Statement by Laurean W. Rutayisire, Executive Director for Côte d’Ivoire

Economic activity strengthened in Côte d’Ivoire in 2009, but it is expected to decelerate. Financial performance under the Extended Credit Facility-supported program was broadly satisfactory. Good progress was made in restructuring external debt. The program is in line with the agreed reform goals, but reflects the constraints imposed by the pre-election political situation. Tight expenditure management remains critical for the success of the program. Structural reforms are essential to strengthen growth. The risks to the program are high but manageable.

Abstract

Economic activity strengthened in Côte d’Ivoire in 2009, but it is expected to decelerate. Financial performance under the Extended Credit Facility-supported program was broadly satisfactory. Good progress was made in restructuring external debt. The program is in line with the agreed reform goals, but reflects the constraints imposed by the pre-election political situation. Tight expenditure management remains critical for the success of the program. Structural reforms are essential to strengthen growth. The risks to the program are high but manageable.

July 9, 2010

My Ivoirien authorities would like to thank staff for the constructive discussions held during their March 2010 mission in Abidjan and at the side of the spring meetings in Washington. The second review of the ECF-supported program has provided my authorities with another opportunity to benefit from Fund advice in their endeavor to restore economic normalcy in a challenging post-conflict environment. My authorities broadly share the thrust of the staff report and have consented to its publication.

My authorities are also grateful to Management and the Board for their continuous support that has been instrumental for Côte d’Ivoire to cope with the conflict aftermath and other adverse external developments. With this assistance, my authorities have made important progress in phasing out weaknesses linked to the conflict-ensued drawbacks, and enhanced macroeconomic management. Helped by a more stable political environment, Côte d’Ivoire has resumed its growth momentum, while implementing the peace roadmap that should lead to the presidential elections this year. My authorities are committed to stepping up effort in the implementation of their economic program with the view to reaching the HIPC completion point the earliest possible.

I. Recent Socioeconomic Developments

The peace roadmap

My ivoirien authorities are cognizant of the importance of creating an enabling political environment to turn the focus on enhancing growth and reducing poverty. In that regard, they have strived to keep pace with the Ouagadougou peace accord since 2007. The implementation of the roadmap that stumbled in early 2010 over disputes on the voter list has regained momentum recently. The spell checking of the voter list agreed upon by the main political leaders is proceeding and the final voter list will be ready by the end of July. On June 15, barracking and disarmament of ex-rebels effectively started in their northern base, Korhogo, as scheduled. A new date of the presidential election should be announced shortly, with all runners agreeing that voters should go to the ballots no later than October 2010.

Progress under the ECF

My authorities performed well at end-2009 and in early 2010. Furthermore, reforms implemented since 2007 began to bear fruits. The macroeconomic situation is favorable. Real GDP growth stood at 3.8 percent, pushing per capita growth in positive territories for the first time in a decade. Average inflation fell from 6.3 percent in 2008 to 0.9 percent in 2009, as a result of declining food, energy and transport prices and reduced duties on rice imports. High world cocoa prices and falling imports prices contributed to the strengthening of the external position, with a current account surplus of 7.2 percent of GDP. This favorable economic outlook has been compromised in early 2010 by an electricity crisis due to a major turbine failure. Growth projections for 2010 were revised downward, from 4 percent to 3 percent. My authorities have reacted promptly to fill the supply gap, both by importing electricity from neighboring countries and other remedial measures. Going forward, my authorities are working on a long-term solution consisting of lowering the production cost of electricity and reforming the tariff structure, with the view to ensuring financial viability in the sector and adequate supply of energy.

On the fiscal front, my authorities posted appreciable results, meeting four of the six performance criteria, and missing two only by small margins. The strong performance on tax receipts, 0.2 percent of GDP higher than programmed, was contrasted by a shortfall in customs duties due to technical and administrative problems and the exemption of duties on rice imports following the food crisis. My authorities made a priority of addressing these temporary issues. As a result of actions taken, the first quarter of 2010 witnessed a record high level of duties collected. My authorities are committed to taking further actions aimed at enhancing the performance of the customs administration. They have benefitted from FAD’s technical assistance in that regard.

My authorities’ structural reform agenda is also proceeding well amid various bottlenecks inherited from the political crisis. One of the major areas is the civil service, which is set to be reorganized with the view to gaining efficiency and bringing the wage bill under control. The main preparatory works have been completed and the census of civil servants has been launched, which should be completed by September 2010 with a biometric identification of public personnel. As regards public finance, my authorities have made progress in implementing the recommendations of the PEMFAR review. Key reforms range from the improvement of the legal and institutional framework of the fiscal management system to the development of accountability mechanisms, not to mention the strengthening of the institutional and operational framework of public procurement, the optimization of resource allocation, or the strengthening of fiscal discipline.

Other macro-critical sectors have been under scrutiny of my authorities, with good faith efforts to improve their contribution to growth. A report laying down scenarios to achieve financial viability of the energy sector is now completed. A draft report on the new strategy for the cocoa/coffee sector was submitted to the authorities in October 2009. Further works have been carried out since, and a new institutional and regulatory framework should be put in place by the beginning of the 2010/11 crop season starting in October. My authorities are putting a special emphasis on devising an appropriate ad valorem tax to replace the quasi fiscal levies and are committed to ensuring that producers are the primary beneficiaries of tax margins abandoned by the government. My authorities have also made good progress in other areas, including external debt restructuring and the implementation of the PRSP and HIPC completion point triggers. On debt restructuring, the government has signed agreements with almost all its Paris and London Club creditors, on favorable terms. As regards the PRSP, the authorities submitted the first annual progress report to their partners and it awaits finalization. The government budget is geared towards the PRS and pro-poor spending increased as programmed in 2009.

II. Program 2010 and Forward

Enhancing growth and furthering fiscal consolidation

Within the overall framework of the ECF-supported program, my authorities’ 2010 agenda aims at enhancing growth and reducing poverty, through public investment while containing deficits. The key objectives are: (i) achieving real GDP growth of 3 percent; (ii) containing the average annual inflation rate to 2.5 percent, and (iii) increasing pro-poor spending by about 0.4 percent of GDP and capital expenditure financed from internal resources by 0.4 percent of GDP. In aggregate, this would lead to an overall fiscal deficit (excluding grants for the settlement of arrears) of 2.0 percent of GDP.

To achieve their objectives, my authorities intend to maintain investment spending at 3.1 percent of GDP, with an emphasis on growth-supporting sectors. Pro-poor spending will increase from 7.7 percent in 2009 to 8.1 percent in 2010. Along with these actions, my authorities attach a price to removing any impediment to growth. That is why they have undertaken quick actions to put a rapid end to the electricity crisis. Since mid-June, the sector has recovered its whole potential, the domestic demand is met and supply to neighboring partners has resumed.

My authorities are committed to furthering fiscal consolidation in 2010 and forward. All fiscal areas will be explored in that effort. On the revenue side, measures are planned in all fiscal administrations. First, the redeployment of the tax administration in the CNW zones should be completed, the control of the standardized VAT forms strengthened, and exemptions better monitored via software. In the customs administration, measures for 2010 include the improvement of the computerized systems by implementing the recommendations from the audit, and the use of the newly strengthened Risk Analysis Unit. On the expenditure side, my authorities are determined to curb down the recurrent expenditures by strengthening the control of the government’s utility bills, enhancing budget execution and control functions and institutions, and enhancing transparency regarding public bids. The control of the size of the public service is an overriding policy area to my authorities. They will continue their reforms started in 2009; by the end of 2010, an updated and unique file clear of ghost workers will be available, which should help save appreciable resources. Along with these actions, my authorities are preparing institutional changes and an overall strategy which, aided by the end of some crisis-related expenditures, should help bring the wage bill under control over the medium term.

Furthering structural reforms

My ivoirien authorities are cognizant of the need to improve the business climate to further unleash growth potential as the country exits from crisis. The improvement of the judicial system is the cornerstone of this agenda. By September 2010, should be validated a reform plan to enhance the efficiency and fairness of the judicial system, and publication of judicial decisions. Alongside, Cabinet should adopt the draft law on competition, aimed in particular at combating noncompetitive practices, and commercial courts will be created before end- 2010. My authorities will also step up their efforts to improve the overall governance. Cabinet will adopt the national good governance and anti-corruption plan, and its implementation will commence before end-2010. It will also update the draft law on unlawful enrichment, adopt it, and submit it to Parliament by end-2010.

My authorities attach a high importance to the role of the financial sector in the enhancement of the private sector activity and hence in the expected overall economic rebound. A committee (CODESFI) has been created in November 2009 to work on the financial sector development strategy. A workshop scheduled for September 2010, studies under preparation, and FSAP recommendations will provide the inputs to devise a financial sector restructuring and development strategy to be implemented in 2011. As regards the hydrocarbon sector, my authorities have made progress in improving transparency. Production and publication of quarterly reports to the Cabinet on physical and financial flows have continued. The final sector report for 2006 and 2007, in accordance with the EITI criteria has been completed. The process of validation in compliance with the EITI standards is under way and is expected to be completed at the latest in July 2010.

Edging towards HIPC completion point

My authorities have stepped up effort in the implementation of their poverty reduction strategy. In addition to making pro-poor spending and social needs the thrust of the budget, my authorities have enhanced their actions in the areas of education and health. The upgrading of facilities and recruitment of personnel has improved service and key ratios in these sectors. The authorities have set the institutional apparatus for the implementation of the PRSP on the ground. As a result, most triggers of the HIPC floating completion point have been implemented and my authorities await an assessment by staff at the next review. The interim debt relief under the enhanced HIPC initiative proceeded well for Côte d’Ivoire, in light of the agreements reached with creditors. Going forward, my authorities are committed to enhancing external debt management capacities, while they are working expeditiously to reach the HIPC completion point at the earliest possible.

Conclusion

The second review under the ECF-supported program gives another opportunity to shed light on the impressive results achieved by my authorities over the past years. Amid a difficult and fragile political environment, a weakened institutional apparatus, paired with adverse exogenous shocks, my authorities have improved macroeconomic stability, furthered structural reforms, resumed growth momentum and recorded appreciable progress in poverty reduction.

Under the enhanced HIPC initiative, Côte d’Ivoire has reached agreements on favorable terms with its main creditors. My authorities would like to seize this opportunity to thank chairs representing creditor countries for effectively granting the interim assistance and for their support in helping Côte d’Ivoire steadily relieve the debt burden that has taken a huge toll on its development initiatives for so long. My authorities are committed to continuing to do their part of this common effort, by further improving the implementation of the program an making the final steps towards complete debt relief. With this, my authorities would like to request the Board’s support for the conclusion of the second review under the three-year arrangement under the Extended Credit Facility, and for waivers of nonobservance of performance criteria, and financing assurances review.

Côte d'Ivoire: Second Review Under the Three-Year Arrangement Under the Extended Credit Facility, Request for Waivers of Nonobservance of Performance Criteria, and Financing Assurances Review: Staff Report; Staff Statement; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Côte d'Ivoire
Author: International Monetary Fund