My Ivoirien authorities would like to express their appreciation to staff for the fruitful discussions held in Abidjan during their two visits in November 2007 and February 2008. They are in broad agreement with the thrust of the current report of which they have consented to the publication. My authorities also welcome the staff’s appraisal of the recent economic developments and the policy advice on macroeconomic and structural reforms conducive to economic recovery, sustained growth and poverty reduction.

My Ivoirien authorities would also like to express their gratitude to the Executive Board and Management for the continuous support that has helped the country overcome so many challenges over the past years of crisis. The recent trip of the Managing Director in West Africa and his meeting with President Gbagbo in Ouagadougou gave him a firsthand experience on the daunting challenges still facing Côte d’Ivoire as well as on the opportunities peace in this country would represent for the whole sub-region.

In search of economic recovery capable of paving the way for sustainable reconciliation and peace, Côte d’Ivoire has been successfully implementing since August 2007 a program supported by an Emergency Post-Conflict Assistance (EPCA). Under the EPCA, Côte d’Ivoire’s macroeconomic performance continues to be strong, with GDP growth showing resilience to the crisis and financial management and structural sectors displaying noticeable improvements along with the crisis-exit. All quantitative indicators for 2007 were met, except the year-end primary basic surplus that was recorded at 0.6 percent against the 1 percent target. In 2008, the country renewed with a normal budget cycle; this will put an end to treasury advances, resume budget procedures and contribute to improve substantially the public expenditure management. Furthermore, amidst considerable pressure and mounting social demand, my authorities have made considerable efforts to normalize financial relations with multilateral institutions, specifically through the payment of their part in the clearance of arrears to the World Bank (completed at end-February 2008) and to the African Development Bank (expected to occur in April 2008)

Overall, the political process that started with the March 2007 Ouagadougou Accord is proceeding. All actors agreed on a roadmap that set mid-2008 for the presidential elections, albeit they may be pushed to the last quarter of 2008 because of technical difficulties. My Ivoirien authorities view the year 2008 as crucial because it should be the crisis-exit year, and it should also be the year when the country renews with normality and resumes its efforts toward debt relief, development and poverty reduction. In these endeavors, Côte d’Ivoire is counting on the support of the international community, especially the IMF.

In view of the overall satisfactory program performance and their strong commitment to put the country back on track, my Ivoirien authorities request an additional assistance under the IMF’s EPCA program of a further SDR 40.65 million, or the equivalent of 12.5 percent of their quota. This additional assistance will help the government build on the gains made to date and foster its results on the road of peace, reconciliation, economic growth and improved social conditions.

ECONOMIC DEVELOPMENTS UNDER THE EPCA AND CHALLENGES AHEAD

After weakening in 2006, the economy regained its growth momentum in 2007, recording an end-year rate of 1.7 percent. This positive change was driven by the performance in telecommunications, transport, trade, construction and public works, and agro-food. The good performance in these sectors offset the decline in agricultural exports stemming from decline in rainfall in the first half of the year and the sharp fall in oil production due to technical problems on oil fields. Furthermore, GDP growth in 2007 was underpinned by private investment growth that turned positive for the first time since the country fell into conflict in 2002.

With an annual average of 1.9 percent, inflation remained subdued in 2007, albeit the price of a number of essential products – rice, milk, cooking oil, and flour - rose over the last months along with international food prices. My authorities in consultation with the private sector took a number of measures to mitigate the impact of these increases on the consumers, including the suspension of import duties on wheat and the enhancement of the supply of essential foodstuffs.

For the year 2008, my authorities’ program set forth in their MEFP aims at consolidating the results achieved to date in terms of the resilience of the economy to the crisis, a better climate brought about by political stability, an improvement in financial management, and better governance and transparency in managing key sectors. This enabling environment paired with the government’s policies in the fiscal, financial and structural sectors should boost economic growth - projected at 3 percent for 2008 – and help the country face its post-conflict reconstruction challenges.

FISCAL POLICY

The fiscal situation in 2007 was satisfactory thanks to the authorities’ measures to raise revenue and mitigate the adverse effects of the pressing spending needs on public financial management. As a result, all fiscal indicators were in line with the program. As for the composition of spending and the overruns on current spending, my authorities designed corrective measures at year-end 2007 that will certainly bear fruit in 2008. Furthermore, the overall fiscal situation will improve as the country takes further steps towards crisis-exit. Accordingly, the 2008 budget framework targets a primary basic surplus of 0.8 percent of GDP.

The revenue collection in 2007 improved as targeted, because of specific reforms in the tax and customs administration including the extension of the “standardized invoice” to a larger number of activities and the fight against fraud and corruption. This yielded a good performance on value added taxes and corporate taxes, and overall, tax revenue was above target. For 2008, revenue is expected to rise to 19.4 percent of GDP, as a result of tax revenue mobilization in the ex- rebel controlled Center-North-West regions (CNW), improved VAT collection, increased contribution of petroleum products to tax revenue, and a greater contribution of some state-owned enterprises to government revenue.

On the expenditure side, the government made considerable efforts to keep spending under control despite diverse types of demands and pressures. As for the overruns on current spending, my authorities have explained to staff how difficult is the trade-off they continuously face between the financial orthodoxy and the resolution of unanticipated situation that could jeopardize the peace process and generate even higher cost than the current overruns.

Despite this difficult situation, my authorities are committed to good public financial management as shown by their pre-crisis track record. Going forward, their program for 2008 aims at pursuing fiscal consolidation. In early 2008, the government renewed with normal budget cycles; this should put an end to the execution of expenditures through treasury advances that caused slippages in the past. In this budget framework, primary basic spending will amount to 18.6 percent of GDP and will be allocated primarily to post-crisis expenditures, basic infrastructure, and social needs. Along with these key priorities, my authorities intend to keep the wage bill under control with an emphasis on the health and education sectors where shortages of civil servants are the most severe. The resumption of the budget cycle will enable tighter control on number of spending lines including operating outlays by national institutions and subsidies to the electricity sector. As for military spending, the government has decided to pay no further frontline bonuses to the soldiers, except some arrears. Instead, priority will be given to expenditures related to the unification of the army, the reinsertion of ex-combatants in the economic activity, the redeployment of government services throughout the country, the emergency programs, and the preparation of the elections.

MONETARY POLICY AND FINANCIAL SECTOR ISSUES

The new development regarding monetary policy in Côte d’Ivoire and a number of WAEMU countries is the continuous fall of the dollar against the Euro. This situation made the nominal and real effective exchange rates rise slightly in 2007.

As regards the financial sector, the relative dynamism and the increasing competition of the past years should be enhanced with the reopening of additional agencies in the CNW zones. The resumption of the economic activity throughout the whole territory should help the banks lower further the ratio of non-performing loans that improved from 20 percent at end-2006 to 18 percent at end-2007. My authorities pay a special interest to addressing the financial sector issues so as to facilitate credit to the private sector that is crucial in this period of reconstruction. In that regard, under the supervision of the WAEMU Banking Commission, progress has been made in recent months in the recapitalization of four of the nine banks that did not comply with capital adequacy requirements at end-2006. The government will continue to work closely with the Banque Nationale d’Investissement and other partially publicly owned institutions in order to improve their situation and create more access to the SMEs and non-banked populations.

STRUCTURAL REFORMS AND GOVERNANCE ISSUES

Progress has been made on structural reforms and governance issues under the EPCA. The measures related to transparency over budget execution were implemented albeit with delays. Governance and transparency have been improved both in the cocoa/coffee and oil sectors. Two committees comprising senior officials and other stakeholders are overseeing all activities and financial flows in these sectors, and drafting periodical notes for the Cabinet. The Government has reduced the levy on cocoa as planned under the program. In the oil sector, the audit financed by the World Bank has been completed and the Government should draw appropriate policies for the period ahead. Côte d’Ivoire has joined the EITI and compliance with its procedures is advancing.

My authorities have also maintained their commitment to structural reforms by increasing electricity tariffs by 10 percent on average while protecting the vulnerable segments of the population. In addition, my authorities intend to implement the automatic petroleum product price setting mechanism and bring pump prices closer to international prices from the beginning of July 2008. All these policies should help the government save resources and address its financing needs.

My authorities would like to reiterate that they have put good governance at the center of their conduct of public affairs. To this end, they reaffirm their determination to make good governance the thrust of their economic program, notably in the management of public resources and structural reforms.

HIPC AND POVERTY REDUCTION

The five-year conflict has taken a huge toll on social conditions in Côte d’Ivoire. According to World Bank estimates, the incidence of poverty reached 43 percent in 2006, compared to around 33 percent before the conflict. In such a situation, tackling poverty remains the main endeavor for the Ivoirien authorities in the post-conflict era. The country’s PRSP that sets forth the main policies in that regard is scheduled to be completed at the latest by end-September 2008.

CONCLUSION

My Ivoirien authorities are committed to make further inroads towards peace and reconciliation and pave the way for stronger and sustained growth, and poverty reduction. To that aim, they intend to take actions to diversify the economy and create more opportunities for youths. The policies set for the period ahead represent a clear option of creating a conducive environment for unleashing further the growth and employment potential of the economy.

Along with the domestic effort to strengthen the economy, addressing the external debt issue in a sustainable manner remains a big concern for my Ivoirien authorities. They consider that the strong track record they are building under the 2007 and 2008 programs, coupled with their history of good governance before the conflict, as contributing to their efforts to benefit from the debt relief under the HIPC/MDRI initiatives. During the discussions with staff as well as during the meeting between President Gbagbo and the Managing Director, my Ivoirien authorities recalled their expectations for the period ahead: the conclusion of a PRGF and being able to reach the HIPC decision point as soon as possible. They expect the Fund and the international community to help them achieve this goal taking account of their good performance under the EPCA and their efforts to clear arrears to the multilateral financial partners amidst a challenging financial situation inherent to a post-conflict country.

My authorities have achieved commendable results in maintaining an overall macroeconomic stability in a difficult environment. Going forward, my authorities are committed to implementing all the remaining activities of the Ouagadougou Peace Accord that would lead the country to elections, national reconciliation, and complete economic rehabilitation. The continuous assistance of the international community is key in accompanying this momentum. In view of the efforts made at both political and economic management fronts, my authorities will appreciate the Board’s support for an additional assistance under the IMF’s EPCA program.