Statement by Mr. Aivo Andrianarivelo, Executive Director for Côte d’Ivoire and Mr. Marcellin Koffi Alle, Senior Advisor to the Executive Director December 9, 2020

Seventh and Eighth Reviews under the Extended Credit Facility Arrangement and the Extended Arrangement under the Extended Fund Facility, Request for Waivers of Nonobservance of Performance Criteria, and Proposal for Post-Program Monitoring-Press Release; Staff Report; and Statement by the Executive Director for Côte d'Ivoire

Abstract

Seventh and Eighth Reviews under the Extended Credit Facility Arrangement and the Extended Arrangement under the Extended Fund Facility, Request for Waivers of Nonobservance of Performance Criteria, and Proposal for Post-Program Monitoring-Press Release; Staff Report; and Statement by the Executive Director for Côte d'Ivoire

1. On behalf of our Ivorian authorities, we would like to thank the Board, Management and Staff for the Fund’s continued support. The authorities particularly appreciated the swift disbursement under the Rapid Credit Facility (RCF) and the Rapid Financing Instrument (RFI), which provided much-needed resources to complement the government’s efforts to address the COVID-19 related health emergency and subsequent economic fallout. This emergency assistance was also instrumental in keeping afloat the program supported by the Extended Credit Facility (ECF) and the Extended Fund Facility (EFF). The combined 7th and 8th reviews mark the end of a 4-year program, which has helped Côte d’Ivoire enhance macroeconomic stability and push ahead major structural reforms. The authorities broadly share the thrust of the staff report as a fair account of their recent discussions.

2. Owing to its strong fundamentals and notable diversification, the Ivorian economy has shown resilience in the face of the COVID-19 shock. GDP growth in 2020 will remain in positive territories compared with peer countries. Furthermore, a strong rebound is projected for 2021, macroeconomic prospects are favorable and fiscal consolidation should resume starting next year. Against this backdrop, Côte d’Ivoire successfully completed on November 23–24, a Eurobond issuance worth €1 billion. On the back of favorable country prospects and global market conditions, the bond was oversubscribed 5 times and carried an average 10.2-year maturity, a 5 percent yield, and a 4.875 percent coupon. Overall, this issuance, which was the first by a sub-Saharan African country since the onset of the pandemic bodes well for the authorities’ ambition to build back a stronger economy post-pandemic.

3. Going forward, the authorities would like to reaffirm their commitment to keeping pace with the sound policymaking that was observed under the ECF/EFF-supported program and generally over the past decade. Key policy areas in 2021 and beyond will encompass domestic revenue mobilization through enhanced digitalization, prudent debt management, and structural reforms aimed at further economic transformation.

Recent Developments, Program Performance and Outlook

4. Recent developments have been dominated by the authorities’ response to the COVID-19 and its effects on the economy. The government’s action was twofold: an emergency healthcare meant to stop the spread of the virus and take care of infected people, and an economic package to support the private sector with an emphasis on SMEs, and the vulnerable households. The overall effort amounted to 1½ percent of GDP for 2020. Actions taken by the regional central bank, BCEAO, supported credit to the economy, thus complementing the fiscal measures. On the external side, in addition to the IMF emergency financing and donors’ support, Côte d’Ivoire benefited from the first tranche of the G20 Debt Service Suspension Initiative (DSSI).

5. The authorities’ macroeconomic response and the early lifting of lockdowns and other restrictions helped limit the effects of the pandemic. GDP growth is projected to stand at 1.8 percent in 2020 – compared with 6.7 projected pre-pandemic – and should quickly rebound to a 6½ percent starting in 2021, on the back of improving global conditions and recovering exports and domestic demand. Though annual inflation increased from 0.8 percent at end-2019 to 2.1 percent in September, it should remain subdued as food supply chain disruptions ease. As well, with recovering external demand and FDI, the external current account deficit should narrow gradually from its 2020 level of -3.9 percent of GDP.

6. Despite the challenging environment, the Ivorian authorities have striven to limit the effects of the pandemic on macroeconomic indicators and keep pace with their strong program implementation record. For the 7th review, all end-December 2019 performance criteria (PCs) were met. Indicative targets (IT) were also met, except for the ones related to tax revenue. The end-June performance for the 8th review however, suffered the impact of the pandemic. As revenue fell with shrinking output, and emergency outlays increased, most ITs established pre-COVID were missed. Consequently, the authorities have requested waivers of nonobservance of the end-June 2020 PCs on the overall budget balance and the new external debt contracted, and have taken corrective measures accordingly. Structural reforms have advanced well as evidenced by most structural benchmarks (SBs) being met amidst the pandemic-induced constraints.

7. As regards the outlook, the authorities are cognizant of the downside risks both globally and at the national level. On the global front, they are optimistic that the recent developments regarding vaccines will significantly stop the spread of the coronavirus and hence help improve the global economic outlook. At the national level, the authorities are working expeditiously to ease the political tensions that erupted since the presidential election. The consultations started between President Alassane Ouattara and opposition leader Henri Konan Bédié should open a phase of dialogue and peaceful settlement of political differences. This should help maintain a positive investor sentiment towards Côte d’Ivoire.

Policies for Post-Pandemic Recovery and Economic Transformation

8. While the ending ECF/EFF-supported program has broadly met its objectives, many issues remain to be addressed, including the need to substantially increase domestic revenue for development financing. Furthermore, the pandemic has compounded existing challenges and shed more light on the imperative of further structural transformation to boost economic resilience. For the period ahead, the authorities will implement policies for a strong post-pandemic recovery and for a broad-based economy.

Fighting the Pandemic

9. The relaxation of the fiscal stance has been the first line of defense against the economic impact of the COVID-19. The 2020 deficit that was planned at 2.3 percent of GDP at the time of the sixth ECF/EFF review, is now expected to reach 5.9 percent, to accommodate the pandemic-related higher spending, lower revenue and economic support. Specific measures included a moratorium granted to firms on tax liabilities through June 2020. As regards the economic package to firms, the disbursement of funds accelerated recently after starting at a slow pace due to the baby steps of the special administrative procedures put in place.

Resuming Revenue-Centered Fiscal Consolidation

10. As the pandemic recedes, our authorities are committed to resuming gradually their efforts of fiscal consolidation, starting in 2021, with the view to reverting to the WAEMU fiscal deficit target of 3 percent of GDP by 2023. Next year budget will consolidate only by 1¼ percent of GDP, with a projected deficit of 4.6 percent of GDP, compared with 5.9 percent in 2020. The economic package will continue to play a role in supporting the recovery. Consequently, the consolidation strategy will emphasize increasing domestic revenue mobilization, notably by taxing more non-traditionally covered sectors such as the informal sector. The databases built to facilitate the disbursement of economic support funds will help bring a sizable share of these informal activities into the tax base. The rolling-out of digital procedures in most of fiscal administration services and ongoing measures to boost property tax collection are additional steps to increase the tax-to-GDP ratio.

Strengthening the Financial Sector

11. A vibrant financial sector capable of maintaining a high level of credit to the economy is part of the authorities’ strategy to support strong post-pandemic recovery. In this regard, it is worth noting that the banking sector displayed strong ratios at the onset of the pandemic, with above-the-norm capital adequacy ratio, declining credit concentration and a low level of NPLs. Appreciable progress has also been made in restructuring the once-troubled public banks. Banque Nationale d’Investissement (BNI) and Banque Populaire have seen substantial improvements in their balance sheets and are in the final phase of their restructuring. The authorities are committed to pursuing their efforts, including recapitalizing the Banque Nationale de l’Habitat (BHCI), with the view to making all public banks viable and enhancing financial inclusion. In the same vein, the government will leverage recent measures by the BCEAO to further develop mobile banking.

Preserving Debt Sustainability

12. Preserving debt sustainability is a key priority to the Ivorian authorities. They take positive note of the indication from the DSA that “Côte d’Ivoire remains at moderate risk of external debt distress” and that “the overall risk of public debt distress is also moderate, with public debt expected to gradually decrease over the projection horizon.” The authorities also welcome the encouraging signal of the recent successful Eurobond issuance amidst rather unfavorable global conditions. Going forward, the authorities are determined to maintain this positive investor sentiment and access to international capital markets. They will also continue to pursue a prudent borrowing strategy, balancing recourse to international markets and to the regional market, with the view to preserving the country’s moderate risk of debt distress ranking.

Bolstering Structural Reforms

13. The pandemic has given priority to emergency measures at the expense of transformative structural reforms. Post-COVID, the authorities intend to resume their structural transformation agenda, backed notably by the new National Development Plan 2021–25. The overarching goal remains to build a broad-based private sector-led growth. To this end, the government will continue its strategy of attracting massive investment in the manufacturing and service sectors to move away from commodity exports. An emphasis will be put on the job-rich agro-industry. To support the development of the private sector, steps will continue to be taken to build an enabling business climate, including by improving the judiciary system, fostering digitalization and other fiscal structural reforms. As well, with the assistance of partners like the World Bank, the government continues to improve the education system with a focus on the adequacy between curricula and skills demand from the private sector.

Conclusion

14. The COVID-19 pandemic has temporarily set back Côte d’Ivoire’s strong growth momentum of the last decade. The authorities’ swift response has helped limit the effects of the crisis and maintain a satisfactory performance under the ECF/EFF-supported program. As the pandemic recedes, the authorities are preparing to resume their macroeconomic policies and structural reforms to support a strong recovery and build a broad-based and resilient economy.

15. In view of the authorities’ satisfactory performance notwithstanding the constraints imposed by the pandemic, we would appreciate Executive Directors’ support for the completion of the 7th and 8th reviews under the Extended Credit Facility arrangement and the extended arrangement under the Extended Fund Facility, and request for waivers of nonobservance of performance criteria.

Cote d'Ivoire: Seventh and Eighth Reviews under the Extended Credit Facility Arrangement and the Extended Arrangement under the Extended Fund Facility, Request for Waivers of Nonobservance of Performance Criteria, and Proposal for Post-Program Monitoring-Press Release; Staff Report; and Statement by the Executive Director for Côte d’Ivoire
Author: International Monetary Fund. African Dept.