Moody’s: Côte d’Ivoire’s credit profile reflects economy’s increasing diversification and high growth prospects

ABIDJAN (Capital Markets in Africa) — Côte d’Ivoire’s (Ba3 stable) credit profile is primarily supported by the economy’s growing diversification and high growth prospects, which are underpinned by structural reforms and public investment in infrastructure, Moody’s Investors Service said in a report today. The country’s low institutional strength is a key credit constraint.

The annual update, ” Government of Côte d’Ivoire — Ba3 Stable, Annual credit analysis”, is now available on www.moodys.com. Moody’s subscribers can access this report via the link at the end of this press release. The research is an update to the markets and does not constitute a rating action

“Côte d’Ivoire has relatively strong fiscal fundamentals and sustainable debt levels, supported by substantial donor support and debt forgiveness over the last few years,” said Aurélien Mali, a Moody’s Vice President — Senior Credit Officer and co-author of the report. “Additional credit support comes from the country’s participation in the West African Economic and Monetary Union (WAEMU), and its relatively developed regional financial sector, which has been able to absorb an increasing share of government debt.” Moody’s expects that the economy of Côte d’Ivoire — which is the world’s leading producer of cocoa and cola nuts — will see medium-term growth above 7%, higher than the average for Sub-Saharan countries.

Côte d’Ivoire’s fiscal strength is supported by the government’s relatively low debt burden and the authorities’ efforts to improve the government’s revenue intake to finance a relatively high level of capital spending and to maintain broadly stable debt levels. Government debt remains affordable but is at risk of rising from the government’s increased recourse to taking on debt on commercial terms. The government’s fiscal deficit reached 4.0% in 2016 while capital spending represented a high proportion of overall expenditure, at 7.5% of GDP. In 2017-18, Moody’s expects the fiscal deficit to remain near 4% of GDP, balancing the government’s commitment to fiscal consolidation against the historic susceptibility of the budget to shocks.

While challenges to the country’s political stability could rise ahead of the next election in 2020, Moody’s believes that those risks are likely to be contained. Political stability has also been strengthened through the good relationships the government has with the international community, particularly France, which maintains a military presence in the country and has, on several occasions, acted as a mediator in major political conflicts.

The stable outlook on the rating reflects Moody’s expectation of balanced upside and downside risks.

Côte d’Ivoire’s growth rate, institutional strength, and political risk have witnessed an improving trend in recent years. Over the next 12-18 months, however, Moody’s expects relative stability in the country’s debt metrics and level of political risk. Institutional strength, moreover, still has substantial room for further improvement.

Côte d’Ivoire’s major credit constraint is its institutional strength. Like many Sub-Saharan African peers, it still scores relatively low on the Worldwide Governance Indicators. However, these have and should continue to improve steadily following the implementation of major institutional reforms.

Upward pressure on the country’s rating over the medium-term could stem from continued structural reforms that support increases in public and private investment; further material improvements in governance and competitiveness; and a continuation of strong growth that leads to better credit fundamentals, especially concerning debt metrics.

Conversely, downward pressure would follow any reversal of structural reforms; an inability to keep the fiscal deficit at a moderate level; or the re-emergence of significant political and social tensions that would in turn hinder the country’s medium-term growth prospects.