Abstract
This 2011 Article IV Consultation reviews Côte d’Ivoire’s economic condition. Côte d’Ivoire is emerging from a decade-long sociopolitical crisis that has held back its economic growth. In 2009, Côte d’Ivoire adopted an economic and financial program supported by a three-year Extended Credit Facility (ECF) arrangement with the aim of ensuring a stable macroeconomic framework, promoting sustained growth, and reducing poverty. Executive Directors have commended Côte d’Ivoire’s rapid progress in reviving the economy. Directors have also welcomed the authorities’ good performance under the economic recovery program, especially the prudent budgetary stance.
My Ivoirien authorities are grateful to Fund staff for the fruitful discussions held in Abidjan in September 2011. The threefold discussion--which includes assessment of the Rapid Credit Facility program, Article IV consultation and background work for a new ECF-supported program--provided the opportunity to exchange views on a broad array of issues regarding the country’s economic prospects and reform challenges.
Côte d’Ivoire has come a long way from prolonged political tensions, and my authorities appreciate the prompt support of traditional partners and the international community in general immediately following the end of the post-election crisis, which has helped weather its most severe effects. My authorities have made progress in improving the security situation although it remains less favorable in some rural areas. The work to rebuild a new army to help with restoring stability and security is going on. The Dialogue, Truth and Reconciliation Commission (CDVR) is fully constituted and has begun contacts with various opinion leaders in the country to lay the ground for its consultations with all parties. The process of national reconciliation, along with the upcoming legislative elections (planned for December 2011) and the recovery of the economy, should help consolidate the peace.
The RCF-supported program and the related financial assistance have contributed to restoring public administration, meeting urgent social needs, improving security and assisting the private sector in revamping its production capacity. At this juncture, my authorities consider a comprehensive medium-term program as the appropriate framework to set ambitious goals and re-ignite structural reforms with the view to further unleashing the country’s growth potential. Furthermore, realizing high and sustained growth is key to curbing the crisis-worsened poverty profile, addressing unemployment especially among the youth, and helping create favorable conditions for national reconciliation.
Implementing key fiscal and structural reforms in the framework of a medium-term program, and reaching the HIPC Completion Point are important milestones in my Ivoirien authorities’ agenda towards alleviating the debt burden, creating the necessary space for increased infrastructure investment, sustaining growth, and launching a longer term development strategy. The support of the international community will be critical in this regard, and my authorities request the approval of a three-year arrangement under the ECF and additional interim assistance under the Enhanced HIPC Initiative. They also highly value the technical assistance from the Fund and the World Bank which they have requested notably in the areas of public financial management, debt management, and financial sector development.
I. Recent Developments Under the RCF
Côte d’Ivoire has performed well under the RCF-supported program and my authorities welcome staff’s favorable assessment of their achievements over the recent period. The steadfast actions taken by the authorities helped turn the downward trending of growth. The projected decline in real GDP for 2011 was thus revised in September from -6.3 percent to -5.8 percent, with further improvement expected by year-end. This positive development was driven by a quick recovery in industrial production, stronger agricultural production and mining output. Early inflation pressures have abated and annual inflation fell from over 9 percent to 4.5 percent in June-August.
The government has taken actions on many fronts for a quick recovery in all sectors. Budget execution was in line with the objectives of the RCF-supported program, notably with revenue exceeding the June target. Spending was kept under check and non essential outlays were cut. The authorities almost completed the re-equipment of public services and extended substantial support to the private sector by diverse means. The government continued the rollover of Treasury bills through October, and also started the restructuring of domestic debt. The authorities have also launched the ground work for key structural reforms planned for the medium-term agenda, including in the financial sector, the energy sector, and the business environment.
II. The New ECF Program and Medium-Term Challenges
My authorities are requesting IMF support under the ECF. The objectives of the program are in line with their priorities, and include notably:
Investing in sustained growth. After a decade-long conflict and huge resources devoted to financing crisis-related operations, my Ivoirien authorities have placed their medium-term agenda towards redirecting public expenditure to growth-enhancing investments. With real output expected to bounce back to 8-9 percent in 2012, the draft budget thus allocates more than CFA F 600 billion (5 percent of GDP) to capital spending, more than double compared to the 2011 level. The authorities are committed to significantly increasing capital outlays over the medium term, once necessary effort are made in 2012 to restore some basic public services, including re-equipping government services and rehabilitating basic infrastructure.
Aiming fiscal sustainability. My authorities’ fiscal policy for the period ahead will be geared toward the objectives of enhancing revenue to finance investment and create more space for poverty reduction. In this regard, the government is expecting a recovery in revenue temporarily lost due to the post-election crisis including taxes on corporate profits. Furthermore, my authorities will implement measures to strengthen tax and customs administrations, streamline tax exemptions, and fight tax evasion and fraud. In the same vein, tax and customs administrations have increased their number of branches especially in the Center-North-West zones, which should help enhance government revenue. To improve the budget deficit over the medium term, the authorities are determined to entrench the effort of reducing current spending as signaled under the 2012 budget.
Reaching the HIPC completion point. My authorities’ plan to realize long-term fiscal sustainability entails also a decisive improvement in the debt situation. Côte d’Ivoire’s engagement in the HIPC process has been a protracted one. Over the past decade especially, much resources have been devoted to the implementation of the triggers, and important reforms have been initiated. During his recent visit to the Fund, Côte d’Ivoire’s President, H.E. Alassane Ouattara reaffirmed the authorities’ strong determination to reach the Completion Point at the earliest possible in 2012. My authorities appreciate staff assessment that progress on the bulk of the triggers is advanced.
Strengthening the financial sector. In their strategy to make the private sector a key actor and the main source of employment, my authorities are committed to deepening the financial sector and place it on a sound footing, with the view to making credit flow into the economy. In that regard, the national office of the central bank, BCEAO, is completing a thorough assessment of the post-crisis situation of banks and financial institutions. This work will help my authorities conduct their comprehensive financial sector reform aimed at lifting the bottlenecks that impede the financing of the private sector especially SMEs. As regards the state-owned banks, my authorities have taken urgent measures, including appointing new management teams, to stop the losses while working on strategies to divest them from public ownership. Strengthening the microfinance sector is also part of my authorities’ plan to broaden access to credit, especially for unbanked segments of the populations. Moreover, efforts to help build strong financial institutions such as raising the minimum capital will be pursued.
Addressing long-stalling structural reforms. My authorities place a particular emphasis on addressing the imbalances in the energy sector, with the aim of availing abundant and lost-cost electricity to the private sector and to households over the medium term. In this regard, they have unveiled an incremental approach of bringing financial balance to the sector. A negotiation agenda has been set, starting from the stakeholders that contribute the most to the imbalances in the sector. Before year-end, the authorities intend to conclude discussions with gas producers and the electricity company, and to adjust electricity prices. As regards, the civil service, the reform is advanced and key steps of census, the setting a Single Reference File for civil servants, and an integrated personnel management system (SIGFAE) are due at year-end. The ultimate goal remains to create a transparent file for all public service personnel to be accounted for and hence help the government adopt an informed strategy to curb the wage bill over the medium term.
Improving the business climate. My Ivoirien authorities are cognizant of the efforts needed to improve the business climate to enable the private sector to play a greater role in the economy and attract more private investments. The government is working on various fronts in this regard. In particular, an important agenda of revamping the national physical infrastructure network is underway. The judicial system is undergoing major changes, starting by appointing new judges to the important institutions. Actions have also begun to enhance competition, with the design of a new investment code and a competition law. The authorities are also working on measures to reduce red tape and facilitate business start-ups, including creating a one-stop shop. These actions are being topped by a campaign by the highest authorities to reposition Côte d’Ivoire as a first-class destination for investors, and by efforts to renew relationships with key partners. In this vein, my authorities welcome the renewal by the US authorities of the AGOA eligibility for Côte d’Ivoire, on October 25, 2011.
Conclusion
The RCF-supported program has helped Côte d’Ivoire dampen the effects of a costly post-election crisis. The financial support provided by the donor community in this framework has been instrumental in getting the basics right and in paving the way for a more ambitious medium-term agenda. My Ivoirien authorities are committed to working steadfastly towards improving security, and law and order. They will also endeavor in furthering national reconciliation for lasting peace and political stability.
My authorities view these developments as necessary conditions to mobilize domestic resources for building a broad-based economy. The reform agenda set forth for the period ahead will ignite the growth momentum and contribute to create employment opportunities for crisis-hit populations. My authorities view the ECF framework as suitable to their agenda, and I would appreciate Board support for their ECF request, which will help Côte d’Ivoire cope with the challenging endeavors ahead.