Côte d'Ivoire
Request for Emergency Post -Conflict Assistance: Staff Report; Staff Statement; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Côte d'Ivoire
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International Monetary Fund
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Publication Date:
24 Apr 2008
eISBN:
9781451807905
Language:
English
Keywords:
ISCR; CR; Emergency Post-Conflict Assistance; energy sector audit; government; budget procedure; food CPI; arrears clearance; clearance grant; WAEMU financing effort; broad money; bank financing; Arrears; Budget planning and preparation; Budget execution and treasury management; Credit; West Africa; central bank
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The economic recovery in Côte d’Ivoire is crucial to growth throughout the subregion. The fiscal results and mobilized domestic financing enabled the authorities to make payments to the World Bank and AfDB and reduce domestic arrears. Reporting on quasi-fiscal cocoa levies has improved. Energy sector audits are being finalized, and reporting on financial flows has improved. In view of the efforts made at both political and economic management fronts, authorities appreciated the Executive Board’s support for an additional assistance under the IMF’s Emergency Post-Conflict Assistance (EPCA) program.

Abstract

The economic recovery in Côte d’Ivoire is crucial to growth throughout the subregion. The fiscal results and mobilized domestic financing enabled the authorities to make payments to the World Bank and AfDB and reduce domestic arrears. Reporting on quasi-fiscal cocoa levies has improved. Energy sector audits are being finalized, and reporting on financial flows has improved. In view of the efforts made at both political and economic management fronts, authorities appreciated the Executive Board’s support for an additional assistance under the IMF’s Emergency Post-Conflict Assistance (EPCA) program.

I. Introduction

1. Peace and reunification processes are taking hold; presidential elections are now scheduled for mid-2008. All parties remain committed to the peace process, a climate of political dialogue prevails, and Ivoiriens and the international community remain supportive of the “roadmap” started by the March 2007 Ouagadougou Accord. The security situation has improved, and the number of military checkpoints that harass the population and impose economic costs has slowly started to decline.1 The redeployment of government services in the ex-rebel held CNW is under way. The November Supplemental Ouagadougou Accords aim to implement the roadmap faster, especially reunification of the army. Since then, the cantonment of government soldiers was completed and that of ex-rebel Forces Nouvelles (FN) soldiers has started. However, the disarmament of FN soldiers and militias has yet to start in earnest. Because preparations for elections are behind schedule (notably identification hearings, delivery of identity cards, and voter registration), the elections may be pushed to the second half of 2008.

II. Performance on the 2007 EPCA

2. Having been resilient to the crisis since 2002, GDP growth is estimated to have reached 1.6 percent in 2007, helped by a favorable external environment (Tables 1-2). The modest recovery in 2007 was driven by upturns in transportation, construction, and trade, and the decline in many other sectors halted. The recovery was supported by growth in real private investment for the first time since 1999, and a decline in private capital outflows. The recovery occurred despite a temporary drop in oil output after an almost threefold increase in 2004-06. Twelve-month consumer price inflation remained subdued—1.5 percent at end-2007—although some food prices surged along with world food prices. The real and nominal effective exchange rates appreciated by 2 percent in 2007, as the U.S. dollar depreciated against the euro. Despite favorable terms of trade, the external current account surplus fell from an estimated 3.1 percent of GDP in 2006 to 1.4 percent in 2007, because oil and cocoa export volumes fell and import volumes outpaced real GDP.

Table 1.

Côte d’Ivoire: Selected Economic and Financial Indicators, 2004-08

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Sources: Ivoirien 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 2.

Côte d’Ivoire: National Accounts and Savings-Investment Balance, 2005-10

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Sources: Ivoirien authorities; and IMF staff estimates and projections.
uA01fig01

Real GDP Growth

(2002=100)

Citation: IMF Staff Country Reports 2008, 142; 10.5089/9781451807905.002.A001

uA01fig02

External Current Account

(Percent of GDP)

Citation: IMF Staff Country Reports 2008, 142; 10.5089/9781451807905.002.A001

Sources: Ivoirien authorities; and IMF staff estimates and projections.
uA01fig03

Cote d’Ivoire: Effective Exchange Rates, Terms of Trade, and Inflation; January 1993-December 2007

Citation: IMF Staff Country Reports 2008, 142; 10.5089/9781451807905.002.A001

Sources: IMF, Information Notice System (INS), and World Economic Outlook.
Text Table 1.

Côte d’Ivoire: Summary of Key Economic Indicators

(Percent)

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

Total revenue (excluding grants) less total expenditure net of interest and foreign-financed capital expenditure.

3. Fiscal developments in 2007 were broadly in line with the program, but the composition of spending deviated; all quantitative indicators were met except the year-end primary basic surplus (0.4 percent of GDP below target) (Tables 3a-c; MEFP ¶9-10 and Table 1). Revenue collection improved as targeted. Tax revenue was slightly above target, but only because of recourse to advance tax payments (½ percent of GDP), mostly on cocoa export duties (at a 7 percent rebate), against the program undertaking. Non-tax revenue from the petroleum sector fell short. Overruns of 0.8 percent of GDP on current spending were at the expense of crisis-exit programs and investment. The overruns reflected unbudgeted discretionary spending by the presidency and prime minister’s office, military wages, frontline bonuses, and unforeseen housing allowances for primary school teachers. A large part of spending took place through treasury advances which made it harder to monitor budget execution. On the financing side, the deposit buildup of 1 percent of GDP for World Bank arrears clearance did not occur because the authorities, under pressure from the private sector (including private schools), accelerated repayment of domestic arrears (by 1.5 percent of GDP, compared to 0.5 percent of GDP under the program). This repayment was made possible by a large (though undersubscribed) issuance of two-year bills on the WAEMU market in September, raising the equivalent of 1.2 percent of GDP at 6½ percent interest. Overall, Côte d’Ivoire slightly improved its performance on the WAEMU convergence criteria.

Table 3a.

Côte d’Ivoire: Central Government Financial Operations, 2004–08 1/

(Billions of CFA francs, unless otherwise indicated)

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

Payment order basis.

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.

Table 3a.

Côte d’Ivoire: Central Government Financial Operations, 2004–08

(Billions of CFA francs, unless otherwise indicated)

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

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

Includes all government papers in CFAF issued to Ivoirien banks (including to Ecobank in early 2008).

The purchase of 12.5 percent of quota in 2007 upon approval of EPCA-1 is recorded under Bank financing in the 2007 Est. column. The prospective purchase of 12.5 of quota in 2008 upon approval of EPCA-2 is recorded below the line in the 2008 column.

Domestic debt stocks have been revised upward compared to previous staff reports.

Changes in stocks including reductions through securitization and compensation with the electricity sector.

Changes in stocks also reflect valuation changes.

Table 3b.

Côte d’Ivoire: Central Government Financial Operations, 2004-08 1/

(Percent of GDP, unless otherwise indicated)

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

Payment order basis.

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.

Table 3b.

Côte d’Ivoire: Central Government Financial Operations, 2004-08

(Percent of GDP, unless otherwise indicated)

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

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

Includes all government papers in CFAF issued to Ivoirien banks (including to Ecobank in early 2008).

The purchase of 12.5 percent of quota in 2007 upon approval of EPCA-1 is recorded under Bank financing in the 2007 Est. column. The prospective purchase of 12.5 of quota in 2008 upon approval of EPCA-2 is recorded below the line in the 2008 column.

Domestic debt stocks have been revised upward compared to previous staff reports.

Changes in stocks including reductions through securitization and compensation with the electricity sector.

Changes in stocks also reflect valuation changes.

Table 3c.

Côte d’Ivoire: Crisis Exit Programs 2007-08

(in billions of CFAF unless otherwise indicated)

article image
Source: Ivoirien authorities; and IMF staff estimates and projections.
uA01fig04

Central Government Fiscal Balance

(Percent of GDP)

Citation: IMF Staff Country Reports 2008, 142; 10.5089/9781451807905.002.A001

Sources: Ivoirien authorities; and IMF staff estimates and projections.
Text Table 2.

WAEMU Convergence Criteria

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Sources: Ivoirien authorities, WAEMU, and IMF staff estimates and projections.

WAEMU countries are Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal, and Togo.

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

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

4. While external debt remained unsustainable in 2007, the authorities resumed payments to the World Bank and AfDB and finished repaying their half (1.1 percent of GDP) of World Bank arrears at end-February 2008. The authorities have remained current on scheduled debt service to the World Bank and AfDB (since July 2007) and to all other multilaterals, except the EIB. Funding for World Bank arrears clearance came for about one-half from own resources; and the remainder from a placement, last January, of three-year CFAF notes (at 10 percent interest) with selected local banks, which resold part of them to foreign investors. The authorities explained that this direct borrowing had been necessary because of time constraints to pay the World Bank in early 2008 and because liquidity on the WAEMU market had temporarily dried out as other WAEMU members had made unexpected issuances. As Côte d’Ivoire continued to accumulate arrears to Paris Club and commercial creditors, external arrears rose to 25 percent of GDP at year-end (Tables 7 - 8).

Table 4.

Côte d’Ivoire: Balance of Payments, 2004-08

(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.

Excluding prospective EPCA disbursement in 2008.

Table 5a.

Côte d’Ivoire: Monetary Survey, 2004-08

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Sources: Central Bank of West African States (BCEAO); and IMF staff estimates and projections.

In August 2005, BCEAO substantially lowered calculations of bank notes in circulation, affecting the money supply and NFA of the central bank, beginning December 2003.

Excludes sales to nonresidents of consolidated BCEAO claims on the government.

Including net use of Fund resources.

Revised estimates as of January 2008.

Table 5b.

Côte d’Ivoire: Summary Accounts of the Central Bank and Commercial Banks, 2004-08

(Billions of CFA francs)

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Sources: BCEAO and IMF staff estimates and projections.

In August 2005, BCEAO substantially lowered calculations of bank notes in circulation, affecting the money supply and NFA of the central bank, beginning December 2003.

Including cash holdings.

Excluding cash holdings of banks and of the government.

Including customs bills, excluding CNCE deposits.

Deposits of the banking sector at the BCEAO in excess of required reserves, end of year values.

Table 6.

Côte d’Ivoire: External Financing Requirements, 2004-08

(Billions of CFA francs)

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Sources: Ivoirien authorities; IMF staff estimates and projections.

Potential second EPCA resources are not included.

Table 7.

External Debt Outstanding, 2004-08

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

Excluding prospective EPCA disbursement in 2008.

Table 8.

External Debt Service, 2004-08

(Billions of CFA francs, unless otherwise indicated)

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

5. Broad money grew by 17 percent, and credit to the economy by 19 percent in 2007, reflecting a return of confidence. (Tables 5a-b). Net foreign assets rose because of the favorable balance of payments and the purchase by foreign banks of part of the government paper.

uA01fig05

Monetary Aggregates

Broad money, 2002 = 100

Citation: IMF Staff Country Reports 2008, 142; 10.5089/9781451807905.002.A001

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

6. Little progress was made in strengthening the banking system (Table 11). Of the 9 banks (out of 18) which had inadequate capital at end-2006, three have increased their capital, but one of them remains below the minimum requirement; none had formulated a recapitalization plan by end-2007 as intended (MEFP ¶13). Five banks did not meet the liquidity norm. The ratio of nonperforming loans to total loans improved to 18 percent at end-December 2007 (from 20 percent at end-2006) reflecting the sharp rise in credit. The state-owned National Investment Bank (BNI) improved certain prudential ratios in 2007, but its balance sheet remains dominated by public sector deposits and lending. As regards anti-money laundering, in January 2008 the government appointed the members of the Financial Investigation Unit and which will soon be operational with Fund technical assistance.

Table 9.

Côte d’Ivoire: Indicators of Capacity to Repay the Fund, 2006-13 1/

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Sources: IMF staff estimates and projections.

Numbers in CFA francs are converted from SDR at the program exchange rates and may differ from Tables 3, 4, 6, 7 and 8 which evaluate Fund transactions at the exchange rates recorded in the books of the BCEAO.

Including the second EPCA purchase of SDR 40.65 million (12.5 percent of quota) in April 2008. No subsidization of EPCA purchase is assumed.

Assuming that the rate of charge on EPCA purchase is subsidized down to 0.5 percent per annum plus adjustment for deferred charges. Subsidization is subject to the availability of subsidy resources.

Table 10.

Côte d’Ivoire: Medium-Term Scenario 2007-12

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Sources: Ivoirien authorities; and IMF staff estimates and projections. Note: scenario assume no HIPC / MDRI programs.

Projections for oil and commodity prices and exchange rates are based on the Spring 2008 WEO.

In real terms and in percent of 1999 level.

Table 11.

Côte d’Ivoire: Financial Soundness Indicators for the Banking Sector, 2001-07

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Sources: BCEAO, Banking Commission, APBEF-CI, and IMF staff calculations.

Provisional.

Combined Fonds propres nets divided by combined assets of the banking sector.

December 2007 figures.

7. Progress on structural measures under EPCA was mixed (MEFP ¶11 and Table 3). Of the four structural indicators only two were (fully or partially) implemented, albeit with delay. The indicator related to issuance to the Council of Ministers of budget execution statements through September was done in early December. The indicator on not resorting to advance discounted payments of cocoa export duties was not observed because of liquidity difficulties of the treasury.

8. There was good progress on other structural measures, especially on transparency in the energy and cocoa/coffee sectors (MEFP ¶12 and 14–15). Reporting on the collection and use of quasi-fiscal cocoa levies (½ percent of GDP) improved; a large part of levies accumulated in 2006-07 was allocated to rural infrastructure and social projects, to be awarded through public tender and supervised by an interministerial committee in consultation with World Bank staff. As to levies collected during 2001-05, the General Prosecutor started an investigation into alleged misuse of funds by the sector’s semipublic agencies. In the energy sector, two Bank-financed audits were completed and the third, for the electricity sub-sector, should be ready shortly; compliance with EITI procedures is advancing; and regular reporting of the sector’s physical and financial flows to the Council of Ministers has raised awareness of transparency issues. The increase in electricity tariffs (by 10 percent on average) to bring them closer to energy prices in the region and reduce the budgetary subsidies (0.4 percent of GDP in 2007) was delayed by several months because of social tensions and food price increases, but implemented as a prior action in early 2008.

III. Policy Discussions

A. Overview

9. The program for 2008 remains focused on building the foundations for sustained recovery and poverty reduction. It emphasizes further improving public resource management, creating fiscal space for social and basic infrastructure needs, and laying the basis for deeper structural reforms. In support of their program for 2008, the authorities request further EPCA in an amount of 12.5 percent of quota as envisaged at the time of EPCA-1; they also request continued subsidization of the interest rate on EPCA (LOI, ¶4), but this is subject to resource availability.2 With the political situation still tenuous and restoration of administrative and policy implementation capacity ongoing, EPCA would remain the appropriate tool for Fund involvement. The authorities consider, and staff agrees, that the EPCA-supported program could help pave the way for a PRGF arrangement and a HIPC decision point, once conditions are in place. These conditions (including satisfactory performance under EPCA, an appropriate medium-term program, financing assurances, and arrears clearance with multilaterals) could, in staff’s view, be met late in the third quarter of 2008 at the earliest.

B. Growth Outlook

10. Real GDP growth should reach 3 percent in 2008 and is expected to accelerate gradually to 6 percent by 2011. In 2008 growth should be helped by an increase in oil/gas output to at least the 2006 level, favorable prices for agricultural exports, and more generally, the reunification of the country and return of private sector confidence. Reflecting higher food import prices, end-period CPI inflation is expected to rise to 7 percent. In the medium term, growth should return to pre-crisis rates of 5–6 percent, reflecting full political normalization; structural reforms, notably in the energy, cocoa/coffee and financial sectors; increased public investment as part of the poverty reduction strategy; and the private investment/GDP ratio returning to pre-crisis levels (Table 10).

C. Fiscal Program for 2008

11. Fiscal policy in 2008 envisages continued fiscal consolidation while addressing post-conflict needs and taking into account financing constraints related to arrears clearance (MEFP ¶17-18). The budget for 2008, adopted in late December and revised in February to incorporate needs arising from the recent political accords, foresees a primary basic surplus of 0.8 percent of GDP. The revisions have been approved by the Council of Ministers, in the absence of a functioning parliament.

12. The fiscal program incorporates measures to keep the revenue/GDP ratio at 19.4 percent, while offsetting the non recurrence of toxic waste damage compensation (MEFP ¶19). Adjusted for the latter and for increased oil/gas revenue, the revenue effort amounts to 0.3 percent of GDP, mainly from better indirect tax collection and significantly higher contributions from the national oil company (PETROCI). The authorities intend to increase petroleum pump prices (unchanged since 2005) by at least 8 percent by mid-year to safeguard tax revenue from petroleum products. They intend to offset any revenue shortfall from advance tax payments in 2007 by stepping up redeployment of tax administrations in the CNW.

13. The program foresees stabilizing the wage bill, reducing nonwage recurrent spending, and increasing investment and social spending (MEFP ¶20-23; Tables 3a-c). The wage bill is stabilized at 6.8 percent of GDP, by restraining the salary envelopes for national institutions to amounts budgeted in 2007, while allowing significant recruitment of teachers and health workers. Nonwage recurrent spending, including discretionary spending by the highest state institutions, is to be reduced to the 2006 level. The increase in electricity tariffs early in the year should help keep subsidies to the electricity sector at half their level in 2007. Investment increases mainly to rehabilitate basic infrastructure. Staff suggested that public works on the transfer of the political capital to Yamoussoukro be postponed to make room for immediate post-crisis needs, but the authorities argued that the project was important for reunification and foresee spending just below the 2007 level. Foreign-financed investment should double, largely because of the reactivation of project financing by the World Bank. Social spending increases to 5.6 percent of GDP (from 5.4 percent in 2007) for rehabilitation of schools and health centers and recruitment and non-wage allowances of social sector workers (MEFP ¶37).

14. Spending on crisis-exit programs rises by 1 percent of GDP because large parts of them were postponed from 2007 and recent political accords added costs (MEFP ¶22). The programs for reinsertion of ex-soldiers and community rehabilitation, redeployment, and identification/elections are costed at 1.9 percent of GDP, of which about half is from government resources and the rest from donors. While the government has formally terminated the frontline bonuses from February 2008, it is prepared to pay bonuses claimed to be in arrears by the military (a total of 0.7 percent of GDP since 2003). Staff stressed that continued payment of bonuses at their level of previous years poses risks of unsustainability of the wage bill. The authorities intend to limit the amount in 2008 to 0.3 percent of GDP (from 0.4 percent in 2007) and postpone remaining payments to beyond 2008. Separately, they granted temporary bonuses to the FN soldiers who meet the eligibility criteria (costs of up to 0.1 percent of GDP). The budget has a large government contribution to the cost of identification and the technical operator, as donor funding has not been found.

Text Table 3.

Côte d’Ivoire: Summary of Central Government Financial Operations 2006-08

(Percent of GDP)

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

Excluding toxic-waste-related revenue.

Total expenditure net of scheduled interest, foreign-financed capital expenditure and toxic-waste-related spending.

Total revenue (excluding grants) less primary basic expenditure.

Net domestic bank and non-bank financing (scheduled amortization) less domestic interest due.

Gross external financing minus project/program loans and external debt service due plus net change in

Including toxic waste damage revenue minus spending.

15. Structural fiscal reforms are intended to improve revenue collection and public expenditure management. Reforms in the revenue area should help sustain the efficiency gains of recent years (MEFP ¶28). Measures include a review of exemptions; better control of tax collection on consumption of petroleum products; and regular external audits of state-owned companies, like PETROCI and the Autonomous Port of Abidjan. Public expenditure management measures focus on strict adherence to budget allocations, more transparent budget execution, and reining in treasury advances (MEFP ¶29; and Box 1).

16. Other structural measures aim at further reducing domestic arrears and reforming the civil service pension fund (CGRAE) (MEFP ¶29–30). The authorities will draw up an inventory of domestic arrears and adopt a consolidation plan by May 2008 (delayed from last September) while avoiding new arrears.

Public Expenditure Management: Issues and Reforms

In 1999, Côte d’Ivoire installed a computerized budget execution system (SIGFiP) which covers all phases from commitment to payment order, the latter entering the treasury’s accounting system (ASTER). SIGFiP is being devolved to local government levels, currently to about half of Côte d’Ivoire’s 76 départements.

Weaknesses

  • In recent crisis years, the budget preparation calendar was not respected and budgets were adopted with long delays. This and crisis-related pressures have caused large parts of the budget to be implemented outside budget procedures, especially through treasury advances, causing large deviations from budgets.

  • Production of detailed budget execution reports is difficult because payments in ASTER do not match payments in SIGFiP because there is no electronic interface and budget codes differ between the two.

  • Preliminary results of the recent World Bank-led PEMFAR confirm these weaknesses, and measures envisaged for EPCA are in line with its recommendations.

EPCA-1 measures partly implemented

  • The normal budget preparation calendar was adhered to for the 2008 budget.

  • Normal budget execution procedures were reinstated with the 2007 budget adopted in June, but treasury advances were reduced less than envisaged in EPCA-1 and their regularization was slow, causing delays in budget execution statements.

  • A budget execution report through September was issued to the Council of Ministers in December 2007.

Further steps envisaged by EPCA-2

  • Adhere to monthly budget allocations for recurrent and quarterly for investment spending.

  • Further reduce treasury advances and regularize them within two months after the end of each quarter.

  • Continue issuing detailed budget execution statements each quarter.

  • Return to timely preparation of annual government accounts and draft budget execution laws and to regular reporting by the audit chamber of the supreme court.

Envisaged reforms for the medium term

  • Prepare a medium-term expenditure framework.

  • Revise the organic public finance law.

  • Adapt the budget nomenclature to GFS norms and for tracking pro-poor spending.

D. External Arrears, Debt, and Program Financing

17. The authorities expect completion of arrears clearance with the World Bank and AfDB in about a month and plan to normalize relations with other creditors. After Côte d’Ivoire repaid half of its arrears to the World Bank at end-February, the Bank plans to proceed, following a bridge loan from an external partner, with an IDA allocation to clear the other half of arrears and provide new budget support (for a total of around US$300 million) in early April. An arrears clearance operation with the AfDB is planned for end-April 2008. The AfDB is expected to provide a grant covering two-thirds of Côte d’Ivoire’s arrears (totaling US$520 million) through its Fragile States Facility (FSF) adopted in early March. Côte d’Ivoire will contribute one-third. Proposals to clear arrears with the EIB (US$60 million) are under consideration: they could involve a deferral of arrears and current debt service on EU-funded EIB loans until they are cleared by a grant under the 10th FED. Aside from agreed deferral, the authorities intend to remain current on scheduled debt service to all multilaterals. They have initiated discussions with Paris Club and London Club creditors; meanwhile, such arrears would continue to accumulate.

18. Preparations for a HIPC-DSA have started. A November 2007 Bank/Fund mission reconciled 2006 debt data in preparation for the HIPC-DSA; its preliminary assessment based on projected end-2007 figures shows that Côte d’Ivoire would qualify for HIPC relief under the revenue criterion, though with a small margin against the threshold (250 percent of NPV of debt to revenue).

19. Domestic and external sources would fill the 2008 financing need (MEFP, ¶39-40). The budget incorporates a domestic/WAEMU financing effort of 1.3 percent of GDP, largely a roll-over of government paper. Confirmed external financing for crisis-related spending amounts to 1 percent of GDP (including 0.2 percent of GDP from the World Bank’s post-conflict assistance grant, PCAP, approved last July). Outside crisis-related programs, the financing gap, projected at 4.8 percent of GDP, is expected to be financed four-fifths by arrears clearance grants and budget support from the World Bank and AfDB, and a second EPCA purchase. The authorities are seeking donor support for the residual financing gap of 0.9 percent of GDP. Any residual could, in staff’s view, be filled by domestic/WAEMU paper, but will require a careful planning of issuances, and—given the tightening liquidity situation—interest rates may need to be higher than obtained so far. The authorities have committed to place securities only through auctions with the BCEAO or other forms of competitive bidding.

Text Table 4.

Côte d’Ivoire: Coverage of Financing Gap, 2007-08

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

Including WAEMU bonds bought by non-Ivoiriens and amortization on loans from Petroci.

Includes one purchase of 12.5 percent of quota in 2007; assumes a second purchase in 2008 upon approval of EPCA-2.

Financing received; recorded above the line in this column.

Financing postponed to 2008.

Financing received; recorded above the line in this column, under new WAEMU/domestic financing effort.

E. Financial Sector

20. Building on recent steps, financial sector policies emphasize recapitalization of banks, strengthening microfinance institutions, and reforming several public financial institutions (MEFP ¶24-25). Priority measures are recapitalizing the seven (mostly private) banks with insufficient equity; in the WAEMU context, starting to restructure microfinance; and revisiting the role of the BNI, based on the forthcoming external audit. As stressed by the December 2007 regional FSAP mission, it is crucial that the authorities adhere to the WAEMU institutional reform aimed at strengthening the independence of regional supervisory institutions. The government intends to restructure the postal savings fund (CNCE) and reform the social security fund (CNPS) while servicing its debt to the latter based on the new debt restructuring agreement.

F. External Sector

21. The external current account surplus is projected to fall further in 2008 and then turn gradually into deficit (Table 10). Rising imports for investment and the hump in oil production are expected to cause the surplus of 1.4 percent of GDP in 2007 to turn to a deficit of over 3 percent by 2012, financed by increasing donor assistance and foreign direct investment.

22. Competitiveness is generally adequate, but further efforts are needed to improve the business climate. Despite a 2 percent appreciation in 2007, the REER is at or below the estimated ERER, as discussed in the last Article IV report. Prospects for Côte d’Ivoire’s relatively diversified tradables sector remain strong. However, the authorities agreed that in light of the expected recovery-related rapid import growth, improvements in the business climate and physical infrastructure are needed to enhance competitiveness and attract private investment inflows.

23. Signing of an Economic Partnership Agreement (EPA) between EU and ECOWAS was delayed, but the authorities initialed a bilateral interim agreement. The interim EPA ensures that Côte d’Ivoire keeps duty-free access to EU markets while negotiations on a full EPA between EU and ECOWAS continue (MEFP ¶34).

G. Structural Reforms

24. Structural measures in the energy sector are again aimed at enhancing transparency and safeguarding budget resources; deeper reforms to enhance efficiency are being initiated with World Bank support (MEFP ¶31). Measures in the 2008 program include more complete reporting on financial flows in oil/gas production, refineries, and electricity to the Council of Ministers and preparing reports on oil/gas extraction and revenue in line with EITI procedures; full application of the automatic petroleum pricing mechanism starting in mid-2008; and mutual respect of payment obligations in the electricity sector. By May 2008 the authorities plan to adopt an action plan based on the recent audits to improve sector management, with Bank support.

25. Measures in the cocoa/coffee and cotton sectors focus on further enhancing transparency; sectoral strategies are being formulated with World Bank and EU assistance (MEFP ¶32-33). These sectors are key for growth and poverty reduction and have important fiscal implications. With EPCA-2 the authorities intend to publish quarterly reports on the collection and use for rural investment of quasi-fiscal levies, publish the budgets and certified accounts of the sector agencies, and further reduce levies (from CFAF 46.5 per kilo to 41.0 in 2008/09) to enhance producer incentives. In the cotton sector, restructuring to improve competitiveness is underway.

H. PRSP Process

26. The PRSP process is proceeding to completion in the third quarter of 2008. The reactivated PRSP supervisory committee is building on the 2002 Interim PRSP. A nationwide household survey and broad consultations will be held in the first half of 2008 with donor support (MEFP ¶38).

I. Program Issues

27. The program’s quantitative and structural indicators cover 2008 (MEFP Tables 1-2). Prior actions and structural indicators under EPCA aim to ensure adequate budget execution and avoid subsidies and tax revenue losses in the energy sector. These measures—together with other steps to improve public financial management (MEFP ¶28-29)—should strengthen government control over budget outcomes. To avoid costly borrowing and enhance transparency, quantitative ceilings have been redefined (on nonconcessional external borrowing, TMU ¶14) or introduced (on net domestic financing, including paper issued on the WAEMU market, TMU ¶17); the monitoring of domestic unpaid payment orders and arrears has also been strengthened (TMU ¶12-13).

IV. Staff Appraisal

28. Côte d’Ivoire has made progress on the road toward reunification, peace, elections, and economic recovery. A climate of political dialogue has taken hold, and the roadmap to elections outlined in the Ouagadougou Accord is generally being implemented, though with delays. If the peace process continues, Côte d’Ivoire seems well-placed for a solid economic recovery, which would also boost growth in the subregion.

29. Performance on the 2007 program has been overall satisfactory, though there are concerns about spending composition and delays in certain measures.

  • While fiscal targets were missed by relatively small margins, overruns on nonproductive spending were at the expense of basic infrastructure and crisis-related spending. Widespread use of treasury advances and insufficient dissemination of budget execution statements need to be addressed.

  • The overall fiscal restraint, the modest primary surplus, and efforts to mobilize domestic financing to reduce domestic arrears and make payments to the World Bank and AfDB are commendable.

  • There was progress on the structural front, but several measures were implemented with delays, and others (e.g., on petroleum pricing and bank recapitalization) were postponed to 2008.

30. To support economic recovery and the peace process, the authorities need to more decisively improve public resource management. While the 2008 program does address major weaknesses, strong ownership of policy objectives by the whole government is essential in going forward:

  • Fiscal policy should aim at further consolidation through a modest primary basic surplus and create fiscal space to address urgent social, infrastructural, and other post-conflict needs. This requires determined efforts to improve tax collection, especially in the CNW; stabilize the wage bill while confining recruitment to the social sectors; and strictly control nonwage recurrent spending.

  • Better public expenditure management is essential for fiscal consolidation and ensuring that spending fulfills budget objectives. That means strict adherence to budget procedures, respect of budget allocations, and quarterly issuance of budget execution statements.

  • A strong financial sector is vital for economic recovery. That means accelerating recapitalization of underfunded banks, ensuring that banks comply with prudential norms, and restructuring microfinance.

  • In the energy sector the welcome steps taken in 2007 to improve transparency need to be extended, notably through comprehensive reporting following EITI procedures. Vigorous action is needed to enhance electricity performance, especially by setting tariffs at cost-covering levels, ending government subsidies, and avoiding cross arrears. Full application of the petroleum pricing mechanism is necessary to enhance efficiency and safeguard tax revenue.

  • In the cocoa/coffee sector the authorities are encouraged to take further steps to increase transparency, primarily through regular publication of reports on the collection of quasi-fiscal levies and their use for rural investment and of the budgets and certified accounts of sector agencies. Close monitoring of the use of all levies and reducing them further are crucial for improving living conditions of farmers.

31. The authorities’ policies so far under EPCA have helped strengthen the currency union, and competitiveness is broadly adequate. Implementation of the macroeconomic policies envisaged for 2008 should contribute to domestic stability, and the external stability of the WAEMU. The REER is estimated to be close to its equilibrium, but further efforts to enhance the business climate are needed to improve competitiveness, if, as expected, imports grow rapidly and oil production declines.

32. Debt relief is needed for fiscal and external sustainability. The last LIC-DSA showed debt distress; the preliminary HIPC-DSA calculation suggests that Côte d’Ivoire would qualify for debt relief under the enhanced HIPC Initiative.

33. The start of the PRSP process is welcome. It is important that the authorities complete the PRSP as early as possible using broad-based consultations and household surveys to assess the needs of the population.

34. Staff assesses as adequate Côte d’Ivoire’s capacity to repay the Fund. While there are risks to program implementation, staff recommends approval of the authorities’ request for a second EPCA purchase. Among the risks are possible renewed political tensions, delays in implementing the peace accord, discretionary spending overruns before the elections, revenue shortfalls, and eroding consensus to implement structural reforms. In weighing these risks, staff considered the satisfactory program implementation so far, the broad-based commitment of key political actors to program objectives, and the increasing support from the international community.

Appendix I – Letter of Intent

Abidjan, March 20, 2008

Mr. Dominique Strauss-Kahn

Managing Director

International Monetary Fund

Washington, D.C. 20431

Dear Mr. Strauss-Kahn:

1. Since the Ouagadougou Accord was signed on March 4, 2007, by the President of the Republic and the Secretary-General of the Forces Nouvelles, significant progress has been made in the process of resolving the crisis. Reunification of the country has begun and the redeployment of government administration is underway, in particular the establishment of prefectural authorities in the central, northern, and western (CNW) zones. We have also begun the national community reinsertion and rehabilitation program (PNR/RC), and the unification of the army. Identification of the population in preparation for elections has begun with the revival of public hearings (audiences foraines). These advances have been mad against a difficult political background with considerable social protest. The government is determined to complete the reunification of the country quickly and to implement the other aspects of the roadmap, leading to free, democratic, transparent elections scheduled for end-June 2008. The support of the international community, in particular through the Emergency Post-Conflict Assistance (EPCA) approved by the IMF Executive Board last August, is of crucial importance during this pivotal period.

2. The government has put in place the key basic measures provided for in the program supported by the 2007 purchase under EPCA. It has thus started the return to normal budget execution procedures and the regular reporting of budget execution statements and physical and financial flows in the key sectors of coffee/cocoa and oil, thereby helping to enhance transparency and good governance. Further, considerable efforts have been made to normalize financial relations with the multilateral financial institutions, specifically through the payment of our part in the clearance of arrears to the World Bank (completed at end-February 2008) and the African Development Bank (AfDB), expected to take place in April 2008.

3. With the support of the international community, the government intends to build on the gains made to date to implement policies aimed at national reconciliation, sustained recovery of economic growth, improved social conditions, and poverty reduction. Consequently we aim to ensure the free movement of persons, goods, and services and to strengthen the capacity of public administration throughout the country. We also confirm our continuing commitment rigorously to combat fraud, permissiveness, and corruption at all levels, and to strengthen the rule of law and the judicial system.

4. The Memorandum on Economic and Financial Policies (MEFP), attached hereto, describes progress made in implementing the 2007 program and defines the objectives and the government’s economic and financial policies for 2008. To support implementation of this program, the government requests, as envisaged in our letter of intent dated June 12, 2007, additional assistance under the IMF’s EPCA program of a further SDR 40.65 million, or the equivalent of 12.5 percent of our quota. We fervently hope that Côte d’Ivoire will once again benefit from an interest rate subsidy.

5. In light of spending trends observed at end-September 2007, we have taken measures during the last quarter, aiming at safeguarding the fiscal objectives of our program for 2007, notably by limiting nonessential current expenditure and favoring social and investment expenditure. We have accelerated the preparation of the 2008 budget, which was promulgated before end-2007 and started to be executed in accordance with normal procedures. We have also taken steps to strengthen the transparency of budget execution in 2008. The government has also brought forward the implementation of new structural measures to safeguard the government’s planned revenues from the energy sector.

6. Our 2008 budget policy reflects the needs of a pivotal year in the process of exiting the crisis and reunifying the country. The objective is to harness the peace dividends quickly and in full and to pass on the benefit to the population. The 2008 budget is designed to improve mobilization of revenues through greater efficiency of the revenue collection agencies and their rapid reestablishment in the CNW zones and through combating fraud and corruption. It also promotes essential expenditure for the health and education sectors and for the rehabilitation of basic infrastructures, including the CNW regional administrations. Attention to these priorities will entail a reduction in nonessential expenditures allowed by the peace and normalization process, including sovereignty spending and front-line bonuses. Finally, the 2008 budget supports crisis-exit programs with appropriate budget allocations, taking into account the contributions of external partners.

7. In 2008, the government intends to consolidate the progress already made with regard to the transparency of public resource management. It also intends to carry out studies and audits and adopt action plans for public financial management, and for coffee/cocoa, cotton, and energy sector reforms. The adoption by mid-2008 of action plans for coffee/cocoa, cotton and energy, and by the third quarter of 2008 for public financial management will pave the way for deeper reforms, while continuing to emphasize transparency and good governance.

8. We hope that our 2008 program, supported by EPCA, will form a sound basis to start discussions of a future three-year program that could be supported by the IMF Poverty Reduction and Growth Facility (PRGF) and enable Côte d’Ivoire to reach the decision point under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative in the third quarter of 2008. In this regard, the government plans to adopt its Poverty Reduction Strategy Paper (PRSP) before end-September 2008.

9. The government will consult the IMF on the implementation of the program and economic policies set forth in the MEFP, and will submit to the IMF all the information required to monitor program implementation, in accordance with IMF policy on such consultations.

10. The Ivoirien authorities intend to release to the public this letter, the attached MEFP, and the attached Technical Memorandum of Understanding (TMU), as well as the IMF staff report relating to the EPCA request. We hereby authorize their publication and inclusion on the IMF website, following approval of the IMF Executive Board.

Sincerely yours,

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Annexes: - Memorandum on Economic and Financial Policies (MEFP)

- Technical Memorandum of Understanding (TMU)

Appendix I. Attachment I. Memorandum on Economic and Financial Policies –2008

Introduction

1. The crisis that has affected Côte d’Ivoire since 1999, resulting in its partition in 2002, has had serious social and economic consequences for the country. However, on March 4, 2007, an historic agreement resulting from direct dialogue between the President and the Forces Nouvelles was signed at Ouagadougou, leading to hope of a final resolution of the crisis. The government arising from this agreement started a process of reunification, which is currently progressing well but remains fragile. It firmly intends to use its best endeavors to restore Côte d’Ivoire to the growth path that it was following before the crisis erupted. It also believes that sustained growth and the equitable sharing of its benefits will strengthen national unity.

2. The government is determined to implement the roadmap of the Ouagadougou Political Accord (APO) and the Supplementary Accords of November 2007. The Political Accord’s general objectives are the restoration of the government’s authority and of security throughout the country, the identification of the populations and the organization of democratic, free and transparent elections at the latest by end-June 2008. To reach these objectives, the government will continue to implement programs related to overcoming the crisis and to achieving social and economic recovery, for which it is seeking support from the international community. It acknowledges the fact that approval of the IMF Emergency Post-Conflict Assistance (EPCA) in August 2007 opened up the prospect of a return of international financial institutions and of debt relief under the HIPC Initiative that Côte d’Ivoire was about to receive just before the onset of the crisis.

3. The economic policies planned for 2008 aim to supplement and strengthen the gains made under the 2007 program, in particular the improvement of public finances and transparency, and responses to post-crisis needs. To support this program the government is requesting continuing support under the EPCA. It hopes that its 2007-2008 program supported by the EPCA will form a sound basis for starting discussions for a future three-year program that could be supported by the Fund’s Poverty Reduction and Growth Facility (PRGF) and enable Côte d’Ivoire to reach the decision point under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative in the third quarter of 2008.

4. Implementation of post-crisis programs have made an encouraging start. Public hearings for identification and preparation of elections began last September and are progressing without incident. The reconstruction of civil status records has begun and the technical specialist who will carry out the identification and electoral registration operations has been selected. The electoral register from 2000 was distributed to all political parties for their information. Redeployment of government administration in the central, northern, and western (CNW) zones is progressing. All the prefects, subprefects, and general secretaries of the prefectures have returned to their posts and three-quarters of the 24,000 civil servants who had to leave the CNW zones have been redeployed. The 2007/08 school year started normally throughout the country. The tax and financial administrations reopened in a number of conurbations in the CNW zones, and local payment of civil servant salaries and pensions has been resumed. The government financed all these operations almost exclusively from its own resources.

Recent Economic Developments

5. The economy has stood up relatively well to the crisis since 2004 and thanks to the reunification process 2007 has seen a continuing recovery. Despite the sharp fall in oil production in 2007, growth reached 1 ½ percent as initially projected. The rapid increase in oil production had largely underpinned overall GDP growth up to 2006, and the fall in 2007 is essentially due to technical problems in the Baobab field which limited production to 17.5 million barrels, compared with 22.2 million in 2006. The relatively good performance of the economy in 2007 can be explained by the favorable performance of the telecommunications, transport, and trade sectors, and by the recovery in construction and public works and agro-food, and despite a water shortage in the first half of the year, which had a negative impact on export agriculture. For the first time since 1999 there was strong growth in private investment after a cumulative decline of over 30 percent in real terms since 1999.

6. Inflation remained subdued in 2007. It amounted to 1.9 percent as an annual average, compared to 2.5 percent in 2006. However, prices for some essential goods, such as rice, milk, cooking oil, and flour, increased significantly due mainly to the surge in world food prices. To mitigate the impact of these increases, the government took various measures, notably the suspension of import duties on wheat, and consulted with the private sector to enhance the supply of these foodstuffs and limit the impact on sensitive product prices. The nominal and real effective exchange rates rose in 2007 as the dollar fell against the euro.

7. The current account surplus reached 1.4 percent of GDP in 2007, compared with 3 percent in 2006. This relative deterioration is partly due to a reduction in oil exports and a larger than expected fall in exports of petroleum products and cocoa, despite the favorable trend in export prices. Imports remained stable in value terms, reflecting a decline in average unit prices, offset by a slight increase in volume terms. The capital account deficit improved slightly due to inflows of private capital but remains wide owing to the almost complete lack of external financing. The overall balance of payments deficit is estimated at 1.3 percent of GDP compared with 2.6 percent in 2006, and was financed by an accumulation of external arrears that was still at high levels, notwithstanding the resumption of the payment of current debt service on the debt owed to the World Bank and AfDB.

III. 2007 Program Implementation

8. Budget performance has fallen short of expectations both in terms of the primary basic balance and in terms of expenditure composition. The main budget objectives for the first half of 2007 have been met overall. However, during the third quarter, pressures emerged that began to have an effect on wage expenditures and operating costs. To stem these trends and adhere to the program objectives, the government, during the last quarter of the year, adopted corrective measures, particularly a freeze on nonessential recurrent expenditures, with a shift in favor of capital expenditures, as well as a carry-over into 2008 of a part of the wage bonuses that had been granted.

9. The measures that have been adopted made it possible to generate a basic primary basic surplus of 0.6 percent of GDP, compared to 1 percent in the program. The revenue yield was slightly below the program objective, in spite of the favorable performance of the tax on incomes and wages, the single export duties (DUS) and the VAT, which partly offset a shortfall recorded by the revenues on petroleum products. The objective for DUS duties on cocoa was met, yet on account of delays in exports, the government had to make use of an advance collection of a portion of these duties (CFAF 60 billion, or ½ percent of GDP) at a financial cost of 7 percent. Operating expenditures by national institutions (including sovereignty expenditures) as well as the front-line bonuses for the Security and Defense Forces (FDS) exceeded their budgeted levels. With respect to wage costs, the government had to allocate housing allowances to schoolteachers and include the “new recruits of 2002” in the regular army wage bill. Total overruns of 0.8 percent of GDP were almost balanced out by below-target post-crisis spending. Furthermore, the government used one-third of the revenues received for toxic waste damage compensation (0.3 percent of GDP) to compensate the victims and implement prevention projects and retained the rest for expenditures planned for this area in 2008 and 2009.

10. Considerable efforts have been made to service the external and domestic public debt. In spite of its of the challenging financial situation and the shortfall recorded in external assistance for post-crisis programs, Côte d’Ivoire since July 2007 has stayed current in its current debt obligations to the World Bank and the AfDB, and almost all other multilateral creditors. Faced with the needs of the private sector and in order to support the economic recovery, the government has repaid a substantial amount of arrears vis-à-vis its domestic suppliers (including subsidies for private schools), in an amount which was 1 percent of GDP higher than anticipated. Confronted with the twofold challenge of normalizing relations with domestic suppliers and preparing for the clearance of arrears to the World Bank, the government has sought to obtain financing on the domestic and regional financial markets. The amounts raised through the issuance of government securities—a total equivalent to 2 percent of GDP in 2007—have not been sufficient to pay off the World Bank as expected; and the government was required, in early 2008, to make a private placement of CFAF-denominated obligations at relatively high interest rates. Coupled with its own revenues, these financing resources allowed for the full settlement of arrears to the World Bank in January and February 2008.

11. Structural fiscal reforms under the program progressed in 2007. With regard to structural indicators (see Table 3), Treasury advances declined, albeit less than expected. In view of cash flow problems, the practice of paying DUS duties in advance and at a discount continued in spite of the program objective. Budget execution statements breaking down expenditures (by type, function, and administration/type) for the first three quarters of 2007 were submitted to the Council of Ministers somewhat later than expected.

12. Good progress has been made in regard to other structural measures (see Boxes 1-3). The retirement criteria for teachers and all civil servants were changed, and the rule requiring retirement after 30 years of service was removed. The increase in the retirement age from 55 to 60 years planned for 2008 is to be phased in as follows: an increase from 55 to 57 years, for which a decision will be taken in the fourth quarter of 2008 to become effective from January 2009; and from 57 to 60 years from January 2011. The government considerably expedited preparation of the 2008 budget, which was promulgated on December 28, 2007 and implemented as of January 4, 2008. The Government Procurement Code—which is designed to ensure compliance with the rules of transparency and competition in contract management—is operational. With regard to tax reform, the tax administrations extended use of the standardized invoice, accelerated repayment of VAT credits, and decreased the amount outstanding using the new procedure introduced in 2006. In customs the government improved the control of transit flows to and from border countries, and introduced a new version of the customs computer system (Système douanier pour l’administration - SYDAM-World).

13. The banking system has been performing better since 2004 but also has weaknesses relating either to the 2002 crisis or of a structural nature. Since March 2007, two banks resumed activity in the CNW zones. The ratio of nonperforming loans to total credit fell from 26 percent in 2004 to 21.0 percent at end-2006, and then to 17.7 percent at end-2007. Under the authority of the West African Monetary Union (WAMU) Banking Commission, progress has been made in recent months in the recapitalization of four of the nine banks that were not in compliance with capital adequacy requirements at end-2006. Nevertheless, six banks are still under close supervision by the Commission. Moreover, the Central Bank of West African States (BCEAO) has decided to raise (from CFAF 1 billion to CFAF 5 billion) the minimum capital requirement for banks; it applies as of January 1, 2008 for new banks, though existing banks have three years to comply. Some prudential ratios for the Banque nationale d’investissement (BNI) improved in 2007, especially after the securitization and sale at a discount of various claims on the government at the beginning of 2007. However, the public sector continues to represent a very high share of the BNI balance sheet, with 67 percent of deposits and 69 percent of loans as of end-September 2007. The government has drawn up a National Microfinance Strategy (SNM) to deal with the problems of that sector, which has been suffering from a high level of nonperforming loans since 2002.

14. Progress was made in improving transparency and governance in the coffee/cocoa sector. The Coffee/Cocoa Sector Project and Program Review and Monitoring Committee (the Coffee/Cocoa Committee) reported to the Council of Ministers on the amounts and usage of the quasi-fiscal levies, as well as the half-yearly budget execution statements of the various bodies involved (Regulatory Authority for Coffee and Cocoa -ARCC, Prudential Reserve - FRC, Cocoa and Coffee Marketing Exchange - BCC, and Coffee and Cocoa Producers’ Development Fund - FDPCC). The Committee’s terms of reference were expanded to include not only the management of the FDPCC-investment fund and the Prudential Reserve, but also the management of the Rural Investment Fund (FIMR) and other investment funds (cocoa bags (sacherie)) and, as of December 2007, the coffee sector recovery fund (Fonds de relance caféière)). This committee is now tasked with checking that all the operations financed by these funds comply with the Public Procurement Code. In addition, the total amount of quasi-fiscal levies has been cut by CFAF 2.65/kg since the 2007-08 crop year and the terms of reference were approved for a study on which to base a strategy for the sector. The study will be launched in March 2008.

15. In the energy sector, measures were implemented to increase transparency and efficacy. The audits financed by the World Bank of oil and gas extraction and of refining and storage of petroleum products were completed. The audit of the electricity subsector was started and the report should be available by end-March 2008. The government also confirmed its commitment to the Extractive Industries Transparency Initiative (EITI) and launched the nation-wide process, by creating the National Council in February 2008, which has formulated its action plan and bylaws. Moreover, the government improved the transparency of physical and financial flows in the sector with detailed quarterly reports to the Council of Ministers. In the electricity subsector the government implemented the March 2007 compensation protocol between the electricity company (CIE) and the government with regard to offsetting the stock of cross-debts and claims in the sector relating to gas and electricity consumption at end-2006. However, new cross-arrears accumulated during 2007. The increase in average electricity rates planned for end-August 2007 had to be postponed due to the difficult social conditions then prevailing. Moreover, fraud and delays in investments for network expansion and maintenance led to significant technical and nontechnical losses. Consequently the network yield fell from 86 percent in 2000 to 76 percent in 2007.

IV. Program for 2008

16. The government’s objectives for 2008 are broadly the same as in 2007: to reestablish the conditions for sustainable growth and confidence brought about by greater political stability and better governance and transparency in managing key sectors. These objectives are based on the progress achieved thus far in the post-conflict program. The rate of economic growth should be close to 3 percent in 2008, twice the rate of growth in 2007, helped particularly by the dynamic performance of the secondary sector, the improvement of export prices, and a slight pickup in oil and gas production.

17. Fiscal policy for 2008 aims to continue pursuing fiscal consolidation, while responding to the post-conflict needs against the background of a fairly moderate outlook for external financing. The program for 2008 largely reflects the 2008 Budget adopted at end-December 2007. However, several developments—particularly those developments related to the Ouagadougou Supplementary Accords and an overall financing constraint that is stricter than anticipated—have necessitated adjustments in the budget framework for 2008 (with respect to both expenditure and revenue), which has been approved by the Council of Ministers.

18. The 2008 budget framework provides for a primary basic surplus of 0.8 percent of GDP. This effort, combined with mobilization of domestic and foreign resources, should lead to normalization of financial relations with the World Bank and the AfDB and to the start of this process with bilateral creditors. The share of spending allocated to post-crisis programs and to rehabilitation of basic infrastructure and the social sectors will be increased substantially in 2008.

19. Revenue under the fiscal program for 2008 should rise to 19.4 percent of GDP in 2008, a tax effort of ⅓ percent of GDP (excluding revenues from toxic waste damage compensation, and excluding oil and gas revenues). Tax collection efforts will focus on the following:

  • Mobilizing tax revenue in the CNW zones by reopening all customs posts as well as the main tax centers in these areas in the first quarter of 2008, with an impact for 2008 estimated at 0.2 percent of GDP.

  • Improving VAT collection and expanding its base to better cover the informal sector, notably through further enforcement of the use of standardized invoices. Administrative procedures for the handling of reimbursements requests for VAT credit to enterprises will be further accelerated and the validated amount awaiting reimbursements will not exceed CFAF 7 billion during 2008 (compared to CFAF 9 billion at end-2007).

  • Implementing the automatic mechanism for petroleum product prices in combination with a review of their levels and structures, beginning in early July 2008. The increase in pump prices at that date—the first since 2005—is expected to ensure that the contribution of petroleum products to tax revenue will be at least 1.2 percent of GDP (compared to the average for 2005-2007, which was 1 percent of GDP) (see paragraph 31).

  • Ensuring that a greater contribution to government revenues is made by the national oil company (PETROCI), whose revenues from production-sharing contracts have gone hand-in-hand with the sharp increase in the oil sector’s prices since 2004 (revenue impact amounting to 0.2 percent of GDP in 2008).

20. Primary basic spending will amount to 18.6 percent of GDP in 2008 (as against 18.0 percent in 2007, and will be redirected toward post-crisis expenditure, basic infrastructure, and social expenditure. The wage bill will be stabilized as a share of GDP at CFAF 687 billion (6 ¾ percent of GDP). It will include the full-year impact of teacher housing allowances and allowances granted to health workers (CFAF 19 billion) as well as integration into the army and the national police of some military personnel from the Forces Nouvelles) (CFAF 12.5 billion). The government intends to strictly limit the hiring of new civil servants to 10,009 in 2008, while giving priority to the health and education sectors where the shortages are the greatest. Taking into account the postponement to 2009 of hiring estimated at 4,241, net hiring of civil servants will be 5,768 in 2008. The government intends to strictly limit wage costs of public institutions to CFAF 33 billion (the level reached in 2006) by strengthening the control of monthly funding to each institution, in accordance with budget allocations. The government acknowledges that the rise in the wage bill—while reflecting a response to post-crisis-related needs—is not sustainable and that a civil service reform strategy will be necessary to return Côte d’Ivoire to the West African Economic and Monetary Union (WAEMU) convergence criteria.

21. The government aims to reduce nonessential expenditure to ensure sufficient allocations to the social sectors. The fiscal program for 2008 aims to increase social spending (education, health, and other expenditure we have defined as “pro-poor” in the Technical Memorandum of Understanding (TMU)) to 5.6 percent of GDP in 2008, compared with 5.4 percent in 2007. To this end, operating outlays by national institutions (“sovereignty spending”) will be limited to CFAF 48.6 billion (as against CFAF 69.1 billion in 2007); gas subsidies to the electricity sector will be reduced to CFAF 20 billion (accompanied by an increase in rates); and spending on utility consumption and travel costs will be better controlled, while public entities will be encouraged to make efforts toward greater economy and accountability. Furthermore, the government has decided to pay no further front-line bonuses except for amounts owed for earlier periods and lump-sum allowances connected with the regroupment of ex-combatants. These payments will be limited to CFAF 37 billion as against CFAF 40 billion in 2007. The payments will be made by the Treasury at the soldier regroupment sites, based on verified pay lists, which will be reconciled with past bonus payments. Moreover, the government will halt all practices of compensating expenditures through tax revenues; it will improve the supervision of revenue allocations through the SIR to fuel expenses of the Defense and Security Forces; and will also avoid having recourse to advances against tax revenues.

22. Post-crisis-expenditures will total 1.9 percent of GDP,> with 0.9 percent of GDP to be assumed by external partners. Such expenditures relate to:

  • The national community reintegration and rehabilitation program (PNR/RC) is continuing to work toward the social and economic reintegration of demobilized ex-combatants from the FN and what are known as self-defense militias. The World Bank is financing a similar but broader program, targeting all young people at risk and the communities most affected by the crisis.

  • Unification of the army under the auspices of the Integrated Command Center (CCI) includes the reintegration of part of the FN and the re-founding of the army of Côte d’Ivoire.

  • The basic aim of the civic service (service civique)—an institution which used to exist in the past—is to retrain young people who have been exposed to the use of arms. This civic service teaches income-generating trades and provides civic education within a relatively short timeframe. The program is designed to reach 40,000 people, half of them in 2008.

  • Redeployment of government administration throughout the country is continuing, accompanied by the rehabilitation of public buildings. After redeployment in the CNW zones of 18,900 civil servants, including 12,000 teachers in 2005-07, the government aims to redeploy the remaining 5,600 by August 2008. For the 5,000 volunteers who took on teaching and certain health care duties in the CNW zones during the crisis, the government intends to have those who meet the access and competence conditions take a competitive examination with a view to hiring them as civil servants. The government plans to pay all redeployed staff reinstallation and incentive bonuses (of which CFAF 4 billion remain to be paid in 2008).

  • Identification of the populations for issuing identity cards and preparation of electoral registers is continuing with a view to presidential elections before end-June 2008. Following the public hearings currently underway, the process of identification—to be carried out during the first half of 2008—has been awarded to a technical operator. Enrollment on the electoral registers and the holding of elections will be coordinated and supervised by the Independent Electoral Commission (CEI).

  • The emergency intervention program, financed mainly by external partners, focuses on actions having an immediate impact on the communities affected by the crisis, primarily through micro-projects, food aid, delivery of agricultural inputs, and rehabilitation of basic infrastructure.

23. Investment expenditure will rise to 3.1 percent of GDP in 2008 compared with 2.6 percent in 2007. Priority will be given to the restoration of administrative services, the social sectors, and basic infrastructure. Although it is significant for the reunification of the country, the transfer of the political capital to Yamoussoukro will be slowed down; the amount allocated is CFAF 15 billion (compared with CFAF 25 billion estimated for 2007).

Financial sector reform

24. Efforts to strengthen the banking system will continue. The government will continue to support the efforts of the West African Monetary Union (WAMU) Banking Commission to ensure that Ivoirien banks comply with prudential ratios and implement its recommendations. In particular, the seven undercapitalized banks—four of which were called for a hearing at the Banking Commission in December 2007—are being asked to present realistic recapitalization plans by end-March 2008. The government has undertaken an external financial and operational audit of the BNI and a strategic study on the role of the BNI in financing the economy (and will utilize the results scheduled to become available by mid-2008), before deciding which measures to take. It will also start restructuring of the microfinance sector, based on the National Microfinance Strategy (SNM). A new legal framework with the objective of partially transferring supervisory responsibility from the Microfinance Directorate to the BCEAO for the main microfinance agencies has been adopted by the WAEMU authorities, and this new framework will be integrated into its legal and regulatory system in 2008.

25. Reforms of public savings institutions will continue. An audit of the information system and accounts of the Postal Savings Fund (Caisse Nationale des Caisses d’Épargne -CNCE) was conducted by end-2007 with the ultimate objective of reestablishing its financial equilibrium and ending the subsidies from the government. As regards the national social security fund (Caisse Nationale de Prévoyance Sociale - CNPS), the pension arm of which has a structural deficit, an actuarial assessment was carried out and reform proposals to return it to financial equilibrium in the medium term were drawn up. In addition, the government also intends to settle its debt with the CNPS, in accordance with the restructuring agreement signed in December 2007.

Governance, transparency, and structural reforms

26. The government reiterates its determination to put good governance in the management of public resources at the center of its economic program and structural reforms. It is committed to combating fraud, corruption, and lawlessness, strengthening the rule of law, and restoring an economic and regulatory environment that is conducive to economic activity. The actions described below will help prepare a program that could be supported by the PRGF. Structural indicators under the EPCA program are described in Table 2; in addition, the program includes reform measures in a range of other areas.

Budget reforms

27. The government is pursuing the implementation of the action plans for the tax administrations as well as public finance reforms. The government intends to adopt before the end of the third quarter of 2008 a medium-term plan for overall reform of public finance management based on the findings of the Public Expenditure Management and Financial Accountability Review (PEMFAR) mission undertaken jointly by the World Bank, the AfDB, the IMF, and the EU in November 2007.

28. The government intends to strengthen tax administration, particularly by implementing action plans to combat tax evasion. The authorities intend to step up the use of the standardized invoice and combat the underground economy and unfair competition, specifically with the help of investigation squads, and improve inspection of other taxes. It will therefore:

  • The government intends to improve inspection of petroleum product exports to Mali and Burkina Faso and of imports from outside the Economic Community of West African States (ECOWAS) that arrive by land from the two countries to avoid their being sold fraudulently in Côte d’Ivoire.

  • It intends to complete the independent audit of the release for consumption of petroleum products to distributors in Vridi and Yamoussoukro, and of the related tax revenues by end-March 2008 at the latest. An action plan based on its results will be approved before mid-May 2008 and implemented by end-May 2008.

  • The government has requested an IMF technical assistance mission, which began in early March 2008, to perform an assessment of customs administration. The government has requested similar technical assistance for tax administration. By end-June 2008, with IMF technical assistance, the government also intends to review the full set of tax exemptions—in order to identify recommendations aimed at phasing them out.

  • To better monitor revenue collection agencies (régies financières) and public enterprises (sociétés d’Etat), the government intends to increase the number of audit missions carried out by the Inspection Générale des Finances (IGF) and the Directorate of Equity Investments and Privatization (DPP), in accordance with the pertinent annual work programs. With particular reference to public enterprises managing significant public resources, by end-May 2008 the government intends to launch external financial and accounting audits of the national petroleum corporation of Côte d’Ivoire (PETROCI) and the Port Autonome d’Abidjan.

29. Full use will be made of the public finance management and accounting systems to monitor budget execution and ensure its transparency. The following actions for 2008 will be undertaken:

  • Establish monthly allocations for operating spending and quarterly allocations for investment spending for most budget items of administrations, according to the projected resources for each period, and ensure that they are strictly observed.

  • Produce quarterly budget execution statements (showing revenues and expenditures), and report them to the Council of Ministers with a maximum time lag of 45 days, and release them to the public. These statements will present expenses classified by type, function, and administration/type, as set forth in the TMU. They will include the information on payments, by harmonizing the SIGFiP and ASTER classifications, from mid-May 2008 onward.

  • Reduce the use of treasury advances to CFAF 120 billion, or 15 percent of outlays (excluding wages, externally financed expenditure, debt service and revenue-collecting agencies). Expenditures through advances will be regularized every quarter with a time lag of two months.

  • Conduct independent semiannual audits of the expenditures associated with post-conflict-related programs (see paragraph 22); the first audit focusing on 2007 will be completed by end-July 2008.

  • Review the time lags in the expenditure cycle (DAAF, Financial Control) observed in the first half of 2008 (by mid-July 2008) in order to accelerate the expenditure execution process.

  • Strengthen the steering role of the Treasury Cash-Flow Committee, the members of which include, among others, the Prime Minister’s representative. The monthly cash management plans will be regularly updated, taking into account budget execution in the preceding months.

  • To boost private sector confidence, complete before end-March 2008 an inventory of domestic arrears through end-2007 and adopt—in consultation with the private sector—an arrears clearing plan, including through securitization, by end-May 2008. The government will avoid new domestic arrears (i.e., payment orders remaining unpaid for over 90 days) and will restrict the “float” stock to CFAF 190 billion, as laid down in the TMU.

  • Submit by end-June 2008 draft budget review laws to the Court of Audit (Chambre des comptes) for fiscal 2005 and 2006, and by end-September 2008 for fiscal 2007.

30. The government intends to set in motion a reform of the government employee pension fund (Caisse Générale de Retraite des Agents de l’Etat—CGRAE) to resolve its structural deficit (½ percent of GDP in 2007). A financial, operational, legal and organizational audit has already begun, as has an actuarial study and a review of the legislative and regulatory framework of the management of civil and military pensions of government employees. These three studies will be completed by end-April 2008.

Energy sector

31. The government is determined to continue its efforts to enhance transparency and reform the sector, in particular through the Oil Committee, the terms of reference of which have been expanded to include monitoring of the audits and the implementation of their recommendations. Specifically, it intends to:

  • Continue to provide the Council of Ministers every quarter, with a time lag of 45 days—and to release to the public—an analytical report (including a set of consistent tables as described in the TMU) on (i) the physical, financial, and tax flows of the crude oil and gas subsector; (ii) the production, export, release for consumption, and taxation of petroleum products; and (iii) the production, costs, and financial flows in the electricity subsector.

  • Before end-May 2008 prepare and start to implement an action plan to improve the management of the sector based on the recommendations of the operational, financial, and technical audits of the three subsectors carried out in 2007 and early 2008, in consultation with World Bank staff.

  • Continue to move forward to comply with the validation framework of the Extractive Industries Transparency Initiative (EITI). Following the establishment of the National Council tasked with implementing the EITI, reports conforming to the EITI standards and procedures on physical and financial flows from the extractive industries will be produced and published by end-September 2008 for 2006, and by end-December 2008 for 2007.

  • Implement the automatic petroleum product price setting mechanism and bring pump prices closer to international prices (entailing an average increase of at least CFAF 50 per liter) from the beginning of July 2008. The pricing mechanism is based on import parity prices (IPP) and incorporates a temporary security margin of CFAF 15/liter, which will allow absorbing some of the impact on pump prices of an increase in world prices. At the time the mechanism is implemented the Specific Petroleum Product Tax (TSPP) for each product will be set so as to ensure sufficient tax revenues. Further, with a view to enhancing efficacy, the government plans to continue reducing the “protection coefficient k” in the price structure for 2008; it will lower it from 6 percent to 5 percent before end-June 2008.

  • Clear by end-March 2008 the cross-debts and claims of the government and the electricity sector linked to consumption of gas and electricity during the year 2007. The government will also pay monthly (beginning in February 2008) for electricity consumption by the public administrations throughout the country, and the CIE will regularly pay the government the revenues corresponding to the government’s share of its gas consumption.

  • Continue improving the financial viability of the electricity sector. An increase of 10 percent in domestic electricity prices has been implemented, effective February 1, 2008, for enterprises; and it will be effective from March 1, 2008, for low-voltage users (except low-income households). The government will carry on talks with the countries to which it supplies electricity to seek agreement on prices that better reflect world energy costs. Furthermore, the sector’s operators will strive to limit technical and nontechnical losses (essentially due to fraud). The CIE recently undertook various technical control measures to combat fraud which will be expanded and continued in 2008.

Coffee/cocoa and cotton sectors

32. The reforms already in progress aim to raise producer incomes, improve the marketing system, and ensure effective monitoring of the sector by the government, the Coffee/Cocoa Committee, and the sector’s agencies. In 2008, the following actions are planned:

  • By end-July 2008 prepare and adopt a new overall strategy for the sector with the help of external partners, based on existing audits and studies. This strategy will consider solutions that allow higher producer prices and reduce the oligopsony power of exporters.

  • Provide each quarter to the Council of Ministers with a time lag of 45 days, and release to the public, an analytical report on the collection and use of the quasi-fiscal levies and the balances of bank accounts of the investment funds (FIMR, FDPCC-investment, Réserve de prudence, Sacherie and Relance caféière). Submit to the Council of Ministers every half year (with a time lag of 45 days) information on the collection of quasi-fiscal levies for the operation of the ARCC, FRC, BCC, and FDPCC, and their budget execution statements. The government will ensure the publication of the FY 2008 budgets by end-March 2008 and of statements of the certified accounts of the four agencies by end-March 2008 for fiscal 2006 and by end-August 2008 for fiscal 2007.

  • Reduce the quasi-fiscal levies by CFAF 5.5/kg for the 2008-09 crop year.

33. The government has embarked upon a restructuring strategy for the cotton sector, which has been hard hit by the crisis and the fall in world prices. This strategy, which is supported by the EU, aims mainly to clear the arrears in the sector and strengthen the main ginner, the Compagnie Ivoirienne pour le Développement des Textiles (CIDT). A policy for the sector will be adopted by end-June 2008 and an action plan for its recovery will be implemented with a view to a sustainable improvement in the competitiveness of cotton production.

Trade and other reforms

34. The government will continue its efforts to establish a common external tariff (CET) with the ECOWAS countries, promoting the freedom of movement of goods and regional integration. At the same time, and to maintain preferential access to the European market and make the country more competitive, the government will seek to enter into an Economic Partnership Agreement (EPA) with appropriate phasing of the dismantling of tariffs on 80 percent of the products imported from the EU.

35. The government is conscious of the inadequacies of the judicial system. It intends to prepare a reform plan with the support of external partners to improve the efficiency and fairness of the judiciary, the training of judges, and the public’s access to justice.

Social sector and process of developing the PRSP

36. The government is firmly committed to reversing the deterioration in social conditions caused by years of crisis. The incidence of poverty reached 43 percent in 2006, according to World Bank estimates. Côte d’Ivoire’s ranking on the United Nations Human Development Index dropped to 163 out of 177 countries, and social and health services deteriorated, particularly in the CNW zones of the country.

37. On the social front, government policy will prioritize rehabilitation of schools and the health system. Accordingly, the government has increased the relative shares of the budget allocations of these sectors, and intends to work on longer-term strategies. The measures to be implemented are as follows:

  • Resume the transfers of budget allocations to all the deconcentrated budget execution units in the CNW zones as soon as these administrative services are restored.

  • Continue rehabilitating schools and other teaching and research establishments, and complete the process of redeploying teachers. The government will also continue to reintegrate child soldiers into the education system, and to provide basic educational supplies to schools. The government intends to bring in volunteer teachers who successfully pass the civil service employment entrance examination. In the longer term the government will develop programs to sustainably increase the enrollment rate and make schools a cornerstone for peace.

  • Continue to rehabilitate health care facilities, giving priority to clinics and maternity homes, and nurse training centers. Vaccination programs for children and pregnant women, and family education campaigns have already resumed. Following up on the redeployment of 1,290 new senior health officials in 2007, the government will continue to fill the shortage of health workers (estimated at 2,500 at end-2007) as new graduates become available; 700 will be hired in 2008. In the longer term, the government has prepared the National Health Development Plan (PNDS) setting forth targets related to the Millennium Development Goals (MDG).

38. The Poverty Reduction Strategy Paper (PRSP) will be completed at the latest by end-September 2008. A workshop to launch the PRSP completion process was held in December 2007. This document will be prepared under the supervision of a PRSP Supervision Committee, reporting to the Prime Minister and chaired by the Minister in charge of Planning and Development. A survey on household living standards and conditions and consultations with the populations will be held throughout the country from January through June 2008. An interim report on work accomplished will be produced in March 2008. The resources needed for the PRSP preparation are being mobilized from donors, in particular the EU, the AfDB and UNDP.

Program financing and external debt

39. Côte d’Ivoire intends to normalize its financial relations with its external partners and to obtain budgetary support to finance the program. At end-February 2008, Côte d’Ivoire finished clearing half of its arrears to the World Bank. The other half of the arrears should be cleared by the World Bank in the form of an Economic Governance and Recovery Grant (EGRG), by means of a bridge loan. With regard to the AfDB, an agreement was reached to clear arrears by end-April 2008 in the context of its Fragile States Facility (FSF), with the AfDB’s contribution (two-thirds) and Côte d’Ivoire’s contribution (one-third). The government will stay current in its payments to other multilateral creditors and it will start talks with the European Investment Bank (EIB) to reach an agreement on clearing arrears. It is also continuing discussions with the Paris Club, other official bilateral creditors, and London Group creditors, so as to reconcile figures on the debt, with a view to further restructuring in accordance with the enhanced HIPC and MDRI mechanisms.

40. Taking account of the primary basic surplus, the net external financing that has been identified, and financing resources on the WAEMU financial market already included in the budget, the residual financing gap in 2008 amounts to about CFAF 90 billion. In order to cover this gap, the government intends to resort further to the WAEMU financial market (see ¶45).

Capacity building and technical assistance

41. Côte d’Ivoire will continue to strengthen its administrative capacity in various areas, especially those affected by the crisis. The government therefore hopes to benefit from IMF assistance in 2008 to (i) strengthen the customs and tax administrations; (ii) reassess the petroleum product taxation system; (iii) review tax exemptions; and (iv) implement public finance management reforms, following the Public Expenditure Management and Financial Accountability Review (PEMFAR) mission carried out in November 2007, by the World Bank, with IMF, AfDB, and EU support.

V. Program Monitoring

42. Implementation of the 2008 program will be monitored through prior actions, quantitative and structural indicators (Tables 1 and 2). The definition of these indicators, the adjustment factors for any supplementary budget support and for oil and gas revenues, and the data to be reported, are set forth in the TMU.

MEFP Table 1.

Côte d’Ivoire: Quantitative Indicators, 2007-08, billions of CFA francs 1/

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Cumulative change from beginning of the year, unless otherwise indicated. See Technical Memorandum of Understanding (TMU) for detailed definitions of adjusters.

Difference between government revenue (excluding grants) and total expenditure and net lending, excluding interest payments and excluding foreign-financed capital expenditure, excluding net compensation proceeds from toxic waste damage.

Includes expenditure on health and education, as defined in the classification of the Integrated Financial Management System (SIGFiP); see TMU Table 1.

Domestic payment arrears as defined in the TMU.

Quantitative indicator for 2008 (numbers for 2007 are reported for comparison only) on the issuance by the central government of all debt instruments in CFAF to domestic and WAEMU financial market creditors and borrowing from the BCEAO. The ceiling excludes domestic arrears and their securitization, rescheduling agreement of central government debt and new borrowing for projects from the regional development bank, BOAD. The ceiling applies to net domestic borrowing, which is defined as the amount of gross domestic borrowing minus repayments on such domestic borrowing. If external budget support for crisis-exit programs is lower than the programmed amount, the ceiling will be adjusted upwards correspondingly up to a maximum of 30 billion CFAF. The ceiling includes a margin of 25 billion CFAF over the net cumulative flows projected for each period (see TMU).

Continuous indicator on all non-concessional borrowing as defined in the TMU. This ceiling does not apply to normal import-related commercial credits that have a maturity of up to one year, rescheduling agreements, West African Development Bank (BOAD) loans up to the equivalent of US$ 30 million, drawings on the Fund, public offerings in CFAF through competitive bidding on the West African Economic and Monetary Union financial markets, and a possible bridge loan used to cover part of the government’s share in clearing arrears to the AfDB, in anticipation of prospective AfDB budget support (see TMU).

Including external debt to the BCEAO. External payments arrears are defined as the sum of external payments due but unpaid on outstanding external debt that has been contracted or guaranteed by the government.

MEFP Table 2.

Côte d’Ivoire: Prior Actions and Structural Indicators, 2008 EPCA

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43. To ensure proper execution of the economic program, the government has strengthened several interministerial committees. The 2008 program is under the general supervision of the Technical Steering Committee for the Post-Conflict Program, which in close consultation with the Prime Minister’s office will also coordinate the work of the specialized interministerial committees—the Oil, Coffee/Cocoa, PRSP, Interministerial Primary Commodities, and TOFE Committees. The Steering Committee for Economic and Structural Reforms, under the auspices of the Prime Minister’s office will be reactivated in anticipation of a future program supported by the Poverty Reduction and Growth Facility (PRGF). The government has also strengthened the monitoring of external support to improve the coordination and availability of information on projects financed by donors. In addition, it will strengthen supervision of new external indebtedness for all public administrations and enterprises.

44. The government will distribute the MEFP widely to the Council of Ministers, the administrations, and the general public.

45. Throughout the program, the government will not enter into external borrowing on nonconcessional terms, as specified in the TMU (Table 1). The government undertakes to issue securities through auction or tender offers, and to consult with IMF staff regarding any new borrowing on the domestic market or WAEMU market that exceeds CFAF 30 billion. It further undertakes not to introduce or tighten restrictions on payments and transfers for current international transactions, introduce multiple exchange rate practices, enter into any bilateral payments agreements that are inconsistent with Article VIII of the Fund’s Articles of Agreement, or impose or tighten any import restrictions for balance of payments purposes. Moreover, the authorities, in consultation with Fund staff, undertake to adopt any new financial or structural measures that may be necessary for the success of the program.

/s/

Charles Koffi Diby

Minister of Economy and Finance

MEFP Table 3.

Structural Program Indicators, 2007 EPCA

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Cote d’Ivoire: Structural Fiscal Measures, 2007 Program3

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Côte d’Ivoire: Structural Measures in the Energy Sector, Program 20074

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Côte d’Ivoire: Structural Measures in the Coffee/Cocoa and Cotton Sectors, 2007 Program5

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Appendix I Attachment II Technical Memorandum of Understanding (TMU)

1. This Technical Memorandum of Understanding describes the quantitative indicators agreed between the Ivoirien authorities and the staff of the International Monetary Fund to monitor the program supported by Emergency Post-Conflict Assistance (EPCA). It also specifies the periodicity and deadlines for transmission of data to the staff of the IMF for program monitoring purposes. Unless otherwise specified, the government is defined as the central government of Côte d’Ivoire, including the National Social Security Fund (Caisse Nationale de Prévoyance Sociale, CNPS) and the Civil Service Pension Fund (Caisse Générale de Retraite des Agents de l’Etat, CGRAE), and Treasury operations for public companies in liquidation; it does not include any local government, the central bank (Central Bank of West African States, BCEAO), or any government-owned entity with separate legal personality.

I. Quantitative Program Indicators

2. For program-monitoring purposes quarterly quantitative indicators are set for March 31, September 30, and December 31, 2008. They include (a) a floor on the primary basic fiscal balance; (b) a floor on social expenditure (education and health); (c) a floor on cash repayment of the government domestic payments arrears, as defined for program purposes; (d) a ceiling on net domestic borrowing, including issuances of government paper on the WAEMU financial market; and (e) a zero ceiling on new nonconcessional external borrowing (notwithstanding ¶14 below). The quantitative indicators calculated on the basis of the cumulative change from January 1, 2008 (for cases involving end-2006 stocks) are set out in Table 1 of the Memorandum of Economic and Financial Policies (MEFP).

A. Basic Primary Fiscal Balance

3. The basic primary fiscal balance is the difference between the government’s budget revenue (excluding grants) and total expenditure plus net lending (on a payment order basis), excluding interest payments and externally financed capital expenditure. It includes expenditure related to exiting the crisis, which are defined as internally and externally financed government outlays on the national community reinsertion and rehabilitation program (PNRRC); the redeployment of public administration; and the identification process and the elections. The expenditure (CFAF 20 billion in 2008) associated with the toxic waste problem is excluded. This balance also includes expenditure recorded on the “other social and reunification expenditure” line, which includes contingency expenses.

4. The floor on the basic primary fiscal balance will be adjusted downward by the amount of externally financed spending relating to exiting the crisis that exceeds program projections (MEFP, Table 1)

5. The floor on the basic primary balance will be adjusted downward by the amount of external budgetary support received in excess of the programmed amount to offset any revenue shortfall or any excess domestically financed social, reunification-related,6 or crisis-exit spending, up to a cumulative maximum of CFAF 50 billion. The remainder of excess budgetary support not spent will be used to reduce the government’s domestic debt, including arrears (see ¶ 13).

6. Part or all of the excess revenues from petroleum/gas extraction (including dividends paid by the national petroleum corporation of Côte d’Ivoire, PETROCI, to the government) above the programmed amount will be used to offset the revenue shortfall or allocated to social or reunification spending up to a maximum cumulative amount of CFAF 50 billion. The floor on the primary basic balance will be adjusted upward by any excess not used for social or reunification expenditure. The remainder of the excess petroleum/gas revenues will be used to reduce the government’s domestic debt, including payment arrears (see ¶ 13).

7. The oil revenues estimate for 2008 is based on an average price (including discount) of US$80 per barrel; a volume of 18.936 million barrels; and an average exchange rate of CFAF 450 = US$1.

B. Government Revenue

8. Total government revenue is defined as revenue collected by the Tax Administration (Direction générale des impôts, DGI), the Treasury (Trésor), and the Customs Administration (Direction générale des douanes, DGD), the CNPS, and the CGRAE; and other nontax revenue as defined in the fiscal reporting table (Tableau des opérations financières de l’Etat, TOFE).

C. Government Wage Bill

9. The government wage bill is defined as all expenditures (on a commitment basis) on pay, bonuses, and allowances paid to government employees, military personnel, and other law and order personnel, and includes expenditures on special contracts and other temporary or permanent government jobs.

D. External Payment Arrears

10. External payment arrears are defined as the sum of external payments due but unpaid on outstanding external debt that has been contracted or guaranteed by the government, excluding payments due that are the subject of rescheduling or restructuring talks with the Paris Club, London Group, and other creditors. The accumulation of external payment arrears is the difference between (a) the gross amount of maturities due on external debt service (principal and interest), and (b) the amount actually paid during the period under consideration.

11. According to the agreement with the World Bank, it is planned that the external arrears of Côte d’Ivoire with the World Bank will be cleared in the first quarter of 2008 at the latest. At the same time, it is planned that Côte d’Ivoire will keep its debt service obligations with the World Bank up to date beginning in July 2007. According to this agreement, half of the arrears will be cleared using the domestic resources of Côte d’Ivoire, with the balance being paid by a contribution from the World Bank. The arrangements for clearing arrears with the African Development Bank (AfDB) are under discussion with that institution.

E. Domestic Payment Arrears

12. The items “balances outstanding” (or “amounts payable”) represent government overdue obligations and are defined as expenditures committed (engagées et liquidées) and validated (visées par le contrôleur financier, i.e., subject to payment order) but not yet paid. They include bills due and not paid to public and private enterprises, but exclude domestic debt service (principal and interest). For program purposes domestic payment arrears are considered to be the balances outstanding for which the payment delay exceeds the time frame for payment stipulated by the administrative regulations in force (90 days). The balances outstanding are broken down by payer and type as well as by age and length of overdue period. By way of illustration, balances outstanding totaled CFAF 186,80 billion at end-December 2007 and comprised the following:

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The stock of “amounts payable” pending payment by the regulatory due date will not exceed the equivalent of three months of operating expenses, transfers, subsidies, and investment expenditure financed from own resources. By way of illustration, at end-December 2007, all such expenses amounted to CFAF 763.7 billion, and the equivalent of three months’ expenses was CFAF 190.9 billion.

13. Within the program framework, in 2008, the government will undertake a cash reduction of CFAF 15 billion on the stock of domestic payment arrears outstanding at end-2007 as defined in paragraph 12 (MEFP, Table 1). The government also undertakes not to accumulate new domestic payment arrears from January 1, 2008. Further, it is committed, in consultation with the private sector, to (i) prepare an inventory of the end- 2007 stock of residual domestic arrears to suppliers by end-March 2008; and (ii) adopt a plan to clear these arrears, including a strategy for securitization and for dealing with nonsecuritizable arrears by end-May 2008. Any excess budgetary support above the programmed amount not used to finance a downward adjustment in the government’s basic primary fiscal balance as specified in paragraph 5, will be used to reduce the government’s domestic debt, including payment arrears. Any excess petroleum/gas extraction revenues above the programmed amount not used as specified in paragraph 6 will also be used to reduce the government’s domestic debt, especially arrears.

F. New Nonconcessional External Borrowing

14. The term “external debt” has the meaning set forth in point 9 of the IMF Executive Board Guidelines on Performance Criteria with Respect to Foreign Debt.7 The quantitative indicators relating to nonconcessional external borrowing applies to external debt of any maturity that is contracted or guaranteed by the government, with the exception of normal import-related commercial credits that have a maturity of less than one year. They apply not only to debt as defined above but also to commitments contracted or guaranteed for which no value has been received. These quantitative indicators do not apply to rescheduling arrangements, West African Development Bank (BOAD) loans up to the equivalent of US$30 million, drawings on the Fund, and public offering, through competitive bidding on the West African Economic and Monetary Union (WAEMU) financial market, of CFAF securities registered with the Regional Council for Public Savings and Financial Markets (CREPMF). They do also not apply to a possible bridge loan that could be obtained to cover part of the government’s sharein clearing arrears to the AfDB, in anticipation of expected AfDB budget support; the modalities of such a bridge loan will be agreed upon in consultation with Fund staff.

15. A loan is considered concessional if its grant element is at least 35 percent, the net present value (NPV) of the loan being calculated using a discount rate based on the average of the OECD’s Commercial Interest Reference Rates (CIRRs) over the last 10 years for loans with a maturity of at least 15 years. For loans with a maturity of less than 15 years, the NPV is based on the average of the OECD’s CIRRs of the preceding 6-month period (February 15 to August 14 or August 15 to February 14). The same margins for differing repayment periods are added to both the 10 -year and 6-month averages (0.75 percentage point for repayment periods of less than 15 years, 1 percentage point for 15 to 19 years, 1.15 percentage points for 20 to 29 years, and 1.25 percentage points for 30 years or more).

16. The government undertakes not to contract or guarantee nonconcessional external loans under the conditions defined in paragraphs 14-15, with the exception of loans constituting rescheduling of maturities.

G. Domestic and WAEMU market borrowing

17. Domestic borrowing by the central government is defined as the issuance of all debt instrument in CFAF issued to domestic creditors and the WAEMU financial market, borrowing from the BCEAO (including drawings from the IMF) and the contraction of any kind of other liability in CFAF towards these creditors. The ceiling under the program applies to the net amounts of domestic or WAEMU borrowing defined as the gross amount of domestic/WAEMU borrowing less amortizations during the period under consideration; this ceiling includes a margin of 25 billion CFAF over the net cumulative flows projected for each period. This ceiling does not apply to new agreements on restructuring of domestic debt and of securitization of domestic arrears, or to new project loans from the West African Development Bank (BOAD) (see ¶ 14). In the event that external budget support or external assistance for crisis-related programs will be less that the programmed amounts, the ceiling on domestic/WAEMU borrowing will be adjusted upwards by the difference, up to a maximum of CFAF 30 billion. For any borrowing in excess of CFAF 30 billion, the government will undertake to issue securities through public offering or auctions through the Central Bank of West African States, in consultation with Fund staff.

II. Memorandum Item: Net Bank Credit to Government

18. Net bank credit to government is defined as the difference between government debts and government claims with the central bank and commercial banks. The coverage of net bank credit to government is determined by the BCEAO and is the same as that shown in the net government position (NGP). Except as otherwise stated, government is defined as the central government of Côte d’Ivoire and does not include local governments, the central bank, or any other public body with a separate legal personality. By way of illustration, the amount of credit outstanding totaled CFAF 430.7 billion at December 31, 2007, broken down as follows:

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III. Structural Indicators and Prior Actions

19. The program consists of the structural indicators and prior actions set out in Table 2 of the MEFP.

IV. Program Monitoring and Data Reporting

20. A monthly assessment report on the monitoring of the quantitative structural indicators will be produced by the authorities within one month of each month-end, which will assist with assessing performance in terms of the program’s quantitative and structural objectives.

21. The authorities will inform Fund staff immediately if they sign or guarantee any new foreign borrowing contracts, as well as the terms of such contracts. Data on the amount outstanding, the accumulation, and repayment of the external payment arrears will be submitted monthly within six months from the end of each month.

22. Based on data already reported to the IMF staff, the authorities will prepare, in cooperation with Fund staff, tables on the budget and the energy and coffee/cocoa sectors and send them monthly or quarterly to the IMF starting on February 15, 2008, as follows:

(a) Budget: A quarterly report (within 45 days following the end of each quarter) showing the budget execution position (revenues and expenditures), presenting expenditures classified by type, function, and administration/type at the various stages of the expenditure process (allocation, commitment, payment order, and allocation of charge). The payment stage will be included from end-March 2008.

(b) Energy Sector: The following quarterly tables, (within 45 days following the end of each quarter):

  • - Table 1: Summary of crude oil and gas production and Tables 1(a)-(d): Crude oil and gas production by field. These tables will show clearly actual oil and gas prices; swap conditions, physical hydrocarbon production quantities, and their values before and after swap; tax and nontax revenues for the government; and revenues for PETROCI and the private sector.

  • - Table 2: Volumes, prices, and financial flows. This table will clearly indicate the conditions for sharing between the government, PETROCI, and the private operators, and the resulting financial flows, in particular for the government and PETROCI.

  • - Table 3: Activities of the Société ivoirienne de raffinage (SIR). This table will show (i) the refining sector’s purchases of crude oil by supplier, including purchases originating in Côte d’Ivoire; and (ii) production, consumption, and imports of petroleum products.

  • - Table 4: Activities of the SIR – Transfers to storage facilities and exports.

  • - Table 5: Petroleum products – Government/marketing agent activities, a comparison between supply and sales of the marketing agents.

  • - Table 6: Release for consumption of petroleum products by tax type.

  • - Table 7: Structure of prices of petroleum products, including imported and domestic butane. This table will also include the release for consumption by petroleum product for the current month and the cumulative total for the current year.

  • - Table 8: Summary of the electricity sector, including sector purchases of gas by supplier (including the government); electricity production; prices applicable by voltage and by consumer group; electricity sector revenues; and the sector’s cross arrears and unpaid amounts.

  • - Table 9: Financial flows of the electricity sector asset management company (Société de Gestion du Patrimoine du Secteur Electricité, SOGEPE), both on payment order and cash basis.

(c) Coffee/Cocoa Sector:

- Quarterly information (within 45 days following the end of each quarter)(on the collection and usage of quasi-fiscal levies and the bank account balances for the FDPCC (investment fund), the FRC (prudential reserve), the Rural Investment Fund, and the coffee sector recovery fund;

- Half-yearly information (within 45 days following the end of each semester):

on the collection of quasi-fiscal levies and half-yearly budget execution statements for the operations of the ARCC, the FRC, the BCC, and the FDPCC.

23. The BCEAO will report provisional data on the net government position to Fund staff each month within 30 days of the end of the period under review and will provide final data within 45 days. The information provided will include the complete, itemized listing of public sector liabilities and assets with (i) the BCEAO; (ii) the banking sector; and (iii) the BNI. This will cover

  • the balance of amount received in compensation for toxic wastes;

  • detailed information on all accounts relating to the issuance and payment of interest and amortization of government securities issued on the WAEMU financial market;

  • the statements of the Rural Investment Fund; and

  • the balance of the quasi-fiscal levies from cocoa bags (sacherie).

24. The government will report the information specified in Table 2a monthly within 45 days of month-end unless otherwise indicated. It will report the information specified in Table 2b quarterly, within one month of the end of the quarter.

25. More generally, the authorities will report to the Fund staff any information needed to effectively monitor the program.

Table 1.

Côte d’Ivoire: Social and Reunification Spending, 2005-2008.

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Table 2a.

Câte d’Ivoire: Data Provision for Government Program Monitoring

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Prepared and forwarded monthly (M) within 30 days of the end of the month. Electronic transmission to IMF HQ and IMF Office in Abidjan.

FI: Data file, electronic transmission to IMF HQ and IMF Office in Abidjan. FX: hard copy, transmission to IMF Office in Abidjan (for faxing to IMF staff).

Data on quarterly quantitative indicators specified in MEFP, Table 1

Table 2b.

Câte d’Ivoire: Data Provision for Government Program Monitoring

(Quarterly)

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Preparation and monthly (M) or quarterly (Q) transmission within one month of the end of the quarter. Electronic transmission to IMF HQ and IMF Office in Abidjan.

FI: Data file, electronic transmission to IMF HQ and IMF Office in Abidjan. FX: hard copy, transmission to IMF Office in Abidjan (for faxing to IMF staff).
1

On March 13, 2008, the United Nations security phase was lowered from III to II for most of the country; in certain areas, it was lowered to, or stayed at, phase III.

2

Under current Fund policy, PRGF-eligible countries are eligible for subsidization of the interest rate on EPCA (down to 0.5 percent per year), subject to availability of resources. At end-2007, the Fund’s available subsidy resources for EPCA/ENDA amounted to SDR 25 million. Based on currently known requests for EPCA/ENDA (including SDR 7½ million for Côte d’Ivoire’s EPCA-2), these resources will likely be exhausted by end-2009 if new contributions are not secured by that time. Staff has initiated discussions with potentially interested members on mobilizing additional contributions.

3

These are measures beyond the requirements of the EPCA-supported program.

4

These are measures beyond the requirements of the EPCA-supported program.

5

These are measures beyond the requirements of the EPCA-supported program.

6

As defined in Table 1 to this TMU, based on the budget classification used in the public finance management system (SIGFiP).

7

See “Guidelines on Performance Criteria with Respect to External Debt in Fund Arrangements,” Executive Board Decision N° 6230-(79/140), as amended by Executive Board Decisions No. 11096-(95/100) and No. 12274-(00/85).

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Cover IMF Staff Country Reports
Côte d'Ivoire: Request for Emergency Post -Conflict Assistance: Staff Report; Staff Statement; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Côte d'Ivoire
Author:
International Monetary Fund
Volume/Issue:
Volume 2008: Issue 142
Publisher:
International Monetary Fund
ISBN:
9781451807905
ISSN:
1934-7685
Pages:
96
DOI:
https://doi.org/10.5089/9781451807905.002

Real GDP Growth

(2002=100)

External Current Account

(Percent of GDP)

Cote d’Ivoire: Effective Exchange Rates, Terms of Trade, and Inflation; January 1993-December 2007

Central Government Fiscal Balance

(Percent of GDP)

Monetary Aggregates

Broad money, 2002 = 100