Statement by Mr. Mohamed-Lemine Raghani, Executive Director for Côte d’Ivoire and Mr. Marcellin Koffi Alle, Senior Advisor to the Executive Director April 17, 2020

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

On behalf of our Ivorian authorities, we would like to thank the Board, Management and Staff for the Fund’s continued support. The authorities appreciate staff’s hard work under unprecedented circumstances and Management’s swift response to their request for an emergency assistance. A disbursement under the Rapid Credit Facility (RCF) and a purchase under the Rapid Financing Instrument (RFI) would provide much-needed resources to support the government’s policy response to the COVID-19 related health emergency and subsequent economic fallout. They broadly share the thrust of the staff report as a fair account of their recent discussions.

Côte d’Ivoire’s economy maintained its momentum of strong and sustained growth and macroeconomic stability through 2019. The performance under the ECF/EFF-supported program has been strong thus far, with major achievements in fiscal consolidation, domestic revenue mobilization, debt management and implementation of key structural reforms. End-2019 preliminary data showed that this trend continued; performance criteria and structural benchmarks were met, though the 7th review has been postponed because of the coronavirus outbreak. The government’s early response to the pandemic consisted of an emergency health plan, followed by an economic support package as containment and mitigation measures further adversely impacted the economy. To support their domestic efforts, our authorities are requesting an assistance under the RCF and the RFI equivalent to 100 percent of quota (SDR 650.4 million). Fund assistance will be critical in addressing the financing gap and meeting BOP needs. This will also help pave the way for a quick economic recovery when the pandemic abates, and thus contribute to maintain the country’s recent socio-economic progress.

1. The Economic Impact of the COVID-19 Pandemic

Côte d’Ivoire reported its first case of COVID-19 infection on March 11; as of April 14, the number has risen to 638 cases, of which 114 were cured and 6 died. The Government’s response to the Pandemic was swift but gradual in intensity. First, there was an emergency health plan with containment measures, suspension of all international flights, closing of schools and restaurants, ban on public gatherings, paired with the declaration of state of emergency. As more cases were confirmed, the authorities enhanced social distancing by establishing a curfew from 9 pm to 5 a.m., and a partial isolation of Abidjan, the epicenter city of the pandemic, from the rest of the country. The second line of response was an economic package aimed at supporting the most vulnerable households and the affected firms, including SMEs and the informal sector.

The economic impact of the COVID-19 is expected to be significant in Côte d’Ivoire. As an open economy, the country is affected by the effects of trade disruptions, notably with China and the E.U, which make the bulk of its imports and exports. Falling commodity prices and declining trade would affect exports receipts and custom duties. Furthermore, containment and mitigation measures are also expected to have a direct adverse impact on the economy. Many SMEs including in the leisure sector – restaurants, hotels and amusement activities – will pay a heavy toll. Likewise, several activities in the informal sector risk being wiped out by the effect of the curfew and other confinement measures.

These adverse developments are being reflected in macroeconomic figures, most of which were displaying buoyancy in the pre-COVID-19 period. Real GDP growth is projected to more than halve in 2020, standing at 2.7 percent against 6.7 previously projected. Public finances are under mounting pressures as revenue falls and health-related spending increases. The external position is also reflecting the decline in trade. Lower exports, both of agricultural products and manufactured goods, will adversely impact the current account deficit, which is projected to widen from 2.7 percent in 2019 to 3.3 percent of GDP in 2020; while it was projected to improve to 2.5 pre-COVID-19. Important assets to Côte d’Ivoire, such as investor confidence and associated investment flows, and market access are being adversely affected. The pandemic has also compromised the outlook, with risks tilting to the downside. A more protracted pandemic with a lasting effect on global demand would delay domestic recovery, not to mention that the total effects of containment measures may be larger than anticipated and hence require additional support to the economy.

2. The Government’s Policy Response to the Pandemic

In addition to their healthcare plan, the authorities unveiled on March 31st, an economic package to dampen the effects of the COVID-19. The package was made of fiscal measures which well complemented the monetary and financial policies announced weeks before by BCEAO, the regional central bank.

Fiscal policy and debt sustainability

The authorities have loosened the fiscal stance as the first line of defense against the economic impact of the COVID-19. The fiscal deficit will be increased to 5.2 percent of GDP in 2020, compared to 2.3 percent pre-COVID-19, to accommodate the cost of the economic support package. Public finances in 2020 will thus bear a total cost of 23/4 percent of GDP, encompassing both the authorities’ health and economic responses. Major features of the fiscal package include direct funding for SMEs and the informal sector, extension of cash transfer programs to more poor households as well as deferral of some tax payments.

The spending pressures stemming from the COVID-19 have created an estimated fiscal financing gap of about 3.2 percent of GDP over the current fiscal year. The authorities are working on a supplementary budget accordingly. They are hopeful that the assistance from the Fund, the World Bank and other donors will help close the financing gap. The authorities also pay a high regard to accountability and transparency in the management of the pandemic-related expenditures. In this vein, they are working on specific procedures to track these expenditures and make sure they are effectively targeted to the response to the COVID-19. Going forward, the authorities are also committed to returning to their WAEMU fiscal deficit target when the pandemic fades out.

Debt sustainability remains a high priority to the Ivorian authorities. They welcome the fact that staff DSA concludes that Cote d’Ivoire’s external and overall debt is sustainable, and the country continues to be at moderate risk of debt distress. The authorities are confident that the debt profile will improve further as they return to their fiscal targets post-COVID-19.

Regional monetary and financial policies

Our authorities are cognizant of the need to pair accommodative fiscal and monetary policies to support the economy in these difficult times. In this regard, the BCEAO has taken a series of preemptive measures to maintain an adequate liquidity in the banking system and ensure it flows in the economy. It extended its collateral base for access to refinancing and prepared with banks, a framework to help affected firms facing loan repayment difficulties. The central bank also strengthened the resources of the West African Development Bank (BOAD) so to increase its concessional lending to member states for urgent pandemic-related outlays. As well, measures to lower charges on mobile banking and services are under consideration.

Conclusion

Côte d’Ivoire’s economy was growing at a strong pace in a stable macroeconomic environment when it was hit by the global COVID-19 pandemic. The subsequent disruptions of trade, international value chains and financial markets are having an adverse impact on the country’s output and revenue. The health crisis is being compounded by an economic crisis caused both by indirect and direct effects of the pandemic containment and mitigation measures. Our authorities have responded swiftly to both crises, with measures to contain the spread of the pandemic and a support package to dampen the impact on the economy.

In view of the sizeable fiscal financing gap and balance of payment needs, and the authorities’ commitment to pursue the appropriate policies to mitigate the impact of the pandemic and contribute to a quick recovery, we would appreciate Executive Directors’ support for a disbursement under the Rapid Credit Facility and a purchase under the Rapid Financing Instrument.