slightly upward in recent years, in line with the euro’s appreciation vis-à-vis the dollar and Côte d’Ivoire’s inflation being similar to those of trading partners; this trend accelerated in early 2007.

A01ufig06

Côte d’lvoire: Effective Exchange Rates, Terms of Trade, and lnflation, January 1993-March 2007

Citation: IMF Staff Country Reports 2007, 312; 10.5089/9781451807899.002.A001

Sources: IMF, lnformation Notice System (lNS), and World Economic Outlook.

12. In 2004–06 budget management kept the overall deficit in check, though the fiscal situation was difficult and Côte d’lvoire did not comply with most fiscal WAEMU convergence criteria (Box 1). The primary basic balance stayed in surplus; but by 2006, it had slipped to 0.3 percent of GDP, 1 percent of GDP below the budget objective (Tables 4ab). In both 2005 and 2006, this weakening reflected revenue shortfalls relative to budget targets, in particular for oil/gas, and overruns in nonwage recurrent expenditure, especially in discretionary presidential spending. In 2006, unanticipated outlays to address the dumping of toxic waste in Abidjan and gas subsidies to the electricity sector also contributed to the overrun in primary basic spending. At the same time, health and education spending fell short of budget targets. These developments, coupled with the dearth of external financing, led external arrears to increase to 21 percent of GDP by end-2006. Domestic arrears were reduced somewhat, to 5 percent of GDP at end-2006.

Table 4a.

Côte d’lvoire: Central Government Financial Operations, 2004-07 1/

Billions of CFA francs, unless otherwise indicated)

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Sources: Ivoirien authorities; and IMF staff estimates and projections.

Payment order basis.

2006 budget as agreed between the authorities and Fund staff in May 2006.

Total revenue (excl. grants) minus expenditure net of scheduled interest and foreign-financed capital expenditure, excluding net compensation proceeds from toxic waste damage.

External arrears on interests were recorded below the line prior to 2004.

Assuming one purchase of 12.5 percent of quota in 2007 upon approval of EPCA.

Changes in stocks in addition to flows also reflect valuation changes.

Table 4b.

Côte d’Ivoire: Central Government Financial Operations, 2004-07 1/

(Percent of GDP, unless otherwise indicated)

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Sources: Ivoirien authorities; and IMF staff estimates and projections.

Payment order basis.

2006 budget as agreed between the authorities and Fund staff in May 2006.

Total revenue (excl. grants) minus expenditure net of scheduled interest and foreign-financed capital expenditure, excluding net compensation proceeds from toxic waste damage.

External arrears on interests were recorded below the line prior to 2004.

Assuming one purchase of 12.5 percent of quota in 2007 upon approval of EPCA.

Changes in stocks in addition to flows also reflect valuation changes.

Table 5.

Côte d’Ivoire: Balance of Payments, 2002-07

(Billions of CFA francs, unless otherwise indicated)

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Sources: Ivoirien authorities; and IMF staff estimates and projections.

This figure may differ from reported fiscal transfers owing to the imputed value of technical assistance and government transfers to other countries.