## 1. Public Private Partnership: Opportunities and Risks ## Source details **Canonical URL:** [1. 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authorities estimate 10.3 percent. - Inflation: 1.2 percent in 2015. - External current account deficit: widened slightly in 2015 as higher investment-related imports more than offset improved terms of trade and exports. - Total revenue collection: exceeded expectations in 2015 due to strong fuel and cocoa tax revenues and higher one-off receipts from sales of telecommunications licenses. - Overall fiscal deficit: limited to 3 percent of GDP in 2015 (2.3 percent of GDP in 2014) versus a target of 3.7 percent of GDP. - Basic primary deficit: slightly below its target in 2015. - Total central government debt: rose to 49 percent of GDP at end-2015 from 46½ percent of GDP at end-2014, largely because of a rise in external debt of 2.3 percent of GDP. - Public enterprise debt: rose to about 3.7 percent of GDP in 2015 from 3 percent of GDP at end-2014; non-CFAF denominated debt broadly stable at 1.4 percent of GDP. - Public enterprise debt (including on-lent loans): amounted to 1 percent of GDP at end-2015, a slight fall from a year earlier; almost all other public enterprise debt is owed to domestic banks; arrears on public enterprise debt were lower at end-2015 than a year earlier. ### Credit growth and banking sector soundness - Credit to the economy: increased by 29.7 percent in 2015; since December 2010 credit has more than doubled, outpacing GDP growth while inflation remained low. - Drivers of rapid credit rise: favorable global conditions, improved domestic business environment, accommodative monetary policy, lowering of prudential transformation ratio, and excess liquidity. - Credit composition (October 2015): - Commerce and services: 33.2 percent share; contribution to credit growth 22.6 - Industry: 24.9 percent share; contribution 24.9 - Insurance, real estate: 10.1 percent share; contribution 24.3 - Transportation and communication: 9.8 percent share; contribution 7.2 - Agriculture: 5.3 percent share; contribution 8.2 - Household: 3.1 percent share; contribution 5.0 - Other: 13.5 percent share; contribution 7.8 - Memorandum items: Private companies 90.0 share / 86.5 contribution; Public companies 10.0 / 13.5; Short term 59.5 / 52.0; Medium term 36.9 / 42.7; Long term 3.6 / 5.3 - Credit concentrated in corporate sector, especially large SMEs in services and manufacturing; credit to public companies estimated to represent about 15 percent of new credit in 2015. - Household/consumer credit and mortgage lending: remain low owing to the absence of long-term funding. - Banking sector soundness indicators deteriorated in 2015: - Average bank capital adequacy ratio: fell to 8.3 percent at end-2015 (WAEMU norm: 8 percent). - Three banks (out of 26) representing 4 percent of system assets do not observe the minimum CAR. - Non-performing loans (NPLs) to total loans: 10.6 percent in 2015. - Credit exposure risk concentrated among large corporate borrowers, which account for about a third of banks’ assets and three times their capital. - One public bank: significant negative equity. - July 2015: minimum capital requirement doubled to CFAF 10 billion to be met by June 2017; 10 banks (12 percent of banks’ assets) have yet to meet the new requirement, including 6 that did not meet it previously. - Financial stability indicators (selected, 2015): - Regulatory capital to weighted assets: 8.2 (December 2015) - Core capital to risk weighted assets: 7.0 (December 2015) - Non-performing loans to total loans: 10.6 (December 2015) - For WAEMU banks: regulatory capital to weighted assets 11.2 (June 2015); non-performing loans to total loans 5.3 (June 2015) - For public banks: regulatory capital to weighted assets -5.2 (June 2015); non-performing loans to total loans 31.2 (June 2015) ### Medium-term outlook and NDP assessment - NDP targets: average real GDP growth of almost 9 percent per year over 2016–20. - Under the NDP: - Growth drivers: strong investment in transport and power generation, financed in large part through PPPs, and a strong private sector response. - Inflation: would remain below the WAEMU norm of 3 percent. - Fiscal deficit: would increase to about 4 percent of GDP before declining toward the regional norm of 3 percent of GDP. - Current external account deficit: would widen to 3.6 percent of GDP on average, financed largely by FDI and external borrowing. - Staff baseline scenario (policies in place and announced): - Real GDP growth: about 7.6 percent per year on average during 2016–20. - Inflation: around 2 percent assuming normal rainfall and favorable global food and fuel prices. - Overall fiscal deficit: expected to increase to 3.8 percent of GDP on average over 2016–20 from 3 percent in 2015. - Central government public debt: would decline to about 45 percent of GDP in 2020 (from 49 percent of GDP in 2015). - External current account deficit: likely to widen to about 2.9 percent of GDP on average; financed by an expected rise in FDI inflows. - Major projects during 2016–20: extension of port of Abidjan, Abidjan Metrorail, renovation of Abidjan-Ouagadougou railway. - Staff view: NDP scenario considered overly optimistic given structural bottlenecks—infrastructure gaps, weaknesses in structural competitiveness, constraints on paying taxes and obtaining credit, high cost/delays in international transportation and import procedures, weak human capital and skills mismatch. ### Downside and alternative scenario - External downside risks: - Tighter and more volatile global financial conditions raising funding costs. - Domestic capital market narrowness and weak bank equity limiting financing. - Sluggish global environment hurting exports, prices, and FDI. - Domestic downside risks: - Near-term fiscal risks from CNCE (savings bank) and SIR (national oil refinery). - Need to settle extra-budgetary spending from previous decade. - Contingent liabilities from large recourse to PPPs and weak profitability of state-owned enterprises. - A credit downturn could raise NPLs and limit bank lending. - Threat of renewed terrorist attacks affecting FDI and growth. - Alternative macro implications if risks materialize: - Growth: about 1 percentage point of GDP lower on average per year over 2016–20 than baseline. - Overall fiscal deficit: would average 5½ percent of GDP compared to 3.8 percent in baseline. - Total central government debt: would peak at about 50 percent of GDP, or 3 percentage points of GDP higher than baseline. - External current account balance: improve slightly, averaging 2.4 percent of GDP compared to 2.9 percent in baseline. - Staff assumes about 2 percent of GDP needed during 2016–19 to (i) settle past extra-budgetary liabilities (claims equivalent to about 1 percent of GDP validated by the audit on pre-2011 extra-budgetary liabilities, and public procurement contracts for about 1 percent of GDP could be subject to payments); (ii) restructure CNCE (after taking account of amount set aside in 2016 budget); and (iii) contribute to restructuring of SIR (cumulative losses over 2012–15 amount to CFAF 182.1 billion or about 0.9 percent of GDP). ### Preserving fiscal sustainability — staff recommendations - Fiscal strategy: - Gradually reduce overall fiscal deficit to 3 percent by 2019 to allow infrastructure investment while leaving space to address fiscal risks and be consistent with WAEMU convergence criteria and safeguard BCEAO reserve coverage. - Achieve mainly through higher revenue mobilization (an additional 1 percentage point of GDP by 2020 via rationalizing tax exemptions, broadening tax base, improving tax administration) and somewhat lower spending growth. - New borrowing and debt management: - Pace new borrowing, particularly non-concessional external debt, considering vulnerabilities highlighted in DSA, including public enterprise contingent liabilities. - Avoid adding to bunching of maturities in mid-2020s and minimize rollover and foreign exchange risks, especially from bullet sovereign bonds. - Deepen and diversify domestic and regional creditor base. - Authorities noted successful launch of a Sukuk bond in 2015 and intention to issue another in 2016. - Strengthen domestic debt management: - Convert non-marketable securitized debt into tradable government securities. - Implement treasury single account and active public liquidity management. - Reduce unfunded liabilities through restructuring state-owned enterprises and strengthen their management. - Strengthen public financial management (PFM): - Improve fiscal reporting by integrating budget and treasury IT systems. - Further limit recourse to exceptional expenditure procedures. - Enhance monitoring of broader public sector via centralized database for public enterprises; attach comprehensive financial analysis to budget documentation. - Complete reorganization of Debt Directorate into front, middle, and back offices; strengthen role of National Debt Policy Committee. - Strengthen public investment management institutions and set up framework for comprehensive fiscal risk analysis of PPP projects. - Authorities: concurred with need to enhance PFM, emphasized progress on centralized public enterprises database, adoption of medium-term debt management strategy, reduction of exceptional spending procedures, and requested technical assistance on PPP fiscal risk assessments. ### Public-Private Partnerships (PPP) — portfolio, opportunities, risks, and priorities - Current PPP portfolio: 114 projects for approximately CFAF 14,000 billion (about 75 percent of 2015 GDP), mostly in transportation (e.g., Abidjan metro-rail), energy, animal and fishing, and tourism sectors. - PPP opportunities: facilitate risk sharing between public and private sectors to meet infrastructure needs under financing constraints. - PPP risks: - Contracts may include explicit guarantees (state guarantees) and implicit guarantees (government assumes project continuation on private failure), creating potentially significant fiscal costs if risks materialize. - Example: implicit guarantee triggered on the third bridge due to insufficient traffic relative to contract assumptions resulted in CFAF 12 billion in 2015 (0.07 percent of GDP). - Transparency progress: website of the PPP national committee provides relevant information. - Medium-term priorities: - Strengthen legal and institutional frameworks to plan, review, approve, and monitor PPP projects. - Assess and monitor fiscal risks associated with PPP projects individually and collectively. ### Banking sector vulnerabilities, public banks, and recommended actions - Credit–GDP cycles: data 1976–2015 show strong relation with a lag of three to four years—credit growth tends to follow and amplify economic cycle. - Corporates increasingly leveraged vis-à-vis local banks; tightening credit in downturn would raise NPLs and constrain growth. - Banks doubled holdings of other WAEMU governments’ securities to 38 percent of their securities portfolio in 2015. - Government securities in WAEMU region carry a zero-risk weight. - Public bank actions and risks: - Timely restructuring of public banks is important to strengthen solvency and minimize budgetary costs. - Authorities sold public minority share in two public banks, liquidated one public bank, slated two others for privatization, decided to maintain two remaining public banks to support public policies. - Staff noted restructuring cost assumptions for the ailing saving bank: total cost estimated at 0.5 percent of GDP; authorities plan to inject 0.2 percent of GDP and assume recovery of bad loans and asset sales will cover remainder; authorities recognize bank would need government subsidies through 2017 with assumed full profitability thereafter. - Staff urged realistic assessment of budgetary cost of recapitalization and modernization. - For the second public bank to remain operating, staff recommended early repayment of non-marketable sovereign debt via issuance of marketable debt. - Capital buffers and supervision: - BCEAO decision to increase banks’ minimum capital requirements is welcomed; staff recommends enforcement of supervisory decisions. - Banks unable to meet minimum requirements should be merged or liquidated, requiring public authority intervention. - Fund WAEMU surveillance calls for transposition of Basel II and III norms into regulatory framework to allow countercyclical capital buffers; fiscal consolidation and gradual reduction by BCEAO of refinancing operations. ### Financial inclusion — status, constraints, and reform measures - Financial inclusion is weak; contributes to gender and geographical inequality. - Specifics: - Agriculture accounts for less than 6 percent of total loans. - Sectoral breakdown of loans, 2015: Retail, transportation and other services: 56.5%; Agriculture: 5.3%; Mining: 3.2%; Industrial, energy, and construction: 35.0%. - Proportion of adults with an account is lower than in frontier markets; strong gender and regional disparities. - Largest microfinance institution insolvent; other modern sound micro-finance institutions provide services to lower-income consumers. - Measures to improve inclusion: - Expand services via mobile networks and retail agents. - Modernize regulatory framework; strengthen supervision and consumer protection. - Improve transparency of digital financial service fees and conditions. - Restructure CNCE and micro-finance institutions. - Operationalize the credit bureau. - Government strategy supported by World Bank. ### Data and technical assistance priorities - Data provision broadly adequate for surveillance but national accounts weaknesses persist. - Staff recommends finalization of 2014 national accounts, preparation of end-2015 quarterly accounts, publication of quarterly national accounts and monthly/quarterly fiscal data. - External sector: improve coverage of services, transfers, and private non-bank sector flows; IMF Statistics Department plans a three-year regional project to help capacity for related data. - BCEAO assessment (2013) recommendations implemented, including appointment of an international audit firm for FY15–17 audits and adoption of IFRS starting with FY2015. ### Staff appraisal: consolidated policy recommendations - Recent performance: economic activity expanded by 9 percent a year on average over last 4 years; real per capita income increased by more than 20 percent. - Medium-term prospects: favorable conditional on policy and structural reforms supporting private sector development. - Key policy actions and targets: - Reduce fiscal deficit to 3 percent by 2019 via measured spending increases and revenue mobilization (streamlining tax exemptions). - Strengthen PFM: manage contingent liabilities (esp. PPP fiscal risks), reduce exceptional spending procedures, implement treasury single account, integrate budget and treasury IT systems. - Prudent debt policy: avoid bunching of maturities in mid-2020s; diversify financing (including Sukuk-type bonds); develop secondary market; reorganize debt department; strengthen National Debt Policy Committee. - Scale up public investment aligned with implementation capacity; clear past off-budget liabilities; restructure loss-making public entities. - Build bank capital buffers; enforce Banking Commission decisions including minimum capital requirement; resolve troubled public banks and fully reflect fiscal cost in budget. - Modernize regulatory framework to leverage ICT for financial inclusion; restructure ailing micro-financial institutions. - Upgrade production and dissemination of quality economic data; leverage IMF and partner capacity building. _International Monetary Fund — Côte d’Ivoire: Selected chapter content (1. Public Private Partnership: Opportunities and Risks) from _cr16147_._ ### 1. Public Private Partnership: Opportunities and Risks __________________________________________ 19 ### 1. Public Private Partnership: Opportunities and Risks ### Context and recent performance - Over the past 4 years, Côte d’Ivoire’s economic performance has been impressive compared with the preceding 10 years of conflict and stagnation: Real GDP grew by 9 percent per year on average during 2012–15, driven by investment and consumption. - Political normalization, supportive fiscal policy (enabled by HIPC and MDRI debt relief), and business climate reforms facilitated the pickup in activity. - Poverty rate fell to about 46 percent in 2015 from over 51 percent in 2011, but significant disparities in education attainment, employment and income persist; the 2015 Human Development Report ranked Côte d’Ivoire at 172 out of 188 countries. - Authorities adopted a new 2016–20 National Development Plan (NDP) aimed at halving poverty and fostering structural transformation; authorities expressed interest in a new Fund arrangement to support NDP objectives. - Assessment of prior PRGF/ECF arrangements: they were instrumental in reducing macroeconomic imbalances and normalizing external relations, with lessons for future engagement including the need to enlarge fiscal monitoring to public entities, account for macro-criticality and capacity in setting conditionality, and improve economic data quality. ### Recent macroeconomic developments (2015) - Real GDP growth in 2015 is estimated at 8.6 percent (staff estimate); authorities estimate real GDP growth at 10.3 percent. - Inflation remained subdued at 1.2 percent in 2015. - External current account deficit widened slightly in 2015 as higher investment-related imports more than offset improved terms of trade and exports. - Total revenue collection exceeded expectations in 2015 due to strong fuel and cocoa tax revenues and higher one-off receipts from sales of telecommunications licenses; overall fiscal deficit limited to 3 percent of GDP in 2015 (2.3 percent of GDP in 2014) versus a target of 3.7 percent of GDP. - Basic primary deficit was slightly below its target in 2015. - Total central government debt rose to 49 percent of GDP at end-2015 from 46½ percent of GDP at end-2014, largely because of a rise in external debt of 2.3 percent of GDP. - Public enterprise debt rose to about 3.7 percent of GDP in 2015 from 3 percent of GDP at end-2014, primarily because of a rise in CFAF-denominated debt; non-CFAF denominated debt was broadly stable at 1.4 percent of GDP. - Public enterprise debt (including on-lent loans) amounted to 1 percent of GDP at end-2015, a slight fall from a year earlier; almost all other public enterprise debt is owed to domestic banks; arrears on public enterprise debt were lower at end-2015 than a year earlier. ### Credit growth and banking sector soundness - Credit to the economy increased by 29.7 percent in 2015; since December 2010 credit has more than doubled, outpacing GDP growth while inflation remained low. - Drivers of the rapid rise in credit: favorable global conditions, an improved domestic business environment, accommodative monetary policy, lowering of the prudential transformation ratio, and excess liquidity. - Credit composition (October 2015): - Commerce and services: 33.2 percent share of total credit; contribution to credit growth 22.6. - Industry: 24.9 percent share; contribution 24.9. - Insurance, real estate: 10.1 percent share; contribution 24.3. - Transportation and communication: 9.8 percent share; contribution 7.2. - Agriculture: 5.3 percent share; contribution 8.2. - Household: 3.1 percent share; contribution 5.0. - Other: 13.5 percent share; contribution 7.8. - Memorandum items: Private companies 90.0 share / 86.5 contribution; Public companies 10.0 / 13.5; Short term 59.5 / 52.0; Medium term 36.9 / 42.7; Long term 3.6 / 5.3. - Credit is concentrated in the corporate sector, especially large SMEs in services and manufacturing; credit to public companies is estimated to represent about 15 percent of new credit in 2015, including borrowing by public energy companies (SIR and Petroci). - Household/consumer credit remains low and mortgage lending remains low owing to the absence of long-term funding. - Banking sector soundness indicators deteriorated in 2015: - Average bank capital adequacy ratio fell to 8.3 percent at end-2015 (WAEMU norm: 8 percent). - Three banks (out of 26) representing 4 percent of system assets do not observe the minimum CAR. - At 10.6 percent in 2015, banks’ non-performing loans (NPLs) to total loans remain high. - Credit exposure risk concentrated among large corporate borrowers (public enterprises, large private companies in agro-business, telecom and commerce), which account for about a third of banks’ assets and three times their capital. - One public bank has significant negative equity. - In July 2015, the minimum capital requirement was doubled to CFAF 10 billion to be met by June 2017; 10 banks (12 percent of banks’ assets) have yet to meet the new requirement, including 6 that did not meet it previously. - Financial stability indicators (selected, 2015): - Regulatory capital to weighted assets: 8.2 (December 2015). - Core capital to risk weighted assets: 7.0 (December 2015). - Non-performing loans to total loans: 10.6 (December 2015). - For WAEMU banks: regulatory capital to weighted assets 11.2 (June 2015); non-performing loans to total loans 5.3 (June 2015). - For public banks: regulatory capital to weighted assets -5.2 (June 2015); non-performing loans to total loans 31.2 (June 2015). ### Medium-term outlook and risks (NDP and staff assessment) - NDP targets an average real GDP growth of almost 9 percent per year over 2016–20. - Under the NDP: - Growth is anticipated to benefit from strong investment, especially in transport and power generation, financed in large part through public private partnerships (PPPs), and a strong private sector response. - Inflation would remain below the WAEMU norm of 3 percent. - Fiscal deficit would increase to about 4 percent of GDP before declining toward the regional norm of 3 percent of GDP. - Current external account deficit would widen to 3.6 percent of GDP on average, financed largely by foreign direct investment and external borrowing. - Staff view: while sharing the authorities’ view on strong growth prospects, staff considered the NDP scenario to be overly optimistic given prevailing structural bottlenecks, noting: - Significant infrastructure gaps remain despite increased investment over the past four years. - No significant sign of real exchange rate misalignment, but weaknesses in structural competitiveness persist (Annex IV). - Côte d’Ivoire lags on ease of paying taxes and obtaining credit despite improvements in global competitiveness and Doing Business rankings. - International trade hampered by high cost or delays in international transportation and burdensome import procedures. - Human capital indicators are weaker than comparator countries and employers cite lack of adequately skilled labor. - Staff argued these bottlenecks would take time to tackle. *International Monetary Fund—Côte d’Ivoire: Selected chapter content (1. Public Private Partnership: Opportunities and Risks).* ### 14. The authorities are upbeat about the prospects of achieving the NDP’s high growth ### 14. The authorities are upbeat about the prospects of achieving the NDP’s high growth ### Authorities' assessment and plans - Authorities view efforts to improve the business environment as supportive of NDP implementation and expect infrastructure gaps to be closed speedily. - They cite knowhow from implementing the 2012–15 NDP and ongoing programs (universal access to schooling, health care and electricity; programs envisaged for professional training) as easing bottlenecks. - Plan to double domestic energy generation capacity over the next few years to 4000 megawatts, seen as critical for domestic electricity penetration, economic expansion, and electricity exports for regional development. - Authorities note Côte d’Ivoire is increasingly seen as a good prospect for investors in sub-Saharan Africa. - Given satisfactory program implementation over the past four years and improvements in macroeconomic aggregates and investor perception, authorities are convinced they can raise envisaged financing for the NDP. ### Staff baseline scenario (policies in place and announced) - Real GDP would grow by about 7.6 percent per year on average during 2016–20 on the back of continued infrastructure efforts (transport and energy), higher investment in agro-business (cocoa, cashew processing and rice) and housing, and strong private consumption. - Inflation would remain around 2 percent assuming normal rainfall and favorable global food and fuel prices. - Overall fiscal deficit is expected to increase to 3.8 percent of GDP on average over 2016–20 from 3 percent in 2015, as the projected revenue increase (0.6 percentage points of GDP over five years reflecting improved efficiency in revenue administration) will be insufficient to offset higher spending (1.2 percentage points of GDP over 2016-20) arising from public investment and security outlays, as well as higher interest payments. - Central government public debt would decline to about 45 percent of GDP in 2020 (from 49 percent of GDP in 2015), reflecting strong projected GDP growth. - External current account deficit is likely to widen to about 2.9 percent of GDP on average, driven by strong domestic demand; an expected rise in FDI inflows would help finance this deficit. - Three major projects set to be completed or begin during 2016-20: the extension of the port of Abidjan, the Abidjan Metrorail, and the renovation of Abidjan-Ouagadougou railway. ### Downside risks (summary) - External risks: - Tighter and more volatile global financial conditions could hinder financing of public and private investments by raising funding costs. - Domestic capital market narrowness and weakness of banks’ equity capital could limit filling financing gaps. - Sluggish global economic environment, particularly in emerging markets, risks export demand, prices, and supply of funds and FDI. - Domestic risks: - Near-term fiscal risks from two financially troubled public entities: the savings bank (CNCE), slated for restructuring, and the national oil refinery (SIR). - Need to settle extra-budgetary spending from the previous decade. - Medium-term risks from contingent liabilities tied to projected large recourse to PPPs and weak profitability of state-owned enterprises. - A downturn in the credit cycle could raise NPLs and limit banks’ ability to provide credit given low capital buffers. - Threat of renewed terrorist attacks in the region could adversely affect FDI and growth. ### Alternative scenario (macroeconomic implications if risks materialize) - Growth would be about 1 percentage point of GDP lower on average per year over 2016–20 than in the baseline, mainly from weaker private sector investment. - Overall fiscal deficit would average 5½ percent of GDP compared to 3.8 percent of GDP in the baseline due to lower revenue, increased interest payments, public entity restructuring outlays and settlement of past extra-budgetary liabilities. - Total central government debt would peak at about 50 percent of GDP, or 3 percentage points of GDP higher than under the baseline. - External current account balance would improve slightly, averaging 2.4 percent of GDP compared to 2.9 percent in the baseline. - Staff assumes an amount equivalent to about 2 percent of GDP would be needed during 2016–19 to: (i) settle past extra-budgetary liabilities (claims equivalent to about 1 percent of GDP validated by the audit on pre-2011 extra-budgetary liabilities, and public procurement contracts for about 1 percent of GDP could be subject to payments); (ii) restructure CNCE (after taking account of the amount already set aside in the 2016 budget); and (iii) contribute to the restructuring of SIR (cumulative losses over 2012–15 amount to CFAF 182.1 billion or about 0.9 percent of GDP). ### Structural transformation and growth (policy discussion) - Staff considers the NDP strategy broadly appropriate: emphasis on infrastructure, business climate, investment in human capital, and financial sector reforms to improve financial inclusion and access to credit. - Staff warned that the envisaged large increase in public investment may not be consistent with implementation capacity, could crowd out private sector activity, and faces a difficult financing environment. - Growth drivers during 2012–15: primarily capital accumulation and productivity gains; staff estimates more than half of GDP growth in 2012–15 is explained by the growth-accounting residual (catch-up in pent-up demand, higher capacity utilization, productivity improvements). - Sustaining high growth as catch-up effects taper will require further supply-side structural reforms to improve productivity. - Authorities highlight reforms under PNIA, universal schooling program, professional training, health care expansion, land reform, and ongoing efforts to tackle infrastructure bottlenecks and mobilize financing. ### Preserving fiscal sustainability (policy recommendations and authorities' views) - Staff advocated a medium-term fiscal strategy focused on building buffers: - Gradually reduce the overall fiscal deficit to 3 percent by 2019 to allow infrastructure investment while leaving space to address fiscal risks and to be consistent with WAEMU convergence criteria and safeguard BCEAO reserve coverage. - Achieve this mainly through higher revenue mobilization (an additional 1 percentage point of GDP by 2020 via rationalizing tax exemptions, broadening the tax base, and improving tax administration) and somewhat lower spending growth. - Such a path aligns with government implementation capacity, regional market financing capacity, and helps avoid private sector crowding out. - Authorities favored a higher fiscal deficit, arguing it would preserve fiscal space to cope with risks and support growth given high growth prospects; they acknowledged the need to enhance revenue mobilization and requested additional Fund technical assistance. - Staff advice on new borrowing and debt management: - Pace of new borrowing, particularly non-concessional external debt, should consider increased vulnerabilities in the most recent DSA, including public enterprise contingent liabilities. - New borrowing should aim to (i) avoid adding to bunching of maturities in the mid-2020s from existing sovereign bonds and large project loans, and (ii) minimize rollover and foreign exchange risks, especially from bullet sovereign bonds. - Deepen and diversify the domestic and regional creditor base given risk of tighter and more volatile conditions. - Authorities noted successful launch of a Sukuk bond in 2015 attracting foreign investors and intention to issue another such bond in 2016. - Strengthen domestic debt management: - Convert non-marketable securitized debt into tradable government securities to improve cash flows, yield and liquidity and develop the domestic bond market. - Implement the treasury single account and active public liquidity management to reduce excess liquidity and develop the interbank market. - Reduce unfunded liabilities through restructuring of state-owned enterprises, including banks, and strengthen their management to improve banking asset quality and increase funding for private investment. - Strengthen public financial management; staff advised authorities to: - Improve fiscal reporting by strengthening integration of the budget and treasury IT systems. - Further limit recourse to exceptional expenditure procedures. - Enhance monitoring of the broader public sector via the centralized database for public enterprises, attaching comprehensive financial analysis of these enterprises to budget documentation. - Complete reorganization of the Debt Directorate into front, middle, and back offices, and strengthen the role of the National Debt Policy Committee. - Strengthen public investment management institutions and set up a framework for comprehensive fiscal risk analysis of PPP projects. - Authorities concurred with the need to enhance public finance management, emphasized progress on the centralized public enterprises database, adoption of a medium-term debt management strategy, significant reduction of exceptional spending procedures, and prioritized integration of budget and accounting IT systems and strengthening cash management; they requested technical assistance on PPP fiscal risk assessments. ### Public-Private Partnerships: opportunities and risks (Box 1 summary) - Current PPP portfolio: 114 projects for approximately CFAF 14,000 billion (about 75 percent of 2015 GDP), mostly in transportation (e.g., the metro-rail of Abidjan), energy, animal and fishing, and tourism sectors. - PPP opportunities: allow risk sharing between public and private sectors for infrastructure needs under financing constraints. - PPP risks: - Contracts can include explicit guarantees (state guarantees) and implicit guarantees (government assumes project continuation on private failure) leading to potentially significant fiscal costs if risks materialize. - Example: an implicit guarantee triggered on the third bridge due to insufficient traffic relative to contract assumptions resulted in CFAF 12 billion in 2015 (0.07 percent of GDP). - Transparency progress: website of the PPP national committee provides relevant information. - Medium-term priorities: strengthen legal and institutional frameworks to plan, review, approve, and monitor PPP projects; assess and monitor fiscal risks associated with PPP projects individually and collectively. *Source: IMF staff report chapter content provided in the supplied PDF excerpt.* ### 27. The credit and GDP cycles have moved in ### The credit and GDP cycles have moved in tandem ### Credit–GDP cycle dynamics and macro-financial linkages - Data from 1976 to 2015 show a strong relation between the GDP and credit cycles with a lag of three to four years, indicating that credit growth tends to follow and amplify the economic cycle. - A shock-induced downturn in economic growth in Côte d’Ivoire would lower banks’ risk appetite, leading to credit contraction and possible increase in NPLs, thus exacerbating the economic downturn. - The financial sector could amplify external and fiscal shocks (terms-of-trade shocks, loss in access to international capital markets, tightening of regional monetary conditions) by lowering bank funding and private sector financing, and via increased government reliance on domestic financing or reduced capital spending. ### Banking sector vulnerabilities and exposures - Corporates have become increasingly leveraged vis-à-vis local banks; a tightening in credit conditions in a weaker economic outlook would lower corporate profits and contribute to increased NPLs, constraining credit and growth. - The currently thin capital buffers would be insufficient to sustain the continuation of credit growth at the current pace. - In 2015, banks (mainly smaller regional ones) doubled their holdings of other WAEMU governments’ securities to 38 percent of their securities portfolio, reflecting less issuance by Côte d’Ivoire in the regional market and greater recourse to external financing. - Yields on Ivoirien government securities were slightly lower than that of other sovereigns in the region. - Government securities in the WAEMU region carry a zero-risk weight. ### Risks from public bank weaknesses and recommended actions - Timely restructuring of public banks is important to strengthen banking sector solvency and minimize budgetary costs. - One public bank’s precarious financial condition and past unsuccessful management-improvement attempts justify its resolution, in line with the recommendation of the joint World Bank/IMF mission. - Authorities sold the public minority share in two public banks, liquidated one public bank, slated two other public banks for privatization, but decided to maintain two remaining public banks to support public policies in specific sectors. - Staff noted that assumptions underlying the restructuring of the ailing public saving bank appeared optimistic: - The total cost of restructuring this bank is estimated at 0.5 percent of GDP. - The authorities plan to inject budget resources equivalent to 0.2 percent of GDP, and assume that the recovery of bad loans and sale of assets would be sufficient to cover the remaining cost. - Under this option, the authorities recognize that the bank would need government subsidies through 2017, when it is assumed to become fully profitable. - Staff urged a realistic assessment of the budgetary cost of the bank’s recapitalization and modernization costs. - For the second public bank to be kept operating, staff recommended early repayment of the stock of non-marketable sovereign debt held by this bank based on issuance in the market of marketable debt. ### Capital buffers, supervision, and regional regulatory agenda - Staff welcomes the BCEAO’s decision to increase banks’ minimum capital requirements and recommends that the authorities support the enforcement of supervisory decisions. - Banks unable to meet minimum capital requirements will need to be merged or liquidated, requiring public authority intervention. - Authorities concurred with the need to reinforce capital buffers and committed to support the regional banking supervision commission by enforcing its decisions. - Fund WAEMU surveillance calls for: - Acceleration of the transposition of Basel II and III norms into the regulatory framework to provide supervisors scope to require countercyclical capital buffers. - Fiscal consolidation and a gradual reduction by the BCEAO of its refinancing operations to minimize exposure to sovereign risks. ### Financial inclusion: status, constraints, and reform measures - Financial inclusion is weak and impedes growth potential while contributing to gender and geographical inequality. - Specific findings: - Access to credit by SMEs and the agricultural sector is limited; the agricultural sector accounts for less than 6 percent of total loans. - The bulk of credit goes to commerce and services; sectoral breakdown of loans, 2015: - Retail, transportation and other services: 56.5% - Agriculture: 5.3% - Mining: 3.2% - Industrial, energy, and construction: 35.0% - The proportion of adults with an account in a financial institution is lower in Côte d’Ivoire than in frontier markets and shows strong gender and regional disparities. - The largest microfinance institution is insolvent, impairing access to financial services by the poor; other modern and sound micro-financial institutions do provide services to lower-income consumers. - Measures and priorities to improve financial inclusion: - Expand financial services availability through mobile networks and retail agents. - Modernize the regulatory framework while strengthening resources for supervision and consumer protection. - Improve transparency of fees and conditions of digital financial services to facilitate use and lower costs. - Restructuring of the CNCE and improvement of its management. - Entry into operation of the credit bureau. - Restructure micro-finance institutions. - The government’s strategy to improve financial inclusion is being supported by the World Bank. ### Data, technical assistance, and statistical improvements - Data provision is broadly adequate for surveillance but shortcomings remain. - Authorities provide required statistical indicators generally on a timely basis; weaknesses persist in national accounts statistics. - Fund technical assistance (TA) has supported improvement in national accounts, public finance management, revenue mobilization, debt management, and public bank restructuring; TA recommendations were implemented satisfactorily. - Staff recommends timely finalization of the 2014 national accounts, preparation of end-2015 quarterly accounts, and publication of quarterly national accounts data and monthly and quarterly fiscal data. - In the external sector, efforts are needed to improve coverage of services, transfers, and stocks and flows of the private non-bank sector; the IMF’s Statistics Department plans a three-year regional project later this year to help countries improve capacity to produce and disseminate related data. - The 2013 assessment of the WAEMU regional central bank, BCEAO, found a continuing strong control environment; all recommendations from the assessment have been implemented, including: - Strengthening external audit arrangements by appointment of an international firm with ISA experience for the audits of FY15–17. - Reinforcing the capacity of the audit committee with external expertise. - Adoption of IFRS starting with the financial year 2015. ### Staff appraisal: macro outlook and policy recommendations - Recent performance: - Over the last 4 years, economic activity expanded by 9 percent a year on average, translating into an increase in real per capita income of more than 20 percent. - Medium-term prospects are favorable conditional on policy and structural reforms supporting private sector development. - Key policy recommendations and targets: - Reduce the fiscal deficit to 3 percent by 2019 to preserve space for countercyclical policy, contain rapid debt buildup from contingent liabilities, and avoid abrupt spending cuts amid tighter global financial conditions. - Use a combination of a more measured increase in spending and further revenue mobilization through streamlining tax exemptions to achieve the fiscal objective. - Strengthen PFM by improving management of contingent liabilities, especially PPP-related fiscal risks; reduce recourse to exceptional spending procedures; implement a treasury single account; integrate budget and treasury IT systems. - Pursue a prudent debt policy and strengthen debt management: avoid bunching of maturities in the mid-2020s and sharp short-term increases in debt service; diversify financing including through Sukuk-type bonds and develop the secondary market; complete reorganization of the debt department into front-, middle-, and back-offices; strengthen the National Debt Policy Committee. - Scale up public investment less ambitiously and aligned with implementation capacity to reduce government funding pressures on the banking sector; clear past off-budget liabilities and restructure loss-making public entities. - Build bank capital buffers given increased exposure to local corporations and regional sovereigns; enforce Banking Commission decisions including minimum capital requirement; act forcefully to resolve troubled public banks and fully reflect fiscal cost in the budget. - Modernize the regulatory framework to leverage new information and communications technologies for financial inclusion and step up efforts to restructure ailing micro-financial institutions. - Upgrade production and dissemination of quality economic data; leverage IMF and development partner capacity building; staff welcomes additional resources in the 2016 budget for national accounts. *IMF staff report: Côte d’Ivoire — Credit and GDP cycles; financial sector assessment; staff appraisal.* ### 45. The next Article IV consultation is expected to take place on a 12-month cycle. ### _cr16147 - 45. The next Article IV consultation is expected to take place on a 12-month cycle. ### Next consultation cycle - The next Article IV consultation is expected to take place on a 12-month cycle. ### Poverty: headline findings (2015 survey) - Poverty rate in 2015: 46.3 percent (from 48.9 percent in 2008). - Rural poverty in 2015: 56.8 percent (from 62.5 percent in 2008). - Urban poverty in 2015: 35.9 percent (from 29.5 percent in 2008). - Poverty is geographically concentrated in the north; Abidjan has the lowest poverty rate. - Poverty by age: 51.4 percent of Ivoirians younger than 25 years are classified as poor; poverty rates in other age groups vary from 35 to 39 percent. - Gender and employment: - Employment rate for women: 38.6 percent. - Employment rate for men: 61.4 percent. - Women represent 59.5 percent of employees in commerce. - Informal sector: - Informal sector accounts for about 92 percent of all jobs. - Poverty rate in informal sector: 37.3 percent. - Poverty rate in formal sector: 15.6 percent. - Unemployment: - Overall unemployment rate: 6.9 percent. - Rural unemployment: 3 percent. - Unemployment among ages 14–35: 9.6 percent (compared to 3.2 percent for those over 36 years old). ### Determinants and correlates of poverty (survey analysis) - Households more likely to be poor tend to be: - Unemployed. - From large households. - Employed in the agricultural sector. - Characterized by weak educational background. - Probit analysis findings: poverty more widespread in households that are headed by females, own under-developed lots, and live outside Abidjan. ### Perceptions from household interviews (survey of 12,900 households, Jan–Mar 2015) - 51 percent of respondents indicated they did not perceive that poverty reduction was a priority. - 78 percent believed that the new administration will lower poverty. - 88 percent believed that corruption was a major source of poverty. ### Survey methodology note (from annex) - The 2015 poverty survey (Enquête sur le niveau de vie des ménages en Côte d’Ivoire) surveyed 12,900 Ivorian households from January to March 2015. - The report defines poverty along relative lines. The 2015 relative poverty line is set at CFA 269,075 per year (adjusted from the 1985 relative poverty line of CFA 75,000 per year). - Previous poverty surveys were conducted in 1985, 1993, 1995, 1998, 2002, and 2008. ### Selected development and social indicators (from tables and MDG table highlights) - Population (million) projections: 22.0; 22.5; 23.1; 23.7; 24.3; 25.0; 25.6; 26.3; 27.0 (listed in table as a sequence across years). - Nominal GDP (CFAF billions) memorandum items include: 13,677; 15,446; 16,796; 18,495; 20,432; 22,505; 24,671; 26,992; 29,470. - Nominal GDP per capita (US$) listed: 1,221; 1,388; 1,472; 1,320; 1,422; 1,538; 1,646; 1,763; 1,888. - Real GDP per capita growth (percent) listed: 7.5; 6.7; 5.3; 6.0; 5.9; 5.5; 5.0; 4.5; 4.3. - Millennium Development Goals indicators (selected rows from Table 5): - Improved sanitation facilities (% of population with access): 15; 16; 18; 19; 22; 23 (years shown in table). - Improved water source (% of population with access): 76; 77; 78; 79; 82; 82. - Internet users (per 100 people) series includes: 0.0; 0.0; 0.0; 0.2; 1.0; 14.6. - Mobile cellular subscriptions (per 100 people) series includes: 0.0; 0.0; 0.0; 2.9; 13.5; 106.2. - Fertility rate, total (births per woman) series includes: 6.6; 6.2; 5.9; 5.5; 5.0. ### Key fiscal and external context (selected high-level figures) - Current account balance (including official transfers) series (percent of GDP): -1.2; -2.0; -0.8; -1.7; -1.8; -2.6; -3.3; -3.4; -3.4. - Gross public debt (central government only, percent of GDP series): 45.0; 43.4; 46.6; 49.1; 45.9; 45.2; 45.6; 45.2; 44.9. - Gross imputed official reserves (end of year, CFAF billions) series: 1,297; 1,300; 1,559; 1,791; 1,906; 2,229; 2,708; 3,017; 3,223. - Overall balance (including grants, percent of GDP) series from fiscal tables: -3.2; -2.2; -2.2; -3.0; -4.0; -3.9; -3.8; -3.7; -3.6. _Italic: Sources: Ivoirien authorities; IMF staff estimates and projections; 2015 poverty survey (Enquête sur le niveau de vie des ménages en Côte d’Ivoire)._ ### Annex II. ### Annex II. ### Fiscal sector — Ensure fiscal sustainability over the medium term and increase the fiscal space for infrastructure and social spending - 1.1. Strengthen revenue mobilization through VAT and revenue administration reforms - Significant progress in revenue administration: the large taxpayer office has been reorganized, a medium-size taxpayer office has been set up. - Several measures taken to reinforce customs control and audits (use of scanners based on risk analysis, etc.). - A VAT reform strategy is being implemented, leading to improvements in VAT management. - Widespread VAT exemptions remain. - 1.2. Put the wage bill on a sustainable path - A medium-term strategy to control the wage bill has been adopted with the objective of bringing the wage bill to tax revenue to 35 percent by 2020 (WAEMU convergence criterion) from 46 percent in 2014. - 1.3. Proceed with caution as regards the creation of a universal health insurance system - The government is proceeding with caution by limiting the number of beneficiaries and the risks covered, and the aim is for the scheme to be self-funding. - 1.4. Strengthen public financial management - Progress has been made, but challenges remain, in particular on the use of exceptional spending procedures and cash management. - 1.5. Reform the electricity sector to make the latter financially sustainable - Significant measures have been taken, including tariff increases, to improve the financial situation of the electricity sector. - As a result, the sector is expected to start making profit from 2016 onward. ### Financial sector — Reduce financial sector vulnerabilities and foster financial deepening - 2.1. Strengthen the soundness of the banking sector through public banks restructuring - Progress has been mixed. - The government has liquidated BFA and sold its minority stake in SIB and NSIA. - Vulnerabilities remain for the other four public banks. - Authorities are still finalizing restructuring options. - 2.2. Deepen financial intermediation by adopting and implementing a financial sector development strategy - The government adopted in January 2014 a financial sector development strategy. - Implementation has encountered significant delays. ### External sector — Maintain external stability - 3.1. Adopt a medium-term debt strategy to better guide financing decisions and ensure prudent borrowing - A medium-term debt strategy 2013–17 was adopted, and an updated 2015–19 strategy is being finalized. - 3.2. Obtain a sovereign rating before tapping into international market - Côte d’Ivoire obtained three debut sovereign ratings before issuing a Eurobond into the international market in 2014. - In late 2015, two of the three ratings were upgraded. - 3.3. Address structural competitiveness issues by improving the business climate - The business climate is improving as shown by international measures, including the World Bank’s Doing Business index. ### Governance — Reduce non-competitive public procurement - 4. Reduce the amount of public procurement granted on non-competitive basis - The amount of public procurement granted on non-competitive basis has decreased. *International Monetary Fund — Annex II: Status of the 2013 Article IV Main Recommendations* ### 16. Adopt, in the Council of Ministers, a 2012 draft budget with a 2012–14 ### _cr16147 - 16. Adopt, in the Council of Ministers, a 2012 draft budget with a 2012–14 public investment program (PIP) consistent with program objectives. ### Public expenditure management — Actions and deliverables - Adopt, in the Council of Ministers, a 2012 draft budget with a 2012–14 public investment program (PIP) consistent with program objectives. (Item 16) - Complete the census of government officials and employees (excluding defense and security forces). (Item 17) - Update and implement a medium-term strategy for controlling the wage bill. (Item 18) - Create a national public debt management committee and prepare an organization chart and procedures manual. (Item 19) - Prepare the global MTEF for application to the 2014 budget. (Item 28) - Prepare consolidated commitment and procurement plans for 2014. (Item 35) - Review the expenditure chain and the end-of-year budgetary procedures, with IMF technical assistance. (Item 39) - Prepare and adopt a plan for the settlement of VAT credits outstanding at end-2011. (Item 65) - Limit VAT credits pending refund to under CFAF 10 billion, starting in 2012 (continuous SB). (Item 66) ### Public sector reform — Governance, payroll, debt, and accounts - Put in place an integrated management system (single file, SIGFAE) for government officials and employees (excluding defense and security forces). (Item 26) - Include an alert module in the debt management system to automatically generate reminders as regard the receipts of notices for debt repayments. (Item 25) - Reorganize the debt management framework, including a functional structure (front-, middle-, and back-office). (Item 33) - Adopt the medium-term debt management strategy in the Council of Ministers. (Item 30) - Adoption by the Minister of Finance of the strategy for putting in place a Treasury single account, choice of the implementation model and adoption of a time-bound action plan. (Item 38) - Identify the bank accounts of all public entities held in commercial banks and at the Central Bank, and determine their balances. (Item 37) - Adopt an instruction limiting the use of provisional payment orders that will: (i) create a committee in charge of authorizing provisional payment orders; (ii) lay down procedures for reducing recourse to provisional payment orders by end-December 2013; and (iii) forbid provisional payment orders by end-December 2014. (Item 34) - Adopt detailed timetable for closing public accounts at commercial banks. (Item 41) - Pay subsidies to support the electricity sector (HVO [Heavy Vacuum Oil]) in the amount of CFAF 40 billion. (Item 40) ### Public enterprises, social contributions, and arrears - Adopt reform plans for the CNPS and the CGRAE in the Council of Ministers and submit to Parliament. (Item 20) - Validate the amount of unpaid social contributions owed to the CNPS and the CGRAE by the public enterprises and entities concerned and draw up a plan to settle the amounts owed. (Item 21) - Adopt a strategy for restructuring public enterprises, including the public banks in the Council of Ministers. (Item 27) - Adopt an action plan including a timeline for restructuring the public banks based on the recommendations of the audits. (Item 53) - Adopt in the Council of Ministers a time-bound action plan for restructuring the public banks based on the recommendations of the audits. (Item 54) - Restructure a state-owned bank. (Item 55) - Restructure a public bank. (Item 57) - Prepare a plan to pay arrears based on the results of the audits in progress. (Item 71) - Adopt in the Council of Ministers a plan to pay arrears based on the results of the audits in progress. (Item 73) - Implement plan to settle the full range of domestic arrears on audited debt, securitized and agreed debt. (Item 74) - Clear the full range of domestic arrears on audited debt from 2010 and earlier years. (Item 75) - Regularize domestic arrears on securitized and contractual debt (“dette conventionnée”). (Item 76) - Pay subsidies and adopt protocols clarifying responsibilities for HVO payment, and pay in cash the securitized debt held by SIR and PETROCI. (Items 42, 43) - Issue a call for tender for selection of an audit company to complete a strategic audit aiming to restructure SIR. (Item 44) - Finalize arrears settlement plan vis-à-vis the SIR. (Item 49) - Adopt a plan to pay the arrears vis-à-vis banks, insurance companies and financial institutions, with priority given to market financial instruments. (Item 70) ### Legal and regulatory reforms (public finance) - Finalize and adopt by the Council of Ministers draft texts transposing two WAEMU directives (finance laws and transparency code) on public finance. (Item 29) - Finalize and adopt by the Council of Ministers draft regulations transposing the remaining four WAEMU directives on public finance. (Item 36) - Adopt a draft law aimed at developing leasing. (Item 56) - Adopt a new investment code in the Council of Ministers. (Item 68) - Adopt the law on competition in the Council of Ministers. (Item 69) ### Financial sector reform — Public banks and debt management constraints - No new injection of public funds in the five public banks in difficulty outside a restructuring plan discussed with the IMF and the World Bank (continuous SB). (Item 22) - Take steps to stabilize the financial position of the public banks. (Item 23) - Prepare a progress report on the measures taken to stabilize the financial position of the public banks. (Item 24) - Adopt an action plan including a timeline for restructuring the public banks based on the recommendations of the audits; adopt in the Council of Ministers a time-bound action plan for restructuring the public banks based on the recommendations of the audits. (Items 53–54) - Prepare a financial sector reform and development strategy. (Item 52) - Prepare the legal framework of the Business Support Center (Centre de Facilité des Entreprises). (Item 67) ### Energy sector reform — Tariffs, codes, and financial equilibrium - Adopt a comprehensive strategy to bring the electricity sector back to financial equilibrium over the next three years. (Item 45) - Implement the social tariffs rationalization program, including progress reports at end-September 2012 and end-January 2013, in line with the end-March 2012 letter of instruction (dated March 28, 2012) from the Minister of Mines, Petroleum, and Energy. (Items 46, 63) - Adopt the electricity code in the Council of Ministers and submit it to Parliament. (Items 47–48, 51, 64) - Complete the study on electricity rates and adopt a strategy to achieve financial equilibrium in the sector over the next three years. (Items 58, 61) - Validate and implement a new electricity tariff structure based on the conclusions of the tariff structure study, taking into account the rationalization of modified rates. (Items 59, 62) - Gradually raise rates, beginning with a 5% average increase of the low voltage rate in july 2013, while protecting the low-income social categories. (Item 50) - Increase industrial electricity rates by 10 percent. (Item 60) ### PPP and procurement frameworks - Adopt by the Council of Ministers a PPP framework. (Item 31) - Prepare consolidated commitment and procurement plans for 2014. (Item 35) ### Cocoa sector reform - Reach an agreement as regard the price structure for the various stakeholders. (Item 77) --- ### External stability assessment — Key findings and projections - Since 2012, the external current account deficit has averaged 1.4 percent of GDP. (Annex IV, para 1) - Staff projects the current account deficit would deteriorate gradually to 3.5 percent of GDP by 2020. (Annex IV, para 2) - Projection drivers over 2016–20: imports would increase by 12.9 percent over 2016–20, while exports growth would average 11.9 percent due to a rebound of crude oil production and policies to support sustained growth in cocoa and other export goods. External borrowing and FDI would finance the current account deficit. (Annex IV, para 2) - Côte d’Ivoire’s real effective exchange rate (REER) has depreciated by about 3 percent since 2013. (Annex IV, para 3) - Current-account-based EBA-lite result: the current account approach suggests that the real exchange rate is undervalued by 5.7 percent in 2015. A model-based analysis indicates a norm of -5.1 percent for the cyclically-adjusted current account deficit; assuming an elasticity of the current account balance with respect to the real exchange rate of -0.60, the exchange rate adjustment necessary to eliminate the gap is estimated at -5.7 percent. (Annex IV, para 4 and Figure 4 / Table 1) - REER approach: indicates the real exchange rate is undervalued by 6 percent in 2015. (Annex IV, para 4) - Overall staff assessment: although the estimates show a slight undervaluation, staff is of the view that the real exchange rate is broadly in line with fundamentals given margins of error. (Annex IV, para 4) ### Business environment and governance — Progress and gaps - Doing Business ranking: moved from the 177th position in the 2014 Report (covering 189 countries) to 142th position in the 2016 report. The 2014 and 2015 reports also ranked Côte d’Ivoire among the 10 best reformers. (Annex IV, para 5) - GCI and trade: Côte d’Ivoire has gained 40 positions in the Global Competitiveness Index (GCI) since the 2012–13 report; advanced nine positions between 2013 and 2014 in the World Economic Forum’s Enabling Trade index. (Annex IV, para 5) - Governance scores: Côte d’Ivoire scores 48.3 (out of 100) in overall governance according to the Mo Ibrahim Index of African Governance (IIAG), below the African average (50.1) and the regional average for West Africa (52.4). (Annex IV, para 5) - Noted remaining weaknesses: ease of paying taxes, obtaining credit, high cost or delays from international transportation, burdensome import procedures, and other trade facilitation issues. (Annex IV, para 5 and Figures) ### Risk Assessment Matrix — Selected risks and recommended policy responses - Tighter or more volatile global financial conditions - Relative likelihood: Medium - Impact if realized: Medium/High (could hinder availability of financing for the 2016–20 NDP on international markets and increase funding costs) - Recommended policy response: Strengthen regional bond markets, and build fiscal buffers through greater revenue mobilization and more cautious public investment plan. - Surge in the US dollar - Relative likelihood: High - Impact if realized: Low (a surge in US dollar would increase debt service on outstanding external loans and raise rollover risks) - Recommended policy response: (Not explicitly restated beyond matrix) - Sharper-than-expected global growth slowdown - Sub-risks and likelihoods: - Significant China slowdown: Low/Medium — Impact: High (could reduce investment projects financed by China) - Significant slowdown in other large EMs/frontier economies: Medium — Impact: Medium/High (would adversely affect growth through exports) - Structurally weak growth in key advanced and emerging economies: High/Medium — Impact: Medium/High (would adversely impact growth through less FDI inflows) - Recommended policy response: Strengthen the business climate to diversify investor base and export markets; preserve fiscal space for countercyclical policy; strengthen the resilience of the banking sector by building up countercyclical capital buffers. *Source: IMF staff monitoring of Fund Arrangements (MONA) and Annexes from the IMF document _cr16147 — Structural Reforms under the 2011–15 Program._* ### Annex V. Risk Assessment Matrix (RAM) ### Annex V. Risk Assessment Matrix (RAM) ### Key risks, relative likelihood, and impact if realized - Persistently lower energy prices - Relative Likelihood: High - Impact if Realized: Low. Low impact on the BOP as Côte d’Ivoire’s oil trade account is very limited. - Recommended Policy Response: - Continue to implement the automatic fuel pricing formula designed to transmit international oil prices fluctuations while ensuring a minimum level of fuel tax revenues. - Adverse weather conditions - Relative Likelihood: High/Medium - Impact if Realized: High. This would adversely affect growth (less agricultural output), the BOP (less exports), the fiscal position (less cocoa taxes and increased subsidy to the electricity sector), and the population’s living standards. - Recommended Policy Response: - Relax moderately the fiscal position to mitigate the impact on poor (well targeted spending). - Pay close attention to the second-round effects on inflation. - Protracted financial difficulties of the national energy companies and the public banks - Relative Likelihood: High - Impact if Realized: Low/Medium. This would have an adverse effect on the budget, energy supply and the banking sector. - Recommended Policy Response: - Restructure these public companies to put them on solid financial and technical footing; identify alternative suppliers to ensure energy security; and strengthen the resilience of the banking sector. ### Risk assessment methodology and definitions - The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path (the scenario most likely to materialize in the view of IMF staff). - The relative likelihood of risks listed is the staff’s subjective assessment of the risks surrounding the baseline (“low” is meant to indicate a probability below 10 percent, “medium” a probability between 10 and 30 percent, and “high” a probability between 30 and 50 percent). - The RAM reflects staff views on the source of risks and overall level of concern as of the time of discussions with the authorities. - Non-mutually exclusive risks may interact and materialize jointly. *CÔTE D’IVOIRE — Annex V. Risk Assessment Matrix (RAM), IMF staff summary* ### 4. On statistics, the overall objective is to continue strengthening the national accounts ### _cr16147 - 4. On statistics, the overall objective is to continue strengthening the national accounts ### Objective - Continue strengthening the national accounts preparation following the July 2015 mission that identified the main weaknesses. ### Technical assistance (TA) priorities - Strengthening the compilation and dissemination of annual national accounts statistics through the finalization of the 2014 national accounts and rebasing of the annual national accounts (implementing the 2008 SNA). - Preparation of quarterly national accounts, with support from AFRITAC West. - Supporting adoption of the e-GDDS (which will make Côte d’Ivoire one of the ten countries in sub-Saharan Africa to implement this Fund initiative). - Compiling and disseminating government finance statistics in line with WAEMU requirements (based on the 2001 GFSM Manual). *Source: IMF Staff Report informational annex excerpt.* ### 21.6 The project will contribute to improving food security and ### _cr16147 - 21.6 The project will contribute to improving food security and ### Project objectives and targeted outcomes - The project will contribute to improving food security and reducing poverty in rural areas. - Specific aims: - Increase, on a sustainable basis, the production and productivity of major crops. - Improve marketing conditions. ### Youth Employability and Insertion Support Programme - Amount: 18,8 - Objective: Support the most promising employment and vocational training with a view to creating direct jobs for women and youths. - Aim: Assist in changing the profile of future labour through reforms (gradual shift to steer the educational system to respond to economic demand and act on rapidly growing labour flows). ### Social Inclusion and Cohesion Enhancement Support Programme (budget support) - Amount: 30 - Approved: June 2014 - Main objectives: - Support Côte d’Ivoire in restoring social cohesion and improving social inclusion to address social and psychological damage caused by past conflict. - Nip conflicts in the bud to guarantee greater political stability and more equitable economic growth. - Main expected outputs: - (i) Socio-economic reintegration of ex-combatants. - (ii) Support for the resolution of inter-community conflicts and care of victims. ### Strengthening systems to protect economies against health shocks (regional operation) - Amount: 6 - Approved: October 2014 - Purpose: - Respond to the emergency created by the Ebola epidemic. - Address longer term requisites for economic resilience and prevention of similar public health shocks. ### Côte d’Ivoire, Liberia, Sierra Leone and Guinea (CLSG) Interconnection Project – Multinational - Amount: 33,00 - Purpose: Support the energy sector in a regional operation aimed at interconnecting power grids of Côte d’Ivoire with other Mano River Union member countries (Liberia, Sierra Leone and Guinea). ### Road Development and Transport Facilitation Programme within the Mano River Union (MRU) - Amount: 97 - Date: December 2014 - Objective: Boost post-conflict economic recovery of the MRU area by improving road infrastructure and promoting intra-community trade. - Specific aims: - Improve transport conditions to reduce transport costs. - Facilitate free movement of persons and goods between Côte d’Ivoire, Guinea and Liberia. - Improve living conditions of programme area communities. ### Fight back Programme against EBOLA - Amount: 10 - Objective: End the Ebola epidemic and strengthen foundations for effective control of unusual public health events; pave the way for sustainable improvement of systems and capacities for post crisis resilience. ### Support to Industrial Competitiveness Enhancement Project (PARCSI) - Amount: 10 - Objectives: - Support restructuring and modernization of businesses by conducting a strategic assessment to identify needs and provide technical assistance to 50 firms that have signed up for the programme (out of a total of 270 businesses approached). - Support industrial development of the fruit and vegetables sector to promote investment and increase the industrial processing rate (which stood at 2% in 2014). ### Regional African Trade Insurance Agency (ATI) Country Membership Programme (RACMP) - Amount: 10 - Objective: Strengthen capacity of Côte d’Ivoire with necessary financial resources for membership subscription into the ATI to allow greater underwritten insurance cover for private sector and socio-economic development. - Expected outcomes: - (i) Increased participation of the private sector in large scale projects through ATI facilitation. - (ii) Increased trade flows in Africa. - (iii) ATI attracts additional members. ### Private sector projects - Project construction of bridge toll Henri Konan BEDIE - Amount: 50 - Structure: Public private partnership (PPP) based on a Build Operate Transfer (BOT) concession of 30 years. - Description: Building of a toll bridge over the Ebrié Lagoon linking the South and North shores of Abidjan. - Azito power expansion project - Amount: 26 - Description: Converting existing simple-cycle power plant of 2 x 144 MW gas-fired turbines to a combined-cycle power plant, increasing capacity to approximately 430 MW. - Ciprel power expansion project - Amount: 44 - Description: Expansion to a combined cycle turbine facility in two phases: phase A construction of a gas turbine (111MW), phase B deployment of a combined cycle turbine for additional 111MW; project will increase capacity by 222MW. - Microcredit Côte d’Ivoire (equity participation and technical assistance) - Amount: 1.5 - Notes: Equity participation part signed on June 2013; technical assistance part to be signed on November 2013. - Sucres & Denrées (SUCDEN) soft commodity programm - Amount: EUR 100 million - Description: Provision of two successive Soft Commodity Facilities, second effective only after full repayment of the first for a maximum exposure of EUR 100 million within a tenor not exceeding 2 years. Support SUCDEN’s participation in cocoa value chain financing; funds used for pre-export financing to local suppliers. ### Strategy for Re-engagement by AfDB in Côte d’Ivoire - Timeframe: Period 2011–12; full Country Strategy Paper approved beginning of December 2013. - Two pillars: - (i) Strengthening Governance and Accountability. - (ii) Infrastructure Development in support of Economic Recovery. - Pillar objectives: - Pillar 1: Foster socio-economic inclusion and address demands for improved governance and basic service delivery. - Pillar 2: Promote optimal use of natural resources through high quality infrastructure development in agriculture, transport and energy to bolster economic recovery. ### Indicative Work Program for 2015 and 2016 (Amount in UA million) - Côte d’Ivoire-Mali regional road Project (under preparation): 73 — Year 2015 - Agro-industrial Infrastructure Support Project in the Centre Region: 30 — Year 2016 - Abidjan Urban roadway development Project: 140 — Year 2016 - Road project Odiénné -Mali Border: 80 — Year 2016 - Road projet Tieningboue-Mankono: 45 — Year 2016 - San Pedro Regional Port Extension Project (private sector): 50 — Year 2016 ### Statistical issues (As of May 2016) - General assessment: - Data provision is broadly adequate for surveillance, with shortcomings in national accounts, balance of payments, public finance statistics, and reconciliation of fiscal and monetary data. - Authorities provide required statistical indicators to the Fund on a timely basis. - February 2013: Côte d’Ivoire ratified the African Statistics Chart adopted by the African Union in February 2009. - July 2013: New law organizing national statistics approved. - National Accounts: - Comprehensive national accounts data for 1996 onwards compiled in line with the 1993 System of National Accounts, using 1996 as the base year. - STA conducted a diagnostic mission in July 2015; authorities have started implementing recommendations, especially regarding NIS human and financial resources. - NIS strategy to implement the 2008 SNA, change base year, address weaknesses, and implement July 2015 recommendations. - Final annual accounts for 2013 and provisional accounts for 2014 are available. - Quarterly national accounts are being compiled with Fund support through AFRITAC WEST and will be disseminated shortly. - Price Statistics: - A harmonized consumer price index (CPI) adopted by all WAEMU members; current base year 2008 adopted in 2010. - New CPI (base 2014) covering the whole country will soon be available. - Labor market statistics: - No such statistics are published regularly. - Government Finance Statistics: - Authorities provide annual data on budgetary central government for publication in the Government Finance Statistics Yearbook. - No monthly or quarterly fiscal data provided for publication, though made available to IMF African Department; metadata is lacking. - Authorities committed to addressing weaknesses in coverage of general government units and public enterprises and improving fiscal-monetary reconciliation. - Authorities seeking AFRITAC WEST assistance to implement 2009 WAEMU TOFE directive based on GFSM 2001. - Report on financial operations executed by the government over the crisis period (January–April 2011) is still not available. - Monetary and Financial Statistics: - Côte d’Ivoire does not report monetary data using Standardized Report Forms (SRFs); data prepared by national agency of the BCEAO and reported to STA monthly with timeliness of about two months after reference period. - Shortcomings common to WAEMU member countries and systemic issues in bank and nonbank financing of central government and public sector operations. - Financial Soundness Indicators (FSIs): - Côte d’Ivoire does not report FSIs to the IMF. - External Sector Statistics: - National agency of the BCEAO in Abidjan compiles and disseminates annual balance of payments statistics and international investment position; BOP and IIP data reported to STA in BPM6 format. - Merchandise trade monitored satisfactorily by customs computer system; coverage of services and transfers has shortcomings. - Financial accounts: foreign assets of private nonbanking sector not adequately covered; reporting of private capital flows, especially FDI, is weak; insufficient information on private debt stocks and debt service flows. - IMF Statistics Department to embark on a three-year project funded by the Japan Administered Account (JSA) starting in May 2016 to improve external sector statistics for 17 French speaking countries in West and Central Africa, benefitting WAEMU member states. ### Table of Common Indicators Required for Surveillance (As of May 2016) - Exchange Rates: Date of Latest Observation — Current; Date Received — Current; Frequency of Data — M; Frequency of Reporting — M; Frequency of Publication — M - International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Date of Latest Observation — 02/16; Date Received — 04/16; Frequency of Data — M; Frequency of Reporting — M; Frequency of Publication — M - Reserve/Base Money: Date of Latest Observation — 02/16; Date Received — 04/16; Frequency of Data — M; Frequency of Reporting — M; Frequency of Publication — M - Broad Money: Date of Latest Observation — 02/16; Date Received — 04/16; Frequency of Data — M; Frequency of Reporting — M; Frequency of Publication — M - Central Bank Balance Sheet: Date of Latest Observation — 02/16; Date Received — 04/16; Frequency of Data — M; Frequency of Reporting — M; Frequency of Publication — M - Consolidated Balance Sheet of the Banking System: Date of Latest Observation — 02/16; Date Received — 04/16; Frequency of Data — M; Frequency of Reporting — M; Frequency of Publication — M - Interest Rates: Date of Latest Observation — 02/16; Date Received — 04/16; Frequency of Data — I; Frequency of Reporting — M; Frequency of Publication — M - Consumer Price Index: Date of Latest Observation — 03/16; Date Received — 04/16; Frequency of Data — M; Frequency of Reporting — M; Frequency of Publication — M - Revenue, Expenditure, Balance and Composition of Financing – General Government: Date of Latest Observation — 02/16; Date Received — 04/16; Frequency of Data — M; Frequency of Reporting — M; Frequency of Publication — M - Stocks of Central Government and Central Government-Guaranteed Debt: Date of Latest Observation — 02/16; Date Received — 04/16; Frequency of Data — M; Frequency of Reporting — M; Frequency of Publication — M - External Current Account Balance: Date of Latest Observation — 12/13; Date Received — 04/16; Frequency of Data — M; Frequency of Reporting — M; Frequency of Publication — M - Exports and Imports of Goods and Services: Date of Latest Observation — 02/16; Date Received — 04/16; Frequency of Data — M; Frequency of Reporting — M; Frequency of Publication — M - GDP/GNP: Date of Latest Observation — 2014; Date Received — 04/16; Frequency of Data — A; Frequency of Reporting — A; Frequency of Publication — A - Gross External Debt: Date of Latest Observation — 02/16; Date Received — 4/16; Frequency of Data — M; Frequency of Reporting — M; Frequency of Publication — M ### Statement highlights by Executive Director for Côte d’Ivoire (May 25, 2016) - Authorities thank the Board, Management and staff for continued support and constructive dialogue, including Mr. Furusawa’s visit and staff’s Article IV mission in late February–early March. - Authorities share most staff’s policy and reform recommendations but are more optimistic about reaching emerging market status by 2020 under Plan National de Développement 2016–20 (NDP). - Recognize recent macroeconomic reforms: creation of fiscal space for infrastructure and poverty-reducing spending; significant reduction in non-bidding procurements; adoption and implementation of a medium-term debt management strategy; trimming recourse to exceptional spending procedures; reforms to improve business climate. - Economic outcomes cited: - Real GDP growth estimated at 8.6 percent in 2015 due to strong investment in electricity, transport, commerce and housing; private consumption also contributed significantly to growth. - Strong domestic food production helped contain inflation. *Source: _cr16147 - 21.6 The project will contribute to improving food security and (PDF chapter/section).* ### 1.2 percent while higher investment-related imports have widened somewhat the external ### II. OVERARCHING GOAL: ECONOMIC EMERGENCE BY 2020 ### Macroeconomic performance and external sector - Real activity continued to expand, with higher investment-related imports widening somewhat the external current account deficit. - Per capita real GDP: PPP-adjusted 2011 US$ 3,108. ### Fiscal developments and public debt - Revenue collection outperformed expectations due to: - greater one-off receipts from telecommunication licenses, - strong cocoa and fuel tax revenues. - Overall fiscal deficit contained at 3 percent of GDP (against a 3.7-percent target). - Basic primary deficit: 0.4 percent of GDP. - Total central government debt rose to 49 percent at end-2015 (from 46.5 percent at end-2014). - Non-CFA denominated debt: 1.4 percent of GDP (described as broadly stable at an already low level). - External borrowing aimed at financing public investments. - Sound public debt management pursued, notably with lower arrears on public enterprises’ debt. - Authorities committed to monitoring public debt management, including the database on public enterprises’ debt. ### Financial sector developments and vulnerabilities - Credit growth has been broad-based across economic sectors. - Authorities and staff share concerns on: - concentration of credit on large SMEs in the services and manufacturing sectors, - persistently low household and mortgage lending, - concentration of credit exposure on large corporate borrowers (public enterprises and large private companies). - Banks’ capital buffers need enhancement. - Authorities intend to address vulnerabilities in coordination with the WAEMU banking commission. ### National Development Plan (NDP) 2016–20: objectives and financing - NDP strategic pillars: - (i) enhancing the quality of institutions and governance; - (ii) stepping-up the development of human capital and promoting social well-being; - (iii) speeding up structural transformation and industrialization; - (iv) strengthening the infrastructure base while preserving the environment. - Total cost of investments planned: around $60 billion over 2016–20. - Share to be financed by the private sector: 62 percent. - NDP targets average real GDP growth of around 9 percent per year over 2016–20. - Plan includes doubling domestic energy generation capacity to 4,000 megawatts over the next few years. - Emphasis on productivity gains, capital accumulation, stable sociopolitical environment, infrastructure investments, support to agricultural sector, and financial inclusion. - Authorities recognize need for structural transformation and departure from commodity exports. ### Structural transformation and institutional improvements - Emphasis on investing in human capital to improve labor force quality. - Plans to upgrade export mix through local manufacturing transformation, notably in the agricultural sector, while alleviating cross-border restrictions. - Agenda to lower income inequality via enhanced financial inclusion and investments in labor-intensive agricultural sectors with efforts to raise productivity. - Progress in governance evidenced by: - World Bank “Doing Business Index”: Côte d’Ivoire ranks among the 10 best reformers in 2014 and 2015; - Global Competitiveness Index: 40 positions gained since 2012; - Economic Forum’s enabling Trade Index: 9-position gain between 2013 and 2014; - Mo Ibrahim Index of African Governance: largest improvements in overall governance on the continent over the last four years. - Authorities will continue improving ease of paying taxes, obtaining credit, contract dispute resolution, cost of international transportation and import procedures, and perception of corruption. - Macroeconomic stability considered a prerequisite for structural transformation. ### Medium-term policy and reform agenda: risks and strategy - Authorities agree with staff on favorable medium-term outlook but note differing views on impact of critical investments and reform implementation. - Major risks (including tail risks) are principally exogenous: adverse weather conditions and sharp deceleration of growth in advanced and emerging market economies. - Authorities pursue efforts to strengthen the business climate to diversify investor base and export markets. - Stand ready to adopt countercyclical fiscal policy as needed, including mitigating impact on the most vulnerable populations. - Acknowledge need to build buffers in public and financial sectors. - Challenges identified: fiscal policy, public finance management, stability of the banking sector, financial inclusion, and capacity constraints. ### Maintaining fiscal sustainability: actions and priorities - Authorities cognizant of fiscal risks from implicit liabilities; requested technical assistance on PPP fiscal risk assessments. - Authorities believe envisaged larger fiscal deficit would preserve fiscal space while maintaining fiscal sustainability given growth orientation of investments. - Continue to enhance domestic revenue mobilization, with Fund technical assistance as requested. - Favorable credit ratings to help access financing in regional and global capital markets. - Commitments to further enhance public finance management (PFM): - further reduction of exceptional spending procedures, - integrating budget and accounting IT systems, - strengthening cash management. - Debt management priorities: - manage debt service bunching, rollover and foreign exchange risks, - diversify creditor bases, - implement treasury single account, - restructure public banks, - reform the national oil company to contain fiscal liabilities and domestic debt. ### Banking sector stability and financial inclusion: reforms and measures - Authorities note challenges: rapid credit growth, strong GDP-credit cycle relation, small banks’ exposure to corporations, banks’ exposure to WAEMU sovereigns. - Authorities agree with staff recommendation to reinforce banks’ capital buffers and will support the banking commission by enforcing its decisions. - Will implement Fund’s WAEMU surveillance recommendations towards Basel II and III transposition into the regulatory framework. - Actions on banking institutions under stress: - liquidated one public bank, - sold the public minority share in two public banks, - programmed privatization of two other public banks, - efforts to maintain and restructure public banks critical to specific sectors (including the troubled saving bank to foster financial inclusion). - Financial sector development strategy (FSDS) supported by the World Bank focuses on financial inclusion. - Authorities welcome staff recommendations to improve access to financing, advance digital financial services, and modernize the regulatory framework. - Planned measures: - restructure the CNCE, - operationalize the credit bureau, - restructure micro-finance institutions to improve access of lower-income consumers to financial services. - Regional central bank BCEAO initiative to bolster financial inclusion will complement national efforts. ### Capacity constraints and technical assistance - Authorities highly appreciate Fund technical assistance (TA) and will continue implementing TA recommendations. - Look forward to assistance on national accounts, tax and customs administration, PFM, and adoption of the e-GDDS. ### Conclusion - Côte d’Ivoire aims to reach emerging market status over the next five years, building on strong policy and reform track record and commitment to transformation. - Authorities continue to count on Fund support; Fund support under a program arrangement over the period ahead will be helpful in a challenging global environment. *Source: IMF staff report content provided in the supplied PDF excerpt.* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr16147.pdf_