Côte D’ivoire: Requests for Disbursement Under the Rapid Credit Facility and Purchase Under the Rapid Financing Instrument—Debt Sustainability Analysis

Requests for Disbursement Under the Rapid Credit Facility and Purchase Under the Rapid Financing Instrument-Press Release; Staff Report; and Statement by the Executive Director for Côte d'Ivoire

Abstract

Requests for Disbursement Under the Rapid Credit Facility and Purchase Under the Rapid Financing Instrument-Press Release; Staff Report; and Statement by the Executive Director for Côte d'Ivoire

1. External and overall debt is sustainable and presents a moderate risk of debt distress. The public health risk, deterioration of global context, and supply chain disruption will impact negatively the Ivoirien economy. Following exceptional COVID-19 related spending expected in 2020, the deficit is projected to return to the pre-crisis level once the crisis abates, providing the basis for the downward path of debt from 2021 onward. In that context, the present value of public debt in percent of GDP would remain well below the benchmark4 of 55 percent.5 All external public debt burden indicators remain below their thresholds in the baseline scenario, but as in the past, the debt service-to-revenue ratio remains close to its threshold over the medium-term, underscoring the need to further boost domestic revenue mobilization once the crisis abates. In addition, the improvement in the PV of debt relative to the previous DSA is largely driven by the recent rebasing of GDP despite larger borrowing needs.

2. However, public debt remains vulnerable to shocks.6 The country’s public debt appears more vulnerable to shocks than assessed at the time of the December 2019 DSA, as confirmed by the now limited space to absorb shocks. Under the standard stress test on exports, the PV of external debt-to-export ratio would breach the threshold in 2022 and stay above it until 2029 (Figure 1). Similarly, debt-service-to-export ratio would breach the threshold starting in 2023 and remain above it. Under the market financing stress test, the debt service-to-revenue ratio would breach the threshold as of 2025 and in the following five years. These results underscore the downside risks for debt sustainability originating from external shocks (such as negative terms of trade shocks) and to market financing (such as rising interest rates) that could hit the Ivoirien economy. They further underscore the need to ensure a reduction in deficit as the crisis subsides and implement a prudent medium-term borrowing strategy.

Table 1.

Cote d’Ivoire: External Debt Sustainability Framework, Baseline Scenario, 2017–40

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Table 2.

Cote d’Ivoire: Public Sector Debt Sustainability Framework, Baseline Scenario, 2017–40

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Figure 1.
Figure 1.

Cote d’Ivoire: Indicators of Public and Publicly Guaranteed External Debt, 2020–30

Citation: IMF Staff Country Reports 2020, 132; 10.5089/9781513542041.002.A002

Sources: Country authorities; and staff estimates and projections.1/ The most extreme stress test is the test that yields the highest ratio in or before 2030. The stress test with a one-off breach is also presented (if any), while the one-off breach is deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented.
Figure 2.
Figure 2.

Cote d’Ivoire: Indicators of Public Debt Under Alternative Scenarios, 2020–30

Citation: IMF Staff Country Reports 2020, 132; 10.5089/9781513542041.002.A002

Sources: Country authorities; and staff estimates and projections.1/ The most extreme stress test is the test that yields the highest ratio in of before 2030 The stress test with a one-off breach is also presented (if any), while the one-off breach is deemed away for mechanical signals- When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented.
Table 1.

Cote d’Ivoire: External Debt Sustainability Framework, Baseline Scenario, 2017–40

(Percent)

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1/ Includes both public and private sector extern*I debt.2/ Derived as (r – g – ρ(1 + g)]/(1 +g + ρ+gρ) times previous period debt ratio, with r – nominal interest rate; g – real GDP growth rate, and ρ – growth rate of GDP deflator in U.S. dollar terms.3/ Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projection also includes contribution from price and exchange rate changes.4/ Current year interest payments divided by previous period debt stock.5/ Defined as grants, concessional loans, and debt relief.7/ Assumes that PV of private sector debt is equivalent lo its face value.8/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years.
Table 2.

Cote d’Ivoire: Public Debt Sustainability Framework, Baseline Scenario, 2017–40

(Percent)

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Table 3.

Cote d’Ivoire: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2020–30

(Percent)

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Sources: Country authorities; and staff estimates and projections.

A bold value indicates a breach of the threshold.

Variables include real GDP growth, GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows.

Includes official and private transfers and FDI.

Table 4.

Cote d’Ivoire: Sensitivity Analysis for Key Indicators of Public Debt, 2020–30

(Percent)

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Sources: Country authorities; and staff estimates and projections.

A bold value indicates a breach of the benchmark.

Variables include real GDP growth, GDP deflator and primary deficit in percent of GDP.

Includes official and private transfers and FDI.

Figure 3.
Figure 3.

Cote d’Ivoire: Drivers of Debt Dynamics – Baseline Scenario

Citation: IMF Staff Country Reports 2020, 132; 10.5089/9781513542041.002.A002

1/ Difference between anticipated and actual contributions on debt ratios.2/ Distribution across LICs for which LIC DSAs were produced.3/ Given the relatively low private external debt for average low-income countries, a ppt change in PPG external debt should be largely explained by the drivers of the external debt dynamics equation.
Figure 4.
Figure 4.

Cote d’Ivoire: Realism Tools

Citation: IMF Staff Country Reports 2020, 132; 10.5089/9781513542041.002.A002

Figure 5.
Figure 5.

Qualification of the Moderate Category, 2020–30 1/

Citation: IMF Staff Country Reports 2020, 132; 10.5089/9781513542041.002.A002

Sources: Country authorities; and staff estimates and projections.1/ For the PV debt GDP and PV debtfexports thresholds, x is 20 percent and y is 4–0 percent. For debt service/Exports and debt service/revenue thresholds, x is 12 percent and y is 35 percent.
Figure 6.
Figure 6.

Market-Financing Risk Indicators

Citation: IMF Staff Country Reports 2020, 132; 10.5089/9781513542041.002.A002

Sources: Country authorities; and staff estimates and projections.
2

For 2020, slower real GDP growth (2.7 percent compared to 7.3 in previous DSA); wider current account deficit (3.3 in percent of GDP compared to 2.7 percent); lower exports of goods (19 percent of GDP compared to 20.5); lower fiscal revenues (14.5 percent of GDP compared to 15.4), higher public expenditures (19.7 percent of GDP compared to 17.7).

3

Based on the recent discussion with donors.

4

Côte d’Ivoire’s composite indicator based on the October 2019 WEO is 2.97 and its debt carrying capacity is classified as medium. The applicable thresholds to the public and publicly guaranteed external debt are: 40 percent for the PV of debt-to-GDP ratio; 180 percent for the PV of debt-to-exports ratio; 15 percent for the debt service-to-exports ratio; and 18 percent for the debt service-to-revenue ratio. The applicable benchmark for the PV of total public debt for medium debt carrying capacity is 55 percent of GDP.

5

Debt ratios at end-2019 are lower than previously reported reflecting the recent rebasing of the National Account which led to an increase in 2015 GDP of 38 percent.

6

The current macroeconomic framework reflects currently available information. As mentioned in the Staff Report, risks are tilted to the downside.

Cote d'Ivoire: Requests for Disbursement Under the Rapid Credit Facility and Purchase Under the Rapid Financing Instrument-Press Release; Staff Report; and Statement by the Executive Director for Côte d’Ivoire
Author: International Monetary Fund. African Dept.