Press Release: IMF Approves in Principle US$365 Million PRGF Arrangement for Côte d'Ivoire
March 27, 2002
The Executive Board of the International Monetary Fund (IMF) today approved in principle a three-year arrangement for Côte d'Ivoire under the Poverty Reduction and Growth Facility (PRGF) for SDR 292.68 million (about US$365 million). The Board's decision will become effective after the World Bank's review of Côte d'Ivoire's Interim Poverty Reduction Strategy Paper, which is currently scheduled for Thursday, March 28. Upon effectiveness of the Board's decision, Côte d'Ivoire will be able to draw up to SDR 58.54 million (about US$73 million) under the PRGF arrangement.
It is intended that PRGF-supported programs will in time be based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners and articulated in a Poverty Reduction Strategy Paper (PRSP). This is intended to ensure that these programs are consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. In the case of Côte d'Ivoire, the authorities have made a good start toward completing the national poverty reduction strategy with the preparation of a realistic interim PRSP. A full PRSP is expected to be completed by end-July 2002.
PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5 ½-year grace period on principal payments.
After the Executive Board's discussion on Côte d'Ivoire, Anne Krueger, First Deputy Managing Director and Acting Chair, stated:
"Côte d'Ivoire has been broadly successful in the implementation of a six-month staff-monitored program under difficult socio-political conditions, and the Fund is encouraged by the government's demonstrated discipline in macroeconomic management and its commitment to implement structural reforms in a determined manner.
"The new PRGF-supported program is an important step toward achieving the goal of poverty reduction in the context of sustained economic growth and macroeconomic stability. The policies to be pursued in the first year of the program are expected to begin to lay the foundation for sustained growth by focusing on macroeconomic stabilization measures and key structural reforms. Particular attention will be paid to better-focused and stronger action in the priority sectors of health, education, security and basic infrastructure, and on legal and regulatory reforms to create a business environment in which private enterprise can flourish.
"On the structural front, the resumption of the privatization program and the reform of the financial and energy sectors should also help strengthen the foundations for medium-term growth and employment creation. The emphasis on administrative and fiscal decentralization should improve the efficiency and targeting of public services delivery, particularly in rural areas, and deepen the participation of beneficiaries in the formulation of public policies; but care would need to be exercised to ensure that fiscal discipline is maintained.
"There are several risks that could adversely affect the successful implementation of the program, relating to wage demands in the public sector, difficulties with several key structural reforms, and availability of resources. The authorities are expected to guard against these risks with effective program monitoring and prompt corrective actions.
"The authorities should adhere to their timetable for the completion of a Poverty Reduction Strategy Paper (PRSP), which would be undertaken with active civil society participation and is expected to guide the allocation of public resources in future years. The government will build the political support for the reforms and seek technical and financial assistance from multilateral and bilateral donors. Provided the authorities maintain a good track record of policy implementation, Côte d'Ivoire could reach the decision point under the enhanced HIPC Initiative in September 2002," Ms. Krueger said.
Recent Economic Developments
In the last few years, Côte d'Ivoire's economy deteriorated sharply in the wake of an acute sociopolitical crisis, terms of trade shock, and a lack of policy resolve. Economic activity declined for the second consecutive year in 2001. Real GDP is estimated to have fallen by about 1 percent, reflecting the impact of the recent slowdown in the world economy and the stagnation in manufacturing. Average inflation edged up to 4 ½ percent, owing to rising transportation costs and food prices. But the overall fiscal balance moved into a surplus equivalent to 1.2 percent of GDP and progress has been made in reducing external and domestic payments arrears.
To address the deterioration of the economy, the government adopted in July 2001 a six-month staff-monitored program (SMP) that aimed at regaining control over the public finances, halting the accumulation of domestic and external arrears, normalizing relations with creditors, implementing key structural reforms, and addressing governance issues.
Furthermore, recent political developments augur for a return to a more stable sociopolitical climate in the country. The national reconciliation conference held during October-December 2001 successfully promoted a dialogue among the main political parties by securing the participation of all key political actors.
The medium-term macroeconomic program aims at achieving a real GDP growth of 3 percent in 2002, which would increase to 5 percent in 2004; lowering inflation to about 3 percent; and narrowing the external current account deficit to 1 percent of GDP by 2004. Underlying the growth projections is a significant increase in investment, to 15 percent of GDP over the period, which would require a commensurate rise in domestic savings. This framework is predicated on continued fiscal adjustment combined with improved delivery of health and education services to the poor and the implementation of bold structural reforms.
Fiscal policy will focus on consolidating the government's financial position, notably by eliminating all domestic and external payments arrears, achieving a sustainable revenue-GDP ratio, and improving public expenditure management, with a view to raising the effectiveness of spending on poverty-related and other programs. The authorities' objective is to stabilize the primary budget surplus at about 5 percent of GDP and to balance the overall budget over the medium term, thereby reducing Côte d'Ivoire's dependence on external assistance. To achieve these objectives, the authorities are improving revenue collection, particularly through the strengthening of the tax and customs administrations, and the fight against tax fraud and evasion. Public expenditure is programmed to increase over the medium term to about 18 percent of GDP, reflecting largely the increase in public investment and poverty reduction spending.
On the structural front, reform efforts will focus on key measures of macroeconomic relevance in the areas of privatization, financial sector reform, and cocoa marketing. On privatization, the government will continue its withdrawal from industrial and commercial activities, including the privatization of the oil refinery. In the cocoa sector, a new marketing mechanism will be introduced for the 2002/03 crop season, which will preserve the key principles of the liberalization.
The deterioration of the economy over the past two years has worsened social conditions. To address this issue, the authorities have prepared, in close consultation with civil society and the donor community, an interim PRSP, which sets out the process and timetable for the completion of the final PRSP. In the interim PRSP, the authorities have outlined several initiatives aimed at developing labor-intensive activities in the rural areas and for small and medium-sized enterprises.
Cote d'Ivoire joined the Fund on March 11, 1963, and its quota1 is SDR 325.20 million (about US$406 million). Its outstanding use of Fund's resources totals SDR 363.26 (about US$454 million).
1 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 share in the allocation of SDRs.