Press Release: IMF Reaches Staff-Level Agreement with Côte d'Ivoire on Economic Recovery Program to be Supported Under Rapid Credit Facility
May 31, 2011Press Release No. 11/203
May 31, 2011
A staff team from the International Monetary Fund (IMF) led by Doris Ross has been visiting Abidjan since May 18 to hold discussions on an economic recovery program for Côte d’Ivoire. The mission met with President Alassane Dramane Ouattara, Minister of Economy and Finance Charles Koffi Diby, Minister of Planning and Development Albert Mabri Toikeuse, Minister of Energy and Mines Adama Toungara, Minister of Justice Ahoussou Jeannot, Minister of Civil Service Konan Gnamien, National Director of the Central Bank of West African States (BCEAO) Jean-Baptiste Aman Ayayé, other senior officials, and representatives of the private sector and of the diplomatic community.
At the conclusion of the visit, Ms. Ross made the following statement:
“The Côte d’Ivoire authorities and the IMF team have reached a staff-level agreement on a set of macroeconomic policies for the remainder of 2011 to launch the recovery of the country’s economy. These policies could be supported under the IMF’s Rapid Credit Facility (RCF)1; a possible disbursement of SDR 81.3 million (about US$130 million) is subject to approval by IMF management and the Executive Board, which is expected to consider Côte d’Ivoire’s request for RCF support in July.
“In the period preceding the presidential elections, the medium-term economic program was broadly effective in stabilizing the economy, re-establishing orderly relations with external creditors, and advancing some structural reforms. Dampened by difficulties linked to the pre-election climate, the failure of a major power station, and a decline in petroleum production, the Ivoirien economy grew only by about 2.4 percent in 2010, while average inflation remained under 2 percent and the fiscal deficit was kept close to 2 percent of gross domestic product (GDP).
“Côte d’Ivoire’s economy was hit hard by the post-election events beginning in December 2010: international sanctions, including against the country’s main ports; the virtual closing of the banking system; armed conflict in the West of the country, and the use of heavy weaponry in Abidjan, with a substantial death toll, widespread looting, and displacement of the population. As a result, there was significant material damage to public infrastructure, government offices, production facilities, and private property.
“With the end of open combat, the gradual reopening of the banking system from April 27, and the swearing-in of President Ouattara on May 6, Côte d’Ivoire has embarked on the road to recovery, although security remains a major concern. With the output loss suffered during the crisis and the time needed for reconstruction, the authorities’ projection of a 6.3 percent economic contraction for 2011 may be ambitious. While food prices rose substantially during the crisis, the restoration of transport systems and the reopening of markets have helped these prices to subside, and an inflation target of 3 percent for the year appears achievable.
“The government’s immediate economic policy priority for 2011 is to support the economy’s recovery. To achieve this, budget policy for the rest of the year will need to strike a balance between tax relief to support private sector activity and launch the recovery, and the need to fund government operations. The government has reduced some taxes and, for now, aims to keep electricity and oil product prices stable through sizeable subsidies and tax expenditures. Together with the impact of weaker economic activity, budget revenues between the second and fourth quarters of 2011 are expected to amount to about 17½ percent of GDP during that period, compared with 19½ percent of GDP in 2010, notwithstanding strong cocoa and oil revenue.
“Expenditure pressures during 2011 are intense due to the need to restart the public administration, ensure economic recovery including the rehabilitation of infrastructure, and for poverty reduction. The authorities plan a rise in expenditures from 22 percent of GDP in 2010 to 26½ percent of period GDP in the 2011 budget, including the clearance of salary arrears from March. Lower revenue and higher expenditures will result in a substantial rise in the budget deficit to 8½ percent of GDP for 2011. Budget support from bilateral and multilateral donors should be sufficient to cover most of the deficit. It is unlikely, however, to be sufficient to cover the substantial external debt service obligations due to official bilateral and private creditors this year.
“A robust banking system could make an important contribution to financing the economic recovery. However, it has sustained significant losses both to facilities and to loan portfolios, reflecting the difficult economic situation faced by its clients, particularly small and medium-sized enterprises in Abidjan. Banks and the authorities are working to establish a clearer understanding of the situation as quickly as possible, and should take appropriate measures as needed.
“The new government is also working to address a range of medium-term challenges faced by Côte d’Ivoire. These include improvements in revenue administration, civil service reform, the energy sector—on which a broad-based seminar is planned for early June—the coffee/cocoa sector, and an update of implementation priorities of the poverty reduction strategy for 2011. Once progress has been made in establishing short- to medium-term reform priorities and plans, the IMF team stands ready to return to Abidjan for discussions on a three-year economic program that could be supported under the IMF’s Extended Credit Facility.
“The IMF team thanks the authorities for their warm welcome and for the constructive discussions.”
1 The RCF provides rapid concessional financial assistance to low-income countries facing an urgent balance of payments need. It can provide flexible support in a wide variety of circumstances, including shocks, natural disasters, and emergencies resulting from fragility. Fund support under the RCF is provided as an outright disbursement without explicit program-based conditionality or reviews. Financing under the RCF carries a zero interest rate, has a grace period of 5½ years, and a final maturity of 10 years.