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
Author:
International Monetary Fund
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Publication Date:
08 Dec 2009
eISBN:
9781451807967
Language:
English
Keywords:
ISCR; CR; Ivorian authorities; government; PRGF arrangement; Côte d'Ivoire; debt service; debt relief; return on assets; personel management system; Agricultural commodities; Global
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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 1–2). 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.

11. Nonetheless, significant risks remain. The authorities’ track record under two EPCAs and the PRGF arrangement to date was broadly in line with Fund advice under the 2007 Article IV consultation, and the commitment to the program by all political parties in Côte d’Ivoire provides a reasonable basis for continued successful program implementation. An illustrative downside scenario highlights the risks for growth of a too-protracted political normalization, faltering implementation of structural reforms, and a continued lack of confidence. The scenario projects average annual growth of some 2 percentage points lower than in the baseline (Table 5). It assumes a lack of cocoa sector reforms resulting in 30 percent lower output by 2014 compared to the baseline, and 20 percent less oil extraction. These would delay the narrowing of the output gap, so there would be little per capita growth, and would worsen the outlook for public finances, possibly leading to unsustainable deficits. The external current account would deteriorate more abruptly and possibly endanger the aim of reaching external debt sustainability.

B. Competitiveness and the Business Climate

12. Authorities and staff agreed that competitiveness needed to be strengthened. The real effective exchange rate (REER) is still some 15 percent below where it was before the 1994 devaluation of the CFAF. Côte d’Ivoire’s REER appears to be broadly in line with fundamentals, though quantitative estimates of the equilibrium real exchange rate are subject to broad margins of uncertainty and poor data quality. The Ivorian REER closely tracks the WAEMU REER, which, as the last external stability assessment concluded, is generally in line with fundamentals. However, export performance has been held back by the deterioration in the business environment and the inability to sustain structural reforms since the internal crisis began.2 Looking ahead, the projected decline in the terms of trade over the short term would also depress export performance and the current account.

A01ufig01

Relative Prices and Effective Exchange Rates (Index 1994=100) 1994–2009

Citation: IMF Staff Country Reports 2009, 326; 10.5089/9781451807967.002.A001

Source: IMF, Information Notice System (INS).

13. The authorities agreed that the gradual weakening in international competitiveness stems primarily from structural factors. Côte d’Ivoire’s share in world exports continues to decline because its export base is relatively narrow—consisting mainly of cocoa/coffee (44 percent of exports), oil and oil products (16 percent), and timber, lumber, and cotton (15 percent). Worse, the main exports are primary commodities whose international prices are volatile. Structural deficiencies and a poor business environment are the main drags on competitiveness, as mentioned by the mission’s numerous private sector contacts. Also, the World Bank’s survey-based “Doing Business” indicators rank Côte d’Ivoire among the least competitive countries—well below both the sub-Saharan African average and that of the other WAEMU countries: financial intermediation is low, with credit to the private sector amounting to only 13 percent of GDP (the SSA average is 36 percent); and annual foreign direct investment is only 2 percent of GDP. To redress this, the authorities agreed on the crucial importance of structural reforms for re-establishing business confidence and raising investment and growth. In particular, they are preparing a comprehensive reform of the coffee/cocoa sector, the driving force of the economy, in order to improve productivity. They also intend to raise oil production with technology upgrades and build up the traditional rubber, timber, and food-processing industries, which have substantial export potential. These measures are to be supported by judicial reform.

A01ufig02

Market shares in world exports (Index 1994=100)1994–2008

Citation: IMF Staff Country Reports 2009, 326; 10.5089/9781451807967.002.A001

Source: IMF, Direction of Trade.
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Institutional Quality, 2007–08

(lines further away from the center indicate better performance)

Citation: IMF Staff Country Reports 2009, 326; 10.5089/9781451807967.002.A001

Source: World Bank databases.

14. Côte d’Ivoire contributes to regional integration within the WAEMU and ECOWAS, which should promote efficiency in tradable goods production and create new export opportunities. The authorities indicated that a fifth tariff band (35 percent) has been added to the ECOWAS common external tariff, and the products it will cover are being identified (MEFP ¶ 49). Staff noted this with regret, and suggested limiting the products included in the new band, and working towards reducing the rate, and eventually returning to the previous maximum tariff of 20 percent. Discussions with the European Union have resulted in a regional interim Economic Partnership Agreement (EPA) that is to be signed in October. The accompanying development program has been adopted by the countries in the subregion, the support program for regional trade and integration is being implemented, and EPA financing programs are being drafted.

C. Strengthening the Financial Sector

15. The authorities agreed with staff on the need to reduce vulnerabilities in the financial sector, expand access to financial services, and deepen financial intermediation. They also agreed with the major findings of the FSAP, namely that there are pockets of weakness in the banking system, with some locally owned banks faring significantly worse than others; the insurance and pension sectors require major reforms; and the viability of the microfinance sector is fragile (Box 1, Table 6, and Appendix I; MEFP ¶ 38–44).

Table 6.

Côte d’Ivoire: Financial Soundness Indicators for the Banking Sector, 2001–08

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

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

June 2007 estimate.

16. The authorities generally agreed with the FSAP’s main recommendations:

  • Bank solvency and asset quality should be improved and certain banks should be recapitalized but, unlike the recapitalization of three small insolvent banks in 2008 and early 2009 (at a cost of 0.4 percent of GDP), with limited, if any, government intervention.

  • To reduce default risks, loan concentration and connected lending should be reduced and regulations on connected lending should be strictly enforced.

  • The increase in government ownership of banks should be reversed, the role of some government-sponsored banks active in investment and housing finance needs to be better defined, and the postal savings bank’s initial lending as a commercial bank should proceed cautiously and benefit from learning by doing.

  • The stability of the insurance sector and the viability of the pension funds should be significantly improved

  • Urgent action is needed to turn the troubled microfinance sector around.

However, the authorities seriously disagreed with the recommendations on possible liquidation of some troubled banks, the continued existence of which they considered important to reassuring their clientele. They also considered that the postal savings institution (CNCE), in its new role as a commercial bank, has the capacity and expertise to manage lending operations without any special restrictions.

Vulnerabilities in the Financial Sector—Main Findings of the FSAP

The banking sector (19 banks) is relatively liquid and profitable, but the situation of locally-owned banks (5, with 20.7 percent of assets) should be improved. Many locally-owned banks have liquidity levels below the prudential limit (75 percent). Average return on assets and on equity rose in 2008 (reaching 1.6 percent and 16 percent, respectively). The ratio of nonbank revenue to gross proceeds (30 percent) and the interest spread (7 percent) have remained stable since 2001.

Bank solvency and asset quality is uneven. The banking sector’s risk-weighted capital-asset ratio (CAR) was 9¼ percent at end-2008 (but below 8 percent for local banks) and declining, reflecting rapid credit growth and risk taking. The system-wide nonperforming loan ratio stood at 19 percent, with almost half more than 6 months overdue, indicating a need to improve asset quality. The provisioning rate was about 77 percent.

Loan concentration and connected lending is high. At end-2008, the 10 largest borrowers accounted for 22 percent of all loans, and regulatory limits on connected lending were breached in many cases, particularly in banks controlled by local or regional private shareholders.

Government ownership of banks has increased. In 2006–08, the government raised its share in bank capital from 21.5 percent to 28.6 percent to support troubled institutions. The role of partly state-owned BHCI in financing housing and that of the fully state-owned investment finance bank, BNI, are not well-defined. The postal savings institution (CNCE) has just been granted a commercial bank license.

The stability of the insurance sector and the viability of the public pension funds are at risk. The insurance sector suffers from underpricing and difficulty in settling damages, low minimum capital requirements, and lack of strong regulation that facilitates prompt liquidation of failed companies. As for pension funds, both the CNPS (private sector) and the CGRAE (public sector) incur sizable deficits, and recent actuarial studies highlighted the need for urgent reforms.

The microfinance sector is very weak. Overall, it has negative equity.

Stress Tests

Stress tests confirm the segmentation of the banking system and suggest that further bank failures are possible. On credit risks if the largest debtor were to default, the sector’s CAR would drop to 6.9 percent; and if the five largest debtors were to default, it would drop to 4.8 percent. Moreover, if 40 percent of loans to major businesses operating in the cocoa sector were to become nonperforming, the banking sector’s CAR would drop to 2.6 percent. Exposure to exchange risk and liquidity risk is low and interest rate risk limited. However, a combination of a deterioration in the quality of credit, currency depreciation, and a drop in interest rates could lead to negative CAR and many bank failures. The eight banks and one nonbank financial institution that faced problems in 2008 are individually modest in scale but systemically significant in the aggregate (30 percent of total assets).

D. Debt Restructuring and Sustainability

17. Restoring debt sustainability will be the foundation for improved growth prospects and will require continued prudent fiscal policies, debt relief, and concessional donor support (MEFP ¶ 19–20). Côte d’Ivoire has made significant progress in recent years on fiscal prudence and external debt relief. Sizable external debt service arrears to multilateral institutions have been cleared, the HIPC decision point was reached in March 2009, Côte d’Ivoire has benefited from a Paris Club debt restructuring, and it has recently reached preliminary agreement on debt restructuring with the coordination committee of Brady bond holders (Box 2, Tables 7–8). Also, discussions with other external commercial creditors on a restructuring of their claims are ongoing. The normalization of financial relations with external creditors and donors, together with the normalization of the political and social situation in the near future, should unlock access to sizable donor support.

External Debt and Rescheduling

Debt Stock

Côte d’Ivoire’s total external public debt at the end of 2008 is estimated at about US$13.3 billion (61 percent of GDP), of which US$5.0 billion was in arrears (including late and penalty interest). Some 25 percent of this debt is owed to multilateral creditors, 52 percent to Paris Club creditors, 1 percent to non-Paris Club bilateral creditors, and 22 percent is commercial and short-term debt.

Paris Club Rescheduling

Côte d’Ivoire reached the decision point for the enhanced HIPC Initiative in March 2009. In May Paris Club creditors agreed with the Government of Côte d’Ivoire on debt restructuring on Cologne terms, including, on an exceptional basis, post-cut-off date (July 1, 1983) debt, short-term debt, and moratorium interest. Paris Club debt at the end of 2008 was estimated at US$7.0 billion, of which US$3.6 billion was in arrears and 42 percent was granted after the cut-off date. Côte d’Ivoire had previously had a number of Paris Club debt rescheduling agreements, most recently in April 2002 on Lyon terms. The participating creditor countries were Austria, Belgium, Brazil, Canada, France, Germany, Italy, Japan, the Netherlands, Norway, Spain, Switzerland, the United Kingdom, and the United States.

The key terms of this year’s agreement were:

  • Pre-cut-off date debt maturities falling due during the consolidation period (April 1, 2009–March 31, 2012) were rescheduled on Cologne terms.

  • Arrears on pre-cut-off date debt as of March 2009 were rescheduled on Naples terms.

  • Post-cut-off date maturities falling due during the consolidation period were deferred and made payable in seven installments in 2012–18.

  • Arrears on post-cut-off date and short-term debt were deferred, payable on a rising scale September 2009–March 2017.

  • Moratorium interest on the consolidation and deferral was capitalized (deferred) and made payable in seven installments during 2012–18. Interest payments on deferred (capitalized) moratorium interest fall due starting in September 2009.

  • Bilateral implementation agreements are to be signed before December 2009.

Brady Bond Restructuring

On September 28, 2009, the Government of Côte d’Ivoire and the coordination committee of Brady bond holders reached a preliminary agreement on restructuring debt outstanding (including arrears) at the end of 2008 of about $2.8 billion. The Government will offer holders of Brady Bonds to exchange them for a new U.S. dollar-denominated bond, with a discount of 20 percent, a term of 23 years, and six years’ grace. The amortization profile provides for increasing payments over the repayment period. The interest rate increases in two steps from 2.5 percent to 5.75 percent in year four. The exchange will occur no later than March 2010.

Other Commercial Debt

Other external commercial creditors hold three types of instruments (Standard Bank/BNI securitizations, Sphynx 2007–10, and Sphynx 2008–11), each of which are pass-through notes sold to external investors, backed by Ivorian government securities (MEFP ¶ 19). At end-2008, outstanding debt (including arrears) related to these instruments amounted to about $290 million, all of which was due to be repaid during 2009–11. Following previous agreements on rescheduling arrears and outstanding amounts over 2009–11, arrears again began accruing early in 2009 and debt service ceased on all three of these instruments. Recently, the authorities publicly announced their intention to seek to restructure these notes on terms consistent with the Paris Club’s comparability of treatment requirements and with HIPC requirements. The government has engaged financial and legal advisors to assist them in negotiations with creditors.

Table 7.

Côte d’Ivoire: External Debt Oustanding 2006–13

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Sources: Ivorian authorities; and IMF staff estimates and projections.
Table 8.

External Debt Service, 2006–13

(Billions of CFA francs, unless otherwise indicated)

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

18. Nevertheless, the conclusion of the low-income country debt sustainability analysis at the time of the HIPC decision point (see IMF Country Report No. 09/190) is still valid: Côte d’Ivoire is at high risk of debt distress. The macroeconomic assumptions underlying the earlier LIC-DSA are broadly unchanged, though export performance and the fiscal primary surplus in the medium term are slightly stronger. The LIC-DSA also found that debt relief from the HIPC Initiative, the MDRI, and possible bilateral and multilateral debt forgiveness beyond HIPC assistance at the completion point (assumed, for illustrative purposes, to be in 2011) would reduce external debt indicators below the relevant thresholds.

III. Program Discussions

A. Program Performance and Financing Through June 2009

19. Program implementation at the end of June 2009 was broadly on track (MEFP ¶14–16). The authorities met four of the six performance criteria (PC) and missed the others (overall balance and external arrears) by only small margins (Table 9). The deviation on the overall balance reflected a programming error.3 The structural benchmarks were mostly met (Table 10).

Table 9.

Côte d’Ivoire: Performance Criteria (PC) and Indicative targets, PRGF 2009

(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, including of adjusters.

This floor will be adjusted: i/ downward/upward for higher/lower than programmed external project loans; ii/ downward for higher than programmed program loans, iii/ downward for lower than programmed program grants - up to a a ceiling of CFAF 40 billion, iv/ upward for a shortfall in program loans in excess of CFAF 40 billion.

Performance criteria for 2009 (numbers for 2008 are reported for comparison only) on the issuance by the central government of all debt instruments in CFAF to domestic and WAEMU financial markets 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 banks (BOAD, BIDC). If program loans or grants are lower than programmed, the ceiling will be adjusted upwards in the amount of the shortfall, up to a maximum of CFAF 40 billion. The ceiling includes a margin of CFAF 25 billion over the net cumulative flows projected for each period (see TMU).

Continuous performance criterion 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; loans from regional development banks (BOAD and BIDC) of up to CFAF 25 and 20 billion, respectivement; drawings on the Fund; public offerings in CFAF of government debt initially issued to resident of the WAEMU (see TMU).

Continuous performance criterion (see TMU).

Includes pro-poor expenditure, as defined in the classification of the Integrated Financial Management System (SIGFiP); see TMU Table 1.

Net banking system claims on the government represent the difference between government debt and its claims on the central bank and commercial banks as defined in the TMU.

Table 10.

Côte d’Ivoire: Structural Conditionality, 2009

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  • The overall balance was substantially within the corrected program target, and both revenues and expenditures were more than programmed.

  • Revenues exceeded the program by ½ percent of GDP, helped by favorable cocoa exports and oil extraction (Table 11a-b; MEFP ¶ 3, 15). Export duty collection from cocoa was boosted by exceptionally high world prices and late shipments from the 2008/09 crop. Tax revenue from oil was higher than expected reflecting more production and world prices above the budgeted US$50 per barrel; however, the envisaged transfer of dividends from the national oil company was deferred until the second half of the year, thus not activating the adjustor for excess oil revenue. VAT revenue was also healthy, but somewhat inflated by slow credit refunds. These factors more than offset the serious shortfall in import duties caused by lower import volume and prices, administrative problems and strikes, and the unplanned continuation of the import tax exemption for rice.

Table 11a.

Côte d’Ivoire: Central Government Financial Operations, 2007–14 1/

(Billions of CFA francs, unless otherwise indicated)

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Sources: Ivorian 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.

Program andarrear clearance grants in 2009 are below the line.

Based on standard treatment of reschedulable Paris and London Club debt in context of HIPC.

Assume access of 90 percent; 24 percent upon approval, and six equal tranches of 11 percent of quota.

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

Changes in stocks also reflect valuation changes.

Table 11b.

Côte d’Ivoire: Central Government Financial Operations, 2007–14 1/

(Percent of GDP, unless otherwise indicated)

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Sources: Ivorian 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.

Program and arrear clearance grants in 2009 are below the line

Based on standard treatment of reschedulable Paris and London Club debt in context of the HIPC initiative.

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

Changes in stocks also reflect valuation changes

  • Expenditures were also ½ percent of GDP above target owing to overruns on the electricity subsidy and the wage bill (MEFP ¶ 3, 16). Most current expenditure items and investment spending were held within objectives. However, subsidies to cover the deficit of the electricity sector rose with suppliers’ gas prices and exceeded the program objective (by 0.2 percent of GDP), despite an increase in electricity tariffs for most households at the end of 2008. Transfers to some educational and health structures also exceeded the program target (by 0.1 percent of GDP). There was a small wage bill overrun above the indicative target due to early wage payments for a number of public entities. Other current expenditures were above program objectives (by 0.4 percent of GDP), reflecting inter alia compensation of cross-liabilities with suppliers and discretionary presidential spending. Crisis-exit and pro-poor spending was slightly below plans, despite a significant acceleration in outlays since March. Interest savings on foreign debt after Paris Club debt relief were partly absorbed by higher domestic interest costs, as the government had recourse to costly short-term domestic financing (short-term Treasury bills and nonbank financing).

20. The authorities limited spending on large public works (grands travaux) to the budget envelope and moved ahead on transparency, although more slowly than expected (MEFP ¶ 28). The Inter-Ministerial Monitoring Committee approved an audit of the government’s debt to the dominant operator in May 2009 that should be completed before year-end. The first five framework agreements signed with this operator are now being converted to conform to the Public Procurement Code. As the timetable for these projects has been stretched out, the conversion of the other contracts will take longer.

21. While the fiscal deficit was substantially on target, tight domestic liquidity conditions made its financing challenging, especially in the first quarter (MEFP ¶ 4, 18). Because the WAEMU financial market proved tight, the government did not raise the expected amounts of new funds. Thus domestic arrears increased throughout the first quarter. However, the World Bank and IMF disbursements in April and the Paris Club debt restructuring in May eased the financing constraints. Overall, domestic arrears reduction through June exceeded the program. At the same time, however, external debt service arrears were accumulated to multilateral financial institutions owing to a lack of coordination between debt and treasury managers. Measures to ensure better coordination and give priority to external debt service payments have since been introduced, and these external arrears were cleared in September–October 2009.

22. Structural reforms are advancing in revenue administration and public expenditure management, but slowly (Tables 10 and 12; MEFP ¶ 7). Although progress was made in inventorying quasi-fiscal fees levied by ministries (the structural benchmark for June 2009), the work could not be completed because some ministries failed to cooperate. The audit of crisis-exit spending foreseen in the PFM plan has been delayed to year-end. However, reporting on budget execution reporting is better and implementation of the government’s PFM action plan has begun. Treasury advances have been contained.

Table 12.

Côte d’Ivoire: Structural Reforms, 2009–10

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B. The 2009 and 2010 Budgets and Financing

The 2009 fiscal program

23. With budget revenue and expenditure running somewhat ahead of the targets, the authorities now expect the budget deficit for the year to be marginally higher than programmed, in part because some election-related outlays were brought forward into 2009.

  • Revenue should reach 19.6 percent of GDP, an overperformance of 0.6 percent of GDP that arose from both higher oil and cocoa revenues and more forceful collection of VAT and income tax (MEFP ¶ 15).

  • Outlays are projected at 21.7 percent of GDP, an overshooting of 0.7 percent of GDP, due mainly to growing electricity subsidies (to offset losses) and the advancing of payments on the voter registration contract to 2009. The authorities are seeking a lasting solution to the problems of the power sector, including a mix of new investment, renegotiation of input contracts, and tariff adjustments (MEFP ¶ 16).

24. The budget deficit is expected to be fully financed from external debt relief and additional BCEAO funding (Box 3 and MEFP ¶ 50–51), creating room for larger than programmed clearance of domestic payments arrears and a shrinking of the year-end float (MEFP ¶ 18). Interim assistance from multilateral financial institutions and the debt relief granted by the Paris Club is projected to be 20.9 percent of GDP, and the World Bank, AfDB, and the Fund are providing 2.3 percent of GDP in new money.

25. The government obtained additional BCEAO funding in the amount of the general allocation of Special Drawing Rights (SDRs) by the Fund (1.6 percent of GDP) (MEFP ¶ 18). The WAEMU Council of Ministers in August decided that the BCEAO could extend new CFAF credit lines to member states (at 3 percent interest over 10 years with 3 years’ grace) up to the equivalent of the recent general allocation for the purpose of reducing domestic arrears at the end of 2008 by two-thirds; no timeframe was specified for the arrears reduction. The authorities have used the new BCEAO funding in part to substitute for other more expensive forms of regional funding.

The 2010 fiscal program

26. Fiscal prudence is to continue in 2010, with new developments including a decline in cocoa taxation and a winding down of crisis-exit spending (MEFP ¶ 33–36).

  • Revenues are projected to decline by 0.4 percent of GDP in the absence of the oil and cocoa windfalls of 2009 and the programmed reduction in cocoa taxation (MEFP ¶ 34).4 The latter is intended to increase farm incomes and is one of the completion point triggers. The authorities intend to continue their efforts to strengthen revenue administration, including in the CNW. The tax exemptions on rice imports, which were introduced in 2008 on a temporary basis but continued through 2009, will be revoked and the supplementary income tax for reconstruction reintroduced.

  • The authorities expect spending to decline in 2010, but will continue to reallocate resources toward pro-growth and pro-poor spending ((MEFP ¶ 35–36, Box 2). The accumulation of unpaid and unbudgeted wage commitments (about 25 percent of the wage bill) is putting heavy pressure on the wage bill (Figure 2), and the authorities have agreed to design a comprehensive medium-term solution. They have also agreed on the need for early action to limit subsidies to the electricity sector and the civil service pension fund (CGRAE). They intend to freeze large public works spending in nominal terms.

Figure 1.
Figure 1.

Côte d’Ivoire: Selected Macroeconomic Indicators, 2005–10

(Percent of GDP, unless otherwise indicated)

Citation: IMF Staff Country Reports 2009, 326; 10.5089/9781451807967.002.A001

Sources: Ivorian authorities; IMF staff estimates and projections.
Figure 2.
Figure 2.

Côte d’Ivoire: WAEMU, and SSA - Macroeconomic Development and Outlook, 2005–10

(Percent of GDP, unless otherwise indicated)

Citation: IMF Staff Country Reports 2009, 326; 10.5089/9781451807967.002.A001

Sources: WEO; and IMF staff estimates and projections.1/ WAEMU, excluding Côte d’Ivoire.2/ SSA, excluding Nigeria and South Africa.

27. The projected financing gap (3.5 percent of GDP) is expected to be filled mostly by budget support from multilateral financial institutions, more debt relief than initially programmed, and domestic financing (Text Table 2 and Table 13; MEFP ¶ 50–51). The authorities plan to continue to reduce domestic arrears. The amounts to be raised in the regional market are in line with the level of such financing in the past.

Text Table 2.

Côte d’Ivoire: Summary of fiscal operations and Financing, 2008–10

(Percent of GDP)

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

Gap financing in 2008 and projected in 2009 is included in net domestic financing (IMF) and program grants (World Bank).

Table 13.

Côte d’Ivoire: External Financing Requirements, 2006–10

(Billions of CFA francs)

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Sources: Ivorian authorities; IMF staff estimates and projections.

C. Structural Reforms in 2009–10

Public financial management

28. Structural reforms in public finances in the rest of 2009 seek to further improve transparency, the use of public resources, and budget execution (MEFP ¶ 21–32, 37).

  • Rationalizing revenue collections (MEFP Box 3). The authorities intend to complete the inventory of ministries’ administrative fees and budgetize them, along with the quasi-fiscal levies in the cocoa/coffee sector earmarked for investment. VAT credits awaiting reimbursement are to be reduced and capped. Also, the authorities intend to establish a strategy to rationalize tax exemptions.

  • Improving expenditure management and treasury operations (MEFP ¶ 22–23). Implementation of the PFM action plan is to gather momentum. In particular, the interface between the budget execution (SIGFiP) and public accounts (ASTER) software is to be made operational before year-end, along with an application for managing treasury advances.

  • Strengthening the budgetary framework (MEFP ¶ 24). The authorities are preparing to adopt a new functional classification in line with the 2001 Government Finance Statistics Manual, and to harmonize the budgetary framework with other WAEMU member countries. Medium-term expenditure frameworks (MTEF) are being prepared for education and health, to be phased in with the 2011 budget to facilitate the shift toward pro-poor expenditures. The authorities plan to begin developing multiyear budgeting in other ministries in the coming months.

29. Major steps are to be taken to reinforce public procurement (MEFP ¶ 27). The authorities plan to set up a National Procurement Regulation Authority by year-end that would enforce the new Public Procurement Code. Bids to tender for public procurements will be published, and a unified threshold above which contracts must abide by the procurement code is to be established. The remaining framework agreements on large public works are to be converted into contracts that conform with the procurement code.

30. The authorities intend to implement decisive civil service reforms in 2010 (MEFP ¶ 26). Although delayed, the census of civil servants is underway, and an integrated personnel management system is to be set up that covers both civil servants and the police. The government is committed to putting together a sustainable medium-term wage bill strategy (to be discussed during the second PRGF review in early 2010). A new supervisory body is to prepare a plan for restructuring of the Civil Service Pension Fund (CGRAE) before year-end.

31. Further action is needed to strengthen the monitoring and restructuring of public enterprises (MEFP ¶ 27–29). The General Finance Inspectorate (IGF) report on the financial situation of state-owned enterprises is now available, audits of specific firms have started, and more attention is being paid to the collection of dividends. Preparation of a strategy to restructure the sector should be accelerated.

Financial sector reform

32. Building on the recommendations of the FSAP the authorities aim to reduce vulnerabilities and clarify the government’s role in the financial system (MEFP ¶ 38–44). A broader assessment of technical assistance needs is planned for early 2010.

  • The authorities intend to strengthen the prudential and supervisory framework (adoption of amendments to the banking law and the law on combating the financing of terrorism, and support for the work of the Banking Commission) (MEFP ¶ 41).

  • They have taken steps to enforce minimum capital requirements, monitor carefully those banks subject to Banking Commission injunctions, and restructure and recapitalize commercial banks in distress, but without injection of budgetary resources (MEFP ¶ 40).

  • A feasibility study is planned to define the role of BHCI, the social housing bank, in housing finance (MEFP ¶ 40).

  • The authorities are requesting technical assistance from the World Bank on rehabilitating microfinance institutions (MEFP ¶ 42–43).

  • The authorities intend to prepare a Financial Sector Development Strategy (FSDS) that would define a reduced role of the state in the financial sector, and have initiated a request to Financial Sector Reform and Strengthening (FIRST) Initiative to finance technical assistance for this purpose.

  • They have requested technical assistance in public debt management.

  • To improve regional liquidity management, the government intends to better plan its issuance of securities in the regional market and coordinate monthly with other WAEMU members (MEFP ¶ 38–39). It will also seek the restructuring of arrears on the consolidated statutory overdraft from the BCEAO.

other structural reforms

33. The authorities also aim to enhance the efficiency of the economy and improve the business climate (MEFP ¶ 45–49). They agreed on the urgent need for action, but also cited constraints in the current political climate. Nonetheless, recognizing the slow progress in implementing their reform agenda in the first half of 2009, the authorities committed to complete a number of actions by year-end, especially in the areas of transparency (submitting 2006–07 EITI reports; auditing a number of public enterprises) and in preparing reforms of the electricity sector, pension funds, and the judicial system (Table 12).

34. Reform plans for 2010 are vital to improve the business climate and productivity (MEFP ¶ 46–48). They cover the cocoa and energy sectors and the judicial system.

  • The authorities recognize that the cocoa/coffee sector is a driver of growth and the reduction of rural poverty (MEFP ¶ 47). While the interim administration in 2008 improved transparency, the government is now designing a more effective and transparent institutional and regulatory framework for the sector with support from the World Bank. To increase farm incentives and incomes, cocoa taxation will be further reduced and the registration and single export duties will be consolidated into a single ad valorem tax for the 2010–11 crop year.

  • Crucial for robust growth will be restoration of the financial viability of the electricity sector (MEFP ¶ 48). The authorities intend to address immediate financing needs based on discussions with all stakeholders and to advance the restructuring of the sector to limit operating deficits and generate adequate resources for much-needed investment in generation capacity and transmission.

  • The judicial system reform program includes adoption of the law on mandatory enforcement of decisions of the Arbitrations Board to help unclog the regular courts (MEFP ¶ 46 and Box 7). Also, the authorities plan to set up commercial courts and train judiciary staff in commercial matters, and more broadly to enhance the efficiency and fairness of the judicial system.

IV. Program Monitoring

35. The authorities request for two waivers of performance criteria (PCs) and propose slight program modifications. The deviation from the PC on the overall fiscal balance reflected a programming error in constructing the quarterly targets for the wage bill (Table 9); the seasonal factors used in deriving the quarterly targets have been revised and agreed between the authorities and the staff. The accumulation of new external debt service arrears to multilateral financial institutions was the result of inadequate internal communications between debt and treasury managers. The arrears have been cleared and internal coordination improved through weekly meetings, and priority is to be given to the payment of debt service falling due.5 The authorities request minor modifications to the definition of the PC on the overall fiscal balance and treasury advances (indicative target), and a more extensive reformulation of the PC on the accumulation of new external arrears, which is intended to tighten the original definition of the PCs (see supplement to the Technical Memorandum of Understanding). These changes would take effect with the approval of this review.

36. Regarding the Financing Assurances Review, the authorities have made significant progress in clearing external arrears and assuring full financing of the program. They have regularized relations with multilateral creditors, despite modest temporary arrears to some. A comprehensive Paris Club rescheduling agreement was reached in May 2009, and the authorities are pursuing discussions with other official bilateral creditors. A preliminary debt restructuring agreement was reached in September 2009 with the coordination committee of Brady bond holders. The government is committed to engaging in collaborative discussions with its other external commercial creditors with a view to reaching an agreement through an open and transparent dialogue based on the principle of inter-creditor equity.6 Staff believes that the government’s strategy is consistent with the “good faith” criterion of the Fund’s lending into arrears policy.

37. The authorities have made progress so far in 2009 on structural reforms in line with program objectives (and met or partially met the structural benchmarks), though at a pace slower than envisaged earlier. The focus to date was on revenue administration and public expenditure management, and these areas will remain important in the period ahead. The second PRGF review will concentrate on progress regarding the year-end structural benchmarks in these areas (Table 10 and MEFP Table 3), and will set benchmarks for 2010. Progress in other areas (the business climate, competitiveness, reforms in the cocoa/coffee, electricity and financial sectors, and the judicial system) will also be assessed. In addition, the implementation of the PRSP will be reviewed.

V. Staff Appraisal

38. Côte d’Ivoire’s economy has been resilient to the global economic crisis, and growth has strengthened as the political normalization and reunification of the country nears completion. The domestic recovery from the prolonged crisis has been helped by favorable terms of trade, especially with respect to exports of cocoa, an industry that is the source of livelihood of a large part of the rural population. The temporary spike in inflation in 2008 stemming from the high cost of food and fuel imports subsided quickly in 2009 as international prices eased and ample rainfall resulted in strong growth in agriculture and related processing. Higher growth and lower inflation have helped to arrest the severe deterioration in social indicators that occurred during the crisis. At the same time, the country’s external position has strengthened and regularization and eventual reduction of its external debt to sustainable levels is underway. The REER appears to be broadly in line with fundamentals, but structural reforms are badly needed to strengthen competitiveness and improve the business climate.

39. The authorities have significantly strengthened macroeconomic management. Their efforts began in 2007–08 with the support of two EPCAs and continued with the adoption of the PRSP in early 2009 and the design of the medium-term program that is supported by the PRGF arrangement. Despite setbacks and the need for continued, perhaps even stronger, efforts, the authorities have improved the fiscal position and public financial management and begun to embark on much-needed structural reforms.

40. Côte d’Ivoire’s performance in the first six months of the PRGF-supported program was satisfactory. The government achieved a primary budget surplus and cleared arrears to multilaterals while restructuring its debt to Paris Club and, on a preliminary basis, London Club creditors; discussions with remaining external commercial creditors continue. Structural reforms have made some advances, though more slowly than planned, but deployment of the poverty reduction strategy has as yet been more institutional than substantive.

41. The overall fiscal outcome substantially met the targets. The authorities are making commendable sustained efforts to redeploy tax administration in the CNW, mobilize non-oil revenue, increase pro-poor expenditure, clear domestic arrears, and improve fiscal transparency. The authorities share the staff’s concerns about the large contingent wage commitments accumulated over the years and the unsustainable deficits in the electricity sector and the pension funds. These take a major toll on any fiscal space arising from reforms, political normalization, or economic growth, at the expense of urgent reconstruction and social needs.

42. Staff regrets the accumulation of external arrears to multilateral creditors. However, staff supports the authorities’ request for two waivers of the PCs on the overall fiscal balance and the injunction against new external arrears in light of the strong corrective actions undertaken, which are designed to prevent a recurrence.

43. In the year ahead, the authorities need to press ahead with their plans to improve public resource management. They include continued fiscal consolidation and civil service reform, which is critical for long-term fiscal and debt sustainability. Also, the authorities should continue to make public spending more transparent, especially for large public works, in conformity with the Public Procurement Code. Staff supports the authorities’ intention to continue to reorient spending to areas critical for poverty reduction, social reconciliation, and peace, as well as much-needed investment in infrastructure.

44. Staff supports the structural reforms in other macro-critical areas as outlined in the PRSP. These need to be accelerated because they are key to promoting growth and reducing poverty, as well as to addressing medium-term challenges of improving the business climate, attracting investors, and strengthening competitiveness in light of the projected deterioration in the terms of trade. The reforms include, in the cocoa/coffee sector, the further reduction of taxation of farmers while improving general tax administration to offset the related revenue loss. In the energy sector, the authorities are encouraged to move urgently on the electricity sector deficit and to improve transparency in conformity with EITI procedures. In the financial sector, the authorities should address the serious vulnerabilities identified by the 2009 FSAP: decline of bank solvency, undercapitalized small local banks, and near-insolvent major microfinance networks. The authorities should also support the Banking Commission in ensuring bank compliance with prudential norms. No further public resources should be used to support nonsystemic troubled banks subject to Banking Commission injunctions.

45. Staff welcomes the progress made by the authorities in normalizing financial relations with external creditors. Their good faith efforts to achieve a restructuring consistent with the Paris Club’s comparability of treatment requirements and with the principle of intercreditor equity should be continued in order to restore a sustainable debt position and normal relations with creditors. While Côte d’Ivoire remains at high risk of debt distress, prospective debt relief at and after the HIPC completion point, together with a continued prudent borrowing policy, would be able to reduce Côte d’Ivoire’s debt to sustainable levels over the medium term.

46. Implementation of the envisaged macroeconomic policies should contribute to both domestic stability and the external stability of the WAEMU, and over time also help Côte d’Ivoire to comply with the WAEMU convergence criteria.

47. The risks to the program appear manageable. Strong ownership of the program by the current government and all presidential candidates is critical. The risk from persistent governance problems should be reduced by structural reforms that lead to greater transparency and accountability. The risk from fiscal slippages should be reduced by determined implementation of PFM and sectoral reforms that facilitate reduction in subsidies and better control of the wage bill.

48. On the basis of the authorities’ record so far and their commitment to determined implementation of their program, staff recommends completion of the first review of the PRGF arrangement and of the financing assurances review.

49. It is proposed that during the PRGF arrangement Côte d’Ivoire move to a 24–month Article IV consultation cycle in accordance with the decision on consultation cycles approved on July 15, 2002.

Table 14.

Côte d’Ivoire: Indicators of Capacity to Repay the Fund, 2008–19

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Sources: IMF staff estimates and projections.

No temporary interest relief assumed pending receipt of required consents to the LIC reforms from lenders and contributors to the PRGF-ESF Trust.

Assuming PRGF disbursement of the entire amount of SDR 373.98 millions (115 percent of quota).

Total debt service includes IMF repurchases and repayments.

Table 15.

Côte d’Ivoire: Proposed Schedule of Disbursements and Timing of Reviews Under PRGF Arrangement (SDR millions), 2009–12

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Table 16.

Côte d’Ivoire: Millennium Development Goals

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Source: World Bank, 2008, World Development Indicators database

Annex 1. Côte d’Ivoire: Financial Stability Diagnostic and Assessment Matrix

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Appendix—Letter of Intent

Abidjan, November 4, 2009

Mr. Dominique Strauss-Kahn

Managing Director

International Monetary Fund

Washington DC, 20431

Dear Mr. Strauss Kahn:

1. Côte d’Ivoire is making progress towards the complete normalization of its sociopolitical and economic situation. Advances in the crisis-exit process, through the implementation of the Ouagadougou Political Accord, are expected to lead to the holding of the first round of presidential elections on November 29, 2009.

2. The government is implementing its economic program supported under the Poverty Reduction and Growth Facility (PRGF) and its poverty reduction strategy in the context of the HIPC Initiative. Budget execution is consistent with the framework for rehabilitation of public finance management, through the implementation of the action plan resulting from the Public Expenditure Management and Financial Accountability Review (PEMFAR).

3. With regard to execution of the 2009 budget, efforts to raise revenues and bring expenditures under control have resulted in a primary basic surplus in the first half. Revenue performance was good despite shortfalls related to the suspension of customs duties and the rice development tax. Substantial efforts have been undertaken to bring expenditures under control. However, the subsidy to the electricity sector exceeded the end-June objective. Execution of the large public construction projects is under control, and the government expects remain within the planned CFAF 40 billion envelope while following the institutional framework established in the context of the program to monitor these projects. No extrabudgetary spending was undertaken.

4. The overall fiscal balance in the first half of 2009 was under control and the Government intends to pursue its efforts to reach the objectives for the year. After application of the program adjusters and a technical correction, the fiscal balance at end-June was better than programmed due to the overall good revenue performance and control of expenditure.

5. Progress has been made with regard to structural reforms, despite some delays. Implementation of the structural reforms continued with special emphasis on revenue collection through efforts against fraud, and the collection of taxes, duties, and fees in the central, northern, and western zones. Since April 2009, the government has been implementing the automatic petroleum product pricing mechanism.

6. The government has also further normalized relations with its international partners. The discussions have, in some cases, led to the restructuring of outstanding debt. With respect to the Paris Club, a restructuring agreement has been signed and Côte d’Ivoire received exceptional treatment. Discussions with the Private Creditors Coordination Committee (London Club) were concluded with the signature of a preliminary agreement, and debt restructuring discussions with other commercial creditors were begun.

7. The government has begun to implement the Poverty Reduction Strategy Paper (PRSP) and the PRSP monitoring framework has been adopted. Priority action matrixes and sectoral action plans were designed through wide-ranging consultation with sector stakeholders, figures for which will be included in the preparation of multiyear budgets.

8. There is a strong national consensus in favor of implementing the program supported under the Poverty Reduction and Growth Facility (PRGF), and reaching the completion point under the Heavily Indebted Poor Countries Enhanced Heavily Indebted Poor Countries (HIPC) Initiative as soon as possible. The government requests two waivers of the performance criteria: on the overall fiscal balance at end-June and the accumulation of new external arrears, and seeks completion of the first program review. Moreover, for technical reasons we request changes in the three program definitions (the overall fiscal balance, accumulation of new external arrears with respect to certain multilateral creditors, and treasury advances) to take effect with the completion of the first program review.

9. The attached Memorandum of Economic and Financial Policies (MEFP) describes progress made under the economic program for 2009, as well as the objectives for 2009 and 2010. A supplement to the Technical Memorandum of Understanding (TMU) of March 13, 2009 is also included. In connection with the completion of the first program review, the government requests assistance in the amount of SDR 35.772 million from the IMF under the PRGF, i.e. 11% of quota.

10. Implementation of the program for 2009 is expected to be broadly satisfactory. The 2010 budget will press ahead with the objectives of the 2009 budget so as to consolidate the economic recovery and reduce poverty. The 2010 program is designed to achieve real GDP growth of 4 percent; stabilize the annual inflation rate at 3 percent; and slightly increase the overall budget deficit as a percentage of GDP, owing to the increase in social and investment expenditure. Furthermore, revenue collection efforts will be redoubled. The government will do its best assiduously to implement the PRSP measures and the completion point triggers under the HIPC Initiative as soon as possible.

11. The government is firmly committed to make progress in improving governance and to undertake in-depth structural reforms. The government will strengthen its efforts to achieve efficiency and transparency in public resource management, within the budget and in the coffee/cocoa and energy sectors. The program envisages the implementation of major reforms of the civil service, the social security system and the financial sector.

12. The government believes that the policies and measures set forth in this Memorandum are adequate for attaining the program objectives. The government will adopt any other additional measures that it may deem necessary. The government will consult with IMF staff, whether on its own initiative or at the request of the IMF Managing Director, prior to the adoption of such measures, or in the event of changes to the policies set forth in this Memorandum. The government will provide the IMF with such information as IMF staff may request regarding progress achieved in implementing the economic and financial policies and in attaining the program objectives.

13. The Ivorian authorities consent to the release to the public of this Letter of Intent, the attached MEFP, and the attached Technical Memorandum of Understanding (TMU), as well as the IMF staff report relating to the request for the first review of the PRGF arrangement. We hereby authorize their publication and inclusion on the IMF website, following completion of the review by the IMF Executive Board.

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Attachment I—Cote d’Ivoire: Supplement to the Memorandum of Economic and Financial Policies

November 2, 2009

This supplement describes implementation of the 2009 economic program set out in the memorandum of March 13, 2009 and presents the main outline of the 2010 program.

I. Introduction

1. Côte d’Ivoire is moving towards full normalization of its social, political and economic situation. Progress in the crisis-exit process, through the implementation of the Ouagadougou Political Accords, is expected to lead to holding the first round of the presidential elections on November 29, 2009. Voter registration began in September 2008 and was completed on June 30, 2009. It covered 75.49 percent of the target population, registering 6.5 million people. After verification of the electoral list by cross-checking data from the registration with historical files, it should be possible to publish the list in October, 2009 and begin organizing the first round of the presidential election. In addition, with a view to consolidating the peace, 8000 mixed staff from the Integrated Command Center (CCI) comprising the defense and security forces (FDS) and the armed forces of the New Forces (FAFN) are being redeployed to ensure the safe conduct of the elections. Furthermore, tax offices are being gradually redeployed throughout the country, expanding activities to cover all taxes and duties. In this regard, the Bouaké Regional Tax Administration and One Stop Shop Automobile Customs Office commenced operations in May 2009. A final solution has been found to the military issues that, to some extent, were holding up the peace process. Demobilization of FAFN ex-combatants has effectively commenced.

2. The government is implementing its economic program supported by the Poverty Reduction and Growth Facility (PRGF) and its poverty reduction strategy in the context the HIPC Initiative. Budget management is set within in the framework for rehabilitating public finances and transparency through the implementation of the action plan resulting from the Public Expenditure Management and Financial Accountability Review (PEMFAR) and the publication of quarterly reports on budget execution to the Council of Ministers.

3. For the first half of 2009, total revenue excluding grants for clearance of external arrears performed well despite shortfalls resulting from the suspension of customs duties and the development tax on rice (CFAF 14 billion at end-June 2009). Considerable efforts have been made to control spending. However, subsidies to the electricity sector overran the target by CFAF 19 billion, despite the tariff increase adopted in December 2008, with effect in 2009. Other current expenditures (including social spending, toxic waste, and share participation) overran the target by CFAF 20 billion, mainly because of the settlement through compensation of cross-liabilities of the government and electricity and telephone sectors.

4. The overall fiscal deficit excluding grants for clearance of external arrears amounted to FCAF 56.1 billion compared to a target (adjusted and corrected) of CFAF 72.5 billion. For the year 2009, revenue and expenditure projections, based on end-July data, forecast a fiscal deficit (excluding grants for clearance of external arrears) of CFAF 149.8 billion.

5. The 2010 budget goals are based on the assumptions of the 2010 macroeconomic and budgetary frameworks. They target real GDP growth of 4 percent, consumer price inflation (IHPC) of 3 percent, and an overall budget deficit (including grants, except for external arrears reduction) of 1.6 percent of GDP. The government will apply itself assiduously to fulfill the completion point triggers under the HIPC Initiative as soon as possible. In order to attain these macroeconomic goals, the government will continue the budget reforms initiated under the PEMFAR program, and reforms in the main sectors of the economy and in public administration.

II. recent economic developments

6. So far, the Ivorian economy has withstood the global crisis and economic recovery is well under way. Despite the general downturn in global economic activity following the international crisis, the goal of GDP growth of 3.7 percent by the end of December 2009 is still attainable, based on data at end-June 2009. This outcome will depend on the resumption of financial relations with international partners, prudent budgetary policy, significant progress in the reunification of the country and the peace process, and good performance in the primary (+5.9 percent) and tertiary sectors (+3.6 percent), particularly mining, food agriculture, transport and telecommunications. Export agriculture has stagnated. A disease affecting the orchards has slowed growth in the volume of cocoa production. Similarly, structural problems have limited cotton and coffee production. The external current account improved, thanks to the strong performance of cocoa and crude oil prices and the reduction in prices of food imports. After a sharp increase at the beginning of the year, inflation has abated. On a year-on-year basis, inflation eased and was negative 1.8 percent at end-August, reflecting the reduction in international and national food prices and favorable climatic conditions. On an average annual basis over the same period, inflation was 3.1 percent, close to the WAEMU norm of 3 percent. The real exchange rate appreciated as a result of a temporary increase in inflation.

7. Progress has been made in the area of structural reform. Implementation of structural reforms has continued with a particular emphasis on revenue mobilization, through anti-fraud efforts and collection of taxes and duties in the former Center-North-West (CNW) zones. In addition, since April 2009, the government has been implementing the automatic petroleum pricing mechanism adopted in February 2009. Lastly, reports on budget execution and on physical and financial flows in the energy and coffee/cocoa sectors continue to be published regularly.

The main reforms undertaken are summarized as follows:

  • Since April 14, 2009, pump prices of petroleum products have been set using the automatic pricing mechanism, based on import price parity, adopted by the government on February 27, 2009. In addition, the level of government debt to the refinery (SIR) was established by an agreement. A repayment mechanism was adopted and is being implemented in the context of the automatic pricing mechanism. The government has stepped up efforts to combat fraud involving petroleum products, including through chemical marking of liquid products.

  • In the coffee/cocoa sector, the government has created a Management Committee and a Reform Committee, which are to propose a new operational framework for the sector. With the aim of ensuring a more remunerative price for producers, the government has reduced the registration duty to 5 percent effective with the 2009/2010 crop season, compared with 10 percent in 2008/2009. Similarly, the single export duty (DUS) was reduced to CFAF 210/kg, compared with CFAF 220/kg. In line with its commitment, the government has continued to review in the Council of Ministers and to publish quarterly information on the collection and use of parafiscal levies in the coffee/cocoa sector. The end-June 2009 report included the status of resources allocated for the operations of the Management Committee.

  • The government has conducted a Financial Sector Assessment Program (FASP), in cooperation with the International Monetary Fund and the World Bank. It is committed to implementing recommendations endorsed by consensus among the FSAP parties. The government continues to monitor carefully banks that have been the subject of Banking Commission orders.

  • In the context of improving the transparency of public enterprise management, the government has stepped up the oversight missions of the Participations and Privatization Directorate and of the General Finance Inspectorate. In this context, the audits of public enterprises that began in 2008 are continuing. Short-list tenders have been held to choose firms to audit ten (10) public enterprises and spending on the crisis-exit program. These audits began in September 2009.

  • As regards administrative reform, a census of civil servants is being finalized and should make it possible to set up a “single reference file” at the beginning of 2010.

III. social policies and prsp implementation

8. Implementation of the PRSP got off to a slow start. Implementation started in 2009 with an increase in pro-poor spending, which at the end-June amounted to CFAF 390 billion (about 3.6 percent of GDP). This spending will rise in 2010.

9. The preparation of medium-term expenditure frameworks (MTEF) for education and health is under way. In the context of PRSP implementation, extensive consultation with sector stakeholders resulted in the specification of priority action matrices and action plans. The costing of these needs and corresponding resource allocations will be issued by the Supervisory Committee before year-end. These will serve as inputs to future medium-term expenditure frameworks (MTEF), which should be finalized by year-end for the Ministries of Education and Health.

10. As regards education, based on the Status Report on the National Education System (RESEN), the government plans to increase the number of teachers and classes (at a rate exceeding the growth of the school-age population) in order to reduce class size (from 55 on average in 2009) and is considering an expansion of training capacity. In addition, a special effort will be made to ensure, as of the fourth quarter of 2009, that the needs of school feeding programs are covered throughout the country as well as related infrastructure.

11. With regard to health, the government has prepared the second National Health Development Plan (PNDS) for 2009–11. The goal is to improve the population’s access to the health care system while enhancing its effectiveness and efficiency. To this end, the government will progressively rehabilitate and construct the health system infrastructure, particularly rural health care centers, and improve access to essential drugs in line with the PRSP program. By end-2009, the arrears owed by the Public Health Pharmacy (PSP) to drug suppliers will be paid in full. Actions will be taken to improve its operations.

12. The PRSP monitoring framework has been adopted. The PRSP institutional steering arrangements have been put in place. They consist of three main entities:

  • The National Steering Committee (CNP), which is the decision-making body for monitoring of the poverty reduction strategy (PRS), is chaired by the Prime Minister. It is responsible for: (i) adjusting/correcting the PRS’ strategic orientation, while ensuring consistency with sectoral policies; (ii) examining and approving the annual PRS implementation plan; (iii) ratifying the annual PRS budget; (iv) approving the annual monitoring report on PRS implementation; and (v) will be the final decision-maker as needed.

  • The National Supervisory Committee (CNS) supervises the activities of the Permanent Technical Secretariat Monitoring the PRS (STP-SRP), prepares the decisions of the Steering Committee and provides a framework for intersectoral dialogue. Its task is to: (i) examine the annual PRS implementation plan prepared by the STP; (ii) examine the PRS annual budget; (iii) approve the PRS work plan and budget; (iv) examine the annual monitoring report on PRS implementation; and (v) make the necessary technical and operational decisions in order to ensure consistency between sectoral plans and PRS measures.

  • The Permanent Technical Secretariat Monitoring the PRS (STP-SRP) is the operational technical unit for monitoring/evaluating implementation, and reports to the CNS. It spearheads the participatory process of PRS coordination between stakeholders, to which it can provide technical support. It is also responsible for monitoring and analyzing the consistency between sectoral policies and the PRS.

13. The adoption of the institutional framework in August 2009 opens the way for substantial oversight. It will include the validation of the priority action matrices and action plans for multi-year program budgeting (MTEF) and for the organization of a meeting with development partners to mobilize complementary resources. Developments in PRSP implementation will be covered in a report at end-2009.

IV. implementation of the prgf-supported program in 2009 and outlook for 2010

A. Budgetary policy and budget execution in 2009

14. The overall fiscal balance for the first half of the year was better than expected and augurs well for controlled budget execution for the rest of the year. Revenue exceeded the target by 1/2 percent of GDP and, in line with the program, this surplus will make it possible to increase social and priority spending while also meeting the annual fiscal balance goal.

15. The good performance of government revenue masks contrasting outcomes on tax and customs revenue. In the first half of 2009, tax revenue was greater than expected due to: (i) strong collection of the main taxes, VAT, payroll taxes, profit tax and coffee/cocoa registration taxes, which were higher than in the first half of 2008; (ii) higher petroleum production; (iii) maintaining the cocoa export registration tax at 10 percent until the end of the 2008/09 crop season; and (iv) progress made in tax administration reforms. This tax revenue surplus should amount to 1.2 per cent of GDP at the end of the year. However, it should be noted that at end-June accumulated unpaid VAT credits amounted to 0.2 percent of GDP. Customs revenue, on the other hand, fell short by 0.6 percent of GDP in the first half of the year. This shortfall should be reduced to 0.3 percent of GDP by the end of the year. The weak performance is mainly due to the drop in imports of general goods, the continued exemption of rice from customs duties, and certain administrative problems (dockers’ strike and revisions to the Import Recording Form) that were subsequently resolved (Box 1).

Revenue Measures for 2009

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16. Expenditure composition improved but there is still room for improvement. Spending in the first half of the year exceeded the program target by 0.7 percent of GDP and will continue to do so through the end of the year. As regards current expenditure, the wage bill will be on target, despite mid-year deviations. The subsidy to the electricity sector, through partial relinquishment of gas revenue, exceeded the target by 0.2 percent of GDP for the first half of the year, and should exceed the budget target for 2009 by 0.3 percent of GDP, because of the delay in adopting the necessary measures to restore equilibrium in the sector. Investment expenditure was below target during the first half of the year but should accelerate in the second half, as is generally the case. The implementation of large public works is under control and the government intends to respect the budget envelope of CFAF 40 billion, while complying with the institutional arrangements set up for the monitoring program of these works. There has been no extrabudgetary spending. Fiscal efforts to combat poverty are well under way. To this end, pro-poor spending, which is much higher than in 2008, will meet the program target for the year as a whole, despite some underperformance at mid-year.

Evolution of Pro-Poor Spending

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17. The 2009 program will be fully financed and will reflect progress in reducing domestic arrears and in clearing arrears with external creditors. The government has made efforts to significantly reduce domestic arrears and amounts payable (restes a payer) of the Treasury and has made notable progress in negotiations with external creditors.

18. Domestic/regional financing

  • The government has reduced its debt to the private sector, so as to stimulate economic activity. For this purpose, net repayment on a cash basis of the government’s domestic payment arrears amounted to CFAF 52.7 billion (0.5 percent of GDP), compared with a floor of CFAF 30 billion in the program. This operation, which was made possible by budget support from the IMF and the World Bank, allowed payment to all creditors to which the Treasury owed small amounts and to start dealing with the government’s large creditors.

  • Côte d’Ivoire benefited from the decision taken by the WAEMU Council of Ministers in August to extend to member states the equivalent in CFA francs of the Special Drawing Rights (SDRs) received under the IMF’s general allocation. The WAEMU decision envisaged that this pass-through of the allocation, and other financing, would be used to repay domestic arrears in order to clear two thirds of the stock of arrears at end-2008. This new general allocation for Cote d’Ivoire amounted to 241.1 million SDRs, or about CFAF 172.2 billion (1.6 percent of GDP). The IMF’s special allocation of SDR 32.0 million, or about CFAF 23 billion, is available.

  • The government’s domestic financing was achieved exclusively through public issuance of government bonds, as agreed in the program. The government intends to raise a gross amount of CFAF 612 billion on the regional market in 2009. It will also mobilize the CFAF equivalent of the general SDR allocation to continue clearing the government’s domestic arrears and to replace other more expensive types of domestic financing.

19. External financing

  • The government has continued to normalize its financial relations with development partners. Arrears to the AfDB were cleared in March 2009, thanks to a grant from that Bank’s Fragile States Facility and a bridge loan from an external partner. In addition, upon reaching the HIPC Initiative decision point in March 2009, Côte d’Ivoire is receiving interim assistance from the IMF and the World Bank. In the case of the EIB, an agreement on restructuring the arrears on EIB’s resources was signed on May 19, 2009. It provides for a rescheduling of arrears over seven years, including a three-year grace period, and a the cancellation of CFAF 2.3 billion. In addition, arrears on loans from EDF resources have been cleared using the country’s allocation under the 10th EDF in October. Arrears owed at end-2008 to certain multilateral agencies were not cleared as anticipated and new arrears on current debt service were accumulated in 2009. These were settled in September/October 2009 and the government is committed to staying current with these creditors.

  • As regards the Paris Club, a restructuring agreement on Cologne terms was signed on May 15, 2009. An immediate cancellation of CFAF 413.8 billion was granted, as well as an exceptional deferral of post-cutoff date arrears, and of scheduled payments and moratorium interest during the consolidation period for rescheduled and deferred amounts.

  • Discussions with the Private Creditors Coordination Committee (London Club) which began in October 2008 led to a the signing of a preliminary agreement on September 29, 2009, in Paris. The agreement involves the cancellation of 20 percent of the end-2009 stock of claims, with remaining claims to be exchanged for a single type of U.S. dollar-denominated bond. The new bonds will be repaid over 23 years including a six-year grace period, with a coupon interest rate starting at 2.5 percent and rising to 5.75 percent in the fourth year.

  • Concerning other commercial debts, the discussions at the beginning of the year with STANDARD BANK New Jersey (2007 Sphynx bond) focused on the plan for clearing the arrears of CFAF 10.3 billion accumulated through end-January 2009, by making monthly payments, which would average CFAF 2.2 billion from February 2009 to July 2009. Normal debt servicing was to resume as soon as these arrears were cleared. However, because of cash flow difficulties, neither the rescheduled arrears nor current debt service payments have been paid, with the exception of a payment of CFAF 1 billion in the second quarter of 2009. In addition, since July 2009 arrears have accumulated in the servicing of the debt to STANDARD BANK New Jersey (2008 Sphynx bond). In the case of the debt to Standard Bank London (BNI bond), an agreement was reached for rescheduling end-2008 arrears of CFAF 10 billion and of the remainder of CFAF 60 billion due, as well as late payment penalties estimated at CFAF 900 million; resulting in a total debt of CFAF 71.0 billion. It was agreed that this debt would be repaid in 26 equal and successive monthly installments of CFAF 2.7 billion from February 28, 2009 to March 28, 2011 inclusive. A payment of CFAF 3.2 billion was made in the first quarter of 2009 and a payment of CFAF 1 billion was made in the second quarter of 2009, after which time payments have been suspended. Discussions on debt restructuring are being held with these commercial creditors, on terms comparable to those provided by the Paris Club and agreed with the Private Creditors Coordination Committee (London Club).

20. Regarding these three components of our external debt, on September 30, 2009 we publicly announced that we will pursue a restructuring in line with the Paris Club’s comparability of treatment requirements and with the IMF’s and the World Bank’s initiative for Heavily Indebted Poor Countries (HIPC). We have retained advisors to assist us in this restructuring, which we intend to conduct in a manner fully consistent with the Fund’s lending into arrears policy, including information transparency, inter-creditor equity, and dialogue with creditors.

B. Structural reforms in the area of public finance, 2009–10

21. Progress towards budget orthodoxy was reflected in several improvements in the regularization of financing operations:

  • Recourse to costly financing from businesses because of cash-flow pressures has been stopped since February 2009;

  • Audits of expenditures of the crisis-exit program, financed from own resources, during 2006-08, commenced in September 2009 and the provisional reports will be available before end-2009;

  • The preliminary draft budget execution laws (Lois de réglement) for 2005, 2006 (in September 2008) and 2007 (in February 2009) have been submitted to the Audit Chamber (Chambre des comptes) and the preliminary draft budget execution law for 2008 is expected to be finalized in October 2009;

  • The performance criterion on the non-accumulation of new domestic arrears under the 2009 budget was respected at end-June 2009;

  • A clearance plan for arrears of VAT credits has been adopted.

22. Implementation of the action plan for public financial management has begun. Implementation of the public finance reform plan, adopted in February 2009 following the PEMFAR technical assistance mission, is organized around a number of strategic pillars. In general, a good start has been made, in particular on improving the legal and institutional framework of the system of public financial management, as well as enhancing transparency in public financial management and public procurement procedures.

23. As regards the legal and institutional framework of the Public Finance Management plan (GFP), Cote d’Ivoire is committed to transposing by end-2011 all community directives adopted in March and June 2009 by the WAEMU Council of Ministers. To meet this deadline, certain directives, in particular those relating to budget laws and budget nomenclature, will be fully implemented at the national level during 2010.

24. Considerable progress has been made on transparency in budget execution. On the basis of the reports to the Council of Ministers, quarterly budget execution reports are now posted on the website of the Ministry of Economy and Finance, including statements on pro-poor expenditure and the execution statements of the Rural Investment Fund (FIMR). As regards technology, the interface between the software for expenditure execution (SIGFIP) and for public accounting (ASTER) should be operational before end-2009. The adoption of a functional budget nomenclature in compliance with the Government Finance Statistics Manual (GFSM) 2001 will be finalized in the first half of 2010. To this end, the consolidation table linking Ivorian budget nomenclature and GFSM 2001 has been prepared and the glossary has been approved.

25. As regards budget discipline, the practice of treasury advances has been contained within the limits specified by the order of the Minister of Economy and Finance, adopted in March 2009. A software package to manage advances should be in place for the 2010 budget execution. In addition, a medium-term expenditure framework (MTEF) for the ministries of health and national education should be adopted in 2010 for the fiscal year 2011. The MTEF will be extended gradually to cover the other ministries.

26. With regard to revenue, the inventory of revenue from fees charged by ministries outside the budget, initially planned for June 2009, remains to be completed. Out of 34 ministries, 20 have been visited resulting in the establishment of 15 revenue sharing procedures (regimes) for covering the identified revenues. The streamlining of exemption regimes should continue.

27. The roadmap for strengthening public procurement, by separating the regulatory, executive, and control functions, has been adopted. Following the adoption of the new public procurement code in August 2009, the effective establishment of the National Procurement Regulation Authority envisaged by the implementing decree is a priority that is expected to be implemented in the coming weeks. Consideration is being given to the setting of a national public procurement threshold. Calls for tenders will, in future, be systematically published on a quarterly basis.

Structural Budget Reforms in 2009

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28. Spending on large public works has been contained and made more transparent in line with program commitments. Budget allocations for large public works are limited to CFAF 40 billion for each of the financial years 2009 and 2010, mainly for the development of Yamoussoukro, the renovation of Hôtel Ivoire and the construction of a third bridge in Abidjan. To improve transparency, five framework agreements signed with the operator will be converted into public procurement contracts before end-October 2009. All framework agreements signed with the operator have, or will have been converted into public procurement contracts, in accordance with the new public procurement code before end-2010.

  • The Interministerial Committee established by order 039/PM/Cab of November 13, 2008, started work on May 8, 2009. It provides operational and financial oversight of large public works and ratifies the reports of the General Finance Inspectorate (IGF) and the National Bureau for Technical and Development Studies (BNETD) on the execution of the public works.

  • At its meeting on May 8, 2009, this Committee approved undertaking an audit of the government’s debt to the operator. Accordingly, the audit is being conducted by a firm engaged following a short list tender. The validated report is expected by end-2009.

  • Instruction No. 001/PM/CAB of November 13, 2008 requires compliance with budget execution procedures in connection with large government investment projects. To this end, two Treasury accounts (revenue and expenditure) have been opened at the Central Bank of West African States (BCEAO) to ensure the traceability and transparency of operations. All the financial procedures established by this instruction have been respected, in particular the recording of the commitment of funds under SIGFIP, and payment only by the Treasury.

  • In addition, with the application of instruction No. 227/MEF/DGTCP/CE of July 12, 2008, concerning expenditures incurred for priority measures and other emergency operations, the government continues to comply with the principles of good budget execution, in particular with respect to the inclusion in the budget of all crude oil shipments and payments connected with the government’s large investment projects.

  • The conversion of the framework agreements into public procurement contracts is being undertaken in these stages: (i) finalization of detailed technical studies by the operator; (ii) examination by BNETD of the technical documents received from the operator; (iii) determination of specifications and related prices by BNETD; and (iv) conversion of the agreements into public procurement contracts. Owing to the associated heavy workload, five projects are being converted into public procurement projects by end-October 2009. In addition, in line with the government’s commitments, all agreements will be converted into public procurement contracts by end-2010. Similarly, all other works for which there is no specific contract yet and have not yet been executed, will be subjected to tender in accordance with the public procurement code.

  • Budget allocations for the government’s large investment projects during the financial year 2009 of CFAF 40 billion include reimbursement of the advance of CFAF 15.6 billion provided by the operator in 2008. As of June 30, 2009, payments made reflect commitments of CFAF 23 billion (8 billion for the financial year 2009 and 15 billion for reimbursement of the advance in 2008).

29. Reforms of the civil service sector have commenced. The first stage of the civil service reform program—a staff census—is being finalized and should permit, if necessary, the cleaning of civil service records by March 2010, and finalization of the single reference file before end-2010, including not only public civil servants, as originally planned, but also the police force. Before end-December 2009, the government intends to review its salary obligations, including measures concerning the various revaluations or index-linked increases that had to be postponed, taking into account the structure and compensation parameters of the payroll. On the basis of this study, it undertakes to formulate a medium-term strategy for the structure and efficient, sustainable growth of the payroll (before end-March 2010), taking into account the restructuring and various increases that were postponed. The strategy and its implementation will be discussed during the second program review.

Civil Service Reform Plan and Measures for 2009, and Commitments for 2010

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30. Public enterprise restructuring and privatization. Measures to enhance the monitoring of the portfolio have resulted in a gradual improvement in the earnings of public enterprises. In addition, oversight and monitoring of public companies is through audits and operational verification. Thus, ten (10) state-owned companies are being audited and nine (9 others will be subject to operational verifications in 2009. The audits began in September 2009. Three enterprises had their operations verified over the period from May 28 to July 2, 2009.

31. Strengthening staff resources for monitoring units. To speed up the planned operations, more staff are being provided to the Participations and Privatization Directorate and the General Finance Inspectorate. The 2008 annual report on the economic and financial situation of public enterprises and enterprises with public financial participation has been issued and points to the need to ensure payment of the social security contributions to the CNPS. At December 31, 2008, the government portfolio consisted of 31 public enterprises and 53 enterprises with public financial participation, for a consolidated capital of CFAF 322 billion. Revenues from public enterprises and enterprises with public participation at end-July 2009 amounted to CFAF 35.8 billion, consisting mainly of net dividends.

32. From 2005 to 2009, several public enterprises and enterprises with public financial participation underwent financial restructuring. The enterprises were SOTRA, BNEDT, CECP, PALM-CI, CI-ENGINEERING, SICOGI, POSTE CôTE D’IVOIRE, I2T, SUCRIVOIRE, PALMAFRIQUE and SUCAF-CI. An overall strategy for public enterprise portfolio restructuring will be presented during the first half of 2010.

C. Main Goals of the 2010 Budget

33. The 2010 budget will consolidate the goals of the 2009 budget in order to accelerate economic recovery and combat poverty. The program for 2010 is designed to: (i) achieve real GDP growth of 4 percent; (ii) stabilize consumer price (HCPI) inflation at 3 percent; and (iii) slightly increase the overall budget deficit (excluding grants for clearance of external arrears) to 1.6 percent of GDP, as a result of the increase in pro-poor expenditure of 0.6 percent of GDP and of investment financed from own resources of 0.3 percent of GDP. The government will make every effort to diligently implement the PRSP measures and the HIPC Initiative completion point triggers as soon as possible.

34. Revenue collection efforts will be redoubled. The presence of the tax administration will be strengthened in the CNW. In addition, to increase government revenue, a crisis-exit contribution will be introduced, as of January 1, 2010, to finance the rehabilitation necessary for economic recovery. The exemption from duties and taxes on rice will be abolished as of January 1, 2010, in connection with the price decrease on the international market. Efforts to combat tax evasion and fraud will continue in tax (DGI) and customs (DGD) departments, in particular by Customs through comprehensive oversight of the entire port zone and reinforced oversight at loading sites. These efforts will also involve strengthening risk managements and improving valuations.

35. The reorientation of expenditure in favor of pro-poor spending and investment will be emphasized. To increase pro-poor spending, targeted social spending, and investment spending, current expenditures will be restrained by decreasing the subsidy to the electricity sector through forceful implementation of a package of measures (Box 9). In addition, the government will endeavor to restrain the wage bill, including through the census of civil servants and government agents and by strengthening verification of government spending on utilities.

36. The 2010 budget provides for an increase in investment spending, particularly on rehabilitation of basic socio-economic infrastructure. The aim is to undertake, amongst other things, maintenance of rural roads, improvement and upgrading of the road network, rural electrification, and village and urban water works. In addition, the government will continue the rehabilitation and equipment of university, school and health facilities, as well as the implementation of programs for the development and promotion of food agriculture. The government’s large public works will be contained at their 2009 level of CFAF 40 billion, or 0.3 percent of GDP.

37. The government is determined to advance structural reforms in public financial management in 2010, in particular through implementation of the PEMFAR. These will continue to follow nine strategic pillars for improving public financial management. As regards the legal and institutional framework, arrangements are being made to incorporate the WAEMU directives on public finance. In this context, the government intends to adopt the organic law on public finance before end-2010. In the same timeframe, it will also adopt a decree for revising the Integrated Public Finance Management System (SIGFIP). As regards transparency in public finance management, the functional nomenclature reflecting the functional classification in the Government Finance Statistics Manual 2001 (GFSM 2001) will be adopted and reflected in the 2012 budget. For this purpose the consolidation table linking the Ivorian budget nomenclature and GFSM 2001 has been prepared and the glossary of types of expenditure has been approved.

Structural Measures in the 2010 Budget

Revenue

Taxes (DGI)

  • Completion of the redeployment in the CNW and strengthen the restarting and recovery of revenue collections.

  • Strengthening the control of the standardized VAT form (facture normalisée) following the increase in staffing.

  • In the petroleum sector, completion by the Tax Unit for Petroleum Activities of the census of taxpayers and of the collection of all production sharing agreements.

  • Strengthening anti-fraud efforts through the operationalisation of the Coordinating Committee of activities to combat tax and customs fraud, and the implementation of technical assistance recommendations.

  • No further increase in VAT credits awaiting reimbursement and reduction of the stock below CFAF 10 billion.

Customs (DGD)

  • Inventory and suppression of tax allowances in the course of the first half of 2010. Review of existing rules for exemptions, in particular related to the exit from the crisis, and amendments and application of the new rules from January 2010. Continue the rationalization of exemptions and the systematic and detailed production of forgone revenues, using the SYDAM-World customs software.

  • Operationalize the mechanism to fund the VAT credit refunds, in particular through including it in SYDAM-World.

  • Strengthening of anti-fraud efforts, in particular following technical assistance recommendations: introduce risk analysis; resumption of the redeployment; intensification of the customs-enterprise partnership; declarations based on actual weights for the 2010/11 coffee/cocoa crop; random checks of loading sites by customs and the exporting enterprises to discourage export fraud; completion of the systematic color-marking of petroleum products by SGS; strengthen staff resources to prevent cocoa smuggling through the eastern border; establish a mixed DGD and DGI unit to assure a better recovery of VAT; establish a computerized system for transit control (with priority for the border with Ghana and Yamoussoukro.

  • Capacity strengthening: training of customs officers in appraisal techniques; continued request for technical assistance by experts in customs operations; making available to customs agents (and over time to the DGI) a data bank on risks and violations during the 1st half of 2010.

Treasury (DGTCP)

  • Completion of the inventory and budgetization of all service fees collected by ministries and identified by the IGF and the Revenue Service (Recette Générale des Finances).

Regular monitoring and systematic collection of dividends from public enterprises, based on audit reports.

Expenditure

  • Rigorous implementation of budget regulations: transfer of credits; alignment of the rhythm of expenditure execution and the treasury situation.

  • Improvement of the efficiency of expenditure: reinforcement of controls on consumption and billing of utilities; targeted control of the payroll, especially in the sectors with high employment (education, health, higher education, and police) and in national public entities (EPN); reactivation of the SIGFIP module on the monitoring of delays in expenditure execution, in particular during the commitment, control and payment phases by the different actors concerned; implementation of the decentralization of SIGFIP and of financial control.

  • With respect to PRSP implementation, operationalize the priority action matrices to allow the execution of pro-poor spending especially in the ministries of education (expansion of school feeding) and of health (vaccination programs and maintaining the financial equilibrium of the PSP), as well as of planned investment spending.

  • Preparation and transmittal to the IGF by all the general ministry administrators (DAAF) of quarterly reports of the physical and financial budget execution.

  • Observance of procedures and the strict limitation of exemptions: expenditure execution through SIGFIP, including foreign-financed expenditure; limiting recourse to treasury advances to the cases listed in the order of March 2009.

  • Reinforcement of public procurement regulations: establish the National Regulator of Public Procurement; systematic publication of public procurement tenders; control of over-the-counter procedures (procé dure de gréà gré) in procurement; conversion into public procurement contracts of all framework agreements for expenditures on large public works; completion of the consideration of a national threshold for public procurement procedures.

  • Elaboration of medium-term expenditure frameworks in the social ministries, with a view to incorporating them in the 2011 budget.

  • Adoption of a functional budget nomenclature consistent with the 2001 GFS Manual.

D. Monetary Policy and Financial Sector Reform

38. Monetary policy continues to be implemented at the regional level. The government will participate in regional liquidity management in accordance with WAEMU rules, and will plan its issuance of securities on the regional financial and money markets according to the financing needs of the budget. In this context, the government will coordinate and approve changes to the issuance schedule each month and submit them to BCEAO for coordination with other WAEMU zone issuance plans. Before end-2009, the government will approach the BCEAO to seek a restructuring of arrears on the consolidated statutory overdraft. Regarding the WAEMU’s institutional reform, the government plans to adopt the Banking Law amendments with a view to their ratification before end-December 2009.

39. The government will adopt additional measures to improve the management of the government securities market. It will continue to prepare the issuance schedule and intends to adhere to it. The Treasury Committee will regularly update the issuance schedule in the light of monthly cash flow needs. The government will prepare on a monthly basis the cash flow plan, followed by preparation of the issuance schedule, with a view to closing any monthly gap. In addition, the government will enhance the reliability of cash projections, in particular through more refined projections of domestic resources.

40. The government also intends to follow up its efforts to help banks in distress:

  • - In the case of the Banque pour le Financement de l’Agriculture (BFA), the government will evaluate its financial situation and request an assessment mission from the Banking Commission before end-March 2010. If its financial and prudential situation deteriorates and no strategic partner is identified, the government will take appropriate action. In any event, the government will not inject any new public resources in BFA.

  • - As regards the viability of the bank Versus, the government will request an urgent review by the Banking Commission in the first quarter of 2010. If the rate of recovery of overdue debts is not satisfactory, the government will also take appropriate action. In any event, the government will not inject any new public resources in Versus.

  • - For the Banque de l’Habitat de Côte d’Ivoire (BHCI), the government will increase its capital to CFAF 10 billion before end-2010, and will conduct a feasibility study of the policy of housing financing. In light of the findings of this study, the government will define its strategy towards BHCI and its role in the financing of low-cost housing.

Financial System Reform Measures in 2009 and 2010

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41. The government will continue financial sector reforms (Box 6). It will establish the National Financial Sector Reform Committee before end-2009. Before June 2010, the government will formulate a strategy for the development and rehabilitation of the financial sector, defining the role to be played by the government. It will continue to rely on the Banking Commission and will be guided by the FSAP recommendations. In particular, the government will continue the restructuring of banks in distress. In order to improve the anti-money laundering (AML) framework, the national law combating the financing of terrorism will be adopted before end-March 2010. The National Financial Intelligence Unit (CENTIF) will monitor compliance with the laws on financial discipline, attaching particular importance to awareness raising and training of stakeholders, inter alia, through its website.

42. In the context of rehabilitation of the microfinance sector, improvements have been made in the regulatory framework, which relate in particular to:

  • The requirement that savings and loan mutual societies or cooperatives and approved structures must be members of the Côte d’Ivoire Interprofessional Association of Decentralized Financial Systems and the introduction of membership dues to that Association;

  • The requirement that microfinance institutions which are not mutual societies must obtain the approval of the Board of Directors for loans to executives and employees;

  • Limits on loans granted to executives of microfinance institutions as a function of own funds;

  • In addition, the terms of reference are available for the audit of accounting, financial, organizational and strategic reorientation of microfinance.

43. The government is committed to rehabilitating the microfinance sector. Before end-June 2010, the government will design and implement a plan for the rehabilitation of microfinance institutions and will delete from the mandate of the Microfinance Directorate the reference to the promotion of the sector, because the functions of promotion and supervision are incompatible with one another. The government will exercise off-site supervision of networked microfinance institutions on an individual and non-aggregated basis. In addition, the government will strictly apply the regulatory provision making the start-up of activities conditional on the issuance of the operating authorization and will initiate close supervision or temporary administration of microfinance institutions.

44. As regards pension schemes, the government will adopt the CNPS reform plan before end-2009. For the CGRAE, the government will: (i) establish before end-2009 the Interministerial Committee for the Reform of the Pension System; (ii) conclude the dialogue with social partners before end-June 2010; and (iii) adopt the parametric reforms of pension schemes, and the institutional reform, with a view to including the impact of these reforms in the 2011 budget. The deficit of the pension operations of the CGRAE will be limited to CFAF 30.5 billion in 2010.

E. Governance and Other Structural Reforms

45. The government is firmly committed to advancing the process of improving governance. A National Plan for Good Governance and Fight Against Corruption, a draft law on unlawful enrichment, and a draft code of ethics for senior public officials are scheduled to be adopted by the government before the first quarter of 2010. As soon as the legal framework has been created, the government is committed to expediting the adoption of the action plans to implement the above-mentioned reforms.

46. The government will redouble its efforts to improve the business environment. In 2009–10, it intends to implement the following actions with the support of development partners (Box 7).

Measures to Improve the Business Environment in 2009–10

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47. The Reform of the cocoa/coffee sector is under way in order to raise farmers’ incomes and improve transparency in the use of public resources. The lowering of taxes on cocoa should be accompanied by support measures designed to improve farmers’ incomes in line with the program’s pro-poor approach. In addition, budgetization of part of the levies on the sector provided CFAF 5.1 billion for the Rural Investment Fund (Fonds d’Investissement en Milieu Rural-FIMR) in June 2009.

Reforms in the Coffee/Cocoa Sector in 2009–10

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48. The efforts to improve transparency and efficiency in the energy sector should bear fruit during 2010. The independent evaluator should finalize the reports for 2006 and 2007 in line with EITI criteria before end-2009, with a view to submitting them for validation. The 2008 report will be finalized before end-September 2010, and the 2009 report will be launched in 2010. As regards the electricity sector, consultations have begun with all stakeholders, with a view to enlisting their help in reducing the deficit in the sector. They should produce decisions no later than the first quarter of 2010. They will combine renegotiation of the price of gas purchases with the three main operators and a revision of the tariff structure without excluding, if necessary, further increases differentiated by category of economic operators concerned in line with the program’s pro-poor approach. For the petroleum subsector, the automatic adjustment mechanism for pump prices is operational. However, a price structure review will be conducted before end-2009.

Measures in the Energy Sector in 2009–10

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F. Regional Integration and Trade Policy

49. The government intends to pursue its participation in regional integration within the WAEMU and ECOWAS, as well as in world trade through the WTO. The ECOWAS Heads of State have decided to add to their Common External Tariff (CET) a fifth tariff band with a rate of 35 percent. Côte d’Ivoire will contribute to the identification of products to be included in this band. In the context of the Economic Partnership Agreement (EPA) with the European Union, the signing of a interim regional EPA is planned in October 2009. On the issue of accompanying measures, the EPA Development Program (EPADP) has been adopted by the countries of the subregion and the Program of Support for Trade and Regional Integration (PACIR) is being implemented. In conjunction with other countries in the subregion and the EU, the government will continue its efforts to prepare financing programs for the EPA.

G. Financing of the 2009–10 Program

50. In spite of considerable fiscal efforts, the need to reorient expenditures and to clear arrears generates sizable financing needs for the program period 2009–11. Taking into account primary basic surplus, the external project financing already identified, and net financing on the WAEMU financial market, the financing need is projected at CFAF 2.809 trillion in 2009, and CFAF 479.9 billion in 2010. To meet these needs, the government is benefiting from multilateral assistance and debt restructuring. Restructuring agreements were reached with the Paris Club and London Club (preliminary), and the government has initiated negotiations on debts to non-Paris Club bilateral creditors and other commercial creditors (Standard Bank-BNI and Sphynx) on terms comparable to the Paris Club. It also hopes to obtain budget support in 2010 from multilateral institutions (IMF, World Bank, AfDB, and EU) and bilateral partners.

51. The government intends to raise resources on the regional financial market in 2010 for a net amount of CFAF 155 billion. After a reduction in domestic arrears/amounts payable (restes a payer) of CFAF 67 billion in 2009, the government intends to continue this effort with a further reduction of at least CFAF 55 billion in 2010.

V. Statistics and Capacity-Building

52. The government undertakes to continue efforts to improve the statistical system in order regularly to produce high-quality economic and financial data. For this purpose, the Master Plan for Statistics 2009–13 will be adopted before end-2009 and implemented before end-June 2010. It involves, inter alia: (i) support for national and sectoral surveys; (ii) workshops on the introduction of the data base of the Integrated Information Management System; (iii) revision of the Harmonized Consumer Price Index (HCPI); (iv) preparation of the yearbook of ministerial statistical units; and (v) survey of the informal sector in Abidjan.

53. Côte d’Ivoire will continue to strengthen its administrative capacity, especially in areas affected by the crisis. The government will continue to receive assistance from the IMF and other development partners to: (i) strengthen tax and customs administration; (ii) review tax exemptions; (iii) help to implement the action plan for public finance reform; and (iv) improve national accounts with the aim of constructing a social accounting matrix. In order to enhance public debt management, the government intends to implement a capacity-building program, in order to support the design and implementation of a medium-term debt strategy. For this purpose, the government will request IMF technical assistance.

VI. Program Monitoring

54. The program will continue to be the subject of semi-annual reviews by the IMF’s Executive Board on the basis of quantitative indicators and structural benchmarks. These indicators, and the prior actions, are defined in the Technical Memorandum of Understanding (TMU) of March 13, 2009 and the attached supplement. The second program review will be based on the end-December 2009 performance criteria and is scheduled to be completed by end-March 2010. The second year of the program will cover the period January-December 2010, and performance criteria for June and December 2010 will be set at the time of the second review.

55. The government has established national frameworks for program monitoring. To ensure that the three-year program is effectively implemented, the government has set up several interministerial committees. The Interministerial Committee Monitoring the Economic and Financial Program, under the aegis of the Prime Minister—created in March 2009 is operational and is monitoring implementation of the program for 2009–11. It is assisted by the Strategic Unit and the Technical Unit for Monitoring the Economic and Financial Program in the day-to-day monitoring. The Committee will coordinate closely with Treasury Committee data, the work of specific interministerial committees, amongst others, the Coffee/Cocoa Sector Management Committee, the Interministerial Commodities Committee, and the PRSP Committee. In addition, in order to ensure traceability in the execution of large public works, the Interministerial Committee for Monitoring Large Works has been created. Similarly, a set of consistent tools has been adopted to ensure expenditure execution conforming to the existing framework. This Memorandum of Economic and Financial Policies will be disseminated within the government, government agencies, public entities, and Ivorian society.

56. For the duration of the program, the government undertakes to refrain from external borrowing on non-concessional terms other than specified in the TMU. For any new domestic borrowing, it undertakes to issue government securities by auction through the BCEAO or through any other form of competitive tendering on the domestic or WAEMU financial market, and to consult with IMF staff. The government also undertakes not to introduce or intensify restrictions on payments and transfers for current international transactions, introduce multiple currency practices, conclude any bilateral payments agreements that are inconsistent with Article VIII of the Fund’s Articles of Agreement, or impose or intensify any import restrictions for balance of payments purposes. Moreover, the authorities, in consultation with IMF staff, undertake to adopt any new financial or structural measures that may be necessary for the success of the program.

Table 1.

Côte d’Ivoire: Performance Criteria (PC) and Indicative targets, PRGF 2009

(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, including of adjusters.

This floor will be adjusted: i/ downward/upward for higher/lower than programmed external project loans; ii/ downward for higher than programmed program loans, iii/ downward for lower than programmed program grants - up to a a ceiling of CFAF 40 billion, iv/ upward for a shortfall in program loans in excess of CFAF 40 billion.

Performance criteria for 2009 (numbers for 2008 are reported for comparison only) on the issuance by the central government of all debt instruments in CFAF to domestic and WAEMU financial markets 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 banks (BOAD, BIDC). If program loans or grants are lower than programmed, the ceiling will be adjusted upwards in the amount of the shortfall, up to a maximum of CFAF 40 billion. The ceiling includes a margin of CFAF 25 billion over the net cumulative flows projected for each period (see TMU).

Continuous performance criterion 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; loans from regional development banks (BOAD and BIDC) of up to CFAF 25 and 20 billion, respectivement; drawings on the Fund; public offerings in CFAF of government debt initially issued to resident of the WAEMU (see TMU).

Continuous performance criterion (see TMU).

Includes pro-poor expenditure, as defined in the classification of the Integrated Financial Management System (SIGFiP); see TMU Table 1.

Net banking system claims on the government represent the difference between government debt and its claims on the central bank and commercial banks as defined in the TMU.

Table 2.

Côte d’Ivoire: Indicative Targets, PRGF 2010

(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

Continuous indicative target (see TMU).

Includes pro-poor expenditure, as defined in the classification of the Integrated Financial Management System (SIGFiP); see MEFP Box 2.

Net banking system claims on the government represent the difference between government debt and its claims on the central bank and banks, as defined in the TMU.

Table 3.

Côte d’Ivoire: Structural Conditionality, 2009 PRGF

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Table 4.

Côte d’Ivoire: Significant Structural Reforms for 2010

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Attachment II—Côte d’Ivoire: Supplement to the Technical Memorandum of Understanding

November 2, 2009

Note: this document is a supplement to the Technical Memorandum of Understanding (TMU) of March 2009. That TMU remains fully valid except for the points as amended below. Changes with respect to the original text appear in italics.

A. Overall Fiscal Balance (Including Grants) (Performance Criterion)

Paragraph 3:

The overall fiscal balance is the difference between the government’s budget revenue (including grants other than budget support program grants from the World Bank and African Development Bank) and total expenditure plus net lending (on a payment order basis). It includes crisis-exit spending, which is defined as domestically and externally financed government outlays on the national community reinsertion and rehabilitation program (PNRRC); the redeployment of public administration; the identification process and the elections; and the civil service.

Paragraph 5:

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 revenue shortfalls and/or be allocated to “pro-poor” spending and/or to “crisis exit” spending as defined in Box 2 of the memorandum of October 2009 and in attached Table 1, up to a cumulative maximum of CFAF 50 billion. The floor on the overall fiscal balance will be adjusted upward by the remaining excess not used to offset revenue shortfalls or for additional “pro-poor” spending (see Table 1). The remainder of the excess petroleum/gas revenues will be used to reduce the government’s domestic debt, including “balances outstanding” (see paragraphs 11–12).

Paragraph 6:

The petroleum/gas revenues estimate for 2010 is based on: an average crude oil price of US$76.50per barrel; a volume of 17.9 million barrels; and an average exchange rate of CFAF 478 = US$1.

E. External Debt and External Payment Arrears (Performance Criterion)

The former paragraph 10 is replaced by the following:

External debt shall have the meaning set out in point 9 of the “Guidelines on Performance Criteria with Respect to External Debt in Fund Arrangements,” (IMF Executive Board Decision No. 12274–00/85 dated August 24, 2000). External debt is defined on the basis of residency. However, for assessment of the program, debt issued by Ivorian entities in CFA francs and held by residents of the member countries of the WAEMU zone shall not be considered to be external debt.

External arrears are considered to be the nonpayment of any interest or principal amounts on their due dates (taking into account relevant contractual grace periods, if any). This performance criterion applies to arrears accumulated under external debt of the government and external debt guaranteed by the government for which the guarantee has been called by creditors, consistent with the definitions under the external debt performance criterion (paragraph 16). This performance criterion monitored on a continuous basis.

Excluded from this performance criterion are:

  • Arrears accumulated under external debt contracted with official bilateral creditors covered under the Paris Club Agreed Minute of May 2009, as well as such debts to non-Paris Club bilateral official creditors that are subject to restructuring.

  • Arrears accumulated under:

    • (i) the 6 series of “Brady” bonds,

    • (ii) the BNI-StandardBank (London) 2007 and 2008 notes,

    • (iii) the Sphynx Capital Markets 2007 and 2008 notes, and

    • (iv) any other debt to private creditors, for which the government has publicly announced before completion of the first review under the PRGF arrangement for Côte d’Ivoire that it is seeking restructurings, until the respective restructuring agreements have been reached.

F. Balances Outstanding and Domestic Payment Arrears (Quantitative Indicator and Performance Criterion)

Paragraph 12:

Within the framework of the program, the government, in 2009, will (i) undertake a cash reduction of CFAF 60 billion in the stock of balances outstanding as defined in paragraph 11 (quantitative indicator) ; …

G. Treasury Advances (Indicative Target) and Extrabudgetary Spending (Continuous Performance Criterion)

Paragraph 14:

Within the framework of the program, Treasury advances are defined as spending paid for by the Treasury outside normal execution and control procedures, and which have not been subject to prior commitment and authorization. They exclude the régies d’avances, externally-financed expenditure, wages, subsidies and transfers, and debt service as set out through ministerial decree. The cumulative amount of expenditures by treasury advance as defined by the program will not exceed cumulative quarterly ceilings representing 10 percent of quarterly budget allocations (excluding externally-financed expenditures, wages, subsidies and transfers, and debt service) (indicative target). The nominative and restrictive list of expenditures eligible as treasury advances is as defined by ministerial decree no. 178/MEF/CAB-01/26 of March 13, 2009.

H. New Nonconcessional External Borrowing (Performance Criterion).

The first sentence of former paragraph 16 is deleted. One change has been made in the rest of the paragraph:

The quantitative indicators concerning foreign borrowing apply to all nonconcessional external debt (see paragraph 10) irrespective of maturity, and whether it has been contracted or guaranteed by the government.

Table 1.

Côte d’Ivoire: Crisis Exit Programs 2007–09

(Billions of CFAF unless otherwise indicated)

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Source: Ivorian authorities; and IMF staff estimates and projections.
1

When considering investment efficiency, the incremental capital-output ratio (ICOR) serves as a guide. Côte d’Ivoire’s ICOR has been trending upward since the crisis began, indicating a decline in investment efficiency. The baseline scenario assumes a gradual decrease of the ICOR to the precrisis level.

2

The REER has appreciated in recent years because of the strength of the euro and a temporary spike in domestic prices in 2008 driven by the food and fuel crisis.

3

For June the indicative wage bill target had been set too low due to a technical error. This also affected two PCs—overall balance and net domestic financing—and the indicative target for the primary balance (Table 9).

4

Effective with the start of the 2009–10 crop year, the cocoa export registration tax was further reduced from 10 to 5 percent of the CIF price (estimated cost: 0.5 percent of GDP), and the single export duty on cocoa was further decreased from CFAF 220 to CFAF 210 per kilogram (cost: 0.1 percent of GDP).

5

Also, the authorities have requested technical assistance from the World Bank and the Fund on debt management.

6

Arrears accumulated during the program period to these creditors are not considered arrears for program purposes as they are subject to rescheduling or restructuring.

Other IMF Content

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Cover IMF Staff Country Reports
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
Author:
International Monetary Fund
Volume/Issue:
Volume 2009: Issue 326
Publisher:
International Monetary Fund
ISBN:
9781451807967
ISSN:
1934-7685
Pages:
115
DOI:
https://doi.org/10.5089/9781451807967.002
  • View in gallery

    Relative Prices and Effective Exchange Rates (Index 1994=100) 1994–2009

  • View in gallery

    Market shares in world exports (Index 1994=100)1994–2008

  • View in gallery

    Institutional Quality, 2007–08

    (lines further away from the center indicate better performance)

  • Figure 1.
    View in gallery
    Figure 1.

    Côte d’Ivoire: Selected Macroeconomic Indicators, 2005–10

    (Percent of GDP, unless otherwise indicated)

  • Figure 2.
    View in gallery
    Figure 2.

    Côte d’Ivoire: WAEMU, and SSA - Macroeconomic Development and Outlook, 2005–10

    (Percent of GDP, unless otherwise indicated)

Relative Prices and Effective Exchange Rates (Index 1994=100) 1994–2009

Market shares in world exports (Index 1994=100)1994–2008

Institutional Quality, 2007–08

(lines further away from the center indicate better performance)
Figure 1.

Côte d’Ivoire: Selected Macroeconomic Indicators, 2005–10

(Percent of GDP, unless otherwise indicated)
Figure 2.

Côte d’Ivoire: WAEMU, and SSA - Macroeconomic Development and Outlook, 2005–10

(Percent of GDP, unless otherwise indicated)