Journal Issue
Share
Article

Côte d’Ivoire: Sixth Review Under the Extended Credit Facility Arrangement and Requests for Waiver of Nonobservance of Performance Criterion, Augmentation of Access, and Twelve-Month Extension of the Current Arrangement—Debt Sustainability Analysis

Author(s):
International Monetary Fund. African Dept.
Published Date:
December 2014
Share
  • ShareShare
Show Summary Details

Introduction

1. This debt sustainability analysis (DSA) updates the joint Bank-Fund LIC-DSA that was considered by the Executive Board in November 2013 at the 2013 Article IV Consultation and 4thReview under the ECF Arrangement.1 For the first time, the DSA excludes French claims which were cancelled in 2012 under debt-for-development swaps. Côte d’Ivoire continues to be assessed as being a weak policy performer (CPIA) and a moderate risk of debt distress. A proposed Eurobond issue equivalent to $1 billion plus $2 billion in non-concessional external borrowing (contractual basis) in 2015, would lead to some deterioration in external debt indicators, but would diversify financing sources (addressing difficulties in raising sufficient resources in the regional financial market) and lengthen the average maturity of debt in line with Côte d’Ivoire’s Medium-Term Debt Strategy. However, it would increase foreign exchange and rollover risks, in particular as the new borrowing leads to an increasing concentration of debt service maturities in the mid-2020s.

Background

2. A large share of Côte d’Ivoire’s external debt (36.4 percent or $3 billion) at end-2013 represents official French claims under C2D debt-for-development swaps (Contrats de Désendettement et Développement). In the context of providing beyond HIPC initiative debt relief France effectively cancelled its outstanding ODA claims on Côte d’Ivoire, and this was to be carried out through the C2D process. The C2D mechanism involves returning the debt service due on these claims in the form of grants for the government to use for development projects. This is done through two agreements: one provides for the cancellation of the claims and the other covers the amounts each year that are to be paid as debt service and returned as grants for development projects.2 For accounting purposes, these claims/debts remain on the creditor/debtor debt stock balance sheets and are reduced in line with the annual debt service payments made under the C2D agreement. For this reason, staff had included the stock of C2D debt in previous DSAs, but following clarification with the relevant authorities that these claims are effectively cancelled this debt and associated debt service payments are excluded in the current DSA.3

3. Following Côte d’Ivoire’s attainment of the enhanced HIPC initiative in 2012, external debt sustainability and vulnerability to shocks improved, and this has provided space for the government to increase its external borrowing to finance its ambitious investment plan. In 2012, as a result of debt relief stemming from the enhanced HIPC initiative and MDRI, the stock of public and publicly guaranteed (PPG) external debt (excluding C2D debt fell sharply by 63 percent in 2012, and then rose slightly by 12 percent in 2013; at end-2013, the debt stock was $5.25 billion (excluding C2D) (Table 1).4 However, in terms of GDP the ratio of PPG external debt fell in both 2012 and 2013: from 52.1 percent in 2011 to 17 percent (2012) and 16.4 percent (2013). At end-2013, official bilateral creditors accounted for about 23 percent of PPG external debt, commercial creditors accounted for 50.2 percent, and multilateral creditors 26.8 percent.

Table 1.Côte d’Ivoire: Composition of External Debt Per Creditor Group1(As of end-2013, nominal)
Million

US dollars
Percent of

total
Percent of

GDP
Total (excluding C2D)5,250100.016.4
Including C2D8,25825.8
Multilateral creditors1,40726.84.4
IMF95518.23.0
World Bank1693.20.5
AfDB group410.80.1
Other multilaterals2424.60.8
Official bilateral creditors1,20523.03.8
Paris Club67012.82.1
Non-Paris Club53510.21.7
Commercial creditors2,63850.28.2
London club2,57049.08.0
Other commercials681.30.2
Sources: Ivoirien authorities; and IMF staff estimates.

Currency definition of external debt.

Sources: Ivoirien authorities; and IMF staff estimates.

Currency definition of external debt.

4. Domestic public debt (central government only) was equivalent to 17.3 percent of GDP at end-2013. The bulk of this amount t consisted of government securities issued on the regional bond market (74.2 percent) and debt owed to the BCEAO (15.6 percent). In line with the medium-term debt strategy, the government has undertaken to lengthen the relatively short maturity structure of domestic public debt.

Underlying Assumptions

5. The baseline macroeconomic assumptions underlying this DSA are summarized in Box 1 and Table 2. In the staff’s baseline projection, growth would be underpinned by public investment, as well private investment in agriculture, mining, housing and services. The growth in output would contribute to the expansion of exports, in particular agricultural production and processing and mining output, areas in which the government continues to implement significant structural reforms. The growth in exports would however be outstripped by imports over the long term, reflecting in part high levels of investment. These assumptions are similar to those in the previous DSA.

Table 2.Côte d’Ivoire LIC DSA Macroeconomic Assumptions: Comparison with the Article IV LIC DSA(Percent of GDP, unless otherwise indicated)
Previous LIC DSACurrent LIC DSA Update
201420152019-33201420152019-34
Nominal GDP ($ Billion) 1/32.135.999.435.840.3115.2
Real GDP (percent change)8.28.15.28.08.05.2
Fiscal (central government)
Revenue and grants22.021.524.119.619.623.8
of which: grants2.42.21.01.91.90.7
Primary expenditure23.023.125.720.921.924.9
Primary fiscal deficit1.01.61.61.42.31.1
Balance of payments
Exports of goods and services50.750.266.844.545.255.4
Imports of goods and services49.650.071.442.742.455.3
Non-interest current account deficit1.72.46.11.90.84.9
New external borrowing 2/3.52.72.84.15.52.7
Net foreign direct investment3.03.02.22.72.92.2
Sources: Ivoirien authorities; and IMF staff estimates.

The changes from the Article IV LIC DSA reflect the updated nominal GDP historical series and the revised exchange rate assumptions of CFA/USD.

Includes publicly guaranteed external borrowing.

Sources: Ivoirien authorities; and IMF staff estimates.

The changes from the Article IV LIC DSA reflect the updated nominal GDP historical series and the revised exchange rate assumptions of CFA/USD.

Includes publicly guaranteed external borrowing.

6. The borrowing assumptions are consistent with the government’s medium-term debt strategy (MTDS) for 2014–17. The government’s MTDS envisages a diversification of financing sources, notably a shift from domestic to external borrowing and a lengthening of maturities. This shift in financing sources was in part motivated by the limited funding available on the regional financial market reflecting its shallowness. Thus far external borrowing in 2013 and realized/assumed in 2014, has been somewhat larger than in the MTDS, reflecting a larger issuance of Eurobonds following the favorable reception of the debut bond in 2014.5 In addition, the authorities have experienced difficulty in identifying external funding for large-scale projects on concessional terms, and have relied more heaviliy on semi-concessional loans during 2013–14 than assumed in the MTDS.

7. The major share of new external borrowing in 2014–15 is accounted for by four large project loans and two Eurobond issues. The four large project loans (for the Soubre hydroelectric dam, Abidjan potable water project, extension of the Port of Abidjan, and extension and rehabilitation of the electricity network),6 are expected to have a considerable impact on growth prospects, help avoid major bottlenecks, and improve competitiveness; the existing port is overstretched and has led to high costs for importers. The loans have been, or are expected to be, contracted on semi-concessional terms with a grant element in the range of 27–34 percent. The projected strong sustained growth rate in the baseline takes into account the impact of the projects. As regards the Eurobonds, the proceeds of the 2014 Eurobond were used to fund the budget but also for asset-liability management (retirement of domestic debt, repayment of supplier arrears and of the securitized domestic debt). The 2015 Eurobond will help alleviate the government’s financing challenges on the shallow regional market. Both Eurobonds would help diversify financing sources and lengthen the maturity of debt.

Box 1.Côte d’Ivoire: Key Baseline Macroeconomic Assumptions

The macroeconomic scenario underlying the current DSA is predicated on socio-political stability, high levels of public investment, and a sustained structural reform effort, including the removal key impediments to growth and improvements in the business climate and governance, which would translate into stronger private investment.

  • Staff projects real GDP would grow by 7-8 percent over the medium term, driven by public investment in basic infrastructures and social sectors, and strong private investment in agriculture, mining, housing and services. Growth would moderate to about 5.1 percent over the long run. Over the projection period, growth is expected to be broad-based, with growing contribution from the secondary and tertiary sectors.
  • Inflation would remain below the WAEMU 3 percent target.
  • The primary fiscal deficit would remain at a moderate level: 1.6 percent of GDP in 2014–19 and 1.1 percent of GDP in 2020–34. Total revenue and grants would increase gradually from 20.5 percent of GDP in 2014–19 to 24 percent of GDP on average in 2020–34, as fiscal reforms are brought to fruition. Primary (non-interest) expenditures would rise from 22.1 percent of GDP in 2014–19 to 25 percent of GDP on average in 2020–34, as a gradual reduction in the wage bill and capital spending would be outweighed by higher outlays on goods and services.
  • The trade balance surplus would decline over time, driven by continued strong imports of goods and services, while export growth would slow slightly. The reduction in the trade surplus and an increase in outflows of transfers would lead to a widening of the non-interest current account deficit from 1.8 percent of GDP in 2014–19 to 5 percent of GDP on average in 2020–34. This would be partly financed by higher FDI inflows (3.5 percent of GDP in 2014–19, and 2.2 percent of GDP in the long term).
  • New external borrowing is projected to decline over time to 2.6 percent of GDP in 2020–34 from 4.1 percent of GDP in 2014–19. More specifically, the baseline scenario includes the US$750 million Eurobond issued in July 2014, and assumes a new US$1 billion Eurobond issuance in 2015, both would be rolled over in 2024–25. It also incorporates the projected disbursements of four large semi-concessional loans during 2014–17 (in total US$100 million in 2014, US$620.5 million in 2015, US$ 615 million in 2016, and US$513.5 million in 2017) for infrastructure and energy projects (expansion of access to potable water, extension of the Port of Abidjan, the Soubre hydro-electricity dam, rehabilitation and expansion of the electricity transmission network). Finally, it includes a new non-concessional window of US$400 million. While the main source of new borrowing, other than the two Eurobonds, is multilateral and official bilateral creditors during 2014–19, over time this source gradually declines to about 18 percent of total new borrowing during 2030–34 while that of commercial creditors rises to 82 percent.

8. The key changes in the baseline macroeconomic assumptions relative to the Article IV LIC DSA are as follows:

  • The authorities have revised the historical series for the nominal GDP and exports upward. This also leads to higher projected GDP and exports because of the base effect; the ratio of exports to GDP is however lower.
  • Revenue and expenditure projections have been revised down based on the 2013 outcome, 2014 estimates and 2015 budget projections. The primary fiscal deficit is projected to be slightly higher than previously envisaged, particularly over the medium term.
  • External borrowing has been updated to reflect: (i) revised disbursement schedules for four large loans (Soubre hydroelectric dam, Abidjan water project, extension of the Port of Abidjan, electricity network), including slightly revised (hardening) terms for the latter three loans and somewhat smaller loans for the Port and electricity network; (ii) a larger Eurobond issue in 2014 than previously assumed ($750 compared to $500 million) and a new Eurobond issue in 2015 (US$1 billion); (iii) the two Eurobonds (ten-year bullets) are assumed to be rolled over in 2024-25; and (iv) a proposed increase in the program’s new nonconcessional external borrowing window (US$ 400 million) for 2015.
  • The external current account deficit is now expected to be lower than previously projected, reflecting a lower elasticity assumption of imports.

External Debt Sustainability Analysis

9. The results of the external DSA confirm that Côte d’Ivoire’s debt dynamics are sustainable (Figure 2; Tables 3a and 3b).7 They also confirm that Côte d’Ivoire’s risk of debt distress has not changed and remains at a moderate level, notwithstanding the higher assumed level of external borrowing. The exclusion of C2D debt and related debt service leads to an improvement in the debt indicators and to provide an appropriate basis of comparison, including to assess whether the additional borrowing would lead to a change in Côte d’Ivoire’s risk of debt distress, the previous DSA was rerun excluding C2D (Figure 4). A comparison of the debt indicators in the current and previous DSAs illustrates the impact of the changes in the borrowing and macroeconomic assumptions while removing the impact of excluding C2D.

Figure 1.Côte d’Ivoire: Stock of external public debt, 2010–13

(Percent of GDP)

Figure 2.Côte d’Ivoire: Indicators of Public and Publicly Guaranteed External Debt Under Alternatives Scenarios, 2014–34 1/

Sources: Country authorities; and staff estimates and projections.

1/ The most extreme stress test is the test that yields the highest ratio on or before 2024. In figure b. it corresponds to a Combination shock; in c. to a Exports shock; in d. to a Combination shock; in e. to a Exports shock and in figure f. to a Combination shock

Figure 3.Côte d’Ivoire: Indicators of Public Debt Under Alternative Scenarios, 2014–34 1/

Sources: Country authorities; and staff estimates and projections.

1/ The most extreme stress test is the test that yields the highest ratio on or before 2024.

2/ Revenues are defined inclusive of grants.

Figure 4.Côte d’Ivoire: Comparison Current Vs. Article IV DSA

Sources: Country authorities; and staff estimates and projections.

1/ The most extreme stress test is the test that yields the highest ratio on or before 2024. In figure b. it corresponds to a Combination shock; in c. to a Exports shock; in d. to a Combination shock; in e. to a Exports shock and in figure f. to a Combination shock.

Table 3a.Côte d’Ivoire: External Debt Sustainability Framework, Baseline Scenario, 2011–34 1/(Percent of GDP, unless otherwise indicated)
ActualHistorical Average 6/Standard Deviation 6/Projections
2011201220132014201520162017201820192014-2019

Average
202420342020-2034

Average
External debt (nominal) 1/72.735.631.932.133.232.834.534.033.531.819.2
of which: public and publicly guaranteed (PPG)52.117.016.418.921.622.725.626.126.427.619.2
Change in external debt2.6−37.1−3.70.21.1−0.41.6−0.4−0.5−0.8−3.1
Identified net debt-creating flows−12.9−4.5−2.2−1.8−3.2−3.0−3.1−2.8−2.12.33.5
Non-interest current account deficit-12.3-0.23.5-4.24.31.90.81.51.82.12.54.85.95.0
Deficit in balance of goods and services−16.5−4.10.3−1.9−2.7−2.0−1.6−0.9−0.60.1−0.4
Exports53.848.445.444.545.244.644.043.943.851.767.156.2
Imports37.344.245.642.742.442.542.443.043.251.766.756.1
Net current transfers (negative = inflow)2.11.90.91.90.80.80.71.01.21.41.62.94.13.3
of which: official0.10.2−1.1−1.7−1.7−1.6−1.5−1.4−1.3−0.50.0
Other current account flows (negative = net inflow)2.02.02.43.02.82.52.31.61.61.82.3
Net FDI (negative = inflow)-1.1-1.2-2.7-1.70.5-2.7-2.9-3.4-3.9-3.9-3.9-1.9-1.9−2.2
Endogenous debt dynamics 2/0.5-3.1-3.1-1.0-1.0-1.1-1.0-0.9-0.7-0.5-0.5
Contribution from nominal interest rate1.91.41.41.21.31.21.21.21.21.00.5
Contribution from real GDP growth3.0−7.3−2.7−2.2−2.3−2.3−2.2−2.2−1.9−1.5−1.1
Contribution from price and exchange rate changes−4.32.7−1.8
Residual (3-4) 3/15.6-32.6-1.52.14.22.74.72.41.5-3.1-6.5
of which: exceptional financing−0.1−29.80.00.00.00.00.00.00.00.00.0
PV of external debt 4/30.530.030.529.329.528.527.423.612.9
In percent of exports67.167.467.665.867.064.962.545.619.2
PV of PPG external debt14.916.718.919.220.620.620.319.412.9
In percent of exports32.937.641.943.046.846.946.437.519.2
In percent of government revenues80.894.7107.3103.9108.1104.1100.385.052.0
Debt service-to-exports ratio (in percent)26.79.810.55.65.86.36.56.67.07.93.6
PPG debt service-to-exports ratio (in percent)4.81.82.12.32.73.03.53.94.66.33.6
PPG debt service-to-revenue ratio (in percent)18.34.65.15.76.97.38.08.79.914.39.9
Total gross financing need (Billions of U.S. dollars)1.21.82.61.41.01.21.11.31.76.712.2
Non-interest current account deficit that stabilizes debt ratio−15.036.97.21.6−0.31.80.22.53.15.59.0
Key macroeconomic assumptions
Real GDP growth (in percent)−4.410.78.72.94.28.08.07.77.57.06.07.45.15.15.1
GDP deflator in US dollar terms (change in percent)6.6−3.65.44.56.46.74.23.73.72.93.04.02.52.52.5
Effective interest rate (percent) 5/2.72.14.62.90.84.34.44.24.23.93.94.13.42.53.2
Growth of exports of G&S (US dollar terms, in percent)8.5−4.07.58.57.313.014.210.210.19.79.111.111.310.410.8
Growth of imports of G&S (US dollar terms, in percent)−12.126.618.211.812.27.712.011.911.111.89.710.711.110.310.9
Grant element of new public sector borrowing (in percent)22.715.431.831.330.230.527.020.010.820.8
Government revenues (excluding grants, in percent of GDP)14.118.418.517.717.718.419.119.820.322.824.723.3
Aid flows (in Billions of US dollars) 7/0.10.20.41.21.11.52.52.22.32.31.3
of which: Grants0.10.20.40.70.80.80.90.90.90.60.3
of which: Concessional loans0.00.00.00.60.30.71.61.31.41.70.9
Grant-equivalent financing (in percent of GDP) 8/2.92.83.03.62.72.61.50.31.3
Grant-equivalent financing (in percent of external financing) 8/45.836.752.746.650.750.531.819.133.0
Memorandum items:
Nominal GDP (Billions of US dollars)25.427.131.135.840.345.050.255.260.387.4184.5115.2
Nominal dollar GDP growth1.96.714.615.212.611.711.510.19.211.77.77.87.7
PV of PPG external debt (in Billions of US dollars)4.85.97.78.710.411.412.317.023.8
(PVt-PVt-1)/GDPt-1 (in percent)3.64.92.53.82.11.63.11.1−0.40.9
Gross workers’ remittances (Billions of US dollars)−0.5−0.5−0.6−0.9−1.0−1.2−1.4−1.6−1.8−3.1−7.6
PV of PPG external debt (in percent of GDP + remittances)15.317.219.419.721.221.220.920.113.4
PV of PPG external debt (in percent of exports + remittances)34.539.844.445.749.950.149.740.320.4
Debt service of PPG external debt (in percent of exports + remittances)2.22.42.93.23.74.24.96.83.9
Sources: Country authorities; and staff estimates and projections.

Includes both public and private sector external debt.

Derived as [r - g - ρ(1 + g)]/(1 + g + ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, and ρ = growth rate of GDP deflator in U.S. dollar terms.

Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes.

Assumes that PV of private sector debt is equivalent to its face value.

Current-year interest payments divided by previous period debt stock.

Historical averages and standard deviations are generally derived over the past 10 years, subject to data availa bility.

Defined as grants, concessional loans, and debt relief.

Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt).

Sources: Country authorities; and staff estimates and projections.

Includes both public and private sector external debt.

Derived as [r - g - ρ(1 + g)]/(1 + g + ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, and ρ = growth rate of GDP deflator in U.S. dollar terms.

Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes.

Assumes that PV of private sector debt is equivalent to its face value.

Current-year interest payments divided by previous period debt stock.

Historical averages and standard deviations are generally derived over the past 10 years, subject to data availa bility.

Defined as grants, concessional loans, and debt relief.

Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt).

Table 3b.Côte d’Ivoire: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2014–34(Percent)
Projections
20142015201620172018201920242034
PV of debt-to GDP ratio
Baseline1719192121201913
A. Alternative Scenarios
A1. Key variables at their historical averages in 2014-2034 1/17222428293020−16
A2. New public sector loans on less favorable terms in 2014-2034 21720222526273130
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2015-20161721222424242315
B2. Export value growth at historical average minus one standard deviation in 2015-2016 3/1724313231312715
B3. US dollar GDP deflator at historical average minus one standard deviation in 2015-20161720222323232215
B4. Net non-debt creating flows at historical average minus one standard deviation in 2015-2016 4/1722262727262314
B5. Combination of B1-B4 using one-half standard deviation shocks1727394039383317
B6. One-time 30 percent nominal depreciation relative to the baseline in 2015 5/1727272929292718
PV of debt-to-exports ratio
Baseline3842434747463819
A. Alternative Scenarios
A1. Key variables at their historical averages in 2014-2034 1/38485463676939−23
A2. New public sector loans on less favorable terms in 2014-2034 23845485659616045
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2015-20163842434747473819
B2. Export value growth at historical average minus one standard deviation in 2015-2016 3/3859879088866427
B3. US dollar GDP deflator at historical average minus one standard deviation in 2015-20163842434747473819
B4. Net non-debt creating flows at historical average minus one standard deviation in 2015-2016 4/3849586161604521
B5. Combination of B1-B4 using one-half standard deviation shocks3861858886846125
B6. One-time 30 percent nominal depreciation relative to the baseline in 2015 5/3842434747473819
PV of debt-to-revenue ratio
Baseline951071041081041008552
A. Alternative Scenarios
A1. Key variables at their historical averages in 2014-2034 1/9512213014614915089−63
A2. New public sector loans on less favorable terms in 2014-2034 295115117130131132137121
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2015-20169511612212712211710061
B2. Export value growth at historical average minus one standard deviation in 2015-2016 3/9513417016815915211759
B3. US dollar GDP deflator at historical average minus one standard deviation in 2015-2016951141171221171139659
B4. Net non-debt creating flows at historical average minus one standard deviation in 2015-2016 4/9512714114213512910356
B5. Combination of B1-B4 using one-half standard deviation shocks9515521120819718714370
B6. One-time 30 percent nominal depreciation relative to the baseline in 2015 5/9515114615214714112073
Debt service-to-exports ratio
Baseline23334564
A. Alternative Scenarios
A1. Key variables at their historical averages in 2014-2034 1/23345681
A2. New public sector loans on less favorable terms in 2014-2034 223334455
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2015-201623334564
B2. Export value growth at historical average minus one standard deviation in 2015-2016 3/234667105
B3. US dollar GDP deflator at historical average minus one standard deviation in 2015-201623334564
B4. Net non-debt creating flows at historical average minus one standard deviation in 2015-2016 4/23345574
B5. Combination of B1-B4 using one-half standard deviation shocks23456795
B6. One-time 30 percent nominal depreciation relative to the baseline in 2015 5/23334564
Debt service-to-revenue ratio
Baseline67789101410
A. Alternative Scenarios
A1. Key variables at their historical averages in 2014-2034 1/678101112173
A2. New public sector loans on less favorable terms in 2014-2034 26778991114
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2015-2016679910121712
B2. Export value growth at historical average minus one standard deviation in 2015-2016 3/6781111121812
B3. US dollar GDP deflator at historical average minus one standard deviation in 2015-2016678910111611
B4. Net non-debt creating flows at historical average minus one standard deviation in 2015-2016 4/678910111611
B5. Combination of B1-B4 using one-half standard deviation shocks68101313152214
B6. One-time 30 percent nominal depreciation relative to the baseline in 2015 5/610101112142014
Memorandum item:
Grant element assumed on residual financing (i.e., financing required above baseline) 6/88888888
Sources: Country authorities; and staff estimates and projections.

Variables include real GDP growth, growth of GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows.

Assumes that the interest rate on new borrowing is by 2 percentage points higher than in the baseline., while grace and maturity periods are the same as in the baseline.

Exports values are assumed to remain permanently at the lower level, but the current account as a share of GDP is assumed to return to its baseline level after the shock (implicitly assuming an offsetting adjustment in import levels).

Includes official and private transfers and FDI.

Depreciation is defined as percentage decline in dollar/local currency rate, such that it never exceeds 100 percent.

Applies to all stress scenarios except for A2 (less favorable financing) in which the terms on all new financing are as specified in footnote 2.

Sources: Country authorities; and staff estimates and projections.

Variables include real GDP growth, growth of GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows.

Assumes that the interest rate on new borrowing is by 2 percentage points higher than in the baseline., while grace and maturity periods are the same as in the baseline.

Exports values are assumed to remain permanently at the lower level, but the current account as a share of GDP is assumed to return to its baseline level after the shock (implicitly assuming an offsetting adjustment in import levels).

Includes official and private transfers and FDI.

Depreciation is defined as percentage decline in dollar/local currency rate, such that it never exceeds 100 percent.

Applies to all stress scenarios except for A2 (less favorable financing) in which the terms on all new financing are as specified in footnote 2.

10. The baseline and stress test debt indicators have for the most part improved somewhat compared to the previous DSA. Compared to the previous DSA, the main changes to the borrowing and macroeconomic assumptions are higher projected non-concessional borrowing, largely on account of the two Eurobond issues in 2014 and 2015, and higher projected levels of exports and GDP which primarily reflects the base effect of upward revisions to historical data rather than significant changes in projected growth rates. As a result, notwithstanding the higher borrowing, the debt stock indicators improve relative to the last DSA except for the historical scenario: the debt service-to-exports indicators are broadly similar and the debt service-to-revenue indicators show an improvement. Under the historical scenario, all the debt service indicators show deterioration because the use of historical average values for the external primary deficit and nominal GDP growth removes the positive impact on the indicators of the upward revision in projected GDP and exports; for the debt-to-revenue and debt-service-revenue indicators, the deterioration reflects a higher primary fiscal deficit.8 The stress tests do however indicate that Côte d’Ivoire remains vulnerable to economic shocks, in particular to negative shocks to growth, exports, FDI and fiscal performance.

Public Debt Sustainability Analysis9

11. When domestic public debt is included in the analysis, Côte d’Ivoire’s debt situation deteriorates modestly (Figure 3; Table 4a). Public debt indicators would gradually improve over the long term in line with the projected positive macroeconomic prospects. Under the baseline scenario, the PV of total public debt would decrease to 17.6 percent of GDP at the end of the projection period from 30.1 percent of GDP in 2014, while debt service indicators would go up in the medium term before slowing down at the end of the projection period.

Table 4a.Côte d’Ivoire: Public Sector Debt Sustainability Framework, Baseline Scenario, 2011–34(Percent of GDP, unless otherwise indicated)
ActualAverage 5/Standard Deviation 5/EstimateProjections
2011201220132014201520162017201820192014-19

Average
202420342020-34

Average
Public sector debt 1/69.933.734.232.233.434.035.235.234.832.724.2
of which: foreign-currency denominated52.317.216.418.921.622.725.626.126.427.619.2
Change in public sector debt6.9−36.20.4−2.01.20.61.30.0−0.4−0.5−1.6
Identified debt-creating flows−27.7−6.1−1.8−1.5−0.6−0.4−0.8−1.0−0.9−0.40.1
Primary deficit2.92.41.20.71.31.42.32.01.61.10.91.61.11.31.1
Revenue and grants14.418.919.819.619.620.220.821.421.720.523.524.924.0
of which: grants0.30.61.31.91.91.81.71.61.50.70.2
Primary (noninterest) expenditure17.321.321.020.921.922.222.422.522.622.124.626.225.0
Automatic debt dynamics3.2−8.4−3.0−2.7−2.8−2.4−2.4−2.1−1.8−1.4−1.2
Contribution from interest rate/growth differential2.8−7.5−2.2−2.6−2.2−2.0−2.0−1.9−1.6−1.3−1.1
of which: contribution from average real interest rate0.0−0.80.5−0.10.20.40.40.40.40.30.1
of which: contribution from real GDP growth2.9−6.7−2.7−2.5−2.4−2.4−2.4−2.3−2.0−1.6−1.3
Contribution from real exchange rate depreciation0.4−0.9−0.8−0.1−0.7−0.4−0.3−0.2−0.2
Other identified debt-creating flows−33.70.00.0−0.20.00.00.00.00.00.00.0
Privatization receipts (negative)0.00.00.0−0.20.00.00.00.00.00.00.0
Recognition of implicit or contingent liabilities0.00.00.00.00.00.00.00.00.00.00.0
Debt relief (HIPC and other)−33.70.00.00.00.00.00.00.00.00.00.0
Other (specify, e.g. bank recapitalization)0.00.00.00.00.00.00.00.00.00.00.0
Residual, including asset changes34.6−30.12.2−0.51.81.02.01.00.5−0.1−1.7
Other Sustainability Indicators
PV of public sector debt32.730.130.730.430.329.728.724.517.9
of which: foreign-currency denominated14.916.718.919.220.620.620.319.412.9
of which: external14.916.718.919.220.620.620.319.412.9
PV of contingent liabilities (not included in public sector debt)
Gross financing need 2/6.03.72.72.94.13.83.53.23.24.64.0
PV of public sector debt-to-revenue and grants ratio (in percent)165.3153.7157.0150.7145.8138.9132.1104.072.0
PV of public sector debt-to-revenue ratio (in percent)177.0170.0174.0165.1158.8150.1141.7107.372.5
of which: external 3/80.894.7107.3103.9108.1104.1100.385.052.0
Debt service-to-revenue and grants ratio (in percent) 4/22.16.97.37.89.08.89.19.710.714.910.8
Debt service-to-revenue ratio (in percent) 4/22.57.17.88.710.09.69.910.411.515.410.9
Primary deficit that stabilizes the debt-to-GDP ratio−4.038.60.83.41.11.50.31.11.31.62.9
Key macroeconomic and fiscal assumptions
Real GDP growth (in percent)−4.410.78.72.94.28.08.07.77.57.06.07.45.15.15.1
Average nominal interest rate on forex debt (in percent)1.81.04.31.91.03.84.13.83.93.63.63.83.12.73.0
Average real interest rate on domestic debt (in percent)0.5−2.30.4−0.52.7−2.4−1.3−0.2−0.20.50.3−0.60.40.30.3
Real exchange rate depreciation (in percent, + indicates depreciation)0.7−2.0−4.8−1.47.7−0.4
Inflation rate (GDP deflator, in percent)1.64.42.02.73.04.65.13.12.82.22.43.42.52.52.5
Growth of real primary spending (deflated by GDP deflator, in percent)−16.036.77.22.813.27.512.89.58.17.56.88.76.55.26.2
Grant element of new external borrowing (in percent)22.715.431.831.330.230.527.020.010.8
Sources: Country authorities; and staff estimates and projections.

[Indicate coverage of public sector, e.g., general government or nonfinancial public sector. Also whether net or gross debt is used.]

Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period.

Revenues excluding grants.

Debt service is defined as the sum of interest and amortization of medium and long-term debt.

Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability.

Sources: Country authorities; and staff estimates and projections.

[Indicate coverage of public sector, e.g., general government or nonfinancial public sector. Also whether net or gross debt is used.]

Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period.

Revenues excluding grants.

Debt service is defined as the sum of interest and amortization of medium and long-term debt.

Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability.

12. An analysis of the stress tests of total public debt does not identify additional debt vulnerabilities (Table 4b). In the staff’s view, the breach of the indicative policy threshold for the PV of public debt does not reflect an additional vulnerability to those stemming from central government external debt. Indeed, a comparison of the path of the total public debt ratio and the external PPG debt ratio under the stress test shows that the trajectory of debt is driven primarily by external PPG debt rather than a vulnerability specific to domestic debt or private external debt. Furthermore, the breach of the indicative policy threshold of the PV of public debt is also the product of an unrealistic stress test, in this case the low growth bound test.10

Table 4b.Côte d’Ivoire: Sensitivity Analysis for Key Indicators of Public Debt, 2014–34
Projections
20142015201620172018201920242034
PV of Debt-to-GDP Ratio
Baseline3031303030292418
A. Alternative scenarios
A1. Real GDP growth and primary balance are at historical averages3031303131302714
A2. Primary balance is unchanged from 20143030292928282621
A3. Permanently lower GDP growth 1/3031313232323659
B. Bound tests
B1. Real GDP growth is at historical average minus one standard deviations in 2015-20163035414447496183
B2. Primary balance is at historical average minus one standard deviations in 2015-20163030303029282418
B3. Combination of B1-B2 using one half standard deviation shocks3032333537394763
B4. One-time 30 percent real depreciation in 20153037363534322723
B5. 10 percent of GDP increase in other debt-creating flows in 20153040393938363123
PV of Debt-to-Revenue Ratio 2/
Baseline15415715114613913210472
A. Alternative scenarios
A1. Real GDP growth and primary balance are at historical averages15415614914614213811456
A2. Primary balance is unchanged from 201415415214413813312911283
A3. Permanently lower GDP growth 1/154159155153150148152235
B. Bound tests
B1. Real GDP growth is at historical average minus one standard deviations in 2015-2016154178201210216222256332
B2. Primary balance is at historical average minus one standard deviations in 2015-201615415514914413813110371
B3. Combination of B1-B2 using one half standard deviation shocks154162161168173177200254
B4. One-time 30 percent real depreciation in 201515418917816715714811693
B5. 10 percent of GDP increase in other debt-creating flows in 201515420519518617616713291
Debt Service-to-Revenue Ratio 2/
Baseline899910111511
A. Alternative scenarios
A1. Real GDP growth and primary balance are at historical averages8998810179
A2. Primary balance is unchanged from 201489988101612
A3. Permanently lower GDP growth 1/8991011122131
B. Bound tests
B1. Real GDP growth is at historical average minus one standard deviations in 2015-2016810111317213445
B2. Primary balance is at historical average minus one standard deviations in 2015-201689999111511
B3. Combination of B1-B2 using one half standard deviation shocks8101099142734
B4. One-time 30 percent real depreciation in 2015810121314162422
B5. 10 percent of GDP increase in other debt-creating flows in 201589111919141814
Sources: Country authorities; and staff estimates and projections.

Assumes that real GDP growth is at baseline minus one standard deviation divided by the square root of the length of the projection period.

Revenues are defined inclusive of grants.

Sources: Country authorities; and staff estimates and projections.

Assumes that real GDP growth is at baseline minus one standard deviation divided by the square root of the length of the projection period.

Revenues are defined inclusive of grants.

Conclusions

13. Côte d’Ivoire remains at a moderate risk of debt distress. This is unchanged from the last DSA in November 2013 (adjusted to exclude C2D obligations); including C2D obligations in the current scenario would also not change the rating (Figure 5). In the baseline scenario, all debt indicators remain below their respective policy-dependent thresholds. However, the stress tests show that the external debt outlook continues to be vulnerable to adverse macroeconomic shocks, in particular to exports and growth, as well as to fiscal performance. In addition, the buildup of external debt in the near term has an upward impact on the debt indicators. However, the new borrowing should benefit the economy and economic prospects, and also diversifies Côte d’Ivoire’s financing sources, lengthens the average maturity of debt and has in part been used to retire debt, securitize other domestic debts, and repay supplier arrears. It has also helped reduce the bunching of maturities arising from restructured post-election crisis arrears.

Figure 5.Côte d’Ivoire: Indicators of Public and Publicly Guaranteed External Debt Under Alternatives Scenarios, 2014–34 1/

Sources: Country authorities; and staff estimates and projections.

1/ The most extreme stress test is the test that yields the highest ratio on or before 2024. In figure b. it corresponds to a Combination shock; in c. to a Exports shock; in d. to a Combination shock; in e. to a Exports shock and in figure f. to a Combination shock.

14. Sound macroeconomic policies and prudent debt management will be important to maintain a sustainable external position. Key to this will be a sustained structural reform effort to overcome bottlenecks to strong growth and to enhance the contribution of the private sector, in particular through improvements in the business climate. As regards public debt management, the government intends to implement further improvements. First, an updated medium-term debt strategy for 2015–19 is to be finalized by end-2014, which would overlap with the second National Development Plan (2016–20). Second, to broaden the monitoring of public debt, a centralised database covering public enterprises, including debt data, will be created in 2015. Third, a planned front-middle-back office re-organization of the debt department, which has been delayed partly because of a need for further technical assistance, is now expected to be completed by mid-2015. However, an excessive concentration of maturities, especially in the mid-2020s should be avoided, and, in particular for the 2014 and proposed 2015 Eurobonds which have bullet repayments, debt management should take adequate account of potential rollover and foreign exchange risks. Also, plans to raise resources on international financial markets, such as the 2015 Eurobond issue, should take account of the potential volatility in these markets and should avoid the issuance to the extent possible when markets conditions are unfavorable. In addition, a deeper regional market would help expand the potential of financing sources, and measures to acheive this, including the establishment of primary dealers and the creation of a secondary market for sovereign financing, are needed.

15. The authorities of Côte d’Ivoire agree with the conclusions of this DSA. However, they consider that the baseline macroeconomic assumptions used in this report are too conservative and do not sufficiently factor in the future dividends of recent progress. In particular, in the authorities’ view, the long-term growth rates are too low. The authorities would have appreciated the inclusion of another scenario based on higher growth rates that would have been driven by a stronger level of private and public investment. Such a scenario would have been more in line with their objective to transform Côte d’Ivoire into an emerging country by 2020 and significantly reduce poverty. The authorities believe that they have been implementing appropriate measures to improve the business climate, the capacity to absorb investment, as well as domestic and external resource mobilization, in particular to broaden the tax base, while adopting a prudent approach to current spending. They underscored that for the second year in a row, according to the World Bank’s 2015 Doing Business report, Côte d’Ivoire is among the 10 economies that have made the most progress in improving their business climate. The authorities thanked staff for their advice and recommendations presented in the current DSA report. They are committed to continuing to implement a policy of sustainable public debt management and adopting ambitious structural reform policies, while maintaining a sound macroeconomic environment.

1The DSA was prepared jointly by the staff of the IMF and World Bank, in collaboration with the authorities of Côte d’Ivoire. The 2013 DSA can be found in IMF Country Report n°13/367, December 19, 2013. Due to data limitations, the DSA covers central government debt as regards domestic debt, but total debt for external debt.
2In practice these is being done through successive 5-year agreements specifying the amounts due by Côte d’Ivoire on these claims and the use of the amounts for project spending. Côte d’Ivoire pays the debt service due to France which is then returned in the form of grants for use as specified in the C2D agreement.
3However, in the staff report the debt service associated with the C2D process is recorded in the fiscal and external tables to capture the gross cash-flows (debt service and grants) associated with C2D and the annual corresponding reduction in external debt. At end-2013, C2D obligations accounted for 36 percent of outstanding external debt. During 2014–25 projected C2D related debt service flows on average account for slightly under 60 percent of total debt service on outstanding loans as of end-2013.
4For the purpose of the DSA, external debt is defined as debt borrowed or serviced in a currency other than the franc of the African Financial Union (Communauté Financière Africaine, FCFA). If defined on the basis of residency, the stock of external PPG debt (excluding C2D) would amount to $5.06 billion or 15.8 percent of GDP.
5The MTDS assumed two Eurobond issues of $500 million each compared with the now-envisaged $1.75 billion. The 2014 issuance was preceded by debut sovereign ratings (“B1 with positive outlook” from Moody’s and “B with positive outlook” from Fitch) and the July 2014 Eurobond was more than six times oversubscribed. These factors contributed to a favorable yield at issue of 5.625 percent, lower than the cost of borrowing on the regional market and lower than that of any other 2014 issue by an African country on the international bond market.
6Of the four project loans only that for the Soubre hydroelectric dam has been contracted thus far (in early 2013).
7In the LIC-DSA framework Côte d’Ivoire is rated as a weak performer with a Country Policy and Institutional Assessment (CPIA) average rating for 2011–13 of 3.04.
8The larger primary deficit results from the fact that the period covered by 10-year average used in the stress test has changed by one year.
9In the current absence of statistical information on the general government and of the public sector, the DSA covers only central government operations.
10This is unrealistic because the historical series covers an exceptional period (a decade of political crisis and low growth and a heightened volatility in the growth rates stemming from the sharp post-election crisis growth contraction and subsequent strong recovery) that leads to a low mean growth rate and high standard deviation. In addition, there has been a clear structural break in economic policies since 2011.

Other Resources Citing This Publication