Abstract
Côte d’Ivoire’s request for a Three-Year Arrangement Under the Poverty Reduction and Growth Facility is discussed. Côte d’Ivoire is making progress toward reunification, peace, and elections. Côte d’Ivoire’s economy has been resilient to the global downturn, but there are indications of a slowdown in certain economic activities, such as mining investment and nontraditional exports. The authorities took remedial measures to partly offset the extrabudgetary spending and put in place safeguards against such spending while ensuring full transparency of investment spending and oil revenue.
Statement by Laurean Rutayisire, Executive Director for Côte d’Ivoire March 27, 2009
My Ivoirien authorities are thankful for the fruitful discussions they have held with staff and for the policy advice provided since the conclusion of the first EPCA-supported program in 2007. My authorities would also like to express their gratitude to the Executive Board and Management for the continuous support that has helped the country make inroads towards restoration of the post-conflict economy.
Côte d’Ivoire is at an important juncture. Long time viewed as a dynamic and leading economy in the West African sub-region, the country has paid a huge toll attributing to civil conflict. In addition to the output losses and the deterioration of social conditions, Côte d’Ivoire also experienced disruptions in engagement with the international donor community. This caused a set back for the country to benefit from debt relief.
Under the two successive EPCA programs concluded in 2007 and 2008, my Ivoirien authorities have achieved impressive results in implementing substantial reforms albeit in a fragile socio-political environment and post-conflict situation. As a result of their efforts, the economy has progressively regained, and all factors now indicate that recovery is taking hold. Output growth picked up to 2.3 percent in 2008 against 1.7 percent in 2007. The government achieved primary budget surplus despite huge spending pressures and loss of part of the tax base due to the split of the country, compounded by the food price crisis. Moreover, my authorities made significant debt repayments to multilateral donors. The authorities also implemented structural reforms, some of which with delay taking account of the need for an appropriate pace and sequencing in a fragile social climate.
I. Recent Developments and Performance under the EPCA Programs
Thanks to an improved and stable political situation in 2008, my authorities achieved good results on many fronts. The peace roadmap is proceeding well, the measures of the EPCA-2 were implemented satisfactorily, and the government issued its full PRSP. My authorities also took corrective actions to address public financial management weaknesses, especially regarding the extra-budgetary spending that occurred in 2008. Moreover, my authorities completed all the six prior actions for the 2009 PRGF.
A stable macroeconomic situation and sound fiscal policy
Output regained momentum with 2.3 percent growth recorded in 2008, driven by construction, food production, and telecommunications. Although inflation rose to 9 percent at year-end because of high world food prices and adjustments in domestic petroleum prices in 2008, my authorities are closely monitoring the trend with the view to maintaining inflation within WAEMU convergence targets, and easing pressures on the real effective exchange rate. The external current account improved as a result of favorable cocoa and crude oil prices, which more than offset an increase in food imports.
As regard fiscal policy, my authorities performed well in non-oil revenue collection, thanks to many reforms in the tax and customs administrations, which offset the loss of revenue from the CNW zones. On the expenditure side, global budget allocations were kept in check, while safeguarding social spending. My authorities also took remedial measures to fix the issue of extra-budgetary spending related to the large construction projects in Abidjan and Yamoussoukro. Measures encompassed the reduction of non-essential current spending to secure fiscal targets, as well as the establishment of a new framework to foresee these public works and enhance transparency. Going forward, as evidenced by recent agreement between my authorities and staff and Management, my Ivoirien authorities are committed to fully communicate expenditures on these projects and take the appropriate measures to ensure their being within the budget.
A strong commitment to structural reforms
On the structural front, my Ivoirien authorities have implemented tough reforms amid a fragile environment, in areas of public financial management, banking and finance, cocoa/coffee, and energy. In the public financial management sector, my authorities have significantly corrected past weaknesses. They have restored regular budget operations, ended recourse to treasury advances and stopped costly financing from enterprises since January 2009. Financial control also has been improved. Budget is executed in a more transparent manner, through the automated system of SIGFIP and the information is released to the public via internet. My authorities also launched an audit of the domestically financed crisis-exit spending for the period 2006-08. They also adopted a roadmap for strengthening public procurement, which will separate the regulatory, executive, and control functions. Finally, a public finance reform plan was adopted in February 2009, based on the findings of the PEMFAR technical assistance mission.
In the financial sector, my authorities have made progress in their agenda of building strong banks. Over the six institutions that were posting negative equity at end-June 2008, two turned to positive equity after completing their recapitalization and one is still recapitalizing. For the others, the government has taken temporary measures with the view to making them viable to potential private investors. The audit of BNI and CNCE were completed in 2008, and a plan to address weaknesses is under implementation. The government also adopted a National Microfinance Strategy in October 2008 that will help increase credit opportunities for non-banked populations.
In the sectors of cocoa/coffee and energy, my authorities have furthered their efforts to improve governance and transparency. Quarterly reports on physical and financial flows continue to be published for both sectors. My authorities have continued the gradual reduction in the quasi-fiscal levies and set total levies for the 2008–09 crop season at CFAF 31.3/kg (down from CFAF 46.5/kg in 2007–08), part of which will be entitled for infrastructure investment in rural areas. Regarding the reform of the cocoa/coffee sector, the President recently signed a decree establishing the committee that will develop a new and comprehensive strategy for the sector. In the energy sector, amid a socially charged environment of high food prices, my authorities increased electricity tariffs by 10 percent to reduce the deficit of the sub-sector. To increase transparency, they completed the financial audit of the state oil company (PETROCI), while actively drafting EITI-compliant reports for 2006 and 2007. Moreover, taking advantage of the current favorable environment, my authorities have adopted at end-February 2009, the automatic petroleum pricing mechanism that will become effective beginning April 1, 2009.
A decisive effort of clearing external arrears and servicing debt
Besides actions taken in 2008 to implement the EPCA program and pave the way for further recovery, my authorities have also made impressive effort to clear external debt arrears. In that regard, arrears to the World Bank that constituted a gridlock to normal cooperation for months were cleared in early 2008, followed by a similar effort vis-à-vis the African Development Bank in early 2009, setting the total payments of arrears and debt service to the two institutions since mid-2007 at 3 percent of GDP.
A steady peace building process
My Ivoirien authorities have also achieved noticeable results in the consolidation of peace and the rehabilitation of the social sector. Notably, they have made progress on important steps in the peace process, namely demobilization of ex-combatants, reunification of the two armies, redeployment of government services and civil servants. My authorities are currently working expeditiously on identification and voter registration preceding presidential elections. According to the latest data from the electoral commission, 5.5 million voters have already been registered on an estimated voting population of 8 million. Despite the delay, there is an unyielding consensus among all political leaders and the populations on the need to thoroughly conduct this operation to ensure fair presidential elections expected no later than end-2009. On the social front, my authorities are taking actions to fix the damages caused by the conflict, by rehabilitating basic services, namely in education, health and village water supply infrastructures. Most of government services are working again in rebels-controlled CNW zones where many social related emergency operations are being conducted for the populations.
II. The Medium-Term Agenda: Economic Recovery, Debt Relief and Poverty Reduction
Implementing a bold agenda for economic recovery
Building on the results achieved under the two EPCA programs, my Ivoirien authorities have prepared an economic program for the period 2009–11 whose main objectives are to accelerate the reconstruction of the country and growth, fight against poverty, and make progress toward the MDGs in a reunified country and a climate of durable peace. More specifically, policies emphasize reducing macroeconomic and financial imbalances, attaining debt sustainability, expediting structural reforms, and creating an institutional environment conducive to private sector growth. For the macroeconomic framework, my authorities’ main objectives over the 2009-11 period are: (i) average real GDP growth above 4.2 percent per year; (ii) inflation below 3 percent; (iii) overall budget deficit at around 2 percent of GDP (and a primary basic surplus of 1 percent of GDP or greater); and (iv) external current account deficit (excluding official transfers) not greater than 5 percent of GDP. To attain the growth objective, my authorities project the investment rate to increase from 10.1 percent of GDP in 2008 to 14.9 percent of GDP in 2011.
My authorities are committed to fiscal consolidation starting in 2009. This year, budget targets a primary basic surplus of about 1 percent of GDP, and emphasis is laid on debt sustainability, addressing crisis-exit needs and reduction of domestic arrears. The revenue side measures include tax administration efforts involving strengthening of customs control of oil and petroleum product flows, the effective resumption of tax and customs duty collection in the CNW zones, stepped up efforts against tax fraud and evasion, better control and harmonization of exemption regimes, and the systematic collection of public enterprise dividends. With these policies, my authorities expect an increase in revenues to 19.0 percent of GDP compared to 18.9 percent in 2008. As regards expenditures, the wage bill and nonpriority spending will be contained, subsidies to the electricity sector be reduced and priority given to the social sectors.
The 2009 program also contains a range of structural measures. My authorities will start implementing their ambitious PFM action plan designed with the assistance of the World Bank. A reform of the civil service will also be launched, measures for 2009 including a census of government employees, the introduction of an integrated civil service/payroll system, and the start of the reform of the civil service pension fund (CGRAE). Other structural reforms relate to the strengthening of bank supervision, the enhancement of the microfinance sector, and the restructuring of public financial institutions. In the energy sector, my authorities intend to revise the level and structure of electricity tariffs so as to improve the financial viability of the electricity sub-sector. Cognizant of the key role the private sector will have to play in reconstruction, my authorities’ program also include actions to improve the business climate, including: (i) reform of the Law on Competition, notably to combat noncompetitive practices; (ii) preparation of a reform plan to enhance the efficiency and fairness of the judicial system; (iii) creation of commercial courts and training of judiciary staff in business matters; and (iv) adoption of the law on mandatory enforcement of decisions of Arbitration Boards, thereby expediting the resolution of business disputes and helping to unclog the courts.
Moving expeditiously towards debt relief and poverty reduction
My Ivoirien authorities are strongly committed to implement their poverty reduction strategy with the view to curbing the poverty rate that climbed to 48.9 percent in 2008 compared with 38.4 percent in 2002 and 33.6 percent in 1998. The PRS, drafted with the participation of diverse stakeholders, targets four principal outcomes: (i) re-establishment of the foundations of the Republic; (ii) transformation of Côte d’Ivoire into an emerging economy; (iii) social well-being for all; and (iv) a dynamic actor on the regional and international scene. The government recently set up a Supervisory Committee to monitor the implementation of the PRS, prepare, and publish regular reports.
In line with the main goal of reducing poverty, the government has identified specific budget lines as pro-poor spending, in areas of education, health, rural roads and highways, community-based water supply, rural electrification, rice farming, and security. The budget allocation for the pro-poor spending will increase from 6.9 percent of GDP in 2008 to 7.7 percent, of which 6.0 percent will be for education and health. Furthermore, to achieve universal education by 2015, the Government has prepared the National Plan for the Development of Education and Training (Plan National de Développement de l’Éducation et de la Formation−PNDEF). A similar work has been done for the health sector; the National Health Development Plan (Plan National de Développement Sanitaire−PNDS) for the period 2009–11 aims to improve the population’s access to the health care system while enhancing its effectiveness and efficiency.
Cognizant of the importance of the debt issue, my authorities intend to endeavor concurrently on the HIPC process and the poverty reduction strategy. In that regard, while proceeding with the PRS, the government will give a special attention to the implementation of the triggers set forth for the HIPC floating completion point. It is my authorities’ belief that a quick and bold assistance under the Enhanced HIPC initiative will give a better chance to their economic program to succeed. Accordingly, my authorities would like to request assistance from the donor community.
Conclusion
Since August 2007, my Ivoirien authorities have successfully implemented two EPCA programs built around strong measures and reforms, amid a difficult domestic environment of institutional fragility, crisis-exit needs, and an unfavorable external environment involving exogenous food and oil price shocks, global economic slowdown and a heavy external debt burden. Overall, Côte d’Ivoire has met the performance criteria set forth under the EPCA. Furthermore, my authorities have responded appropriately to correct weaknesses in public financial management. My Ivoirien authorities have also made tremendous effort to clear arrears with development partners. My authorities are also fully aware of the challenges ahead, namely the need to foster growth, reduce poverty, and address the debt issue in a sustainable manner. That is why, after setting the basis for crisis-exit and economic recovery, the country has geared up for a new program with bold medium term objectives and for assistance under the Enhanced HIPC Initiative.
Cognizant of the milestone that would be embodied in a new arrangement with the IMF and the HIPC decision point, my authorities are committed to carry out their medium term policies set forth in the MEFP and the PRSP. In that endeavor, my authorities count on the international financial community to assist Côte d’Ivoire especially through quick and substantial debt relief. This will be key to help the authorities in enhancing their reform efforts to achieve stronger output growth and regaining the leading role the country had in the whole West African economic sub-region. My Ivoirien authorities request the support of the Board for a three-year arrangement under the Poverty Reduction and Growth Facility for the period 2009–11 and the benefit of the decision point debt relief under the Enhanced HIPC Initiative.