Public Information Notice No. 01/103

Public Information Notice: IMF Concludes 2001 Article IV Consultation with Côte d'Ivoire

October 2, 2001

On August 31, 2001, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Côte d'Ivoire.¹

Background

The three-year arrangement under the Poverty Reduction and Growth Facility (PRGF) that was approved by the Executive Board of the IMF in March 1998 in support of Côte d'Ivoire's adjustment efforts went off track after the first year. Subsequent discussions on a new Fund-supported program, including a staff-monitored program after the December 1999 coup d'état, remained inconclusive as no understandings could be reached on corrective measures in the fiscal and governance areas. The difficult social and political circumstances of the past year contributed to a marked deterioration of the economic and financial situation.

After expanding by 5¾ percent in 1998 and 1½ percent in 1999, real GDP contracted by about 2½ percent in 2000, reflecting a substantial worsening of the terms of trade, a lack of external financial assistance, and low business and consumer confidence. Gross domestic investment fell from 16 percent of GDP in 1999 to 12½ percent of GDP, owing to the reticence of the private sector and very low public investment. In this setting, the secondary and tertiary sectors remained weak—industrial output dropped by 11 percent—but the primary sector continued to expand, owing to abundant cocoa and coffee crops. The annual average consumer price index (CPI) rose by 2½ percent in 2000, up from 0.7 percent in 1999. The external current account deficit (including grants) is estimated to have widened to 5½ percent of GDP, in part reflecting adverse terms of trade developments.

Total budget revenue fell by 3 percent in 2000. With substantially lower-than-budgeted capital spending, the overall fiscal deficit (on a payment order basis and including grants) for 2000 was contained at about 1.4 percent of GDP. The total stock of arrears and DENOs (spending committed for which payment orders have not been issued) increased from the equivalent of 7 percent of GDP at end-1999 to about 11.2 percent at end-2000.

On the structural front, limited progress was made over the past year. In the area of privatization, discussions with Air France on the take over of Air Ivoire were not concluded, and there was no progress on the privatization of the oil refinery (SIR). Regarding the Caisse Autonome d'Amortissement (CAA), the audit has been completed, but the government still have to make major strategic decisions regarding its future. As regards the situation of the savings and postal checking agency (CECP) and the postal services agency (SIPE), a decree splitting the two entities was signed on June 16, 2001, but a fundamental reform is needed to ensure the financial viability of the postal savings agency. In the cocoa and coffee sectors, the measures that were supposed to accompany the liberalization process, such as the strengthening of producer organizations and the rehabilitation of rural infrastructure were not fully implemented.

Prospects for 2001

For 2001, the staff projects a contraction of real GDP of about 1 percent, as the prospective growth in manufacturing and services would not be sufficient to offset the negative growth in agriculture, following the bumper crops in 2000. Consumer price inflation is projected to rise to 4 percent, reflecting increased transport costs and prices of traditional food staples, whose supply was disrupted earlier in the year because of unfavorable weather conditions. The external current account deficit is expected to remain unchanged at 5½ percent of GDP in 2001, as export earnings are projected to remain weak and imports to recover only slightly. This forecast is based on the successful implementation of the staff-monitored program covering the second half of 2001.

Executive Board Assessment

Executive Directors expressed concern about the continued deterioration of the economic and financial situation over the last three years. The political and social tensions, compounded by a substantial worsening of the terms of trade, had profoundly affected economic activity, and their effects had been exacerbated by the authorities' failure to correct the deteriorating fiscal situation and governance problems. Directors considered that the amplitude and timing of the recovery hinges on the ability of the government to come to grips with the underlying political, fiscal, and structural problems. In this context, they looked forward to the national reconciliation conference which has been scheduled for early October. Directors urged the authorities to articulate and start implementing a medium-term strategy of macroeconomic stabilization and reform that will restore domestic and international confidence and put Côte d'Ivoire on a path of sustainable growth and addresses the country's rising poverty.

Directors welcomed the conclusion of discussions on a staff-monitored program (SMP), which will help the authorities rebuild a track record of policy implementation. Directors expressed the hope that forceful and successful implementation of the SMP and the reestablishment of normal relations with donors would provide the basis for subsequent discussions on a program that could be supported under the PRGF. They also encouraged the authorities to prepare an Interim PRSP with broad-based civil society participation. Directors were of the view that strong performance under the SMP would be necessary before considering the approval of a new PRGF arrangement.

Directors regretted the deterioration in public finances and expressed concern about the size of the recent wage increases and the accumulation of arrears. They underscored the critical importance of bringing the public finances under control and of making sustained progress with the clearance of arrears. They considered that the objectives of the government's fiscal program can only be achieved through determined efforts to strengthen revenue mobilization and exercise a firm control over spending. To this end, they emphasized the need to widen the tax base, reduce exemptions and implement vigorously the action plan to strengthen the customs administration. On the spending side, they underscored the importance of improving fiscal transparency, strengthening budgetary procedures, avoiding off-budget outlays, and containing civil service recruitment and wages.

On the structural front, Directors urged the authorities to resume progress on a broad range of reforms. They encouraged the authorities to complete the study aimed at defining the regulatory framework for the orderly liberalization of the oil sector and the timely privatization of the state-owned refinery (SIR) through a competitive and transparent bidding process. They looked forward to the swift implementation of the recommendations emerging from this study. While welcoming that some actions have been taken in recent months to address the financial problems of the electricity sector, Directors considered that a comprehensive reform of the sector, including timely tariff adjustments, is urgently needed to restore its financial viability. They considered that attention should be paid to the impact those reforms would have on the poorest segments of the population.

Directors emphasized that reforms in the cocoa and coffee sectors should preserve the principles of free and fair competition of these liberalized sectors. They cautioned against a return to a system of export allocations or quotas as well as against public sector financial support. Directors also urged the authorities to address forcefully the weaknesses in the financial system and speed up the reform of the postal savings and checking agency to stem the ongoing losses.

Directors encouraged the authorities to make every effort possible to regularize relations with their bilateral and multilateral external partners, so as to facilitate the resumption of budgetary and development assistance as soon as possible.

Directors noted that Côte d'Ivoire's database is fairly comprehensive but remains weak in the areas of national accounts and balance of payments statistics. They welcomed the authorities' efforts to address these weaknesses with the help of Fund technical assistance.