Côte D’ivoire: 2013 Article IV Consultation and Fourth Review Under the Extended Credit Facility Arrangement
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International Monetary Fund. African Dept.
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Publication Date:
19 Dec 2013
eISBN:
9781484313213
Language:
English
Keywords:
ISCR; CR; Côte d'Ivoire; financing; government; macroeconomic performance; Executive Board's discussion; poverty rate; authorities' strategy; financial support; Debt service; Business environment; Government debt management; West Africa; Global; Africa; crowding in; cash position; consideration of a Eurobond issue; Arrears
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Côte d’Ivoire is recovering from a long period of economic stagnation and political conflict. The authorities have over the last two years made considerable headway toward their objective of boosting medium-term growth to raise living standards and transform the economy into an emerging market by 2020. Together with a surge in public investment to renew and expand public infrastructure, they are implementing reforms, notably, to improve the business climate, strengthen the energy and financial sectors, and reduce poverty. Sustaining high growth rates will, however, require maintaining the reform effort over the medium term.

Abstract

Côte d’Ivoire is recovering from a long period of economic stagnation and political conflict. The authorities have over the last two years made considerable headway toward their objective of boosting medium-term growth to raise living standards and transform the economy into an emerging market by 2020. Together with a surge in public investment to renew and expand public infrastructure, they are implementing reforms, notably, to improve the business climate, strengthen the energy and financial sectors, and reduce poverty. Sustaining high growth rates will, however, require maintaining the reform effort over the medium term.

BACKGROUND

Côte d’Ivoire is recovering from a long period of economic stagnation and political conflict. The authorities have over the last two years made considerable headway toward their objective of boosting medium-term growth to raise living standards and transform the economy into an emerging market by 2020. Together with a surge in public investment to renew and expand public infrastructure, they are implementing reforms, notably, to improve the business climate, strengthen the energy and financial sectors, and reduce poverty. Sustaining high growth rates will, however, require maintaining the reform effort over the medium term.

A. Context

1. Following high growth in the 1960s, terms-of-trade shocks in the late 1970s contributed to a long period of economic stagnation, compounded by political instability and conflict from 2000 to 2011. The social cost has been severe: real per capita income in 2011 was only about 57 percent of its peak 1978 level; the poverty rate increased from 37 percent in 1995 to almost 50 percent in recent years; and governance indicators weakened. The 2013 UNDP Human Development Report ranks Côte d’Ivoire among countries with low human development (168 out of 186 in the 2013 Human Development Index). Progress towards achieving the Millennium Development Goals has been slow and the official unemployment rate was estimated at about 9½ percent in late 2012, with a much higher rate among the young, the women, and in Abidjan.

2. The socio-political situation has improved substantially since the end of the 2010/11 post-electoral crisis, but serious challenges remain, including meeting expectations of improved living standards. The administrative reunification of the country and a full election cycle have been completed, and insecurity has declined substantially. Some progress has been made in incorporating former combatants into the security forces and the civil service, leading the UN Security Council to recently approve a gradual scaling down of ONUCI’s military presence. Progress towards political reconciliation and restoring social cohesion continues, but remains difficult. In addition, the population is anxious to see tangible improvements in living standards and higher wages.

MEFP ¶¶ 1, 2

3. The authorities’ key challenge is to build the foundations for sustainable, robust and inclusive growth. The 2012–15 NDP lays out a comprehensive reform agenda aimed at delivering double-digit growth and halving the poverty rate. To this end, the government is boosting public investment to tackle infrastructure bottlenecks and creating a more business-friendly environment. To address poverty, it has reformed the cocoa sector, thereby increasing income of about 700 thousand farmers and raised pro-poor spending. Other measures include programs to expand mining output, boost rice production—an important basic staple—, setting up a mechanism to guarantee a minimum price for cotton and cashew, and establishing a universal health insurance scheme.

4. Macroeconomic performance since the 2011 Article IV consultation has been strong. Following the end of the post electoral crisis, sizable external financial support and a large fiscal stimulus helped limit the 2011 recession to 4.7 percent. The 9.8 percent rebound in economic growth in 2012 and a projected 8.7 percent in 2013 have been further helped by an upturn in business and consumer confidence and the impact of structural reforms, including in the cocoa sector. Preliminary indications in 2013 point to a rise in the number of business starts, increased employment in the formal sector, robust domestic consumption of energy, strong activity in the construction and public works, retail, and energy sectors, as well as in the agro-food sector. Average inflation dropped from a peak of 4.9 percent in 2011 to 1.3 percent in 2012. The overall fiscal deficit narrowed from 5.7 percent of GDP in 2011 to 3.4 of GDP in 2012. The current account balance moved into deficit, driven by a surge in investment-related imports and the strong economic rebound.

5. 2011 Article IV recommendations. At the November 2011 Board meeting, Directors emphasized the importance of broadening the tax base, limiting current spending, and strengthening tax and expenditure administration to create fiscal space for higher investment and social spending. They gave high priority to financial sector deepening and strengthening to support private sector development. Directors welcomed the proposed cocoa sector reforms, noted the significant effort needed to place the energy sector on a sound financial footing, and stressed the importance of governance and other reforms to improve the business climate and enhance external competitiveness

6. Implementation of previous staff advice has been uneven. The authorities have restructured the public external debt,1 taken steps to improve tax administration, and notably refocused expenditure towards higher investment and social spending, while lowering the fiscal deficit. They have also implemented major structural reforms to shore up the financial situation of the energy sector, reform the cocoa sector, and improve the business climate. However, decisive measures to deepen the financial sector and restructure the state-owned banks are not yet in place, while governance and expenditure management remain weak.

B. Recent Economic Developments, Medium-Term Outlook and Risks

7. Continued strong growth is expected in 2013 and 2014. In the near term, growth is projected to remain robust (8.7 percent in 2013 and 8.2 percent in 2014), driven by strong public investment. Rising private sector investment is also expected to support growth. Despite higher food prices early in 2013, inflation would remain below the 3-percent regional convergence criterion. The overall fiscal deficit is expected to decline to 2.7 percent of GDP in 2013 and 2.3 percent of GDP in 2014, while the primary basic fiscal deficit would narrow from 0.2 percent of GDP in 2013 to 0.1 percent of GDP in 2014. The current account deficit would increase to about 1.8 percent in 2013 and 3.1 in 2014 owing to higher imports of consumption goods and a stronger increase for capital goods, while the balance of payments would record a small surplus, supported by higher FDI and project loans.

Text Table 1.

Côte d’Ivoire: Output Growth Decomposition

(Contribution to annual growth rates, percent)

article image
Sources: IMF staff calculations based on Penn World Table, Version 8; the Barro and Lee education attainment dataset; and country household surveys.

Strong investment and structural reforms have contributed to higher total factor productivity growth for the first time in over three decades.

8. Medium-term growth is expected to remain high. In the staff’s projections, high growth rates would remain at about 8 percent through 2015 and would gradually decline to about 7 percent over the medium term, while inflation would remain moderate. Growth would be driven by a broad-based increase of private investment, in agriculture, mining, and housing, but also in food processing and services, supported by public investment in infrastructure and the improvement of the business climate. Exports would remain strong as a result of measures to support agricultural production and processing, and of higher mining output (gold in particular). The fiscal deficit would remain small at around 3 percent of GDP, while the current account deficit would widen somewhat reflecting high imports of capital goods, financed in part by FDI and project loans. This high-growth baseline scenario is contingent on sustained reform momentum to allow high and efficient investment.2 It also assumes significant reforms to further improve the business climate and governance. Box 2, which analyzes best practices from non-natural resource producing countries in Africa with a high-growth record, underlines the importance of achieving a sustained increase in investment. Also, it is noteworthy that 5 out of 6 of the fast-growing countries in Box 2 delivered very rapid productivity (TFP) growth making an important contribution to overall growth; while recent structural reforms in Côte d’Ivoire have resulted in a return to positive productivity growth after 3 decades of negative growth, it has not yet achieved the productivity growth rate of the best performing countries, which underscores the need for additional progressive reforms to further strengthen the business climate.

Text Table 2.

Côte d'Ivoire: Medium-Term Macroframework, 2011–18

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Sources: Ivoirien authorities and IMF staff estimates and projections.

Staff’s Views

9. There are downside and upside risks to the medium-term scenario. While Côte d’Ivoire has had high growth rates since the end of the crisis, sustaining high growth rates once the recovery period is completed will require further sustained reform efforts.

  • The most significant downside risk is that the strong scaling-up of public investment may fail to deliver high growth, in absence of sufficient crowding in of private sector investors. While recent reforms have strengthened private sector confidence and the business climate, more needs to be done to boost private investment—both FDI and domestic. Lower-than-projected growth would narrow the fiscal space, reducing the resources available for public investment and social spending (see Text Table 3 for an illustrative lower-growth scenario).

    Text Table 3.

    Selected Economic Indicators, 2013–33

    (Percent of GDP, unless otherwise indicated)

    article image
    Sources: Ivoirien authorities; and IMFstaff estimates.

  • Lack of further progress toward political reconciliation, in particular in the run up to the 2015 presidential elections may also negatively affect growth prospects.

  • The population’s anxiousness to see tangible improvements in living standards and higher wages also carries risks. While the promise of higher salaries in the civil service from 2014 has contributed to eliminating the work stoppages seen in 2012 and the first part of 2013 (in particular in the health and education sector), a resurgence is possible.

  • The impact of potential external risks, including higher financing costs following the end of an accommodative monetary policy in the US; a worsening of the economic outlook of the main trading partners and donors; and a deterioration of the overall regional security,3 appear comparatively more limited. However, higher prices for imported basic staples such as rice and adverse weather shocks would present significantly high risks.

  • Upside risks to the baseline scenario could arise from higher-than-projected FDI flows and an even stronger crowding in of private investment if the NDP’s goals of creating one of the best business climates in Africa and becoming a regional leader on good governance and anti-corruption are materialized early on.

Authorities’ Views

10. The authorities viewed staff projections as too conservative. Their own growth projections are much more ambitious, with real growth rates of 9 percent in 2013 and 10 percent in 2014–15, driven by higher private investment. They noted that staff had already had to revise its growth projections upward on several occasions. They reiterated their commitment to implement the reforms required for reaching the high levels of private investment in the NDP, and indicated their readiness to adopt measures to address these downside risks, if they were to materialize.

MEFP ¶18–25

Côte d’Ivoire: Inclusive Growth

Poverty increased following a marked decline in real per capita income since the late 1970s and the period of conflict from the early 2000s to the end of the post-electoral crisis of 2010–11. Poverty indicators have not been updated since 2008, as the crisis prevented the National Statistics Institute from carrying out a new Living Standard Measurement Survey. Yet, despite data deficiencies, the authorities estimate that the displacements of population and the sharp deterioration of social services in most of the country during the crisis resulted in slightly more than half the population living below the poverty line in 2011. The 2013 human development report estimates that 61.5 percent of the population lives in multidimensional poverty despite an increase in some human development indicators (see table below).

Human Development Index, 1990–2012

Citation: IMF Staff Country Reports 2013, 367; 10.5089/9781484313213.002.A001

Source: UNDP, Human Development Report, 2013.

Reducing poverty and making growth more inclusive is at the center of the authorities’ strategy in the NDP and progress has most likely already taken place, although data is not available. The authorities have already adopted measures that will alleviate poverty, such as the cocoa reform and the setting up of a minimum price for cotton and cashew. They have also achieved a strong increase in pro-poor spending, with priority given to the health and education sectors for new hiring and the renovation of a number of health and education facilities. They are also considering the creation of a universal health insurance system. While the high and broad-based growth performance in 2012 and 2013 have resulted in an increase in employment in the formal sector and most likely in a decline in poverty incidence, data deficiencies do not allow to assess the percentage by which poverty has been reduced.

MEFP ¶8

Making growth more inclusive will remain a long-term challenge. The population is relatively young and growing at about 3 percent per year, with the labor force growing rapidly. Employment remains dominated by agriculture, mostly in subsistence activities and low productivity jobs. Average skill levels in the labor force will take time to improve. Sustaining strong growth over an extended period of time will further increase per capita income, but a key challenge in the years ahead will be to improve human development indicators. Policy priorities will continue to include addressing the infrastructure gaps, strengthening productivity in agriculture, investing in health, education, and vocational training and upgrading education and skill levels to shift people from vulnerable employment to better wage-paying jobs, supporting access to credit for smaller and newer enterprises, facilitating the creation of markets with supporting infrastructure (such as transportation networks) both locally and at the provincial level, and continued efforts to strengthen the basic social protection system to help the most vulnerable.

Selected Human Development Indicators

article image
Sources: UNDP, World Development Indicators; Authorities.

Côte d’Ivoire: Risk Assessment Matrix (RAM)

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POLICY DISCUSSIONS: BUILDING THE FOUNDATIONS FOR STRONG GROWTH

  • The discussions focused on the key policies needed to achieve high growth rates consistent with the government’s vision set out in the NDP: (i) ensuring long-term fiscal sustainability; (ii) strengthening the financial sector; (iii) bolstering external stability and improving the business climate; and (iv) enhancing governance.

A. Policy Theme #1: Ensuring Long-Term Fiscal Sustainability

11. Sustaining fiscal discipline over the medium term, while preserving space for pro-poor and infrastructure spending. The authorities have implemented prudent fiscal policies since 2011, allowing both a major reduction in the fiscal deficit and a surge in public investment. This fiscal stance, however, is facing increasing headwinds. On the revenue side, the tax base has been eroded by incentives contained in the 2012 investment code and other sector codes. On the spending side, in addition to demands for higher wages for civil servants, the significantly improved but still fragile financial position of the electricity sector still requires sizable subsidies and bears risks.4 In addition, fiscal and debt management has been further complicated by the need to settle longstanding domestic arrears, the rollover risk of financing from the regional market5, and contingent liabilities in the public sector. The planned creation of a universal health insurance system also presents fiscal risks. The authorities have taken steps to address these pressures, including by preparing medium-term strategies to contain the wage bill and the debt.

Staff’s Views

12. Maintaining prudent fiscal management over the medium and long term will require a comprehensive strategy. Staff welcomed the reduction in the deficit, but noted that further efforts would be required to address rising budgetary pressures. In particular, staff recommended:

  • Continued VAT reform aimed at enlarging the tax base and mobilizing the full potential of VAT in Côte d’Ivoire.6

  • Strengthening tax policy in general and refraining from granting further special tax regimes to specific sectors; improving revenue administration by strengthening the large taxpayer office, setting up a medium-size taxpayer office, and reinforcing tax and customs’ controls and audits.

  • Ensuring that the wage bill strategy can deliver its goal of putting the wage bill on a sustainable financial path, bringing it down as a share of tax revenue over the medium to long term (in compliance with the WAEMU convergence criterion). Staff noted, however, that the wage strategy would benefit from greater front-loading and from concentrating new hiring on health and education in the longer run.

  • Proceeding with caution as regards the creation of a universal health insurance system, appropriately balancing the benefits of such a reform in terms of growth inclusiveness with potentially large fiscal costs.

  • Strengthening cash planning and cash management, in particular to adequately manage the tight cash flow position that the bunching of domestic debt repayments in the last two months of the year will generate in 2013 and 2014 (as well as in 2016).

  • Continuing to reform the electricity sector by restructuring the currently regressive tariffs to make them progressive and by introducing periodic automatic adjustments to maintain relative prices and provide adequate incentives.

Authorities’ Views

13. The authorities broadly agreed with staff’s recommendations. They were generally cautious on VAT, stressing the potential social impact of reforms. They indicated, however, that the 0.3 percent of GDP rise in various taxes (including excise taxes, the tax on telecommunications, etc) included in the draft 2014 budget would strengthen revenue mobilization and that they plan further VAT reforms in due course.

MEFP ¶7, ¶17

  • They considered that the recently formulated wage bill strategy could deliver on its goal to put it on a sustainable path over the medium to long term, even while also delivering on commitments made in this area after a more than 20-year freeze of public sector wages. They agreed with staff that the fiscal costs of a universal health insurance system should be kept under control and assured staff that proper study of these costs was under way.

  • They acknowledged that their cash position would be tight toward the end of the year in 2013 and 2014, as noted by staff, but viewed it as manageable. They indicated that they would actively manage cash and the pace of expenditures to ensure timely repayment of the amounts of domestic debt falling due that may not be rolled over.

    MEFP ¶15

  • The authorities were also cautious regarding prompt action to reform the electricity sector to make it financially sustainable. While agreeing with staff on the need to cap the fiscal cost of subsidies to the sector and implement reforms over the medium term, they stressed that reform measures already passed in 2012–13 together with the decision to bring export prices closer to the marginal cost in 2014 had reestablished the financial position of the electricity sector in the short term and limited budgetary costs.

    MEFP Box 2

B. Policy Theme #2: Reducing Financial Sector Vulnerabilities and Fostering Financial Deepening

14. Strengthening the soundness of the banking sector and enhancing its contribution to the NDP growth objectives.

  • Strengthening the soundness of the banking sector. While Côte d’Ivoire’s banking sector is broadly sound,7 public banks (along with a couple of small domestic banks) do not meet most prudential requirements and are largely undercapitalized.

  • Deepening financial intermediation. Côte d’Ivoire’s banking system is shallow, with a private sector credit-to-GDP ratio of about 18 percent and limited access to financial services (11 percent of the population, including microfinance). Loans are predominantly short-term and concentrated on larger companies, with limited provision of credit to medium and small size enterprises. Despite progress in financial deepening, the banking sector lags relative to peers and several WAEMU countries in terms of depth and access.8 Financial intermediation is weakened by insufficiencies regarding land and property registries, difficulties faced by creditors when they attempt to recover debts through the judicial system, and the lack of a widely used borrower’s registry.

  • To address these issues, a gradual reform program, supported by Fund TA, focuses in the near-term on eliminating key constraints to private credit and helping banks’ manage liquidity. The authorities have started to reform land registration laws and have established commercial courts, with the first already operating in Abidjan. They also actively support reforms undertaken at the regional level by the BCEAO, including the establishment of a credit bureau by end 2013 and regulations allowing primary dealers to operate. The latter reform would facilitate the emergence of a secondary market for government securities and the management of banks’ liquidity. The authorities are formulating a comprehensive strategy to develop the financial system with the support of the World Bank. Following financial and strategic audits, the authorities are also working on a restructuring of the public banks.

Staff’s Views

15. Strengthening financial sector soundness will require restructuring of the public banks. While these banks do not represent a systemic risk for the financial system, staff urged the authorities to act promptly, beginning with those banks for which there is a clear resolution strategy, drawing on the recommendations of the recent audits and of the September 2013 MCM technical assistance mission. Staff stressed the importance of minimizing contingent liabilities from these institutions, while including the full cost of resolution in the budget. 9

16. Effective implementation of recent reforms and of the financial sector development strategy should foster financial intermediation. Staff welcomed the recent reforms adopted in Côte d’Ivoire and at the regional level, and the ongoing preparation of the financial sector development strategy. The mission urged the authorities to take the lead in the effective implementation of the recent decision of the BCEAO to allow the creation of primary market dealers and in the projected establishment of a credit bureau. The mission encouraged the authorities to create an environment favorable to broadening the financing available for small-and medium-sized enterprises, while noting that this could be done without necessarily needing public banks.

Authorities’ Views

17. The authorities agreed with staff views, noting that they intend to adopt an action plan for resolving the troubled public banks before end-2013 and that the draft budget incorporates funding for the bank resolution costs to be incurred during 2014.

MEFP ¶17, ¶36–39

18. They underscored the key role of the financial sector for promoting strong growth and indicated that the comprehensive financial sector strategy under preparation will aim at broadening access to medium-and long-term credit. For this purpose, they are still considering retaining some public banks to channel credit to specific sectors. To reduce obstacles to deeper financial intermediation, they plan to gradually extend the operation of commercial courts to outside of Abidjan and will support the central bank’s regulations regarding primary dealers and credit bureaus.

C. Policy Theme #3: Maintaining External Stability

19. Preserving external stability through prudent borrowing and addressing non-price competitiveness issues

  • External stability risks are moderate. CGER model-based approaches suggest the real effective exchange rate is broadly in line with fundamentals, and in line with the regional WAEMU real effective exchange rate assessment.10 The current account deficit is projected to widen driven by the investment-led growth strategy, with a large part financed through FDI flows and project loans. Côte d’Ivoire’s external debt profile improved substantially following HIPC Completion Point in 2012,11 creating scope for new borrowing. The economy and external stability, however, remain vulnerable to macroeconomic shocks, including lower exports and GDP growth.

  • The authorities are finalizing a medium-term debt strategy (MTDS) which aims to diversify the investor base and lengthen maturities, and are considering issuing a Eurobond in an amount equivalent to US$500 million in 2014.12 The amount of public debt held by domestic and regional banks is already sizable (partly because of the forced restructuring of domestic debt arrears during the 2010–11 post electoral crisis) and its average maturity is relatively short.13 Diversifying the investor base to include international markets and lengthening maturities would improve debt management over the medium term. While the authorities have initiated the process of getting a sovereign rating, they do not see a rating as a precondition for the Eurobond.

  • Further strengthening external stability will require significant improvements in non-price competitiveness indicators. Several indicators measuring the business environment (including the World Bank’s Doing Business, the Global Competitiveness Index, and Global Enabling Trade Index) rank Côte d’Ivoire relatively poorly. Difficulties in accessing financing, corruption, inadequate infrastructure, and legal uncertainty are among the main factors contributing to this ranking.

  • To strengthen competitiveness, the authorities have implemented several measures to improve the business climate. A new investment code was approved in June 2012, and the electricity and mining codes are being finalized. Substantial progress has been made in reducing the obstacles to doing business through several measures, including the establishment of a center for promoting investments (Centre de Promotion des Investissements en Côte d’Ivoire) that provides a one-stop facility for investors, measures to reduce the cost and time required to open up a business; and the creation of a commercial court in Abidjan. Another one-stop facility designed to streamline import procedures is also being planned.

Staff’s Views

20. A medium-term debt strategy that focuses on debt sustainability and high quality projects will be critical for maintaining external stability. Staff welcomed the preparation of the medium-term debt strategy to better guide financing decisions and ensure prudent borrowing. The mission noted that replacing regional financing with a Eurobond would leave unchanged Côte d’Ivoire’s risk of debt distress, and would contribute to broadening the investor base and lengthening maturities. It also noted, however, that the issuance should only take place if offered rates are reasonable. The staff recommended that Côte d’Ivoire wait until it has obtained a sovereign rating since such a rating secures greater access to capital markets, particularly with respect to institutional investors, and better rates.

MEFP ¶17, ¶40

21. Further significant improvements in the business climate will be needed to strengthen competitiveness and encourage strong private investment. Staff noted that recent improvements to the business climate have not yet been fully taken into account by the competitiveness rankings, with some rankings still based on 2010–11 data. However, even after taking into account the full impact of the recent reforms, significant bottlenecks would remain and much needs to be done to improve the business climate, the effectiveness of the rule of law, governance and anti-corruption efforts to encourage the amount of private investment needed in the years ahead.

Authorities’ Views

22. The authorities believed the proposed Eurobond would improve medium-term debt management and partially address their difficulties in mobilizing longer term financing. The authorities noted that the final decision on the Eurobond issuance will depend on the foreseeable market yield, in particular taking into account the foreseen unwinding of unconventional monetary policies in the US.14

MEFP ¶41

23. The authorities underscored that the ranking of Côte d’Ivoire in the 2014 Doing Business report had improved as a result of their reform efforts.15 They acknowledged the need for further progress in this area, and reiterated their commitment to continue introducing reforms, consistent with the NDP’s objective of creating one of the best business climates in Africa.

MEFP Box 1

D. Policy Theme #4: Enhancing Governance

24. The authorities have passed legislation to strengthen governance but decisive action is needed. Despite recent improvements,16 Côte d’Ivoire’s ratings in various governance indices (including the World Bank’s Worldwide Governance Indicators and the Economic Freedom Index of the Heritage Foundation) remain poor. The government has reiterated its intention to improve governance and emphasized that two ordinances have been adopted in September 2013: one aimed at improving the legal framework to prevent and fight corruption, while the other established the High Authority for Good Governance, the Haute Autorité pour la Bonne Gouvernance. The country also became EITI compliant in May 2013. Nonetheless, the amount of public procurement granted on a non-competitive basis reached about 80 percent in the first semester of 2013.

MEFP ¶47, ¶48

Staff’s Views

25. Staff welcomed the governance improvements and urged the government to take further action in this area. The recent legislation designed to reduce corruption and grant special protection to whistle blowers denouncing corruption signals important progress. However, its potential positive impact on private sector investors will only materialize if enforcement is forceful. Staff also highlighted the need to significantly reduce the amount of public procurement granted on a non-competitive basis, and urged that both the spirit and the letter of the procurement code be applied effectively.

Authorities’ Views

26. The authorities indicated that they intend to reduce the share of non-competitive public sector contracts and to grant most of them on a competitive basis. They noted that the council of ministers had adopted a measure aimed at reducing the share of non-competitive contracts and enhancing transparency. They indicated, however, that in some cases they were compelled to award contracts on a non-competitive basis owing to the importance of moving fast on specific key projects. In other cases, because of the limited availability of large-scale concessional financing for projects, rather than stall indefinitely key projects, they had agreed to loans notwithstanding that they were tied to pre-selected companies.

MEFP ¶17, ¶¶47, 48

PROGRAM ISSUES

A. 2013

27. Fiscal performance was good through end-June 2013. All performance criteria and indicative targets at end-June were met. Revenue slightly exceeded the program target despite VAT and import taxes shortfalls owing mostly to the higher-than-anticipated cost of exemptions under the new investment code adopted in 2012. Expenditures fell below the programmed objective, with externally-financed investment exceeding its target and domestically-financed investment executed at a slower pace.

MEFP ¶¶7, 10, T1

28. The fiscal position for 2013 is expected to improve more than projected. The primary basic deficit is projected to decline from 0.3 percent of GDP to 0.2 percent of GDP, while the overall deficit would decrease from 3.2 percent of GDP to 2.7 percent of GDP. This is largely due to a downward revision of public investment. As noted above, the cash position at end-December is expected to be tight but manageable, reflecting the large amount of domestic debt redemptions falling due as a result of the end-2011 restructuring of the outstanding stock of T-bills into 2-year T-bills, and 3- and 5-year bonds.

MEFP ¶13–15

29. Satisfactory structural reform progress has been made so far, but decisive actions are needed to complete reforms in some key areas. Ten out of 14 structural benchmarks were met through end-October (MEFP Table 2). In particular, progress was made to improve public financial management, with the adoption by the Council of Ministers of the organic laws for fiscal transparency and the budget system law transposing the WAEMU directives; the medium-term expenditure framework (MTEF 2014–16) was also attached to the budget documentation for 2014. A new electricity code was also adopted by the Council of ministers and is awaiting its transmission to the National assembly. However, although considerable progress was made in: (i) drawing up a medium-term strategy for controlling the wage bill; (ii) elaborating a medium-term debt strategy; (iii) finalizing a new mining code; and (iv) preparing an action plan for restructuring public banks (financial and strategic audits have been completed) and another one for regularizing domestic arrears (the arrears have been audited),17 delays were encountered in completing these reforms by their due date.

MEFP ¶11, T2

30. The authorities are committed to stepping up efforts to complete the planned reforms. This includes, in particular, the adoption of the medium-term wage bill strategy, the reorganization of the debt management unit along functional lines (front-, middle-, back-office), the regularization of domestic arrears to suppliers in line with the action plan expected to be adopted in November 2013, the restructuring of public banks, and the adoption of a financial sector development strategy.

MEFP ¶17

B. 2014

31. The draft 2014 budget is built on a conservative macroeconomic scenario and prudent revenue projections. Overall, total tax revenue is projected to remain stable in percentage of GDP relative to its 2013 level. The projected reduction in cocoa revenue, which reflects an expected lower production, would be offset by the good performance of direct and indirect taxes. The government has included specific fiscal measures in the draft 2014 budget to enhance revenue collection. These include, in particular, removing two VAT exemptions, raising the tax rate on the telecommunication sector, aligning the rate of the tax on capital gains with the WAEMU norm, and raising excise taxes on beverages and tobacco. Grants from France, in the context of the debt-for-development swap mechanism (C2D), and from other development partners are expected to rise to 2.4 percent of GDP in 2014 from 1.7 percent of GDP in 2013. In total, revenue and grants are projected to increase from 21.3 percent of GDP in 2013 to 22 percent of GDP in 2014.

MEFP ¶26–31

32. The authorities are committed to containing current expenditure to allow capital spending to continue growing in 2014. In spite of a higher wage bill (+0.2 percent of GDP), current expenditures are expected to decline by 0.1 percent of GDP owing to a reduction in spending on subsidies, stemming from the government’s decision to bill some electricity exports at the marginal cost of production in 2014. The wage bill would increase to deliver on promises made by the previous regimes; in addition, step increases which had been frozen for many years would start being implemented with retroactive effects spread over the medium term. Capital expenditure would continue to increase (+0.5 percent of GDP), focused on infrastructure projects in energy and roads, in line with the National Development Plan.

33. Overall, the fiscal adjustment would continue in 2014. The primary basic deficit would edge down to 0.1 percent of GDP in 2014 from 0.2 percent in 2013, while the overall fiscal deficit would decline from 2.7 percent of GDP in 2013 to 2.3 percent in 2014. The deficit would be financed by a net mobilization of funds in the regional market (2.3 percent of GDP in 2014 against 2.4 percent in 2013), and net external financing (0.4 percent of GDP in 2014 against 0.7 percent in 2013). The somewhat tighter fiscal stance in 2014 reflects: (i) conservative assumptions on the volume of new net additional financing available in the regional market; and (ii) the authorities’ prudent decision to build the budget on a solid basis by only including already-committed external loans. If additional resources were to become available, a supplementary budget would be considered.

34. As regards new structural reforms, the authorities intend to take further actions to improve public financial management. A consolidated commitment and procurement plan is being prepared to smooth cash management. A stocktaking of various government and public entity accounts in commercial banks and at the BCEAO is planned with a view to setting up a Treasury Single Account. In addition, the government will evaluate the expenditure process and adopt corrective measures to reinforce controls, eliminate exceptional spending procedures, and limit the recourse to cash advances.

35. The authorities have requested an increase in an amount equivalent to US$500 million in the program’s ceiling for 2014 on new nonconcessional external debt to accommodate the issuance of a new Eurobond.18The Eurobond would permit restructuring the government’s debt liabilities, notably by lengthening maturities, and widen Côte d’Ivoire’s presence on international markets. Staff supports this request while emphasizing that the decision on whether to issue a bond should take into account the implications for overall debt service costs and the need to avoid too high a concentration of external maturities in a relatively short period in the mid-2020s. Côte d’Ivoire’s risk of debt distress would remain at a moderate level (see DSA).

MEFP ¶41

36. Program criteria (PC) will remain unchanged and staff supports the proposed set of quantitative PCs for end-June 2014. The definitions of the variable monitored are provided in the Technical Memorandum of Understanding (TMU). Structural benchmarks are proposed as shown in the MEFP, Table 2. The new SBs, covering the period through November 2014, focus on public financial management.

STAFF APPRAISAL

37. Côte d’Ivoire has achieved considerable progress over the last two years. Under the authorities’ program, Côte d’Ivoire is experiencing a strong recovery. The implementation of a number of structural reforms and the surge in public investment, coupled with prudent fiscal policy, have resulted in the removal of infrastructure bottlenecks and improvements in the business climate while boosting demand. These policies have been conducive to sustained high growth, while inflation has remained low.

38. The government’s policies should result in inclusive growth and tangible improvements in living standards. Strong growth associated with a high level of pro-poor spending, and structural reforms leading to higher incomes for some groups of farmers, such as in the cocoa sector, should increase jobs and income, raise living standards, and improve access to public services to a wide range of the population.

39. Provided the reform momentum is sustained, the medium-term outlook is positive with continued robust growth and a stable macroeconomic environment. Preliminary indications in 2013 that private sector confidence has increased and that crowding in of private investment is taking place augurs well for the authorities’ capacity to achieve sustained growth over the medium term while keeping inflation low. Nevertheless, reaching the authorities’ ambitious targets of high growth and poverty reduction will require further reform efforts. At the same time, this medium-term outlook is vulnerable to a significant downside risk: if the foreseen high growth rates do not materialize, it would be important for the authorities to take corrective measures to safeguard fiscal and macroeconomic stability and to strengthen sustainable growth dynamics.

40. Strengthening fiscal sustainability over the medium term and increasing the fiscal space for infrastructure and social spending will require further reforms. The government should enhance revenue mobilization through additional tax policy and administration reform, and curtail widespread exemptions. The staff welcomes the government’s commitment to further strengthen public financial management including through a reform of exceptional spending procedures; it urges it to significantly strengthen cash management and cash planning to better manage the bunching of domestic debt payments toward the end of the year. There is also a need to put the electricity sector on a sound financial footing and contain budget subsidies to it.

41. Developing the financial sector will contribute to strong and inclusive growth, through greater financing options for medium-and small companies and broader access to financial services for a larger share of the population. Staff welcomes the authorities’ intent to adopt a financial sector reform strategy and urges them to begin implementation as soon as possible. It is encouraged by the progress made in preparing options for the restructuring of public banks and the authorities’ planned adoption of an action plan by end-November 2013; it recommends rapid implementation of the first steps of this plan.

42. Preserving external stability will require continued prudent borrowing—largely on concessional terms. Prudent borrowing policies are in particular necessary to avoid any deterioration in Côte d’Ivoire’s moderate risk of debt distress. In this regard, staff welcomes the medium-term debt strategy that the authorities plan to adopt by end-November and the reinforcement of debt management capacity. Staff supports the authorities’ consideration of a Eurobond issue aimed at improving asset-liability management, while noting that this decision should weigh the implications for overall debt service costs and the need to avoid an excessive concentration of maturities. Staff also urges the authorities to obtain a sovereign rating as a first step, to help obtain the best issuance terms.

43. Further measures to improve the business climate and governance are needed to provide a favorable environment for strong private sector investment. The authorities have made important progress in strengthening the business environment, as demonstrated by the recent improvement in Côte d’Ivoire ratings in the 2014 Doing Business report, and in strengthening the legal framework to prevent and fight corruption. Further enhancements in governance and in the business climate, aimed in particular at enforcing the rule of law, will be key for attracting significant FDI and domestic private investment. Staff urges the authorities to significantly reduce the amount of public procurement granted on a non-competitive basis and to ensure the effective implementation of the spirit and the letter of the procurement code.

44. Program performance has been good. All end-June performance criteria and indicative targets have been met and progress on structural reforms has been solid, although with some delays and missed structural benchmarks.

45. Staff recommends completion of the fourth review and a disbursement of an amount equivalent to SDR 48.78 million under the ECF arrangement. It supports the authorities’ request for raising the ceiling for new nonconcessional external debt and the proposed performance criteria for end-June 2014. It is proposed that the next Article IV consultation take place in accordance with the Decision on Article IV consultation cycles for program countries (Decision No. 14747-(10/96), as amended).

Côte d’Ivoire: High-Growth in Non-Natural Resource Producing African Countries

Côte d’Ivoire will need to implement a comprehensive reform strategy to reach the ambitious medium-term growth and poverty reduction objectives it is targeting over the medium term. In that context, what can it learn from other African countries that have sustained high growth rates in recent years?

The Regional Economic Outlook analyzes the experience of the six LICs in sub-Saharan Africa—Burkina Faso, Ethiopia, Mozambique, Rwanda, Tanzania, and Uganda—that experienced the fastest sustained growth during 1995–2010, although they were not natural resource producers during that time. While these countries followed different paths, their experience demonstrates that a shift in macroeconomic policy making, combined with comprehensive structural reforms and sustained external financing can create the fiscal space to finance productive investment and generate a growth dividend.

The chapter highlights the key points that contributed to this virtuous circle of sustained high growth:

Macroeconomic stability. All countries in the sample show that improved macroeconomic policies, structural reforms, and a greater degree of overall stability are crucial for economic growth. Greater fiscal space—reflecting expenditure prioritization and a combination of debt relief, aid, and greater domestic resource mobilization—can translate into higher levels of social and investment spending, supporting growth in both the near-and medium term. Lower inflation and a more predictable economic environment reduce risks and transaction costs, encouraging private sector activity. Improved macroeconomic policies also help to attract foreign financing, both in the form of foreign aid and private resources, such as FDI.

Effective use of foreign aid. The increased level and predictability of foreign aid enabled a greater focus on medium-term planning and greater opportunities for alignment with national poverty-reduction strategies.

Strong national policy-making institutions. Identifying and translating increased fiscal space into sustainable growth requires effective macro policymaking and strong institutions, in particular regarding PFM capacity.

High investment levels. Sustained high investment levels are crucial to increase the capital stock and boost overall productivity levels. Investment in infrastructure is particularly important, as it promotes private sector development through lowering overall business costs. The lack of an adequate transport infrastructure can bar large segments of the population from access to markets, in particular in rural areas, where poverty is concentrated.

Deeper financial markets. Deeper financial markets support growth by enhancing domestic savings to finance investment. Financial inclusion has tended to lag, and could—including through use of new technologies—be prioritized to make the growth process more inclusive.

1 Excerpt from AFR’s Fall 2013 REO, “Drivers of Growth in Non-resource-Rich Sub-Saharan African Countries”, IMF, Washington DC.
Table 1.

Output Growth Decomposition

(Contribution to annual growth rates, percent)

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Sources: IMF staff calculations based on Penn World Table, Version 8; the Barro and Lee education attainment dataset; and country household surveys.
Figure 1.
Figure 1.

Côte d’Ivoire: Real and External Sectors, 2009–14

Citation: IMF Staff Country Reports 2013, 367; 10.5089/9781484313213.002.A001

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

Côte d’Ivoire: Fiscal Developments, 2009–14

Citation: IMF Staff Country Reports 2013, 367; 10.5089/9781484313213.002.A001

Sources: Ivoirien authorities; WEO database and IMF staff estimates and projections.
Figure 3.
Figure 3.

Côte d’Ivoire: Medium-Term Outlook, 2011–18

Citation: IMF Staff Country Reports 2013, 367; 10.5089/9781484313213.002.A001

Sources: Ivoirien authorities; and IMF staff estimates and projections.
Table 1.

Côte d'Ivoire: Selected Economic Indicators, 2011–18

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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.

This is the poverty rate in 2008.

Table 2.

Côte d'Ivoire: Balance of Payments, 2011–18

(In billions of CFA francs, unless otherwise indicated)

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

In 2012, this includes Fund's debt cancellation following the HIPC completion point.

Table 3a.

Côte d'Ivoire: Fiscal Operations of the Central Government, 2011–18

(In billions of CFA francs, unless otherwise indicated)

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

In the CFA franc zone, Fund resources are channeled via the regional central bank that provides equivalent domestic currency credit to the relevant government. In 2012, the amount includes Fund’s debt cancellation following HIPC completion point.

Debt Service and cancellation reflect the impact of the HIPC completion point at end-June 2012.

Table 3b.

Côte d'Ivoire: Fiscal Operations of the Central Government, 2011–18

(In percent of GDP, unless otherwise indicated)

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Sources: Ivoirien authorities; and IMF staff estimates and projections. Sources: Ivoirien authorities; and IMF staff estimates and projections. 2011 ratios based on Q2-Q4 fiscal aggregates over Q2-Q4 of GDP.

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.

In the CFA franc zone, Fund resources are channeled via the regional central bank that provides equivalent domestic currency credit to the relevant government. In 2012, the amount includes Fund’s debt cancellation following HIPC completion point.

Debt Service and cancellation reflect the impact of the HIPC completion point at end-June 2012.

Table 4.

Côte d'Ivoire: Monetary Survey, 2011–18

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Sources: Central Bank of West African States (BCEAO); and IMF staff estimates and projections.
Table 5.

Côte d'Ivoire: External Financing Requirements, 2011–15

(In billions of CFA francs)

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Sources: Ivoirien authorities; IMF staff estimates and projections.

In 2012, the amount includes the impact of the HIPC Completion Point.

Table 6.

Côte d’Ivoire: Financial Soundness Indicators for the Banking Sector, 2008–13

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Source: BCEAO.

June 2013.

Table 7.

Côte d’Ivoire: Indicators of Capacity to Repay the Fund, 2011–22

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Sources: IMF staff estimates and projections.

The interest rate on ECF is zero for 2010 -14 and assumed at 0.25 percent thereafter.

Including the proposed disbursements under the new ECF.

Total debt service includes IMF repurchases and repayments.

Table 8.

Côte d’Ivoire: Proposed Schedule of Disbursements and Timing of Reviews Under ECF Arrangement

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Table 9.

Côte d’Ivoire: Millennium Development Goals

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Source: World Development Indicators. Figures in italics refer to periods other than those specified.

Appendix I. Côte d’Ivoire—Letter of Intent

Minister at the Prime Minister’s Office in charge of Economy and Finance

Office of the Minister

No. 5906 MPMEF/CAB/CT-TK

Republic of Côte d’Ivoire

Abidjan, November 20, 2013

The Managing Director

International Monetary Fund

WASHINGTON DC, 20431

Subject: Letter of intent

Dear Madame Managing Director:

1. The upturn in economic growth recorded in Côte d’Ivoire in 2012 has been consolidated in 2013 in the context of the country’s normalized social, political, and security conditions. The holding of free and transparent municipal and regional elections in 2013 has completed the electoral cycle. National reconciliation and political dialogue is progressing in a generally calmer climate, prompting the return of a large number of refugees. As regards security, the situation has been normalized over the entire territory owing notably to actions undertaken by the National Security Council (CNS). Implementation of the process of disarmament and reintegration of ex-combatants by the Disarmament, Demobilization and Reintegration Authority (ADDR) is progressing, while the local delegations of the Dialogue, Truth and Reconciliation Commission (CDVR) are now working actively in the regions to consolidate social cohesion.

2. The attached Memorandum of Economic and Financial Policies (MEFP) describes progress made to date, the outlook at end-2013, and the policies we will implement in 2014. All the quantitative criteria and indicative targets included in our economic and financial program supported by the IMF’s Extended Credit Facility (ECF) were observed at end-June 2013. In macroeconomic terms, the outcomes already recorded in 2013 are better than expected. End-June results confirm that the growth target of 9 percent in 2013 is within reach, while the inflation rate is expected to remain below 3 percent. The basic primary balance and the overall fiscal deficit are poised to improve faster than expected. The business environment has also improved markedly, in particular with the implementation of the new investment code and the coming on stream of the single window for business formalities. Progress has also been noted with regard to the financial balance of the energy sector.

3. The year 2014 is expected to confirm the strong economic growth momentum observed since 2012, in line with the National Development Plan (NDP). The government has set a GDP growth target of 10 percent for 2014, while containing inflation within the community norm of 3 percent. To achieve this objective, the government expects to reap the benefits of continued progress in normalizing social, political, and security conditions, as well as of the full effects of the structural reforms being implemented, in particular, to improve the business climate. The government also intends to continue its public investment program to crowd in private investment further, in line with its aim to make the private sector the main driver of economic growth. The new investment code for the promotion of foreign direct investment (FDI) and the development of SMEs/SMIs, the single window for business formalities, and public private partnerships (PPPs) for which the institutional and regulatory framework has been developed will support the government’s efforts to boost investment. The measures taken to improve the business climate led to an upgrade in Côte d’Ivoire’s rating in the “2014 Doing Business” report of the World Bank, which is in particular ranking Côte d’Ivoire among the 10 economies improving the most their business climate in 2012/13. Further, the government is planning to hold a forum, from January 29 to February 1, 2014, entitled Doing Business in Côte d’Ivoire 2014/Investir en Côte d’Ivoire: ICI 2014. The forum, which is expected to attract around 3,000 participants, will provide an opportunity for discussion between national and international investors in support of the government’s policy objectives.

4. The government will continue to implement structural reforms with a view to strengthening the bases of a competitive economy. It also plans to step up the pace of public financial management reforms by enacting decrees for the draft laws transposing the WAEMU directives into Côte d’Ivoire’s legislation; these draft laws have already been submitted to the National Assembly. We will also review the public expenditure chain and take corrective measures to strengthen verification of the delivery of goods and services, eliminate exceptional payment order procedures, and limit the use of treasury cash advances. By end-November 2013, we intend to adopt an action plan to regularize domestic arrears with government suppliers, as well as a medium-term debt management strategy (MTDS) to safeguard fiscal sustainability. In addition, progress achieved in implementing the medium-term strategy aimed at restoring financial balance in the electricity sector will be further consolidated in 2014. The government will also intensify its efforts to develop the financial sector so as to increase the latter’s contribution to financing the economy. Our objective is to strengthen the performance and competitiveness of all sectors of the economy.

5. The government intends to broaden its sources of financing by accessing international financial markets, including through the issuance of Eurobonds. This initiative, along with obtaining a sovereign credit rating, forms part of the debt strategy framework. The purpose of issuing Eurobonds is to broaden our sources of financing as well as improve our debt maturity profile and assets/liabilities management. More specifically, the government is planning a Eurobond issuance in 2014. In that regard, we are requesting IMF approval to increase the cumulative nonconcessional lending window by USD 500 million at end-2014. In addition, in keeping with the commitments undertaken under the economic and financial program, the government will continue to seek loans on concessional terms, including for major infrastructure projects.

6. The government reaffirms its intention to reduce poverty significantly and is committed to implementing the NDP with a view to making Côte d’Ivoire an emerging country with solid fundamentals by 2020. In that context, the government will continue to prioritize and implement transformational projects that contribute to improving access to employment for young people. Actions already underway include implementation of the youth employment and skills development project, PEJEDEC, and strengthening the resources of the FAFCI, a fund created in 2012 to support the women of Côte d’Ivoire by helping them access microcredit at low interest rates. The government has also launched a vast food crop production recovery program aimed at creating youth employment in rural areas and achieving food self-sufficiency by 2016. In addition, various investment programs have been initiated to improve the quality of life in rural areas. Rural roads are being renovated and cocoa and coffee producers are effectively receiving 60 percent of the CIF price through a program of forward sales based on averaged prices. This process aimed at improving the management of major cash crops will continue to be implemented in the cotton and cashew sectors. Civil service staffing levels in the health and education sectors are being strengthened in the context of a strategy that provides for containment of the wage bill over the medium term.

7. The government of Côte d’Ivoire is convinced that the policies and measures included in the MEFP are sufficient to achieve its objectives. However, the government will take any additional measure that it may deem necessary to this end. The government will consult with the Fund staff before adopting such measures, or in the event of changes to the policies set out in this memorandum. The government agrees to provide any information that the Fund may request to monitor progress in the implementation of economic policies and the achievement of program objectives.

8. We ask the International Monetary Fund (IMF) to provide financial support to the government under the Extended Credit Facility (ECF) in an amount equivalent to SDR 48.78 million.

9. The Ivoirien authorities consent to the release 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 on the review of the ECF-supported program. We hereby authorize their publication and posting on the IMF website after approval of the review of the program by the IMF Executive Board.

Very truly yours,

______________ /s/ ____________________

Nialé KABA

Minister at the Prime Minister’s Office

in charge of Economy and Finance

Attachments:

- Memorandum of Economic and Financial Policies (MEFP)

- Technical Memorandum of Understanding (TMU)

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

November 20, 2013

Context

1. Côte d’Ivoire is consolidating its economic recovery in the context of normalized, social, political and security conditions. The holding of free and transparent municipal and regional elections in 2013 has completed the electoral cycle. . National reconciliation and political dialogue is progressing in a generally calmer climate, prompting the return of a large number of refugees. As regards security, the situation has been normalized over the entire territory.1 This has been achieved as a result of the action of the National Security Council (CNS), the permanent entity for analysis and policy development involving the highest government authorities, and is part of the overall reform of the security sector. Measures adopted in this area include capacity-building for the security services (equipment and training), creation of specialized units to combat racketeering and restore security, and a video protection program for the city of Abidjan. The process for the disarmament and reintegration of former combatants by the Disarmament, Demobilization, and Reintegration Authority (ADDR) is making headway. In addition, the local delegations of the Dialogue, Truth, and Reconciliation Commission (CDVR) are working in the regions to consolidate social cohesion.

2. A response has been made to some of the key issues at the center of the people’s concerns for several years. In fact, in August 2013 the National Assembly adopted two laws on nationality and rural property. These laws clarify the conditions and procedures for access to Ivoirian nationality and rural property, and should help strengthen social unity.

3. As to the economic situation, the impact of the implementation of the National Development Plan (2012–15) has confirmed a sharp upswing in economic activity. In 2012, the GDP growth rate reached 9.8 percent, placing Côte d’Ivoire among the countries with the strongest growth rates in the world. In 2013, based on the results from the first half of the year we expect to achieve a 9 percent growth rate while the inflation rate is projected at 2.7 percent. All of the quantitative performance criteria and indicative targets for end-June 2013 for our economic and financial program supported by the IMF’s Extended Credit Facility have been met, thanks to continued efforts to rationalize the management of public finances. The business climate has considerably improved, with the implementation of a new investment code, the startup of a one-stop facility for investments, and a reduction of the fiscal costs for creating a business and obtaining real estate. These efforts have been reflected in a significant increase in new businesses (1,095 in the first half of 2013, compared with 396 during the same period in 2013), and in private investment. These major reforms have been recognized in the World Bank’s report, “Doing Business in 2014”, which ranks Côte d’Ivoire amongst the 10 countries in the world that have made the greatest improvement.

4. In line with the objectives of the PND, the 2014 economic and financial program will focus in particular on consolidating macroeconomic stability and pursuing reforms designed to improve public financial management and combating poverty. To achieve its 10 percent growth target on average for 2014 and 2015, the government is working to strengthen the implementation of transformational investment projects and to mobilize the financing announced by donors during the meeting of the Consultative Group in December 2012 in Paris. The ratio of investment to GDP should rise from 13.7 percent in 2012 to 17.8 percent in 2013 and 19.6 percent in 2014, and the ratio for public investment from to 4.9 percent, to 7.2 percent and 8.2 percent, respectively. The government also intends to accelerate the restructuring of public banks, restore the financial viability of the electricity sector, strengthen public financial management, especially debt management, deepen tax policy reforms, modernize the government administration, and rehabilitate and develop the financial sector. Furthermore, the government is determined to strengthen subregional integration.

This memorandum updates the 2011–14 three-year economic and financial program, supported by the Extended Credit Facility, of which the objectives are to stabilize the macroeconomic framework and improve public financial management.

Economic Developments and Implementation of the Program for the First Half of 2013

A. Recent Economic Developments

5. At end-June 2013, economic activity in most sectors is well-placed thanks to the increased sociopolitical stability and the implementation of the principal PND projects.

  • Economic activity continues to expand, with good performance in the tertiary sector, especially in retail trade (+14.8 percent), industrial production, mainly linked to a resurgence of activity in the food and beverage industries (+5.7 percent), furniture and miscellaneous products (+44.2 percent), and electricity, gas, and heating (+17.3 percent). Despite the halt in bitumen production due to maintenance of the factories, which contributed to a 14.2 percent drop in the leading indicator for construction and public works, the dynamism of this sector is reflected in a 69.4 percent increase in national sales of concrete, a 42.7 percent rise in sheet metal sales, and a 23.7 percent rise in sales of gravel.

  • Average annual inflation was 3.5 percent at end-June, due to the higher costs of “education, and clothing and footwear,” as well as certain food products, such as fresh vegetables. However, the inflation rate has slowed down since April, and reached 2.9 percent year-on-year in June 2013.

  • Exports were up by 15.8 percent, mainly driven by the 20.8 percent increase in manufactured products and a good performance in primary products (cocoa beans (+39.6 percent)), and cashew nuts (12.3 percent). Imports grew by 4.1 percent, due to the combined effect of a substantial increase in capital goods (+24.6 percent), almost stable consumer goods (+0.6 percent), and a decline in intermediate goods -3.2 percent.

  • With regard to the monetary developments, medium- and long-term credit increased by 5.8 percent compared to end-December 2012, reflecting enhanced private sector participation in the economic recovery. In addition, new credits are up by 9.9 percent over the same period in 2012.

  • Employment in the formal sector has also increased (+2.8 percent at end June 2013) since the start of the year, especially in the private sector.

  • On the stock market, capitalization of shares on the Regional Stock Exchange (BRVM) rose to an historic level of CFAF 6,116.5 billion in the first half of 2013. This strong performance reflects the confidence of regional and international investors, due to the improved economic prospects of the WAEMU and the strong growth potential of the companies listed on the exchange. The BRVM shifted from a price fixing system to continuous trading on September 16.

6. Measures taken by the government to boost activity have enhanced the confidence of the private sector. This confidence is reflected in the creation of new businesses, especially in the construction and public works sector (cement factories); food products (breweries, rice processing plants), services (financial institutions), and extractive industries; as well as in a show of interest in public-private partnerships (PPP). The private sector investment rate increased from 8.8 percent of GDP in 2012 to 10.3 percent of GDP in 2013.

7. Budget execution at end-June 2013 was satisfactory.

  • Budget revenue exceeded the objective by CFAF 23.3 billion, on account of the performance of the profit tax (BIC) (excluding petroleum), the personal income and wage tax, stamp and registration taxes, and export taxes. The good revenue performance made it possible to limit the impact of shortfalls recorded in collection of the VAT and import taxes on general merchandise.

  • Inflows from external loans and project grants were higher than expected reflecting a good level of mobilization, as a result of drawings made primarily on World Bank loans financing projects related to employment and for improvements in economic infrastructure.

  • Total expenditures were lower than targeted. For current expenditures, the wage bill was executed within the expected allocation. The subsidy to the electricity sector turned out to be CFAF 43.1 billion as compared to the planned CFAF 15.3 billion, because the discussions on the selling price of gas from the CI 26 field had not yet been completed. However, good rainfall reduced the need for recourse to heavy vacuum oil (HVO). Investment expenditures amounted to CFAF 419 billion, representing an 86.9 percent execution rate in comparison with the end-June 2013 target. In terms of the annual objective, they represent 38.4 percent in 2013, as compared to 30.3 percent in 2012. Externally funded expenditure was CFAF 219.2 billion, or 49.8 percent of annual allocations. Domestically funded capital expenditure amounted to CFAF 201.8 billion, as compared to the expected CFAF 347.9 billion at end-June 2013, representing a 58 percent execution rate. This outcome is attributable to delays in implementing certain projects, in particular those planned in the context of C2D.

8. The fight against poverty remains a priority. The Government has strengthened national job-promotion structures, including the Agency for Employment Studies and Promotion (AGEPE), through schemes for training and placing young unemployed graduates, such as the Youth Job and Skill Development Project (PEJEDEC), which is now operational. The Women’s Support Fund of Côte d’Ivoire (FAFCI), established in 2012, has been allocated a budget of CFAF one billion, to facilitate access to micro-credit with reduced rate (1% per month). The return of a price-guarantee system has increased the remuneration of cocoa producers (about 700,000) and coffee producers, who are now receiving a farm-gate price equivalent to 60 percent of the CIF price. Through 2020, civil service recruitment will focus primarily on the education and health sectors, as well as on security. Draft legislation to introduce universal health insurance (CMU) has been prepared and submitted to the Council of Government. The construction and equipping of classrooms and health centers also remains a government priority. In this respect, the policy of “free schooling for all” has been maintained to increase access of children to education. Finally, apart from the major construction projects to build a third bridge and extend the highway to the North, the government has instructed the Coffee and Cocoa Council to renovate rural roads. This decision will permit all the stakeholders in this leading sector of the economy to share in the improvement in rural living conditions.

9. As regards financing, the government has made recourse to the sub-regional monetary and financial market, in the amount of CFAF 321 billion, as compared to the expected CFAF 324.3 billion. In terms of the annual objective, this amount represents 39.8 percent of expected domestic financing. External financing was CFAF 309.8 billion, of which grants (CFAF 132.9 billion), borrowing (CFAF 140.3 billion), and budget support (CFAF 36.6 billion).

B. Implementation of the Program

10. Good budget execution during the first half of 2013 enabled the government to observe all performance criteria and indicative targets of the economic and financial program. The primary basic balance recorded a surplus of CFAF 116.3 billion, as compared to the programmed deficit of CFAF 55.5 billion. The government has not only accumulated no new external and internal arrears, but also it has made an effort to reduce net amounts payable by CFAF 88.3 billion, as compared to the target minimum of CFAF 10 billion, to lower the high level of floating debt at the end of 2012. In addition, the government has been pursuing its anti-poverty efforts. Thus, “pro-poor” expenditures amounted to CFAF 590.5 billion, as compared to the target minimum of CFAF 588.8 billion. The level of budget advances excluding debt, revenue-collecting agencies (régies), and personnel, was posted at CFAF 52.8 billion, in comparison with the CFAF 59 billion ceiling.

11. In the process of consolidating a sustainable economic recovery a range of structural reforms were implemented through end-June in the context of the program. The principal measures were as follows:

  • Two proposed organic laws based on the WAEMU directives of 2009 related to the transparency code and the budget law were adopted by the Council of Ministers on June 6, 2013;

  • A new pricing mechanism for petroleum products was adopted in November 2012 and implemented as of April 2013. The new mechanism includes a refining fee to support the Ivoirien Refining Corporation (Société Ivoirienne de Raffinage, SIR). In addition, the government’s outstanding debt vis-à-vis SIR at end-2012 was the subject of a securitization agreement in June 2013;

  • Government efforts to improve the transparency of the extractive industries sector have enabled Côte d’Ivoire to be in compliance with the Extractive Industries Transparency Initiative (EITI) since May 2013. EITI reports for 2008, 2009, 2010, and 2011 were published and forwarded to EITI International;

  • Implementation of the medium-term strategy for restoring the equilibrium of the electricity sector adopted in November 2012 produced the following results: (i) the remuneration of the concessionaire was revised downward and an agreement was obtained on its support for the sector for the period 2013–15; (ii) the rate of collection of bills in the central-north-west (CNO) zones increased from 40 percent in 2012 to 60 percent at end-June 2013; and (iii) customers registered at the moderate tariff rate and using more than 200 Kwh bimonthly were reclassified at the general household rate during the first quarter of 2013. The discussions with the operator of the CI-26 field (CNR) are ongoing; and

  • The legal and institutional framework for the management of public-private partnerships (PPP) has been completed and is operational.

With regard to the business climate, the significant results achieved in 2012 were further strengthened (Box 1).

Côte d’Ivoire: A Business Climate Propitious for Investment

The objective is for Côte d’Ivoire to become an emerging market economy by 2020. This choice is firmly based on a policy to stimulate private investment as the engine for economic growth and recovery and cannot succeed without an improvement in the business climate.

To achieve this, Côte d’Ivoire has embarked on a process of reforms relating in particular to six of the “Doing Business” indicators this year, and four more in 2014. The six indicators concern the creation of companies, property transfer, cross-border trade, tax payment, building permits, and the execution of contracts. An institutional arrangement devoted exclusively to the business climate was created. This arrangement, based on best practices in Africa and throughout the world, was placed under the authority of the Prime Minister and head of government. The following steps have been taken under this initiative:

  • Decree No. 2012-867 of September 6, 2012 establishing the Investment Promotion Center in Côte d’Ivoire (CEPICI) as the single port of entry for investment in Côte d’Ivoire. The same decree defines several windows, including the “One-Stop Shop for Business Procedures,” now in operation, which makes it possible to complete all of the formalities involved in establishing and opening a business within the space of 48 hours.

  • The operator of the one-stop window for foreign trade (GUCE) started activities on July 1, 2013. When finalized the GUCE will permit the simplification of formalities for importing goods and provide a response to WTO concerns in the area of trade facilitation. Its advantages are that it simplifies and standardizes trade procedures, shortens the time involved, reduces costs related to procedures, and increases the competitiveness of the private sector. In addition, it will make it possible to obtain quality data on trade in real time, help strengthen governance and transparency in foreign trade, and improve the position of the country in international indices..

  • The new investment code was adopted by order No. 2012-487 of June 7, 2012. It has attractive tax features, and provisions for strengthened guarantees and protection, in keeping with best international standards on the subject.

  • The institutional and legal framework governing PPPs is in place. In this regard, a national committee was set up, and has identified over 60 priority projects, several of which are already being implemented.

  • In the area of judicial reform, the following steps have been taken, among others: (i) In February 2012, adoption by the Council of Ministers of an order of exequatur with regard to arbitration courts decisions determining the intervention of national jurisdictions in arbitration proceedings; and (ii) Ivoirien law was brought into conformity with provisions in international law regarding anti-corruption and illicit enrichment.

  • The first Commercial Court of Côte d’Ivoire began operating in October 2012, and is handing down decisions within a maximum of 90 days.

All of these measures have resulted in the improvement of Côte d’Ivoire’s rank in the World Bank’s “Doing Business 2014” classification, which rates Côte d’Ivoire among the 10 countries in the world that have made the most progress this year in improving their business climate.

C. Economic Prospects for End-2013

12. Macroeconomic prospects confirm the strong growth of activity in 2013.

  • The GDP growth rate in 2013 is estimated at 9 percent, thanks to the vitality of all sectors.

  • The slowdown observed in prices since April 2013 should make it possible to bring the average annual inflation rate down to 2.7 percent by the end of the year.

  • The trade balance should remain in surplus, despite the continued rise in imports linked to public and private investment. In fact, imports are expected to grow by 13.8 percent, owing mainly to capital goods. As for exports, they would rise by 10.9 percent, with an increase in sales of petroleum, crude oil, palm oil, and agrofood and manufacturing products. The current account balance will remain in deficit, while the balance of payments should register a surplus.

13. Budget revenue (CFAF 2,766.7 billion) will be in line with the objective (CFAF 2,764.5 billion), despite the drop in indirect taxes and import duties. With the upturn in economic activity, the objectives for some revenues were revised upward, especially for the BIC, taxes on petroleum products, and export taxes. However, based on the end-July 2013 data for revenues, collection of the VAT and import tax on general merchandise could be below initial projections, owing to a higher-than-projected rise in capital goods imports benefiting from exemptions under the investment code. Similarly, VAT receipts would be CFAF 230.6 billion compared to the CFAF 245 billion target. Specific measures have been adopted to optimize the potential of these taxes. They include tightening the various types of control namely, an increased effort to collect tax arrears, the systematic monitoring of the VAT statements showing a credit, a review of the criteria for selecting products subject to controls, and an increase in the valuation of imported goods thanks to the new operator, which will lead to increased revenue.

14. Expenditures (CFAF 3,384.4 billion) will be broadly in line with the objective (CFAF 3,445.3 billion). However, the subsidy to the electricity sector would be CFAF 63.2 billion compared to the CFAF 32.3 billion objective, as a result of the continued negotiations on the selling price of gas from block CI 26. In addition, investment expenditures should post an execution rate of the program objective of 92 percent, despite the fact that implementation of C2D projects was weaker than expected.

15. Financing needs for 2013 should be covered. They amount to CFAF 382 billion, or 2.7 percent of GDP compared with the goal of CFAF 53.3 billion. As projected, these needs will be financed primarily by a net mobilization of resources on the regional financial market (WAEMU), and by external resources of multilateral institutions and bilateral lenders. More specifically, important contractual debts falling due at end 2013 will be financed by recourse to the regional financial market and by mobilizing of domestic resources.

16. The government is planning to partially use the nonconcessional lending window capped at a ceiling of USD 800 million in 2013. To implement the vast investment program under the PND, nonconcessional loan agreements were signed for a total of USD 680 million. The amount of loans that met have become effective is USD 500 million, for financing the Soubré hydroelectric power plant project.

17. The progress expected in the area of structural reforms over the remainder of 2013 is summed up as follows:

  • The proposed law on the customs code and the draft decree on the procedural manual for customs inquiries were approved during a workshop in July 2013. Adoption of the manual of procedures depends on passage of the proposed customs code, which has been submitted to the Council of Ministers for consideration, and will then be forwarded to the National Assembly.

  • A standard public procurement plan is being prepared, and will be disseminated among appropriations managers at the outset of 2014 budget execution. An expenditure commitment plan will also be available before end-January 2014. Work on that plan will begin as soon as the proposed budget is adopted by the Council of Ministers.

  • The proposed Medium-Term Debt Management Strategy (2013–15, MTDS) in line with international standards will be adopted by the Council of Ministers at end-November 2013. The MDTS will be made consistent with the Debt Sustainability Analysis that was updated at end-October 2013, with IMF technical assistance.

  • A debt management structure incorporating a front office, middle office, and back office will be put in place before end-December 2013. A draft staff organizational chart based on this new structure is being finalized and will be implemented in 2014.

  • Domestic Treasury arrears on amounts owed to suppliers at end-2010 were audited, to get a better understanding of the debt submitted for settlement. Based on the results, a plan for settling these domestic arrears will be adopted by end-November 2013. The audit was done in two main stages. The first stage consisted of examining the Treasury’s payables for validation, on the basis of the vouchers produced for the various transactions. The payments due from this stage amounted to CFAF 356.7 billion. At the end of the audit procedure, the auditors found that CFAF 142.1 billion was irregular, and proposed that it be rejected, and that CFAF 192.2 billion be approved. A second audit was initiated on payables validated during the first audit. This second audit went beyond an evaluation of the accounts, to determine whether the services were actually performed and to assess the cost of the work involved.

  • A bill introducing universal health coverage (CMU) is being prepared. This law will guarantee access to health care for the most vulnerable sectors of the population based on principles of national solidarity, equity, and risk-sharing.

  • A bill on the labor code is under preparation. This new bill is designed to provide better protection against job insecurity, to strengthen labor administration capacity, and to promote jobs for graduates and access to jobs for the disabled.

  • As for the financial sector development strategy, an initial draft prepared with the technical assistance of the FIRST initiative is being finalized. It is expected to be approved by the Council of Ministers before end-December 2013;

  • With regard to public enterprises, the communication adopted on May 26, 2012 in the Council of Ministers presented strategic options for a 25 percent reduction in the government portfolio (through privatization, mergers, or restructuring), including public banks. Implementation of these options requires studies on valuation and methods of privatization, as well as studies on the strategic and operational arrangements for possible mergers. For public banks, these studies were initiated in June 2013, and final reports should be available by early October 2013. An IMF technical assistance mission on the subject was already conducted in September 2013 to analyze the draft report of the consultants. Based on the recommendations of these studies, a plan of action will be drawn up and adopted by the Council of Ministers before end-December 2013;

  • The global medium-term expenditure framework (MTEF) for 2014–16 as well as the multiyear economic and budget programming document have been prepared; they will be submitted to the National Assembly after they have been adopted by the Council of Ministers;

  • The main lines of a strategy for reform of the VAT have been prepared and two measures for the rationalization of VAT exemptions are included in the fiscal annex to the 2014 budget law;

  • A strategy for management of the wage bill was prepared with IMF technical assistance. It defines a recruitment profile in line with increased staffing needs, especially in the education and health sectors, and sustainable remuneration, thus moving towards the WAEMU convergence criterion by 2022. It will be adopted by the Council of Ministers by end-December 2013.

  • The electricity code will be finalized for submission to the National Assembly before end-December 2013. It should set out a better framework for managing physical and financial flows in the sector by (i) a better definition of the activities of the electricity sector and their legal framework; (ii) a greater flexibility regarding permissible organizational structures and the management structure for the segments which are granted state monopolies, which can now be operated by one or more private operators; (iii) the coverage by the code of new and renewable energy sources as well as energy-saving schemes; (iv) strengthening the framework for preventing fraud and damaging criminal acts in the electricity sector; and (v) the creation by law of an independent regulatory commission with the necessary powers to fulfill its mission.

Economic and Financial Program for 2014 and Medium-Term Objectives

D. Macroeconomic Framework

18. The government reaffirms its intention to reduce poverty and consolidate its foundations, to make Côte d’Ivoire an emerging economy by 2020, through the implementation of the PND. This strategy is based on strong, sustained, and inclusive growth, with respect for women and the environment, in order to create jobs and reduce poverty. The primary objectives are as follows:

  • Achieve a growth rate of about 9 percent in 2013, and 10 percent in 2014, as a result of a substantial increase in investments, which are expected to climb from 13.7 percent of GDP in 2012 to 19.6 percent of GDP in 2015;

  • Cut the poverty rate in half by 2015, and return to the group of African countries with the best UNDP Human Development Index rating;

  • Attain the Millennium Development Goals by 2015, or move significantly closer to them;

  • Create one of the best business climates in Africa and make the economy more competitive; and

  • Rejoin the group of top African countries in terms of good governance and anti-corruption efforts.

19. To achieve these overall objectives, the government will ensure that the sectoral objectives and strategies assigned to the different ministries are implemented. To this end, the national report on implementation of the 2012–15 PND will be submitted to the Council of Ministers before end-2013. On this basis, supplementary measures will be adopted to improve monitoring of investment projects. The government will make every effort to ensure that all of the priority investment projects included in the PND are effectively carried out. It will also pursue implementation of structural and sector reforms.

20. The government objective is to achieve a 10 percent growth rate of GDP by 2014, in line with the PND objectives. The economy should benefit from normalization of the sociopolitical and security situation, and from the full impact of the structural reforms implemented, especially those to improve the business climate. Growth will rely on public investment, which should act as a catalyst to further stimulate private investment. Moreover, the private sector should increase its production capacity, thanks to the new investment code, the opening of the window to facilitate the creation of businesses, and the promotion of public-private partnerships (PPP).

21. Supply will be driven by the buoyancy of all sectors

  • The primary sector is making headway as a result of the good performance of subsistence agriculture and food crops, in conjunction with the implementation of the National Rice Development Plan (PNDR), and investments made in the exploration, development, and maintenance of existing wells and mines. In addition, implementation of the plan to reform the cashew nut and cotton industries will make it possible to structure these sectors and improve their productivity.

  • The secondary sector will increase as a result of the good performance of the construction and agrofood sectors. Also, dynamic domestic demand should help sustain the sector’s growth.

  • The tertiary sector will benefit from the growth of the primary and secondary sectors. In addition, the institutional and legal framework of SMEs will be strengthened by the preparation of the craft or cottage industry code and the adoption of a law to promote SMEs. Furthermore, the creation of the one-stop window for foreign trade (GUCE), the opening of the Bouaké wholesale market, the revival of SOTRA, the installation of new groups in the distribution and hotel industry sectors, as well as the return of the AfDB to its headquarters in Abidjan will contribute to a significant growth of activities in the sector in 2014.

22. The inflation rate should level out at an average of 2.4 percent in 2014. The increase in the supply of subsistence foodstuffs and the repair of rural roads should help improve the supply of markets and contain food prices.

23. The current account balance will remain in deficit in 2014. Imports will continue to rise in line with the dynamism of the economy, as a result of the demand for capital and intermediate goods. The capital and financial operations account will show a surplus, due to project grants received, as well as a rebound in foreign direct and portfolio investment. The overall balance of payments will be in surplus.

24. The money supply should increase by 9.5 percent. This development is mainly linked to the increase in credit to the private sector which will benefit from easier access to bank credit on the part of SMEs and SMIs. In addition, net foreign assets should increase as a result of a good performance of exports and foreign direct investment flows.

25. The government plans to take appropriate steps to deal with risks that could jeopardize the achievement of its macroeconomic objectives. There are three types of risks that could interfere with the achievement of its objectives: (i) a deterioration of the terms of trade; (ii) a poor rainy season; and (iii) a weak mobilization of financing and a slowdown in the execution of investments. To deal with these risks, the government will take steps to optimize potential revenue, by emphasizing an expansion of the tax base, better control of expenditures, ensure a sustainable debt management policy, and by adopting measures to mobilize expected financing.

E. Budget Framework

26. Budget policy for 2014 and the medium term takes into account the main strategic pillars of the National Development Plan. The priority activities under the 2012–15 PND, as reflected in the Public Investment Program (PIP), have been incorporated in the proposed 2014 budget. In line with the economic and financial program, 2014 budget priorities are focused primarily on improving the standard of living of the population and strengthening the foundations for economic growth. To this end, the principal projects concern road rehabilitation and construction, improving access to drinking water, health, education, and electricity, as well as enhancing security and the development of basic socioeconomic infrastructure.

27. The government will continue to give priority to maximizing potential tax collection and rationalizing expenditures, in order to create the fiscal space needed for investment. The medium-term objective is to realize a surplus in the primary basic balance. The budget will continue to be prepared according to constitutional and regulatory provisions. Efforts will be pursued to improve transparency and traceability in the public expenditure execution chain.

28. 2014 budget revenue is projected to rise to CFAF 3,051.0 billion, up by 10.3 percent over 2013 estimates. Tax revenue will grow by 10.8 percent, thanks to efforts to improve collection of the principal taxes, including the VAT, payroll tax (ITS), and the BIC, excluding petroleum. As regards port duties and fees, revenues collected on general merchandise will increase by CFAF 46 billion due to improvements in the recording and valuation of goods, as well as anti-fraud efforts. The registration tax and the single export tax (DUS) will decline, because of an expected drop in cocoa production. As for nontax revenue, it will amount to CFAF 408.7 billion.

29. Maximizing potential tax revenue collection is a government priority for achieving the budget revenue objectives. To this end, measures involving both tax administration and fiscal policy are planned for 2014. They include the following:

  • Gradually reducing VAT exemptions, in particular by prohibiting new exemptions to be granted that do not conform with the WAEMU directives (especially those granted through special covenants) or which are not justifiable on economic or social grounds in the short and medium term;

  • Standardizing the method for computing excise taxes on beverages and tobacco, by correcting the tax bases on which taxes are levied and the tax rates to bring them in line with the practices of WAEMU;

  • Harmonizing rates applicable to capital gains and profits in order to adjust the Ivorien tax system in line with the regional WAEMU norms;

  • Introducing a minimum tax for taxpayers under the simplified itemized tax system (régime du réel simplifié d’imposition), through a withholding tax of 2 percent applied on business turnover including all taxes. The amount withheld should not be less than CFAF 500,000 a year which would be the minimum assessment;

  • Strengthen taxation on telecommunications by:

    • An increase in the tax rate on telecommunications from 3 percent to 5 percent;

    • The introduction of a specific tax at a rate of 3 percent on consumers, assessed on the cost of phone calls and internet use; and

    • An increase in the rate of tax from 25 percent to 30 percent on industrial and commercial profits of companies in the sector for telecommunication, information technology and communications.

  • Improving the segmentation of taxpayers on the basis of recommendations in IMF technical assistance reports. To this end, the tax administration is planning to pursue a deconcentration policy for its staff, to strengthen the Large Enterprises Directorate (DGE) by increasing its sphere of competence (intervention threshold and coverage throughout the territory), and to set up a structure for the administration of medium-sized enterprises. The tax enforcement policy will be advanced by reinforcing inspection units and improving the coverage rates of fiscal inspections;

  • For the Ivoirien customs administration, measures will draw on technical assistance recommendations, including those of the IMF, and on the implementation of measures to improve the recording of goods by: (i) connecting the customs information system with the system of the Port of Abidjan; (ii) operationalizing a simplified system of recording the transshipment of containers in the customs information system; and, (iii) liberalization of consignment at the airport, by putting an end to the single régie system. Furthermore customs will step up its anti-fraud efforts by (a) making optimum use of scanners on imports and exports on the basis of risk analysis and the installation of a scanner at the airport; (b) increasing surveillance of the sea coast and lagoon shores; and, (c) strengthening capacity to fight fraud and smuggling across land borders.

30. Public expenditures for 2014 are expected to amount to CFAF 3,973.4 billion, increasing by CFAF 409 billion compared to 2013. The government plans to improve the rate of execution of investments, especially those planned as part of C2D with allocations of CFAF 140.2 billion. In addition, pro-poor expenditures will amount to CFAF 1,517.7 billion, as compared to CFAF 1,309 billion in 2013. In line with the proposed wage bill strategy, personnel expenditures will rise to CFAF 1,186.2 billion, taking into account the full application of revaluation measures, as well as new recruits, especially in the education, health, and security sectors.

31. The primary basic balance will be CFAF -9.9 billion, or -0.1 percent of GDP, compared to -0.2 percent of GDP in 2013. The overall budget deficit including grants (excluding grants for settlement of arrears) would rise to CFAF 364.5 billion (or 2.3 percent of GDP, compared to 2.7 percent of GDP in 2013).

F. Long-Term Fiscal Sustainability

32. The government reiterates its commitment to achieve fiscal consolidation, maintain macroeconomic stability and debt sustainability. To achieve this, it intends to improve mobilization of revenue, control the medium-term evolution of the wage bill and operating expenses, reduce the subsidy to the electricity sector until it reaches financial equilibrium, and clean up the domestic debt situation.

33. The strategy for the medium-term control of the wage bill adopted before end-December 2013 by the government will be implemented. It is aimed at eventually ensuring compliance with the WAEMU convergence criterion of 35 percent of tax revenue. To this end, the following measures have been identified to respond to the hiring needs of priority sectors while strengthening management: optimization of the recruitment policy; staff management through a performance rating system; assignment of personnel identification numbers related to employment grades, implementation of the Management Information System for Government Officials and Employees (SIGFAE), and establishment of a Human Resources Directorate in all ministries.

34. The government plans to reduce subsidies to the electricity sector over the medium term. To accomplish this, it intends to consolidate progress made in implementing the medium-term strategy to restore financial equilibrium to the sector, adopted by the Council of Ministers on November 7, 2012 (Box 2). A delay in the start of operations of field CI-202 created a shortage of gas for electricity production. To meet national and sub-regional demand, the government has embarked on a wide-ranging investment program at a total cost of CFA 5300 billion to build new hydraulic and thermal power plants, and to improve the transmission network to reduce technical losses. In this effort, it has the support of several partners, including the World Bank, IFC, AfDB, BOAD, and the Exim-Bank of China. As for exports, the government will bill quantities in excess of the contractual minimum at the marginal cost of electricity production.

Côte d’Ivoire: Moving Toward Financial Equilibrium in the Electricity Sector and a Substantial Increase in the Supply of Electricity

Achievement of a sustained growth rate requires an adequate supply of electricity at low cost, or an increase of around 700 gigawatt hours (GWh) a year. However, in the current situation, the sector is experiencing financial disequilibrium, primarily as a result of the supply of natural gas, the main source (70 percent) of electricity production. This deficit has led to a delay in investment in the transmission and distribution network.

To deal with this situation, the government, following an evaluation of the sector, decided to implement robust measures to boost production and reduce the financial deficit. Thus, in November 2012, the Council of Ministers adopted a medium-term strategy to restore financial equilibrium to the electricity sector and promote its development to sustain growth. This strategy is based on the following pillars: (i) a reduction of charges (renegotiation of the price of natural gas, review of the utility company’s remuneration, and demand management); (ii) an improvement of revenue (review of national and export electricity tariffs, shift to the general rate for moderate-use customers that consume over 200 KWh bimonthly, and improvement of collection in the areas outside the central-north-west (CNO) zone); (iii) an improvement in the overall yield (reduction of technical and nontechnical losses and adoption of the electricity code).

To implement this strategy, the following steps have been taken. The cost of gas from the CI-27 blocks has been reduced. As for the utility company’s remuneration, it was revised downward and an agreement was obtained on support by the utility to the sector, in the amount of CFAF 8 billion a year from 2013 to 2015. To bring demand under control: (i) over 100,000 low wattage light bulbs were distributed in the communities of Treichville, Abobo, and Yamoussoukro; (ii) export tariffs were revised, and a 10 percent increase was applied to the rate for industries; (iii) moderate use customers using over 200 KWh bimonthly were shifted to the general tariff; (iv) the rate of collection on invoices was improved in the CNO zone, from 40 percent in 2012 to over 60 percent in 2013; and (v) action taken to reduce losses has led to a 3-point increase in overall yield from 2012 to 2013. In addition, a new electricity code has been adopted by the Council of Ministers and will soon be submitted to the National Assembly. Its application will help improve the legal framework for fighting fraud. In the medium term, the government is exploring options to ensure adequate supplies of gas on a regular basis.

All of these steps, including those taken in 2012, should make it possible to eliminate the financial imbalance of the sector and thus make it possible to undertake the investments needed to improve the supply of electricity, with a view to consolidating Côte d’Ivoire’s status as an electricity exporter. Several projects for the development of the sector have been carried out or are under way. They include: (i) the leasing of a 100 MW thermal power plant in 2013; (ii) investment in the distribution network to improve overall yield by one point a year, beginning in 2013; and (iii) the implementation of phase 4 of CIPREL in January 2014, and phase 3 of AZITO in April 2015. In the medium term, an increase in hydroelectric capacity, as a result of the Soubré dam, will help control electricity production costs.

35. The government will implement a plan to settle the domestic debt in order to support private sector activity. It will make every effort to respect the schedule of planned payments envisioned in this plan, that is based on the criteria of priority, nature of the expenditure (pro-poor, etc.), and specified tranche payments by based on discount levels and the tax status of the creditor. In order to guarantee equity and transparency, orders for payment will be posted on the premises of the Accounting Unit in question and on the Treasury’s web site.

G. Rehabilitation and Promotion of the Financial Sector

36. The government will implement the development strategy for the financial sector. This strategy should permit a better response to the economy’s financing needs, especially for housing, SME/SMI, and agriculture. It should also take the following into account: (i) the government’s role in the sector; (ii) contractual savings; (iii) the poor access to financial services; (iv) the cost of credit; (v) the rehabilitation of the banking and microfinance sectors; and (vi) the legal and judicial framework of the sector. The Financial Sector Development Committee (CODESFI) will be responsible for implementation.

37. The government intends to accelerate the restructuring of public banks. The plan for restructuring public banks will be submitted to the Council of Ministers before end-December 2013. This plan aims to clean up the banking sector, to make it more effective and better able to support the government’s sector policies (housing, SME/SMI, and agriculture), and be in compliance with WAEMU prudential regulations.

38. The government intends to improve supervision of the microfinance sector. Measures to rehabilitate and develop the sector have been initiated and will be strengthened with the support of technical and financial partners. Activities, amongst others, will include doing audits of the sector, as well as preparing and implementing the plan for restructuring UNACOOPEC-CI.

39. The government will encourage the BCEAO to accelerate the creation of primary dealers (SVT) and the development of information systems (credit bureaus and registers). To this end, it will support the efforts of the WAEMU Council of Ministers to adopt the draft charter governing “relations between issuers and the SVTs on public debt markets of member states.” The entry into force in October 2013 of the instruction regarding repurchase operations and the upcoming creation of the SVTs will contribute to the development and deepening of the sub-regional financial market. Moreover, the government intends to work on creating a secondary market to make the financial market more dynamic. The government is also planning to promote financial transactions between the WAEMU and CEMAC regions.

H. Debt Policy and Strategy

40. A medium-term debt management strategy (MTDS) will be submitted to the Council of Ministers before end-November 2013. The primary objective of this strategy is to preserve the sustainability of medium- and long-term public debt. It reflects a plan to control risks related to the debt, especially exchange and refinancing risks. To this end, the government will favor the mobilization of external concessional financing, centralize the issuance and management of public debt in a single entity, and improve its communications with the market. It will also strengthen government liquidity management, especially through the implementation of a single treasury account.

41. The government intends to expand its financing sources by having recourse to the international financial market, notably by issuing Eurobonds. This initiative is part of the debt strategy, including the aim of obtaining a sovereign credit rating. The objective of issuing Eurobonds is to expand financing sources and improve the maturity structure of domestic and external debt, as well as asset-liability management. The government intends to issue a Eurobond in 2014. To this end, the government is requesting IMF approval to increase the cumulative nonconcessional external borrowing window at end 2014 by another USD 500 million, to enable it to make a Eurobond issue. Moreover, the government will continue to seek concessional terms on its borrowing, including for major infrastructure projects.

42. The government will request assistance from its technical and financial partners (TFPs) to continue improving public debt management. The technical support of TFPs will help the Ivoirien authorities consolidate the new approach regarding the strategic orientation of the government’s debt, and thereby build upon the gains from reaching the completion point under the HIPC Initiative on June 26, 2012. In particular, this support will help the government implement the new debt management structure and to strengthen the capacity of its services.

I. Strengthening the Competitiveness of the Economy

43. Strong, sustainable growth requires a much more competitive private sector and an improved business climate. To this end, the network of economic infrastructure (telecommunications, roads, energy, ports) is being strengthened, thanks to increased public investment and implementation of important public-private partnership projects. Instruments for developing industrial infrastructure will also be put into play, with the creation and/or expansion of industrial zones. The government will continue to place an emphasis on health care, in particular by developing a pharmaceutical industry for generic medicines and making Côte d’Ivoire a sub-regional hub for hospital services, as well as on education and training, to ensure that companies have access to skilled workers. It also intends to support research. The agricultural potential of Côte d’Ivoire will be enhanced by improving farm yields. The sector will benefit from the implementation of the National Agricultural Investment Program (PNIA), which is designed to strengthen food security and develop value chains. The government plans to guarantee the sustainability of the coffee-cocoa sector by pursuing the reform of this sector, including by completing the census of producers. The reforms are being extended to other sectors of the economy, in particular cotton and cashew nuts. Subsistence agriculture will post strong figures, with an increase in the production of rice (aiming to achieve self-sufficiency by 2016) and cassava. Furthermore, the government is planning to organize a forum entitled “Invest in Côte d’Ivoire: ICI 2014” from January 29 to February 1, 2014. This forum, which should be attended by nearly 3,000 participants, will be a platform for exchanges among national and international investors to support the government’s policy.

44. The government intends to ensure that Côte d’Ivoire remains in compliance with the Extractive Industries Transparency Initiative (EITI). To this end, the petroleum code was amended and a new hydrocarbons code was adopted, to ensure greater transparency in the management of resources and environmental preservation. Moreover, the government is planning to adopt a new mining code. This new mining code aims to make Côte d’Ivoire a preferred destination. It is based on the following principles:

  • Incorporation of best international practices in the area of good governance (EITI, Kimberley Process, Equator Principles);

  • Transparency in granting mining rights;

  • Reduction and control of the time required for processing documents;

  • Organization of artisanal or small-scale mining operations and gold panning;

  • Cohabitation between large and small mines; and

  • Rational use of assigned surfaces to intensify research.

45. The government will adopt a new industrial policy in 2014, to make businesses more competitive and better able to create wealth and jobs. The 2012 evaluation of the industrial sector shed light on steps to take to define an industrial development strategy. On this basis the government identified the main lines of a policy founded on the following three pillars: (i) a sizeable contribution from the private sector; (ii) the use of comparative advantages; and (iii) targeted support from the government (quality, standards, restructuring, access to credit, creation of industrial zones, and targeted tax advantages). The principal objective will be to increase the share of industry in GDP from around 30 percent in 2012 to 40 percent by 2020. To achieve this objective, it will rely particularly on increasing the processing rate of farm products (cashew nuts, cotton, and rice), and the diversification of the textile industry, by promoting light industries.

J. Public Financial Management and Governance

46. The government will continue to reform public financial management. To this end, it will prepare a standard plan for government contracting, to be disseminated among appropriation managers at the start of execution of the 2014 budget, formulate an expenditure commitment plan in January 2014, and pursue its efforts to decentralize management of public finance by connecting five new locations with SIGFIP in 2014. It will adopt in the Council of Ministers, no later than end-March 2014, four proposed decrees on the transposition of the WAEMU public financial management directives after the vote on the organic laws establishing the Transparency Code and the Budget Law. The government will evaluate the expenditure chain and adopt corrective measures to reinforce verification of the delivery of goods and services, with a view to eliminating exceptional payments order procedures (payments orders based on counterfoils [mandats souches] or on provisions [mandats provisions]) and to limiting recourse to cash advances. The objective is to continue to streamline and enhance the effectiveness of the expenditure chain, and ensure that it is consistent with the principles of fiscal orthodoxy.

47. The government will continue to respect the public contracting code and to promote competitive procedures. Thus, enabling regulation for implementing the code will be adopted in 2014. In line with the public financial management reform plan (PEMFAR), the government has defined nine strategic pillars, in particular strengthening the transparency of public financial management, strengthening budget discipline, improving the traceability and control of budget execution, and improving the operational framework for government procurement. These provisions should lead to greater transparency and more effective action to combat corruption and fraud, and offer effective recourse to government officers managing procurement. With regard to government procurement procedures, recourse to single-source contracts will continue to be rationalized. Notable changes made to the legal framework for government contracts, include the separation of the functions of control and regularization, and extension of the scope of the code by requiring institutions to comply with it, will contribute to achieving the aforesaid objectives.

48. Implementation of the National Good Governance and Anti-Corruption Plan (PNBGLC) will be stepped up. The following specific actions will be taken:

  • The High Authority for Good Governance, instituted by order No. 2013-661 of September 20, 2013, and the Special Court to Prevent and Fight Corruption will be put in place in the second half of 2014;

  • Campaigns to raise awareness and provide information on corruption initiated in May 2013 will be continued; and

  • The anti-corruption center will be set up after the regulations for its operation are completed in 2014.

Financing and Monitoring the Program

49. The government believes that the financing needs of the 2014 program will be covered. On the sub-regional monetary and financial markets, CFAF 867 billion is expected to be mobilized in the form of Treasury bills and bonds, compared to CFAF 806.7 billion expected for 2013. As for external financing, including budget support amounting to CFAF 247.8 billion, the primary lenders and donors are the World Bank, IMF, AfDB, EU, AFD, IDB, and the Exim-Bank of China. The government will pursue talks with the remaining creditors that have yet to grant debt relief under the HIPC Initiative.

50. The program will continue to be monitored on a biannual basis by the IMF Executive Board on the basis of the quantitative performance criteria and indicative targets (Table 1). These indicators are defined in the attached Technical Memorandum of Understanding (TMU). Semi-annual reviews will be based on end-June and end-December data. The fifth (sixth) review of the program will be based on performance criteria at end-December 2013 (end-June 2014) and should be completed by April/May 2014 (October/November 2014) at the latest. In this effort, the government undertakes to:

  • Refrain from accumulating new domestic arrears and any kind of advance against revenue, and from contracting nonconcessional external borrowing other than the loans specified in the TMU;

  • Issue government securities only by auction through the BCEAO or any other form of competitive bidding on the local financial market and the WAEMU market, and to consult with IMF staff regarding any new financing;

  • Refrain from introducing or tightening restrictions on payments and transfers related to current international transactions, or from introducing multiple exchange rate practices, or from concluding any bilateral payment agreements that are not in compliance with Article VIII of the IMF Articles of Agreement, or from imposing or tightening any import restrictions for the purpose of bringing the balance of payments into equilibrium;

  • Adopt any new financial or structural measures that might be needed to ensure the success of its policies, in consultation with the IMF.

Statistics and Capacity Building

51. Economic statistics are a pillar of the government’s efforts to become an emerging country, and improving its statistical tools remains a priority. With a view to boosting its access to international capital markets, Côte d’Ivoire intends to move towards the Special Data Dissemination Standard. To this end, a proposed law on the organization, regulation, and coordination of the National Statistics System was adopted by the Council of Ministers in December 2012, and was passed by the National Assembly on June 10, 2013. The government will ensure that it is implemented. Moreover, the 2012–15 master plan on statistics, consistent with the National Development Plan, was approved in March 2012 and is being implemented. Its strategic pillars cover the following areas:

  • Support for conducting national and sectoral surveys;

  • Improving the range and monitoring of economic outlook indicators;

  • Holding workshops on setting up the data base for the Integrated Information Management System;

  • Preparation of quarterly national accounts;

  • Changing the baseline year of the national accounts;

  • Updating the Harmonized Consumer Price Index (HCPI); and

  • Preparation of a directory of ministerial statistical staff.

All of these efforts, together with the 2013–14 General Population and Housing Census, will contribute to the regular production of quality economic and financial data.

52. The government will support capacity building. The inauguration of the AFRITAC West Technical Assistance Center by the IMF Managing Director after a decade of being located elsewhere is proof of the determination of the Ivoirien authorities to give priority to national capacity-building. Technical assistance needs in the coming 12 months concern: (i) setting up a customs revenue forecasting model; (ii) strengthening the tax administration, and especially for the VAT; and (iii) preparation of balance of payments forecasts.

Table 1.

Côte d'Ivoire: Performance Criteria and Indicative Targets, ECF 2013–14 1/

(In billions of CFA francs) 2/

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Sources: Ivoirien authorities and IMF staff. Note : The terms in this table are defined in the TMU.

Cumulative change from December 31, 2012 for 2013 targets, and from December 2013 for 2014 targets.

Except for the ceiling on new nonconcessional external debt.

The primary basic balance becomes a PC starting from end-June 2013.

The overall fiscal balance becomes an indicative target starting from end-June 2013.

In the event of the issuance of an Eurobond, the 2014 ceiling will be adjusted upward by an amount equivalent to US$500 million and the ceiling on net domestic financing will be adjusted downward by the same amount. The proceeds of the eventual Eurobond will be used for asset-liability management.

Continuous performance criteria.

The new window in 2013 will be used for infrastructure, energy, and transport projects.

Table 2.

Côte d’Ivoire: Structural Benchmarks, 2013–14, ECF

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Attachment II. Technical Memorandum of Understanding

Arrangement Under the Extended Credit Facility 2011–14

November 20, 2013

1. This Technical Memorandum of Understanding (TMU) describes the quantitative and structural assessment criteria established by the Ivoirian authorities and the staff of the International Monetary Fund (IMF) to monitor the program supported by the Fund’s Extended Credit Facility (ECF). It also specifies the periodicity and the deadlines for the transmission of data to Fund staff for program 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’État, CGRAE), and Treasury operations for public companies in liquidation; it does not include any local government authorities, the Central Bank of West African States (BCEAO), or any other government-owned entity with separate legal status.

Quantitative Indicators

2. For program monitoring purposes, the performance criteria (PC) and indicative targets (IT) are set for December 31, 2013 and June 30, 2014; the same variables are indicative targets for these variables for March 31, 2014.

The performance criteria include:

  • (a) a floor on the primary basic fiscal balance;

  • (b) a ceiling for net domestic financing (including the issuance of securities in Francs of the Financial Community of Africa (CFA) – or Communauté Financière Africaine in French);

  • (c) a ceiling on new nonconcessional external debt;

  • (d) a zero ceiling for the accumulation of new external arrears; and

  • (e) a zero ceiling for the accumulation of new domestic arrears.

The indicative targets are:

  • a) a floor on the overall fiscal balance (including grants);

  • b) a ceiling on expenditures by treasury advance;

  • c) a floor on “pro-poor” expenditures;

  • d) a floor on the net reduction of the government amounts payables;

  • e) a floor on total government revenue.

3. The PCs, the ITs, and the adjustors are calculated as the cumulative change from December 31, 2013 for the 2014 targets (Table [1] of the Memorandum of Economic and Financial Policies, or the MEFP).

A. Government Revenue (IT)

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

B. Pro-poor Expenditures (IT)

5. Pro-poor expenditures are derived from the detailed list of “pro-poor expenditures” in the SIGFIP system (see attached Table 1).

C. Treasury Advances (IT)

6. Within the framework of the program, Treasury advances are defined as spending paid for by the Treasury outside normal and simplified execution and control procedures, and which have not been subject to prior commitment and authorization. They exclude the “régies d’avances”, as set out through ministerial decrees n° 2002-345, as well as the extraordinary procedures set out in decree n° 1998-716 for expenditures financed by external resources, wages, subsidies and transfers, and debt service. The cumulative amount of expenditures by treasury advance as defined by the program will not exceed the cumulative quarterly ceilings representing 10 percent of quarterly budget allocations (excluding externally financed expenditures, wages, subsidies and transfers, and debt service). The nominative and restrictive list of expenditures eligible as treasury advances is as defined by ministerial Decree No. 178/MEF/CAB-01/26 of March 13, 2009.

D. Primary Basic Fiscal Balance (PC)

7. The primary basic fiscal balance is the difference between the government’s total revenue (excluding grants) and total expenditure plus net lending, excluding interest payments and externally-financed capital expenditure (on a payment order basis for all expenditure items):

Tax and nontax revenue (excluding grants) – {Expenditure + Net lending – Interest payments -Externally-financed capital expenditure (on a payment order basis for all expenditure items)}

8. The floor on the primary basic fiscal balance will be adjusted downward (upward) for an excess (shortfall) of external budget support (program grants/loans) relative to the programmed amount.

E. Overall Fiscal Balance (Including Grants) (IT)

9. The overall fiscal balance is the difference between the government’s total revenue (including grants except World Bank budget support grants- AfDB budget support grants) and total expenditure plus net lending (on a payment order basis):

Tax and nontax revenue + (Grants – World Bank budget support grants – AfDB budget support grants) – {Expenditure + Net lending (on a payment order basis for all expenditure items)}

10. The floor on the overall fiscal balance will be adjusted downward (upward) for an excess (shortfall) of project loans relative to the programmed amount.

F. Net Domestic Financing (PC)

11. The net domestic financing by the central government is defined as the sum of (i) the banking system’s net claims on the government (including C2D deposits); (ii) net non-bank financing (including proceeds from privatization and sales of assets, and of correspondant sub-account of the Treasury and excluding the net variation of the amounts payable); and (iii) any financing borrowed and serviced in Francs of the Financial Community of Africa (FCFA). This ceiling includes a margin of CFAF 10 billion above the net cumulative flow projected for each quarter.

Net domestic financing = Variation of banking system’s net claims on the government (TOFE) + net non-bank domestic financing (excluding the variation of the amounts payable) + borrowing denominated and serviced in Francs of the Financial Community of Africa (FCFA) + financing margin of CFAF 10 billion.

This ceiling does not apply to either new agreements on restructuring domestic debt and securitization of domestic arrears or to new project loans from the Bank for Investment and Development (BIDC) of the Economic Community of West African States (ECOWAS). For any new borrowing over and above a cumulative amount of CFAF 35 billion over 2013, and over and above a cumulative amount of CFAF 35 billion in 2014, the government undertakes not to issue government securities except by auction through the BCEAO or through competitive public auction (appel d’offres competitif) on the WAEMU financial markets registered with the Regional Council for Public Savings and Financial Markets (CREPMF), in consultation with Fund staff. This ceiling will be lowered by an amount equal to the eventual issuance of an Eurobond (for a maximum equivalent to US$500 million) used for financing an additional domestic debt reduction beyond the amount included in the program.

G. New Nonconcessional External Debt (PC)

12. The definition of debt is set out in Executive Board Decision No.6230-(79/140), Point 9, as revised on August 31, 2009 (Decision No. 14416-(09/91)): Debt will be understood to mean a current, i.e., not contingent, liability, created under a contractual arrangement through the provision of value in the form of assets (including currency) or services, and which requires the obligor to make one or more payments in the form of assets (including currency) or services, according to a specific schedule; these payments will discharge the obligor of the principal and/or interest liabilities incurred under the contract. Debts can take a number of forms, the primary ones being as follows: (i) loans, i.e., advances of money to the obligor by the lender made on the basis of an undertaking that the obligor will repay the funds in the future (including deposits, bonds, debentures, commercial loans, and buyers' credits) and temporary exchanges of assets that are equivalent to fully collateralized loans, under which the obligor is required to repay the funds, and usually pay interest, by repurchasing the collateral from the buyer in the future (such as repurchase agreements and official swap arrangements); (ii) suppliers' credits, i.e., contracts where the supplier permits the obligor to defer payments until sometime after the date on which the goods are delivered or services are provided; and (iii) leases, i.e., arrangements under which property is provided that the lessee has the right to use for one or more specified period(s) of time that are usually shorter than the total expected service life of the property, while the lessor retains the title to the property. For the purpose of this guideline, the debt is the present value (at the inception of the lease) of all lease payments expected to be made during the period of the agreement, excluding those payments necessary for the operation, repair, or maintenance of the property. Under the definition of debt set out above, arrears, penalties, and judicially awarded damages arising from the failure to make payment under a contractual obligation that constitutes debt are debt. Failure to make payment on an obligation that is not considered debt under this definition (e.g., payment on delivery) will not give rise to debt.

13. External debt is defined as debt borrowed or serviced in a currency other than the CFA franc of the Financial Community of Africa (FCFA).

14. The quantitative performance criterion concerning external debt applies to all nonconcessional external debt, irrespective of maturity, and whether it has been contracted or guaranteed by the government. It applies not only to the debt as defined above, but also to commitments contracted or guaranteed for which no value has been received. This performance criterion does not apply to:

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

  • rescheduling agreements;

  • debts to the BIDC, up to the equivalent of CFAF 20 billion, for the period from January 1 to December 31, 2013; and up to the equivalent of CFAF 20 billion, for the period from January 1 to December 31, 2014;

  • drawings on the IMF.

15. A debt is considered concessional if its grant element is at least 35 percent, the net present value (NPV) of the debt being calculated with a 5 percent discount rate.

16. The government undertakes not to contract or guarantee nonconcessional external debt under the conditions defined in paragraphs 12–15, with the exception of debt constituting rescheduling of maturities and new debt contracted or guaranteed by the government as specified in paragraphs 14 and 17. To this end, the government undertakes to consult with IMF staff on the terms and concessionality of any proposed new debt in advance of contracting such external debt.

A cumulative ceiling for 2013–14 of US$ 800 million to December 31, 2013, and US$900 million to December 31, 2014, applies to new nonconcessional external loans other than those specified in paragraph 14 (performance criteria). This ceiling would be applicable to debt-financing of projects, in the energy, infrastructure and transport sectors. The government will inform staff in a timely manner before contracting any debt of this type and provide information on the terms of the new debt as well as a brief summary of the projects to be financed and their profitability, including an independent evaluation. The government will report on the use of funds and project implementation (in subsequent MEFPs or to staff). The ceiling will be increased by the amount of the eventual issuance of an Eurobond for a maximum amount equivalent to US$500 million to be used for asset-liability management, notably by paying down debt (bonds and treasury bills), securitized debt, and/or domestic arrears. The last day of the period for purchase of the bonds as specified under the final terms of exchange will be considered to be the date of issuance of the Eurobonds.

H. External Payment Arrears (PC)

17. External arrears are considered to be the nonpayment of any interest or principal amounts on their due dates (taking into account relevant contractual grace periods, if any).

This performance criterion applies to arrears accumulated under external debt of the government and external debt guaranteed by the government for which the guarantee has been called by creditors, consistent with the definitions given under the external debt criterion (paragraph 15). This performance criterion is monitored on a continuous basis.

I. Amounts Payable, Including Domestic Payment Arrears (IT and PC)

18. The “amounts payable” (or “balances outstanding”) include domestic arrears and floating debt and represent the government’s overdue obligations. They are defined as expenditures assumed (prise en charge) by the public accountant, but yet to be paid. For the program definition, these obligations represent (i) bills due and not paid to non financial public and private companies; and (ii) the domestic debt service (excluding the BCEAO).

19. For program purposes, domestic payment arrears are those balances outstanding to nonfinancial public and private companies and the domestic debt service (excluding the BCEAO). Arrears to non financial and private companies are defined as overdue obligations to non financial and private companies for which the payment date exceeds the deadline for payment stipulated by the administrative regulations of 90 days; arrears on the domestic debt service refer to debt service obligations for which the payment date exceeds 30 days.

20. Floating debt refers to those balances outstanding for which the payment date does not exceed the deadline for payment stipulated by the administrative regulations (90 days for debt to nonfinancial public and private companies and 30 days for debt service to commercial banks, insurance companies, and other financial institutions).

21. The balances outstanding are broken down by payer and type, as well as by maturity and length of overdue period (< 90 days, 90–365 days, > 1 year for nonfinancial companies, and <30 days, 30-365 days, > 1 year for financial companies).

22. For program purposes, the government undertakes: (i) to reduce the stock of amounts payable by at least CFAF 50 billion in 2013 (of which CFAF 10 billion of arrears payment in cash); and by at least 50 billion in 2014. For 2014, the reduction will be increased by an amount equal to the share of an eventual Eurobond issuance (for a maximum amount equivalent to US $500 million) to be used for paying down debt (bonds and treasury bills), securitized debt, and/or domestic arrears; and (ii) not to accumulate new domestic arrears in fiscal years 2013 and 2014.

Memorandum Items

A. Net Bank Claims on the Government

23. Net bank claims on the government are defined as the difference between government debts and government claims with the central bank and commercial banks, (including the C2D deposits). The coverage of net bank claims on the government is that used by the BCEAO, and is the same as that shown in the net government position (NGP) (including the C2D deposits).

B. External Financing (Definitions)

24. Within the framework of the program, the following definitions apply: (i) project grants refer to non-repayable money or goods intended for the financing of a certain project; (ii) program grants refer to non-repayable money or goods not intended for the financing of a specific project; (iii) project loans refer to repayable money or goods received from a donor to finance a specific project, on which interest is charged; and (iv) program loans are repayable money or goods received from a donor and not intended for the financing a specific project, on which interest is charged.

C. Program Monitoring and Data Reporting

25. A quarterly assessment report on the monitoring of the quantitative performance criteria, indicative targets, and structural benchmarks will be produced by the authorities at the latest within 45 days of the end of each quarter.

26. The government will report the information specified in Table 2 on a monthly basis, at the latest within 45 days of month-end or quarter-end, unless otherwise indicated. Tables F.3.1, F.3.2, and F.3.3 are updated to take into account the expanded coverage of arrears.

27. The government will report final data provided by the BCEAO within 45 days of the end of the period in question. The information provided will include a complete, itemized listing of public sector liabilities and assets with: (i) the BCEAO; (ii) the National Investment Bank (Banque Nationale d’Investissement, or BNI); and (iii) the banking sector (including the BNI).

28. The authorities will consult with the Fund staff on any proposed new external debt contracts or government guarantees on new external debt, including leases. The authorities will inform the Fund staff, following signature, of any new external debt contracted or guaranteed by the government, including the terms of these contracts or guarantees. Data on new external debt, the amount outstanding, and the accumulation and repayment of external payment arrears will be reported monthly within six weeks of the end of each month.

29. More generally, the authorities will report to the IMF staff any information needed for effective monitoring of the implementation of economic policies.

Table 1.

Côte d'Ivoire: Pro-Poor Spending (incl. Social Spending), 2009–14

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Source: Ivoirian authorities.

Supplementary Budget Law.

Table 2.

Côte d’Ivoire: Document Transmittals

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Appendix II. Côte d’Ivoire: External Stability Assessment

  • External sector risks are moderate over the medium term. There is no evidence pointing to a real exchange rate misalignment as of 2012. Structural reforms are needed to boost non-price competitiveness.

A. Balance of Payments Developments

1. In 2012, Côte d’Ivoire’s current account balance turned into a deficit, which is expected to increase somewhat over the medium term. Prior to 2012, Côte d’Ivoire registered a current account surplus between 2002–11 because of strong export dynamics as well as anemic economic growth and demand for imports. The external current account deficit is projected to increase from 3.4 percent of GDP in 2013 to about 5.1 percent of GDP in 2018. Exports of goods and services are expected to grow by 9.6 percent on average during 2013–18, and imports by about 12 percent. FDI flows (3 percent of GDP on average over the medium term) and loans (2.7 percent of GDP on average over the medium term) would contribute to financing of this deficit.

2. Côte d’Ivoire’s debt situation has improved, but the country still faces a moderate risk of debt distress. The country has benefited from a substantial amount of debt relief after reaching the HIPC completion Point in June 2012; in particular, the stock of external debt declined from 55 percent of GDP at end-2011 to 30 percent at end-2012. Since late 2012, Côte d’Ivoire does not have outstanding external arrears anymore. However, debt service is expected to rise, particularly during 2020–25, because of the large borrowing commitments to finance infrastructure and energy projects, the profile of French ODA claims converted into C2D debt-for-development swaps (Contrats de désendettement et développement), and the expected issuance of a Eurobond in 2014. As pointed out by the results of the external DSA (see Supplement 1), Côte d’Ivoire’s debt dynamics are sustainable, but stress tests suggest that the country is vulnerable to macroeconomic shocks.

B. Real Exchange Rate Assessment

3. The real effective exchange rate depreciated by about 4 percent in 2012. This reflects the depreciation of the Euro (to which the CFAF is pegged) vis-à-vis the currencies of Côte d’Ivoire’s major trading partners, as well as lower inflation in Côte d’Ivoire.

4. Model-based assessments do not suggest a misalignment of the real exchange rate in 2012. This assessment is based on the three complementary Consultative Group on Exchange Rate Issues (CGER) model-based approaches: (i) macroeconomic balance (MB); (ii) external sustainability (ES); and (iii) equilibrium real exchange rate (ERER).

The MB approach

5. The Macroeconomic Balance approach estimates the exchange rate adjustment required to eliminate the gap over the medium term between the equilibrium current account balance (“the CA norm) and the underlying current account projected over the medium term. The equilibrium current account balance is computed as the product of the level of economic fundamentals1 projected over the medium term to the coefficients of an unrestricted panel regression for Africa (Aydin, 2010). The underlying current account balance is calculated as an average of five-year WEO projections of the current account balance. The exchange rate adjustment is derived using trade elasticity estimated by Tokarick (2010).

6. With an equilibrium current account deficit of about 5 percent and an underlying current account deficit of 5.1 percent, only a 0.1 percent exchange rate depreciation is necessary to close the gap between them. This minor deviation suggests that there is basically no real exchange rate misalignment in 2012.

The ES approach

7. The external sustainability approach compares the underlying current account balance with the balance that would stabilize the net foreign assets position at its 2009 level considered as the norm year.

8. The estimated real exchange rate adjustment using the ES approach is 1.2 percent (an appreciation of 1.2 percent). Again, this minor deviation for the equilibrium suggests that there is no real exchange rate misalignment in 2012.

The ERER approach

9. The equilibrium real exchange rate is estimated as a function of medium-term economic fundamentals (e.g., terms of trade, openness, productivity differential, investment, government consumption). The degree of real exchange rate misalignment is then calculated as the difference between the actual REER and its equilibrium value.

10. The difference between the actual REER and its equilibrium value is 0.12 percent, which indicates that there is no real exchange rate misalignment.

11. Overall, the results from the three CGER approaches suggest no real exchange rate misalignment (see Table below). This finding is similar to the real exchange rate assessment conducted for the 2013 Article IV Consultation for the WAEMU region. It is also confirmed by the strong expert performance so far in 2013, as exports have strongly increased, driven by food processing and by cocoa and cashews.

Figure 1.
Figure 1.

Côte d’Ivoire: Actual vs. Estimated Equilibrium Exchange Rate, (1980–2012)

Citation: IMF Staff Country Reports 2013, 367; 10.5089/9781484313213.002.A001

Table 1.

Côte d’Ivoire: CGER Methodologies Results

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Source: IMF staff estimates.

Negative number indicate undervaluation.

C. Structural Competitiveness

12. Despite some improvements since the end of the decade-long political crisis, Côte d’Ivoire’s structural competitiveness remains weak, impaired by structural factors in particular a poor business environment. Survey-based reports of non-price indicators show that the country trails below SSA average on most of the recent rankings. However, most of the indicators, with the exception of the 2014 Doing Business survey, are based on 2011 or 2012 data and do not yet take into account the impact of Côte d’Ivoire ongoing reforms to improve the business climate.

Global competitiveness index

13. Côte d’Ivoire ranks 126 out of 148 countries represented in the 2013–14 Global Competitiveness Index (CGI) published by the World Economic Forum—two 5 positions below above its earlier 2012–13 rating of 131 (Table 1). It also ranks below the Sub-Saharan African average (SSA) on most indicators of the basic requirements sub-index, including in terms of institutions, infrastructure, macroeconomic environment, health and primary education, but ranks better for infrastructure. However, it also ranks better than the average for the efficiency enhancers sub-index; the innovation and sophistication factors sub-index is at par with the rest of SSA. Overall, Côte d’Ivoire scores 3.5 out of 7, slightly below the Sub-SSA average of 3.6 (Figure 1).

Doing business indicators

14. Reflecting the impact of Côte d’Ivoire’s reforms to strengthen the business climate, its ranking in the 2014 Doing Business report improved to 167 from 173 in the previous year. Côte d’Ivoire is “among the economies improving the most in 2012/13 in areas tracked by Doing Business.”2 Côte d’Ivoire ranks 4th among the WAEMU countries behind Burkina Faso, Mali, and Togo and close the WAEMU average (see Table 2). Relative to the 2013 report, Côte d’Ivoire improved its ranking in the following areas: starting a business, enforcing contracts, registering a property, and trading across border; however, its ranking deteriorated as regards resolving insolvency and to a lesser extent as regards paying taxes, protecting investors, and getting credit. Paying taxes, trading across borders, and dealing with construction permits are the 3 areas with the worse ranking.

Global enabling trade index

15. Côte d’Ivoire ranks 126 out of 132 countries in the 2012 Enabling Trade index prepared by the World Economic Forum (Annex, Table 3), with an overall score of 3.0 out of the possible total of 7.0. Côte d’Ivoire scores particularly low in market access (which includes the level of trade protection in the country’s market as well the protection it faces in its target markets abroad), transparency of border administration, and regulatory environment. Main factors that firms identified as making exporting and importing problematic include access to trade finance, burdensome procedures, and tariffs as well as non-tariff barriers (Figures 1 & 2).

Governance indicators

16. Various indicators point to weak governance situation in Côte d’Ivoire (Figure 4). The 2011 Transparency International report ranks Côte d’Ivoire 154 out of 183 in terms of Corruption Perceptions Index (CPI). According to the 2012 Index of Economic Freedom, Côte d’Ivoire falls within the category of “mostly unfree” economy, with a rank of 126th out of 184 countries evaluated. In the 2013 Mo Ibrahim Index of African Governance, despite small improvements compared to the previous report, Côte d’Ivoire’s governance score (40.9 out of 100) remains below the SSA average (51.6 out of 100), as well as the West Africa average (52.5 out of 100).

Table 1.

Côte d'Ivoire: Global Competitiveness Index, 2013–14

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Source: World Economic Forum, The Global Competitiveness Report, 2013-14.
Table 2.

Côte d'Ivoire: Doing Business in the WAEMU

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Source: World Bank Doing Business Indicators.

The 2014 Doing Business Report adjusted Côte d'Ivoire 2013 ranking to 173.

Table 3.

Côte d’Ivoire: Enabling Trade Index Ranking, 2012 1/

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Source: World Economic Forum: The Global Enabling Trade Report 2012.

Lower number indicates better ranking.

Table 4.

Côte d’Ivoire: Selected Governance Indicators

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Source: World Bank Institute. • According to the 2013 Ibrahim index of African Governance, Côte d'Ivoire ranks 15th out of 16 in West Africa and 44th out of 52 overall. • The 2011 Transparency International report ranks Côte d'Ivoire 154 out of 183 in terms of Corruption Perception Index (CPI). • According to the 2012 Index of Economic Freedom, Côte d'Ivoire falls within the category of 'mostly unfree economy, with a rank of 126th our of 184 countries overall.
Figure 2.
Figure 2.

Côte d’Ivoire: The Most Problematic Factors for Exporting

Citation: IMF Staff Country Reports 2013, 367; 10.5089/9781484313213.002.A001

Source: World Economic Forum. the Global Enabling Trade Report, 2012.
Figure 3.
Figure 3.

Côte d’Ivoire: The Most Problematic Factors for Importing

Citation: IMF Staff Country Reports 2013, 367; 10.5089/9781484313213.002.A001

Source:World Economic Forum. the Global Enabling Trade Report, 2012.
Figure 4.
Figure 4.

Côte d’Ivoire: Sub-Saharan Africa: World Wide Governance Indicators

Citation: IMF Staff Country Reports 2013, 367; 10.5089/9781484313213.002.A001

Source: World Bank Institute.

Appendix III. Côte d’Ivoire: Financial Sector Profile

This review of Côte d’Ivoire’s financial sector focuses on issues that are country-specific, as the regional financial sector issues have been discussed in the 2013 WAEMU financial sector pilot.1

The financial system in Côte d’Ivoire is dominated by commercial banks, which hold over ¾ of the financial sector’s assets, along with insurance companies, pension funds and microfinance institutions. Access to financial services is weak: only about 11 percent of the population has accounts in financial institutions, more than half of them in commercial banks and the rest in microfinance institutions. The regional stock market—located in Abidjan—plays a critical role for sovereign financing.

The banking sector is highly concentrated, with large banks—mainly foreign—in a solid position; domestic banks, including five public banks, have weaker prudential indicators. The strong concentration of assets among the top companies is also observed in the insurance industry (the largest insurance market in the region) and in microfinance institutions. Pension funds cover a small share of the population and their financial position has been strengthened following reforms implemented in 2012.

The financial system is shallow (credit to the private sector is only about 18½ percent of GDP, mainly for short-term loans). Financial intermediation needs to be strengthened to achieve the growth and poverty reduction goals of the authorities’ NDP. A benchmarking exercise that compares the performance of Côte d’Ivoire’s banking sector with respect to peers in Sub-Saharan Africa confirms the need to deepen financial intermediation and improve efficiency.

The authorities have indicated their commitment to implement reforms aimed at improving access to financial services and boosting growth, in particular by providing medium-and long-term credit to small and medium enterprises, housing, and the agricultural sector. With those goals in mind, they are finalizing their strategy to develop the financial sector with the support of the World Bank.

A. Overview of the Financial System

1. The financial system in Côte d’Ivoire is dominated by commercial banks, which hold about 80 percent of the financial sector’s assets, along with insurance companies, pension funds and microfinance institutions. Access to financial services is weak, as only about 6.7 percent of the population has bank accounts and 4 percent has accounts in microfinance institutions (the latter accounts are mainly lower income households). The stock market deals primarily with sovereign financing. The interbank market is very thin and the secondary market for government securities has yet to be developed.

2. The banking system is highly segmented. There are 25 banks, 18 of them subsidiaries of international or regional groups, along with a few domestic public and private banks.

  • Foreign banks dominate the banking system, with the three largest foreign banks (from France and Togo) holding almost 40 percent of banking assets. The other foreign banks are smaller, including several Nigerian or Moroccan banks. Overall, foreign banks hold about 57 percent of the banking system’s assets. Most of the foreign banks have healthy balance sheets, with sound prudential indicators. In addition, there are a few regional banks, about 19 percent of assets.

  • Domestic banks include five public banks, one of them fairly large with about 8½ percent of banking system’s assets and four small public banks (altogether less than 6 percent of assets). In addition, the government holds a minority stake in two other domestic banks (about 10 percent of assets). Several domestic banks are undercapitalized, do not comply with regional requirements for minimum capital (some of them have negative capital) and have weak prudential indicators.

  • Overall, commercial banks have about 1,679 thousand account holders, mainly concentrated in Abidjan, and their deposits represent about 26 percent of GDP. The interbank market is very thin.

3. Financial services are also provided by microfinance institutions. There are

73 microfinance institutions (about 2 percent of the financial system’s assets). This sector is even more segmented than the banking system, with the main institution concentrating almost 90 percent of accounts and 73 percent of deposits. The Commission Bancaire supervises 5 microfinance institutions (with the largest one made up of 7 independent subsidiaries), whose assets or deposits exceed FCFA 2 billion. Several microfinance institutions are undercapitalized and have weak prudential indicators.

Figure 1.
Figure 1.

Côte d’Ivoire: Financial Sector Indicators

Citation: IMF Staff Country Reports 2013, 367; 10.5089/9781484313213.002.A001

Sources: Ivoirien authorities, BCEAO, and IMF staff.

4. Insurance and pensions make up the bulk of the other financial institutions.

  • Côte d’Ivoire’s insurance sector (10 percent of the financial system’s assets) is the main insurance market in the region. It includes 29 companies, 18 of them dealing with non-life insurance, such as property insurance companies, while the rest sell life-insurance policies. Concentration is high, with the two top companies holding 26 percent of the market (60 percent for the top seven). As of end-2012, insurance companies had assets for about FCFA 526 billion. Indicators for the overall insurance sector indicate it is liquid and profitable, although the smaller companies have weaker indicators.

  • The main pension funds, the Caisse Nationale de Prévoyance Sociale (CNPS) for private-sector workers and the Caisse Générale de Retraite des Agents de l’État (CGRAE) which manages pensions of civil servants, with assets of FCFA 350 billion (about 7 percent of the financial system’s assets), cover less than 5 percent of the population. Reforms were introduced in 2012 to strengthen the pension system, including an increase in contributions and the retirement age.

5. The Regional Securities market is headquartered in Abidjan. With a capitalization of about 38½ percent of GDP as of end-2012, the Bourse Régionale des Valeurs Mobilières (BRVM) lists 37 companies, 31 of them from Côte d’Ivoire. The BRVM plays an important role in sovereign financing; there is, however, virtually no secondary market for sovereign financing. In September 2013, the BRVM introduced continuous trading to replicate the trading mode in use in the world’s larger stock markets.

B. Banking Sector Soundness and Vulnerabilities

6. While they deteriorated during the 2010–11 crisis, prudential indicators for the overall banking system are broadly in line with the region; some banks are, however, undercapitalized. 2

  • Capital adequacy ratios (CAR) for the overall banking system are above the 8-percent regulatory threshold, and the banking system as a whole is recovering from the impact of the post-electoral crisis. In contrast, capital ratios are weaker for some individual banks: about ¼ of individual banks have a CAR below 8 percent and do not comply with regional minimum capital requirements. These banks, which include some public banks holding a large share of government securities on their balance sheet—some of which were restructured at end-2011 and some others that do not generate interest—, are for the most part relatively small and do not give rise to systemic risks.

  • The loan portfolio is in line with WAEMU levels, including NPLs/total loans ratios, although provisioning in Côte d’Ivoire is somewhat higher.

  • In contrast, personnel costs are very high in Côte d’Ivoire, and much higher than the regional average.

  • Profitability indicators deteriorated during the crisis, but they began to recover in 2012 and liquidity indicators are broadly in line with regional averages.

Text-Table 1.

Côte d’Ivoire: Financial Soundness Indicators for the Banking Sector, 2008–13

article image
Sources: BCEAO.

June 2013.

C. The Banking Sector’s Contribution to Growth

7. Côte d’Ivoire’s financial sector is shallow and will require substantial reforms to provide the level of credit and access to financial services needed for achieving the authorities’ growth and poverty reduction goals. The ratio of credit to the private sector–to–GDP, an indicator of financial depth, was 18.2 percent in 2012, lower than the average for Sub-Saharan Africa 3 and access to financial services is limited to a small share of the population.

  • Credit goes mainly to larger companies and the distribution of credit by sector does not reflect the structure of the economy (see figure 1).

  • Medium-and long-term credit, which is needed for investing in housing and in investment projects, is only a small share of overall credit: As of June 2013, about 60 percent of credit was made up of short-term loans, about 30 percent of medium-term loans and only about 5 percent was long-term credit.

8. The main obstacles to greater financial intermediation include the following:

  • Difficulties in registering land and property, which hampers using property as collateral for loans and hinders banks’ ability to repossess in the event of loan defaults;

  • A judicial system that does not allow for speedy resolution of commercial/credit disputes which limits credit provided by banks;

  • The lack of information on the credit-worthiness of borrowers and the absence of a credit bureau widely used by banks for lending decisions curtails credit, in particular to smaller enterprises.4

9. To enhance access to financial services and contribute to growth, the authorities are formulating a comprehensive strategy to develop the financial system, with the support of the World Bank. They have begun to implement reforms aimed at addressing these obstacles. The reforms already introduced or being formulated include the following:

  • Designing an action plan to begin restructuring the public banks by end-2013;

  • Reforms to the legislation on land property aiming at formalizing land ownership and reducing the time and cost required to register a property; as a result of these reforms;

  • Establishment of commercial courts, with the first one already functioning in Abidjan;

  • Strong support for the BCEAO’s plans to establish primary dealers and a credit bureau.

D. Benchmarking Côte d’Ivoire’s Financial Sector: Where Does it Stand Compared to its Peers?

10. This section presents a benchmarking exercise that compares the performance of Côte d’Ivoire’s financial sector to the performance of peer countries. The exercise is based on data from the World Bank’s 2013 Fin Stats database. Cameroon, Ghana, Mozambique and Senegal are among the countries that FinStats includes as Côte d’Ivoire’s peers. For this benchmarking, Kenya has been added, given that this country has made significant progress in broadening access to financial services to a wide segment of the population in recent years. The variables used were selected based on the key indicators identified by Cihák and others, within the range of the variables available for Côte d’Ivoire in FinStats.5

11. Recent benchmarking exercises for Côte d’Ivoire’s financial sector found that weaknesses in banking supervision, the lack of commercial courts and in credit information explained the lower credit to the private sector/GDP ratio than in Mozambique, an otherwise comparable country in many respects. 6

12. The main results from the benchmarking exercise for Côte d’Ivoire are the following:

  • - The depth of the financial sector (measured by private credit/GDP and deposits/GDP ratios) is broadly in line with the expected median for the comparable countries, but it is shallower than that of Kenya, Senegal and Mozambique;

  • - The efficiency of the financial sector (measured by the 3-bank asset concentration and the overhead costs/total assets indicators) is broadly in line with that of its peers, although the cost/income ratio is somewhat higher than in several of the comparable countries;

  • - While Côte d’Ivoire stands out for hosting the regional stock market, with a higher level of capitalization with respect to GDP than Ghana, the low turnover ratio suggests there is space to foster a greater level of activity, which in turn would enhance the stock market’s contribution to growth.

Figure 2.
Figure 2.

Benchmarking Côte d’Ivoire’s Financial Sector: Where Does It Stand Compared to Its Peers?

Citation: IMF Staff Country Reports 2013, 367; 10.5089/9781484313213.002.A001

Source: FinStats 2013.1/ The expected median for Côte d'Ivoire is based on a few indicators of the country's characteristics, including GDP per capita, the size and density of its population, and demographic factors, such as age-dependency ratios. The distance between the value observed and the expected 75th percentile provides an estimation of the space for policy improvements to be in line with the top performers among the peers.
Figure 3.
Figure 3.

Benchmarking Côte d’Ivoire’s Financial Sector

Citation: IMF Staff Country Reports 2013, 367; 10.5089/9781484313213.002.A001

Source: FinStats 2013.
1

Côte d’Ivoire reached the enhanced HIPC Initiative Completion Point in June 2012.

2

Côte d’Ivoire’s concentration of investment on projects removing infrastructure bottlenecks and a systematic assessment of profitability of the projects planned are in that respect reassuring.

3

The crisis in Mali in 2013 did not have any measurable impact on the Côte d’Ivoire economy.

4

In 2012–13, the government took action to strengthen the financial position of the electricity sector: it increased the industrial tariff by 10 percent; the social tariff (which used to cover 80 percent of households) has been better targeted; the transfer price of domestically-produced natural gas was reduced, and the remuneration of the private distribution company renegotiated. Also, the distribution company introduced measures to cut fraud and reduce technical losses, and raised the revenue collection rate in the former Northern zone.

5

This risk arises from the banks’ already large share of sovereign securities on their balance sheets and the short-term regional maturities.

6

The September 2013 FAD mission on tax policy estimated the VAT gap at 7.9 percent of GDP, based on a quantitative analysis of household consumption in 2012.

7

See background note in appendix.

8

See the WAEMU Staff Report (IMF Country Report No. 13/92).

9

Financial sector policies, including banking supervision, are mainly dealt with at the regional level, but resolution is mainly decided at the domestic level.

10

See background note in appendix and the WAEMU Staff Report (IMF Country Report No. 13/92).

11

External debt declined from 54.9 percent of GDP in 2011 to 30.5 percent in 2012.

12

This issuance would not result in additional budget spending. The authorities would reduce borrowing on the regional market in 2014 by a similar amount, and could use some of the borrowing space to issue government securities to finance a more rapid retirement of domestic arrears in cash (as opposed to issuing IOUs).

13

Most of the sovereign debt issued on the regional market has a relatively short maturity: most of the securities issued have a 2–3 year maximum maturity, although some bonds carry a 5-year maturity.

14

Given uncertainties on the Eurobond issuance, the program macroframework is based on the assumption that the program is financed through a recourse to the regional market (as in 2013); in case of issuance, a program adjustor would revise upward the ceiling of nonconcessional debt (by US$500 million) and downward the ceiling on net domestic financing (by an equivalent amount) ensuring that the fiscal stance would remain the same with or without the Eurobond issuance and that the proceeds of the issuance are used for asset-liability management.

15

According to IFC, Côte d’Ivoire is “among the economies improving the most in 2012/13 in areas tracked by Doing Business.” Its ranking in the 2014 Doing Business Report is 167th (from 173rd in the 2013 report).

16

The recently published 2013 Ibrahim Index of African Governance (IIAG) shows that Côte d’Ivoire has made governance improvements, although its score remains below the continental and regional averages.

17

The second wave of audits of domestic arrears to suppliers was completed in October 2013. It validated the amount of arrears owned to several thousand creditors: CFAF 152.9 billion (1.1 percent of GDP); the initial amount of arrears to suppliers in the treasury books (before the two waves of audits) stood at CFAF 356 billion (i.e., the audits resulted in 57.1 percent of these arrears being rejected). On November 22, 2013, the Council of Ministers approved a communication detailing the next steps: the government will, by the end of 2013, pay an amount in cash to all creditors which would allow the settlement of the debt owed to small creditors; the remaining outstanding arrears will, depending of the choice of the creditor, be paid off as follows: (i) option 1: in cash in early 2014 (with a 50 percent reduction of the amount due); (ii) option 2: over three years (30 percent reduction); or (iii) option 3: over 5 years (20 percent reduction). As of end-September 2013, the planned reduction of domestic arrears and debt float foreseen under the 2013 program (CFAF 50 billion) was on track.

18

For the end-June 2014 PCs being set at this review, the ceiling on new nonconcessional external debt is being raised by US$100 million (from US$800 million at end-December 2013 to US$900 million at end-June 2014). This ceiling, as well as the ceiling on net domestic financing, will be further adjusted at the time the Eurobond is issued (see MEFP Table 1, footnote 5).

1

The General Ivoirien Security Index (IGIS) averaged 1.8 on a scale of 10 for the first half of 2013, as compared to 2.45 for the same period in 2012. The United Nations Index went from 5 in April 2011 to 1.6 in May 2013, on a scale of 5.

1

The economic fundamentals are: the relative fiscal balance, old-age dependency ratio, population growth, oil balance as a ratio to GDP, relative GDP per capita growth and output growth.

2

“Together with Ukraine, Rwanda, the Russian Federation, the Philippines, Kosovo, Djibouti, Burundi, the former Yugoslav Republic of Macedonia, and Guatemala.

1

IMF Country Report No. 13/92.

2

Financial institutions, including commercial banks and large micro-financial institutions are supervised at the national and regional level by the Commission Bancaire, the BCEAO and, for some issues including resolution, are also under the purview of the ministry of finances (Senegal, IMF Country Report No. 12/337, box 3).

3

Èihák, Demirgüè-Kunt, Feyen and Ross Levine (2013), “Financial Development in 205 Economies, 1960 to 2010”, Working Paper 18946, NBER, April.

4

The BCEAO has facilities that allow some credit verification (Centrale des Risques, Centrale des Bilans and Centrale des Incidents de Paiement), but they do not have a comprehensive database and are not widely used.

5

The data is for end-2011. Availability of indicators for Côte d’Ivoire was limited.

6

Ahokpossi, Ismail, Karmakar, and Koulet-Vickot, 2013, “Financial Depth in the WAEMU: Benchmarking Against Frontier SSA Countries”, IMF Working Paper No. 13/161. See also the WAEMU’s supplement on financial depth and macro-stability (IMF Country Report No. 13/92). A similar exercise was done for Senegal (IMF Country Report No. 12/337).

Other IMF Content

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Cover IMF Staff Country Reports
Côte d’Ivoire: 2013 Article IV Consultation and Fourth Review Under the Extended Credit Facility Arrangement
Author:
International Monetary Fund. African Dept.
Volume/Issue:
Volume 2013: Issue 367
Publisher:
International Monetary Fund
ISBN:
9781484313213
ISSN:
1934-7685
Pages:
144
DOI:
https://doi.org/10.5089/9781484313213.002

Human Development Index, 1990–2012
Figure 1.

Côte d’Ivoire: Real and External Sectors, 2009–14
Figure 2.

Côte d’Ivoire: Fiscal Developments, 2009–14
Figure 3.

Côte d’Ivoire: Medium-Term Outlook, 2011–18
Figure 1.

Côte d’Ivoire: Actual vs. Estimated Equilibrium Exchange Rate, (1980–2012)
Figure 2.

Côte d’Ivoire: The Most Problematic Factors for Exporting
Figure 3.

Côte d’Ivoire: The Most Problematic Factors for Importing
Figure 4.

Côte d’Ivoire: Sub-Saharan Africa: World Wide Governance Indicators
Figure 1.

Côte d’Ivoire: Financial Sector Indicators
Figure 2.

Benchmarking Côte d’Ivoire’s Financial Sector: Where Does It Stand Compared to Its Peers?
Figure 3.

Benchmarking Côte d’Ivoire’s Financial Sector