Fitch Rates Cote d'Ivoire 'B'; Outlook Positive

Fri Jul 11, 2014 4:14pm EDT

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: Cote d'Ivoire - Rating Action Report here LONDON, July 11 (Fitch) Fitch Ratings has assigned Cote d'Ivoire Long-term foreign and local currency Issuer Default Ratings (IDRs) of 'B'. The Outlooks are Positive. Cote d'Ivoire's senior unsecured foreign and local currency bonds are also assigned a 'B' rating. Fitch has also assigned Cote d'Ivoire a Country Ceiling of 'BBB-' in line with the Country Ceiling for the Union Economique et Monetaire Ouest Africaine. A Short-term foreign currency IDR has been assigned at 'B'. KEY RATING DRIVERS Cote d'Ivoire's 'B' IDRs with Positive Outlooks are supported by its recent track record of reforms and economic policy, triggered by the return to political stability since mid-2011. Economic performance has been notable and significant external debt relief has markedly improved the sovereign's debt profile. Fitch expects Cote d'Ivoire to continue on this positive path as long as political stability prevails. The rating is constrained by the recent history of debt restructuring and political instability and weak structural indicators (including GDP per capita, human development, ease of doing business and governance indicators). The 2015 presidential election will be a key test of the return to stability in Cote d'Ivoire. After a decade of recurrent conflict, the political environment has stabilised since mid-2011. The security situation, a top priority of the new administration under President Ouattara, has greatly improved. A probable scenario is that the current president will be re-elected in October 2015, as he is credited with maintaining peace and achieving significant economic gains (real income per capita has increased by 12% since 2011), and stability will prevail. However, given recent history, there are risks of renewed conflict and instability. High real GDP growth, at 9.8% in 2012 and 9.1% in 2013, has been driven by the return to political stability, large public and private investments to rebuild infrastructure and structural reforms. Cote d'Ivoire was among the ten best reformers in 2013 according to the Doing Business report of the World Bank, albeit from a low base. The current National Development Plan targets infrastructure (roads, bridges and dams) and will support the private sector and regional integration. Fitch expects that as the second-largest industrial power and third-largest economy in the Economic Community of West African States (ECOWAS), Cote d'Ivoire will continue to attract large investment inflows. Fitch expects GDP growth to remain rapid, at 9% in 2014 and 8.5% in 2015. The main risk to the growth scenario is renewed instability or conflict that would affect confidence. Cote d'Ivoire restructured its external and domestic debt in 2012 following the 2010/2011 conflict when it missed three coupon payments on its 2032 Eurobond and temporarily stopped servicing domestic debt. By the end of 2012, Cote d'Ivoire had normalised relations with all its creditors (domestic and external) and had benefited from significant external debt relief under the Heavily Indebted Poor Countries initiative (completion point reached in June 2012). The debt service on the Eurobond has been clean since June 2012. At an estimated 42.9% of GDP in 2014, public debt remains high relative to African peers despite external debt cancellation, although it is in line with the 'B' peers median (43% of GDP). Debt equivalent to 10% of GDP is owed to France and falls under the Debt for Development Swap programme (Contrat de Desendettement et de Developpement or C2D) by which France transfers back to Cote d'Ivoire the debt repayment in the form of grants to finance development projects. Debt will gradually decline as a percentage of GDP due to C2D debt repayment, expected continuing high growth and manageable budget deficits. Cote d'Ivoire is building a positive track record on fiscal policy with limited budget deficits, at 2.3% of GDP in 2013, despite a marked increase in capital spending. Fitch expects the deficit will be below 3% of GDP by 2015 despite potential spending slippage related to the election. In the context of the monetary union, Fitch assigns a higher weight to prudent fiscal policy given the importance of having adequate local currency financing in order to maintain access to central bank FX reserves. Public finance management is a weakness relative to peers as illustrated by low and volatile budget revenue (21% of GDP) and high wages (equivalent to 34% of government revenues). Domestic arrears to state suppliers (1.1% of GDP) relate to the pre-2010 era and are being gradually repaid. Potential buffers in the case of a fiscal shock are relatively thin. Despite rising investment, the current account deficit was only 1.6% of GDP in 2013, reflecting the strong export base of Cote d'Ivoire and its structural trade surplus (12% of GDP in 2012). The current account deficit will gradually increase (3.1% by 2015) given rising investment. Franc zone membership has ensured a supportive macro environment including a stable currency, low inflation and rules out the risk of balance of payments crises. It is backed by high foreign reserves pooled at the regional level and the French guarantee on convertibility. RATING SENSITIVITIES The main factors that could lead to an upgrade are: -Smooth 2015 presidential election and continued political stability thereafter. -Success in implementing pro-growth structural reforms, which contribute to a continuing high GDP growth trajectory in a context of macro stability. -Improvement in public finance management that leads to stronger tax receipts, falling current spending as a percentage of revenues and stronger solvency indicators (including lower public debt as a percentage of government revenues, currently at 207%). -Continued moderation in the twin deficits. The current rating Outlook is Positive. Consequently, Fitch does not currently anticipate developments with a material likelihood of leading to a downgrade. However the following factors could lead to a negative rating action: -Deterioration in the political and security environment, notably surrounding the 2015 presidential election. -A marked deterioration in the twin deficits. KEY ASSUMPTIONS Fitch assumes that Cote d'Ivoire will continue structural reforms supported by its close collaboration with the international community, including the International Monetary Fund. Fitch assumes the gradual increase in global GDP growth (to 3.2% by 2015 from 2.4% in 2013) will support demand for commodities produced by Cote d'Ivoire (cocoa, oil, rubber, gold and coffee). Fitch assumes the monetary arrangement with France will keep supporting macroeconomic stability and the fixed parity of the CFA franc against the euro will remain unchanged. Contact: Primary Analyst Arnaud Louis Director +44 20 3530 1539 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Amelie Roux Director +33 1 44 29 92 82 Committee Chairperson Tony Stringer Managing Director +44 20 3530 1219 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available on www.fitchratings.com Applicable criteria, 'Sovereign Rating Criteria' dated 13 August 2012 and 'Country Ceilings' dated 09 August 2013, are available at www.fitchratings.com. Applicable Criteria and Related Research: Sovereign Rating Criteria here Country Ceilings here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.