Fitch Affirms Cote d'Ivoire at 'BB-' With Stable Outlook
Alassane Dramane Ouattara, President of Ivory Coast

Fitch Ratings has affirmed Cote d’Ivoire’s Long-Term Foreign-Currency (LTFC) Issuer Default Rating (IDR) at ‘BB-‘ with a Stable Outlook. According to Fitch, the ‘BB-‘ rating balances Cote d’Ivoire’s strong growth prospects against low development indicators and high commodity dependence.

It also reflects a record of sound fiscal management, which supports Fitch’s’ view that the authorities will implement the necessary reforms and adjustments to continue reversing the recent deterioration in budget balance and debt metrics.

“We estimate the budget deficit to have narrowed to 5.3% of GDP in 2023 from 6.8% in 2022. This is in line with the government’s consolidation plan, anchored by the IMF programme, aimed at bringing the deficit to 3% by 2025.

“The unwinding of exceptional measures put in place in 2020-2022 generated large upfront budget savings of about 1.2% of GDP in 2023. Tax measures supported further revenue gains of 0.3% of GDP”, Fitch said in its latest rating note on the country.

Fitch expects the deficit will narrow to 4.4% of GDP in 2024 and 3.5% in 2025, slightly above the government target. The consolidation plan focuses on increasing revenue mobilisation, which is low.

Identified tax measures aim to improve tax-to-GDP by 0.5% annually, it said, adding that better expenditure efficiency, the control of the wage bill, and a robust nominal GDP growth will help shrink the deficit in 2024-2025 while managing fiscal room for continued social and investment spending

“We see execution risks stemming from both lower revenue outturns and from expenditure pressures tied to the national development plan, especially ahead of the presidential elections, in a context of increasing social and security spending and higher interest costs.

“This is balanced by Cote d’Ivoire’s record of adherence to IMF programmes, and the flexibility derived from the large share of capex in the budget – expected above 40% of revenues in 2024-2025”.

The government covered over 50% of their 2023 fiscal funding needs of over USD4 billion with external financing, supported by large IMF and official partners’ direct financing and guarantees.

However, constrained access to external commercial financing pushed the authorities to turn to the regional market, at a higher cost, due to regional monetary policy tightening. Increased financing costs led to a higher interest-to-revenue ratio of 14.8%, up from 14.5% in 2022, despite higher revenues.

The rating note said Ivory Coast USD2.6 billion Eurobond issuance in January 2024, its first since 2021, has reduced financing constraints. The issuance will partly add to the government’s external financing for 2024 – which we expect to be stable at around USD4 billion.

The proceeds will also allow a debt re-profiling that will smooth the external debt repayment profile and lower debt cost. Fitch analysts expect the interests-to-revenue ratio to gradually improve to 13.9% in 2025.

General government (GG) debt reached 58.1% of GDP in 2023, up from 56.7% in 2022 (and BB median of 52%), driven by a still large fiscal deficit and increasing cost of debt. “We expect debt to peak at 58.5% in 2024, well above the 2019 pre-pandemic 38%, and to start declining to 58.1% in 2025, supported by budget consolidation and strong GDP growth.

“The GG debt-to-revenue, estimated at 352% in 2023, compares negatively with the ‘BB’ median of 200%, and is a rating weakness”. Analysts estimate real GDP to have grown 6.7% in 2023 versus 7% government estimate, stable from its 2022 level, despite adverse weather conditions that hit cocoa production.

This was balanced by the energy sector (with abundant rains boosting hydroelectric production), the construction sector benefiting from the finalisation of the infrastructures for the African Cup of Nations football tournament, and oil production, with the start of the Baleine field’s first production phase.

“We forecast growth to remain high in 2024-2025, around Fitch´s medium-term growth estimate of 6.5%, as the recovery of agriculture is partly offset by a normalisation of activity in the construction and energy sectors”.

Fitch estimates the current account deficit (CAD) to have narrowed to 5.9% of GDP in 2023, from a revised 2022 deficit of 7.7%. This resulted mostly from easing global oil and food prices, in contrast with soaring cocoa prices.

The CAD remained large versus historical levels, reflecting large increases in public investments since 2022, as well as the import-intensive oil (Baleine) and mining projects.

“We expect the CAD to remain large at 5.4% in 2024 and to decline to 4.6% in 2025, with the ramp-up of Baleine field production, budget consolidation and greater processing of agricultural commodities”.

Regional reserves deteriorated to an estimated 3.9 months of imports (goods and services) at end-2023, from 4.4 months at end-2022. Reserves remained constrained by the political and security turmoil in the region affecting trade and financing flows, still large CADs and tight international financing conditions.

Nevertheless, reserves are sufficient to defend the peg with the euro. Analysts expect reserves to recover in 2024, supported by smaller CADs, completion of oil and gas projects and improved external financing prospects. The September 2023 local elections went smoothly and peacefully reflecting Cote d’Ivoire’s marked improvement in political risk indicators in recent years.

However, greater political opposition to the ruling party is expected in the 2025 presidential elections. This could cause localised violence, especially if the results are tight. Fitch analysts do not expect national-scale conflict to be repeated. Regional insecurity remains a material risk to Cote d’Ivoire’s economic, social and political stability.

“In our view, the lack of a domestic base for militant groups, the increased effectiveness of Cote d’Ivoire’s security forces and investment in social infrastructure limit the contagion risk for the country”. Banks Face Risks over 24hrs FX Positions Sell Down