Press Release: IMF Approves Third Annual ESAF Loan for Cote d'Ivoire
June 14, 1996
The International Monetary Fund (IMF) today approved the third annual loan under the enhanced structural adjustment facility (ESAF)1 for Côte d'Ivoire in an amount equivalent to SDR 95.28 million (about $137 million) to support the Government's economic reforms in 1996. The loan is available in two equal installments.
The 1994 devaluation of the CFA franc and the supporting adjustment program put an end to the economic slump that had marred the Ivoirien economy for the previous eight years. In 1995, the recovery was further bolstered by the improvement in world economic activity and a substantial increase in non-oil primary commodity prices. In 1995, real GDP growth, which was broad based, is estimated to have reached 7 percent.
Although the main macroeconomic objectives of the 1995 program were achieved, the strong economic growth resulted in a somewhat higher rate of inflation and a larger external current account deficit than had been initially projected. On the other hand, improvement in the fiscal balance was substantially larger than targeted, thanks to the economic recovery and gains in the terms of trade. On the structural front, the privatization program made great strides in 1995, and there was considerable liberalization of the regulatory framework governing economic activity.
The 1996 Program
In 1996, the international environment is likely to be less favorable to the Ivorien economy because of slower growth in the industrial countries and a downward trend in primary commodity prices. Given these prospects, the 1996 program seeks to achieve real GDP growth of 6.5 percent, to slow consumer price inflation to 5 percent by the year-end, and to contain the external current account deficit at 5.6 percent of GDP.
To these ends, the program seeks to reduce the overall fiscal deficit in 1996 to 2.6 percent of GDP from 3.6 percent of GDP in 1995, eliminating all domestic arrears, and mobilizing exceptional domestic resources--equivalent to 1.2 percent of GDP--through privatization and contributions from public enterprises to external debt service payments. The strengthening of domestic tax administration and additional tax measures, together with royalties from the recent resumption of oil exploitation, should compensate for the envisaged reduction in the taxation of cocoa and coffee exports and allow for a stabilization of the revenue to GDP ratio at 21.3 percent. On the expenditure side, primary spending is to be reduced by 0.4 percent of GDP to 18.5 percent, while increasing outlays on human resource development.
The regional Central Bank, the Banque Centrale des Etats de l'Afrique de l'Ouest (BCEAO), will maintain a prudent policy stance, consistent with the fixed peg regime and the objective of a further improvement in its net foreign asset position, to which Côte d'Ivoire is expected to continue making some contribution. The array of instruments available to the monetary authorities of the West African Economic and Monetary Union (WAEMU) for indirectly regulating banking sector lending and liquidity is expected to expand in 1996. To this end, the authorities plan to replace government securities operations by the year-end with a system for auctioning bills of the BCEAO.
The program calls for a major deepening and acceleration of structural reforms, whose objectives are to provide a more adequate institutional and regulatory environment for the development of the private sector. In the context of a far-reaching reform of coffee and cocoa marketing, a computer-based system for auctioning export rights has recently started operating, and the authorities intend to take a number of additional steps. The program seeks to step up the privatization process and to improve the monitoring and management of the enterprises remaining in the public domain. The authorities have slated 31 enterprises for privatization in 1996-97. They also plan to work toward an agreement a common external tariff with other WAEMU member countries and on further reductions in intraregional tariffs; the harmonization of indirect taxation; the adoption of harmonized business laws; the implementation of regional surveillance procedures; the further liberalization of prices and non-tariff barriers; and the completion of the regional financial market so as to promote long-term savings and financing.
Addressing Social Issues
A major objective of Côte d'Ivoire's medium-term economic policy is to significantly reduce poverty. To this end, the Government will implement a comprehensive, multisectoral social strategy in the fields of health, education, family policy, agriculture, and housing, together with targeted social actions in favor of vulnerable groups. To ensure the success of its antipoverty program, the Government will establish a system of routinely monitoring poverty indicators.
The Challenge Ahead
In view of the prospective weakening of Côte d'Ivoire's terms of trade and a decline in foreign financial assistance, the 1996 program appropriately centers on further fiscal consolidation and on the implementation of a critical mass of structural measures designed to create an environment conducive to the development of private investment. It is essential that the authorities closely monitor fiscal developments and be prepared, if necessary, to implement additional tax measures and expenditure cuts.
Côte d'Ivoire joined the IMF on March 11, 1963, and its quota2 is SDR 238.2 million (about $343 million). Its outstanding use of IMF credit currently totals SDR 276.13 million (about $397 million).
Sources: Ivorien authorities; and IMF staff estimates and projections.
1. The ESAF is a concessional IMF facility for assisting eligible members that are undertaking reform programs to strengthen their balance of payments and improve their growth prospects. ESAF loans carry an interest rate of 0.5 percent and are repayable over 10 years, with a 5-1/2-year grace period.
2. A member's quota in the IMF determines, in particular, the amount of its subscription, its voting weight, its access to IMF financing, and its allocation of SDRs.