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.
1. This supplement provides an update on developments since the issuance of the Staff Report on July 20, 2007. The thrust of the staff appraisal remains unchanged.
2. The government remains determined to push forward the peace process despite the end-June attempt at the Prime Minister’s life. On June 29, Prime Minister (PM) Soro escaped unhurt a rocket attack on his plane after landing in Bouaké, the Forces Nouvelles headquarters; four people were killed. The attack was unanimously condemned in Côte d’Ivoire and abroad and the government called for a UN-led investigation. The President and the Prime Minister have reaffirmed their commitment to the Ouagadougou Accord, including presidential elections; however, the latter are unlikely to take place before mid-2008, i.e., well after the target date of February 2008.
3. Implementation of the Ouagadougou Accord has continued albeit with delays. The ceremony of the “peace flame”—a weapon-burning ceremony that had been postponed because of the assassination attempt against PM Soro—took place in Bouaké on July 30 in the presence of President Gbagbo, PM Soro, and six African heads of state. This milestone should provide renewed momentum to the implementation of crisis-resolution programs. The armed forces and ex-rebel commanders are continuing discussions on the restructuring of the national army and the Integrated Command Center will supervise the disarmament, demobilization, and reintegration (DDR) process. A partial regroupment of armed forces is in effect and 21 regroupment sites are ready. The actual DDR—which will likely involve much fewer ex-rebels than previously thought—is expected to start in early September. The reinstallation of the préfets (administrative heads of départements) in the ex-rebel zones has been completed and the judges for identification hearings have been appointed; the identification hearings (for ID and electoral cards) are expected to resume in mid-August. The redeployment of the civil service is continuing, in particular with the gradual return of education and health workers.
4. Growth has been broadly in line with projections in the first five months of 2007. Preliminary data show a pick-up in activity (relative to 2006) in a range of sectors, notably industry (+2 percent), construction (+16 percent), and trade (+15 percent), while other activity indicators increased by at least 6 percent (import volumes, electricity consumption, and cement use). Relative to 2006, oil production has dropped as expected due to technical reasons, while cocoa marketing fell somewhat. Nevertheless, the trade balance, helped by high oil and cocoa prices, remained in surplus.
5. Fiscal developments through May 2007 were broadly in line with the program targets. While the primary basic balance at end-May was consistent with the end-June indicative target, revenue (notably from oil/gas) was below target because the government provided gas for free to the electricity sector; this was offset by lower spending, notably for investment. The government reduced domestic arrears to suppliers.
6. The government has reached an agreement on arrears clearance with the World Bank and resumed debt service to World Bank and African Development Bank (AfDB). In mid-July, the authorities signed a Memorandum of Understanding with the World Bank committing to pay one-half of the end-June outstanding arrears (US$472 million; 2.5 percent of GDP) before end-February 2008, while the other half will be financed from a special IDA allocation. Côte d’lvoire has already paid most of debt service to World Bank and AfDB falling due in the third quarter of 2007 (Staff Report,¶33). It has set aside further funds for such debt service and arrears repayment in an escrow account at the BCEAO (MEFP,¶44).
7. The financing of crisis-related programs in 2007 has been largely assured. The World Bank Board approved a pre-arrears clearance grant under the Post-Conflict Assistance Project (PCAP) on July 17. The grant (US$120 million) provides financing for the economic reintegration of ex-combatants and youth-at-risk, related community rehabilitation projects, and identification of the population. At a donor conference in Abidjan on July 18, donors confirmed existing commitments, and the EU, AfDB and bilateral donors made additional pledges estimated at some 0.1 percent of GDP for 2007, with likely further assistance as the crisis-related programs crystallize.
8. With the recent funding arrangements, Côte d’lvoire should benefit from a concerted international effort in 2007. Donor support in 2007 is projected to amount to some of 3.2 percent of GDP (US$600 million), consisting of: expected IDA support for Bank arrears clearance (1.2 percent of GDP), Fund EPCA (0.3 percent), committed donor support for crisis-related programs, including under the Bank’s PCAP (0.7 percent), and identified project financing (0.9 percent).
9. The remaining financing need in 2007 will be covered by domestic sources. The remaining gap under the financial program (some 0.5 percent of GDP) is being mobilized from WAEMU/domestic sources, including a further issuance of Treasury bills.
10. The two remaining prior actions have been implemented (MEFP, Table 2). The authorities have provided staff with data on government financial operations; they have also provided reports to the Council of Ministers on the physical, financial, and tax flows in the energy subsectors.