Abstract
Côte d'Ivoire has experienced an impressive turnaround since 2012, with growth averaging 9 percent during 2012-15, accompanied by prudent fiscal policies and debt management, improved access to capital markets, and the return of foreign direct investment. However, per capita GDP remains below its 1978 peak, poverty continues to be relatively high, and human development indicators have been slow to improve. The authorities' 2016-20 National Development Plan (NDP) aims to consolidate the conditions for strong and inclusive growth and poverty reduction through investment in infrastructure and social sectors, as well as the structural transformation of the economy by the private sector.
1. Our Ivorian authorities would like to thank the Board, Management and Staff for the Fund’s continuous support to their development agenda. Fund engagement has been instrumental in Côte d’Ivoire’s turnaround since 2011. Under the Extended Credit Facility (ECF) concluded with the Fund in November 2011—and subsequently extended by one year—in support of the implementation of the 2012–15 National Development Plan (NDP), Côte d’Ivoire made significant inroads in achieving macroeconomic stability, improving economic governance, sustaining strong growth and reducing poverty over the last five years. In addition, the ECF-supported program contributed to catalyzing external financing both from donors and the private sector and helped the authorities achieve the goals set forth in the 2012–15 NDP. Buoyed by public and private investments mainly in infrastructure, growth averaged 9 percent over the 2012–15 period and important strides were also made in accelerating poverty reduction and strengthening socio-political stability.
2. Looking ahead, Côte d’Ivoire has adopted a new National Development Plan (2016–2020 NDP) aimed at embarking the country on a path toward emerging-market status by 2020 and halving poverty. Under the 2016–20 NDP, priority is given to the need to strengthen further institutional quality and good governance, promote structural transformation of the economy, consolidate the macroeconomic framework, and improve the redistribution of the benefits of growth in order to halve the poverty rate. The requested arrangement under the Extended Fund Facility (EFF) and the Extended Credit Facility (ECF) will support the NDP objectives, including by helping to create fiscal space for further enhancing the infrastructure base, make growth more inclusive, and foster economic transformation. The authorities are of the view that a program supported by a blend of resources from the ECF and EFF arrangements will help Côte d’Ivoire to continue reform implementation, notably with a view to strengthening further the business environment as well as the energy and financial sectors.
Recent Developments and Outlook
3. The Ivorian authorities have demonstrated strong program ownership and an impressive track record in policy implementation under the past ECF-supported program. As a result, macroeconomic indicators have exhibited buoyancy in the recent period. Real GDP has kept its strong momentum and is projected to be strong in 2016, notably on the back of the dynamism of the secondary and tertiary sectors supported by expanding extractive industries and strong domestic demand. Inflation is subdued and should remain well below the WAEMU target of 3 percent at year-end. The fiscal balance has been kept under control thanks to the authorities’ prudent management and efforts in revenue mobilization and spending restraints.
4. On the structural front, the authorities have advanced a vast array of reforms in recent years. In this regard, significant changes were introduced in the tax administrations to broaden the tax base, streamline processes, enhance transparency and accountability and combat fraud. The supervisory bodies for public enterprises have been strengthened with the view to better accounting for their activities and financial situations. Further progress has been made in restructuring public banks. In mid-2016, the government decided to privatize two of them, Versus Bank and Banque de l’Habitat, while restructuring Caisse Nationale des Caisses d’Epargne and allow it to better fulfill its strategic role in promoting financial inclusion. Initiatives to improve the business environment witnessed a major step with the inception of the Credit Bureau in February 2016 and the one-stop shop for property licenses.
5. Our authorities concur with staff that the macroeconomic outlook remains favorable and they continue to be committed to stepping up efforts to address the remaining structural bottlenecks for bolstering economic transformation. In order to reach PND objectives, the three-year economic and financial program formulated by the government will build on: (i) preserving room for government fiscal adjustments and ensuring the continuing sustainability of the public debt; (ii) reinforcing public finance administration and the management of public enterprises; (iii) enhancing further an enabling business environment for the private sector; (iv) developing the financial sector; and (v) reinforcing the statistics system.
6. The Consultative Group organized by the authorities in May 2016 in Paris was a success and the financial pledges from donors outstripped the authorities’ expectations. Going forward, the authorities intend to continue to diversify their sources of financing while being mindful of the need to preserve debt sustainability.
Policies and Reforms for 2016–19
7. For the period 2016–19, the Ivorian authorities will pursue an ambitious agenda of economic policies and reforms in line with the NDP objectives. In particular, they will aim to create space for infrastructure investment while preserving medium-term fiscal sustainability and furthering a wide range of structural reforms for economic transformation.
Promoting infrastructure investment
8. The authorities plan to maintain the pace of investment which has contributed to strong growth since 2012. While a greater participation of the private sector is sought in this regard, public financing is still needed for the major projects planned in infrastructure, agriculture, education, health, transport and power generation, some of which will be implemented through PPPs. Consequently, fiscal policy over the period will be characterized by an accommodative deficit of 4 percent of GDP in 2016, 3.7 in 2017 and a gradual tightening toward complying with the regional deficit ceiling of 3 percent by 2019.
9. To maintain their programmed fiscal stance, strengthening domestic revenue mobilization ranks high on our authorities’ agenda. Their medium term objective is to raise the tax-to-GDP ratio from 15.7 percent in 2015 to 17.1 in 2019. Measures in this regard include (i) further expanding the tax base by better monitoring medium-sized enterprises, assessing the Investment Code to streamline exemptions; (ii) modernizing and strengthening the tax administrations through automation, introduction of electronic billing, and the adoption of a new Customs Code. The improvement in tax administration is projected to increase non-earmarked tax collection by 0.4 percent of GDP. The assessment of the economic benefits and fiscal costs of the Investment Code to be concluded by mid-2017 will inform the authorities’ actions in this area and help identify additional revenue measures. On the expenditure side, the authorities’ guiding principle is to contain non-priority spending to make room for investment, pro-poor spending and security outlays. To this end, they are committed to continue streamlining current expenditures, rationalizing subsidies and current transfers, and exercising stricter control over the wage bill.
10. A set of reforms in Public Financial Management (PFM) will continue to be implemented to create fiscal space in the period ahead and maintain debt sustainability. They include the launch of program budgeting, the provision of additional budget documentation on PPPs-related fiscal risks and public enterprises to the annual budget law and measures to reduce the recourse to exceptional expenditure procedures.
Ensuring debt sustainability
11. Our authorities broadly agree with staff conclusion in the DSA, that Côte d’Ivoire “remains at moderate risk of debt distress, in line with the previous DSA carried out in June 2015 for the 8th review under the Extended Credit Facility arrangement”. In this regard, the authorities find the macroeconomic assumptions in the baseline scenario too conservative. They would have liked these assumptions to better account for the expected dividends of the recent strong economic performance and progress in advancing far-reaching reforms. In particular, they considered that the peaceful October 2015 presidential election and Constitutional Referendum held in October 2016 would have a strong positive impact on growth, notably by reducing political uncertainty. As previously suggested, the authorities would have also liked staff to include an additional scenario that would be underpinned by stronger growth driven by a higher level of private investment. Going forward, we call on staff to continue working closely with them to explore ways of improving the country’s debt distress rating further.
12. The authorities are committed to maintaining debt sustainability through a prudent borrowing along the lines defined in the national medium term debt management strategy. Furthermore, the government will pursue its current strategy in terms of diversifying financing sources with a view to lowering borrowing costs. In addition, efforts to enhance debt management capacities will continue, notably by completing the reorganization of the debt management unit into front, middle and back office, for a better monitoring of debt dynamics.
Furthering structural reforms for economic transformation
13. The authorities are cognizant of the need to undertake bold structural reforms in key sectors to underpin their agenda of economic transformation. The objective of accelerating the transformation of primary products and the industrialization of the economy is backed by a set of reforms and initiatives planned in various sectors, including the financial and energy sectors, the business environment, and the manufacturing sector.
14. As regards the business climate, the authorities intend to keep the reform momentum, which helped Côte d’Ivoire improve its ranking in many reports over the past years, including the “Doing Business” report. In this vein, they have identified, with the assistance of the World Bank, an array of reforms to be implemented in 2017, which include further measures to facilitate the starting of a business, making available online all information related to construction permits and measures to enforce contracts and to streamline processes for dispute resolution. Reducing production factor costs is also an important aspect of the strategy to improve the business climate and competitiveness. To this end, the authorities will maintain their efforts in building or revamping physical infrastructure notably roads, telecommunication networks and power plants and energy grids. Efforts to increase electricity supply by 23 percent in 2017 compared to 2015 are on track and should be boosted further as the government pursues its diversification strategy towards renewable energies.
15. Deepening the financial sector is, from the authorities’ perspective, critical to expand further the private sector, which is the driving force of growth and job creation. In this vein, they attach a particular importance to financial inclusion, and have developed strategies to this end, with the regional central bank BCEAO. The now functioning Credit Bureau is a major step in the BCEAO’s plan to boost credit to the economy, especially to young entrepreneurs, start-ups and SMEs. In the period ahead, the restructuring process of the troubled public banks should gain traction following the clear options recently taken by the government for each of the entities.
16. Our authorities are committed to enhancing the overall sector of public enterprises, especially those playing a strategic role in the economy, such as the national oil refinery (SIR), the national oil company (PETROCI) and the public transportation company (SOTRA). The strategy for restoring financial viability of SIR has been adopted and is being implemented. The other companies undergoing restructuring are being closely monitored and the government is committed to taking needed actions to ensure that public resources are safeguarded.
17. The reforms and initiatives to improve the business climate, lower factor costs and deepen the financial sector should contribute to achieving the authorities’ aim to step up the transformation of Côte d’Ivoire into an emerging market economy, while creating job opportunities especially for youth and promoting inclusive growth. The industrialization strategy includes measures aimed at increasing the processing of agricultural products and attracting new investors to recently created industrial parks.
18. The authorities also intend to put emphasis on enhancing human capital while better distributing growth dividends to make further inroads in poverty reduction. In this regard, they will take actions to improve the quality of the education system, making it more accessible to all and aligning curricula with the needs of the labor market. Likewise, steps will be taken to improve the quality of health services while ensuring accessibility to all via the Universal Medical Coverage (CMU). The authorities will also overhaul the statistics system to better inform policymaking and, in this endeavor, Fund technical assistance will be welcome.
Conclusion
19. Past Fund program engagement has provided valuable support for the Ivorian authorities’ policy formulation and implementation, thus contributing to the country’s strong economic performance in recent years. GDP has been strong and sustained and remarkable progress was also made in addressing the country’s structural bottlenecks. Yet, challenges remain, including making growth even more inclusive and further reducing poverty. Our authorities are confident that the policies agreed upon with staff for the period ahead form a comprehensive package for a strong ECF and EFF-supported program, which would help entrench the gains of the past years. They are committed to its implementation with a view to moving Côte d’Ivoire towards an emerging market economy by 2020.
20. In view of the strong reform agenda and the authorities’ strong commitment to the objectives of the program, we would appreciate the Board’s support to their requests for an Extended Arrangement Under the Extended Fund Facility and an Arrangement Under the Extended Credit Facility.