Statement by Ngueto Tiraina Yambaye, Executive Director for Côte d’Ivoire and Mr. Regis O. N’Sonde, Senior Advisor to the Executive Director, May 25, 2016

Economic performance has been impressive over the past 4 years, but challenges remain. Political normalization, together with supportive fiscal policy and structural reforms to improve the business climate enabled a strong pickup in economic activity. Growth has been accompanied by a modest decline in poverty, but other human development indicators have been slow to improve. The authorities recently adopted a 2016-20 National Development Plan (NDP) that aims to achieve sustained, strong and inclusive growth. Under the NDP, the private sector would play a major role, supported by a continued expansion in public infrastructure and further structural reforms to improve the business climate. Successful NDP implementation will depend on the pace at which structural bottlenecks are tackled and productivity-enhancing reforms are carried out, as well as on financing conditions and how domestic and external risks are addressed.

Abstract

Economic performance has been impressive over the past 4 years, but challenges remain. Political normalization, together with supportive fiscal policy and structural reforms to improve the business climate enabled a strong pickup in economic activity. Growth has been accompanied by a modest decline in poverty, but other human development indicators have been slow to improve. The authorities recently adopted a 2016-20 National Development Plan (NDP) that aims to achieve sustained, strong and inclusive growth. Under the NDP, the private sector would play a major role, supported by a continued expansion in public infrastructure and further structural reforms to improve the business climate. Successful NDP implementation will depend on the pace at which structural bottlenecks are tackled and productivity-enhancing reforms are carried out, as well as on financing conditions and how domestic and external risks are addressed.

On behalf of our Ivorian authorities, we thank the Board, Management and staff for the continued support to their policy and reform efforts to preserve macroeconomic stability and put Côte d’Ivoire’s economy on a steady path to an emerging market status by 2020. Our authorities are appreciative of the constructive dialogue they maintain with the institution, including through the latest exchange of views in the context of Mr. Furusawa’s visit to Abidjan and staff’s mission under Article IV consultation, which took place in late February to early March of this year.

Our authorities share the bulk of staff’s policy and reform recommendations although they remain more optimistic regarding the country’s prospects and its ability to reach the emerging market status as set forth in their Plan National de Développement 2016–20 (National Development Plan, NDP). They feel confident that they can achieve this important milestone by accelerating economic transformation, building on their very strong macroeconomic achievements of the past few years and putting emphasis on boosting productivity to sustain growth and increase per capita income, and on laying the foundations for more inclusive growth.

The success of the Consultative Group meeting held by the government of Côte d’Ivoire in Paris on May 17–18, 2016 and the level of financing pledged therein both by donors and private investors to support Côte d’Ivoire’s NDP is a testimony that the authorities are on the right track. Recognizing the authorities’ strong record and reform commitment, multilateral and bilateral development partners and private investors have committed a total of $34 billion—$15bn and $19bn respectively—over the next five years. As the authorities continue to attract additional private investments, it is critical for Côte d’Ivoire’s development that donors deliver on their pledges.

The Ivorian authorities thank staff for the quality dialogue and very useful advice, which they highly value, as demonstrated by their close implementation of past recommendations under the 2013 Article IV consultation and the last ECF-supported program (2012–15). They very much welcome the current set of staff reports including the Selected Issues paper which provides helpful analyses on key issues.

I. Recent Economic Developments

Since the 2013 Article IV consultation, the Ivorian Government has implemented significant macroeconomic reforms consistent with Fund recommendations, to lay the foundations for the country’s economic and social agenda. The authorities have created fiscal space to allow greater infrastructures and poverty-reducing spending; they have significantly reduced non-bidding procurements; and they have adopted and are implementing a medium-term debt management strategy. Recourse to exceptional procedures for spending has been trimmed thanks to regulatory and institutional reforms aimed at simplifying and accelerating the treatment of expenditure commitments. In addition, reforms have been put in place to improve the business climate, making Côte d’Ivoire one of the top ten reformers worldwide over the past three years. All these efforts will be further reinforced.

Against this backdrop and supportive fiscal policy, economic activity remains buoyant. Real GDP growth is estimated at 8.6 percent in 2015 owing to strong investment in key sectors such as electricity, transport, commerce and housing. Private consumption also contributes significantly to growth. Strong domestic food production helped contain inflation at 1.2 percent while higher investment-related imports have widened somewhat the external current account deficit.

On the fiscal front, the authorities’ revenue collection efforts have yielded results beyond expectations due not only to greater one-off-receipts from telecommunication licenses but also strong cocoa and fuel tax revenues. This performance contributed in large part to containing the overall fiscal deficit at 3 percent of GDP (against a 3.7-percent target) and the basic primary deficit at 0.4 percent of GDP. While total central government debt rose to 49 percent at end-2015 (from 46.5 percent at end-2014), external borrowing was aimed at financing public investments and non-CFA denominated debt was broadly stable at an already low level (1.4 percent of GDP). Sound public debt management was pursued, notably with lower arrears on public enterprises’ debt. The authorities are committed to pursue their efforts in monitoring public debt management in line with their national strategy, and in particular the database on public enterprises’ debt.

Regarding the financial sector, credit growth has been broad-based across economic sectors but our authorities share staff’s concern on the concentration of credit on large SMEs in the services and manufacturing sectors and on the persistently low household and mortgage lending. In addition, they concur that banks’ capital buffers should be enhanced and credit exposure risk stemming from concentration of credit on large corporate borrowers (public enterprises and large private companies) reduced. The authorities intend to address the financial sector vulnerabilities in coordination with the WAEMU banking commission.

II. Overarching Goal: Economic Emergence by 2020

Côte d’Ivoire is a fast-growing frontier market economy, with a per capita real GDP of PPP-adjusted 2011 US$ 3,108. In addition, the country is enjoying increasing trade and financial integration into the world economy. Going forward, the Ivorian authorities intend to build on their policy and reform achievements, on the country’s growth momentum, and on the encouraging progress in poverty reduction to meet their overarching objective of making Côte d’Ivoire an emerging market economy. In this vein, they have developed a medium-term development strategy embodied in the country’s NDP.

The 2016–20 NDP is made of four strategic pillars: (i) enhancing the quality of institutions and governance; (ii) stepping-up the development of human capital and promoting social well-being; (iii) speeding up structural transformation and industrialization; and (iv) strengthening the infrastructure base while preserving the environment. The total cost of investments planned in this framework is estimated at around $60 billion over the period, of which 62 percent should be financed by the private sector.

The NDP targets an average real GDP growth of around 9 percent per year over 2016–20, with a larger private sector contribution and the pursuit of strong public investments in physical capital—especially in transport and power generation—as well as human capital. In particular, they stress the importance of their plan to double domestic energy generation capacity to 4,000 megawatts over the next few years, which is indispensable for sustained economic expansion. The NDP strategy is fully attentive of the positive impact of productivity gains, capital accumulation and stable sociopolitical environment, in line with the strong growth registered during 2012–15. They intend to increase these factors through strong infrastructure investments, support to the agricultural sector, and financial inclusion.

The authorities are fully cognizant that attaining economic emergence calls for the structural transformation of the economy and departure from commodity exports.

Structural Transformation

Our Ivorian authorities appreciate very much the Selected Issues paper, notably the chapter on “Fostering Sustainable Economic Growth”. They are cognizant of the existing structural bottlenecks to more durable strong growth. It is in this context that they plan to put great emphasis on investing in human capital to further improve the quality of the labor force, and to upgrade the country’s export mix through local manufacturing transformation, notably in the agricultural sector while alleviating cross-border restrictions. They also stress the importance of their agenda to lower income inequality, including through enhanced financial inclusion, continued investments in the labor-intensive agricultural sectors while stepping up efforts to raise productivity therein to free productive resources for other economic sectors with great potential, notably manufacturing and services.

Structural transformation in Côte d’Ivoire will lean on increasingly strong political and economic institutions as mirrored in the country’s remarkable progress in all areas of governance in the past few years. This is reflected notably in the World Bank’s “Doing Business Index” (in which Côte d’Ivoire ranks among the 10 best reformers in 2014 and 2015); the Global Competitiveness Index (40 positions gained by Côte d’Ivoire since 2012); the Economic Forum’s enabling Trade Index (9-position gain between 2013 and 2014); and the Mo Ibrahim Index of African Governance (in which the country has shown the largest improvements in overall governance on the continent over the last four years).

The authorities will continue to make progress in consolidating peace as well as in the area of economic governance, notably the ease of paying taxes and obtaining credit, the costs and duration of contract dispute resolution, the cost of international transportation and import procedures, and perception of corruption. They consider maintaining macroeconomic stability as a prerequisite to preserve for their structural transformation agenda.

The relatively short time span (2012–15) in which the Ivorian authorities have moved the country on a path of strong growth and structural reforms is a testimony of their capacity to achieve their transformational agenda in the set horizon (2020). The NDP scenario, while ambitious, remains realistic and consistent with the authorities’ track record and the country’s renewed economic dynamism. As the main economic engine of the WAEMU, Côte d’Ivoire expects to benefit from positive spillovers and spillbacks within the region.

III. Medium Term Policy and Reform Agenda

The authorities agree with staff’s description of the favorable medium-term outlook for the Ivorian economy albeit different views on the impact of critical investments and reform implementation on the strength of future growth. The major risks, including tail risks, are principally related to exogenous shocks, notably adverse weather conditions and sharp deceleration of growth in advanced and emerging market economies. The authorities are pursuing efforts to strengthen the business climate, with the view to diversify investor base and export markets. They stand ready to adopt countercyclical fiscal policy as needed, including through mitigating the impact on the most vulnerable populations. In so doing, they acknowledge the need to build buffers in the public and financial sectors.

In implementing their medium-term policy and reform agenda, our Ivorian authorities continue to put a high premium on preserving macroeconomic stability while tackling the structural bottlenecks to sustained, strong and inclusive growth and steadfast poverty reduction. They acknowledge in particular the challenges identified in the staff reports, notably in the areas of fiscal policy, public finance management, stability of the banking sector, financial inclusion, and capacity constraints.

Maintaining Fiscal Sustainability

The authorities are cognizant of the fiscal risks stemming from implicit liabilities, and requested technical assistance on PPP fiscal risk assessments. However, they strongly believe that their envisaged larger fiscal deficit would still preserve fiscal space to cope with risks while preserving fiscal sustainability in light of the growth-orientation of the investments to be pursued. They will continue to enhance domestic revenue mobilization, with Fund’s technical assistance as requested. The country’s favorable credit ratings will help it access adequate financing in regional as well as global capital markets.

The authorities reaffirmed their commitment to further enhance public finance management (PFM), including further reduction of exceptional spending procedures, integrating the budget and accounting IT systems, and strengthening cash management.

They also endeavor to preserve debt sustainability, including through managing debt service bunching, rollover and foreign exchange risks. Diversification of the creditor bases is also part of the authorities’ debt management strategy. The authorities also pursue efforts to implement the treasury single account, restructure public banks (see below), and reform the national oil company, with the view to contain fiscal liabilities and domestic debt.

Banking Sector Stability and Financial Inclusion

The authorities note with concern the challenges posed by rapid credit growth, the strong relation between the GDP and credit cycles, as well as small banks’ exposure to corporations and banks’ exposure to WAEMU sovereigns. They fully agree with staff recommendation to reinforce banks’ capital buffers, and will support the banking commission by enforcing its decisions. They will also implement Fund’s WAEMU surveillance recommendations towards Basel II and III transposition into the regulatory framework.

Regarding banking institutions under stress, the authorities have already liquidated one public bank, sold the public minority share in two public banks, and programmed the privatization of two other public banks, all with the view to strengthen the sector solvency and minimize budgetary costs. However, efforts will be pursued to maintain and restructure public banks that have a critical importance in sustaining specific sectors, including the troubled saving bank to foster financial inclusion.

The strong link between financial inclusion and economic development on the one hand, and financial inclusion and reduction in inequalities on the other hand, argues in favor of Côte d’Ivoire’s focus on this agenda through its financial sector development strategy (FSDS), which has the support of the World Bank. The authorities welcome staff recommendations towards improving access to financing, advancing digital financial services while modernizing the regulatory framework. In this vein, they plan to restructure the CNCE, operationalize the credit bureau, and restructure micro-finance institutions in order to improve access of lower-income consumers to financial services. The authorities’ efforts to bolster financial inclusion will also be complemented by the regional initiative led by the central bank BCEAO in this regard.

Alleviating Capacity Constraints

The Ivorian authorities highly appreciate Fund’s technical assistance (TA), which has been instrumental in achieving recent policy and reform accomplishments. They will continue to closely implement the TA recommendations. They look forward to the assistance on national accounts, tax and customs administration, PFM and on the adoption of the e-GDDS.

IV. Conclusion

Côte d’Ivoire is at a crossroads of its development. A frontier economy, it aims at reaching the next milestone of emerging market status over the next five years. The country has considerable potential and capacities, including from the authorities who exhibit a strong track record of policy and reform implementation and demonstrated commitment to transforming the economy. They continue to count on the support of the Fund to help them implement their ambitious but realistic development strategy. In particular, Fund support under a program arrangement over the period ahead will be helpful in a challenging global environment.