Statement by Mr. Mohamed-Lemine Raghani, Executive Director for Côte d’Ivoire and Mr. Marcellin Koffi Alle, Senior Advisor to the Executive Director Executive Board Meeting

Sixth Reviews Under the Arrangement Under the Extended Credit Facility and the Extended Arrangement Under the Extended Fund Facility, and Request for Extension and Augmentation of Access; Press Release; Staff Report; Staff Supplement; and Statement by the Executive Director for the Cote d'Ivoire

Abstract

Sixth Reviews Under the Arrangement Under the Extended Credit Facility and the Extended Arrangement Under the Extended Fund Facility, and Request for Extension and Augmentation of Access; Press Release; Staff Report; Staff Supplement; and Statement by the Executive Director for the Cote d'Ivoire

December 6, 2019

1. Our Ivorian authorities would like to thank the Board, Management and Staff for the Fund’s continued engagement with Côte d’Ivoire. Supported by the Extended Credit Facility (ECF) and the Extended Fund Facility (EFF) arrangements, the government’s economic and financial policies continue to deliver macroeconomic stability and a strong growth momentum. The continuous policy dialogue between staff and the authorities, including in the context of the sixth reviews under the ECF/EFF arrangements, confirms the country’s major achievements while shedding light on the challenges still facing the economy. Our authorities broadly share the thrust of the staff report and have committed to implement the needed policies in the period ahead, to address the challenges fairly pointed out.

2. Côte d’Ivoire remained on its robust growth path throughout the period of the 6th reviews of the ECF/EFF. Thanks to the authorities’ relentless efforts in enhancing the business climate, private investment has gradually taken over public investment as the main driver of growth. Fiscal consolidation is also well on track to meet the WAEMU deficit target of 3 percent of GDP in 2019. Going forward, the authorities are committed to maintaining this reform momentum to further enhance the macroeconomic framework which will also contribute to the region’s external stability. In this regard, they have requested a one-year extension of the ECF/EFF arrangements. This will also help smooth out the transition to the 2020 presidential election.

3. As regards the political environment, the authorities continue to take steps to ensure a peaceful socio-political climate in the run-up to, and during, the contest. Following measures toward political appeasement a year ago, notably the granting of presidential pardon to jailed political actors, additional efforts have encompassed reforms to the electoral commission, enhanced security conditions across the country and maintained dialogue with political stakeholders to improve the overall electoral process. The authorities are committed to continuing their efforts to organize a peaceful and democratic election, with a view to locking in the favorable investor sentiment and the economic and social gains of the past years.

Recent Developments, Program Performance and Outlook

4. Côte d’Ivoire continued to post a strong performance over the program review period. All end-June 2019 and continuous performance criteria (PCs), all indicative targets (ITs) and all structural benchmarks (SB) were met. This performance owes to strong revenue collection, including of indirect taxes, higher oil profit taxes, customs receipts and arrears clearance by energy companies to the central government. These positive developments offset the underperforming banking and telecom sectors’ profit taxes. In addition, the authorities continue to demonstrate strong commitment to structural reforms.

5. Key macroeconomic indicators also displayed buoyancy. Dynamism in agro-processing, construction, telecommunications and other services supported the strong growth impetus. Paired with resilient investment and the impact of the government’s actions in the social and rural areas, real GDP growth is projected to stay robust at 7.5 percent in 2019–20. Inflation remains low, at 0.7 percent at end-September owing to moderate food and energy price increases. The still elevated imports stemming from strong investment will continue to impact the current account deficit, which will however gradually improve from 4.7 percent in 2018 to 4.0 percent and 3.8 percent in 2019 and 2020 respectively.

6. The authorities share staff’s optimism about the macroeconomic outlook. They are confident that as their current country-wide social plan bears fruits, it will add to the higher cocoa sector incomes to make growth more inclusive. The subsequent overall improvement in the drivers of domestic consumption should help cushion the expected effects of slower global growth and rising protectionism in trading partners.

Policies for 2019–20 and Beyond

7. Our authorities have agreed with staff on their priority policy areas for the remainder of 2019 and the year 2020. These policies would make the bulk of the program extension and would be centered around: (i) pursuing revenue-based fiscal consolidation to meet deficit targets; (ii) maintaining debt sustainability; (iii) furthering financial sector reforms; and (iv) accelerating structural reforms to bolster the private sector participation and promote inclusive growth.

Stepping up fiscal reforms

8. While a combination of tax policy and administrative measures has helped increase revenue over the program period, our authorities are mindful that more effort is needed to improve the revenue-to-GDP ratio to the level of frontier market peers. Digitalization through the Integrated Tax Management System (SIGICI) has started to bear fruit in terms of higher VAT collections. Similar improvements include the introduction of a Single Tax Identification Number (STIN) to all new businesses, which in its final phase will significantly advance information sharing between revenue administrations. Likewise, the ongoing development of an online cadaster will help boost property tax revenue. Digitalization is planned to be stepped up in 2020 with further gains, in addition to measures such as raising excises on tobacco and further refining controls at the customs administration. Beyond 2020, the authorities will prepare further tax policy measures in the areas of VAT, corporate income tax and property taxes. As well, the government’s plan adopted in March 2019 to streamline tax exemptions should start yielding results. All these efforts are expected to broaden the tax base and boost the tax revenue-to-GDP ratio.

Securing deficit targets

9. The authorities have re-committed to their objective of meeting the WAEMU fiscal deficit target of 3 percent of GDP in 2019 and forward. To this end, they plan to complement revenue mobilization measures with expenditure adjustment with a view to locking in these targets. Thus for 2019, fiscal consolidation is projected to amount to 1 percent of GDP, with expenditure restraint worth 0.6 percent of GDP and a revenue effort of 0.4 percent. Fiscal discipline will be maintained in 2020; expenditure adjustment efforts will include curtailing subsidies and other current spending by 0.5 ppt of GDP over 2019–20 and maintaining the wage bill strategy of “two out, one in” except for the education and health sectors. Besides fiscal consolidation efforts, the authorities are committed to furthering PFM reforms, including through the introduction in 2020 of program and multi-year budgeting, the computerization of public procurements and the transition to the Treasury Single Account.

Maintaining debt sustainability

10. Preserving debt sustainability is a key priority to our authorities’ development strategy. They therefore welcome the conclusion of staff DSA that both the external and the overall public debt point to a moderate risk of debt distress. Moreover, the external debt presents some space to absorb shocks while public debt is expected to gradually decrease over the projection horizon. The authorities are committed to maintaining this situation by sticking to their prudent external borrowing strategy. Furthermore, they are confident that as their efforts to increase domestic revenue bears more fruits, and the regional market deepens further, they will reduce recourse to external non-concessional borrowing. In addition, steps to limit exchange rate and rollover risks and the recent liability management operation to smooth future repayment peaks highlight the authorities’ active debt management strategy, which should ease somewhat debt servicing pressures. As well, the ongoing development of a dashboard for monitoring the financial operations of public enterprises should help capture and keep in check the overall public sector liabilities and preserve medium-term debt sustainability.

Enhancing financial sector and structural reforms for bolstering private sector participation

11. Policies in 2020 and beyond put an emphasis on structural reforms aimed at bolstering the private sector as the main engine of growth. The financial sector remains a priority in this regard. Following measures in recent years to boost capital, the banking sector is sound overall albeit effort is still needed on restructuring public banks. The two banks – CNCE turned Banque Populaire and BNI – whose restructuring was still in progress recently benefitted from capital boost from new shareholders. Ongoing asset sales should also further improve the situation of Banque Populaire as its new management also overhauls the bank’s development strategy. In addition, steps are being taken to support financial inclusion and access to long-term credit for SMEs, including launching the financial inclusion strategy in May 2019, strengthening the credit bureau and creating the Caisse de Dépôts et de Consignation (CDC) to supply longer term credit to the underserved sectors of infrastructure and SMEs. At the same time, the authorities are ensuring that the financial circuits are not conducive to money laundering and illicit financing, notably by enforcing the AML/CFT law and taking preparatory steps for the upcoming assessment of the country by the Intergovernmental Action Group Against Money Laundering in West Africa. (GIABA). They are also contributing to fighting financial crime through empowering the relevant unit in the largest city’s prosecution offices.

12. Reforms in the key area of business climate continue to also rank high on the authorities’ agenda. Following the progress made since 2012 in this sector, which translated in a significant improvement in Cote d’Ivoire’s World Bank Doing Business rankings, future efforts will lie more acutely in the areas of governance, access to finance, logistics, digital connectivity and human capital.

Fostering inclusive growth

13. Cognizant of the need to make growth more inclusive, the authorities have accelerated actions on two fronts. First, they are expanding the coverage of social safety nets with the support of the World Bank and the African Development Bank. The elaboration of a single social registry now helps target better poor households, and the number of beneficiaries of cash transfers increased from 35,000 households at end-2018 to 50,000 at end-March 2019 and should reach 80,000 by end-2019.

14. Second, the government launched a comprehensive social program – PSGouv – aimed at providing basic services mainly to rural areas across the country. The PSGouv program is mostly accommodated within the budget and would cost close to 1 percent of GDP in 2019 and 1½ percent of GDP in 2020. It is made of the projects of the National Development Plan with the expected strongest social impact, such as those targeting increased access to education, health care, electricity and potable water, as well as those promoting social transfers, youth employment and increased connectivity, particularly in rural areas. A universal health care system is also being gradually introduced to complement the authorities’ actions to share the growth dividends, reduce poverty and improve the living standards for the populations.

Conclusion

15. Côte d’Ivoire’s economy maintained its strong growth momentum over the past period amid a stable macroeconomic framework, thanks to the authorities’ sound policymaking and renewed reform commitment. Fund’s support under the ECF and EFF arrangements has been instrumental in helping enhance macroeconomic stability and implement far-reaching structural reforms. Program performance continues to be strong and Côte d’Ivoire is on track to meeting the WAEMU fiscal target in 2019 and forward, and hence contributes to strengthening the region’s external stability. Moreover, they remain committed to pursuing their prudent debt strategy with a view to preserving debt sustainability. For 2020 and beyond, they are determined to step up structural reforms to continue to pave the way for robust and sustained private sector-led growth.

16. In view of Côte d’Ivoire’ strong economic performance and the authorities’ renewed commitment to the objectives of the program, we would appreciate Executive Directors’ support for the completion of the sixth reviews under the ECF and EFF arrangements and the requests for extension and augmentation of access.

Cote d'Ivoire: Sixth Reviews Under the Arrangement Under the Extended Credit Facility and the Extended Arrangement Under the Extended Fund Facility, and Request for Extension and Augmentation of Access; Press Release; Staff Report; Staff Supplement; and Statement by the Executive Director for the Cote d’Ivoire
Author: International Monetary Fund. African Dept.