Statement by Kossi Assimaidou Executive Director for Côte d’Ivoire

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.

My Ivoirien authorities appreciate the constructive dialogue with staff and broadly share the thrust of their reports. They are grateful for the Fund’s prompt support at a time when Cote d’Ivoire needs it the most.

After paying a huge toll to a decade-long political turmoil, Cote d’Ivoire had strived to renew with an acceptable stability, and to restore economic growth over the 2007-10 period. The peace accord that underpinned this momentum led to presidential elections in November 2010. However, the dispute over the results of the contest and the six month-long crisis that ensued turned into a violent conflict between two parallel governments, causing significant destruction and loss of lives.

As Cote d’Ivoire emerged from the crisis in mid-April 2011, President Ouattara’s government made a priority of endeavoring in national reconciliation and economic recovery. My authorities are determined to revamp the country’s political and social fabric while creating a conducive environment for the resumption of economic activity. It is in this context that they are requesting donors’ support as well as multilateral assistance. My authorities view the Fund’s Rapid Credit Facility as an important instrument in contributing to meet their short-term agenda of restoring public administration, security, law and order, meeting urgent social needs, and assisting the private sector with the view to accelerating economic recovery. Progress in these areas should pave the way for a medium-term program, to address long-stalling macroeconomic and structural reforms in macro-critical sectors including energy, cocoa/coffee, banking and finance, and the business climate.

Track Record and Recent Developments

Cote d’Ivoire was successfully implementing an ECF-supported program since March 2009. After two favorable reviews, staff and the authorities held discussions on the third review in September 2010, for a Board meeting expected after the presidential elections. Under this program, Cote d’Ivoire posted enviable results as regards macroeconomic performance and was making important inroads in the area of structural reforms. Real GDP growth stood at 3.8 percent in 2009, pushing per capita growth in positive territories for the first time in a decade. The global crisis was weathered well, and the HIPC completion point was expected by mid-2011.

The post election crisis undermined this momentum as it seriously damaged the economy. In 2010, many factors including energy shortages and the effects of a tense preelection climate in the last quarter, added up to yield a modest growth rate of 2.4 percent. Over the period of the post-election conflict, the most uncovered economic aspect was the closure in late January 2011, of the national offices of the central bank –BCEAO- and hence nearly all commercial banks except state-owned banks operating in Cote d’Ivoire. This has seriously affected both public and private activities.

The armed conflict and the inherent insecurity led thousands of people to flee the country, and thousands of internally displaced persons were also reported. In addition, significant public and private assets were destroyed. As a result, many branches of the administration as well as private companies lost part or all of their working capacities and production factors.

Beyond the economy, the conflict has severely damaged Cote d’Ivoire’s social fabric and my authorities are cognizant of the daunting task of national reconciliation that awaits them. The President has appointed a committee to conduct the work of Dialogue, Truth and Reconciliation.

Challenges for 2011 and the Case for a RCF

My authorities’ main challenge for the remainder of 2011 is to respond to the high social demand entailed by a post-crisis situation, while facing severe revenue constraints. All end-year projections reflect the impact of the conflict and the disruption of activity over the past months. Real GDP is projected to decline sharply by 6-7 percent, and activity is expected to normalize only in Q4 2011. Domestic revenue collection is expected to shrink significantly, with only a gradual restoration of operations of the tax administration.

Cognizant of the need to lay the ground for a restoration of economic activity, my Ivoirien authorities have designed their emergency program around the objectives of stabilizing the macroeconomic framework, strengthening security, improving the humanitarian situation, rehabilitating infrastructure, supporting the private sector, and re-equipping government services. The program also includes a targeted investment component, namely through the Presidential Emergency Program (Programme Présidentiel d’Urgence), which focuses on priority sectors—specifically potable water, health, education, electricity, and urban sanitation.

My authorities’ fiscal policy strikes a balance between providing support to the private sector through some tax breaks, and reestablishing normal taxation to secure government revenue. The budget adopted on June 22, 2011 covers the period starting from April 26, 2011 – marking the resumption of banking operations - through end-year. On the revenue side, tax breaks include suspension of commercial vehicle registration fees and the turnover tax for transport services, and the reduction by half of the turnover tax on commerce. Additional support is provided through unchanged fuel prices. A 39.4 percent loss is projected in VAT revenue due to the contraction in economic activity. Only oil and cocoa tax revenue is projected to increase by 1.7 percent of GDP compared to 2010. Overall, fiscal revenue is projected to fall by about 2 percentage points of period GDP during Q2–4, 2011, compared to 2010.

On the expenditure side, the high demand on public services is reflected in a projected rise of outlays of 4½ percentage points of period GDP during Q2–4, 2011 compared to 2010. Factors behind this rise include refurbishing costs, higher interest charges, higher electricity subsidy, and humanitarian and security-related measures, including the restarting of public utility services after conflict-related interruptions, and temporary free transport and health services.

My authorities are committed to implement their budget with a clear awareness of the scarcity of public resources. The overall budget deficit (excluding grants for the settlement of arrears) is expected to amount to 8.5 percent of GDP for the period. In the face of shrinking domestic revenue, my authorities intend to mobilize resources from the regional securities market, beyond bilateral and multilateral support. Early external financing included a credit from the Agence Française de Développement (AFD) (€ 350 million), and a disbursement of the African Development Bank’s grants (CFAF 72.5 billion). The loan from the AFD has been instrumental to the provision of urgent humanitarian services to the populations at the end of the conflict and to the clearance of salary arrears for government employees in late April, with the view to resuming public administration activities.

My authorities intend to resume the sound management of the external debt service and the payment of domestic debt. In this regard, administrative conditions required by the BCEAO will be implemented to renew access to the regional market. Efforts will be made to reduce domestic arrears with a view to enhancing enterprises’ cash flow situation. The government settled the arrears to the World Bank and the African Development Bank in May 2011 and resumed payment of debt service falling due as well. The authorities are committed to discussing with other external creditors on a plan to settle arrears at end-2010 and maturities falling due in 2011. Regarding the Paris Club, my authorities expect the opening of negotiations for a new treatment of the debt in support of the next medium-term economic program.

As regards the misreporting case that occurred on some non concessional loans contracted between January and June 2010, my authorities have communicated their views to staff and to management and request a waiver from the Board for non observance of the continuous PC under the late ECF. My authorities stressed that the misreporting was completely unintentional and resulted from a misunderstanding by the authorities concerning the appropriate methodology for calculating the grant element of loans for the relevant performance criterion. Going forward, my authorities would employ the appropriate methodology as reviewed with staff, and would consult with staff on terms and concessionality of proposed new borrowing in advance of contracting such external debt. Moreover, enhancing debt management skills is a core area of my authorities’ capacity building agenda.

The structural reforms of my authorities will encompass the full range of issues identified under the late ECF. In the short run, a review will be conducted on the reforms initiated and course of actions be changed where applicable. Steps will be taken under the RCF, which should facilitate the acceleration of reforms in the next medium-term program. Actions in this regard include the organization of a seminar on the issues facing the electric power sector, the resumption of the civil service census, the reassessment of the PRS and development of an implementation plan, the launching of a study on the petroleum product pricing structure, and the assessment by the Banking Commission of the financial soundness of the banking sector.

Looking Ahead

My authorities are aware of the fact that many projections in their fiscal framework for 2011 are highly tentative. Accordingly, their management strategy entails contingency plans and they are committed to act proactively if revenue and financing risks were to materialize. Moreover, the short-term program should serve as a framework to restore fiscal management and support the resumption of economic activity. My authorities have indicated their intention to move quickly to an ECF-supported program as an instrument to implement structural reforms capable of engineering strong and sustained growth. The implementation of the remaining HIPC triggers under such a program should also help Cote d’Ivoire reach the HIPC completion point. Staff’s DSA has rightly highlighted the worsening of Cote d’Ivoire’s debt dynamics, which calls for debt relief at the earliest possible.

The impact of the post-election crisis has added up to an already worrisome poverty profile in Cote d’Ivoire. Beyond the actions taken to address the humanitarian consequences of the crisis in the short run, my authorities are cognizant of the need to reduce poverty in a comprehensive and sustainable manner. This requires large investments from the government and the emergence of a more vibrant private sector providing massive employment opportunities.

Conclusion

Cote d’Ivoire’s post-election crisis momentarily ruined the hopes of full economic recovery and the benefits of the HIPC completion point expected for mid-2011. The amount of damage caused to the economy and to the country’s fundamentals is yet to be assessed. In the face of daunting challenges, my authorities have taken steps to restore law and order and operations of public administration. Amid an environment of conflicting goals of raising revenue while supporting crisis-damaged enterprises, the authorities have unveiled a budget which should be instrumental to their priority actions through the remainder of 2011.

The assistance of the international financial community is paramount for Cote d’Ivoire in the period ahead. The RCF should provide the appropriate framework for such assistance and I would appreciate the Board support in this regard.