Moody’s assigns (P)B1 to Côte d’Ivoire

Moody’s Investors Service, Inc. (Moody’s) has assigned a provisional long-term (P)B1 rating to the Government of Côte d’Ivoire’s forthcoming bond issue. The senior unsecured bond will rank pari passu with all of Côte d’Ivoire’s current and future senior unsecured debt. The rating is aligned with Côte d’Ivoire’s long-term issuer rating of B1. Moody’s currently has a positive outlook on Côte d’Ivoire’s issuer rating. The provisional (P)B1 rating is based on the preliminary prospectus dated 13 February 2015. Moody’s will assign a definitive rating upon receipt of the final documentation.

Rating Rationale
The provisional rating on the forthcoming senior unsecured bond issue is aligned with the Government of Côte d’Ivoire’s long-term B1 issuer rating. The rating reflects (1) Côte d’Ivoire’s increasingly diversified economy and strong growth prospects, underpinned by structural reforms and rising private and public investment ; (2) the country’s macroeconomic stability and low external vulnerability as a result of its participation in the Western African Economic and Monetary Union (WAEMU) ; as well as (3) strong donor support under the debt-reduction and development contracts (C2D) and IMF support under the Extended Credit Facility programme (ECF). However, Côte d’Ivoire’s rating remains constrained by (1) its low per capita income and the moderate size of the economy; (2) a weak institutional strength ; and (3) political risks arising from the polarisation inherited from the civil war.
Côte d’Ivoire’s economy has been expanding fast over the last years, with an average growth rate of around 9% over 2012-2014. Growth has been supported by structural reforms aimed at improving the business climate and accelerating private and public investment. Recent reforms include the establishment of a commercial court in 2012, the adoption of a new petroleum code in 2012 and a new mining code in 2014 that are more favourable to foreign investors and the creation of a single desk for foreign trade, reducing the time to create a company in the country to 24 hours. Strong public investment in infrastructure also supports growth.

Despite the rise in public investment, fiscal deficits have remained moderate over the last few years, at around 2-4% of GDP, reflecting a strong recovery in tax revenue. Government revenue are relatively strong at around 20% of GDP and the government is committed to improve revenue generation in order to free up more resources for investment. The 2015 budget exceeds CFAF5,000 billion, representing a 12% year-on-year increase in revenue compared to the government estimate for 2014. As a comparison, government revenues amounted to around CFAF2,600 billion in 2012. Côte d’Ivoire’s government debt is relatively low at around 35% of GDP, with a favourable structure and low servicing costs. The new $1 billion bond issuance represents a 9% nominal increase in debt and the bond proceeds will cover most of the fiscal deficit. The proceeds of the bond will be used to finance strategic investments in the education, health, agriculture and infrastructure sectors.

Côte d’Ivoire’s susceptibility to event risk is assessed as moderate. External fundamentals are solid, and membership in the WAEMU limits risks of a balance of payment crisis, as the CFA franc’s convertibility is guaranteed by the French Treasury based on a fixed exchange rate with the euro. While economic growth has been solid in recent years, it has not been fully inclusive. Political instability resulting from deep political divisions inherited from the civil war remains a risk, although it has diminished as a result of significant progress towards national reconciliation recently. The presidential elections will be held in October 2015, but the risk of political instability following the elections is limited in Moody’s view. The decision by the International Criminal Court (ICC) to charge former President Gbagbo for crimes against humanity in June 2014 rules out his return for at least five years. Moreover, the alliance between the “Rassemblement des Républicains” and “Parti Démocratique de Côte d’Ivoire” looks solid.

Issuer Rating Outlook
The positive outlook on the issuer rating reflects Moody’s assessment of Côte d’Ivoire’s prospects for accelerating economic growth and structural reforms, which are likely to be supported by political stability, IMF and donor support.

What could change the issuer rating — up/down
Upward credit pressure could develop as a result of (1) continued structural reforms, accelerating public and private investment; (2) further reduction in the country’s public debt burden; and (3) improvements in governance, supported by a consolidation of political stability.
Downward pressure would be exerted on the rating in the event of (1) a reversal of recent structural reforms; (2) an inability to keep the fiscal deficit at a moderate level; or (3) the re-emergence of significant political and social tensions that would in turn hinder the country’s medium-term growth prospects.
GDP per capita (PPP basis, US$): 2,710 (2013 Actual) (also known as Per Capita Income)
Real GDP growth (% change): 9% (2013 Actual) (also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 0.4% (2013 Actual)
Gen. Gov. Financial Balance/GDP: -2.3% (2013 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: -4.7% (2013 Actual) (also known as External Balance)
External debt/GDP: 21.8% (2013 Actual)
Level of economic development: Low level of economic resilience
Default history: Default in 2011.
On 3 July 2014, a rating committee was called to discuss the rating of Côte d’Ivoire, Government of. The main points raised during the discussion were: the issuer’s economic fundamentals, including its economic strength; institutional strength/ framework; fiscal or financial strength, including its debt profile; and susceptibility to event risk. This level was also considered relative to its peers.