Statement by Mr. Daouda Sembene Executive Director for Côte d’Ivoire and Mr. Marcellin Koffi Alle, Senior Advisor to the Executive Director June 18, 2018

Staff Report for the 2018 Article IV Consultation and Third Reviews Under the Arrangement Under the Extended Credit Facility and Extended Arrangement Under the Extended Fund Facility, and Request for Modification of a Performance Criterion


Staff Report for the 2018 Article IV Consultation and Third Reviews Under the Arrangement Under the Extended Credit Facility and Extended Arrangement Under the Extended Fund Facility, and Request for Modification of a Performance Criterion

1. The Ivorian authorities value Fund’s continued engagement with Côte d’Ivoire, particularly in the context of their program supported by the Extended Credit Facility (ECF) and the Extended Fund Facility (EFF). This program engagement has contributed to the record-breaking economic performance that the country has continued to enjoy since 2012. As illustrated in Annex I, the current growth spell is unprecedented by historical standards, with average growth averaging almost 9 percent over the period. The recent mission to Abidjan in the context of the 2018 Article IV consultation and the third review of the Fund-supported program has been another opportunity for staff and the authorities to sustain their constructive policy dialogue. The authorities view the well-written staff report as a balanced reflection of these exchanges, the achievements made under the program, and the challenges still facing the economy.

2. Côte d’Ivoire has kept a pace of solid economic growth in recent years despite unfavorable world cocoa price developments and occasional social tensions. Prudent fiscal management and sustained reform efforts contributed to dampening the impact of these external and domestic shocks, thereby supporting buoyant economic activity. The authorities’ policy responses paired with the country’s strong fundamentals have helped maintain investor confidence at a high level, as evidenced by the $2.1 billion Eurobond successfully issued by Côte d’Ivoire in March 2018. For the period ahead, the authorities are committed to continuing their fiscal consolidation efforts while bolstering structural reforms, including in the areas of the business climate and governance. With continued strong program performance, enhanced macroeconomic stability, careful external debt management and far-reaching structural reforms, the authorities are confident that the country will lock in further gains in terms of inclusive growth and poverty reduction.

Recent Developments, Program Performance and Outlook

3. Program performance continues to be strong. All end-2017 performance criteria and all but one indicative targets (IT) were met. The IT on the floor on the primary basic fiscal balance was missed by a narrow margin. On the structural front, all but one structural benchmarks (SB) were implemented. Regarding the missed SB related to the restructuring of the debt of the national oil refinery (SIR), negotiations are still underway and the government is committed to finalizing the plan soon.

4. Key macroeconomic indicators also show buoyancy despite the cocoa price shock owing to the authorities’ appropriate policy responses. Real GDP growth is estimated at 7.8 percent -slightly under the 8 percent of 2016 – on the back of high cocoa exports and domestic consumption. Inflation remained low, at 1.1 percent y-o-y.

5. While being cognizant of the risks, the Ivorian authorities are more optimistic about growth prospects than staff. In their view, the major initiatives envisaged under the National Development Plan (NDP 2016–20), including the further diversification of the economy from agriculture towards industry, should yield higher GDP growth outcomes potentially averaging up to 8 percent in the medium-term. In light of recent trends and efforts underway to further improve the business environment, including as part of the G20 Compact with Africa, the authorities are more upbeat about private investment. Moreover, signs of ongoing economic transformation are growing, as evidenced notably by the decreasing share of the primary sector in the GDP to the benefit of the secondary and tertiary sectors which have increased. While the risks highlighted in the staff report are manageable, the authorities will continue to monitor them closely, standing ready to take necessary actions to mitigate them should they materialize.

Policies for 2018 and the medium term

Keeping the pace of fiscal consolidation

6. Fiscal consolidation efforts will be sustained in 2018 onward. The authorities remain committed to meeting the WAEMU fiscal deficit target of 3 percent of GDP in 2019. In this regard, the government has developed tax policy and administrative measures aimed at increasing the tax-to-GDP ratio. Key policy measures centered on broadening the tax base and streamlining the tax regime for SMEs include: (i) introducing an export tax on cashew nuts; (ii) reintroducing the registration duty on cocoa exports; (iii) adopting an action plan in 2018 to significantly reduce tax exemptions based on the recommendations of the 2017 McKinsey study on the investment code; (iv) improving VAT receipts; (v) improving the collection of property taxes; and (vi) bringing more informal activities into the formal sector. Furthermore, digitization is being leveraged to broaden the tax base, mandate online tax filing and payments for large enterprises, and combat fraud. A fiscal Hackathon recently organized in Abidjan with FAD assistance has helped in that regard. In addition, the government and the private sector representatives established a tax reform committee which is tasked with designing the right taxation for SMEs and streamlining the tax system and procedures.

7. On the expenditure side, the authorities continue to commit to their wage bill containment strategy. As part of the strategy, the number of new hires is constrained in all but social sectors. The oversight of public enterprises has been significantly enhanced with many SOEs that used to drain public resources, restructured or under restructuring. Furthermore, the process for public procurements is being constantly enhanced with the aim of optimizing value for money. In the same vein, steps are being taken to better assess and manage fiscal risks, including those stemming from PPPs.

Maintaining debt sustainability

8. The authorities take good note of staff assessment that the country’s risk of external debt distress remains moderate. Going forward, in line with the Medium-Term Debt Strategy (MTDS), they are committed to pursuing a prudent borrowing strategy while strengthening debt management with a view to safeguarding debt sustainability. Furthermore, their ongoing efforts to boost revenue mobilization will help limit external borrowing. The authorities remain confident that their efforts to raise more revenue paired with the expected return on productive investments will help improve debt ratios in the medium-to-long term.

Strengthening the financial sector

9. The broad soundness of the financial sector has served the economy well thus far. Financial soundness indicators are expected to be improved further by the recent introduction of the new prudential rules aligned with the Basel II/III principles. Key ratios including the capital adequacy ratio have improved, notably with most banks being compliant with the BCEAO’s new minimum bank capital requirements. The loan concentration ratio has evolved in a positive direction between 2016 and 2017. Most NPLs are well provisioned, though they slightly increased in 2017 compared to 2016 – 9.9 percent against 9 percent. The ongoing restructuring of small public banks should add to the positive figures of the banking sector. That said, the authorities will continue to take steps to strengthen further financial sector stability in coordination with regional authorities. In parallel, the emphasis that is currently put on further improving financial inclusion by leveraging technology will also be sustained.

Bolstering structural reforms

10. The authorities are fully aware of the imperative of bolstering structural reforms to foster economic transformation as envisaged under the 2016–20 NDP. Buoyant public investment in infrastructure over the past years has secured productivity gains thus contributing to growth. This effort has gone hand in hand with other reforms to improve the business climate. The ranking of Côte d’Ivoire among the best performers in the Doing Business reports over the recent years is a testimony of the country’s achievements in that regard. Going forward, the government is determined to address other key aspects of the business climate such as paying taxes and access to credit. Tax collection will benefit from the ongoing steady process of overhauling the tax administration. Digitization is progressing and more and more procedures including tax payment are being done online. Access to credit is expected to be enhanced by ongoing efforts to deepen the financial sector, diversify financial products and services for fostering inclusion, finalize the credit bureau for providing information on borrowers, and leverage digitalization.

11. Further improving governance ranks high on the authorities’ agenda to create an enabling environment for private investment. The institutional apparatus for promoting good governance has been strengthened accordingly. The resources allocated to the High Authority for Good Governance has recently been scaled up. To date, about 75 percent of target officials have declared their assets. Moreover, the prosecution of alleged misuses of public resources has increased over the past period. Technology solutions are also increasingly being implemented to combat fraud and fight corruption.

Enhancing social policy for inclusive growth

12. Since 2012, the government has taken commendable steps to make growth more inclusive, including through job creation and investments in social sectors. In this regard, the government policy has helped pass on to cocoa and coffee framers a larger share of international prices, while striving to develop basic infrastructure, health care and basic education services. At the same time, pro-poor spending doubled between 2012 and 2017, and much-needed wage agreements were reached with civil servants. The deployment of the Universal Health Insurance (CMU) is proceeding well and the pilot phase will be jointly financed by the government and the World Bank. Other initiatives are underway, including the implementation of the national employment policy with an emphasis on youth training and employment; the economic and social housing program; and the continued provision of facilities for enhancing primary education enrolment.


13. In the face of falling world cocoa prices and domestic social tensions, Côte d’Ivoire sustained strong economic performance under the ECF/EFF-supported program. Growth remained robust. The fiscal deficit was kept in check, while investor confidence was maintained over the period. Going forward, the authorities are committed to continuing fiscal consolidation, while pursuing their social and economic development objectives. The authorities are mindful that this would be important to strengthen domestic and regional stability and advance structural transformation of the Ivorian economy.

14. In view of the strong economic performance and the authorities’ commitment to the objectives of the program, we would appreciate the Board’s support for the completion of the third reviews under the ECF and the EFF arrangements and for the authorities’ request for modification of a performance criterion.

Cote d'Ivoire: Staff Report for the 2018 Article IV Consultation and Third Reviews Under the Arrangement Under the Extended Credit Facility and Extended Arrangement Under the Extended Fund Facility, and Request for Modification of a Performance Criterion
Author: International Monetary Fund. African Dept.