Côte d'Ivoire
2009 Article IV Consultation, First Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility, Request for Waiver of Nonobservance of Performance Criteria, and Financing Assurances Review

This 2009 Article IV Consultation highlights that Côte d’Ivoire has embarked on comprehensive reform policies to address the challenges of enhancing growth and reducing poverty. It adopted a Poverty Reduction Strategy Paper in February 2009, which covers the seven-year period 2009–15, and aims to transform the country into an emerging economy. The authorities have strengthened fiscal control and the transparency of budget implementation in recent years while making room to increase pro-poor spending. Significant revenue efforts have facilitated an increase in spending for urgent needs.

Abstract

This 2009 Article IV Consultation highlights that Côte d’Ivoire has embarked on comprehensive reform policies to address the challenges of enhancing growth and reducing poverty. It adopted a Poverty Reduction Strategy Paper in February 2009, which covers the seven-year period 2009–15, and aims to transform the country into an emerging economy. The authorities have strengthened fiscal control and the transparency of budget implementation in recent years while making room to increase pro-poor spending. Significant revenue efforts have facilitated an increase in spending for urgent needs.

Introduction

1. Even though the situation remains fragile, after its sociopolitical crisis Côte d’Ivoire is moving toward peace, reunification, and political normalization (MEFP ¶ 1). It has made significant progress in preparing for presidential elections and finalizing the electoral list. Voting was scheduled for end-November 2009 but has now been delayed; a new date is expected to be announced shortly. There has been progress in the administrative reunification of the country through redeployment of government agencies and staff to the Center-North-West (CNW) regions, but the disarmament of former combatants has been very sluggish.

2. The medium-term framework underlying the PRGF arrangement and Côte d’Ivoire’s poverty reduction strategy remains valid (MEFP ¶ 6). The economic recovery is taking hold, and progress has been made in fiscal consolidation, governance, and some structural reforms, although more needs to be done to invigorate private sector activity. Côte d’Ivoire has benefited from significant debt relief, and the authorities aim to reduce the debt stock to sustainable levels at the HIPC completion point.

I. Recent Economic Developments—Emerging from Sociopolitical Crisis, the Economy Strengthens

3. The global crisis is having little impact on Côte d’Ivoire as the economy continues to recover from the protracted internal crisis. Favorable terms of trade since 2007 have supported the recovery of real GDP growth. Growth is projected to accelerate to 3.7 percent in 2009, increasing per capita income for the first time since 1998 (Tables 12). Growth reflects the effect of good rains on agriculture and agroprocessing as well as strong mining, refining, and chemical industry activity. Yet investment has held at about 10 percent of GDP, too low to meet the needs of a growing economy.

Table 1.

Côte d’Ivoire: Selected Economic and Financial Indicators, 2007–14

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Sources: Ivorian 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, 2007–14

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Sources: Ivorian authorities; and IMF staff estimates and projections.
Text Table 1

Côte d’Ivoire: Summary of Key Economic Indicators, 2007–14

(Percent)

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

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

4. After a temporary spike in late 2008, inflation has declined to about 3 percent (MEFP ¶ 6), the target for the West African Economic and Monetary Union (WAEMU). At the end of 2008 inflation reached 9 percent because of high international food and fuel prices. It has since eased with an ample harvest and lower import prices, and in the year through August 2009 consumer prices have declined by 1.8 percent. The automatic fuel price mechanism has been operational since April, and pump prices for fuel are adjusted monthly to track international market developments.

5. Monetary policy is conducted at the regional level. During the internal crisis Côte d’Ivoire’s share in WAEMU financial services declined. The recent Financial Sector Assessment Program (FSAP) mission pointed to vulnerabilities in the Ivorian financial system (see section II.C) that mainly involve locally-owned banks. Credit to the private sector has been expanding strongly since 2006, and double-digit growth is projected for 2009, reflecting large unmet credit demand (Tables 3a-b). Market interest rates in the region increased in late 2008 as governments issued more paper in the regional market to meet their financing needs as export-based revenues fell. Since early 2009 interest rates have been declining as the BCEAO cut its policy rate to limit the regional impact of the global financial crisis.

Table 3a.

Côte d’Ivoire: Monetary Survey, 2005–09

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

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

Including net use of Fund resources before 2009. Excluding use of Fund resources from 2009.

Since (see IMF Country Report No. 08142) end-2007 figures have been revised by the BCEAO to reflect recalculation of Côte d’Ivoire’s share in the WAEMU reserves and currency in circulation.

Table 3b.

Côte d’Ivoire: Summary Accounts of the Central Bank and Commercial Banks, 2005–09

(Billions of CFA francs)

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Sources: BCEAO; and IMF staff estimates and projections.

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).

6. The external current account improved in 2008–09 owing to strong cocoa exports and favorable terms of trade. After a small deficit in 2007 the current account moved into surplus and is projected to reach 2.7 percent of GDP in 2009, aided by a 30 percent increase in cocoa export prices (Table 4). In a climate of continuing political uncertainty and weak confidence, the strong current account performance is expected to feed increased private capital outflows as foreign companies repatriate profits rather than invest and domestic exporters only partially repatriate their proceeds. Also, Côte d’Ivoire’s share in the reserves of WAEMU is expected to rise in 2009.

Table 4.

Côte d’Ivoire: Balance of Payments, 2007–14

(Billions of CFA francs, unless otherwise indicated)

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

7. The government has begun to implement its Poverty Reduction Strategy (PRS). The PRS was adopted in February 2009, and in September the government put in place arrangements to monitor its implementation (MEFP, ¶ 8–13). It is also formulating matrices of priority actions and medium-term programs for various ministries—these are most advanced for the health, education, and judicial systems. The aim is to finalize the costing of some of these plans by year-end so as to identify external donors and domestic sources of financing.

II. Economic Challenges—Moving from Recovery to Sustained Robust Growth and Broader Poverty Reduction

8. Policy discussions for the Article IV consultation focused on the challenges of building growth, reducing poverty, and restoring a sustainable fiscal and external position. Priorities that emerged confirmed the focus of key objectives addressed in the authorities’ medium-term economic program supported by the three-year PRGF arrangement (see IMF Country Report No. 09/133). These priorities informed the discussions, namely to

  • Accelerate the pace of structural reforms to remove impediments to growth and improve the business climate (MEFP ¶ 45–48). Improving cocoa sector productivity, and hence farm incomes, would have a major impact on poverty, which is concentrated in rural households. Restoring the viability of the electricity sector was also viewed as critical. Strengthening the judicial system is vital to encouraging private sector activity and investment.

  • Create fiscal space for pro-poor expenditures and much-needed infrastructure outlays, which had been cut back during the crisis years (MEFP ¶ 35–36). Debt relief and a more sustainable wage bill are essential for managing spending generally and expanding high-priority spending. These elements, together with continued efforts to increase revenue, will be essential ingredients for a sustainable fiscal position over the medium term.

  • Address vulnerabilities in the financial system, including the pensions funds, and define a clear role for the government in the banking system, especially to improve financial intermediation and provide support for domestic investment (MEFP ¶ 40–44).

  • Make further progress on debt restructuring and strengthening competitiveness (MEFP ¶ 19–20 and 45–50). Early attainment of HIPC and MDRI debt relief would have a major impact on external and fiscal sustainability. Building competitiveness is necessary to diversify the economy and reduce the vulnerability of the export base to volatile commodity prices and the projected terms of trade decline over the medium term.

A. Growth and Poverty: The Macroeconomic Framework and Outlook

9. The outlook for 2009–10 tracks the program’s medium-term macro-framework, with sustained real GDP growth, low inflation, and rising investment. Growth should reach 4 percent in 2010 with further political stabilization, rising public and private investment, a return in confidence, and a gradually improving global environment. Inflation should continue at the low WAEMU norm.

10. In the medium term, Côte d’Ivoire’s economy should firm up as confidence returns and structural reforms are undertaken (MEFP ¶ 33). The baseline scenario assumes a gradual recovery in private investment from less than 7 percent of GDP in 2009 to about 9½ percent in 2014 and increased public investment, especially in infrastructure (Table 5). As the sizable output gap gradually narrows and efficiency improves over the medium term,1 average GDP growth of 5 percent is projected. Oil extraction and export agriculture are assumed to grow somewhat less than activities like food agriculture and processing, construction, and services. The external current account balance (excluding grants) is expected to weaken gradually with increased import demand, especially for investment, and by 2014 reach a deficit of 5–6 percent of GDP, which could be financed by foreign direct investment, enhanced donor support, and private capital inflows. Fiscal consolidation should result in a primary surplus of 1¼percent of GDP. Fiscal consolidation, measures to tackle structural impediments to growth, and monetary restraint will contribute to domestic stability as well as to the external stability of the WAEMU.

Table 5.

Côte d’Ivoire: Medium-Term Scenario 2007–14

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Source: IMF staff calculations.

Compared to the baseline, the alternative scenario assumes for 2010 and beyond:

  • (i) 1.5 - 2 percentage points of GDP lower average private investment.

  • (ii) 30 percent lower cocoa production, 20 percent lower oil production.

  • (iii) government expenditures (wage bill, subsidies and capital expenditures) do not adjust to the lower GDP.