Paying off debt: The country is striving to take charge of its credit

Côte d’Ivoire has seen a dramatic turnaround in its fiscal health in recent years, with an improving outlook for headline growth and a reduced debt load. When the Ivoirian economy hit the skids from the late 1970s onwards, its debt levels spiralled ever higher, increasing ten-fold between 1975 and 1995. Private sector creditors predominated until 1983, after which official, bilateral and multilateral lenders became increasingly important as the country racked up arrears as its economy suffered from collapsing cocoa and coffee prices. Despite IMF programmes and Paris Club debt re-scheduling in the 1980s, the country’s debt became unmanageable in the face of severe recession and repeated commodity price shocks. The situation improved in the 1990s as the economy strengthened, and debt write-downs were negotiated with Paris Club (1994) and commercial creditors (1997), and some of the debt was restructured via the issue of Brady bonds.

UPS & DOWNS: With the onset of political instability in 1999, the economy deteriorated, provoking capital flight and making debt service challenging. The country defaulted on $3.5bn worth of Brady bonds in 2000. This difficult environment persisted throughout the decade, until the bonds were restructured in 2010, resulting in an 82% loss to investors. In early 2011, however, the country could not meet a $29m interest payment on $2.3bn of restructured Brady bonds at the height of its most recent period of acute political instability. In light of these developments, those bonds were then traded at steep discounts, around $0.36 to the dollar. With official debt restructuring on the horizon, Côte d’Ivoire resumed interest payments on these bonds in June 2012, by which time the bonds had doubled in value, trading at $0.72 to the dollar. It was envisaged that missed interest payments would be repaid during 2013. This normalisation of relations with commercial creditors should facilitate reengagement with both the international sovereign bond market and potential donors over the coming years as the country seeks financing for its ambitious investment programme.

DEBT RELIEF: In June 2012 the IMF and World Bank agreed to debt relief totalling $4.4bn under the enhanced Highly Indebted Poor Countries Initiative ($3.1bn) and the Multilateral Debt Relief Initiative ($1.3bn). When combined with the $3.3bn in debt relief agreed to by the Paris Club of bilateral creditors, the total came to $7.7bn, representing a 60% reduction in the country’s debt burden in net present value terms. The IMF projects that with this package of debt relief and forecast economic growth, Côte d’Ivoire’s stock of public and publicly guaranteed debt will decline from 55.1% of GDP at year-end 2011 to 32.2% in 2013. By the end of 2012 the IMF estimated that 55.9% of public external debt was owed to bilateral lenders, 31.3% to commercial creditors and 12.8% to multilaterals.

The government created a National Public Debt Committee in November 2011, and in 2012 assigned it responsibility for coordinating and monitoring debt policy. It is also in the early stages of preparation for its own debt management agency. The government has adopted a four-pronged debt sustainability strategy: (i) increase the average maturity of domestic debt; (ii) favour concessional external debt; (iii) develop the domestic debt market; and (iv) minimise costs and risks.

KEEPING COMMITMENTS: Having issued CFA450bn (€675m) on the domestic debt market in 2012, the government hopes to raise CFA806.7bn (€1.21bn) in 2013. External concessional borrowing is favoured, but financing its investment plan may require a limited amount of non-concessional external borrowing. The government has committed to keeping the cumulative amount of non-concessional borrowing below $100m by year-end 2013, rising to $200m by end-2014. This borrowing is confined to financing viable infrastructure and energy projects. The government has also requested a €37.5m increase of the limit to its non-concessional borrowing from the West African Development Bank. If political stability can be maintained and economic growth remains robust, the new framework for debt management should ensure medium-term sustainability.