Côte d’Ivoire: Second Review Under the Three-Year Arrangement Under the Extended Credit Facility, Request for Modification of Performance Criteria, and Financing Assurances Review—Staff Report; Staff Supplements; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Côte d’Ivoire.
Author:
International Monetary Fund. African Dept.
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Publication Date:
12 Dec 2012
eISBN:
9781475552638
Language:
English
Keywords:
ISCR; CR; government; Extended Credit Facility arrangement; real GDP; GDP; authorities investment financing needs; financing gap; crisis-exit expenditure; government support; net use; Debt relief; Current spending
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In recent years, the IMF has released a growing number of reports and other documents covering economic and financial developments and trends in member countries. Each report, prepared by a staff team after discussions with government officials, is published at the option of the member country.

Abstract

In recent years, the IMF has released a growing number of reports and other documents covering economic and financial developments and trends in member countries. Each report, prepared by a staff team after discussions with government officials, is published at the option of the member country.

I. Socio-Political Context

1. The socio-political situation has improved but remains fragile. Following the inaugural session of the Parliament in March 2012, all the keys institutions of the Republic are now operational. However, since the end of the post-election crisis in April 2011, progress toward national reconciliation has been limited. Given that income per capita has deteriorated over the last decade, the population expects tangible and quick improvements in living conditions.

MEFP ¶1

2. The security situation has deteriorated somewhat. Since August, a series of attacks against army barracks, police stations, checkpoints, and more recently a power plant, have taken place. In response, the authorities tightened security measures and created a National Security Council, which is chaired by the President. The restructuring of the new army is underway.

II. Recent Economic Developments and Outlook

3. Economic activity through August 2012 has been robust, and prospects for the year are more favorable than previously projected (Table 1). To date, the broad-based rebound in economic activity, following a marked decline in 2011, has been stronger than projected, leading to an upward revision of growth projections to 8.6 percent (8.1 percent initially programmed). Inflation was moderate through August and is expected to remain below 2 percent for 2012.

Table 1.

Côte d’Ivoire: Selected Economic Indicators, 2010–17

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

Based on end-of-period changes in relative consumer prices and the nominal effective exchange rate.

2011 ratios based on Q2-Q4 fiscal aggregates over Q2-Q4 of GDP.

Defined as total revenue minus total expenditure, excluding all interest and foreign-financed investment expenditure.

This is the poverty rate in 2008.

MEFP ¶5

4. The economic rebound is resulting in a surge in imports (Table 2). Imports through August 2012 are 30 percent above their 2010 level,1 and 50 percent above for capital and intermediate goods. Coupled with lower cocoa and oil exports, the import surge is expected to lead to a current account deficit for the year, the first after many surplus years. At the same time, capital outflows/errors and omissions have decreased, probably reflecting reduced capital flight as confidence in the economy returns.

Table 2.

Côte d’Ivoire: Balance of Payments, 2010–17

(In billions of CFA francs, unless otherwise indicated)

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

5. The fiscal outcome at end-June was better than programmed, with a strong revenue performance and expenditure in line with expectations (Text table 1). Revenue exceeded the program target by 1.1 percentage point of GDP, with corporate income tax performing better than expected. Expenditures, including investment, were within the programmed envelope, with domestically-financed investment exceeding its target while externally-financed investment was executed at a lower rate. Pro-poor spending has continued to increase, while the wage bill was contained. All performance criteria at end-June were observed.

Text Table 1.

Côte d’Ivoire: Fiscal Operations, 2012–13

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Sources: Ivoirien authorities and IMF staff estimates and projections.

Primary basic balance=(Tax and non tax revenue)-{Total expenditure + Net lending (on payment order basis) - Interest payments - Foreign financed expenditure}.

Reflects funding indications to date.

MEFP ¶6–7

Figure 1.
Figure 1.

Côte d’Ivoire: Selected Macroeconomic Indicators, 2008–13

(Percent of GDP, unless otherwise indicated)

Citation: IMF Staff Country Reports 2012, 332; 10.5089/9781475552638.002.A001

Sources: Ivoirian authorities; IMF staff estimates and projections.1/ Fiscal ratios show flows for Q2-Q4, 2011 over period GDP.
Figure 2.
Figure 2.

Côte d’Ivoire: WAEMU, and SSA - Macroeconomic Development and Outlook, 2008–13

(Percent of GDP, unless otherwise indicated)

Citation: IMF Staff Country Reports 2012, 332; 10.5089/9781475552638.002.A001

Sources: WEO; and IMF staff estimates and projections.1/ WAEMU, excluding Côte d’Ivoire.2/ SSA, excluding Nigeria and South Africa.3/ For Côte d’Ivoire, Q2–Q4, 2011 over period GDP.

6. Progress on structural reforms was solid in some areas, but lagged in other politically-sensitive ones. Eleven out of the 17 structural benchmarks through end-September under the program were met on time (MEFP Table 2). In addition, the reform of the public pension system has been implemented, the reform of the cocoa sector was completed in time for the fall 2012 harvest, and progress on debt management and on restructuring the public banks is ongoing. The remaining structural benchmarks, particularly in the energy sector,2 encountered delays or are still outstanding. The government is taking corrective measures for the missed structural benchmarks along with measures to reinvigorate implementation of key reforms. In particular, the government intends to adopt an automatic pricing mechanism for petroleum products in mid-November, and is committed to implementing it by end-March 2013.

MEFP ¶8

7. Côte d’Ivoire benefited from a substantial reduction in its external debt stock after reaching the enhanced HIPC completion point at end-June 2012. With full delivery of debt relief, Côte d’Ivoire would benefit from $7.7 billion in total debt reduction in present value terms, consisting of $3.1 billion in enhanced HIPC debt relief, $3.3 billion in additional relief from the Paris Club official bilateral creditors, and a further $1.3 billion in debt relief from multilateral creditors under the Multilateral Debt Relief Initiative.3

MEFP ¶14

III. Policy Discussions

A. Growth Outlook for 2013 and Beyond

8. The economic outlook for 2013 and over the medium term is favorable. The staff revised its real GDP growth projection to 8.0 percent reflecting (a) a rising growth momentum in the latter part of 2012, which is expected to carry over to next year; (b) strong progress toward identifying external financing for the 2013 budget and PPP investment projects; and (c) the marked interest of foreign investors for Cote d’Ivoire.4 As the improved outlook and public investment help crowd in private investment, growth performance is projected to remain strong although at a lower level than in 2012–13. The authorities expect to achieve an even more rapid economic expansion, with growth reaching 9 percent of GDP in 2013 and stabilizing at 10 percent over the medium term, on account of a more vigorous expansion of private sector investment and somewhat higher public investment (Box 1).

MEFP ¶18–20

Côte d’Ivoire: Authorities’ Medium-Term Outlook, 2012–15

The authorities’ medium-term outlook is derived from the recently finalized National Development Plan (PND 2012–15). The overarching objective of this development plan is to make significant inroads in poverty reduction and to transform Côte d’Ivoire’s economy into an emerging market one by 2020. To this end, the government targets real GDP growth rates of 9 percent in 2013 after the rebound of 8.6 percent in 2012, 10 percent in 2014, and 10.1 percent in 2015, driven by both higher public and private investment spending.

More specifically, the government envisages to increase public investment to 9.7 percent of GDP by 2015, against 3 percent of GDP on average over 2006–10. The focus of public investment spending is on addressing infrastructure bottlenecks. The government intends to secure a part of the investment financing by creating fiscal space through better revenue mobilization and current expenditure controls, in particular wage bill and subsidies. Total revenues (excluding grants) are projected to remain broadly unchanged as a share of GDP, while current expenditure would decline by about 3 percent of GDP between 2012 and 2015. The overall fiscal deficit (including grants) would reach about 3.7 percent of GDP in 2014–15 to accommodate higher capital spending. The remaining financing gap would be covered by borrowing on both domestic and international markets.

The government expects that higher public spending in basic infrastructure, together with implementation of structural reforms, would improve the business climate, and crowd in private sector investment, which is projected to reach 13.7 percent of GDP by 2015 from about 6 percent of GDP in 2010.

A donors’ conference is set to take place in Paris in early December 2012 to secure the financing of the National Development Plan estimated at about CFAF 11 076 billion (about $21 billion) over 4 years.

Côte d’Ivoire: Medium Term Outlook, 2012–15

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Source: Ivoirian authorities.

B. Fiscal Policy

9. The projected fiscal deficit for 2012 is expected to edge down. Reflecting recent developments and an upward revision of both revenue and expenditure, the overall deficit is projected to decline from 4.4 to 4.3 percent of GDP. Specifically:

MEFP ¶11–13

  • Revenue is expected to improve by 1.1 percent of GDP, mainly due to better than expected corporate income tax (0.4 percent of GDP) and oil revenue (0.4 percent of GDP). Grants are also expected to be 0.2 percent of GDP higher.

  • Higher expenditure is expected, largely due to increased electricity subsidies. Low rainfall reduced hydropower generation and required greater recourse to more expensive fuel oil. To alleviate the already tenuous financial situation of the sector, the government provided additional subsidies, raising overall subsidies to the sector to 1.1 percent of GDP in 2012.

10. The 2013 budget is built on conservative revenue assumptions. This prudence is motivated by a desire to avoid understating the budget financing need at a time when domestic financing conditions may become tighter (see below). The revenue projections are fully consistent with the staff’s 8 percent growth scenario. Revenues are nonetheless projected to increase by 0.2 percent of GDP as compared to 2012, reflecting the continued uptick in economic activity as well as the authorities’ efforts to revamp revenue administration, including through the implementation of an action plan adopted in July 2012 to boost VAT collection. Cocoa revenue is, nevertheless, projected to fall in spite of the expected increase of international prices in 2013, as the authorities’ reduced the net tax intake from cocoa.5 In addition, the government’s oil revenue is expected to decrease as international prices decline slightly and the government’s share of oil output is reduced as its partners recover the cost of investments made in 2012.

MEFP ¶22–27

11. Grants are expected to increase substantially as the authorities’ push for international support starts to bear fruits. The French debt-for-development swap mechanism (“C2D”) is expected to generate an additional 0.6 percent of GDP in grants, while other partners would bring an additional 0.7 percent of GDP.

12. Current expenditures would be contained to make room for investment.

  • Current expenditure relative to GDP is expected to decline in 2013. Some large one-off subsidies, particularly to the electricity sector in 2012, are not expected to recur. So-called “crisis-exit expenditures” related to the 2007/08 Ouagadougou Accords would taper off as the country moves beyond the internal crisis of the last decade. The wage bill would be contained to 7.5 percent of GDP despite social and political pressure on the government to more quickly deliver on the promises for wage increases made by the previous regime.

  • Investment is expected to increase to 7.5 percent of GDP (from 5.4 percent in 2012). Domestically-financed investment would edge slightly down relative to GDP, while externally-financed investment would expand from 1 percent of GDP in 2012 to 3.3 percent of GDP in 2013. While the authorities have already identified partner funding for most of the 2013 externally-financed investment, the remaining amounts for 2013 and beyond are being sought at the planned December 2012 Consultative Group meeting.

13. Expenditure restraint and the projected smaller overall fiscal deficit (from -4.3 percent of GDP in 2012 to -2.9 percent in 2013) also reflect a tightening of financing conditions and a shift to recording debt service on an after debt relief basis. The authorities have in particular halved the projected net domestic borrowing as a large share of the securities restructured in 2011 are falling due at the end of 2013 and may weigh on investors’ appetite for government paper. The tighter fiscal stance in 2013 also reflects the shift from a recording of debt service on a gross basis before the enhanced HIPC completion point (first half of 2012) to a recording on a net basis (net of debt relief) after the enhanced HIPC completion point.

14. The authorities have committed themselves to culling any investment for which external financing cannot be identified or to further restraining overall spending if revenue collection were to fall short of projections.

C. Structural Reforms: Stepping Up Efforts and Moving to a New Phase

15. The authorities remain committed to their broad and ambitious reform agenda but challenges remain. The aim of the reforms is to create an environment conducive to sustained high growth and employment, and to private sector engagement. As the authorities remain concerned about the social impact of part of their reform agenda, staff encouraged them to consider mitigating measures for the poor, as needed. While six structural benchmarks (mostly on power sector/fuel pricing) were missed, the authorities have given assurances that the corrective measures indicated below will be fully and timely implemented.

MEFP ¶28–39

Côte d’Ivoire’s Electricity Sector and the Budget

Côte d’Ivoire’s electricity pricing policy represents a sizable burden on the budget. Electricity tariffs have consistently lagged marginal generation cost and the problem is compounded by technical and commercial losses. Additionally, the majority of households are currently billed under the lower-rate social tariff, aimed preliminary at the poor. Such policies have affected the profitability of the sector and hindered investment plans.

The cost of government support to the sector has been increasing over the last few years, but is expected to fall in 2013 (Fig. 1). Electricity is generated from hydro, gas and heavy fuel. In a bid to keep generation costs low, the government gives away its share of gas to the sector (without any payments), and transfers a share of the VAT. While the gas subsidy reached 0.9 percent of GDP in 2011, the renegotiation of gas prices with one of the main gas suppliers was expected to contain the impact on the 2012 budget to around 0.5 percent of GDP. However, with tariff adjustments limited to a 10 percent increase in the electricity tariff for industries, heavy recourse to higher-cost electricity generation from heavy fuel has added a further 0.6 percent of GDP cost to the 2012 budget. Government support to the sector is expected to fall back to around 0.6 percent of GDP in 2013.

Figure 1:
Figure 1:

Côte d’Ivoire: Cost of the Electricity Sector on the Budget

Citation: IMF Staff Country Reports 2012, 332; 10.5089/9781475552638.002.A001

The authorities intend to increase capacity and expect the sector to achieve financial equilibrium by 2015 through a combination of pricing, technical, and institutional reforms. Côte d’Ivoire is planning a major increase in generation capacity, including through PPPs with independent power producers, to meet rising demand as the economy strengthens. The new pricing strategy hinges on a combination of transferring large volume consumers out of the social tariff, implementing a series of gradual price increases to bridge the generation cost differential, and renegotiating export prices. Also, grid maintenance and the fight against fraud would be scaled up to reduce technical and commercial losses. Generation costs would be contained by renegotiating other gas suppliers contracts and the coming into operation of more efficient power producers. The government would continue to finance the bulk of investment for expanding and maintaining the electricity network.

16. Reform of the electricity sector is set to continue. The subsidies to the sector represent a sizable drain on the budget (Box 2) and crowd out pro-poor spending. In mid-November 2012, the government will adopt a comprehensive strategy to gradually bring the electricity sector back to financial equilibrium; it is taking steps to move high volume consumers out of the social tariff in early 2013 and it agreed to implement an average 5 percent increase in the consumer tariff in mid-2013. The collection of electricity bills and the prosecution of fraud will be further improved by the adoption of the Electricity Code. In addition, the government aims to reduce costs through efficiency measures and new hydropower and gas plants coming on stream. The authorities, in collaboration with the World Bank, are undertaking a social impact assessment of the electricity reforms. The findings could lay the basis for a more targeted approach to electricity reform, including buffering social safety nets for the neediest households so as to mitigate the impact of future tariff adjustments.

17. The government will adopt an automatic pricing mechanism (APM) for petroleum products in mid-November, to be implemented by end-March 2013. Fixed retail prices have resulted in a 50 percent decline in the taxes collected on petroleum products between 2010 and 2012, and tax expenditures on fuel products are currently estimated at around 1 percent of GDP. After outreach on the need for reform, the APM will be implemented by end-March 2013. The implementation of the new APM would allow the government to share the risk of international price fluctuations with end-users, reduce the implicit fuel subsidies and allocate more public resources to pro-poor spending. Separately, the price of liquid petroleum products will be adjusted by up to CFAF 15 per liter by end-November to finance the deficit of the cooking gas subsidy mechanism. Staff discussed the experience of other countries in buffering the impact through social safety nets while implementing such reforms.

18. Progress on debt management is ongoing with the technical assistance from the Fund and the World Bank. The authorities plan to reorganize their debt management unit and adopt a functional structure (front-, middle-, and back-office by mid-2013.) The newly-formed National Committee of Public Debt (NCDP) is functional and plans to prepare for government adoption a first debt management strategy and debt sustainability analysis to be issued with the 2014 budget.

MEFP ¶40

19. The authorities intend to push ahead with the implementation of the May 2012 strategy for the restructuring of the public banks. The ongoing audits of the public banks are expected to be concluded by end-November 2012 and the restructuring strategy adopted in the spring of 2012 is expected to be fully implemented in 2013. At the same time, a Financial Sector Development Strategy prepared with technical assistance from the World Bank will be completed and implemented in 2013 to cover the entire sector. A time- bound action plan to restructure other public enterprises is under preparation to keep that process on track.

20. Efforts to reduce domestic arrears are being reinvigorated. The authorities made progress by not accumulating new arrears to suppliers over the last few years and reducing the previously accumulated ones. As they aim to stimulate private sector involvement in economic activities, they authorities will step up their efforts to reduce arrears on domestic financial debt through a more active management of this debt and negotiations with various holders to restructure their claims. In parallel, an audit is being conducted to validate the claims non-financial sector on the government.

21. The wage bill strategy is expected to be finalized by end-January following further broad-based consultations. Development needs, including in education and health, imply the recruitment of a large number of civil servants over the medium to long term. At the same time public servants are pressing the government to honor commitments by past governments to increase their wages after the HIPC completion point. This issue will be tackled as part of the ongoing tripartite social forum—a discussion between the government, public servants and the civil society to address all social issues.

IV. Program Monitoring, Financing and Risks

22. A modification of end-December 2012 performance criteria on the floor on overall fiscal balance, on the ceiling on net domestic financing [MEFP, Table 1]. The modifications reflect revisions to the projected real GDP growth, inflation, revenues and expenditures (paragraph 9 above), and revised estimates of post HIPC completion point debt relief. Notwithstanding this, the fiscal stance in percent of GDP remains broadly unchanged. Performance criteria for end-June 2013 are proposed, including a new ceiling on nonconcessional external debt to accommodate the authorities investment financing needs, and indicative targets have been set for these variables at end-March, end-September and end-December 2013. Proposed structural benchmarks for 2012 and 2013 are set out in Table 2 of the MEFP.

MEFP ¶42–46

23. The government aims to settle all remaining arrears on external commercial debt later this year. In late October the government presented an arrears clearance proposal to Eurobond holders.6 It has also reached agreement on a restructuring of arrears to other commercial creditors which it aims to complete before year-end. These settlements are the result of discussions with creditors that have been conducted in a manner consistent with the Fund’s policy on lending into arrears.

24. Sufficient financing is expected to be available for the program in 2013. The financing gap is expected to be financed primarily from the domestic market. The bulk external funding of investment is expected to come from the “C2D” operation with the French Development Agency (AFD), and the planned December 2012 Consultative Group meeting. For other external financing, the government intends to rely primarily on grants or concessional loans, particularly from the World Bank, the African Development Bank, the Islamic Development Bank, and the European Union. Nevertheless, some nonconcessional financing might be needed for certain investments. With respect to domestic and regional market financing the government also intends to lengthen and hence smooth out the maturity profile of its debt. Regarding access to the domestic and regional markets, the government intends to mobilize more loans with longer maturities. The government will also continue to aim for a net reduction in government amounts payable by CFAF 25 billion in 2013, and to meet its obligations under securitized debt vis-à-vis financial banks and other financial institutions.

25. For 2013, a new small nonconcessional borrowing window (equivalent to about 0.39 percent of GDP in 2013) is proposed (performance criteria) to finance some infrastructure and energy sector investment projects7 for which concessional financing has not been obtained. Also an increase (equivalent to 0.18 percent of GDP) in the existing nonconcessional window for the regional development bank (BOAD) is proposed to accommodate an increase in the bank’s lending envelope for Cote d’ Ivoire.8 These new ceilings do not jeopardize Côte d’ Ivoire’s moderate risk rating of debt distress (see attached updated LIC-DSA).

MEFP ¶42

26. The authorities completed the following prior actions, as initial steps to address the broader issues in the energy sector: i) adopt a new automatic fuel pricing mechanism; ii) adopt a comprehensive strategy to gradually bring the electricity sector back to financial equilibrium.

27. The risks to the program come from both domestic and external factors. While recent developments bode well for the growth performance in 2013, downside risks remain. In particular, there are uncertainties on the pace at which private sector investment projects will materialize. Furthermore, the recent security incidents, as well as the ongoing crisis in neighboring Mali, underline the fragility of the socio-political environment and could dampen the involvement of private investors, in addition to generating spending pressures. Côte d’Ivoire has so far only been modestly impacted by the consequences of the economic slowdown in Europe and Asia; specific risks include (a) a possible decline in cocoa prices; (b) a further significant rise in crude oil prices; and (c) a further weakening of the global environment that would significantly impede the inflow of foreign direct investment and aid flows. Overall, staff assesses risks to the program as manageable.

28. The authorities intend to make extensive use of PPPs over time, which may create additional fiscal risks over the medium term. While the World Bank is assisting the authorities in putting in place an appropriate legal and regulatory framework for such projects, it will be important to ensure that selected PPP projects are financially and economically viable, and undertaken within a strong and coherent framework, so as not to expose the budget to undue fiscal risks, particularly in the presence of large sovereign guarantees and still-weak assessment and implementation capacity.

V. Staff Appraisal

29. The authorities are to be commended for the successful management of the economy in 2012. Program performance has been broadly satisfactory with all performance criteria and indicative targets through end-June 2012 met and solid progress on structural reforms achieved, notwithstanding some significant delays. The government strategy to boost growth through higher public investment has contributed to the economic rebound in 2012, which is stronger than expected. At the same time, pro-poor spending has risen steadily.

30. Côte d’Ivoire’s growth outlook through 2013 is favorable, with some risks. The growth momentum in 2012 is expected to carry over to 2013. The authorities’ ambitious investment plan for 2013 should stimulate and enhance private investment and maintain economic expansion. The significant uncertainty on the magnitude and pace at which private sector engagement will materialize, creates, however, downside risks on growth. In addition, growth could be lower if the authorities cannot mobilize sufficient financing from donors and investors during the December 2012 Consultative Group or if this investment materializes with some delay.

31. Staff welcomes the conservative revenue projected by the authorities in the 2013 budget. Revenue projections in the authorities’ 2013 budget are in line with staff’s growth projections. This prudent revenue projection aims at avoiding understating the budget financing needs. Revenues would increase only modestly as a percentage of GDP, as the authorities’ efforts to improve tax administration will be partially tempered by revenue losses related to the authorities’ decision to reduce cocoa tax intake to guarantee higher revenue to cocoa farmers, which was a HIPC completion point trigger.

32. The authorities’ prudent budget management and their commitment to execute their investment budget in line with available resources are welcome. As current expenditure growth is already tightly contained, it will be important that pro-poor current spending be fully executed. While budget management has been satisfactory over the last few years, the broader public sector shows signs of weaknesses and risks and could be the source of contingent liabilities on the government. The staff welcomes the authorities’ intention to regularize outstanding domestic arrears, including through active debt management.

33. Staff supports the authorities’ renewed commitment to accelerate structural reforms, particularly in the energy sector, so as to limit fiscal risks and sustain pro-poor spending. Electricity and fuel subsidies have grown significantly in 2012. Moving high volume electricity customers from the social tariff to the regular tariff, increasing electricity tariffs by 5 percent on average in 2013, and implementing the newly adopted fuel pricing mechanism in 2013 would represent important steps in improving the viability of the energy sector. Staff urges the authorities to fully implement the automatic pricing mechanism for fuel prices in March 2013. Regular price adjustments, in line with international prices, will mitigate risks to the budget, and the smoothing mechanism will contain the impact on pump prices. At the same time, the authorities should forcefully implement the planned efficiency measures. Strengthening the social safety net to mitigate the impact on the poor would also be crucial.

34. The authorities’ plan to strengthen debt management by adopting a medium-term strategy by mid-2013 and reorganizing the debt management unit along functional lines is welcome. At the same time, it will be important for the government to strengthen capacity for evaluating and monitoring PPPs.

35. The staff recommends completion of the second review under the ECF arrangement and of the financing assurances review, and modification of end-December 2012 performance criteria on the floor on overall fiscal balance and on the ceiling on net domestic financing, and establishment of new performance criteria for end-June 2013, and a disbursement of an amount equivalent to SDR 65.04 million under the ECF arrangement.

Table 3a.

Côte d’Ivoire: Fiscal Operations of the Central Government, 2010–17

(In Billions of CFA francs, unless otherwise indicated)

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

2011 aggregates are based on Q2-Q4

In the CFA franc zone, Fund resources are channeled via the regional central bank that provides equivalent domestic currency credit to the relevant government.

Debt Service and cancellation reflect the impact of the HIPC completion point at end-June 2012.

Table 3b.

Côte d’Ivoire: Fiscal Operations of the Central Government, 2010–17

(In percent of GDP, unless otherwise indicated)

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

2011 ratios based on Q2-Q4 fiscal aggregates over Q2-Q4 of GDP.

In the CFA franc zone, Fund resources are channeled via the regional central bank that provides equivalent domestic currency credit to the relevant government.

Debt Service and cancellation reflect the impact of the HIPC completion point at end-June 2012.

Table 4.

Côte d’Ivoire: Monetary Survey, 2010–13

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Sources: Central Bank of West African States (BCEAO); and IMF staff estimates and projections.
Table 5.

Côte d’Ivoire: External Financing Requirements, 2009–13

(In billions of CFA francs)

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Sources: Ivorien authorities; IMF staff estimates and projections.
Table 6.

Côte d’Ivoire: Indicators of Capacity to Repay the Fund, 2010–22

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Sources: IMF staff estimates and projections.

The interest rate on ECF is zero for 2010 -13 and assumed at 0.25 percent thereafter.

Including the proposed disbursements under the new ECF.

Total debt service includes IMF repurchases and repayments.

Table 7.

Côte d’Ivoire: Proposed Schedule of Disbursements and Timing of Reviews Under ECF Arrangement (SDR millions), 2011–14

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Table 8.

Côte d’Ivoire: Performance Criteria (PC) and Indicative Targets (IT), ECF 2012–13 1/

(Billions of CFA francs) 2/

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Sources: Ivoirien authorities and IMF staff. Note: The terms in this table are defined in the TMU.

Cumulative change from December 31, 2011 for 2012 targets, and from December 31, 2012 for 2013 targets.

Except for the ceiling on new nonconcessional external debt

Continuous performance criteria.

The new window in 2013 will be used for infrastructure and energy sector projects (MEFP ¶42)

Appendix I. Côte d’Ivoire: Letter of Intent

Ministry of Economy

and Finance

------------------

Office of the Minister

No.8380 MEF/CAB/CT-14

Subject: Letter of Intent

Republic of Côte d’Ivoire

-----------

Union-Discipline-Travail

Abidjan, November 13, 2012

Managing Director

International Monetary Fund

WASHINGTON DC, 20431

Dear Madame:

1. Côte d’Ivoire continues to make great strides in normalizing its socio-political and security situation, and its economy continues to recover. All government institutions are now functional, in compliance with the provisions of the constitution. Draft and proposed legislation is once again subject to examination by Parliament. Public universities have been refurbished and resumed operations on September 3, 2012 after being closed for more than a year owing to their serious disrepair. The process of national reconciliation is under way, with the Commission for Dialogue, Truth and Reconciliation (CDVR) continuing to work with the political parties and civil society, and peace and reconciliation being promoted with the local population. Security has improved across the country, despite a few isolated outbreaks of violence that were quickly brought under control. A National Security Council (CNS) has been created under the authority of the President of the Republic.

2. The Memorandum of Economic and Financial Policies (MEFP) attached to this letter of intent describes progress made to date and the policies that we plan to implement in 2013. The economic recovery in 2012 was better than anticipated. The positive trends in the economic indicators should lead to a consolidation of the recovery, with GDP growth of 8.6 percent, compared to an initial target of 8.1 percent. The recovery has benefited from increased public investment and the structural reforms implemented as part of our economic and financial program, as well as the restoration of private sector confidence and related steps taken by the government to improve the business climate. The upturn has also benefited from the hope created by Côte d’Ivoire reaching the HIPC Initiative completion point on June 26, 2012. Côte d’Ivoire has received full relief, including the Debt Reduction and Development Contracts (C2D) with France, in the amount of CFA Francs 4,090 billion, or 64.2 percent of its external debt. For this we would like to express our sincere thanks to all of our bilateral, private and multilateral partners, in particular the International Monetary Fund, the World Bank and the African Development Bank. All of our debt ratios are now in line with subregional and international standards, leaving room for new financing, while still ensuring that debt sustainability is maintained. Our debt management procedures have been revised accordingly.

3. The government is pursuing structural reforms in key sectors of the economy. The reform of the coffee-cocoa sector begun in 2011 to ensure a sufficiently remunerative price for producers of at least 60 percent of the c.i.f. price is now fully operational with the entry into effect of the new marketing system. The government has adopted the plan to reform public enterprises, including banks, in order to reduce its portfolio by 25 percent and improve performance. Efforts are ongoing to put the electricity and oil products sectors on a sound financial footing. The reforms undertaken in this area are aimed at restoring the viability of these sectors and supporting growth.

4. The government is determined to respond to the needs of the people and to transform Côte d’Ivoire into an emerging economy by 2020. In this context, it is implementing its 2012–15 National Development Plan (PND), which lays the foundations for sustained and sustainable economic growth that is driven primarily by investment, continued structural reforms, and the restoration of private sector confidence. Our aim is to consolidate the dynamic growth achieved thus far so as to reach a GDP growth rate of 9 percent in 2013 and at least 10 percent starting in 2014. The 2013 budget has been prepared on that basis and calls for an increase in public investment of 7.5 percent of GDP, as compared to 5.3 percent in 2012.

5. The government is convinced that the policies and measures included in this memorandum are sufficient to achieve its objectives. We ask the International Monetary Fund to provide financial support to the government under the Extended Credit Facility (ECF) in the amount of SDR 65.04 million. The government will consult with Fund staff, at its own initiative or at the request of the IMF Managing Director, before adopting any additional measure that it may deem necessary, or in the event of changes to the policies set out in this memorandum. It also agrees to cooperate fully with the IMF to achieve its policy objectives.

6. The government requests the amendment of the program performance criteria for end-December 2012 and the establishment of end-June 2013 performance criteria. The modification of the end-December 2012 performance criteria takes into account, in particular, the revision of the debt relief projections following the HIPC completion point. The amended criteria are in line with the macroeconomic objectives of the program overall.

7. The Ivoirien authorities consent to the release of this Letter of Intent, and the attached Memorandum of Economic and Financial Policies (MEFP) and Technical Memorandum of Understanding (TMU), as well as the IMF staff report on the request for disbursement under the ECF. We hereby authorize their publication and posting on the IMF website after approval of the review by the IMF Executive Board.

Sincerely yours,

___/s/___

Charles Koffi DIBY

Minister of Economy and Finance

Attachments:

  • – Memorandum of Economic and Financial Policies (MEFP)

  • – Technical Memorandum of Understanding (TMU)

Attachment I. Côte d’Ivoire: Memorandum of Economic and Financial Policies

November 13, 2012

I. Background

1. Since the investiture of the President of the Republic on May 21, 2011, and the appointment of the new Government, decisive action has been taken toward the implementation of a new economic strategy focused on the most urgent needs of the country, particularly social normalization, reconstruction, and the transformation of Côte d’Ivoire into an emerging economy by 2020. The main institutions of the Republic are fully operational: peaceful and transparent legislative elections were held and the first regular session of the National Assembly took place on March 12, 2012. The national reconciliation process is under way, with the Commission for Dialogue, Truth and Reconciliation (CDVR) continuing to work with the political parties and civil society, and peace and reconciliation being promoted among the local population. Security has improved across the country, with isolated outbreaks of violence quickly brought under control. The creation of the National Security Council (CNS) under the aegis of the President of the Republic following the attacks of August 2012 is contributing to the improvement of the security situation. A new unified army has been created. The army (as well as the police and gendarmerie) is being restructured and modernized with assistance from the United Nations and other partner countries. In this regard, a new structure for managing disarmament, demobilization, and reintegration (the DDR) was created on August 8, 2012.

2. Our economic take off has begun. As of end-December 2011, all macroeconomic outcomes were better than anticipated, and preliminary results as of end-June 2012 show that the 8.1 percent growth target will be exceeded. Our efforts enabled us to reach the IMF and World Bank enhanced HIPC Completion Point in June 2012, thereby substantially reducing our debt stock. There has been a marked rebound in all sectors, with some sectors even exceeding expectations. The business confidence index is above 90 percent. Investments are picking up again. Following the closure of universities for two years, during which they were reconstructed, classes resumed on September 24, 2012. Schools, hospitals, and other public buildings are gradually being repaired. Roads are being rebuilt, along with the construction of new highways and roads connecting agricultural areas. The business climate is improving, aided by the adoption of a new investment code and the opening of a one-stop shop for investment. The reform of the coffee and cocoa sector has been fully implemented since the beginning of the new cocoa campaign in October 2012. Budget execution was better than expected in the first half of 2012, and inflation remains moderate. Macroeconomic stability has been strengthened (and the predictability of public resource management has clearly improved). The broad structural reforms initiated within the framework of programs supported by the IMF, the World Bank, the AfDB, and the European Union are beginning to bear fruit.

3. The 2012–15 National Development Plan (PND) is the new anchor for our development strategy. It calls for strong, sustainable, inclusive, and equitable growth. Growth will be driven by a substantial increase in both public and private investment (including foreign investment). These investments have been judiciously centered around both cross-cutting engines of growth (justice and good governance; technical and higher education and training; health, urbanization and housing, environment, sanitation, drinking water, water and forests, and security), and vertical engines of growth (infrastructure and transportation; energy, mining, and hydrocarbons; agriculture; industry and small- and medium-sized enterprises; information and communication technology and scientific research; trade, arts and crafts; and tourism). The main goals are to:

  • achieve a real GDP growth rate of 8.6 percent in 2012, 9 percent in 2013, and 10 percent in 2014 and 2015. Investment is expected to increase from 12.5 percent of GDP in 2012 to 23.5 percent in 2015, with public investment increasing from 5.3 percent to 9 percent over the same period;

  • reduce the poverty rate by half and rejoin the group of African countries with the highest rankings in terms of the Human Development Index of the United Nations Development Programme (UNDP);

  • achieve, or make significant progress towards, the Millennium Development Goals (MDGs) by 2015;

  • create one of the best business environments in Africa, and strengthen the competitiveness of the economy; and

  • rejoin the group of leading African countries in terms of good governance and fighting corruption (the World Bank index).

4. In its statement of policies, the government has reaffirmed its commitment to continue the implementation of the 2011–14 economic and financial policies supported by the Extended Credit Facility. To this end, it will continue the reforms that have been started in: (i) public financial management; (ii) governance and modernization of public administration; (iii) restoring the financial equilibrium of the electricity sector and adjusting petroleum prices; (iv) restructuring of the financial sector; and (v) improving the business climate. The government intends to improve policies and the quality of institutions to ensure the efficient utilization of resources to promote sustainable development, create jobs, and reduce poverty. To this end, the consolidation of national reconciliation and reestablishing security throughout the country will remain top priorities.

This supplement to the Memorandum provides an update on the implementation of the 2012 economic and financial program adopted under the Memorandum of April 25, 2012, and presents the main outlines of the program for 2013.

II. Economic Developments and Implementation of the Economic and Financial Program in the First Half of 2012

A. Recent Economic Developments

5. The results at end-July 2012 were much better than anticipated, supported by public investment and the recovery of domestic demand. Some 90 percent of the businesses that are members of the Côte d’Ivoire Federation of Businesses (CGECI) expect their activities to rebound in 2012.

  • Economic activity has increased at a more rapid rate than expected, supported by dynamic growth in the tertiary sector, especially retail sales and growth in industrial output tied to the strong growth in construction and public works. These developments represent a return of confidence among households and economic operators. The upturn has been driven by the government through the implementation of major public projects during the first half of 2012 to build up the socio-economic infrastructure. These projects include the renovation of public universities, the resumption of construction work on the Jacqueville bridge and the highway to the northern part of the country, as well as the refurbishment and construction of classrooms and health centers. The private sector has shown great interest in supporting the recovery, in particular through the construction of the Bédié bridge in Abidjan, the development of cogeneration at the Azito thermal power station, and increasing production capacity at the CIPREL thermal power station.

  • Inflation was brought under control in the first half of 2012 (+0.3 percent) through the normalization of distribution channels and measures undertaken by the government in the context of containing the cost of living. Nevertheless, price levels remain high due to the exceptional increases recorded in 2011.

  • Exports rose by 10 percent and imports grew by 118.7 percent, with a steep rise in imports of intermediate goods and equipment. The trade surplus fell by approximately 80 percent and reached CFAF 346.5 billion.

  • Net external assets fell by CFAF 220.1 billion, in line with the strong increase in imports. Net domestic credit grew by 6 percent as a result of growth in net claims on government 18.1 percent and an increase in credit to the economy 1.4 percent. Consistent with these trends, the money supply contracted by 0.5 percent.

6. Budget execution in the first half of 2012 was better than anticipated.

  • Revenue was higher than anticipated by CFAF 133.4 billion (1.1 percent of GDP), driven by the upturn in economic activity, the favorable trend in cocoa prices, as well as the reorganization and expansion of the tax services.

  • Regarding expenditure, current expenditures were contained by the close monitoring of spending and the commitment control mechanism put in place for regulating the use of appropriations to support sound budget management. Investment expenditures posted an execution rate of 94.0 percent, reaching CFAF 200.6 billion. Domestically financed investments totaled CFAF 147.4 billion, with an execution rate of 104.4 percent, owing to specific provisions supporting budget execution, particularly a reduction in the public procurement deadlines, periodic follow-up meetings with the Administrative and Financial Affairs Agencies (DAAF), as well as the funding of a special investment account intended to speed up payments.

  • Regarding domestic debt, at end-June 2012, the net reduction in amounts payable in Treasury accounts was CFAF 24.2 billion.

  • In addition, the government accessed the regional monetary and financial market for financing. It raised a net amount of CFAF 209.8 billion in this market.

B. Program Implementation

7. The overall implementation of the economic and financial program has been satisfactory, driven by sound budget execution. All the performance criteria at end-June 2012 were met. Higher tax revenue and efforts to streamline spending resulted in a fiscal balance of -0.2 percent of GDP, compared to a target of -1.4 percent. Pro-poor expenditure reached CFAF 496.1 billion, compared to a floor of CFAF 403 billion, driven by an accelerated pace of renovation of the universities and the timely implementation of projects under the Presidential Emergency Program.

8. The implementation of structural reforms has been ongoing. The main measures implemented are as follows:

  • Regarding public finance: (i) the budget review laws for the years 2004 to 2010 were approved by the National Assembly, and the draft budget review law for 2011 was adopted by the Council of Ministers following a statement of compliance by the Audit Office; (ii) the 2013 budget bill was submitted to the National Assembly within the deadline required by the constitution; (iii) since December 2011, quarterly reports have been submitted to the Council of Ministers regarding the status of budget execution, including the delays for processing of the files in the SIGFiP; and (iv) the Medium-Term Expenditure Framework (MTEF) has been extended to eight (8) new ministries: security, defense, justice, agriculture, economic infrastructure, energy, environment, and social affairs.

  • As for the coffee and cocoa sector, the reform adopted in November 2011 has been implemented by the Coffee and Cocoa Council. It launched the Forward Sales Program (PVAM) and organized public awareness sessions for various stakeholders. All of these actions have made it possible to set a minimum guaranteed price for producers equal to 60 percent of the c.i.f. price for the 2012/2013 campaign. The discussions with operators led to the adoption of a price structure accepted by all the stakeholders that will result in a reduction in the registration fee from 5 percent to 1.28 percent of the c.i.f. price. This price schedule was the subject of an official communiqué issued on Tuesday, September 25, 2012, to inform all stakeholders. On this basis, the Coffee and Cocoa Council launched the campaign on October 3, 2012. The Coffee and Cocoa Council has made all the provisions for strict adherence to the price set for producers. The reserve fund has reached the CFAF 40 billion target.

  • Regarding the financial sector, the strategic options being considered for the restructuring of public banks (merger, liquidation, privatization) have been approved. The restructuring plan is centered on a gradual withdrawal of the government over the medium term, with minimal participation to stimulate development in specific sectors, such as housing, small and medium-sized enterprises and industries, and agriculture. For microfinance, recovery and development actions have been initiated in collaboration with technical and financial partners. These actions include, undertaking sectoral audits, developing and implementing a restructuring plan for the National Union of Savings and Credit Cooperatives of Côte d’Ivoire (Union Nationale des Coopératives d’Epargne et de Crédit de Côte d’Ivoire, or UNACOOPEC-CI), a plan for placing UNACOOPEC-CI under transitional administration, as well as updating the National Microfinance Strategy (SNM).

  • Regarding the hydrocarbon sector, the government has amended Law No. 96–699 of August 29, 1996, with the aim of encouraging oil companies to invest in exploration and in the production of crude oil and natural gas. These amendments also incorporate better transparency in the management of petroleum resources and the principle of environmental protection. In addition, a new framework for Production-Sharing Contract for Hydrocarbons has been adopted to enable operators to carry out exploratory drilling operations and to begin oilfield production as quickly as possible. The hydrocarbon code is being finalized.

  • Regarding the electricity sector, the government has continued its efforts to reduce the structural financial deficit. Negotiations with the largest producer of natural gas, which accounts for more than two-thirds (2/3) of the output, resulted in the fixing of a base price of $5.5 per MMBTU, compared to an average price of $9.8 in 2011. Industrial electricity rates were increased by 10 percent in May 2012. In addition, measures have been taken by the government to apply the general tariff to households currently paying the social tariff if they consume more than 200 kWh on a bimonthly basis as from January 2013.

  • To ensure the financial viability of the refinery (SIR), most of the government debts to the company have been dealt through securitization or cash settlement.

  • A number of reforms have been undertaken to improve the business climate with the aim of creating a conducive environment for private investment. To this end, the government decided, in a January 11, 2012 Council of Ministers meeting, to create commercial courts. Thus, the Commercial Court of Abidjan has been operational since October2012. Furthermore, the new investment code was adopted by Decree No. 2012/487 on June 7, 2012, with the aim of promoting foreign capital inflows. It also grants special advantages to small- and medium-sized enterprises (SMEs). The government expects that all of these reforms will lead to a significant improvement in Cote d’Ivoire’s ranking in the “Doing Business” survey.

  • Regarding public administration reforms, efforts to modernize the civil service have led to the completion of the census of civil servants and government employees. This resulted in the establishment of the Single Reference File (FUR), which has been in use by the Payroll Services unit since October 2012. As regards the Integrated System for the Management of Government Officials and Employees (SIGFAE) is concerned, the conception and development of its software program have been completed. The deployment phase within the administration has begun, with modules for the management of competitive recruitment and the handling of administrative acts. Furthermore, to raise the ethical standards of the civil service, an ethical charter and code of conduct for employees were adopted by the Council of Ministers on September 19, 2012.

  • Regarding the performance of public enterprises, a restructuring strategy was adopted by the Council of Ministers on May 26, 2012. It aims to reduce the government’s portfolio by 25 percent through privatization, merger, or the transfer of responsibilities to a technical oversight agency.

9. The implementation of certain measures has been delayed for various reasons.

  • Regarding the application of a new automatic adjustment mechanism for petroleum prices, based on the conclusions of the study that was completed in December 2011, the framework for a new mechanism was elaborated by the responsible ministries. Nevertheless, the continuing upward trend in international prices has not been conducive to the application of this measure in 2012, given the fragile social environment. Given the significant losses in revenue linked to current pricing policy, the government has initiated additional studies aimed at refining and finalizing the parameters involved in the price structure for petroleum products.

  • Regarding measures aimed at reducing the financial deficit in the electricity sector, in particular the renegotiation of the Canadian Natural Resources (CNR) transfer price for gas and remuneration for the operator of the electricity distribution network, discussions are ongoing. The government intends to conclude these discussions as soon as possible to allow for the effective application of the measures in 2013. The government also intends to complete negotiations with Foxtrot regarding the remaining issues.

  • Regarding the strategy for the management of the wage bill between 2012 and 2020, a draft consistent with the commitments under the NDP has been prepared. It is based on streamlining new hiring, progressive measures to raise salaries, as well as the modernization and computerization of the public administration. Its finalization is subject to the conclusions of the Social Forum launched in August 2012 by the government.

10. The macroeconomic outlook confirms the upturn in 2012.

  • The economic upturn in Côte d’Ivoire is firming with a revised GDP growth forecast of 8.6 percent in 2012, compared to the original target of 8.1 percent, following a decline of 4.7 percent in 2011. This upward adjustment is due primarily to the recovery of the secondary sector (+14.8 percent, compared to an initial forecast of +11.8 percent). The upturn also benefited from a rebound following the post-election crisis, the consolidation of peace and security, the fiscal incentives granted to enterprises affected by the crisis, as well as an acceleration of public and private investment (63.2 percent compared to 2011, while the initial forecast was 58.3 percent).

  • Inflation should be contained within the WAEMU norm of 3 percent. The annual average rise in prices will be 1.1 percent, contained in part by measures taken by the government to control the cost of living, including the suspension of import duties on rice to mitigate the impact of higher world prices for food and improvements in supply channels.

  • As for foreign trade, imports and exports should see an increase in value equal to 7 percent of GDP and 1.7 percent of GDP, respectively. There will be a current account surplus equal to 2.9 percent of GDP, compared to 10.2 percent in 2011, driven by an increase in investment-related imports. As for the capital and financial account, it will post a deficit of 3.9 percent of GDP. Overall, the balance of payments deficit will be equal to 1 percent of GDP.

11. The budget outlook for 2012 will be better than expected due to a solid recovery in tax and customs revenue, which will post a gain of CFAF 116.0 billion (0.9 percent of GDP). This increase would be driven by the major taxes, in particular: (i) the non-oil corporate tax is higher due to business support measures taken by the government following the post-election crisis in 2011; (ii) the tax on income from securities; and (iii) the tax on salaries and wages in connection with the recovery of employment and tax collection efforts. In addition, the Single Export Duty (DUS) on coffee and cocoa will benefit from the rise in world prices and from the elimination of the special treatment for processed cocoa. On the other hand, the registration fee, revenue from general goods, and taxes on petroleum products will see a decline due to a lower rate for the registration fee for cocoa within the context of the new price structure, a suspension of import duties and taxes on rice, and the freezing of petroleum pump prices.

12. The execution of budget spending should reach CFAF 3090.2 billion, with a slight overrun due to new requirements arising during the year. This overrun is due to the payment of CFAF 32.4 billion to the electricity sector to settle the arrears owed under the PARI-PASSU, the surcharges related to the use of HVO (liquid fuel) to generate enough electricity to meet demand, and the necessary investments to support the economic recovery.

13. The financing needs for 2012 should be covered. They would amount to CFAF 536.2 billion, or 4.3 percent of GDP, and they will be financed primarily by a net mobilization of funds in the regional financial market (WAEMU). After the exceptional efforts by multilateral institutions in 2011 following the post-election crisis, external budget support has declined. In addition, the government intends to complete the restructuring of external commercial debt (Standard Bank-BNI and Sphinx) under conditions comparable to those provided in the agreements of 2009 and 2011 with the Paris Club and in line with the HIPC Initiative. In June 2012, the government resumed the servicing of the EuroBond 2032 and made a good-faith payment towards settlement of the arrears. In addition, it has proposed an arrears repayment plan based on its financing capacity. The government will continue and conclude discussions with private creditors in a manner consistent with Fund policy regarding loans in arrears, in particular with regard to information transparency, equity among creditors, and dialogue.

14. Côte d’Ivoire benefited from CFAF 4,090 billion, or 64.2 percent of its external debt upon reaching the completion point under the Enhanced HIPC Initiative at end-June 2012. It received from the multilateral institutions and Paris Club creditors reductions of CFAF 946.3 billion and CFAF 3143.7 billion, respectively, on a debt stock amounting to CFAF 1,543.4 billion and CFAF 3,453.0 billion, respectively. Bilateral debt relief agreements have already been signed with certain members of the Paris Club, in particular France, Austria, and Canada. Côte d’Ivoire has benefited from the conversion of a portion of the debt owed to the French Development Agency in the form of debt for development swap contracts (C2D); a first support installment is planned for financing the 2012 budget.

15. In order to ensure the sustainability and viability of public debt following the debt relief, the government has decided to assign the coordination and monitoring of national debt policy to the National Public Debt Committee (CNDP), which was created by Decree No. 2011-424 of November 30, 2011. This committee launched its operations with the development of a procedural manual and the implementation of its strategic action plan for 2012. On this basis, the Committee’s secretariat is in the process of preparing the national debt strategy with the technical assistance of the IMF and the World Bank.

III. Economic and Financial Program for 2013

16. Following the rebound in 2012, the recovery of the Ivorian economy should be confirmed in 2013. The government is planning to accelerate the rehabilitation and construction of the core socio-economic infrastructure and improve the business climate to support growth. The goal is to reduce poverty and progress toward meeting the MDGs in a peaceful environment. To this end, the government intends to proceed in line with the strategy outlined in the letter of intent of October 21, 2011, which places particular emphasis on national reconciliation, job creation, and public debt management.

17. The government is committed to the implementation of the coherent structural reform program launched in 2011 and to take additional measures. Public financial management will be reinforced through the transcription and implementation of new WAEMU directives. The government also intends to pursue the restructuring of the energy and agriculture sectors, public administration reform, and strengthening the financial system to support growth.

A. Macroeconomic Framework

18. In line with the National Development Plan, the government is projecting economic growth of 9 percent in 2013, driven primarily by investment. The investment rate should rise from 12.5 percent of GDP in 2012 to 16.2 percent of GDP in 2013. Public investment should play the role of leveraging growth and stimulating private investment. To this end, a Public Investment Program (PIP), consistent with the National Development Plan, has been prepared. It takes into account the regional integration projects that were the focus of a roundtable meeting among financial backers.

19. The private sector, which will benefit from an improvement in the business climate, will be one of the engines for the growth acceleration. The government has adopted a new investment code and has established a Business Support Center. The return of trade partners and major investment projects should also attract private investment, in particular through public-private partnerships (PPPs), where a priority list of eligible projects has been identified. These projects involve, among others, the creation of new factories, the construction of public housing, exploration and development in the oil and gold industries, and increasing production capacity in the electrical power sector.

20. Robust economic activity is expected in all sectors.

  • The primary sector should see a growth rate of 4.7 percent in 2013, due to favorable developments in all of its components. This performance will be driven by an increase in mining output and the implementation of a development policy for the agricultural sectors through the National Agricultural Investment Program (PNIA); a roundtable organized in September 2012 enabled financing needs to be mobilized.

  • The secondary sector should post growth of 12.1 percent, benefiting from: (i) an improvement in the business climate; (ii) the utilization of enterprises’ capacities; (iii) a return of investor confidence; and (iv) the promotion of public and private investment through the strengthening of public-private partnerships.

  • The tertiary sector should grow by 12.9 percent, due to dynamic development in all of its components in line with the performance indicators achieved in the primary and secondary sectors.

21. The inflation rate should remain within the WAEMU community 3 percent norm. Agricultural development policies, in particular in the area of rice and other food crops, efforts to combat racketeering, and a gradual reduction in incidental expenses, as well as the repair of roads serving agricultural regions, should contribute to a better supply of markets and price stability. Thus, inflation would be around 2.3 percent.

B. 2013 Budget Law

22. Fiscal policy will continue to put priority on mobilizing the full revenue potential of taxes and the rationalization of spending to create the fiscal space necessary for investment. It adheres strictly to orthodox principles with regard to the management of public finances, in particular the approval of the budget in accordance with the constitutional deadline, and transparency and traceability in the chain of public expenditures. The government will take the necessary measures to ensure strict execution of spending within the limits of the budget envelopes, income generated from tax and customs receipts, and available financing. In this regard, meetings of the Treasury Committee will be continued with the aim of making the necessary adjustments through the SIGFiP.

23. The draft budget law reflects the government’s desire to strengthen the mobilization of tax and customs revenues. Despite the projected decline in the taxes for the coffee and cocoa sectors, and oil and gas revenues, tax revenues should be equal to 17.4 percent of GDP in 2013, compared to 17.3 percent in 2012. This performance is attributable to the resumption of economic activity, and also to specific actions and initiatives. In terms of domestic taxes, these include:

  • the pursuit of taxation on informal activities and other activities that are insufficiently taxed;

  • the implementation of an action plan aimed at optimizing the yield of VAT;

  • the reinforcement of actions to combat fraud and, in particular to monitor the use of standardized invoices;

  • the promotion of public tax compliance and public awareness of new taxes with the aim of improving the collection of these revenues, in particular through the implementation of a tax on windfall profits of mining operations;

  • the improvement of the real estate tax collection rate; and

  • the improvement of the yield of some user fees by dematerializing the support of this tax.

Taxes on external trade should increase from 7.5 percent in 2012 to 8.3 percent in 2013 owing to the strong performance of taxes on import of general goods which will be boosted by the economic rebound and to the resumption of the collection of import duties and taxes on rice suspended in 2012. Furthermore, as mentioned above, receipts from the DUS would improve because of the elimination of the tax relief provided in the past to cocoa processors and of the taxation of coffee on an ad valorem basis.

24. The 2013 budget calls for an increase in public investment consistent with the National Development Plan for 2012–15. With an appropriation equal to approximately 26.9 percent of budget revenue, capital expenditures are planned in the amount of CFAF 1031.9 billion, or 7.5 percent of GDP, compared to 5.4 percent in 2012. They will be directed primarily at the rehabilitation and construction of basic infrastructure, the support of the leading growth sectors, such as agriculture, transportation, and energy, as well as operations to strengthen security and national defense. In this context, the government is planning to expand the public procurement absorption capacity through: (i) strengthening the capacities of the principal parties involved in public spending; (ii) a reduction in the time required for the awarding of public contracts; (iii) speeding up the payment of suppliers; and (iv) the establishment of public procurement focal points within technical ministries.

25. The government intends to improve the living conditions for the population by assigning priority to pro-poor spending that will be set at 8.3 percent of GDP, compared to 7.9 percent in 2012. These resources should allow for the rehabilitation of schools and public health facilities, free targeted health care, the development and promotion of agriculture, the purchase of textbooks and school kits, and the continuation of the school meal program.

26. Caps will be placed on some budget appropriations. The government plans to limit operating expenses to CFAF 507 billion, and subsidies for the electricity sector to CFAF 64 billion. In addition, the government will continue to carry out expenditures in accordance with the pace of mobilization of domestic and external resources. Special emphasis will be placed on containing the wage bill at 7.5 percent of GDP. The introduction of computerized management of personnel and the streamlining of new recruitment should result in a decline in the estimated ratio of the wage bill to tax revenue to 43.1percent in 2013.

27. The overall primary basic balance will reach CFAF 23.2 billion, or 0.2 percent of GDP. The total budget deficit, including grants (except grants for the settlement of arrears) would decline to 2.9 percent of GDP in 2013 from 4.3 percent of GDP in 2012.

C. Structural Reforms

28. The government will continue structural reforms to improve the competitiveness of the economy. These reforms are aimed at strengthening public financial management, and improving the effectiveness of public administration, governance, and the business climate.

29. Efforts to improve public financial management will continue. The plan rests on a number of key strategic elements:

  • Concerning the legal and institutional framework, the preliminary draft organic laws dealing with the code of transparency and the budget system law will be adopted by the Council of Ministers in December 2012 and submitted to Parliament at end-March 2013. Following the promulgation of these laws, decrees pertaining to the General Regulations on Public Accounting, the Government Budget Nomenclature, the Government Chart of Accounts, and the Table of Government Financial Operations will be signed after the organic laws have been adopted by Parliament. To this end, the government will adopt by end-July 2013 a strategy and action plan for the implementation of the reforms.

  • Progress will be made with regard to the transparency of budget execution through the implementation of the transparency code following its adoption. In addition, in the context of the statements presented to the Council of Ministers, quarterly reports on budget execution will be improved by incorporating the analysis of investment spending by ministry. With regard to technical matters, the rolling out of SIGFiP throughout the country will be continued.

  • Regarding budget discipline, Treasury advances will be contained within the limits provided for under the order issued by the Minister of the Economy and Finance in March 2009. To optimize the allocation of resources and to ensure effective spending, the Medium-Term Expenditure Framework (MTEF) has been extended to eight high-level ministries for 2013, in addition to the education and training, and health sectors. The process will be expanded to other ministries in 2014. In addition, an overall MTEF will be put in place for the preparation of the 2014 budget.

The government will pursue the reform of public finances by adopting a new action plan based on the Public Expenditure Management and Accountability Review (PEMFAR), and it will adopt before end-September 2013 a coordination plan for working with donors for its financing and implementation.

30. The government will continue the reforms in the coffee and cocoa sector. It will conduct an assessment on the need for hedging external market risk for cocoa and it will apply the recommendations. In addition, regular audits of the sales system will be carried out and a semi-annual report on the implementation of the reform will be published. Furthermore, it will establish ad valorem taxation for coffee starting from the 2013 campaign.

31. Efforts to reduce the deficit in the electricity sector and to increase capacity will be continued.

  • The government (the ministries in charge of overseeing the sector from a technical and financial standpoint), as prior action, will adopt before November 15, 2012, a medium-term strategy for the development and restoration of the sector’s financial equilibrium. This strategy will take stock of the projects to increase both thermal and hydroelectric production capacities, and of the various measures envisaged to reduce costs and generate additional revenue to restore the sector’s financial equilibrium over 2013–15, while protecting low-income households.

  • Development projects in the sector should make it possible between now and 2014 to boost natural gas production and reduce the need to resort to HVO fuel, which is more expensive. To this end, after boosting the production capacity of the Foxtrot natural gas field, the government is planning to develop the Gazelle field, which will go into production in 2014. Thus, starting in 2014 there will only be residual recourse to HVO. Over the medium term, the increase in hydroelectric capacities, in particular as a result of the completion of the Soubré hydroelectric dam, will also contribute to a reduction in costs.

  • The increase in electricity capacity to support growth will be accompanied by measures aimed at reducing technical and non-technical losses and the completion of new projects for electricity generation. Specifically, this will entail: (i) an improvement in the overall efficiency of electricity generation, which will rise from 74.7 percent in 2012 to 77.7 percent in 2015, or 1 percentage point per year; (ii) the leasing of a thermal power station with a 100 MW capacity starting in March 2013; (ii) investments in 2013 to bring phase 4 of CIPREL on line in January 2014, and its cogeneration cycle on line in January 2015; phases 1 and 2 of the Abatta cogeneration cycle thermal power station on line in December 2015 and February 2016, respectively, and its steam cycle on line in December 2016; the startup of the Azito steam cycle is planned for December 2014; and (iv) preliminary discussions are under way with potential investors regarding three other projects.

  • As part of its strategy, the government also intends to complete negotiations with the operator of the electricity distribution network before end-June 2013 to consider a reduction in its remuneration and with gas field operators to reduce the gas price. In this context, the discussions that are under way regarding a change in the contract for the Foxtrot gas field will be completed at the earliest.

  • The new electricity code will be adopted by the Council of Ministers before the end of 2012 and will then be submitted to the National Assembly.

  • The electricity export contracts will be renegotiated with an adjustment in the rates to allow for a greater contribution toward production costs.

  • The transition to the regular tariff for all customers consuming more than 200 kWh bimonthly will be effective for all the bills relating to consumption after January 1, 2013.

  • A new tariff structure incorporating the recommendations of the social impact study initiated in 2012 would be applied starting in 2013. In addition, the government intends to implement gradual rate increases, starting with an average increase of 5 percent for the low-voltage tariff in July 2013, with the next steps intended to complement cost-cutting measures and mobilize additional resources, while protecting low-income households.

32. Regarding petroleum products, the government plans to implement a new automatic price adjustment mechanism. As prior action, a new price structure will be developed and adopted by the government before November 15, 2012. This will be the focus of a public awareness campaign before being implemented at end-March 2013. This new mechanism will balance the social impact of pump price changes and the need to reflect market prices. Considering the significant financial losses resulting from the butane price subsidy mechanism, the government has decided to raise prices for liquid petroleum products by a maximum of CFAF 15 (or around 2 percent) per liter beginning December 2012, and simultaneously limit the butane gas subsidy to 6 and 12 kg bottles. A study regarding the butane adjustment will be completed before end-November 2012 to ascertain the viability of the butane subsidy policy within the context of the new price structure.

33. Concerning the extractive industries, Côte d’Ivoire aims to be fully compliant with the Extractive Industries Transparency Initiative (EITI). Following the publication of the reports for the years 2008–09 and 2010, and the amendment to the petroleum code requiring oil companies to participate in the EITI, the government hopes that the EITI Board will make a decision on the country’s compliance at its October 2012 meeting.

34. Regarding public enterprises, the restructuring plan adopted by the Council of Ministers on May 23, 2012, will be implemented. The ultimate objective is to reduce the government’s portfolio by 25 percent through privatization, merger, or the transfer of responsibilities to a technical oversight agency. The process has been started, with the development of the terms of reference aimed at defining the mechanism and the strategy to be employed for each enterprise involved. In addition, the government plans to institute performance contracts between the government of Côte d’Ivoire and public enterprises to improve their productivity. It will also oversee the application of the plan for the settlement of outstanding payments validated jointly by debtor public enterprises and social security institutions (CGRAE and CNPS).

35. With regard to public banks, the designated strategic options for restructuring are in the process of being implemented. International firms have been hired to assess the value of these banks with the aim of initiating the operational phase for the options that are chosen. The evaluation studies will be completed by end-November 2012.

36. The government is planning to settle its arrears to the financial sector in 2013. The government’s arrears to the Central Bank of West African States (BCEAO) will be subject to a settlement plan. Arrears to banks and financial institutions will be settled through issuing Treasury bonds. Arrears to the nonfinancial sector will be subject to an audit and a settlement plan will be designed thereafter.

37. The government intends to finalize the Financial Sector Development Strategy (SDSF) with the support of the FIRST initiative. This strategy should identify solutions for improving the financing of economic activities, particularly in housing, small- and medium-sized enterprises, and agriculture. It should also address the role of the government in the financial sector, the cost of credit, and the recovery of the microfinance sector. In this context, the finalization of complementary studies would make it possible to develop a strategy that will be validated in the course of a workshop at the end of the first quarter of 2013. A roundtable will be organized to arrange for its financing in 2013 The Financial Sector Monitoring and Development Committee (CODESFI), created in November 2009, will oversee the implementation of the SDSF in 2013.

38. The government intends to capitalize on the significant progress made in improving the business climate. Following the opening of the commercial court in Abidjan, two other commercial courts will be opened in 2013. Training for magistrates and judicial personnel will be subsequently bolstered. The Business Support Center will become operational under the aegis of the Center for the Promotion of Investments in Côte d’Ivoire (Centre de Promotion des Investissements en Côte d’Ivoire, or CEPICI), which has been granted the status of an autonomous legal entity (a national public administrative agency). To ensure enterprises access to suitable industrial sites, a program for the rehabilitation and creation of industrial zones will be implemented. Furthermore, the government intends to complete the establishment of a one-stop shop for foreign trade, the feasibility studies of which have started.

39. Regarding public administration, the government is planning to further modernize the civil service. The deployment of SIGFAE and steps to improve the personnel management framework will be continued. This environment will be conducive to the implementation of a strategy to manage the wage bill, building on the recommendations of the Social Forum initiated in 2012, as well as containing new recruitment while meeting the requirements of the National Development Plan.

IV. Debt Strategy

40. The government will implement a strategy to ensure the sustainability of post-HIPC debt. The goals of this strategy are to: (i) significantly lower the refinancing risk by converting domestic debt into medium- and long-term debt; (ii) favor concessional borrowing with regard to external debt; (iii) assist in the progressive development of the domestic market while opting for medium-term maturities; and (iv) minimize all costs and risks. To this end, following the establishment of the CNDP, the government intends to reorganize the operational framework for debt management, in particular by creating “front, middle, and back office” services handling both domestic and external debt. The government will adopt a debt strategy in the first half of 2013. On this basis, the CNDP will produce an annual report on the policy and execution of the debt strategy, which will be submitted to Parliament during the adoption of the budget law, starting with the 2014 fiscal year.

41. The government will implement a strategy to promote public-private partnerships to boost investment while limiting risks to public finances. To this end, the National Committee created in November 2011 has been instructed to put a legal and institutional framework in place before end-June 2013 as well as strengthening domestic capacity as regard PPPs. The priority projects eligible for the PPP, which are consistent with the National Development Plan, have been adopted by the Council of Ministers. More in-depth studies will be undertaken with the aim of preparing the financial structuring and the implementation of the PPPs. In this context, the government will seek assistance from the IMF, the World Bank, and other development partners as regard best international practices in this area.

42. In order to meet the financing needs of its investment plans, the government will continue to favor concessional sources of financing. However, some nonconcessional external borrowing may be necessary for investment projects that are economically profitable for which concessional borrowing is difficult to mobilize. While the government intends to reduce the financing burden on the budget through the use of PPPs, some government participation financed by borrowing may be necessary in order to leverage in private participation and financing. However, the government intends to ensure that any borrowing, including on nonconcessional terms, is contracted in the context of a sound borrowing policy in order to preserve debt sustainability. To this end, alongside ongoing measures to strengthen debt management and to prepare its own debt management strategy, the government will limit its cumulative nonconcessional borrowing in 2013–14 to the equivalent of USD 100 million by end-2013 and USD 200 million by end-2014, which will be limited to infrastructure and energy sector investment projects that are economically profitable. Also, to benefit from the increase in the lending envelope of the West African Development Bank (BOAD) for Côte d’Ivoire, the government requests an increase of CFAF 25 billion (equivalent to USD 50 million) in the existing nonconcessional window for borrowing on nonconcessional terms from the (BOAD).

V. Program Financing and Monitoring

43. The government considers that financing will be available for the program in 2013. The financing shortfall in 2013 will be CFAF 37.4 billion and will be financed through the domestic market. The funding of the PIP in 2013–15 will come through two main channels: (i) the C2D with the French Development Agency (AFD); and (ii) a donor meeting (consultative group) including an investors’ forum, supported by the World Bank, which will be organized in early December 2012 in Paris. The government intends to rely primarily on grants or concessional loans, particularly from the World Bank, the African Development Bank, the Islamic Development Bank, and the European Union. Nevertheless, nonconcessional financing might be needed for certain investments.

44. Regarding access to the domestic and regional markets, the government intends to mobilize more loans with longer maturities. Regular meetings of the Treasury Committee will be held to ensure that the revenue projections and public securities issues are consistent with the execution of expenditures and are meeting debt service obligations. The government will also continue to aim for a net reduction in amount payables by CFAF 25 billion in 2013, and to meet its obligations under securitized debt.

45. The program will be monitored on a half-yearly basis by the IMF Executive Board based on quantitative indicators and structural targets (Tables 1&2). These indicators are defined in the attached Technical Memorandum of Understanding (TMU). The semi-annual reviews will be based on the end-June and end-December data. The third (fourth) program review would be based on the performance criteria at end-December 2012 (end-June 2013) and should be completed no later than June 2013 (December 2013). To this end, the government undertakes:

Table 1.

Côte d’Ivoire: Performance Criteria (PC) and Indicative Targets (IT), ECF 2012–13 1/

(Billions of CFA francs) 2/

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Sources: Ivoirien authorities and IMF staff. Note: The terms in this table are defined in the TMU.

Cumulative change from December 31, 2011 for 2012 targets, and from December 31, 2012 for 2013 targets.

Except for the ceiling on new nonconcessional external debt

Continuous performance criteria.

The new window in 2013 will be used for infrastructure and energy sector projects (MEFP ¶42)

Table 2.

Côte d’Ivoire: Structural Benchmarks (SB), 2012 ECF

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  • to refrain from accumulating new domestic arrears and any kind of advance against revenues and from obtaining nonconcessional external loans other than those specified in the TMU;

  • to issue government securities only by means of an auction through the BCEAO or any other form of competitive bidding in the local financial market and the WAEMU and to consult with Fund staff regarding any new domestic financing;

  • not to introduce or tighten restrictions on payments and transfers pertaining to current international transactions, not to introduce multiple exchange rate practices, not to conclude any bilateral payment agreements that are not in compliance with Article VIII of the IMF Articles of Agreement, and not to impose or tighten any restrictions on imports for the purpose of balancing the balance of payments;

  • to adopt all new financial or structural measures as needed to ensure the successful implementation of its policies in consultation with the IMF.

VI. Statistics and Capacity-Building

46. The government undertakes to continue its efforts to improve the statistical system with a view to the regular production of high-quality economic and financial data. To this end, the Strategic Plan for the Strengthening of Statistics for 2012–15, which is consistent with the National Development Plan, was ratified through the adoption of the PND for 2012–15 on March 28, 2012, and has been put into operation. It entails: (i) support for the performance of national and sectoral surveys; (ii) workshops on the implementation of the Integrated Information Management System database; (iii) updating of the Harmonized Consumer Price Index (HCPI); (iv) development of the ministerial statistical services yearbook; and (v) the production of the projected balance of payments. A special effort will be made with the assistance of the African Regional Technical Assistance Center (AFRITAC West) to produce quarterly national accounts in 2013. The draft law regarding the organization, regulation, and coordination of statistical activities in Côte d’Ivoire has been updated and presented to the government. It should be adopted by the National Assembly in 2013.

47. Côte d’Ivoire will continue to strengthen its administrative capacities in a post-enhanced HIPC environment. The government will continue to benefit from assistance from the IMF and other development partners to: (i) strengthen the capacities of the tax and customs administrations; (ii) review tax exemptions; (iii) assist in the implementation of the action plan for the reform of public finances; (iv) improve national accounts with the aim of creating a social accounting matrix; and (v) develop capacities for the management of public resources and the monitoring of investment projects. To strengthen public debt management, the government intends to undertake a capacity-building program aimed at supporting the development and implementation of a medium-term debt strategy. The government will accordingly seek technical assistance from the IMF.

Table 3.

Côte d’Ivoire: Structural Benchmarks, 2012–13 ECF

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Attachment II. Côte d’Ivoire: Technical Memorandum of Understanding

Arrangement under the Extended Credit Facility 2011–14

November 13, 2012

1. This Technical Memorandum of Understanding (TMU) describes the quantitative and structural assessment criteria established by the Ivorian authorities and the staff of the International Monetary Fund (IMF) to monitor the program supported by the Fund’s Extended Credit Facility (ECF). It also specifies the periodicity and the deadlines for the transmission of data to Fund staff for program monitoring purposes. Unless otherwise specified, the government is defined as the central government of Côte d’Ivoire, including the National Social Security Fund (Caisse Nationale de Prévoyance Sociale, CNPS) and the Civil Service Pension Fund (Caisse Générale de Retraite des Agents de l’Etat, CGRAE), and Treasury operations for public companies in liquidation; it does not include any local government authorities, the Central Bank of West African States (BCEAO), or any other government-owned entity with separate legal status.

I. Quantitative Indicators

2. For program monitoring purposes, the performance criteria (PC) and indicative targets (IT) are set for December 31, 2012, and June 30, 2013; there are indicative targets for these variables for September 30, 2012, and March 31, 2013.

The performance criteria include:

  • (a) a floor on the overall fiscal balance (including grants);

  • (b) a ceiling for net domestic financing (including the issuance of securities in the West African Economic and Monetary Union (WAEMU) financial market);

  • (c) a ceiling on new nonconcessional external debt;

  • (d) a zero ceiling for the accumulation of new external arrears; and

  • (e) a zero ceiling for the accumulation of new domestic arrears.

The indicative targets are:

  • (a) a floor on the primary basic fiscal balance;

  • (b) a ceiling on expenditures by treasury advance;

  • (c) a floor on “pro-poor” expenditures;

  • (d) a floor on the net reduction of the government amounts payables;

  • (e) a floor on total government revenue.

3. The PCs, the ITs, and the adjustors are calculated as the cumulative change from December 31, 2011, for the 2012 targets, and from December 31, 2012, for the 2013 targets (Table 2 of the Memorandum of Economic and Financial Policies, or the MEFP).

A. Government Revenue (IT)

4. Total government revenue is defined as all revenue collected by the Tax Administration (DGI), the Directorate-General of the Treasury and Public Accounting Administration (DGTCP), the Customs Administration (DGD), the CNPS, and the CGRAE, and other nontax revenue as defined in the fiscal reporting table (TOFE).

B. Pro-poor expenditures (IT)

5. Pro-poor expenditures are derived from the detailed list of “pro-poor expenditures” in SIFBUD/SIGFIP system (see Table 1).

Table 1.

Côte d’ivoire: Pro-Poor Spending (incl. Social Spending), 2009–13

(Billion CFA Francs)

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Source: Ivorian authorities.
C. Treasury Advances (IT)

6. Within the framework of the program, Treasury advances are defined as spending paid for by the Treasury outside normal execution and control procedures, and which have not been subject to prior commitment and authorization. They exclude the “régies d’avances”, externally-financed expenditures, wages, subsidies and transfers, and debt service as set out through ministerial decree. The cumulative amount of expenditures by treasury advance as defined by the program will not exceed the cumulative quarterly ceilings representing 10 percent of quarterly budget allocations (excluding externally financed expenditures, wages, subsidies and transfers, and debt service). The nominative and restrictive list of expenditures eligible as treasury advances is as defined by ministerial Decree No. 178/MEF/CAB-01/26 of March 13, 2009.

D. Primary Basic Fiscal Balance (IT)

7. The primary basic fiscal balance is the difference between the government’s total revenue (excluding grants) and total expenditure plus net lending, excluding interest payments and externally-financed capital expenditure (on a payment order basis for all expenditure items):

Tax and nontax revenue (excluding grants) – {Expenditure + Net lending – Interest payments – Externally - financed capital expenditure (on a payment order basis for all expenditure items)}

E. Overall Fiscal Balance (including grants) (PC)

8. The overall fiscal balance is the difference between the government’s total revenue (including grants except World Bank budget support grants- AfDB budget support grants) and total expenditure plus net lending (on a payment order basis):

Tax and nontax revenue + (Grants – World Bank budget support grants – AfDB budget support grants) – {Expenditure + Net lending (on a payment order basis for all expenditure items)}

9. The floor on the overall fiscal balance will be adjusted downward (upward) for an excess (shortfall) of project loans relative to the programmed amount.

F. Net Domestic Financing (PC)

10. Domestic financing by the central government is defined as the issuance of all debt instruments in CFAF to domestic creditors and in the WAEMU financial market, borrowing from the BCEAO (including drawings from the IMF), and any other kind of other liability in CFAF toward these creditors. The program ceiling on net domestic financing applies to net amounts of domestic/WAEMU borrowing defined as the gross amount of domestic/WAEMU borrowing less amortization during the period under consideration. This ceiling includes a margin of CFAF 10 billion above the net cumulative flow projected for each quarter.

Net domestic financing = Domestic financing (TOFE) – Net change in amounts payable + Treasury bonds from abroad (WAEMU) + Treasury bills placed abroad (WAEMU) + Treasury bonds placed abroad (WAEMU) + IMF drawings + Financing gap

11. The ceiling on the change in domestic financing of the government will be adjusted up (down) if external budget support falls short of (exceeds) the program amount over each of calendar years 2012 and 2013. Budget support is defined as grants and loans (excluding project grants and loans, and IMF resources). If disbursements of external budget support fall short relative to programmed amounts, the ceiling on net domestic financing will be adjusted upward accordingly up to a maximum of CFAF 40 billion of change in the programmed amount of budget support. If disbursements of external budgetary support exceed the programmed amounts, the ceiling on net domestic financing will be adjusted downward at a rate of 50 percent up to a maximum of 40 billion CFAF of change in the programmed amount of budget support.

12. This ceiling does not apply to either new agreements on restructuring domestic debt and securitization of domestic arrears or to new project loans from the West African Development Bank (BOAD) and the Bank for Investment and Development (BIDC) of the Economic Community of West African States (ECOWAS). For any new borrowing over and above a cumulative amount of CFAF 35 billion over each of the years 2012 and 2013, the government undertakes not to issue government securities except by auction through the BCEAO or through public auction (appel d’offres compétitif) on the domestic or WAEMU financial markets registered with the Regional Council for Public Savings and Financial Markets (CREPMF), in consultation with Fund staff.

G. New Nonconcessional External Debt (PC)

13. The quantitative performance criterion concerning external debt applies to all nonconcessional external debt, irrespective of maturity, and whether it has been contracted or guaranteed by the government.1 It applies not only to the debt as defined above, but also to commitments contracted or guaranteed for which no value has been received. This performance criterion does not apply to:

  • normal import-related commercial debts having a maturity of less than one year;

  • rescheduling agreements;

  • debts to the BOAD on loans up to the equivalent of CFAF 25 billion from January 1 to December 31, 2012 and CFAF 50 billion from January 1, 2013 to December 31, 2013;

  • debts to the BIDC, up to the equivalent of CFAF 20 billion, for each of the periods from January 1 to December 31, 2012 and from January 1 to December 31, 2013;

  • drawings on the IMF; and

  • CFAF-denominated government securities (or CFAF-denominated debt contracted or guaranteed by the government) which are initially purchased (or contracted) by WAEMU residents.

14. A debt is considered concessional if its grant element is at least 35 percent, the net present value (NPV) of the debt being calculated using a discount rate based on the average of the OECD Commercial Interest Reference Rates (CIRRs) over the last 10 years for debt with a maturity of at least 15 years. For debt with a maturity of less than 15 years, the NPV is based on the average CIRRs of the preceding six-month period (February 15 to August 14 or August 15 to February 14). The same margins for differing repayment periods are added to both the 10-year and 6-month averages (0.75 percentage point for repayment periods of less than 15 years, 1 percentage point for 15 to 19 years, 1.15 percentage points for 20 to 29 years, and 1.25 percentage points for 30 years or more).

15. The government undertakes not to contract or guarantee nonconcessional external debt under the conditions defined in paragraphs 13 and 14, with the exception of debt constituting rescheduling of maturities and new debt contracted or guaranteed by the government as specified in paragraph 16. To this end, the government undertakes to consult with IMF staff on the terms and concessionality of any proposed new debt in advance of contracting such external debt.

16. A cumulative ceiling beginning January 1, 2013 of up $ 100 million to December 31, 2013, and $ 200 million to December 31, 2014, applies to new nonconcessional external debt other than specified in paragraph 13 (performance criteria.) This ceiling would be applicable to debt-financing of projects in the infrastructure and energy sectors. The government will inform staff in a timely manner before contracting any debt of this type and provide information on the terms of the new debt as well as a brief summary of the projects to be financed and their profitability, including an independent evaluation. The government will report the use of funds and project implementation in subsequent MEFPs or to staff.

H. External Payment Arrears (PC)

17. External arrears are considered to be the nonpayment of any interest or principal amounts on their due dates (taking into account relevant contractual grace periods, if any). This performance criterion applies to arrears accumulated under external debt of the government and external debt guaranteed by the government for which the guarantee has been called by creditors, consistent with the definitions given under the external debt criterion (paragraph 15). This performance criterion is monitored on a continuous basis.

18. Excluded from this performance criterion until a restructuring or repayment plan is agreed arrears accumulated under:

  • i) the 2032 Eurobonds;

  • ii) the BNI-Standard Bank (London) 2007 and 2008 notes; and

  • iii) the Sphynx Capital Markets 2007 and 2008 notes.

No new arrears should be accumulated after the restructuring agreement or repayment plan comes into effect.

I. Amounts Payable, Including Domestic Payment Arrears (IT and PC)

19. The “amounts payable” (or “balances outstanding”) include domestic arrears and floating debt and represent the government’s overdue obligations. They are defined as expenditures committed and verified (engagées et liquidées), validated (ordonnancées) by the financial controller (contrôleur financier), assumed (prise en charge) by the public accountant, and subject to payment order but yet to be paid. For the program definition, these include (i) bills due and not paid to non financial public and private companies, and (ii) the domestic debt service to commercial banks, insurance companies, and other financial institutions. For program purposes, domestic payment arrears are those balances outstanding to nonfinancial public and private companies for which the payment date exceeds the deadline for payment stipulated by the administrative regulations of 90 days, and the domestic debt service to commercial banks, insurance companies, and other financial institutions for which the payment date exceeds 30 days. Floating debt refers to those balances outstanding for which the payment date does not exceed the deadline for payment stipulated by the administrative regulations (90 days for debt to nonfinancial public and private companies and 30 days for debt service to commercial banks, insurance companies, and other financial institutions). The balances outstanding are broken down by payer and type, as well as by maturity and length of overdue period (< 90 days, 90–365 days, > 1 year for nonfinancial companies, and <30 days, 30-365 days, > 1 year for financial companies).

20. In general, the stock of floating debt will not exceed three months’ worth of current operating expenses (excluding utilities), monthly debt service due to financial companies, and domestically-financed expenditure.

21. For program purposes, the government undertakes: (i) to reduce the stock of amounts payable by CFAF 25 billion in 2012 and CFAF 25 billion in 2013; and (ii) not to accumulate new domestic payment arrears in the current fiscal year, and the next fiscal year starting on January 1, 2013. In addition, the stock of arrears related to debt service due to commercial banks, insurance companies, and other financial institutions (net of service on claims on the government that these entities may acquire from third parties as of October 1, 2012) on December 31, 2012 should not exceed its level as of September 30, 2012; at the end of each quarter, the stock of arrears to commercial banks, insurance companies, and other financial institutions (net of service on claims on the government that these entities may acquire from third parties from the 1st day of the quarter) should not exceed the level of the previous quarter.

II. Memorandum Items
A. Net Bank Claims on the Government

22. Net bank claims on the government are defined as the difference between government debts and government claims with the central bank and commercial banks. The coverage of net bank claims on the government is that used by the BCEAO, and is the same as that shown in the net government position (NGP).

B. External Financing (Definitions)

23. Within the framework of the program, the following definitions apply: (i) project grants refer to non-repayable money or goods intended for the financing of a certain project; (ii) program grants refer to non-repayable money or goods not intended for the financing of a specific project; (iii) project loans refer to repayable money or goods received from a donor to finance a specific project, on which interest is charged; and (iv) program loans are repayable money or goods received from a donor and not intended for the financing a specific project, on which interest is charged.

III. Program Monitoring and Data Reporting

24. A quarterly assessment report on the monitoring of the quantitative performance criteria, indicative targets, and structural benchmarks will be produced by the authorities within 45 days of the end of each quarter.

25. The government will report the information specified in Table 2 on a monthly basis, within 45 days of month-end or quarter-end, unless otherwise indicated. Tables F.3.1, F.3.2, and F.3.3 are updated to take into account the expanded coverage of arrears.

26. The BCEAO will report final data within 45 days of the end of the period in question. The information provided will include a complete, itemized listing of public sector liabilities and assets with: (i) the BCEAO; (ii) the National Investment Bank (Banque Nationale d’Investissement, or BNI); and (iii) the banking sector (including the BNI).

27. The authorities will consult with the Fund staff on any proposed new external debt contracts. The authorities will inform the Fund staff, following signature, of any new external debt contracted or guaranteed by the government, including the terms of these contracts. Data on new external debt, the amount outstanding, and the accumulation and repayment of external payment arrears will be reported monthly within six weeks of the end of each month.

28. More generally, the authorities will report to the IMF staff any information needed for effective monitoring of the implementation of economic policies.

Table 2. Document Transmittals

Detailed tables to be transmitted monthly, quarterly, or annually to the IMF staff. Examples of each of these tables have been provided for illustration. The documents expected monthly are indicated by “M,” those expected quarterly by “Q,” and those expected annually by “AN.” This list is not necessarily exhaustive.

Real sector (R)

General:

  • Table R.1: Cyclical Indicators (M)

  • Table R.2.1: Macroeconomic Framework (AN)

  • Table R.2.2: Supply-use accounts, current francs (AN)

  • Table R.2.3: GDP in francs (n-1): annual variation in volume (AN)

  • Table R.2.4: GDP deflators year (n-1) (AN)

  • Table R.2.5: Macroeconomic framework, underlying assumptions (AN)

  • Table R3: Price index (M)

Energy:

  • Table R.4.1: Summary crude oil and gas production (M)

  • Table R.4.2: Crude oil and gas production – CI11 (M)

  • Table R.4.3: Crude oil and gas production – CI26 (M)

  • Table R.4.4: Crude oil and gas production – CI27 (M)

  • Table R.4.5: Crude oil and gas production – CI40 (M)

  • Table R.4.6: Crude oil and gas – volume, price, and financial flows (M)

  • Table R.4.7: Ivorian Refinery (SIR) activities (M)

  • Table R.4.8: SIR: transfers to warehouses and exports (M)

  • Table R.4.9: Activities of marketers (M)

  • Table R.4.10: Goods released to market by type of tax (M)

  • Table R.4.11: Financial flows in cash, Electricity Sector Asset Management Company (Société de Gestion du Patrimoine du Secteur Electricité, SOGEPE) (M)

  • Table R.4.12: Operating financial flows, SOGEPE (Q)

  • Table R.4.13: Crude oil: Shipment report (Q)

  • Table R.4.14: Petroleum revenue: Structure of maximum sales prices (M).

Coffee/cocoa:

  • Table R.5.1: Quasi-fiscal levies and fees, and utilization – operations (Q)

  • Table R.5.2: Quasi-fiscal levies and fees, and utilization – investment (Q)

  • Table R.5.3: Investments in funds managed by the Coffee/Cocoa Committee (Q)

  • Table R.5.4: Bank accounts (Q)

Balance of Payments sector (B)

  • Table B.1.1: Summary table of foreign trade (AN)

  • Table B.1.2: Imports (source DGD - monthly) (M)

  • Table B.1.3: Exports (source DGD - monthly) (M)

  • Table B.2.1: Detailed balance of payments (including capital account) CFA francs (AN)

  • Table B.2.1.a: Exports – quantities (Q)

  • Table B.2.1.b: Exports – unit prices (Q)

  • Table B.2.2.a: Imports – quantities (Q)

  • Table B.2.2.b: Imports – unit prices (Q)

  • Table B.3: Balance of Payments: Summary presentation (AN)

Monetary sector (M)

  • Table M.1: Banks (M)

  • Table M.2: Summary BCEAO position (M)

  • Table M.3: Net government position (M)

  • Table M.4: Changes in net foreign assets (NFA) (M)

  • Table M.5: Integrated Monetary Survey (M)

  • Table M.6: Government liabilities to banks (M)

Fiscal sector (F)

  • Table F.1: Table of government financial operations (TOFE) (M)

  • Table F.2: Estimated government tax revenue (M)

Domestic arrears:

  • Table F.3.1: Domestic arrears (M)

  • Table F.3.2: Consolidated Treasury balances outstanding (M)

  • Table F.3.3: Treasury balances outstanding - targets/execution (M)

  • Table F.3.4: Clearings and securitizations (M)

Domestic and foreign debt:

  • Table F.4.1: Domestic debt (M)

  • Table F.4.2: Total domestic debt (M)

  • Table F.4.3: Negotiable instruments (M)

  • Table F.4.4: Explanation of variances in domestic debt service (M)

  • Table F.5.1: Foreign debt (M)

  • Table F.5.2: Details of foreign debt (M)

  • Table F.5.3: Analysis of projected foreign debt service variances (M)

  • Table F.5.4: Projected debt service (Q)

Post-crisis:

  • Table F.6: Crisis- and election-related expenditures (M)

Treasury advances:

  • Table F.7.1: Advances from the Treasury (M)

  • Table F.7.2: Treasury advances reclassified (M)

Investment:

  • Table F.8: Investment expenditures (M)

Social/pro-poor expenditures:

  • Table F.9.1: Education and health expenditures – other (M)

  • Table F.9.2: Education and health expenditures – personnel/operations/transfers/ investments (M)

  • Table F.9.3: Subsidies and transfers: Targeted social expenditures (M)

  • Table F.9.4: Execution of social expenditures (M)

  • Table F.9.5: Execution of pro-poor expenditures (M)

  • Table F.9.6: Budget execution report (SIGFIP) detail/category (Q)

Other revenue and expenditures:

  • Table F.10: Other operating expenses (M)

  • Table F.11: CNPS and CGRAE social security and civil service pension contributions (M)

  • Table F.12: Summary table of expenditures (M)

  • Table F.13: Summary table of nontax revenue and grants (M)

VAT credits:

  • Table F.14.1: Summary statistical statement of VAT credit refunds (monthly) (M)

Financing:

  • Table F.15.1: Issues/redemptions of public debt (M)

  • Table F.15.2: Bridge loans and other Treasury advances (M)

Wage bill:

  • Table F.16.1: Projected wage bill (Q)

  • Table F.16.2: Changes in wage bill (Q)

  • Table F.16.3: Wage bill framing (AN)

  • Table F.16.4: Projected new recruits (AN)

Special accounts:

  • Table F.17.1: ECOWAS levy (PCC) (AN)

  • Table F.17.2: WAEMU levy (PCS) (AN)

  • Table F.18: Proceeds from privatization and sale of assets (AN)

Cash flow plan:

  • Table F.20.1: Annual cash flow, resources/expenditures plan (AN)

  • Table F.20.2: Execution of cash flow plan (M)

  • Table F.20.3: Overall balance of Treasury accounts

1

The first half of 2011 is not a good reference period, as the post-election crisis resulted in depressed economic activity and imports.

2

5 out of 6 missed structural benchmarks are in the energy sector.

3

Bilateral debt relief agreements have been signed as of end-October with several Paris Club creditors—Austria, Belgium, Canada, France and Switzerland; and the authorities are contacting other official bilateral creditors as well as multilateral creditors.

4

Economic activity would be driven by significantly higher levels of public and private (including PPPs) investment, as well as by a rise in consumption in rural areas resulting from the expected success of the cocoa reform, which guarantees a higher share of the CIF cocoa prices to producers.

5

The net tax reduction (0.3 percent of GDP) reflects the government’s commitment to pass at least 60 percent of c.i.f. export cocoa prices on to farmers, as part of the reform of the coffee/cocoa sector. After consulting with other stakeholders in the cocoa sector and given that other costs (transportation, marketing, etc) are relatively fixed, only a tax reduction could be used to ensure an adequate guaranteed farmers’ price. The loss of tax was partially offset by the government decision to end the temporary preferential tax treatment offered to cocoa grinders, which was supposed to expire more than a decade ago. This change in the taxes on cocoa allows for the completion of the cocoa sector reform, in line with the relevant HIPC completion point trigger.

6

In June 2012 Côte d’Ivoire made a good-faith payment towards settling arrears and resumed payments on maturities falling due.

7

The window is not tied to specific projects, but would finance projects in infrastructure and energy sectors.

8

Like the existing window this increase would not be tied to infrastructure and energy sector projects and is excluded from the performance criteria on new nonconcessional debt (see TMU paragraphs 13 and 16).

1

External debt is defined in Guidelines on Performance Criteria with Respect to External Debt in Fund Arrangements, Executive Board Decision No. 6230–(79/140), as amended by Executive Board Decision No 14416–(09/91) on August 31, 2009. External debt is defined on the basis of residency. For the assessment of the program, however, debt issued by Ivorian entities in CFA francs and held by residents of the member countries of the WAEMU zone shall not be considered to be external debt.

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Cover IMF Staff Country Reports
Côte d’Ivoire: Second Review Under the Three-Year Arrangement Under the Extended Credit Facility, Request for Modification of Performance Criteria, and Financing Assurances Review—Staff Report; Staff Supplements; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Côte d’Ivoire.
Author:
International Monetary Fund. African Dept.
Volume/Issue:
Volume 2012: Issue 332
Publisher:
International Monetary Fund
ISBN:
9781475552638
ISSN:
1934-7685
Pages:
99
DOI:
https://doi.org/10.5089/9781475552638.002
  • Figure 1.
    View in gallery
    Figure 1.

    Côte d’Ivoire: Selected Macroeconomic Indicators, 2008–13

    (Percent of GDP, unless otherwise indicated)

  • Figure 2.
    View in gallery
    Figure 2.

    Côte d’Ivoire: WAEMU, and SSA - Macroeconomic Development and Outlook, 2008–13

    (Percent of GDP, unless otherwise indicated)

  • Figure 1:
    View in gallery
    Figure 1:

    Côte d’Ivoire: Cost of the Electricity Sector on the Budget

  • View in gallery
Figure 1.

Côte d’Ivoire: Selected Macroeconomic Indicators, 2008–13

(Percent of GDP, unless otherwise indicated)
Figure 2.

Côte d’Ivoire: WAEMU, and SSA - Macroeconomic Development and Outlook, 2008–13

(Percent of GDP, unless otherwise indicated)
Figure 1:

Côte d’Ivoire: Cost of the Electricity Sector on the Budget