IMF Executive Board Concludes 2007 Article IV Consultation with Côte d'Ivoire

Public Information Notice (PIN) No. 07/101
August 13, 2007

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

On August 3, 2007, the Executive Board of the International Monetary Fund (IMF) concluded the 2007 Article IV consultation with Côte d'Ivoire.1

Background

Côte d'Ivoire, the largest economy of the West African Economic and Monetary Union (WAEMU), is gradually emerging from political instability and civil conflict that started in 1999. The crisis led to the partition of the country and the disruption of public services, especially in the former rebel-held northern zone. The crisis has taken a heavy toll on growth and social conditions: per capita income fell by one-sixth, poverty rose, and many social indicators worsened. These developments have also hurt regional trade and output.

In 2004-06, growth turned positive to an average rate of 1 percent a year and was helped by favorable agricultural output and a strong rise in oil production. However, industrial output continued to decline, while private and public investment remained one-third below their pre-crisis levels. Inflation has remained low. The outlook for 2007 is for a modest recovery to 1½ percent output growth, depending on progress in political normalization and the restoration of public services throughout the country.

During 2004-06, the overall fiscal deficit remained at about 1½ percent of GDP despite the difficult situation. Non-oil revenue was resilient and oil revenue increased. While spending remained constant as share of GDP, its composition worsened with overruns on defense and discretionary presidential spending at the detriment of social and basic infrastructural spending. With continued low levels of donor financing, external arrears continued to accumulate, to 21 percent of GDP by end-2006.

The external current account (including official transfers) has remained in surplus, helped by resilient cocoa production and favorable prices. The surplus widened to 3 percent of GDP in 2006 as oil exports rose sharply and imports remained sluggish in line with domestic demand. With official financing dwindling and net private capital outflows continuing, external arrears rose further. Gross official reserves remained at over 2½ months of imports.

On the structural side, improvements in transparency and governance were limited during the crisis. Some measures were taken to strengthen public financial management and tax administration, and reforms in the energy and cocoa/coffee sectors were initiated. However, the budget was largely executed through treasury advances and accountability on financial flows in the energy and cocoa/coffee sectors remained weak.

Executive Board Assessment

Directors welcomed the end of Côte d'Ivoire's civil conflict and the start of its national reconciliation, which will be key steps towards restoring a lasting peace and helping Côte d'Ivoire emerge from a prolonged crisis. They noted that the crisis has taken a substantial economic and social toll, with negative repercussions for the whole region. To overcome this legacy and address the daunting challenges facing Côte d'Ivoire, Directors stressed the importance of full implementation of the March 2007 Ouagadougou Accord. Steps to strengthen domestic consensus building as well as the continued support of the international community will both be crucial for achieving lasting peace and economic recovery.

Against this background, Directors called on the Ivoirien authorities to implement policies to promote early recovery in the post-conflict period. In the near term, measures should focus on restoring security, reunifying the country, and rehabilitating social services and basic infrastructure. Given the tight financial constraints, improved public resource management will be key. Directors underscored the need to create fiscal space by improving revenue collection and reducing nonessential spending. Also essential will be early steps to improve transparency in revenue mobilization and budget execution, including strengthened budget control, systematic publication of budget execution statements, and regular reporting on physical and financial flows in the energy, cocoa, and coffee sectors. Looking at the medium term, Directors stressed the importance of reviving structural reforms to enhance private sector development and improve competitiveness.

Directors welcomed the authorities' program for 2007, which is being supported by assistance under the Fund's policy on emergency assistance to post-conflict countries (EPCA). They noted that the authorities' program provides a sound and strong initial framework for establishing macroeconomic stability and catalyzing donor support, while seeking to address the immediate challenges facing Côte d'Ivoire. Directors welcomed the program's focus on measures to promote economic recovery, rebuild government services, and ensure transparency in public resource management. They considered that the 2007 budget rightly envisages increased spending on social services, basic infrastructure, and crisis-related programs, while reducing defense and discretionary presidential spending. Directors underscored that all spending should be strictly monitored. They also called for further efforts to resolve domestic arrears.

Directors considered that strengthening the financial sector will be critical for securing macroeconomic stability and higher growth. This will require improvements in financial supervision and in the judiciary environment for loan recovery. Directors stressed the need for better compliance with prudential norms, and welcomed the audit of the state-owned National Investment Bank.

Directors considered that reforms to improve the transparency and efficiency of the oil/gas, refinery, and electricity sectors will support growth and boost government revenue. They looked forward to the implementation of the recommendations of the ongoing audits of these sectors, and welcomed the planned steps to price energy products in line with world prices and to conform to the framework established by the Extractive Industries Transparency Initiative (EITI).

Directors strongly encouraged the authorities to reform the institutional structure of the cocoa, coffee, and cotton sectors, with a view to enhancing their contribution to growth and poverty reduction. They viewed the envisaged elaboration of a comprehensive strategy as an important step, while stressing the need to closely monitor the use of quasi-fiscal levies and to reduce them further.

Directors noted that Côte d'Ivoire's real exchange rate is in line with its equilibrium level. They underscored that sustained growth will require improvements in competitiveness and further diversification of the economy, including stronger growth in nontraditional exports, which will be needed to offset the projected decline in oil exports and rapid growth in the demand for imports. In this context, Directors attached priority to the revitalization of structural reforms aimed at enhancing productivity and reducing the costs of doing business. Directors noted that implementation of the envisaged macroeconomic policies and structural reforms should also contribute to the external stability of the West African Economic and Monetary Union (WAEMU).

Directors observed that the Low-Income Country Debt Sustainability Analysis (LIC-DSA) shows that Côte d'Ivoire is in debt distress. They looked forward to the authorities' establishing the necessary good track record—including under the EPCA—to enable Côte d'Ivoire to be considered for PRGF assistance and debt relief under the HIPC Initiative. Directors also looked forward to the planned preparation of the Poverty Reduction Strategy Paper based on consultations with a wide range of stakeholders.


Côte d'Ivoire: Selected Economic Indicators, 2002-07
Annual percentage changes, unless otherwise indicated

  2002 2003 2004 2005 2006
Est
2007
Proj.

National income

           

Real GDP growth

-1.4 -1.6 1.8 1.2 0.9 1.7

Consumer prices (end of period)

4.4 -0.1 4.4 2.5 2.0 2.9
             

Money and credit

           

Broad money

30.8 -26.6 9.5 7.4 10.3 4.8

Net credit to government (percent of

beginning of period broad money)

1.1 -2.7 -3.6 1.8 -1.6 -1.9
             

Central government operations

           

Total revenue and grants (percent of GDP)

18.4 17.5 18.4 18.2 18.8 20.8

Total revenue (percent of GDP)

17.9 16.9 17.5 17.1 18.2 19.5

Total expenditure (percent of GDP)

19.6 20.4 20.1 19.9 20.6 20.5

Primary basic balance (percent of GDP)1

2.7 0.5 0.9 0.4 0.3 1.0

Overall balance (including grants, payment

order, percent of GDP)

-1.2 -2.9 -1.7 -1.7 -1.8 0.3
             

External sector

           

Exports, f.o.b. (millions of SDRs)

3,958 4,017 4,530 5,063 5,535 5,620

Imports, f.o.b. (millions of SDRs)

1,879 2,009 2,288 2,801 3,893 3,564

Export volume growth

0.1 -5.4 21.7 4.2 4.7 -0.2

Import volume growth

-1.9 -13.5 21.6 3.0 0.7 1.8
             

Current account balance (percent of GDP)

           

Including official transfers

6.7 2.1 1.6 0.2 3.0 2.3

Excluding official transfers

3.7 0.7 1.7 0.4 3.2 0.6
             

Gross official reserves (millions of SDRs)

1,277 833 1,035 988 1,156 1,253
             

Debt

           

External public debt (percent of GDP)

80.7 81.4 80.8 77.6 73.3 71.0

External public debt in arrears (percent of GDP)

3.5 8.1 14.0 18.1 20.5 20.3

Domestic public debt (percent of GDP)

7.7 13.9 13.2 11.5 11.5 10.1

Domestic public debt in arrears (percent of GDP)

3.6 6.2 7.3 5.2 4.9 3.8

Sources: Ivoirien authorities ; and IMF staff estimates and projections.

1Total revenue (excluding grants) minus expenditure net of scheduled interest and foreign-financed capital expenditure.


1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities.



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