Côte d'Ivoire
Cancellation of the Extended Credit Facility Arrangement and Request for Disbursement Under the Rapid Credit Facility
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International Monetary Fund
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Publication Date:
20 Jul 2011
eISBN:
9781462342563
Language:
English
Keywords:
ISCR; CR; government; disbursements equivalent; debt service arrears; complying disbursement; debt relief; central bank; government operation; economic recovery; capital expenditure; Credit
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The prolonged crisis and violent conflict led to considerable destruction of private and public property, loss of life, and many refugees and internally displaced persons. Dealing with the shocks and aftermath of the post-election political crisis and armed conflict is a serious challenge for Côte d’Ivoire. Expenditure will need to be kept in line with available resources while addressing immediate priorities. The government’s fiscal response to the economic crisis in the face of a very uncertain resource envelope is commended by Executive Directors.

Abstract

The prolonged crisis and violent conflict led to considerable destruction of private and public property, loss of life, and many refugees and internally displaced persons. Dealing with the shocks and aftermath of the post-election political crisis and armed conflict is a serious challenge for Côte d’Ivoire. Expenditure will need to be kept in line with available resources while addressing immediate priorities. The government’s fiscal response to the economic crisis in the face of a very uncertain resource envelope is commended by Executive Directors.

I. Introduction

1. The dispute over the November 2010 second round of presidential elections threw Côte d’Ivoire into a severe crisis until President Ouattara (the election winner) took control of the country in mid-April after a short military campaign (Box 1). The security situation in Abidjan has been improving rapidly with President Ouattara making the re-establishment of law and order a key priority.

MEFP ¶3

The Post-Election Crisis

First-round Presidential elections on October 31, 2010, gave President Gbagbo 38 percent of the vote, former Prime Minister Ouattara 31 percent, and former President Bédié 25 percent. A second round of voting took place on November 28. With the active support of Mr. Bédié, Mr. Ouattara won 54 percent of the vote as assessed by the Independent Election Commission (CEI).

The electoral law provided for the Constitutional Council (appointed by President Gbagbo) to either accept the results of the vote announced by the CEI, or call for a new election. Instead, it accepted charges of widespread fraud in the pro-Ouattara North, even though international observers detected no serious problems with the voting there. The Council then nullified the election in the disputed regions, awarding victory to President Gbagbo.

After the UN certified results (as all parties agreed it should do under a previous peace agreement) in line with the CEI, giving victory to Mr. Ouattara, lengthy but unsuccessful mediation attempts were undertaken by the ECOWAS and the AU to persuade President Gbagbo to leave office.

With political tensions rising, the economy suffered. This was compounded by the impact of EU sanctions effectively closing the country’s seaports beginning in January 2011, the closure of the BCEAO offices in the country after the central bank’s pro-Gbagbo Governor was removed by the WAEMU at end-January, followed by the closure of the private banking system in mid-February, and anti-Gbagbo guerilla activity in March.

Former President Gbagbo was forcibly removed from office after a pro-Ouattara army swept through the country and engaged pro-Gbagbo forces in Abidjan at the beginning of April. With civilian casualties in the economic capital rising as the byproduct of urban warfare, fighting was only ended once UN and French forces intervened to neutralize President Gbagbo’s heavy weapons under UN Security Council resolution 1975.

President Ouattara appointed a limited 12-member cabinet on December 4, 2010, with Guillaume Soro, leader of the northern New Forces (who contributed most of the pro-Ouatara army) as Prime Minister and Minister of Defense. On June 1, 2011, he appointed a full 36-member cabinet composed of all parties except the FPI of President Gbagbo, who had set their leaders’ release as a condition for participating (several dozen FPI leaders remain in custody). Legislative elections have been announced for late 2011.

The prolonged crisis and violent conflict led to considerable destruction of private and public property, loss of life, and many refugees and internally displaced persons. The President had formed a skeleton cabinet with key ministers, including Finance Minister Diby, in early December, and announced on June 1 the appointment of a 36-member government. Also, the President has reached out to a broad range of senior political leaders in order to further national reconciliation. Parliamentary elections are expected to be held later this year, followed by regional and municipal elections in 2012.

II. Recent Economic Developments

2. In the period preceding the presidential elections, Côte d’Ivoire’s medium-term economic program adopted in 2009 and supported under the Extended Credit Facility (ECF) had been broadly effective in stabilizing the economy, re-establishing more orderly relations with external creditors, and advancing in some areas of structural reforms. The economy grew only by about 2.4 percent in 2010, dampened by difficulties linked to the pre-election climate, the failure of a major power station, and a decline in petroleum production (Tables 1–3). Average inflation remained under 2 percent and the fiscal deficit was kept close to 2 percent of GDP.

MEFP ¶4,5,9

Table 1.

Côte d’Ivoire: Selected Economic Indicators, 2008-11

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

Based on end-of-period changes in relative consumer prices and the nominal effective exchange rate.

2011 ratios based on Q2–Q4 fiscal aggregates over Q2–Q4 of GDP.

Defined as total revenue minus total expenditure, excluding all interest and foreign-financed investment expenditure.

Table 2.

Côte d’Ivoire: Monetary Survey, 2008-11

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Sources: Central Bank of West African States (BCEAO); and IMF staff estimates and projections.
Table 3.

Côte d’Ivoire: Balance of Payments, 2008—11

(Billions of CFA francs, unless otherwise indicated)

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

3. Economic activity began to slow in late 2010 and ground to a halt during the first 3–4 months of 2011 as the crisis intensified. The combination of the closure of the BCEAO offices in Côte d’Ivoire in late January and the ensuing closure of commercial banks holding 80 percent of banking system assets in mid-February, and the imposition by the EU of economic sanctions, including against major public enterprises, led to the closure of the ports and a virtual halt in economic activity. Inflation picked up in December and rose to 11.7 percent in the year through April, mainly reflecting crisis-related shortages including of food; food prices rose over 31 percent during that period. An easing in prices has been observed from late April as supply channels reopened. To forestall further social tensions, the authorities reduced taxation to keep the main fuel prices unchanged since mid-2010 despite the rise in international prices.

MEFP ¶10-12

4. While fiscal performance at end-2010 was largely in line with earlier projections, the political crises and sanctions severely affected fiscal operations in the first quarter of 2011 (Table 4). Only partial data are available for fiscal operations in early 2011, the period of two parallel governments. New domestic payment arrears are likely to have accumulated; although the salary arrears incurred in March were settled in April, the extent of other arrears is still unclear.1 The central bank (BCEAO) rolled over most maturing government securities during December 2010–May 2011 to avoid a default that would have had serious consequences for the regional banking system. At end-April 2011, external arrears accumulated since end-November 2010 amounted to some $180 million, owed primarily to the World Bank, AfDB, Paris Club creditors, and Eurobond holders.

MEFP ¶6-7,12

Table 4a.

Côte d’Ivoire: Fiscal Operations of the Central Government, 2009-11

(In Billion of CFA francs, unless otherwise indicated)

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

2011 aggregates are based on Q2–Q4.

Total revenue (excl. grants) minus expenditure net of scheduled interest and foreign-financed capital expenditure.

Program and arrear clearance grants in 2008 are below the line in the program column, and above the line in the projection column.

Table 4b.

Côte d’Ivoire: Fiscal Operations of the Central Government, 2009—11

(In percent of GDP, unless otherwise indicated)

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

2011 ratios based on Q2–Q4 fiscal aggregates over Q2–Q4 of GDP.

Total revenue (excl. grants) minus expenditure net of scheduled interest and foreign-financed capital expenditure.

Program and arrear clearance grants in 2008 are below the line in the program column, and above the line in the projection column.

III. Challenges for 2011

5. Projections for 2011 are highly tentative. Data compilation faltered owing to the political crisis, violent combat, and closure and destruction of enterprises and other businesses, and is restarting only slowly in light of the significant material losses (especially of computers, office and transport equipment) experienced in government offices and among enterprises. A decline in real GDP of 6–7 percent is projected for 2011 as a whole, with a sharp drop in activity in January–April and a gradual recovery from May on leading to a possible normalization of activity near 2010 levels in Q4 2011.

MEFP ¶15

A. Fiscal policy—Restoring fiscal management and supporting economic recovery

6. The authorities’ priority is to consolidate peace, support the economic recovery, and promptly restore the operations of the public administration. Objectives also include restoring law and order in the entire country and reducing road blocks and other forms of extortion, meeting urgent social needs, rehabilitating socio-economic infrastructure, and improving the business climate and governance. Government operations have restarted slowly, with the pace of resumption of service delivery depending on the degree of destruction and absenteeism that various public entities are facing, as well as on the rate of filling of key vacancies.

MEFP ¶3,14

7. A major challenge for the 2011 budget was to design and implement an expenditure envelope under uncertain resource constraints. The authorities prepared a budget starting from April 26, 2011, the date of reopening of the central bank office in Abidjan and thus of normal budget payment channels. The earlier fiscal operations will be added in a supplementary budget once verification work has been completed. The budget is based on very uncertain prospects for the recovery of revenue, large immediate expenditure needs, and substantial foreign financing.

MEFP ¶16

8. Commodity receipts are a bright spot in an otherwise weak revenue environment. After the export ban invoked by President Ouattara at end-January and the EU embargo, the resumption of exports of cocoa stored at the ports has generated some early revenue inflows in May–June. Part of these revenues was advanced to the government through short-term bank loans. Also, the authorities advanced oil shipments on account of the government under production sharing agreements to secure some early resources for the government. However, the tax base has been seriously weakened and will take time to recover; many economic agents are short of liquidity because of the damages suffered and the immediate rebuilding needs. Tax and customs administration have also been weakened by the looting of information technology and transport equipment. VAT receipts are expected to flow in at roughly half their 2010 rate. Profit tax revenue, based on 2010 outturns, should be relatively unaffected; but at the same time companies’ weak cash flow can constrain them in meeting their tax obligations.

MEFP ¶17

9. Revenue policy thus reflects an effort to balance the need for temporary support for the private sector with the need to reestablish normal taxation and secure funding for the government’s operations. The authorities provided some tax breaks for 2011—suspension of car registration fees and the turnover tax for transport services, reduction by half of the turnover tax on commerce—and consider unchanged fuel prices an essential support mechanism. Based on current world prices, the loss of fuel taxes is projected to reach 1 percent of GDP in 2011 after about 0.2 percent in 2010. The electricity subsidy is broadly similar (see below). Overall, fiscal revenue is projected to fall by about 2 percentage points of period GDP during Q2–4, 2011 (see Text Table 1), compared to 2010, notwithstanding a projected increase in oil and cocoa tax revenue of 1.7 percent of GDP.

MEFP ¶18

Text Table 1.

Côte d’Ivoire: Fiscal Operations, 2010-11

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Sources: Ivoirien authorities and IMF staff estimates and projections

Basic balance=(Total revenue-Grant+Crisis exit project grant)-(Total expenditure-Toxic waste-Debt relief on interest-Foreign financed expenditure).

Reflects funding indications to date.

Reflects debt relief granted under the May 2009 Paris Club debt restructuring agreement.

10. Expenditures will need to be kept in line with available resources while the authorities address immediate priorities. President Ouattara early on announced a number of programs to improve the humanitarian and security situation, including the restarting of public utility services after conflict-related interruptions, free extension of public transport passes for 2 months, and free medical treatment at state clinics. The authorities do not envisage increases in electricity tariffs this year, thus raising the electricity sector subsidy to 1.1 percent of GDP. Overall, expenditure is projected to rise by 4½ percentage points of period GDP during Q2–4, 2011 compared to 2010 (see Text Table 1). This increase reflects the high demand on public services despite the lower level of activity, unchanged public employment and the settlement of salary arrears,2 refurbishing costs, higher interest charges, and the higher electricity subsidy.

MEFP ¶22

11. The authorities have covered early expenditure needs through external borrowing. France has extended a nonconcessional loan of €350 million3 (2 percent of GDP), €200 million of which was disbursed in late April, and offered €50 million (0.4 percent of GDP) in short-term bridge financing to help clear arrears.4 The EU has announced €30 million in humanitarian assistance this year and the unfreezing of project loans. The clearance of arrears to the African Development Bank (AfDB) and the World Bank (about $40 million at end-April 2011) in late May 2011 opened the way for their renewed financial support. The AfDB approved project loans and budget support grants of $150 million in early June, and World Bank has restarted project loans ($75 million) and is planning a budget support operation ($100 million) in Q3, 2011.

Figure 1.
Figure 1.

Côte d’Ivoire: Selected Macroeconomic Indicators, 2007-11

(Percent of GDP, unless otherwise indicated)

Citation: IMF Staff Country Reports 2011, 194; 10.5089/9781462342563.002.A001

Sources: Ivorian authorities; IMF staff estimates and projections.1/ Fiscal ratios for Q2–Q4, 2011 over period GDP
Figure 2.
Figure 2.

Côte d’Ivoire: WAEMU, and SSA-Macroeconomic Development and Outlook, 2007-11

(Percent of GDP, unless otherwise indicated)

Citation: IMF Staff Country Reports 2011, 194; 10.5089/9781462342563.002.A001

Sources: WEO; and IMF staff estimates and projections.1/ WAEMU, excluding Côte d’Ivoire.2/ SSA, excluding Nigeria and South Africa.3/ For Côte d’Ivoire, Q2–Q4, 2011 over period GDP.

12. The authorities are making efforts to regularize relations with external creditor. After clearing arrears to the World Bank and the AfDB in late May, they are discussing arrears clearance with the EU/EIB. The authorities have already contacted Paris Club creditors and Eurobond holders on their intention to seek a rescheduling to clear arrears and resume payments subject to the availability of resources. A comparable approach is envisaged for other external creditors. Thus the authorities’ program assumes the continued arrears accumulation of $578.8 million due in debt service to official bilateral and commercial creditors in 2011.

B. Normalizing banking and payment systems operations and structural reforms

13. Rapid progress has been made in re-establishing banking system operations since late April, but loan portfolios have weakened significantly. The reopening of the offices of the central bank (BCEAO) and of commercial banks allowed the gradual restoration of the payment system and normalization of key financial transactions. While cash withdrawals, as expected, were high in the first few days the banks were open, deposits returned fairly swiftly and public confidence was quickly restored.

14. The BCEAO and banks are still assessing the direct and indirect losses suffered during the more than 2 months of temporary closure. The stocktaking is expected to be available by early July. Reflecting the damage throughout the economy, banks’ portfolio quality has been weakened, particularly for banks with large exposure to small and medium-sized enterprises as these have suffered the most, and many may not recover. Bank losses from the crisis and the increase in minimum capital requirement that took effect at end-2010 raise uncertainties about banks’ capital positions. Supervisory forbearance or other steps may need to be considered once more information is available.

MEFP ¶21

15. Even viable enterprises are facing serious liquidity needs. The deterioration in banks’ portfolio quality, the requirement of higher capital ratios as of end-2010, and, for foreign banks extending trade credits, the higher risk assessment for Côte d’Ivoire has limited most sources of financing for enterprises at a time when they are in urgent need of working capital and resources for re-building their operations. At the same time, the government’s need for revenue is adding pressure on enterprise liquidity, even though the authorities are making efforts to take enterprises’ specific circumstances into account when assessing and collecting taxes. No short-term solutions to this dilemma are at hand, and how the liquidity shortage is overcome in the next 2–3 months will be crucial for the speed of the economic recovery.

16. The many structural challenges that Côte d’Ivoire is facing remain and most have become more urgent.5 The already precarious financial situation of the electricity sector continues to deteriorate, despite the rise in the electricity subsidy to over 1 percent of period GDP during Q2–4 2011. The state oil refinery, while technically efficient, is facing significant deficits and cash flow problems related in part to the fuel price freeze and the drop in demand. These issues will need to be addressed so that the refinery can continue operations and ensure the supply of fuel to the country. Although the authorities fully recognize these problems, they consider electricity and fuel prices too sensitive to be raised at this time. They intend to use the next several months to develop strategies to deal with the main structural challenges in a medium-term context. A seminar on challenges in the energy sector took place in early June 2011.

MEFP ¶20

17. Reforms that were under way in some areas are to be restarted soon. The civil service census that had been initiated in 2010 is to be completed in 2–3 months. The damage the capital position of financial institutions suffered from the crisis adds urgency to the formulation of a sector strategy and the clarification of the government’s role in it. Similarly the need for developing an active debt management strategy has been heightened by recent events. The authorities intend to update an action plan in these areas and relaunch its implementation. The institutional reform of the cocoa/coffee sector is an important remaining HIPC completion point trigger, and discussions on the reform strategy with the World Bank are expected to resume in the coming months. Last but not least, the authorities are reassessing their Poverty Reduction Strategy and expect to develop an updated implementation plan for 2011 by end-June.

C. Financing Needs—A Considerable Challenge in 2011

18. With the deterioration in the fiscal position and pressures on the balance of payments, the fiscal and external financing requirements are large. After available financing, a financing gap of about FCFA 436 billion (5.3 percent of GDP) remains (Table 5). This gap could be filled by bilateral loans (2.8 percent of GDP), budget support grants (1.4 percent of GDP), debt relief (0.4 percent of GDP), and a possible purchase under the RCF (0.7 percent of GDP).

MEFP ¶23-24

Table 5.

Côte d’Ivoire: External Financing Requirements, 2007—11

(Billions of CFA francs)

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Sources: Ivorien authorities; IMF staff estimates and projections.

19. Based on the above policy understandings covering the remainder of 2011, the authorities of Côte d’Ivoire are requesting a disbursement under the RCF of 25 percent of quota (SDR 81.3 million), given the immediate financing needs and payments imbalances, and the catalytic effect of solid Fund support on other external financial assistance (Tables 4 and 5). In view of the ECF arrangement of 2009 now being off-track, the authorities are requesting assistance under the RCF and therefore are also notifying the Fund of the cancellation of the existing ECF arrangement. Côte d’Ivoire has met its obligations to the Fund in a timely manner. Interim HIPC relief lapsed after March 2011, and could resume under a future ECF arrangement.

20. The risk to Fund resources is considered to be manageable for Côte d’Ivoire. The use of Fund resources under the RCF will have a negligible impact on debt and debt service ratios (Table 6). In addition, although Côte d’Ivoire is currently in debt distress owing to the effect of the post-election crisis, prospects of an early normalization of Côte d’Ivoire’s financial relations with its creditors including debt restructuring in the next 12 months are good. As the updated LIC DSA6 shows, debt service indicators under the baseline are below their indicative targets, though they are expected to rise in the medium term, and the debt-service-to-revenue may breach its threshold temporarily under stress tests. In the past, including crisis years, Côte d’Ivoire has fully met its debt service obligations to the Fund.

Table 6.

Côte d’Ivoire: Indicators of Capacity to Repay the Fund, 2009—21

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Sources: IMF staff estimates and projections.

The interest rate on ECF is zero for 2009 -11 and assumed at 0.25 percent thereafter.

Assuming no more disbursement under the 2009 ECF and one-time RCF disbursment of SDR 81.3 million (25 percent of quota).

Total debt service includes IMF repurchases and repayments.

21. To help monitor program implementation, the staff and the authorities have reached understandings on a set of quarterly fiscal indicators (see Table 7). In addition, the authorities prepared a monthly treasury plan, which will help balance cash needs on a monthly basis and should help limit the accumulation of new payment arrears.

MEFP Table 1

Table 7.

Côte d’Ivoire: Indicative Targets, RCF 2011

(Billion of CFA francs)

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Cumulative change from April 26, 2011, unless otherwise indicated. See Technical Memorandum of Understanding (TMU) for detailed definitions).

Basic balance=Tax and nontax revenue+(Grant-Project grants-WB budget support grant-AfDB budget support grant)-(Total expenditure-Debt releif on interest-Foreign financed capital expenditure-Toxic waste).

Continuous target.

Excluding a loan (budget support of € 350 million) from Agence Francaise de Development (AFD).

D. Near- and Medium-Term Outlook and Debt Sustainability

22. A program that could be supported by a new ECF arrangement could be formulated as soon as the authorities are in a position to flesh out a medium-term economic program. Establishment of an ECF-supported program is needed to move towards the completion point under the HIPC Initiative, a priority for the authorities (see Box 2 for the status of the completion point triggers).

Triggers for the HIPC Completion Point

(As of May 2011)

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23. Growth should be strong in 2012 as the economy recovers from the crisis. Real GDP growth of 8–10 percent should be possible in 2012 once the security situation has been alleviated, parliamentary elections held, and investor confidence restored. After a decade of eroding per capita income, investment opportunities abound, including in oil exploration, electric power generation, construction, and transport infrastructure. Related import needs as well as declining oil production are expected to return the current account balance to a moderate deficit over the medium term.

24. Bank and Fund staff have prepared a new the LIC DSA in light of the post-election crisis and new borrowing, and discussed it with the authorities. Reflecting the accumulation of external arrears, Côte d’Ivoire’s debt outlook has deteriorated temporarily to the level of debt distress. The clearance of these arrears in late 2011 or early 2012 in the context of a possible ECF-supported program should revert this assessment to one of high risk, and reaching the HIPC completion point would make Côte d’Ivoire’s debt sustainable, providing space for much-needed borrowing to rehabilitate the economy. The RCF request would not materially affect the outlook with regard the outlook for the sustainability of debt.

E. Risks to the Outlook

25. Uncertainties and risks regarding the 2011 outlook are large. The security situation remains fragile and the government has not yet gained full control of the security forces. The establishment of law and order, the full revival of the public administration, and the full normalization of banking system operations are still underway. Revenue collections may be very low for several months until economic activity fully recovers, while the new government faces large immediate cash needs that will require a strict prioritization of spending. However, if the near-term challenges in 2011 can be addressed effectively and the election process completed, prospects are good for a resumption of strong growth along the lines envisaged in Côte d’Ivoire’s PRSP for 2009–13.

IV. Staff Appraisal

26. Dealing with the shocks and aftermath of the post-election political crisis and armed conflict during November 2010–April 2011 is a serious challenge for the authorities. With the economy contracting, they have the complex task of consolidating peace, restoring law and order, supporting a recovery in economic activity, as well as fully restoring the operations of the public administration.

27. The authorities’ fiscal response to the economic crisis in the face of a very uncertain resource envelope is appropriate. The budget for the period starting April 26, 2011 (the reopening of the central bank offices after a closure of almost 3 months) envisages a sizeable decline in revenue, a considerable rise in expenditure, and a large deficit that is expected to be covered largely by foreign resources. Staff consider the budgetary stance appropriate and conducive to an economic recovery and macroeconomic stability, while avoiding new domestic payments arrears.

28. Staff support the authorities’ cautious approach to revenue forecasting given the uncertainties on how quickly activity will recover. Commodity revenues should provide early inflows, but other taxes will take time to recover, reflecting the recent tax breaks to support the economy and help vulnerable groups, and the expected gradual recovery of the private sector.

29. Expenditure will need to be kept in line with available resources while addressing immediate priorities. The early payment of government wages helped to inject liquidity and boost confidence, as did temporary social programs, such as free health care at state clinics. While staff see the balance between revenue and expenditure choices as appropriate, given the uncertainties, it will be important to ensure expenditures are kept in line with available resources to avoid endangering macroeconomic stability. In the short term, the authorities will need to rely heavily on foreign budgetary financing. In view of Côte d’Ivoire’s heavy debt burden, staff urge the authorities to seek concessional financing, preferably grants, to the extent possible.

30. The authorities need more time to formulate their medium-term structural reform plans. Their focus on the reform of the energy and cocoa sectors, on which extensive analytical work has already been done, as immediate priorities, and, over a longer horizon, judicial reform, is welcome and encouraged.

31. Staff support the authorities’ request for assistance under the RCF in the amount of 25 percent of quota in light of the large balance of payments and fiscal needs and the catalytic effect of Fund support on other external assistance. The risks to the outlook are considerable given the uncertainties in this post-conflict environment. However, given the authorities’ commitment to the policies to be supported by the RCF they are manageable. If the near-term challenges are addressed effectively, prospects are good for a resumption of strong economic growth in 2012.

Appendix I

Office of the Prime Minister

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Ministry of Economy and Finance

Republic of Côte d’Ivoire

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Union-Discipline-Work

N° 0799 MEF/CAB-01/20

Abidjan, June 23, 2011

Acting Managing Director

International Monetary Fund

WASHINGTON DC, 20431

Subject: Letter of Intent.

Dear Sir:

The post-election crisis that has affected Côte d’Ivoire in recent months has had a profound impact on the country’s economic, financial, social, and security situation. As a result, the medium-term economic and financial program supported by the Extended Credit Facility (ECF) that Côte d’Ivoire has been implementing since 2009 to maintain economic stability and implement certain structural reforms has been overtaken by immediate needs. We therefore wish to cancel this program.

The government’s immediate priority is to consolidate peace through normalization and economic recovery. To this end, the government has implemented fiscal and tax measures aimed at providing relief to the population and restoring the country’s production facilities. To assist us as we implement this new course, we are counting on the support of the international community, which helped the government of Côte d’Ivoire as it sought a resolution to the crisis. Some partners, particularly France, have already provided us with substantial aid. We are asking the International Monetary Fund to provide immediate support in the form of a disbursement under the Rapid Credit Facility (RCF) in an amount equivalent to 25 percent of our quota, or SDR 81.3 million.

The attached Memorandum of Economic and Financial Policies (MEFP) describes the policies that we plan to implement during the transition period of normalization and economic recovery. It emphasizes policies—particularly fiscal policies—that will enable us to obtain rapid results in support of the recovery. We will need some additional time to better define our sectoral policies given that a full government was formed on June 1, 2011. We therefore anticipate beginning discussions with the International Monetary Fund (IMF) of a new medium-term economic and financial program to be supported by the Extended Credit Facility before the end of the third quarter of 2011 so that we may continue the reforms already begun, while taking into consideration of the impact of the post-election crisis.

The government is convinced that the policies and measures included in this memorandum are adequate to restore the situation. It will consult with IMF staff at its own initiative or at the request of the IMF Managing Director prior to the adoption of any additional measures that it may deem necessary or in the event of changes to the policies set forth in this Memorandum. The government also undertakes to cooperate fully with the IMF to achieve its policy objectives.

The Ivorien authorities agree to the publication of this Letter of Intent and the attached Memorandum of Economic and Financial Policies (MEFP) and Technical Memorandum of Understanding (TMU), as well as the IMF staff report relating the request for a disbursement under the Rapid Credit Facility (RCF). We hereby authorize their publication and posting on the IMF website after approval of the disbursement by the Executive Board of the IMF.

Sincerely yours,

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Attachments:

- Memorandum of Economic and Financial Policies (MEFP)

- Technical Memorandum of Understanding

Attachment I. Côte d’Ivoire: Memorandum on Economic and Financial Policies

June 23, 2011

I. Introduction

1. After a lengthy process, Côte d’Ivoire succeeded in holding democratic and transparent presidential elections. The mobilization of the Ivorian public and of political actors/leaders, as well as the international community, in the context of the Ouagadougou Political Accords, permitted significant progress to be achieved in the crisis-exit process, notably with the organization, and efficient conduct of the first round of the presidential elections, in a peaceful environment, on October 31, 2010.

2. However, the announcement of the results of the second round of the presidential election on November 28, 2010 plunged the country into a serious post-election crisis since December 2010. This crisis lasted for about 6 months and had an impact on the country’s political, economic, and social situation. The crisis displaced one million Ivorian from their homes, of whom over 100,000 took refuge outside the country; banks were closed for two months with damaging consequences for businesses and households alike; economic sanctions were imposed by the European Union, including an embargo of the country’s two ports; offices, commercial establishments, residences, and factories were destroyed and looted; and there was combat with heavy weaponry in the business capital. The consequences are still being felt, through the persistence of insecurity (despite a perceptible improvement in Abidjan since early May) and the spread of racketeering, and the closure of thousands of small and medium-sized enterprises. Economic agents are focusing their efforts on repairing production capacity and replenishing lost inventory. Initial partial estimates by the private sector of the economic losses are about some CFAF 2 trillion, or 20 percent of GDP.

3. The government of President Ouattara is determined to strengthen peace and to revitalize the Ivorian economy. The post-election crisis was ended by the swearing-in of the President of the Republic on May 6, 2011, his investiture on May 21, and the formation of a full government on June 1, 2011. The government’s priorities are: (i) to restore security throughout the national territory and to combat racketeering and road piracy; (ii) ensure the efficient functioning of government agencies; (iii) provide an immediate response to societal demands in the context of efforts to alleviate vulnerabilities and strengthen peace; (iv) to rehabilitate social and economic infrastructures; and (v) to create conditions for economic recovery, in particular through improvements in the business climate together with efforts to enhance good governance. The measures and actions set forth in this memorandum of economic and financial policies are designed to rebuild the economic fabric to achieve these objectives.

II. Recent Economic Developments and Implementation of the 2010 Program
A. Recent economic developments

4. The economic and financial program supported by the Extended Credit Facility (formerly PRGF) concluded on March 27, 2009—for the period 2009–11—was seriously disrupted by the post-election crisis. This program aims to ensure a stable macroeconomic framework, to create conditions for sustained growth, and to achieve meaningful reductions in poverty. A number of assessment missions, conducted through September 2010, found that the program had been carried out in a generally satisfactory manner. Through the pursuit of the economic and financial policy objectives in the context of this program, a rate of growth of 3.8 percent was achieved in 2009 and fiscal balances were improved.

5. Economic activity in 2010 was adversely affected by various shocks, in particular, the energy crisis at the beginning of the year, the downturn in crude oil production, the election tensions, and the post-election crisis. The post-election crisis, for the month of December alone, resulted in a loss of 0.4 percentage points of GDP in 2010. The main macroeconomic indicators in 2010 are as follows:

  • GDP grew by 2.4 percent, driven primarily by the secondary sector (construction and public works, food agriculture, and timber) and the tertiary sector (telecommunications and commerce). The primary sector stagnated reflecting the different trends of its major components (cocoa: -0.2 percent, crude oil: -21.5 percent, and food agriculture: +3.3 percent). The impact of the electricity outages in the first quarter of 2010 on economic activity was contained in the second quarter of the year, thanks to the government’s action including the leasing of a thermal power station (AGGREKO) and importing of electric power from Ghana.

  • Annual inflation averaged 1.8 percent in 2010 compared with 1.0 percent in 2009, reflecting supply difficulties in the wake of the post-electoral troubles. This level of inflation is nonetheless below the Community threshold (3 percent). Prices surged at year-end and 12-month CPI inflation at end-December 2010 reached 5.1 percent, driven by food (+14.8 percent). Excluding food, inflation was 1.8 percent year-on-year. To improve the CPI methodology, since May 2010 the basis for computing the CPI has been broadened and the reference year switched from 1996 to 2008.

  • The external current account is estimated to have recorded a surplus of 4.6 percent of GDP owing primarily to a contraction of the trade surplus, following an outturn of 7.4 percent of GDP in 2009. The decline in cocoa and oil export volumes was offset by the strong performance of prices.

  • The money supply increased by 18.2 percent, reflecting an increase in net foreign assets (+20.6 percent) and domestic credit (+13.2 percent). The evolution in net foreign assets owed to a strong performance in foreign trade and the mobilization of external resources. Developments in domestic credit reflected the evolution of credit to the economy (+8.7 percent) and the deterioration in the net government position (NPG: +26.7 percent) on account of the issuance of government securities and the use of IMF resources.

B. Budget policy and implementation of the 2010 economic and financial program

6. Overall, the budget outturn at end-2010 was not in line with the program on account of the disruption in economic activity. Budget revenues (tax and nontax receipts) recorded a shortfall of CFAF 70.4 billion (0.6 percent of GDP). Expenditures were largely kept within the limits of planned appropriations, particularly the wage bill. Implementation of the PRSP continued with the execution and tracking of pro-poor spending. Accordingly, with a target of CFAF 924.4 billion (8.1 percent of GDP), pro-poor spending turned out at CFAF 885.2 billion (7.8 percent of GDP) (Table 1). As a result, the 2010 budget balance (excluding grants for the settlement of arrears) was -2.3 percent of GDP as against a target of -2 percent of GDP. Cash flow difficulties led the government to rely on the subregional financial and money market to obtain net credit in the amount of CFAF 456.3 billion.

Table 1.

Côte d’Ivoire: Indicative Targets, RCF 2011

(Billion of CFA francs)

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Cumulative change from April 26, 2011, unless otherwise indicated. See Technical Memorandum of Understanding (TMU) for detailed definitions).

Basic balance=Tax and nontax revenue+(Grant-Project grants-WB budget support grant-AfDB budget support grant)-(Total expenditure-Debt releif on interest-Foreign financed capital expenditure-Toxic waste).

Continuous target.

Excluding a loan (budget support of € 350 million) from Agence Francaise de Development (AFD).

7. The government accumulated new domestic and external arrears. Financing operations were marked by an accumulation of domestic arrears in 2010, amounting to CFAF 31.1 billion by year-end, although prior to the outbreak of the post-election crisis, the stock of arrears in respect of previous years had been reduced by CFAF 157.9 billion. New external arrears in the amount of CFAF 19.7 billion were accumulated. This figure does not include arrears owed to non-London Club private creditors, for which debt restructuring is under discussion.

8. The government has made progress in restructuring external debt to private creditors. The restructuring of securities held by private creditors (London Club) was successful, as evidenced by a partial cancellation and the swap of 99 percent of the Brady bonds for new securities. Discussions are continuing with other non-London Club private creditors.

9. The government continued to implement structural reforms in 2010 including:

  • the effective imposition of an ad valorem tax having a cumulative rate of 22 percent relative to the c.i.f. price on cocoa, beginning with the 2010–11 crop year;

  • the launching of the National Public Procurement Regulation Authority (ANRMP); and

  • the further implementation of the PRSP, through execution of pro-poor spending and preparation of medium-term expenditure frameworks for the social sectors (health and education-training).

C. Economic developments in first quarter 2011

10. Economic activity suffered a severe downturn as a result of the post-election crisis, with economic activity slumping and prices surging. During this period, the following factors had a significant influence on economic activity:

  • the suspension of cocoa exports by the government;

  • the EU embargo on two Ivorian ports and it’s sanctions against a number of public enterprises;

  • the closure of the BCEAO national agencies followed by their requisition on January 26, 2011;

  • the closure of nearly all commercial banks except for state-owned banks, in mid-February 2011; and,

  • the intensification of the armed conflict from end-March to mid-April.

11. The armed conflict had a serious impact on government operations and the economic and social fabric. The clashes undermined the security situation, resulting in the displacement of large numbers of persons, both to the regions and to neighboring countries, namely, Ghana and Liberia. Widespread looting of government offices, businesses, and households occurred. The General Directorate of Taxes lost close to half of its IT equipment. Customs offices and certain key Treasury units were looted and pillaged. As a result, the operational capacity of the government’s revenue collection offices was weakened. Furthermore, production capacity was damaged, leading to technical unemployment and laying-offs of many workers. In addition, the disruption of the Police and Gendarmerie and the lack of facilities available to them opened the door to worsening insecurity and racketeering.

12. At end-March 2011, economic indicators showed that economic activity was contracting in the secondary and tertiary sectors. In the primary sector cocoa production rose (+30.0 percent) and crude oil production fell (-22.2 percent). Inflation averaged 5.2 percent primarily on account of rising food prices (+14.1 percent). Inflation is expected to slow down beginning in May 2011, thanks to the reopening of banks and resupply of markets with foodstuffs.

13. To honor the maturities falling due on government securities, the government—in cooperation with the BCEAO and a number of market participants—issued new bonds to replace the old bonds that matured between December 2010 and May 2011. This action made it possible to prevent damaging consequences for the banking system of the WAMU, the main market for securities issued by the Ivorian Treasury.

III. Policies for 2011 under the Rapid Credit Facility (RCF)

14. The government intends to lay the groundwork for economic recovery in 2011 by implementing an emergency program. This program is aimed at stabilizing the macroeconomic framework, strengthening security, improving the humanitarian situation, rehabilitating infrastructure, supporting the private sector, and re-equipping government services. The economic recovery program also includes a targeted investment component, namely through the Presidential Emergency Program (Programme Présidentiel d’Urgence (PPU)). The PPU focuses on priority sectors—specifically potable water, health, education, electricity, and urban sanitation, underlining the program’s commitment to addressing the basic needs of the general public. The government’s policies for 2011 supported by the RCF will be succeeded by a medium-term economic and financial program by end-2011.

15. The formulation of the macroeconomic framework for 2011 is complicated by considerable uncertainties regarding data consistency and the pace of the recovery. Following a sharp deterioration in economic activity from January to April 2011, real GDP is projected to decline by 6.3 percent. The inflation rate is expected to be in the area of 3 percent by end- 2011, reflecting the cyclical arrival of foodstuffs on markets during the second half of the year. The post-election crisis has had greatest impact on SMEs and the uncertainty regarding projections is higher than in the past. Economic information for first quarter 2011—including government financial operations—is fragmentary and is not yet available for the banking sector.

A. Main objectives for 2011 budget

16. The 2011 budget is based on the assumption of a gradual recovery in economic activity in the context of the emergence from the post-election crisis. The budget covers the period from April 26 (the date on which the BCEAO’s main agency in Abidjan re-opened) to end-December 2011. Central government financial operations executed prior to this period in 2011 are currently being validated and will be taken into account in a supplemental budget later when this information becomes available. The objectives of the 2011 budget, with respect to budget revenue, are lower than the previous years’ outturn reflecting the impact of the crisis on the economy. For expenditures, the targeted amounts are much higher and are focused on the government’s priority actions, including to address the humanitarian and social impacts of the crisis, to improve the security environment, to support the private sector, as well as non-discretionary spending (public debt service and personnel expenditure). The overall budget deficit (excluding grants for the settlement of arrears) is expected to be 8.5 percent of GDP for the period.

17. Budget policy with respect to revenues needs to strike a balance between temporary support for the private sector and a return to normal taxation. Many taxpayers will have difficulty meeting their tax obligations. The decline in budget revenues with respect to customs reflects the government’s fiscal support to pump prices of petroleum products and by declining revenues from general merchandise under the effects of the crisis. With regard to inland revenue, the contraction in economic activity is expected to a lead to a 39.4 percent loss in VAT revenue. The government has decided to suspend payment of the car registration tax (vignette) and the transport license tax (patente transport) for 2011, as well as to give relief of 50 percent on the trade license tax (patente commerce) for 2011.

18. The government’s priorities are geared toward supporting normalization by emphasizing humanitarian and security issues and strengthening peace. For this purpose, the 2011 budget makes provision for expenditure to rise from 22.0 percent of GDP in 2010 to 26.4 percent of GDP over the last three quarters of 2011. This increase is accounted for by the following:

  • free health care at public health care centers and hospitals through end-May;

  • provision of CFAF 50 billion to support the recovery of economic activity;

  • domestically financed capital expenditure in the amount of CFAF 217.8 billion, or 2.6 percent of GDP, allocated for PPU activities (0.5 percent of GDP), for large public works (which will be kept within the envelope of CFAF 40 billion), and for the rehabilitation of administrative services, social sectors, and basic infrastructure;

  • crisis-exit expenditures which will amount to CFAF 85 billion, or 1.0 percent of GDP, including for: (i) the National Program for Community Reintegration and Rehabilitation; (ii) the training of the new army; (iii) civic services; (iv) legislative elections; and (v) redeployment of the government throughout the national territory;

  • the subsidy for the electric power sector, which is expected to be approximately CFAF 87 billion, or 1.1 percent of GDP for the period;

  • other subsidies, including study grants, school kits, and the national agencies (EPNs) which amount to CFAF 97.4 billion, taking into account the reclassification of the totality of government expenditures on EPNs—CFAF 41.7 billion—as a transfer in line with the WAEMU accounting rules; and

  • the wage bill corresponding to 10 months of pay (March-December 2011) which will be kept to CFAF 727.4 billion, or 8.8 percent of GDP, taking account of the social sectors’ recruitment requirements in implementing the PRSP and the government’s redeployment needs.

Particular emphasis will be placed on poverty reduction expenditures with an appropriation in the amount of CFAF 840.1 billion, or 10.2 percent of GDP. Furthermore, expenditures will be controlled through dynamic management taking account of resource availability.

Structural Budget Measures for 2011

  • Refurbishing of the offices of the revenue-collecting agencies (DGI, DGD, DGTCP).

  • Completion of the IT software for tracking inland revenue exemptions and calculating the fiscal cost (DGI).

  • Launching of an operational database of customs valuations in the second half of the year (DGD)

  • Implementation of IT module for the management of customs exemptions in accordance with the recommendations of the Grand-Bassam Seminar (DGD).

  • Implementation of the advances management module and the module for managing budget amendments (DGBF).

19. The debt service management strategy reflects the budgetary constraints in 2011. Domestic debt service will be regularized and access to the regional market renewed during June 2011, with the implementation of the administrative conditions required by the Public Treasury and the BCEAO. The government will make an effort to reduce domestic arrears insofar as available resources allow. With respect to external debt, the government intends to regularize financial relations with its external creditors. The government settled the arrears to the World Bank and the AfDB in May and resumed payment of debt service falling due to them. The government is in discussions with the EIB to clear modest arrears owed to it. The government is committed to opening discussions with its other external creditors on a plan to settle arrears at end-2010 and maturities falling due in 2011. Regarding the Paris Club, negotiations will need to be opened for a new treatment near the end of the year in support of the next medium-term economic program.

B. Structural reforms

20. The government intends to pursue the gradual implementation of the reforms already under way, with a view to restoring the basis for sustainable growth. The government will review the full range of reforms initiated in the context of the Economic and Financial Program supported by the ECF, prior to September 2011, with the aim of taking stock of the post-crisis situation and looking to the future. However, a number of specific steps will be taken such as the organization in June 2011 of a seminar on the difficulties facing the electric power sector, the resumption of the survey of civil servants and government employees, the adjustment of the PRSP in 2011, and the launching of a study on the petroleum product pricing structure, with a view to the adoption of a new structure.

21. The financial sector has been weakened by the post-election crisis, but continues to play a crucial role in financing economic activity. To assess the economic losses impacting the financial soundness of the banking sector, the Banking Commission will evaluate the prudential situation of each bank as soon as possible. The government will take steps to ensure the proper functioning of the sector through compliance with prudential rules and ensuring adequate bank financing for the economy.

IV. Financing

22. The government intends to allocate a portion of the anticipated emergency financing for the relaunching of the public administration pending the resumption of normal revenue collection. The government borrowed a nonconcessional credit from the Agence Française de Développement in the amount of € 350 million, of which € 200 million were disbursed at end-April to pay wages for April and arrears at end-March. The remainder may be disbursed in June 2011. The government also mobilized CFAF 55 billion in May through short-term bridge loans in the form of bank prefinancing of export taxes [DUS] on cocoa inventories at end-March 2011. The government also benefited from a disbursement of AfDB grants in the amount of CFAF 72.5 billion in early June.

23. The financing needs associated with the economic normalization and revitalization program remain considerable. The government intends to obtain emergency IMF assistance and World Bank budgetary assistance in the third quarter of 2011. Furthermore, projects financed by development partners are expected to resume as soon as possible. Pending the rescheduling of the debt owed to the Paris Club, to private Eurobond holders and other private creditors, the government is expected to accumulate further external arrears.

24. The government intends to meet the remaining financing gap primarily through domestic and regional borrowing. In view of the need to lengthen repayment periods, the government plans to improve the maturity structure of its CFAF-denominated debt. The government will promote the creation over time of a Treasury issue market with primary dealers [Spécialistes en Valeurs du Trésor (SVTs)], and will promote a secondary market among economic actors. The government intends to streamline the management of domestic debt and issue Treasury bonds and debentures, longer-term instruments, to assure the availability of resources for investment financing.

V. Statistics, Capacity-Building, and Program Monitoring

25. The government agrees to continue its efforts to improve the statistical system, with a view to ensuring the regular production of quality economic and financial data. In this context, the government will update the draft master plan for statistics, taking account of short-term trends and new guidelines.

26. Côte d’Ivoire will pursue its efforts to strengthen the capacities of the government, particularly in those areas affected by the crisis. The government will continue to benefit from assistance from the IMF and from other development partners to (i) strengthen the tax and customs administrations, (ii) improve training for staff in producing the data needed to prepare the TOFE, (iii) assist in implementing the fiscal reform plan, (iv) improve the national accounts, with a view to constructing a social accounting matrix, (v) enhance external and domestic public debt management, and (vi) formulate a strategy for the financial sector.

27. The IMF Executive Board will monitor implementation of the government’s policies in May-December 2011 on the basis of indicative targets. These indicators are defined in the attached Technical Memorandum of Understanding (TMU).

  • The government undertakes to refrain from accumulating new domestic arrears, from any form of advance on revenues, apart from the bank pre-financing backed by pending payment of duties on cocoa inventories carried out in May–June 2011, and it undertakes to refrain from contracting nonconcessional external borrowing other than the borrowing specified in the TMU.

  • With respect to any new domestic financing, the government undertakes to issue public securities by auction through the BCEAO or by means of any other form of competitive call for tenders on the local financial market and on the WAEMU market, and to consult with Fund staff.

  • The government undertakes not to introduce or increase restrictions on payments or transfers pertaining to current international transactions, to introduce multiple currency practices, to enter into any bilateral payment agreements not in conformity with Article VIII of the IMF Articles of Agreement, or to impose or intensify any import restrictions for BOP balancing purposes.

Furthermore, the authorities—in consultation with the IMF—undertake to adopt any such additional financial or structural measures that may prove necessary to ensure the success of its policies.

Attachment II. Côte d’Ivoire: Technical Memorandum of Understanding

2011 Policies Supported by the Rapid Credit Facility

1. This Technical Memorandum of Understanding describes the quantitative indicators established by the Ivorian authorities and the staff of the International Monetary Fund (IMF) to monitor the authorities policies supported by the Rapid Credit Facility (RCF). It also specifies the periodicity and deadlines for transmission of data to the staff of the IMF for monitoring purposes. Unless otherwise specified, the government is defined as the central government of Côte d’Ivoire, including the National Social Security Fund (Caisse Nationale de Prévoyance Sociale, CNPS) and the Civil Service Pension Fund (Caisse Générale de Retraite des Agents de l’Etat, CGRAE), and Treasury operations for public companies in liquidation; it does not include any local government, the Central Bank of West African States (BCEAO), or any government-owned entity with separate legal status.

I. Quantitative Policy Indicators

2. For monitoring purposes, the indicative targets are set for June 30, 2011, September 30, 2011, and December 31, 2011. The indicative targets include: (a) a floor on total government revenue; (b) a ceiling on the government wage bill; (c) a floor on “pro-poor” expenditure; (d) a floor on basic fiscal balance; (e) a floor on the overall fiscal balance (including grants); (f) a ceiling for net domestic financing, including the issuance of securities on the WAEMU financial market; (g) a zero ceiling on new nonconcessional external borrowing; (h) a zero ceiling for the accumulation of new domestic arrears.

3. The indicative targets are calculated as cumulative change from April 26, 2011 (Table 1 of the Memorandum of Economic and Financial Policies, MEFP).

Table 1.

Côte d’Ivoire: Pro-poor Spending (incl. Social Spending), 20111/

(Billions of CFA francs)

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See detailed list of pro-poor spending produced in the SIFBUD /SIGFIP system.

A. Government revenue

4. Total government revenue is defined as revenue collected by the Tax Administration (DGI), the Directorate-General of the Treasury and Public Accounting (DGTCP), and the Customs Administration (DGD), the CNPS, and the CGRAE; and other nontax revenue as defined in the fiscal reporting table (TOFE).

5. The petroleum/gas revenues estimate for 2011 is based on: an average crude oil price of US$107.2 per barrel; a volume of 12.4 million barrels; and an average exchange rate of CFAF 479.2 = US$1.

B. Government wage bill

6. The government wage bill is defined as all expenditures (on a commitment basis) on pay, bonuses, and allowances paid to government employees, military personnel (excluding front premia), and other law and order personnel, and includes expenditures on special contracts and other temporary or permanent government jobs.

C. Pro-poor expenditure

7. Pro-poor expenditures are defined in Table 1 and are derived from a detailed list of pro-poor spending produced in the SIFBUD /SIGFIP system.

D. Basic fiscal balance

8. The basic balance is defined by the formula below:

{Tax and nontax revenue + (Grants – project grants – World Bank budget support grants – AfDB budget support grants)} – {Expenditure and Net lending – Foreign financed capital expenditure – Debt relief on external interest – Expenditure on toxic waste}

E. Overall fiscal balance (including grants)

9. The overall fiscal balance defined by the formula below::

{Tax and nontax revenue + (Grants – World Bank budget support grants – ADB budget support grants)} – {Expenditure + Net lending}

F. Net domestic financing

10. Domestic financing by the central government is defined as the issuance of all debt instruments in CFAF to domestic creditors and the WAEMU financial market, borrowing from the BCEAO (including drawings from the IMF), and the contraction of any kind of other liability in CFAF toward these creditors. The indicative ceiling on net domestic financing applies to net amounts of domestic/WAEMU borrowing defined as the gross amount of domestic/WAEMU borrowing less amortization during the period under consideration. This ceiling includes a margin of CFAF 25 billion over the net cumulative flow projected for each period.

Net domestic financing = Domestic financing – Nonsecuritized payment arrears – Net change in balances outstanding + Treasury loans from abroad (WAEMU) + Treasury bills placed abroad (WAEMU)+ Treasury bonds placed abroad (WAEMU)+ IMF drawings + residual gap

11. This target does not apply to new agreements on restructuring domestic debt or securitization of domestic arrears, nor to new BOAD and BIDC project loans. For any new borrowing over and above a cumulative amount of CFAF 30 billion over the year 2011, the government undertakes not to issue government securities except by auction through the BCEAO or through public auction (appel d’offres compétitif on the domestic or WAEMU financial markets registered with the Regional Council for Public Savings and Financial Markets (CREPMF), in consultation with Fund staff.

G. New nonconcessional external borrowing

12. The quantitative indicators concerning foreign borrowing apply to all nonconcessional external debt, irrespective of maturity, and whether it has been contracted or guaranteed by the government.7 They apply not only to the debt as defined above, but also to commitments contracted or guaranteed for which no value has been received. These quantitative indicators do not apply to:

  • normal import-related commercial loans having a maturity of less than one year;

  • rescheduling agreements;

  • West African Development Bank (BOAD) loans up to the equivalent of CFAF 25 billion or ECOWAS Bank of Investment and Development (BIDC) loans, up to the equivalent of CFAF 20 billion;

  • drawings on the IMF; and

  • CFAF-denominated government securities (or CFAF-denominated debt contracted or guaranteed by the government) which are initially purchased (or contracted) by WAEMU residents.

13. A loan is considered concessional if its grant element is at least 35 percent, the net present value (NPV) of the loan being calculated using a discount rate based on the average of the OECD’s Commercial Interest Reference Rates (CIRRs) over the last ten years for loans with a maturity of at least 15 years. For loans with a maturity of less than 15 years, the NPV is based on the average CIRRs of the preceding 6-month period (February 15 to August 14 or August 15 to February 14). The same margins for differing repayment periods are added to both the 10-year and 6-month averages (0.75 percentage point for repayment periods of less than 15 years, 1 percentage point for 15 to 19 years, 1.15 percentage points for 20 to 29 years, and 1.25 percentage points for 30 years or more).

14. The government undertakes not to contract or guarantee nonconcessional external loans under the conditions defined in ¶13, with the exception of loans constituting rescheduling of maturities. In this regard, the government undertakes to consult with IMF staff on terms and concessionality of proposed new borrowing in advance of contracting such external debt.

H. Balances outstanding and domestic payment arrears

15. The “balances outstanding” (or “amounts payable”) comprise domestic payment arrears and domestic floating debt and represent the government’s overdue obligations. They are defined as expenditures committed (engagées et liquidées), validated (viséespar le contrôleur financier), subject to payment order (ordonnancées), but not paid. These include bills due and not paid to public and private enterprises, but exclude domestic debt service (principal and interest). For program purposes, domestic payment arrears are those balances outstanding for which the payment delay exceeds the time frame for payment stipulated by the administrative regulations in force (90 days). The floating debt are those balances outstanding for which the payment delay does not exceed the time frame for payment stipulated by the administrative regulations in force (90 days). The balances outstanding are broken down by payer/type as well as by maturity and length of overdue period (< 90 days, 90–365 days, > 1 year. In general, the stock of floating debt will not exceed three months’ worth of current operating expenditure (excluding utilities) as well as investment and crisis-exit expenditure financed from own resources.

16. The government, in 2011, undertakes not to accumulate new domestic payment arrears on the current budget from April 26, 2011 on.

17. “Expenditures committed and subject to payment order” (depenses engagées non encore ordonnancées, ECPO) are potential obligations of the government and are defined as expenditures which have been committed but not yet validated. The stock of ECPO will be subject to continuous monitoring by the Directorate-General of Budget and Finances (DGBF) and monthly reporting in the TOFE.

II. Memorandum Items
A. Net Bank Credit to the Government

18. Net bank credit to the government is defined as the difference between government debts and government claims with the central bank and commercial banks. The coverage of net bank credit to the government is that used by the BCEAO, and is the same as that shown in the net government position (NGP).

III. Policy Monitoring and Data Reporting

19. A quarterly assessment report on the monitoring of the indicative targets will be produced by the authorities within 45 days after each quarter.

20. The government will report the information specified in Table 2a on a monthly basis, within 45 days of month-end unless otherwise indicated. The government will report the information specified in Table 2b quarterly, within one month of quarter-end.

Table 2a.

Côte d’Ivoire: Data Provision for Program Monitoring Purposes

(Monthly)

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Prepared and forwarded monthly (M) within 30 days of the end of the month. Electronic transmission to IMF HQ and IMF Office in Abidjan.

FI: file, electronic transmission to IMF HQ and IMF Office in Abidjan. FX: hard copy, transmission to IMF Office in Abidjan (for faxing to IMF staff)

Data on quarterly quantitative indicators specified in MEFP, Table 1.

Table 2b.

Côte d’Ivoire: Data Provision for Program Monitoring

(Quaterly)

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Preparation and monthly (M) or quarterly (Q) transmission within one month of the end of the quarter.

FI: file, electronic transmission to IMF staff and IMF Office in Abidjan. FX: hard copy, transmission to IMF Office in Abidjan (for faxing to IMF staff).

21. The BCEAO will report final data on the net government position (NGP) within 45 days of the end of the period in question. The information provided will include the complete, itemized listing of public sector liabilities and assets with (i) the BCEAO; (ii) the Banque Nationale d’Investissement (BNI); and (iii) the banking sector (including the BNI).

22. The authorities will consult with the Fund staff on any proposed new foreign borrowing contracts. Following signature of any such loans, the authorities will report terms of these contracts. Data on the contract, the amount outstanding, the accumulation, and repayment of the external payment arrears will be reported monthly within the six weeks from the end of each month.

23. More generally, the government will report to the IMF any information needed for effective policy monitoring.
1

For an order of magnitude, non-wage primary spending amounted to 2.4 percent of GDP in Q1, 2010.

2

Civil servants were paid two months of salary in late April, eliminating salary arrears incurred by the previous administration. Some other expenditure items, e.g. interest due, reflect the payment of the annual amounts during the 9 months of Q2–Q4.

3

Maturity of 9 years, including 3 years’ grace, at Euribor plus 0.5 percent.

4

Now that Cote d’Ivoire has cleared its arrears to the World Bank and the AfDB from its own resources, discussions are ongoing as to whether the €50 million from France is still needed.

5

These challenges have been highlighted in recent staff reports.

6

See Côte d’Ivoire LIC DSA (www.imf.org).

7

External debt is defined in “Guidelines on Performance Criteria with Respect to External Debt in Fund Arrangements,” Executive Board Decision No. 6230–(79/140), as amended by Executive Board Decisions No 14416–(09/91) on August 31, 2009.

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Cover IMF Staff Country Reports
Côte d'Ivoire: Cancellation of the Extended Credit Facility Arrangement and Request for Disbursement Under the Rapid Credit Facility
Author:
International Monetary Fund
Volume/Issue:
Volume 2011: Issue 194
Publisher:
International Monetary Fund
ISBN:
9781462342563
ISSN:
1934-7685
Pages:
84
DOI:
https://doi.org/10.5089/9781462342563.002
  • Figure 1.
    View in gallery
    Figure 1.

    Côte d’Ivoire: Selected Macroeconomic Indicators, 2007-11

    (Percent of GDP, unless otherwise indicated)

  • Figure 2.
    View in gallery
    Figure 2.

    Côte d’Ivoire: WAEMU, and SSA-Macroeconomic Development and Outlook, 2007-11

    (Percent of GDP, unless otherwise indicated)

  • View in gallery
Figure 1.

Côte d’Ivoire: Selected Macroeconomic Indicators, 2007-11

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

Côte d’Ivoire: WAEMU, and SSA-Macroeconomic Development and Outlook, 2007-11

(Percent of GDP, unless otherwise indicated)