New York - Tumbling cocoa prices and unscheduled payments to civil servants and mutinous soldiers in the past two months could widen Ivory Coast’s budget deficit and curb growth this year.
Cocoa prices have fallen by more than a third after reaching a six-year high in July, denting revenue for the world’s biggest producer of the chocolate ingredient. This year the country’s government has tried to defuse military and social unrest by agreeing to pay bonuses to soldiers and making some concessions to civil servants who led a strike earlier this year.
The budget deficit will probably widen to 5 percent of gross domestic product (GDP) this year compared with government estimates of 3.9 percent for last year, said Charles Robertson, global chief economist at London-based Renaissance Capital. The International Monetary Fund (IMF) will on March 22 start a review of the three-year programme agreed on last year and may adapt the $670 million (R8.8 billion) deal depending on the impact of the combination of lower revenue and increased spending, according to Alain Feler, the lender’s representative in the country.
Budget doubts
“Concessions were granted to civil servants, payments were made or promised to mutineers; it means additional spending,” Feler said. “There’s a revenue shortfall as cocoa prices dropped strongly. The question that’ll be raised is whether the deficit target is still appropriate.”
Cocoa futures jumped more than 50percent in four years until 2015, which encouraged more output and curbed demand. Prices began sliding from July amid forecasts of a surplus. Beans for delivery in May rose for the first time in five days on March 10, adding 1.5percent to £1595 (R25505) a ton in London. The bean accounts for about a fifth of the nation’s exports and according to the IMF a 1percent change in cocoa export revenues can lead to 0.63percent shift in government spending.
A decade-long conflict, during which the economy contracted for three out of the 10 years, ended in 2011 when President Alassane Ouattara came to power.
The state agreed in January to pay almost $20 000 each to some soldiers to quell a mutiny over unpaid bonuses and better living conditions.
The government repeatedly declined to confirm the total amount paid. While the government said in September it will target a fiscal deficit of 3.4 percent of GDP this year, from an estimated 3.9 percent last year, Ivory Coast will revise this year's budget following the cocoa-price drop and provision for new expenditure, spokesperson Bruno Kone said last week.
The nation’s “resources are largely sufficient to face these expenses despite a drop in cocoa prices", Kone said. “There’s nothing catastrophic.” He did not elaborate.
The budget adjustments come amid a liquidity squeeze in Francophone west Africa’s monetary union after the Dakar, Senegal-based regional central bank tightened access to its refinancing window in December and raised the marginal lending facility rate.
As a result, demand at debt auctions is low and Ivory Coast and other countries are struggling to raise funding on the regional market. -