Fiscal and monetary discipline puts Cote d'Ivoire in good stead

Côte d’Ivoire’s economy is clearly enjoying strong progress, with the IMF forecasting that real GDP growth will reach 8% in both 2016 and 2017. This trend is partly based on the momentum of a continued rebound effect, after several years of civil unrest came to an end in 2011, with capital still pouring into neglected infrastructure networks.

However, prudent fiscal management by the government has also been a factor in helping the country sidestep the kind of debt- and deficit-related problems that have recently been experienced by many other African economies.

Monetary & Fiscal

Côte d’Ivoire’s steady expansion is largely thanks to its macroeconomic stability, which can be divided into the nominal – through monetary policy – and the fiscal. Monetary policy remains stable because of the country’s membership in UEMOA, which pegs the bloc’s currency to the euro. In addition, UEMOA’s convergence criteria task members with eliminating basic fiscal deficits and domestic arrears, capping total debt at 70% of GDP and maintaining average inflation at under 3%.

On The Right Track

Since 2011 Côte d’Ivoire has had a positive record in managing public finances. The government has maintained a low fiscal deficit, despite increasing public capital expenditure from 2.5% of GDP in 2011 to 8% in 2015.

During that time period, the country’s fiscal deficit averaged around 2.9% of GDP, a level which ratings agencies consider a sign of stability. This ability to maintain raised public expenditure while keeping an average-to-low deficit demonstrates impressive fiscal discipline, which has largely been driven by improved budget execution. Moody’s upgraded Côte d’Ivoire to “B+” in 2015 and maintained this rating for 2016, in line with that of Fitch Ratings.

Positive external factors, including a stable 2015 election season, played a big part in fiscal performance, but this success is also a result of the 2012-15 National Development Plan (Plan National de Développement, PND), which sought to keep the fiscal deficit and inflation in line with UEMOA guidelines. The government secured $15.4bn from international donor agencies and technical assistance providers in May 2016 to help implement the 2016-20 PND, much of which is related to reducing poverty and accelerating growth via fiscal policies.

Challenges

While the indicators continue to be positive and Côte d’Ivoire is seen as able to reach emerging-market status by 2020, there are a number of challenges to maintaining the current rating.

The IMF considers Côte d’Ivoire’s fiscal policy to be pro-cyclical, meaning that every 1% rise in the country’s real GDP comes with an increase of approximately 1.8% in government spending, putting the economy at risk of overheating and slower growth if such spending is sustained.

Controlling public debt is another key concern for the government, particularly in light of the external pressures exerted by adverse weather conditions in 2015 which yielded a poor cocoa season, reducing government revenues (see Agriculture chapter). According to IMF estimates, the public debt-to-GDP ratio stood at 49.1% in 2015. This is projected to fall to 45.2% in 2016 and 45.6% in 2017.

“The fiscal environment is gradually changing as private sector stakeholders are increasingly consulted on fiscal policy, with the ultimate aim of broadening the tax base and relieving pressure on current actors,” Moustapha Coulibaly, managing partner at consultancy Grant Thornton, told OBG.

The country’s monetary policy is stable thanks to its membership in UEMOA, which pegs the bloc’s currency to the euro