Finance in the Development of the Ivory Coast

Report No. 3113-IVC

Finance in the Development of the Ivory CoastAnnex I

Flow of Funds: 16An Overview of the Financial System of the Ivory Coast C)

December 31, 1981

Western Africa Region Vol. 2FOR OFFICIAL USE ONLY

Document of the MWrld Bank

This document has a restricted distribution and may be used by recipientsonly in the performance of their official duties. Its contents may not otherwisebe disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

Currency Unit = CFA franc (CFAF)

US$1 = CFAF 220CFAF 1,000 = US$4.545CFAF 50 = FF 1

WEIGHTS AND MEASURES

1 kilometer (km) = 0.621 miles

1 hectare (ha) = 2.471 acres1 kilogram (kg) = 2.205 pounds

1 metric ton (t) = 0.984 long ton

1 cubic meter (m3 ) = 35.314 cublic feet (ft3 )1 m3 (round) = 27.74 Hoppus ft

1 m3 (round) per ha = 11.23 Hoppus ft per acre

1 kilowatt (kW) = 1.360 cheval-vapeur (cv)1 kilowatt (kW) = 1.341 horsepower (hp)

FISCAL YEAR

January 1 to December 31

FOR OFFICIAL USE ONLY

FINANCE IN THE DEVELOPMENT

OF THE

IVORY COAST

THE FAIN REPORT

ANNE) I - Flow of Funds

ANNEX II - Government and Public Enterprise Finances

ANNEX III - The Commercial Banks, the Central Bank and OtherFinancial Institutions

The field work for this report took place in two phases. A pre-paratory mission visited Abidjan in April-May 1978, followed by a secondmission in October 1979. The preparatory mission consisted of Mr. R. Westebbe(WA2, IBRD), mission chief and coordinating author; Professor J. Dawson (con-sultant) for flow of funds analysis; Mr. K. O'Connor (Fiscal Affairs Depart-ment, IMF) for public finance and enterprises; Mr. U. Mbanefo (IndustrialDevelopment and Finance Division, WAN, IBRD) for nonbanking financial institu-tions; and Mr. W. Dellalfar (Public Finance Division, DED, IBRD) for commer-cial banks and monetary policy. The second mission consisted of Messrs.Westebbe and Lav who worked on the macro projection and during the January1980 investment review mission helped develop the section on coordinatedmonetary and fiscal policy.

Annex I was prepared by Professor John Dawson on the findings of the1978 mission, and revisions were made on the basis of subsequent visits toWashington and the above-mentioned missions to Abidjan.

| This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization

FINANCE IN THE DEVELOPMENT OF THE

IVORY COAST

FLOW OF FUNDS: AN OVERVIEW OF THE FINANCIAL SYSTEM OF THE IVORY COAST

ANNEX I

TABLE OF CONTENTS

Page No.

A. Saving, Investment, and Sector Financing Needs .... ............ 1

B. Some Central Features of the Financial System .... ............. 6

C. An Historical Analysis of the Flow of Funds, 1971-76 .15

1971-72: Pause in the Growth Process 151973-74: Business Investment Boom .161975: Balance of Payments Strain and Credit Restraint 181976: Monetary and Bank Credit Ease .19

Summary .. 21

D. Analysis of Subsector Behavior, 1973-76 ........ 23

Public and Private Enterprise .. 23Stabilization Funds and CAA Depots. 27Financial Operations of the Tresor, CAA Dette,and Government, n.e.c. .29Commercial Banks and the BCEAO .. 30Nonbank Financial Institutions .. 33

E. Problem Areas in the Financial System .......... ............... 34

The Rest-of-World as Financial Intermediary ................... 34The System of Financial Control ............................... 37The Development of Financial Institutions and Instruments ..... 39

F. The Capacity of the System to Finance Investment .. ............ 41

- ii -

ANNEX TABLES

Page No.

Annex Table 1. Analysis of Government Sector Flows .... ............. 10

Annex Table 2. Business Credit Extension ........................... 12

Annex Table 3. Domestic Credit Extension by Financial Institutions 13

Annex Table 4. Currency and Deposit Liability Flow by Institution 20

Annex Table 5. Financial Impact of Stabilization Fund Surpluses .... 28

Annex Table 6. The Rise of Government Lending ....... ............... 31

Annex Table 7. Growth of Other Financial Institutions, n.e.c. ...... 35

Annex Table 8. Financial Intermediation by the Rest-of-World ....... 36

Annex Table 9. Projected Gross Saving and Investment by Sector ..... 47

Annex Table 10. Projected Rest-of-World Account .................... 48

Annex Table 11. Projected Government Finance . ........................ 49

Annex Table 12. Projected Enterprise Finance ........................ 50

Annex Table 13. Projected Financial Institution Flows ............... 51

Basic Flow of Fund Tables for the Ivory Coast(all figures are in millions of current CFA francs)

Sector Tables

Annex Table 14 Business 71-76 ............ ..................................... 52

Annex Table 15. Households 71-76 .............. .......... ........... . 53

Annex Table 16. Rest-of-World 71-76 ....... .......................... 54

Annex Table 17. Banking System 71-76 ................................ 55

Annex Table 18. BCEAO 71-76 ......................................... 56

Annex Table 19. Commercial Banks 71-76 .. ............................ 57

Annex Table 20. Other Financial Institutions 71-76 ................... 58

Annex Table 21. Development Banks 71-76 ................. *........... 59

Annex Table 22. CAM Depots and Other Financial Institutions,n.e.c. 71-76 ....................................... 60

Annex Table 23. CAA Depots 73-76 .................................... 61

Annex Table 24. Other Financial Institutions, n.e.c. 73-76 .......... 62Annex Table 25. Government 71-76 .. ....................... ............ 63

Annex Table 26. Tresor 71-76 ........................................ 64Annex Table 27. CAA Dette, Stabilization Funds, and Government

n.e.c., 71-76 ...................................... 65

Annex Table 28. CAA Dette 73-76 .. 66

Annex Table 29. Stabilization Funds 73-76. . 67

Annex Table 30. Government n.e.c. 73-76 ...... ....................... 68

ANNEX TABLES (Cont'd)

Page No.

Financial-Transaction Tables

Annex Table 31. Currency and Deposit Liability, Banking System71-76 .... 69

Annex Table 32. Currency and Deposit Liability, Other FinancialInstitutions and Tresor 71-76 .... 70

Annex Table 33. Government Debt 71-76 ..... .......................... 71Annex Table 34. Business Debt 71-76 ........ ......................... 72Annex Table 35. Consumer Debt 71-76 .... ............................. 73Annex Table 36. Financial Institution Debt 71-76 ................ .... 74Annex Table 37. Foreign Asets 71-76 .. . . ...... 75Annex Table 38. Foreign Exchange, net 71-76 ......................... 76Annex Table 39. Intermediary Advances 71-76 .... ..................... 77

Notes on Flow of Funds Sources and Methods for the Ivory Coast

ANNEX CHARTS

Chart 1. Gross Investment by Subsector. . . 2Chart 2. Investment and Saving ...... ..... .. . . ... . 4Chart 3. Gross National Saving by Subsector. . . 5Chart 4. Sector Investment, Saving, and Surplus or Deficit. . 7Chart 5. Financing of Sector Surpluses and Deficits ........... ..... 10Chart 6. Subsector Analysis of Business Sector Investments,

Saving, and Deficit ...................................... 24Chart 7. Subsector Analysis of Business Sector Finance ...... ....... 25

ANNEX I

FINANCE IN THE DEVELOPMENT OF THE IVORY COAST

FLOW OF FUNDS:

An Overview of the Financial System of the Ivory Coast

A. Saving, Investment, and Sector Financing Needs

1. In recent years the Ivory Coast has successfully financed a mostambitious program of capital formation. How the Ivorian financial system hasdone so will be explored in this chapter by tracing the flow of saving throughfinancial channels into real investment. In Section A investment and themobilization of saving are analyzed by sector and the resulting sector sur-pluses and deficits are examined.

2. Chart 1 presents the rise in real investment from levels of some50 1/ in the mid-60s, to a plateau of around 90 in the early 70s, and intoaccelerated growth since then to a 1977 level of 395. This pattern reflectsboth the stages of recent real growth and inflation. In real terms the IvoryCoast's economy grew rapidly in the late 60s, underwent a period of pausein the early 1970s, and then burst upward again during the later 1970s. Butthe real growth had been combined since 1973 with substantial inflation rateswhich had intensified the acceleration of investment on Chart 1. Neverthe-less, investment has represented a steadily rising proportion of GDP, increas-ing from 18 percent to over 24 percent since the mid-1960s.

3. This growth has not, however, been spread equally among the maineconomic sectors since the mid-70s. As Chart 1 shows government investmenthas since 1974 been the primary stimulus to investment growth, sharplypredominating over that of public and private enterprise. And between thelatter the recent acceleration in public enterprise investment is notable,outstripping the weakening private sector in 1976. The recent rapid growth ofpublic investment--both government and public enterprise--is a key feature ofthe Ivorian financing scene.

4. On Chart 2 the same gross investment curve is shown together withthe ultimate sources of its financing: gross national saving and saving by therest-of-world, the latter being measured by the Ivory Coast's balance ofpayments current deficit. In the late 60s the Ivory Coast had rather moderatesurpluses and deficits and national saving grew apace with the investment. Inthe 1970s the Ivory Coast began to rely on rest-of-world saving for some 15-20annually to supplement domestic saving. But in recent years the pattern hassharply altered; large and growing current deficits have contributed substan-tially to ultimate finance with investment growth outstripping that of nationalsaving. In addition gross national saving and the payments deficit exhibit aninverse correlation which became accentuated in 1974-76 with the largedeficit movements. The relationship suggests a search for some mechanism bywhich domestic sector saving may be augmented when that of the rest-of-worlddeclines.

1/ All figures are in billions of CFA francs.

ANNEX IPage 2

CHART 1 GROSS INVESTMENT BY SUBSECTOR400FT

300 -_i[ I

0 I I~ ~ ~ II Ii 1

<.I I I

U- ~~~~~~~~~~~~~~~~~~~~~Gross Fixed2001 L ____| ___ I nvestment l

O 200 -r

Gross i-j

i nvestment

/ I / Fixed Investment by

t/ I 1

100 ;Government

80 -

60- 0Private Enterprise

40 __.

20 I _ _; ~ ~ g { Public Enterprise

01966 1968 1970 1972 1974 1976

World Bank - 21816

ANNEX IPage 3

5. Chart 3, which breaks gross national saving into saving by themajor domestic sectors, shows that its fluctuations can be attributed togovernment saving. In fact throughout the period since 1966 the pattern ofGovernment saving is imposed upon the national total. Household saving hasbeen stable and quite small although its growth has accelerated since 1973.During most of the period business saving--the internal financing capabilityof both public and private enterprises--has been double that of households,running at a rate of 30-40 per year. It is unclear whether the recent declinesin business saving are merely temporary. Government saving has been substan-tial throughout the period but in 1974 and 1976 it quite outstripped that ofthe other two sectors, and the 1977 rise in gross national saving may wellindicate a further rise in government saving.

6. From this brief analysis of investment and saving it is apparentthat during the 1970s the Ivorian Government and the rest-of-world emergedas the dominant saving sectors--as the dominant ultimate sources for thefinancing of investment. The growth of enterprise saving, both publicand private, has been disappointing and that of households remains modest.Continued rapid investment growth will thus ultimately depend on how sustain-able the current levels of government saving are, on how viable the risingbalance of payments deficits are, and on the possibilities for expandedhousehold and enterprise saving.

7. The saving of each domestic sector may be viewed as the internalsource of finance for its real investment. On the other hand the sector'sutilization of the financial system is shown by the difference between itssaving and investment--its sector net surplus or net deficit. And the netsurplus or deficit can in turn be analyzed into the sector's borrowing andlending. Chart 4 rearranges the sector saving and investment data by sector,providing a column for each domestic sector showing its investment, saving,and the resulting sector deficit or surplus for 1970-76. At the right isshown the rest-of-world's saving which equals the rest-of-world's surplus (theIvory Coast's balance of payments current deficit).

8. The central feature of business sector finance revealed by Chart 4is the widening gap between business investment and business saving. Althoughinvestment--which here includes both public and private enterprise--grewsince 1972 from 60 to 120, enterprise saving grew only slightly and may indeedreflect a declining trend. This implies either that business profits did notparticipate in the recent economic growth or else that business preferred todistribute its profits and finance its investment externally. Also, the recentinvestment may well be spearheaded by public enterprises which have not yetthe operating capacity for generating substantial profit and saving. At anyrate, the impact on the business deficit is clear: it grew from 20 to over 100by 1976. This financing need placed a critical demand for funds on theIvorian financial system.

9. In the Government sector, investment increased without interrup-tion from about 30 in the early 1970s to well over 100 in 1976. Governmentsaving has grown equally fast but, as we saw, also with great volatility. The

ANNEX IPage 4

CHART 2INVESTMENT AND SAVING

(Billions of Current CFA Francs)

400

300 GrossInvestment

IJI

_ / ~~~~~~~~~~~~~~~~~~~~~I

200 X

,f\ II \\I

100 / Gross National

80 S

Balance of K /60 - Payments Current

~~~~~~~~Deficit/ /(Rest of World

40 - Saving)

20 /

1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977

Source. Les Comptes de la Nation World Bank - 21754

ANNEX IPage 5

CHART 3 GROSS NATIONAL SAVING BY SUBSECTOR300 _

/

Gross National SavingZ4'

z

a- 200

U-

-' I I

100Government

80 00I% 0

601 Public and Private

40 ~~~~~~~~~Enterprise _ X ,

20 -Household -

1966 1968 1970 1972 1974 1976

World Bank - 21815

ANNEX IPage 6

origin of the volatility in recent years was the surpluses of the Stabil-ization Fund (CSSPPA) which in turn rested on the yearly fortunes of theIvory Coast's coffee and cocoa crops in international markets. Without theseStabilization Fund surpluses, government saving would have grown steadilybut at a level below investment in recent years. Nevertheless, consideringGovernment as a whole, saving has, in recent years, often exceeded investment.In such years the Government overall had a surplus and was thus a net providerof funds to the financial system; the 1975 deficit implied the reverse. Butthe most striking aspect of the Government surplus is its volatility in recentyears. The pattern of crop surpluses which imposes itself on Governmentsaving is in turn imposed on the Government surplus. And these wide swingsfrom positive 40 to negative 40 and back again are bound to sharply effect thefinancial system. The Government's excess of saving is evidently a large--butuncertain--provider of funds to the financial system.

10. Households have not on the whole been large savers. And untilvery recently more than half of their saving financed the investment of thehousehold sector 1/ itself. But after 1973 the excess of its saving over itsown investment--the household net surplus--began to rise and by 1976 wasat a level of some 30. Thus in recent years households have been steadilyadvancing funds into the financial system at a growing pace that is encourag-ing in terms of financial development.

11. One striking aspect of the various surplus sectors--the sectorsultimately providing funds to the financial system--should be noted. Thatis the way in which the year to year movement in the sector saving imposesitself on the movements of the sector surplus. This is true for the govern-ment and household sectors on Chart 4. And it is necessarily true for therest-of-world; its saving equals its surplus since there is no rest-of-worldinvestment. These correlations enable us to trace the impact of sector-savingmovements on the financial system via the sector surpluses.

12. The sector surpluses and deficits of Chart 4 comprise a completesystem, the surpluses financing the deficits. During the 1970s as the privateand public enterprise need for funds began to rise, so also did the surplusesof households and--on average--that of the rest-of-world. In some years(1974, 1976) these surpluses were supplemented by the Government surplus; whenthe Government was in deficit--as in 1975--the rest-of-world surplus bore theadded financing burden.

13. We now turn to the question of how--by what financial channels--the surpluses financed the deficits and to the role played by financialinstitutions.

B. Some Central Features of the Financial System

14. In order to observe the financial channels by which the varioussector surpluses finance the sector deficits, the surpluses and deficitsmust be analyzed into their various borrowing and lending components.

1/ The household sector does not here include unincorporated enterpriseswhich are in the business sector.

CHART 4SECTOR INVESTMENT, SAVING, AND SURPLUS OR DEFICIT


BUSINESS GOVEHNMEN) | HOUL&IIO1 DS REST OF WORLD140 140 _

120 120 - SsVrn

100 100 _

/Inoestmen

80 80- u

60 60 / _ 60 -

40 . 40 - ~40 - v,i9 /40 - Sar.nn9

20 20 -20 - . uet20 -

o I I o 11 I 1- 19__7 1 6 19I0 101970 1972 1974 1976 1970 1972 1974 1976 1970 1972 1974 1976 1970 1972 1974 1976

100 1

so I 80o

Rest of Wold

)0 _ 60 - 60 - "P'u

Business ~~~~~~~~~ ~ ~~~~~~~Hou.eh.jd C.rsentto / De:ficl 40 Government 40 - U'ChOI40 Defs | \

20 __ / 20 S 20 20 / -10 z

0 1 1 1 0 1 I 0 L I1 0 r m1970 1972 1974 1976 70\ 4 Il/ 1970 1972 1974 1976 1970 1972 1974 1976 - H

-20

-40- Wodd Bunk - 21755

ANNEX IPage 8

Chart 5 presents such an analysis in terms of six broadly defined financialinstruments (currency and deposits, government debt, business debt, etc.)Each sector surplus or deficit at the top is analyzed in a column of financialflow graphs, liability increment curves being shown dashed and financial assetincrement curves being shown solid. In addition to the sectors so far consid-ered, columns are added for the banking system and other financial institutions,sectors which as financial intermediaries have almost no surpluses. Thus,while Chart 5 has eliminated a variety of minor flows in the interests ofsimplicity, all major financial flows are represented. The whole forms aninterlocking matrix of charts: across each row of graphs the liability flowsmust sum to the total of the financial asset flows and vertically the curvesanalyze the sector deficits and surpluses.

15. In Section B some central features of the Ivory Coast financialsystem will be presented with the aid of Chart 5. We begin with governmentfinancing. We have already noted the wide fluctuations in the governmentsurplus, especially since 1974, and suggested this pattern stems from varia-tion in the export crop surpluses. These surpluses are generated by theStabilization Funds--La Caisse de Stabilisation et de Soutien des prix desProductions Agricoles and La Caisse de Perequation des Prix--which arepart of the government sector in the national accounts. In order to under-stand clearly the overall government surplus and its placement it is essentialto separate the Stabilization Funds from what may be thought of as Governmentproper. Annex Table 1 does this for recent years for the government sectorflows on Chart 5. The Stabilization Funds accounted for 33 of the 34 surplusin 1974, for 16 of the 37 deficit in 1975, and for 48 of the 52 surplus of1976. The Stabilization Fund surpluses were entirely placed into currencyand deposits, dominating the movement of the Government's cash balance. Asignificant feature of the financial system is the institutional arrangementfor the management of these export crop surpluses and we shall consider itpresently.

16. The Government sector, apart from the Stabilization Funds, has herean approximately balanced budget except for the 1975 deficit of 21. 1/ Andthe Stabilization Funds have not been basically involved in the Government'sborrowing and lending activities. Government borrowing rose steadily from1972 to a level of 42 in 1976. In 1975 this primarily financed the non-Stabilization Fund deficit of 21. But in the surplus year 1976, the borrowingfinanced a very rapid growth in lending to the business sector, presumably topublic enterprises. The Government may soon establish itself as an importantfinancial intermediary in the Ivory Coast financial system.

1/ In recent years the Stabilization Funds have contributed large sums tothe Treasury in the form of subventions and grants. As these paymentsare nonfinancial receipts, they contribute to this approximate balanceas it appears in the national accounts. Also, these surplus figuresdiffer from the Consolidated Central Government Operations surpluselsewhere in this report primarily because the latter includes governmentlending as a non-financial use of funds; here the lending is a financialuse of funds.

CHART 5 ANNEX IFINANCING OF SECTOR SURPLUSES AND DEFICITS Page 9


OTHER FINANCIALBUSINESS BANKS INSTITUTIONS GOVERNMENT HOUSEHOLDS REST OF WORLD

100 _

80 IBusiness Rest of World

60 -DefiCit ' 60 SurplusGovernment Household (I.C B of P I

40 - 40 - Surplus Surplus Current/ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~Deficit)

20 - 20

0ii 0 1 A70 72 74 76 -20 ° 74 76 70 72 74 76 70 72 74 76

-40

a CURRENCY AND DEPOSITS

60 -

40 --

20 / It

70 72 74 76 70 72 74 76 70 >, 74'' i 0 0 72 74 76IIt

200 - GOVERNMENT DEBT

180 - 60 -

160 - 40 - 40

140- 20 ' , 20120 'I , 0Oi

120 70 72 74 76 70 72 74 76

100 _ A

BUSINESS DEBT

60 _ 60-

40 40

20 20 0 0

70 72 74 76 70 72 74 76 70 72 74 76 70 72 74 76 70 72 74

40 _ - FOREIGN ASSETS 40 _

20 z \ / _ < 20 A I,\%

70 72 74 76 70 72 76 70 72 74 76

FOREIGN EXCHANGE

40 - 40 -

20 - - 20 -

70 ~ 7 V'

L0-> \ 70V v -20 _ '-'

40 - INTERMEDIARY ADVANCES

20 - r --

70 70 ' '' 70 70 .

-20

Source: Les Comptea de la NationWorld Bank -21756

ANNEX IPage 10

Annex Table 1. ANALYSIS OF GOVERNMENT SECTOR FLOWS

(billions of current CFA francs)

1973 1974 1975 1976

Government Surplus 2/ 8 34 -37 52of which:

Stabilization Funds 2/ 1 33 -16 48Tresor, CAA Dette, 7 1 -21 4

Government n.e.c. 2/

Government A Currency + deposits 4 43 -16 54of which:

Stabilization Funds 2 34 -18 34Tresor, CAA Dette, 2 9 2 20

Government n.e.c.

Government A Government debt 1/ 12 22 32 43of which:

Stabilization Funds 1 1 * 1Tresor, CAA Dette, 11 21 32 42Government n.e.c.

Government,&Business debt 6 2 8 50of which:

Stabilization Funds -1 * 1 9Tresor, CAA Dette, 7 2 7 41

Government n.e.c.

1/ Net of Government Sector holdings.2/ Calculated from financial flows.

Source: Annex Tables 25-30.

ANNEX IPage 11

17. One basic feature of the government financing situation is that all,government borrowing is from abroad. On Chart 5, the solid curve showingabsorption of government debt in the rest-of-world column just matches theissue of such debt, the dashed curve in the Government column. The IvoryCoast's exclusive use of foreign financing here reflects the solidity of itsinternational monetary arrangements: the West African Monetary Union (UMOA)and its common central bank (the BCEAO), the free convertibility at a stablerate between the CFA and French franc, and the Ivory Coast's high creditrating among foreign lenders. Such use also indicates the lack of anysubstantial domestic government securities market.

18. The financing of the business sector deficit as seen in the firstcolumn of Chart 5 is dominated by the tremendous rise in the (dashed) publicand private enterprise borrowing curve from less than 40 in 1972 to over 100in 1974 and, then after a dip, to some 195 in 1976. How was the businesssector able to obtain such a volume of funds? Looking horizontally fromthe dashed business debt issue curve, the solid curves show us that althoughseveral lending sectors participated, the key lenders were banks and theforeign sector. The funds advanced by the rest-of-world, primarily at long-term, rose from 5 to over 40 during the period. Like the rise in Governmentborrowing from abroad, this remarkable rise in business borrowing from abroadaffirmed the Ivory Coast's firm credit standing and its well-developed foreignborrowing connections.

19. Domestic financing of enterprise in the Ivory Coast has long beendominated by the banking system, i.e., the BCEAO and the commercial banks.Chart 5 indicates that this situation continues, the banking system being thelargest and most flexible lender on account of business debt. However, inrecent years and especially in 1976, other domestic lenders to business hadto be taken into account. In addition to the explosive rise in governmentlending, there was the lending by other financial institutions which rose to30 in 1976. Annex Table 2 details their absorption of business debt andindicates the prominence of the Development Banks in this growth. Annex Table3 shows the total domestic credit extension, thus providing perhaps a fairermeasure of the relative importance of these groups of financial institutions.While the commercial banks retain their preeminence, other financial institu-tions--e.g. the development banks, CAA Depots--as a group now lend more thanhalf as much as the banks themselves.

20. We noted that the balance of payments current deficit--at the upperright on Chart 5--both rose as a trend and became increasingly volatile. Therecent year movements can, of course, be related to such factors as commodityprice movements, agricultural production, and the recent worldwide recession.Here we concern ourselves with how this flow financed the Ivory Coast.Basically, the deficit took the form of the Government and business sectorborrowing of which we have taken note. But in most years the sum of thisborrowing exceeded the deficit. The Ivory Coast was able to borrow moreabroad than its deficit because in those years it also advanced funds toabroad. This lending took the form of a substantial volume of domestic funds

ANNEX IPage 12

Annex Table 2. BUSINESS CREDIT EXTENSION


1971 1972 1973 1974 1975 1976

By the Banking System:

BCEAO 5 * 23 39 -5 -28

Commercial Banks 9 13 11 22 35 91

By Other Financial Institu-tions:

Development Banks 1 2 2 4 6 21

CAA Depots n.a. n.a. 4 5 14 -2

Other FinancialInstitutions 1/ n.e.c. n.a. n.a. 2 -1 -1 10

By Rest-of-World 5 7 23 28 20 43

By Government: 10 7 6 2 8 51

1/ SONAFI, COFINCI, CCP, CE, SAFCA, SIF, Insurance companies

Source: Annex Table 34.

ANNEX IPage 13

Annex Table 3. DOMESTIC CREDIT EXTENSION BY FINANCIAL INSTITUTIONS 1/


1971 1972 1973 1974 1975 1976

BCEAO 12 3 15 30 2 26


Development Banks 2 2 4 7 9 23

CAA Depots n.a. n.a. 5 8 13 4

Other Financial InstitutionsInstitutions 2/ n.e.c. n.a. n.a. 4 -1 3 13

1/ Increase in total financial assets less foreign assets and foreign exchange.2/ SONAFI, COFINCI, CCP, CE, SAFCA, SIF, Insurance.


ANNEX IPage 14

which found its way into privately held foreign assets. 1/ These acquisitionsand the foreign exchange flow absorbed the bulk of the recent year to yearmovement in the balance of payments.

21. Broadly then, in addition to being an ultimate source of funds forthe Ivorian financial system, the foreign sector also acts as a financialintermediary. Ivorian businesses and banks advance funds to abroad, perhapsto foreign financial institutions, which in turn relend the funds back toother Ivorian businesses or the Government. In this way the intermediaryprocess supplements the basic inflow originating from the balance of paymentsdeficit. The intermediary process via the rest-of-world currently provides analternative to the domestic saving-investment process.

22. The cocoa and coffee export fortunes have a major impact on thesaving and surpluses of both the government and rest-of-world sectors,and, in turn, upon the financial system. During the 1970s, a clear mechanismfor the financial management of these short-term surpluses existed. Goodexport surplus years (1974, 1976) brought a reduction in the balance ofpayments deficit and sharp increases in the government surplus. This Stabili-zation Fund surplus was deposited with the CAA Depots (the depository branchof the Autonomous Amortization Fund) which, in turn, used the funds to acquireforeign exchange. The pattern can be seen on Chart 5 in the other financialinstitutions column since the deposit liability and foreign exchange curvesthere are entirely attributable to the CAA Depots. These were also years inwhich business and bank acquisition of foreign assets rose. In the balanceof payments (rest-of-world column on Chart 5) these foreign assets and foreignexchange movements absorbed the 1974 and 1976 declines in the current deficitwhich were a result of the rising export surpluses.

23. To the extent that a crop surplus was fully absorbed by the CAADepots deposit liability and fully placed by it into foreign exchange, thescheme had the advantage of isolating the financial impact from the domesticmonetary and financial system. But also to this extent the surplus was notused to finance domestic borrowers. 2/ This pattern was less strong in 1976--the balance of payments movement was mainly absorbed by business and bankacquisition of foreign assets rather than foreign exchange; the isolation fromdomestic finance was less complete. And in 1977, the BCEAO took action toremedy the adverse effects. But it seems likely that the management of suchlarge and volatile surpluses will remain a financial policy problem.

1/ In the flow-of-funds accounts the balance of payments became the rest-of-world account and international financial flows were seen from theviewpoint of the rest-of-world. Thus, on Chart 5 the right-hand columnof graphs would be interpreted as follows: the rest-of-world basicallyplaced its surplus (top graph) into lending to Government and business(next lower solid graphs). But on average the surplus was not sufficientto finance the lending. Other funds were obtained by the rest-of-worldby the issue of foreign assets and foreign exchange to the Ivory Coast(the two dashed graphs).

2/ We will return to this point in Section D2.

ANNEX IPage 15

24. One final note on the general characteristics of the Ivory Coastfinancial system. This is perhaps as much a commentary on what does notappear on Chart 5 as what does. On the whole, the domestic saving-investmentprocess mechanism is not yet extensively developed. For example, the house-hold surplus is entirely placed in currency and commercial bank deposits.Annex Table 4 indicates the dominance of the banking system in deposit flowsonce we separate out the CAA Depots, whose deposits are those of the Stabili-zation Funds, and other official entities. The Development Banks and otherfinancial institutions are not gathering up surpluses by attracting deposits.The Government itself has, until very recently, had very little role as adomestic financial intermediary. Finally, we have noted the Government'scomplete reliance on foreign borrowing and the very substantial foreign rolein business and parastatal borrowing as well.

C. An Historical Analysis of the Flow of Funds, 1971-76.

25. This section presents a somewhat more detailed view of the saving-investment process, using Charts 4 and 5, but moving historically from1971 to 1976, the latest year for which detailed Flow of Funds data wereavailable. The analysis will place the flow magnitudes within the context ofsome of the events in the Ivory Coast's financial history.

1971-72: Pause in the Growth Process

26. In the early seventies the economic growth of the Ivory Coast wasslowing somewhat from that of the decade of the sixties. Cocoa prices wereadjusting downward; adverse weather was having its impact on crop productionfor export. In short, the economy, while not depressed, was having a periodof pause.

27. These years provided a good base period in which to examine financialflow structure, years in which the financial system was not under particularstress. Flow structure encompasses the "normal" annual volumes of lending andborrowing, a pattern against which to judge the size of later flow movements.So the analysis considered rough (rounded to 5 billion CFA francs) averageannual flows for the years 1971 and 1972 from Charts 4 and 5.

28. In this period both business and Government were financing abouttwo thirds of their capital formation by their own saving with the result thatbusiness (including here public enterprises) had to finance 20 and Governmentsomewhat over 5 by external means. Each of these sectors borrowed more thanenough to cover these deficits. Business borrowed 35 which covered itsdeficit and left 15 for cash and foreign asset accumulation. (This may, ofcourse, have resulted from the borrowing firms' investing the whole 35 whileother firms placed 15 of their saving into financial assets.) Governmentborrowed 10 which covered its deficit and left 5 or more for lending tobusiness.

29. From whom did these sectors borrow? For business 15 of the 35borrowing came from the banking system (including the BCEAO) while theremainder was about equally distributed among Government, other financialinstitutions, and the rest-of-world. For Government, the answer is simple:

ANNEX IPage 16

substantially all of its borrowing was from the rest-of-world. In theseyears the Government made little use of nonseasonal borrowing from the bankingsystem as we can see on Chart 5 from the intermediary advances transactions.

30. At this time the Ivory Coast had a balance of payments currentdeficit of some 15. Its positive trade balance remained quite level whileservice and transfer outflows created the (moderate) deficit. The businessand government borrowing which we have noted are enough to cover this deficit.But, at the same time, business was lending to the rest-of-world by accumulat-ing some 10 of foreign assets. These funds are also a source of rest-of-worldlending to the Ivory Coast. Finally, there occurs an adverse flow of some10 in the foreign exchange account. In fact, the rest-of-world is advancingfunds to the Ivory Coast by this reduction in its foreign exchange liabilities.

31. To return to the domestic scene, the intermediary role of thebanking system stands out very clearly in these years. It plays a very modestrole in the accumulation of foreign assets and in the foreign exchange move-ments. Nor is it an important lender to Government or other financial insti-tutions. Its role at this time is to lend to business about 15 a year whichjust corresponds to its currency and deposit expansion. Households acquire 10of these--thus placing their entire surplus with the banking sector--andbusinesses the bulk of the rest. The banking system thus obtains 15 fromultimate lenders and lends the entire amount to business.

32. To sum up these major flows somewhat schematically: During the1971-72 reference years, the channels by which the household and rest-of-worldsector surpluses financed the deficits of the Government and business sectorsinvolved several patterns of intermediation. The largest one, with the banksas intermediary, required the absorption of 15 in currency and deposits byhouseholds and business and provided 15 in finance to business. A secondintermediation involved the Government borrowing from abroad 5 beyond itsdeficit and onlending these funds to business. The third involved theforeign sector acting as an intermediary as well as ultimate lender. Inaddition to the balance of payments current deficit of 15--which measures therest-of-world's ultimate provision of funds--the Ivory Coast obtained anadditional 10 from abroad, 10 which business advanced to abroad by theaccumulation of foreign assets. We conclude by noting that because of thesomewhat depressed agricultural situation, we do not yet see in these yearsany dominance in the Government deficit/foreign exchange flow figures of thepattern of intermediation associated above with the Stabilization Fund and theCAA Depots. Apart from this, these years reflect the central features of thesystem sketched in the preceding survey.

1973-74: Business Investment Boom

33. In real terms the revival of the Ivorian economy during 1973-74was not a very strong one. Bad weather continued to impede agriculturalproduction and indeed the entire real GDP merely continued its more moderategrowth rate. But price rises made a sharp additional mark on the currentfranc scene. And it is current franc expenditures that must be financed.

ANNEX IPage 17

34. From a financial viewpoint, the dominant fact of the 1973-74period was the rise in public and private enterprise capital formation from55 to over 100, practically all of which resulted in borrowing demand. Thebusiness deficit thus rose sharply from 20 to 60. This was accompanied byan almost equally strong reverse movement--a movement into surplus--inthe Government account and by a more modest movement toward surplus in theIvorian balance of payments. How did these developments affect the patternof intermediation in the financial system?

35. Business stepped up its borrowing by 60, more than enough tofinance the investment increase and far more than enough to finance itsdeficit increase of 40. Of this 60 increase, about 40 came from the bankingsystem and the remainder from abroad. These are all very large increasesrelative to the 1971-72 borrowing levels. It is perhaps noteworthy thatneither business lending by other financial institutions nor by Governmentrose in response to the increased demand for funds. Business, in turn,placed its excess borrowing of 20 into currency and bank deposits ratherthan foreign assets.

36. If we ask how the banks were able to accommodate the rapid rise inbusiness demand for funds, the answer is primarily by an increased monetaryexpansion which rose to nearly 50 in 1974. But there also was a portfolioshift; in these years the banking system reduced its intermediary advances(to Government and other financial institutions) and this provided anadded source of funds for business credit. Tracing the expanded currencyand deposit flow, we find it divided between added household placement ofsurplus (from 10 to 20) and the business placement with the banks. Sobusiness and households were the main ultimate lenders for the intermedia-tion surge through the banking system. 1/

37. Turning to government finance, we find here also a rise in capitalformation which was accompanied by a rise in government borrowing of some20, all of which, as we would guess, came from abroad. Thus, as the Govern-ment moved into surplus, not only did the surplus have to be placed intofinancial assets but an amount equal to its borrowing as well. It is theplacement into deposits--over 40 in 1974--that does this. We see herefor the first time in dramatic form the mechanism in which the 1974 surplusfrom the Stabilization Fund is deposited in the CAA Depots, which stores itin foreign exchange. And in which the Stabilization Fund surplus is carryingthe Government account as a whole into surplus.

38. A doubling of both exports and imports, largely because of pricerises, characterizes the 1973-74 trade situation. But 1974 export volumealso rises, and the balance of payments current deficit is reduced from therecent 20 to zero. In that year, the rest-of-world is not placing anysurplus into the Ivorian financial system. Yet, we have noted the sharp

1/ Government also participated via reduction in its borrowing from theCentral Bank and some added growth in its cash balances.

ANNEX IPage 18

rises in both government and business borrowing from abroad. So the inter-mediation role of the foreign sector must be growing. Partly this stemsfrom added placement by domestic sectors--notably the banking sector--into foreign assets. But the main 1974 source was the more favorableforeign exchange flow. As the CAA Depots acquired foreign exchange ba-lances, it was advancing funds to abroad for return to the Ivory Coast in theform of credit to business or Government. The ultimate lending in this casewas the Government accumulation of currency and deposits, which financedbusiness and Government via the rest-of-world.

39. If we consider the surge in borrowing demand in 1973 and 1974 bybusiness and Government to be some 80, we may judge about half to have beenprovided by the domestic sectors via the banking system and the other halfto have been provided by the domestic sectors via the rest-of-world.

1975: Balance of Payments Strain and Credit Restraint

40. By 1975, real domestic production in the Ivory Coast, both agricul-tural and manufacturing, had smartly recovered and the inflation rate wasmuch reduced. But unfortunately at this time--with imports rising--theIvory Coast's exports fell in response to the worldwide recession. Thebalance of payments current deficit rose from 0 to some 65 in 1975. TheGovernment responded to the situation with various measures to reduce importsincluding bank credit restraints. But such measures faced a continuance ofdomestic prosperity and of the investment boom, notably by Government itself.

41. The restraint measures imposed included: the start of a newsystem of preshipment control of imports, a substantial increase in thewhole structure of interest rates, pre-authorization by the Central Bankof large bank loans, a tightening of credit guidelines, and moral suasion.The measures seem to have been a mix of general reforms and responsesto the current financial situation. Chart 5 presents some evidence consis-tent with the effectiveness of these restraints: bank credit extension tobusiness falls from 60 to 30 in 1975, perhaps indicating credit rationing.But business was able to offset some of this decline by increased borrowingfrom Government and other financial institutions, so its overall borrowingfell only by some 20 or so. One accompaniment to the overall decline inbusiness borrowing--since the business deficit remained unchanged--wasthe reduction in business placement of funds into foreign assets. Thislatter fall may be related to the decline in the export surplus in 1975.

42. While business capital formation declined moderately in 1975, thatof Government took a spurt upward. Government borrowing from abroad in-creased somewhat, but only three fourths of the Government deficit of some40 was financed by this debt issue. Government was also able to beginborrowing from the BCEAO--in accord with the revised monetary union arrange-ments--but more importantly, obtained funds by drawing down its deposits. Thelatter provides the sharp downward movement in the Government's currency anddeposits curve which reflects the reduced Stabilization Fund surplus of thatyear, a force also contributing to the balance of payments deficit.

ANNEX IPage 19

43. Within the banking system, the increased lending on account ofintermediary advances is part of a portfolio shift. While the banks andBCEAO reduced their business lending by 40, they increased their lending toGovernment and other financial institutions (the CAA Depots) by some 30.The overall currency and deposits flow declined only by 10 (Annex Table 4).So in 1975, the overall intermediation of the banking system declined onlymoderately, but there was a sharp shift in the direction of credit extensionaway from business and toward Government.

44. We return finally to an analysis of the balance of payments. Thelarge upward movement in the Ivory Coast's deficit was not associated withcorresponding sharp, upward movements in business and Government borrowingfrom abroad. Some of the deficit increase was absorbed by reduced foreignasset accumulation. But some 25 remained to be absorbed by reduction offoreign exchange balances. The rest-of-world was here a large ultimatelender, advancing some 60 directly to business and Government, and another25 via the reduction in foreign exchange balances, the bulk of which wasultimately obtained by Government by the reduction of its deposits with CAADepots. The circumstances practically eliminated the foreign sector's role asintermediary in 1975.

1976: Monetary and Bank Credit Ease

45. Vigorous growth continued in the Ivory Coast during 1976. Anambitious investment expansion program in both business and Government waspursued; exports once again were showing a substantial increase. Thefinancial pattern showed many similarities to that of 1974; an expandingbusiness sector deficit, the Government account moving sharply into surplus,the balance of payments deficit declining. This year, however, the bankcredit and monetary conditions ended up being particularly easy. Hence ourcharacterization of the year as one of monetary and bank credit ease.

46. The recovery of private and public enterprise investment wasaccompanied by a disquieting decline in enterprise saving, the combinationcausing the business sector deficit to move up from 50 to 100. Businessborrowing in turn increased from 80 to 195. Although 35 of this enormousincrease of 115 came from banks, the bulk of the added credit extensionin 1976 came from other sectors: 25 from abroad, 10 from nonbank finan-cial institutions, and over 40 from Government.

47. This new business lending pattern has several implications.Since the business investment recovery was spearheaded by that of publicenterprises, much of the 25 increase from abroad is on their account.Together with the added 15 by the Government sector itself, the volume ofGovernment guaranteed foreign borrowing was reaching levels that had ominousimplications for the Ivory Coast's future debt servicing capacity. Second,the extraordinary rise in Government lending to business seems to launch theGovernment into the role of financial intermediary, as we noted above.Finally, the nonbank institution lending level makes them now a quantita-tively significant source of enterprise funds.

ANNEX IPage 20

Annex Table 4. CURRENCY AND DEPOSIT LIABILITY FLOWS BY INSTITUTION


1971 1972 1973 1974 1975 1976

BCEAO 5 6 7 25 10 23


Development Banks * * 1 3 -2 *

CAA Depots n.a. n.a. 6 36 -25 21

Other Financial n.a. n.a. -1 -1 1 4

Tresor 1 1 * * 7 7

Source: Annex Tables 31 and 32.

ANNEX IPage 21

48. The 1976 expansion in bank lending to business, in contrast tothe offsetting portfolio shifts of the previous year, was accompanied byexpanded bank lending to Government and to abroad in the acquisition offoreign assets. The entire bank credit expansion, therefore, necessarilyinvolved rapid monetary growth 1/ of nearly 100. The currency and depositswere taken up by all the domestic sectors, the Government playing a largerthan usual role here.

49. Government finance in 1976 had a broad similarity to 1974.Investment expansion was accompanied by further growth in borrowing fromabroad up to 35. And the Stabilization Fund surplus stemming from favorableexport experience drove the Government account to its large surplus. Thecombination of the borrowing inflow plus the surplus forced a large place-ment into currency and deposits, which, this year, included 30 in bankdeposits as well as some 20 in CAA Depots. This large commercial bankdeposit increase originating in the export surplus adversely affected theexecution of monetary policy by providing added liquidity to the banks. By1976 the management of the export surplus was no longer being kept separatefrom the domestic financial system.

50. The large 1976 rise in Government lending to enterprises from 10to 50 can now be put in the context of the Government finance situation.The large surplus that year was especially propitious for expanded lending,but if the lending relied on this as a source, its continuance in futureyears, would be uncertain. However, it seems that an increased share of theGovernment's foreign borrowing was now being onlent to government enter-prises. The trend toward centralization within the CAA Dette of the foreignborrowing on enterprise behalf will increase the Government s intermediaryrole. A more detailed sector analysis will enable us to further pursue thisbehavior.

51. Despite improved export experience, the balance of paymentscurrent deficit remained at an uncomfortable 35. However, with the foreignborrowing rate of some 80 by business and Government, one might expect areturn to a favorable foreign exchange flow. But we have to reckon with thesharp rise to 65 in the Ivory Coast's placement of funds in foreign assets--signalling the return of the foreign sector's intermediary role. In theend, foreign exchange reserves continued their fall by another 10. Thisloss in reserves was experienced intensely by the banking system, while theCAA Depots was accumulating foreign exchange as we see in the financialinstitutions curve on Chart 5. The Ivorian authorities may well have feltthe need for a centralization of foreign exchange reserves.

Summary

52. Despite the lack of a diversified saving-investment process mecha-nism, the Ivory Coast has been able, during 1971-76, to finance success-fully an ambitious program of capital formation. In doing so, it has reliedprimarily on its banking system and on its strong financial connections withthe rest-of-world. The primary means have been direct borrowing from abroad,together with several types of financial intermediation.

1/ The reference here to the currency and deposits transaction categoryimplies a broad monetary aggregate which includes time deposits.

ANNEX IPage 22

53. The most important intermediary process throughout the period wasthat via the banking system. Households and businesses have been the steadyand growing absorbers of the bank currency and deposit issue. Until recently,the bank credit has gone almost entirely to business. During our periodthis system has shown itself capable of rapid overall expansion to meetbusiness credit needs (1973-74, 1976) and of portfolio shifts to alter thedirection of its credit extension toward other sectors, notably towardGovernment (1975, 1976). We noted also that the recently adopted creditcontrols may have been effective in inducing bank credit rationing (1975).Until 1976, the bulk of the Ivorian foreign exchange movements was absorbedby the CAA Depots in the other financial institutions sector, and hence wasnot a cause of bank portfolio shift. Our analysis was not detailed enoughto explore whether the types of bank credit offered to business were themost appropriate to the Ivory Coast's development.

54. The foreign sector has been a steady and rapidly growing providerof funds to business and Government, responding to the demand for fundssteadily despite the wide variation in balance of payments situations(1972-76). In most years, this borrowing exceeded the current accountdeficit; additional loan funds were provided to the rest-of-world by thedomestic absorption of foreign assets, primarily by business and banks. Tothis extent, the foreign sector acted as a financial intermediary. Howclosely this provision of funds to abroad is institutionally tied to thereturn lending flow, we do not know. But if this provision of funds is notso tied, it may be a cause of adverse foreign exchange movements--which,except for 1974 have occurred throughout 1971-76. From a balance of pay-ments- viewpoint, it might be preferable for the monetary authoritiesto acquire foreign exchange rather than for the private sector to acquireforeign assets.

55. Since 1973, the direction of foreign exchange movements has re-flected (inversely) that.of the current deficit. One reason for this isthe Ivory Coast's unusual intermediation arrangement whereby StabilizationFund surpluses stemming from favorable export experience place the Governmentaccount in surplus. The surplus is placed with the CAA Depots, which inturn advances the funds to the rest-of-world by the acquisition of foreignexchange assets (1974, 1976). The reverse flow through this network can beassociated with a stabilization deficit and Government reduction of deposits(1975). This arrangement was less firm in 1976 than in the previous years,and in 1977 was substantially altered.

56. In the early years, 1971-74, lending to business by other finan-cial institutions and by Government remained small. By 1976, however, suchlending was far from negligible, that by Government rivalling bank lendingto business in that year. In both cases, the intermediary process isunclear. Nonbank financial institutions were in turn financed by Government,the BCEAO, and from abroad. The Government lending was financed by theGovernment's surplus or its foreign borrowing. But both these developmentsmay be welcomed as the start of expansion and diversification in the Ivoriansystem of financial intermediation.

ANNEX IPage 23

D. Analysis of Subsector Behavior, 1973-76

57. The historical flow of funds analysis of the preceding Section Conly divided the Ivory Coast economy into six broad sectors. In this formthe analysis can emphasize the "to whom from whom" characteristics of theborrowing and lending flows. As these six sectors are broken into subsec-tors such tracing is less feasible. But other useful features appear whenwe analyze the major sectors into the key subsectors.

Public and Private Enterprise

58. The analysis of the business sector into its public enterprise andprivate enterprise subsectors is an urgent task. The Government has aspecial role and responsibility in the finance of public enterprise; theyare often grouped with Government proper in order to assemble a "publicsector" account. And for the Ivory Coast the financial control of therapidly growing public enterprise sector is now an urgent problem.

59. Nevertheless a more detailed examination of the business sectorposes a number of statistical difficulties. The enterprise estimates in thenational accounts so far remain a synthesis built up from a variety ofsources for which a breakdown is not available. The best that can be doneis roughly to estimate figures for public enterprises--also from a varietyof sources--and to derive private enterprise figures as residuals. Suchdata are presented in Charts 6 and 7. But their reliability must be viewedwith caution.

60. Chart 6 divides the business sector investment, saving, and deficitinto public and private enterprise subsectors, the former, including both"societes d'Etat" (100 percent state owned) and "enterprises publiqueset semi-publiques" (majority or minority state participation). The Chart 6investment curves confirm the recent more rapid growth of public than privateenterprise. It is also of interest that, although the growth of savings isdisappointingly slow in both subsectors, the public enterprises do show someincrease in their saving. The private enterprise saving--residually esti-mated--shows no growth and is apparently responsible for the sharp 1976decline in overall business saving. As a result of these trends the publicenterprise deficit grew more slowly and remained smaller than that of privateenterprise during 1971-76.

61. On Chart 7 the respective deficits are analyzed for 1973-76 alongthe lines of the Chart 5 arrangement. We see that private enterprise is verydependent on borrowing from the banking system and other domestic financialinstitutions, and is supplemented by only modest amounts of foreign borrowing.This dependence points up the importance of the banking system's being able toprovide long-term as well as short-term credit. On the other hand, the publicenterprises have a more diverse array of sources. They borrowed steadily fromabroad, from domestic financial institutions at a growing trend, and especiallyin 1976 from the Government.

CHART 6 SUBSECTOR ANALYSIS OF BUSINESS SECTOR INVESTMENT, SAVING, AND DEFICIT

(BILLIONS OF CFA FRANCS)

BUSINESS PUBLIC ENTERPRISE PRIVATE ENTERPRISE

120

Investment100 -

80 _ 80 - 80

60 60 -60-Investment

*. .9 I~~~~~~~~~~~~nvestment40 ......... 40-

'.Saving

20 - 20

,,,,,,,-.' S.vng * Saving

O I I I O I AI I I '.1970 1972 1974 1976 1970 1972 1974 1976 1970 1972 1974 1976

100 _

80 _

60 - Deficit 60 60o

40 _-* 40 _, 40 J. ae Deficit

20 - .. ,0' 20 .' Deficit 20 e { i i40 0 40

O~~ ~ ~ 9

1970 1972 1974 1976 1970 1972 1974 1976 1970 1972 1974 1976

World Bank - 21814

CHART 7 SUBSECTOR ANALYSIS OF BUSINESS SECTOR FINANCE ANNEX I(BiLlions of CFA Francs) Page

BUSINESS PUBLIC ENTERPRISE PRIVATE ENTERPRISE

10cr

80

*Deficit60 60 - 60 -

40 * 40 - 40 -* .

Deficit . Dfii

20- 20 -. Deficit 20 -

0 0 I I I I 0 11973 1974 1975 1976 1973 1974 1975 1976 1973 1974 1975 1976

4 BUS. DEBT: FROM FINANCIAL INSTITUTIONS

80 _

60e " ' 60 60 -

40i 40 - 40 -

1973 1974 1975 1976 1973 1974 1975 1976 1973 1974 1975 1976

^BUS DEBT FROM GOVERNMENT

40 F .

20' " 20 j 20

o1 l I ' ' o. oIl I 1973 1974 1975 1976 1973 1974 1975 1976 1973 1974 1975 1976

aBBus DEBT FROM REST OF WORLD, LONG-TERM

400 ,.*0"*'*,,, ,"#"' 40 40

20 20 - ..............-.... 20 -

0 I 0O.I O I '

1973 1974 1975 1976 1973 1974 1975 1976 1973 1974 1975 1976

40BUS-DEB CURRENCY AND DEPOSITSNG-ER

20- 20. 20

1973 1974 1975 1976 1973 1974 1975 1976 1973 1974 1975 1976

20 20~~~~~~ FOREIGN ASSETS 2

1973 1974 1975 1976 1973 1974 1975 1976 1973 1974 1975 1976

World Bank -21813

ANNEX IPage 26

62. Another contrast between the two subgroups relates to the year1975. The data suggest that private enterprises may have been more subjectto the restrictive central bank policies of that year; at any rate in theseestimates they alone absorbed the 1975 decline in bank credit extension.The public enterprises in 1975 apparently even increased their bank bor-rowing. Then in 1976 the expanded credit from Government partially replacedpublic enterprise borrowing from banks, and probably also their borrowingfrom abroad. We recall, however, that the Government was obtaining theseloan funds by its own added foreign borrowing. It is an interesting ques-tion whether the pattern of 1976 is to be the model for public enterprisefinance in the coming years.

63. The impact of enterprise credit needs on the Ivory Coast's foreignborrowing touches on several problem areas. First, there is the enterprisecontribution to the rapid overall growth in foreign borrowing which maycurrently be excessive in terms of the burden of future debt service require-ments. In addition to the Government's foreign borrowing to finance its owninvestment budgets, there are: (1) the foreign borrowing by the Governmentwhich is onlent to public enterprises; (2) the foreign borrowing by thepublic enterprises themselves; 1/ and (3) the foreign borrowing by privateenterprises. These large flows were until recently under very littleoverall budgetary or other policy control.

64. The rise of public enterprise borrowing from the Government willcontinue due to the Government's wish to concentrate public sector foreignborrowing in the hands of the CAA Dette, thus increasing the share of overallforeign borrowing which can come under policy control. However, unless publicenterprise investment programs are subject to a system of overall control,each enterprise may well be able to present a convincing case to the CAA Dettefor its financial need. Also, since the CAA Dette does almost all itsborrowing from abroad, a tendency may develop for the public enterprises tofinance more from abroad (via the CAA) than they need to, thus neglectingdomestic financing possibilities. The encouragement of domestic borrowingwherever possible by public enterprises is important to the growth of domesticfinancial institutions, both to economize on the Ivory Coast's capacity forforeign borrowing and to aid in the expansion of domestic financial inter-mediation.

65. Finally, one reason the Ivory Coast has such a strong credit ratingabroad is its very liberal use in recent years of the government guaranteeon the debt of public enterprises. This policy may well encourage foreignand domestic borrowing which in a prudent lender's view would not otherwiseoccur. It might be a useful discipline for the public enterprises to allowthe credit analysis of lenders to carry more weight in the financing deci-sion and to guarantee the debt only in justified special cases or in finan-cial areas the Government wants especially to encourage.

1/ In 1978 the Government centralized all foreign borrowing of publicenterprises into the CAA Dette.

ANNEX IPage 27

Stabilization Funds and CAA Depots

66. We have noted that in the recent period much of the variation inthe Government surplus is the result of a corresponding variation in Stabili-zation Funds surpluses which in turn are the result of corresponding varia-tion in major export crop experience over these years. Because of themagnitude of these forces and their major effect on the financial system, itwill be useful to separate as far as possible the financial impact of theexport crop experience from the remainder of the saving-investment process.This we can do by analyzing the flow of funds accounts of the StabilizationFunds (Annex Table 29) and the CAA Depots (Annex Table 23). In fact, from ourviewpoint, a central financial function of these two institutions is themanagement of the financial impact of the ebb and flow of this major deter-minant of the Ivory Coast's balance of payments.

67. Annex Table 5 presents an analysis of the Government surplus intomajor components for 1973-1976. The Stabilization Funds clearly account forthe large Government surpluses in 1974 and 1976 and contribute substantiallyto the deficit in 1975. We should perhaps be reminded that the Stabiliza-tion Funds net surplus here is the surplus after the payment of subventionsand grants to other parts of Government. These can be very large; in 1975,they amounted to 32, and in 1976, some 50. So, the other surpluses shownhave already been supported by such amounts. However, our task will be totrace the impact of the nonfinancial surpluses shown.

68. We see from Annex Table 29 that the Stabilization Funds do notborrow, so their surplus is placed into an equal acquisition of financialassets. For the first three years their funds went into--and out of--deposits with CAA Depots and the Banks. But in 1976, they place 14 of their48 surplus into long-term business loans and foreign assets. A second trendto be noted is the increasing use of the commercial banks rather than theCAA Depots as depository so that in 1976, some 25 of the 34 in deposits wentto the banks. This shift carried the impact of the 1976 surplus sharplyinto the banking system, whereas in prior years the impact was confinedlargely to that occurring through the CAA Depots.

69. Thus, the deposit-liability pattern of the CAA Depots bears thefinancial brunt of the variation in Stabilization Fund surpluses. As afinancial institution, it has to be prepared for large withdrawals such asoccurred in 1975 when the Stabilization Funds were in deficit (See AnnexTable 23). It used the deposit growth of 1974 to acquire foreign exchangefrom the BCEAO, a reserve which was available for withdrawal in 1975, andwhich neatly insulated the impact of the 1974 export surplus from thedomestic financial system. But the CAA Depots also has a growing lendingprogram of its own. It is the chief domestic lender to two of the fourdevelopment banks (CCI and BIDI) and is a growing lender to the businesssector as well.

70. The conflict between the CAA Depot's lending and depositoryfunctions showed dramatically in 1975 when it suffered withdrawals of 25,

ANNEX IPage 28

Annex Table 5. FINANCIAL IMPACT OF STABILIZATION FUND SURPLUSES


1973 1974 1975 1976

A. Government net surplus 1/ 7.6 33.7 -37.2 51.6of which: 1/

B. Tresor 10.8 5.7 -15.9 4.8C. CAA Dette -5.9 -7.1 -12.3 -10.1D. Stabilization Funds .8 33.2 -15.8 47.6E. Government n.e.c. 1.9 1.9 6.8 9.4

F. Stabilization FundsAudeposit assets 2.2 34.2 -18.0 33.7

G. Stabilization Funds a deposit at Other .1 28.2 -16.2 9.0Financial Institutions 2/

H. CAA Depots &deposit liability 6.2 35.5 -24.9 21.4

I. CAA Depo^ts &Foreign Exchange net assets 1.9 23.2 -26.7 13.4

J. "Leakages": D minus I -1.1 10.0 10.9 34.2of which:ADeposits at Commercial Banks 3/ 1.8 8.0 -5.1 28.1ANBusiness and other debt 3/ 4.2 6.3 17.9 9.7

1/ Calculated from financial assets and liabilities.2/ Largely CAA Depots.3/ Stabilization Funds and CAA Depo^ts combined.


ANNEX IPage 29

mostly by the Stabilization Funds and the CAA Dette. Although the with-drawals were covered by drawing down foreign exchange balances 26, it hadalso undertaken loan expansion of some 16. This portfolio was protected bydrawing down its own cash, issuing debt, and a BCEAO advance of some 8.The CAA Depots appears to have proceeded more cautiously in 1976, trimmingits business loans and acquiring foreign exchange of 13.

71. We now take the two institutions together and return to Annex Table5 the problem of managing the fluctuating major crop surpluses as representedby the Stabilization Fund surpluses. We have seen that the surpluses areplaced, via the CAA Depots, into foreign exchange except that two major formsof diversion take place: one, into lending to business and financial institu-tions, and two, into commercial bank deposits, much of which may also beonlent to business. In early 1977, the "leakage" into commercial bankdeposits grew very rapidly, greatly increasing bank liquidity and interferingwith the execution of monetary policy. Consequently, the BCEAO in Aprilobtained agreement that the Stabilization Funds would once again mainlydeposit with the CAA. The CAA, however, rather than placing the deposits inforeign exchange, agreed instead to place them in time deposits with theBCEAO. This new arrangement had the advantage of leaving the foreign exchangeat the central bank. However, while the scheme may avoid the "leakage" intobank deposits, it may not prevent (and may encourage) the "leakage" whichresults from the growing role of the Stabilization Funds and the CAA Depotsthemselves as lenders to business.

72. And the policy problem remains: Would it be appropriate to com-pletely eliminate the surpluses from providing domestic enterprise finance?Much depends on a judgment of the pattern of the surpluses. If they areinterspersed with frequent and equally large deficits, prudence would dictatetheir holding in foreign exchange or liquid foreign assets. It is unlikelythat a domestic liquid asset could be used because of the adjustment involvedin quick conversion of such large volumes of assets; this is one problem withplacing the surplus extensively in commercial bank deposits. If, on the otherhand, Stabilization Fund surpluses can be expected to dominate over deficits,then a modest diversion of funds into the economy via acquisition of loans tobusiness seems reasonable. But here the desirability of so doing needs to beconsidered in relation to demand pressures on productive capacity and thepressure toward inflation so generated.

Financial Operations of the Tresor, CAA Dette, and Government n.e.c.

73. With the financial operations of the Stabilization Funds to oneside, the financial affairs of the Government have a less volatile character.We can examine the financing of the Central Government in some detail byconsidering it the sum of the Tresor and CAA Dette accounts, Annex Tables 26and 28. The CAA Dette has a modest and rather steady deficit to be financedin these years. When this is combined with the Tresor surplus, we find anapproximately balanced budget over these years except for 1975 when thedeficit overall was some 28.

ANNEX IPage 3Q

74. Nevertheless, the borrowing of the Tresor and CAA Dette were bothgrowing at very rapid rates; the total of the two rose from some 3 to over63 in 1976, and paralleled the rapid growth in Government investment. Weare familiar with the CAA Dette's long-term foreign borrowing which grewsteadily from some 10 to over 35 in 1976. This grew with the Government's owninvestment budget but perhaps a third of the 1976 figure was contracted foronlending to public enterprises. To this borrowing we had to add variousmiscellaneous Tresor sources which became sizable in 1975 and 1976: theTresor deposit liability, advances from the BCEAO, and various short-termliabilities. These sources were important in meeting the 1975 deficit.

75. But with the relatively stable deficit such a growing volume ofborrowing must be matched by a corresponding growth in the acquisition offinancial assets. And so it is. Especially striking was the sudden 1976spurt in both tables in the credit extension to business--some 36 in thatyear, the bulk of it long-term. The long-term Tresor figure is a large loanto SODESUCRE; that of the CAA Dette is primarily the onlending of foreignborrowing to public enterprises. In effect, while the growth in foreignborrowing in 1975 primarily financed the deficit in that year and onlysecondarily the growth in lending, in 1976 the further growth in borrowingprimarily financed lending. Thus the year 1976 launched the Government intoa major role as a financial intermediary. Annex Table 6 presents the businesslending figures for all parts of the Government, including the StabilizationFunds and Government, not elsewhere classified. On this basis, the lendingrose to over 50 in 1976, 80 percent of it being long-term. The Governmentwas nearly as large as the banking system in its business lending in 1976.

76. On the whole, the establishment of the Government as a majorfinancial intermediary can be viewed as a welcome innovation to the IvoryCoast's financial system. Next to the Banking System, probably only theGovernment could quickly assemble the volume of financial resources needed infinancing investment programs. And such lending could provide types of creditnot congenial to banks, e.g., equity funds and long-term loans. On the otherhand, problems can be foreseen. If the growth of foreign borrowing mustsoon be slowed, and if the large government surpluses are temporary, thenthe longer term financial source for an expanded lending program may be indoubt; the Government does not yet have institutional arrangements forlarge-scale domestic borrowing. Also, consolidation and public policycontrol of a program scattered among major jurisdictions may be hard to comeby. Deciding among current grants, capital equity grants, and long-termloans to enterprises is a difficult one for governments and the lendingagencies will need to develop the expertise we associate with large finan-cial institutions. And this relates to whether public enterprise willbecome dependent on government as an easy source of funds. Having to borrowfrom private financial institutions on a competitive basis with privateenterprise might exert a useful discipline on public enterprise.

Commercial Banks and the BCEAO

77. The Banking System has been the heart of the financial system inthe Ivory Coast, accounting until very recently for an overwhelming share of

ANNEX IPage 31

Annex Table 6. THE RISE OF GOVERNMENT LENDING


1971 1972 1973 1974 1975 1976

Acquisition of Business Debt by:Tresor 3.6 1.1 3.4 .3 2.8 20.8Other Government 6.4 5.8 2.7 2.0 5.2 30.0

CAA Dette n.a. n.a. 2.0 1.7 2.6 15.2Stabilization Funds n.a. n.a. -1.4 * 1. 9.3Government n.e.c. n.a. n.a. 2.1 .3 1.4 5.4

Total above 10.0 6.9 6.1 2.3 8.0 50.8

Short-term 1.5 -.7 1.5 -1.4 2.8 9.8Long-term 8.6 7.5 4.6 3.7 5.3 40.9

Acquisition of Business Debtby other sectors:

Rest-of-World 5.0 7.5 23.2 28.5 20.2 43.1Banking System 13.8 13.7 33.9 61.1 29.4 62.5Other Financial Institu-

tions 1/ 3.9 6.2 8.6 8.9 19.0 29.2

1/ Development banks, CAA Depots, Other Financial Institutions, n.e.c.

Source: This annex.

ANNEX IPage 32

domestic financial intermediation. We now further consider the bankingsystem, analyzing it into the central bank (BCEAO) and commercial banksubsectors by the use of Annex Tables 18 and 19.

78. During the 1973-1976 period, the banking system has been veryresponsive to the credit needs of the business sector. Tables 18 and 19 ofthis Annex reveal that in the first two years the BCEAO was, in its own right,an even larger provider of business credit than the total of the commercialbanks. The rediscount mechanism was a mechanism of accommodation as well ascontrol. With the monetary reforms of 1975 and the exertion of a moreactive central bank policy, the picture changed dramatically. In the 1975effort to tighten credit, rediscounts were reduced by 5 (to be compared withthe 1974 growth of 39) and the squeeze was even sharper with respect toshort-term business credit. But the banks were, nevertheless, able toexpand their business lending--35 rather than the 22 of 1974. This wasaccomplished by the liquidation of their secondary reserve of foreign assets.For the system as a whole, business lending was limited to half that of theprevious year, a fact which may also have reflected some weakening in thebusiness demand as well as the restrictive policies.

79. One objective of the new monetary arrangements was to place thecommercial banks more on their own in the provision of credit, relying moreon their own resources and the newly established money market. The followingyear, 1976, seemed to provide somewhat of a test for these policies. Thebanks were able to provide business the extraordinary total of over 90 whilethe BCEAO reduced rediscounts by 28. In part this was made possible by adeposit expansion which originated in the export surplus and which added tobank liquidity. A second factor was the banks' use of foreign credit asevidenced by the rise in foreign exchange liabilities of 19. But thesubstantial impact of the money market arrangements is also in evidencehere. The banks received 22 from the BCEAO via that market or in otheradvances, having the previous year ended their use of advances from CAADepots with a repayment of 10. We have seen a major institutional develop-ment in the use of the new money market.

80. It is of interest to note the changes that took place in 1975-76 inthe system of intermediary advances which probably comprise a system of lastresort lending among the major parts of Government and financial institu-tions. In the early 70s, one channel was the Commercial Bank/CAA Depotconnection mentioned above. Another was a Tresor/BCEAO channel using bothTreasury deposits and overdrafts. Use of this channel by the Tresor grewrapidly in 1975 and 1976, showing impact of the 1975 increased ceiling onTreasury borrowing from the BCEAO. The BCEAO also advanced 16 in a majorsupport to BNDA. Overall, the Central Bank extended some 54 in advances in1976, much of which replaced rediscounts. A comparison of the BCEAO port-folio figures for 1976 with 1974--the totals being about the same--illustratesthe change in the form and direction of central bank credit.

81. Before turning to the deposit side, some comments may be madeabout the composition of commercial bank credit. On the whole, these banksin the 1970s pretty much retained their traditional function of short-term

ANNEX IPage 33

creditors to business. Annex Table 19 shows they are-not substantial lendersto government, consumers, or financial institutions, and that they haveretained their concentration on short-term credit. They have, however, movedinto medium-term credit. The 1975 monetary reforms permitted the rediscount-ing of longer-term paper and in that year the banks chose to rediscount pri-marily such instruments as seen by the 1975 business-debt flows on the BCEAOtable which measure such rediscounts. And in 1976 the commercial bank port-folio of medium-term loans grew 17. While the strength of the demand for suchcredit is not well known, it does seem to be available, at least for conven-tionally satisfactory borrowers. And the growth of bank time deposits seemsrapid enough to justify its continued availability. Analysis of the indus-trial sector allocation of bank credit--the questions of priority sectors andthe role of sectoral credit ceilings--is beyond the scope of this analysis.

82. In considering the Stabilization Fund management of its surplus,we noted a trend toward storage of the surplus in commercial bank depositsrather than the CAA Depots. Is the size and volatility of such deposits adanger to the banks? In 1975 the Stabilization Funds covered their deficitby a massive deposit withdrawal. Of the 18 withdrawn, 16 were from the CAADepots which in turn covered the withdrawals by a reduction of its foreignexchange balance. The impact on the banks was confined to a withdrawal ofthe other 2, plus 3 by CAA Depots, a total of 5. Even so, these withdrawalshelped limit commercial bank deposit expansion of 26, hardly more than theprevious year. A withdrawal from the banks of something like 25--the volumeplaced there by the Stabilization Funds in 1976--would be a very substantialstrain for the banks and would necessitate very large-scale relief advances bythe BCEAO. It has thus seemed advisable to separate such deposits from thebanking system.

Nonbank Financial Institutions

83. The behavior of the Other Financial Institutions sector is, as wehave noted, dominated by the CAA Depots with its Stabilization Fund orienta-tion. We can, however, observe the other noncommercial bank intermediariesusing the sector breakdown of Annex Table 21, Development Banks, and AnnexTable 24, Other Financial Institutions, n.e.c. The former covers thefour development banks: CCI, BIDI, BNDA, and, starting in 1975, BNEC. Thelatter consists of SONAFI, COFINCI, SAFCA, SIF, CCP, CNE, and the insurancecompanies.

84. The four development banks are of modest size compared to the fourcommercial banks, with credit extension of perhaps a fifth as large. Theirgrowth rate was slow in the 1970s, hardly faster than that of the commercialbanks, but nevertheless, steady. The unusual spurt in 1976 was entirely dueto the infusion into BNDA of 16 by the BCEAO (intermediary advances) whichwas converted into short-term business lending. Apart from this, and theshort-term consumer credit extended by CCI, their major lending has been inequity shares and long-term lending to the business sector. Looking at thesources side of Annex Table 21, it seems clear that these banks have not sofar been able to attract depositors as a growing source of funds. They havebeen obtaining funds by borrowing at long-term, primarily from CAA Depots, andabroad.

ANNEX IPage 34

85. We may characterize the financial operations of Other FinancialInstitutions, n.e.c. as follows: Government equity holding (SONAFI, COFINCI),savings deposit collection (CCP, CNE), equipment finance (SAFCA, SIF) andinsurance. Insurance is first included on Annex Table 24 in 1974, beingclassified as part of the rest-of-world prior to that year.

86. Annex Table 24 shows that this group has not been a steady finan-cial contributor, and Annex Table 7 helps us to analyze this erratic pattern.In 1973 and 1974, the CCP/CNE suffered large deposit withdrawals whichforced them to reduce their credit to business. In 1974 and 1975, SAFCA/SIFretrenched and especially in the latter year, reduced borrowing and creditextension. In 1976, the insurance companies borrowed heavily--some 12--half of which was placed in short-term foreign assets. On the other hand,SONAFI has extended equity credit of about one billion each year. Theimpact of these diverse movements can be identified on Annex Table 24.

87. On the whole, the Ivory Coast seems to have a serviceable array oftypes of noncommercial bank financial institutions. But they will need togrow rapidly if they are to meet the financial needs of the next decade.While the exact nature of the obstacles to their growth is unclear, it doesappear that adequate long-term and equity financial sources are lacking.Further, there does not seem to be any reason why such financing could notcome from domestic sources. Perhaps in the future they can attract sub-stantial time deposits. A second possibility might be the development of theBCEAO or the CAA Depots into a broad, long-term lender and institution of lastresort for a whole array of development finance institutions. Such functionscould perhaps be combined with institutional supervision. An alternativepossibility would be increased participation by the large commercial banks.

E. Problem Areas in the Financial System

88. Our overview of the Ivorian financial system provides a backgroundagainst which some of the problem areas in the system can be presented.Some have been touched on already; others have been reserved for thissection. The analysis here will be of the most preliminary sort, designedsimply to introduce some key problems for consideration.

The Rest-of-World as Financial Intermediary

89. We have noted earlier that Ivory Coast usually borrows abroadlarger amounts than its balance of payments current deficit requires andthat, corresponding to the excess, the domestic sectors accumulate foreignassets (and foreign exchange). Thus the rest-of-world often acts as finan-cial intermediary, accepting the placement of surplus funds and lending backto the Ivory Coast to the business and Government sectors. Is this mechanismsound finance and what are the possibilities of substituting domestic inter-mediation?

90. The detail of Annex Table 16, helps shed light on this problem.Annex Table 8 shows that the vast bulk of the Ivory Coast's borrowing(rest-of-world acquisition of financial assets) is at long-term; the vast bulk

ANNEX IPage 35

Annex Table 7. GROWTH OF OTHER FINANCIAL INSTITUTIONS, N.E.C.


1973 1974 1975 1976

Total Financial Assets of:

SONAFI/COPINCI 2.9 .6 3.1 1.7

CCP,CNE - .7 - 1.5 .2 3.1

SAFCA/SIF 2.6 - .2 - 1.5 3.1

Insurance 1/ 1.4 1.4 10.8

Total above 4.8 .2 3.2 18.8

1/ Not included in the sector.

Source: Annex I and Mission estimates.

ANNEX I

Page 36

Annex Table 8. FINANCIAL INTERMEDIATION BY THE REST-OF-WORLD

(billions of current CFA Francs)

1971 1972 1973 1974 1975 1976

Rest-of-World & Financial 22.7 9.2 36.1 43.1 46.6 88.6

AssetsShort-term 2.2 .9 - .2 7.7 - 5.1 16.3

Long-term 20.5 8.3 36.3 40.4 51.7 72.3

Rest-of-World A Financial 3.1 - 5.4 11.4 37.9 - 18.3 49.7

Liabilities6 Foreign assets 6.7 13.2 15.4 23.5 1.6 65.5

Short-term 3.4 12.6 14.4 20.9 .6 57.3

Long-term 3.2 .6 1.0 2.6 1.1 8.2

& Foreign exchange, net - 3.5 - 18.5 - 4.0 14.4 20.0 - 15.8

liabilities

Source: Annex I, Table 16.

ANNEX IPage 37

of the lending ;(rest-of-world increases in financial liabilities) is atshort-term. The need for short-term storage is large and very volatile,stemming fundamentally from the volatility of the export and import patterns.At present, domestic financial institutions are simply not large enough to beable to carry out this short-term value storage, and it is prudent to permitthe present arrangement to continue. Incidentally, we find no evidence that thefinancial asset movements are normally extensively in response to interestrate differentials between Europe and the Ivory Coast.

91. Over the longer term, the aim should be to domesticate this inter-mediation. Two developments are required. First, domestic sectors mustgradually-be induced to place funds at long-term. Perhaps ultimate lenderscan be encouraged to move to time deposits by widening the interest ratedifferential between time and demand deposits. Such holders may be inducedlater to hold fixed-term obligations. The large institutional lenders can befurther encouraged to go long-term and some additional appropriate sources oflong-term funds can perhaps be developed.

92. Secondly, attractive domestic short-term value storage instrumentsneed to be available, instruments that compete with foreign assets moreeffectively than local bank deposits. The model here might perhaps be theTreasury bill with an appropriately attractive rate of return. Businessesand banks using foreign liquid assets for temporary value storage might bepersuadable. However, if business-held foreign assets are largely receiv-ables between Ivorian subsidiaries and foreign parents, the latter develop-ment would be slow. But, on other counts, the development of a local billmarket would be a useful endeavor; we will return to its discussion below.

The System of Financial Control

93. For some time the philosophy of monetary management in the IvoryCoast has been one of accommodation--of providing sufficient "ways andmeans for adequate finance--as contrasted with the attempt to influencestrongly the financial system and the economy. In many ways such a philo-sophy suited the position of a young central bank with close ties to theUMOA and France. But the need for a more vigorous policy stance has grown.The rapid growth of foreign borrowing has threatened an excessive debtservicing burden. The commercial banks in such an open economy may wellhave the capacity for an over-rapid expansion of bank credit. The problemsof directing financial flows to priority sectors and encouraging the growthof appropriate financial institutions will become increasingly acute as theneed for domestic financial intermediation grows. The adequacy of thepresent instruments of control may have to be questioned in the light ofsuch problems.

94. The present system of financial controls may be seen under threeheads: (1) influences on the size and composition of bank credit and themoney supply, (2) interest rate policy, and (3) nonbank financial controls.Active central bank monetary and credit control policy in the Ivory Coasttakes place in the first area. Within it we may group the following policy

ANNEX IPage 38

instruments: rediscount policy, i.e., rediscount ceilings and rationingpolicy, policy on advances and money market credit to commercial banks, andpolicy on preauthorization of bank loans.

95. For a number of years BCEAO policy has focused on rediscountpolicy, especially in relation to foreign exchange reserves, but the currentmore active exercise of such policy dates from the 1975 reforms of the UMOAand BCEAO (See Chapter V, the main report). At present the exercise ofpolicy focuses on a projection of four key policy variables: foreignexchange reserves, BCEAO lending to commercial banks, total domestic bankcredit, and the quantity of money. But in fact it is BCEAO lending to thebanks that is under policy influence.

96. The year 1976 was the trial run for the new policy system. It didnot work well in that year in controlling the expansion of bank creditprimarily for two reasons. First, bank deposit growth caused mainly by theStabilization Funds placement of deposits with the commercial banks providedsources of funds which the banks could use to extend business credit withoutthe usual heavy recourse to rediscounting. The 1977 agreement to channelthese deposits into the BCEAO no doubt has eased this problem. But wecannot presume that by any means all the deposit growth generated by anexport surplus will be so channelled. In an open economy some portion ofdeposit expansion will not be under immediate BCEAO influence. And thiswill be true even if the projected establishment of reserve requirementscomes about. Secondly, as we have noted, the activation of the moneymarket enabled the commercial banks to obtain central bank credit withoutrediscounting. The volume of BCEAO credit extended to the money market hasbecome an important policy variable.

97. Overall it would seem from the 1976--and more recent 1977--experience that the control of the aggregate flow of rediscounts and moneymarket credit does not enable the BCEAO to influence adequately the volumeof bank credit. The BCEAO has so far no system of reserve requirements foruse as a policy instrument. And the absence of a domestic market in govern-ment securities denies it the use of open market operations. But a systemof direct controls on bank credit might be more congenial with the BCEAO'splanning methods. Such a system might influence not only the overall creditexpansion of the banks, but also that of particular types of such credit,e.g., to priority sectors. However, as the BCEAO achieves increasing controlover bank credit, it will probably be faced with both business and banks usingtheir foreign borrowing connections to attempt to escape domestic monetarycontrols.

98. Rediscount policy has been an influence on the composition as wellas the size of bank credit. This is carried out in the selection of paperto discount, in selecting which banks to support, and in the setting ofguidelines for the amounts of particular types of bank credit. We are unclearas to the effectiveness of the controls for this purpose. Apparently therequired preauthorization of large bank loans is viewed by the Ivoriansas the mechanism by which selective credit control can in future be exercised.

ANNEX IPage 39

Unfortunately, to properly enforce lending priorities by this method wouldrequire a large expert staff within the BCEAO which might well be dupli-cating the banks' own credit analyses. General, less detailed quantitativecontrols on the credit extension of types of bank credit might be preferable.

99. With the exception of the 1975 structural changes, interest rateshave not been an active instrument of policy. Their structure and levelhave remained fixed except for modest changes in call money rates. Thestructural increase appears to have solved the problem of the European/IvoryCoast rate differential's inducing outflows of funds although the holdingof foreign assets as a liquidity instrument remains common practice. In thissetting one cannot know from historical experience if an upward movement ofthe rate structure could induce added overall saving. It appears that theresponse would not be strong, that saving in the Coast is not stronglymotivated by the interest rate at practicable rate levels. However, experi-mentation with changing rate differentials to improve the allocation ofcredit appears promising. We have mentioned the importance to domesticintermediation of encouraging the longer term placement of funds. Sectorsthat are currently placing liquid funds might well be induced to place moreheavily in time deposits if the rate differential between the two werelarger. A second structural point relates to the current use of lowerlending rates to priority sectors. If, as seems likely, the rate is a farstronger influence on institutional credit supply than on borrower demand,higher rates for the priority sectors would be indicated. At any rate, thepresent policy may not provide a proper incentive for institutions toincrease credit availability to the priority sector. Perhaps the higherlending rate could be subsidized if it is not desired that the customerhimself pay the differential. This general policy path would require moreindividual country discretion in the setting of rates than presently existsin the UMOA.

100. Finally, the question of policy controls other than monetary andbank credit controls. The recent focus here has been on the control ofoverall foreign borrowing, the bulk of which is government and publicenterprise borrowing. This borrowing in turn originates in public sectorinvestment. In recent years, large investment budgets have been adopted bymany different governmental agencies. Among others, the Tresor, the CAA,the Stabilization Funds, and a wide variety of,public enterprises all haveseparate investment budgets. Coordinated overall control of public invest-ment is lacking and hence also control over the demand for foreign borrowingso generated (See Chapter V, main report). The problem seems to be centrallya matter of deficiencies in the investment planning mechanism combined,perhaps, with an understandable desire to expand capital formation morerapidly than may be,feasible.

The Development of Financial Institutions and Instruments

101. Alongside the question of the quantitative adequacy of Ivorianfinancial institutions for the needs of the next decade lies the question ofthe development of appropriate new institutions and credit instruments and

ANNEX IPage 40

of new roles and functions for existing institutions. This is a wide fieldonly touched upon in our quantitative overview. We shall here attempt onlya few brief suggestions which seem to follow from the analysis.

102. With respect to the organization of new financial markets therecent period has seen the beginnings of a stock market, motivated by theneed for the Ivorianization of capital, and a money market, motivated by thedesire for bank access to short-term credit and improved monetary control.A useful next step in this evolution might well be the start of a domesticmarket in government securities. Initially, this might be envisionedas a market for treasury bills--a two- or three-month instrument--partici-pated in largely by the banks. For them the bills might become partialsubstitutes for the use of foreign assets and foreign exchange as secondaryreserve storage. For the Government, such a market would enable them tobegin to choose domestic sources of borrowing over foreign where the latterwas not essential. Further along would be the possibility of long-termdomestic government borrowing, an essential longer term objective. We havementioned the usefulness of substituting where possible a local liquidityinstrument for foreign assets in business portfolios. Finally, a billmarket would offer the BCEAO the possibility of open market operations toaid in the execution of monetary and bank credit policy. The establishmentof a bill market would thus seem to have advantages from a number of view-points.

103. As a second area, we consider the role of the Government as anintermediary. The CAA Dette currently assembles foreign funds and onlendsthem to public enterprises; various other parts of the Government do substan-tial lending to enterprises. Over the longer run, the Government may wishgradually to remove itself from the central arena of administering lendingto business as well as gradually to taper its foreign borrowing. One pos-sibility would be for the Government slowly to shift its loans away fromthe operating enterprises and focus on the finance of development banks andother institutions which in turn would take up and administer the finance ofthe enterprises themselves. Meanwhile, both the financial institutions andthe Government could themselves slowly shift toward domestic long-termfinance. These are steps that would evolve the Ivory Coast's financing towarda fully domestic saving-investment process while permitting an expandednear-term flow of intermediation.

104. In recent years official Ivorian policy has moved away from aphilosophy of emphasizing specialized development institutions, especiallyin the recent move to consider the development banks as commercial banks.Yet the differences between these groups have argued persuasively fordifferent control treatment in practice. And perhaps their institutionaldevelopment should remain different as well. The commercial banks are theold, established institutions, possessing the financial and organizationalstrength to carry unprofitable credit lines and engage in experimentation.The younger nonbank institutions perhaps need to concentrate their morelimited experience in a specialized lending area for maximum efficiency.This line of reasoning suggests pressing the commercial banks to become the

ANNEX IPage 41

"department stores" of the system--urging them to expand upon theirtraditional role: moving into longer term lending, higher risk lending inkey development areas, the provision of technical financial help to borrowers.And it suggests continuing to allow the development banks and other nonbankinstitutions the freedom to grow within their specialty.

105. Finally, consider the problem of longer term domestic sources offinance. We have suggested above that for the Government this lack might beapproached in stages, first by the development of a domestic market intreasury bills. Here, we consider first the problem of longer term sourcesfor the development banks. One approach that should be used is a vigorousattempt to attract time deposits. A large favorable interest rate differen-tial may well be needed here to enable the development institutions tosuccessfully compete with the commercial banks. Another approach would beto firmly establish a long-term government lender of last resort which wouldprovide sufficient finance so that the growth of development banks would notbe restricted by inadequate long-term sources of funds. Finally, in areaswhere the economy generates surpluses which are by nature long-term, careshould be taken that such funds are placed at long-term. One key example isthe area of pension and insurance funds. In 1976 the Social Security Fund(CNPS) grew by some 7. But these funds were not placed extensively atlong-term. There would seem to be a need to develop the CNPS as a substan-tially long-term lending agency. At any rate some method should be found topreserve such pools of long-term funds for channelling to long-term borrowing.

F. The Capacity of the System to Finance Investment

106. The question of the adequacy of Ivorian financial institutions isexplored here in broad quantitative terms: Will the existing financial sys-tem have enough overall lending capacity to finance the investment programduring the coming decade or so. The method used is to assume a projectednational investment program and a projected balance of payments patternreflecting this investment. Then we shall analyze the domestic financialimplications of these assumptions, using the flow of funds framework andderive a projected credit demand which the financial institutions would needto meet. The projection will not attempt to incorporate such institutionalchanges as might occur, but will rather take the operation of the system as itcurrently exists, except where the investment and balance of payments assump-tions force adjustments. The project is based on 1975 data (actually anaverage of 1974-1976) and will observe credit flows in 1980, 1985, and 1990.As a long-term projection, only trend movements--not year-to-year variation--will be under consideration.

107. The Ivorian economy recently (1976-78) underwent an extraordinaryinvestment surge accompanied by 8 to 9 percent real GDP growth and 10 to 15percent domestic inflation. However, in view of the problems generated by theinvestment surge--notably the burden of servicing the associated foreigndebt--the Ivorian authorities undertook a policy review, and the 1980-81Loi-Programme calls for substantial reductions in planned investment expendi-ture. Following these lines, our projection viewed gross domestic investmentas growing at 25 percent annually during 1975-80, then during a 1980-85

ANNEX IPage 42

consolidation period, as growing at only 9 percent, and finally as accele-rating to 12 percent during 1985-90.1/ The longer term premise is a 5.5percent projected real GDP growth accompanied by a 6 percent inflation rate.The resulting current franc investment levels are presented in Annex Table 9and comprise the assumed investment program.

108. The first step in working out the domestic financial implications ofsuch an investment program is to allocate both investment and the correspondinggross savings among the domestic sectors in order to obtain sector surplus/deficit patterns. The key investment allocation here is between Government(whose share in the total has steadily grown in the last decade) and enter-prises--which sector includes the current rapid growth of public enterprises.The Government's share of the total is projected to continue to grow in1975-80 but to decline thereafter in favor of the enterprise sector. Ofcourse, as Annex Table 9 shows, the rapid early growth in both these sectorstapers with the slower overall investment growth of the 1980-85 consolidationperiod.

109. The balance of payments projection that is discussed below calls fora rapidly growing current deficit during the 1975-80 period after which thedeficit is seen as peaking and tapering through the 1980s. Since this deficitis also the savings contribution by the rest-of-world to the Ivorian economy,this pattern implies that after 1980 any additions to the aggregate savingsflow will be provided by domestic savings, i.e., gross national savings. Theview that growth in gross domestic investment must be more than matched bygrowth in domestic saving will put the main reliance in the projectionon the domestic financial system during the 1980s.

110. Gross national savings (derived as gross domestic investment lessrest-of-world savings) must also be allocated among the domestic sectors. Aswe saw, during the 1970s, the bulk of the domestic savings growth was govern-ment savings; enterprise savings remained stagnant. It seems unlikely,however, that government savings could absorb the entire burden of the savingsgrowth implied by the projected investment program. So we have projected arecovery of enterprise savings growth (but from its low 1975 base) and also acontinuance of the steady household savings growth--both at 18 percent rates.Nevertheless, in absorbing the remainder of the required savings growth,government savings averaged 24 percent annual growth during 1975-80 and onlylater was able to decline to a 10 percent rate as the proportion contributed bythe other sectors increased. Since the Stabilization Fund surpluses are themain source of government savings growth, the projection is assuming for the1980s a continuing but much more modest average growth in these surpluses.This is consistent with the favorable agricultural export performance embodiedin the tapering balance of payments current deficit. These projected savingsflows are presented in Annex Table 9.

1/ These rates are derived from a GDP growth pattern of 19 percent in 1975-80,12 percent in 1980-85 and 12 percent in 1985-90 with the gross investmentshare of GDP rising from 22 percent to 28 percent in 1975-80 and decliningto 25 percent thereafter.

ANNEX IPage 43

111. The assumed balance of payments projection is outlined in AnnexTable 10, the rest-of-world account. The projection is that prepared forthe World Bank's Country Economic Memorandum (August 1979). The decliningcurrent deficit during the 1980s is consistent with the assumed slower overallgrowth of the economy, a continuance of export growth, and a somewhat re-stricted growth of imports. The Ivory Coast's borrowing from abroad--bothgovernment and enterprise--is projected to level off and decline in the later1980s. This pattern of limited foreign borrowing is based on a carefulanalysis of the debt burden problem which has its origin in current highlevels of foreign borrowing.

112. These balance of payments assumptions will impose a key change inthe financial system: the elimination of the role of the rest-of-world as afinancial intermediary. In the past, such intermediation occurred when thedeficit was less than the growing volume of foreign borrowing and was indicatedby Ivorian accumulation of foreign assets, as in 1975 in Annex Table 10. Whenthe deficit rose as high as the borrowing, such accumulation ceased. This isthe case, on average, in the first projection period. And in the 1980s, asthe deficit declines, the assumed parallel decline in borrowing implies acontinued absence of such accumulation. So the assumed balance of paymentsprojection places a second burden on domestic finance: it not only impliesgreater domestic savings, it denies the Ivory Coast during the 1980s aform of financial intermediation upon which it has traditionally relied. Itis perhaps important to stress that such intermediation might well occur inresponse to yearly flow fluctuations; we are speaking in terms of projectedtrends.

113. It is now appropriate to consider the implications of these projec-tions of saving, investment, and the balance of payments on the financing ofthe key domestic sectors. Annex Table 11 considers government finance. Theprojected growth of government saving keeps pace with the growth pattern ofgovernment investment, as has been the case on average during the 1970s, andcontinues during the 1980s to provide a small surplus. As to borrowing, theprojection retains the key structural feature that the government continues toborrow only from abroad. And since the government's foreign borrowing hashere been slated to taper, it declines sharply as a share of the growinginvestment. During the past decade the issue of government debt has con-sistently been some 40 percent of its investment expenditure so the projectionimplies a changed pattern of government finance in the 1980s. In the 1970sthe growth of government foreign borrowings together with the Government'ssurplus provided the sources of funds for a rapidly growing placement of fundsboth into loans to enterprises and into currency and deposits; that is, theGovernment's role as a financial intermediary became important. During the1980s, as Annex Table 11 shows, the attenuation of its borrowing, despiteinvestment growth, implies a sharp reduction in this intermediation function.In effect the growing surpluses of the caisses would have to increasinglyfinance government investment (to make up for the reduced borrowing) ratherthan be placed in the financial system.l/ Any declines in government lending

1/ Or, viewed another way, the reduced borrowing would force a reduction inonlending.

ANNEX IPage 44

would increase borrowing pressure on the financial institutions. And if,contrary to our projection, the Government itself relied on increased advancesfrom the banking system, such credit demand pressure would increase. Thepicture helps point up the importance of the development of some means ofgovernment borrowing from the domestic sectors other than banks.

114. The enterprise financing situation is portrayed in Annex Table 12,keeping in mind that the enterprise sector here includes public as well asprivate enterprises. Because of the low current levels of enterprise savings,the 1975-80 investment boom required very large deficits for this sector, ashas already been seen. During the early 1980s, however, the restrained growthin investment, together with the projected recovery of enterprise savingsimply a much slower growth in this sector's deficit. Then in 1985-90 thequickened investment pace brings about also a quickened deficit growth.

115. However, it is presumed that enterprise borrowing is tied to itsinvestment expenditure rather than the sector deficit. And during the pastdecade the issue of business debt has been growing very rapidly relative tosuch investment. But because of the recovery of enterprise savings theprojection levels off and reduces the ratio of borrowing to investment duringthe 1980s. As Annex Table 12 shows, the result is a great reduction in theprojected growth in the issue of business debt during the 1980s. This featureof the projection is crucial for our picture of the 1980s. If enterpriseborrowing were to continue its current acceleration, our results would bedifferent indeed.

116. The easing of enterprise credit demand results in an easing of theflow of credit which needs to be provided by financial institutions. On theother hand, the balance of payments projection has prevented any growth in theplacement of business debt abroad; and the government finance situation hasconstrained government lending to enterprises. These factors are increasingthe focus of enterprise credit demand upon the domestic financial institutions.The upshot in Annex Table 12 is that even after the extraordinary demands ofthe 1975-80 period, this flow of credit from financial institutions wouldcontinue to grow at 9 percent and then 12 percent annual rates.

117. As has been the case increasingly during the 1970s, such enter-prise borrowing more than covers the enterprise deficit, leaving a largevolume of funds to be placed in financial assets. But the assumptions verymuch restrict the choice of instruments for this placement. The balance ofpayments situation not only restricted borrowing from abroad but also theplacement of funds into foreign assets.l/ And since the Government is assumednot to issue debt domestically, that instrument is not available. So theentire accumulation is concentrated into the accumulation of currency anddeposits. The size of the accumulation of enterprise currency and deposits inAnnex Table 12 is perhaps an indicator of the potential size of the futuredomestic market for an appropriately attractive government debt instrument.

1/ If enterprises do have discretion to acquire foreign assets, the resultcould well be the loss of foreign exchange.

ANNEX IPage 45

118. The required pieces are now available to consider the implicationsof this financial scenario for the financial institutions themselves, aspresented in Annex Table 13. The projection assumes that the enterprisedemand for credit from financial institutions will be met and that whatevercannot be met by the nonbank financial institutions will be provided by thebanking system (BCEAO and commercial banks) as a residual lender. In thesecircumstances a key projection is the rate of growth of the nonbank credit toenterprises which is here taken to be a steady 15 percent per year. Anyacceleration above this rate--a distinct possibility--would, of course, lessenthe demand on banks. As it is, the banking system has to meet a 29 percentannual growth in enterprise credit extension 1/ during the investment boomperiod--a rate approximating that of the early 1970s--after which the demandis much eased to rates of 7 percent and 11 percent for the two periods of the1980s. This growth pattern is somewhat similar to that of the investmentprogram which we assumed at the start (25 percent, 9 percent, 12 percent). Ifthe banking system is capable of managing the demands of the current invest-ment boom, it should be able to manage the projected further investment growthof the 1980s on the assumptions we have so far sketched.

119. The credit demand of other sectors on financial institutions is notprojected to be substantial. The financial institutions, like other sectorsare not seen to accumulate foreign assets and their credit extension togovernment--both on account of advances and the absorption of governmentdebt--is assumed modest. By combining all three forms of credit extension toenterprises, Government, and the rest-of-world, we approximate the overallexpansion of financial institutions and have an approximate breakdown betweenthe banking system and nonbank financial institutions.

120. Financial institution growth rates are, of course, carried over intothe currency and deposit issue of these institutions, but with two adjustments:First, the banking system advances funds which become an added financial sourcefor the nonbank institutions. Second, the nonbank institutions themselvesissue debt which is absorbed here by households and the rest-of-world. Thusthe banking system issues more currency and deposits than its credit extensionto the economy while nonbanks, having these other sources of funds, issueless. We thus end finally with the growth rates of the banking system'scurrency and deposit issue--on a broad definition the increment in the moneysupply--of 27 percent during the 1975-80 investment boom period, of 8 percentduring the 1980-85 consolidation period, and of 10 percent as investment in1985-90 is presumed once again to begin to accelerate.

121. So the preliminary answer to the question of the overall quantitativeadequacy of the Ivory Coast's financial system is: Yes, the domestic financialinstitutions are capable of financing a growing investment program projectedunder restrictive foreign borrowing constraints. Doing so requires a rapiddomestic savings growth, in this case concentrated in government savings.

1/ That is, the annual increments in bank credit grow 29 percent per year.

ANNEX IPage 46

Rapid but feasible bank credit expansion would also be required. Even withinthe presumed balance of payments constraints, pressure on the banking systemcould be eased by (1) more rapid growth of nonbank financial institutions, and(2) more rapid expansion in government lending, perhaps financed by domesticgovernment borrowing.

122. Lest the projection seems to manage too easily the Ivorian financingtask of the 1980s, it would be wise to review its original premises. First,only a 6 percent inflation rate was presumed during the 1980s. Second,a vigorous government retardation of the investment program (in currentfrancs) was presumed from the 25 percent annual growth rates of the late 1970sto a 9 percent rate in the early 1980s. The results depend crucially on theseassumptions--assumptions which could well be overly optimistic. For ifinvestment growth is reduced less sharply, for example only from the 25percent to an 18 percent annual growth rate, gross domestic investment wouldbe 1400 rather than 950 in 1985 and 3200 rather than 1700 at the end ofthat decade. Following through the projection method for such a moderatelyattenuated investment program could well result in a continuance of annualexpansion rates in the twenties for the banking system during the 1980s--flowswhose continuance might well prove intolerable. So from this point of viewthe projection points up the critical need for vigorous policy control of theoverall investment program.

Annex Table 9: PROJECTED GROSS SAVING AND INVESTMENT BY SECTOR

(billions of CFA-current)

75-80 80-85 85-90annual annual annual

1966 1970 1975 growth 1980 growth 1985 growth 1990Flow Flow Flow 1/ rate Flow rate Flow rate Flow

Gross domestic investment 50 91 201 .25 600 .09 950 .12 1700Government 13 30 79 .27 260 .08 390 .11 660Enterprise 2/ 30 53 105 .23 290 .10 470 .13 880Financial Institution * * 2 10 20 - 30Household 6 8 1 .25 40 .09 70 .13 120

Gross National saving 39 88 165 .22 440 .13 820 .15 1630Government 17 35 89 .24 270 .10 430 .11 740Enterprise 12 35 35 .18 80 .18 180 .18 420Financial Institution * 3 4 10 20 30Household 10 16 37 .18 80 .18 190 .18 440

Rest-of-World saving 11 3 36 .35 160 -.06 120 -.13 60

1/ 1975 figures are 1974-76 averages.2/ Includes stocks; includes noncorporation enterprise.

Source: Les Comptes de la Nation and Mission projection.

cMi

-J

Annex Tahle.lQ: PROJECTED REST-OF-WORLD ACCOUNT

(billions of CFA current francs)

75-80 80-85 85-90_ annual annual annual


Rest-of-World Saving 11 3 36 .35 160 -.06 120 -.13 60(Ivory Coast Current Deficit)

Rest-of-World Acquisition of _Go-Gernment Debt 3 12 26 .25 80 -.06 60 -.13 30

Rest-of-World Acquisition ofEnterprise Debt 2 8 31 .21 80 .00 80 -.09 50

Rest-of-World Acquisition ofFinancial Institution Debt * -1 4 10 10 20

Rest-of-World Issue of ForeignAssets 6 4 30 10 10 10

Rest-of-World h Liabilities,Foreign Exchange 1 10 -7 -10 20 30

/ 1975 figures are 1974-76 averages.

Source: Les Comptes de la Nation and Mission projection. I'd

00 H

Annex Table 11: PROJECTED GOVERNMENT FINANCE 1/




Government gross inve3tment 13 30 79 .27 260 .08 390 .11 660

Government gross saving 17 35 89 .24 270 .10 430 .11 740

Government surplus 4 5 10 10 40 80

Increase in Liabilities:

Issue of Government Debt 6 15 32 .24 100 -.05 80 -.13 40To Rest-of-World 3 12 26 .25 80 -.05 60 -.13 30

Adva-ices from Banking System 2 -3 4 ** ** **

Increase in l'inancial Assets:

Acquisition of Currency and Deposits 2 5 26 .18 60 .03 70 .00 70

Acquisition of Foreign Assets * 2 8 ** ** **

Lending to Enterprises 3 8 20 .20 50 .02 60 .00 50

1/ Includes Tresor CAA Dette Stabilization Funds.2/ 1975 figures are 1974-76 averages.

** less than 10 billion.

Source: Les Comptes de la Nation and Mission projection. |-4>

Annex Table 12: PROJECTED ENTERPRISE FINANCE 1/

(billions of CFA current.francs)


1966 1970 1975 growth 1980 growth 1985 growth 1990

Flow Flow Flow 2/ rate Flow rate Flow rate Flow

Enterprise gross investment 30 53 105 .23 290 .10 470 .13 880

Enterprise gross saving 12 35 35 .18 80 .18 180 .18 420

Enterprise deficit 18 18 70 .25 210 .06 290 .10 460

Increase in liabilities:

Issue of Business Debt 7 34 126 .23 350 .06 470 .08 700

To Rest-of-World 2 8 31 .20 80 .00 80 -.07 50

To Government 3 8 20 .20 50 .02 60 .00 50

To Financial Institutions 2 16 70 .26 220 .09 340 .12 600

Increase in Financial Assets:

Acquisition of Currency and Deposits 1 5 26 .37 130 .07 170 .06 230

Acquisitioa of Government Debt 3 3 3 ** ** **

Acquisition of Foreign Assets 3 3 12 ** ** **

1/ Private plus public enterprises.2/ 1975 figures are 1974-76 averages

** Less than 10 billion.

Source: Les Comptes de la Nation and Mission Projection. X

O~ H

Annex Table 13: PROJECTED FINANCIAL INSTITUTION FLOWS




Credit Extension to Enterprises 2 16 70 .26 220 .09 340 .12 600

by Banking System 1 15 51 .29 180 .07 260 .11 440by Nonbank Financial Institution 1 1 20 .15 40 .15 80 .15 160

Credit Extension to Rest-of-World 5 9 2 -10 20 30

Credit Extension to Government 2 -3 5 10 10 10

Total Credit Extension by FinancialInstitution 9 22 78 .24 220 .11 380 .11 640

by Banking System 6 20 52 .28 180 -.09 270 .11 450by Nonbank Financial Institution 3 2 26 .14 50 .18 110 .12 200

Total Sources of Funds by Financial _Institutions 8 21 77 .24 220 .11 380 .11 640

Currency and Deposiz Issue 8 19 68 .26 210 .11 360 .11 600

by Banking System 6 18 56 .27 190 .08 280 .10 470by Nonbank Financial Institution 2 1 12 .18 30 .22 70 .14 140

Debt Issue by Nonbank FinancialInstitution * 2 9 .06 10 .15 20 .08 40

Currency and Deposit Issue by FinancialInstitution 8 19 68 .26 210 .11 360 .11 600

Acquired by Enterprises 1 5 26 .37 130 .07 170 .06 230Acquired by Government 2 5 26 .18 60 .03 70 .00 70Acquired by Households, etc... 5 11 25 .02 30 .33 110 .22 300

riQI

1/ 1975 Figures are 1974-76 averages Fl

Source: Les Comptes de la Nation and Mission projection.

1/Annex Table 14. - BUSINESS

1971 1972 1973 1974 1975 1976

Net Surplus -18.132 -23.184 -42.730 -65.483 -49.575 -123.542

AFinancial assets 16.169 13.562 30.984 37.431 29.592 72.215

Currency and depositsBanking system 7.063 2.013 15.265 17.062 21.669 29.479

Currency & Demand Deposits 7.007 2.572 7.990 13.517 20.712 26.227Time Deposits 056 -559 7.275 3.545 957 3.252

O.F.I. and Tresor -338 010 1.773 3.487 -2.628 8.886Demand Deposits -021 181 1.602 2.310 -2.151 8.637Time Deposits -317 -171 171 1.177 -477 249

Government debt 4.416 -1.216 1.700 1.494 5.005 3.510

Business debt 217 1.189 223 1.368 1.275 6.539

Consumer debt 250 100 - - - -

Financial Institutions debt -053 128 200 801 5.300 -554

Foreign assets 4.614 11.333 11.823 13.219 -1.029 24.355Short-term 1.983 11.136 11.443 11.387 -1.049 23.723Long-term 2.631 197 380 1.832 020 632

6 Financial liabilities 34.301 36.746 73.714 102.914 79.167 195.757

Business debt 34.301 36.746 73.714 102.914 79.167 195.757With Banking System 13.818 13.680 33.853 61.144 29.376 62.499

Short-term 9.831 7.903 31.029 51.806 19.869 48.497Long-term 3.987 5.777 2.824 9.338 9.507 14.002 '

With other Financial institutions 3.898 6.223 8.638 8.877 19.030 29.168 mw

With Government 10.062 6.875 6.140 2.288 8.036 50.705 tnWith Other Domestic 1.551 2.496 1.853 2.106 2.497 10.289 ~With Rest of World 4.972 7.472 23.230 28.499 20.228 43.096

Short-term 1.856 1.104 -1.219 4.634 -5.887 16.304Long-term 3.116 6.368 24.449 23.865 26.115 26.792

1/ Non financial enterprises including Public enterprises.

Annex Table 15. - HOUSEHOLDS

1971 1972 1973 1974 1975 1976

Net Surplus 8.332 7.877 7.770 19.579 18.649 30.885

A Financial assets 9.909 9.595 10.092 22.428 20.785 36.847

Currency and deposits 7.487 7.571 8.362 19.316 14.357 27.301Banking system 6.930 7.635 8.373 18.546 14.018 27.154Currency and Demand Dep 6.930 7.635 8.052 17.408 10.915 21.056Time Deposits - - 321 1.138 3.103 6.098Other Fin. Insti. & Tresor 557 -064 -011 770 339 147

Government debt 865 467 100 1.899 2.405 200

Business debt 1.334 1.307 1.630 738 1.222 3.750

Financial Institution debt - 250 - 475 2.801 5.596

Foreign assets 223 - - -

.AFinancial liability 1.577 1.718 2.322 2.849 2.136 5.962

Consumer debt 1.577 1.718 2.322 2.849 2.136 5.962Short-term 1.157 918 1.385 1.100 236 3.467Long-term 420 800 937 1.798 1.900 2.495

m

Annex Table 16. - REST-OF-WORLD

1971 1972 1973 1974 1975 1976

Net Surplus 19.555 14.506 24.705 10.157 64.910 38.885

4Financial assets 22.701 9.154 36.138 48.055 46.565 88.607

Government debt 17.341 1.430 9.469 17.702 23.181 37.762

Short-term - - 3.489 510 -

Long-term 17.341 1.430 9.469 14.213 22.671 37.762

Business debt 4.972 7.472 23.230 28.499 20.228 43.096

Short-term 1.856 1.104 -1.219 4.634 -5.887 16.304

Long-term 3.116 6.368 24.449 23.865 26.115 26.792

Financial Institution debt 388 252 3.439 1.854 3.156 7.749

Short-term 340 -238 1.028 -445 223 -

Long-term 048 490 2.411 2.299 2.933 7.749

A Financial liabilities 3.146 -5.352 11.433 37.898 -18.345 49.722

Foreign assets 6.692 13.196 15.391 23.502 1.613 65.501

Short-term 3.469 12.624 14.425 20.854 553 57.291

Long-term 3.223 572 966 2.648 1.060 8.210

Foreign exchange, net lia. -3.546 -18.548 -3.958 14.396 -19.958 -15.779

Rest of world A lia. -4.264 -16.578 -404 19.486 -13.626 7.085

Rest of World A assets. -718 1.970 3.554 5.090 6.332 22.864

1/Annex Table 17. - BANKING SYSTEM

1971 1972 1973 1974 1975 1976

Net Surplus 2.458 1.675 634 750 2.552 1.699

Financial assets 16.238 15.671 26.528 50.574 40.142 96.976

Currency and deposits 2/Curr. & Dem.dep. at Com'l Bks. 058 551 538 2.217 749 2.968

Dem. Dep. at other Fin. Insti. 040 - 023 -006 041 *

Government debt 069 - 158 337 258 130

Business debt 13.818 13.680 33.853 61.144 29.376 62.499

Short-term 9.831 7.903 31.029 51.806 19.869 48.497

Long-term 3.987 5.777 2.824 9.338 9.507 14.002

Consumer debt 434 1.050 800 1.600 1.300 2.000

Financial Institution debt 369 348 1.742 220 -1.251 172

Foreign assets, short-term 647 1.453 2.117 8.416 -6.143 21.931

Foreign exchange, net -5.377 -2.096 -5.880 -8.807 485 -24.663

BCEAO -5.755 549 -4.563 -4.911 5.838 -7.683

Commercial banks 378 -2.645 -1.317 -3.896 -5.353 -16.980

Intermediary adv., net3/ 6.180 685 -6.823 -14.547 15.327 31.939

BCEAO 6.070 2.830 -7.468 -9.487 7.625 54.139

Commercial banks 110 -2.145 645 -5.060 7.702 -22.200

Financial liabilities 13.780 13.996 25.894 49.824 37.590 95.277

Currency and deposits 13.699 13.188 25.134 49.702 36.470 94.777

Curr. & demand deposits 9.570 14.137 18.735 41.401 22.750 74.017

Time deposits 4.129 -949 6.399 8.301 13.720 20.760

Financial Institution debt 081 808 760 122 1.120 500 L

U1H

1/ BCEAO and the four major Commercial Banks.2/ Intermediary Commercial Bank deposits.3/ Net of BCEAO advances to Commercial Banks.

Annex Table 18. - BCEAO

1971 1972 1973 1974 1975 1976

Net Surplus 1.383 1.420 - - - 084

Financial assets 6.605 6.921 6.822 25.1561/ 10.077 23.233

Government debt - - - - - -

Business debt 4.718 203 22.505 39.133 -5.386 -28.058Short-term 1.828 -3.075 22.508 30.862 -14.227 -24.813Long-term 2.890 3.278 -003 8.271 8.841 -3.245

Consumer debt 434 450 - - - -

Financial Institution debt - - 075 - - 091

Foreign assets, short-term 1.138 2.889 -3.727 496 2.000 4.744

Foreign exchange, net assets -5.755 549 -4.563 -4.911 5.838 -7.683Foreign exchange assets -6.519 602 -3.140 -5.694 8.596 -4.221Foreign exchange liabilities -764 053 1.423 -783 2.758 3.462

Intermediary adv., net 6.070 2.830 -7.468 -9.487 7.625 54.139To Tresor (asset) 1.601 3.125 -4.726 -- 9.301To Commercial banks (asset) - - - 2.400 22.200To Dev. banks (asset) - - - - 330 16.607From Tresor (liability) -4.469 295 2.742 9.487 -6.725 -4.201From CAA Depots (liab.) - - - - 1.830 -1.830

& Financial liability 5.222 5.501 6.822 25.156 10.077 23.149

Currency and dep. liability 5.222 5.501 6.822 25.156 10.077 23.149

1/ Includes -75 in deposits at OFI, not shown separetely. j

Annex Table.19. - COMMERCIAL BANKS

1971 1972 1973 1974 1975 1976

Net Surplus 1.075 255 634 750 2.552 1.615

aFinancial assets 9.633 8.750 19.706 25.418 30.065 73.743

Currency and DepositsCommercial Banks, Curr.& D.D. 058 551 538 2.217 749 2.968Other Fin.Inst., Dem. Dep. 040 - 023 069 041 *

Government debt 069 - 158 337 258 130

Business debt 9.100 13.477 11.348 22.011 34.762 90.557Short-term 8.003 10.978 8.521 20.944 34.096 73.310Long-term 1.097 2.499 2.827 1.067 666 17.247.

Consumer debt - 600 800 1.600 1.300 2.000

Financial Institution debt 369 348 1.667 220 -1.251 081

Foreign assets, short-term -491 -1.436 5.844 7.920 -8.143 17.187

Foreign exchange, net assets 378 -2.645 -1.317 -3.896 -5.353 -16.980Foreign exchange, assets 424 -728 814 1.977 -1.779 2.422Foreign exchange, liabilities 046 1.917 2.131 5.873 3.574 19.402

Intermed. Adv. net assets 110 -2.145 645 -5.060 7.702 -22.200Int. adv. 4 asset (BCEAO) - / 1, - 030 _Int. adv. J liab. (CAA Depots) -110- 2.145 -645 5.060 -10.072 -Int. adv. A liab. (BCEAO) - - - - 2.400 22.200

A Financial liabilities ,8.558 8.495 19.072 24.668 27.513 72.128

Curr. and Dep., Commercial Bank 8.477 7.687 18.312 24.546 26.393 71.628Demand Deposits 4.348 8.636 11.913 16.245 12.673 50.868Time Deposits 4.129 -999 6.399 8.301 13.720 20.760

Financial Inst. debt, long-term 081 808 760 122 1.120 500 0

4 H1/ Includes liability of -610 on account of other government.

1/Annex Table 20. - OTHER FINANCIAL INSTITUTIONS

1971 1972 1973 1974 1975 1976

Net Surplus 1.304 2.345 2.056 1.273 672 455

Financial assets 5.035 -7.260 15.962 39.010 -1.324 60.771

Currency & Dep., at banks -1.159 1.220 -149 3.398 -2.203 4.336Currency & Dep., at other Fin.Ins. 156 197 1.589 -650 3.729 757

Government debt 136 418 368 522 1.004 1.674

Business debt 3.898 6.223 8.638 8.877 19.030 29.168Short-term 1.374 2.919 845 1.367 11.797 21.333Long-term 2.524 3.304 7.793 7.510 7.233 7.835

Consumer debt 444 600 1.529 1.796 1.136 1.765

Fin. Institutions debt 149 659 1.376 1.272 1.905 2.345

Foreign assets -420 -125 689 592 641 5.782

Foreign exchange, net 1.831 -16.452 1.922 23.203 -26.566 14.944

A Financial liabilities 3.731 -9.605 13.906 37.737 -1.996 60.316

Currency and deposits 2.731 -9.365 6.100 37.719 -23.770 25.688Demand deposits 4.775 -4.135 3.323 12.155 -13.862 18.554Time deposits -2.044 -5.230 2.777 25.564 -9.908 7.134

Financial Institutions debt 1.500 1.905 7.161 5.078 13.172 16.191Short-term 1.108 -090 3.690 -048 7.593 5.801Long-term 392 1.995 3.471 5.126 5.579 10.390

LnXIntermediary advances -500 -2.145 645 -5.060 8.602 18.437 c H

1/ Development Banks, CAA Depots, and other Financial Institutions, n.e.c.

Annex Table 21. - DEVELOPMENT BANKS

1971 1972 1973 1974 1975 1976

Net Surplus 1.157 845 1.416 092 1.097 1.734

^ Financial assets 1.962 1.852 3.941 6.992 8.647 24.855

Currency & Dem. Dep. banks 029 404 240 1 . 2 1 3 / 1.003 -634Currency & Dem. Dep., OFI - - 312 - - 800

Business debt 1.266 1.622 2.262 4.116 5.956 21.494Short-term 1.000 301 203 656 1.822 16.626Long-term 266 1.321 2.059 3.460 4.134 4.868

Government debt 006 - 130 149 - -085

Consumer debt 207 450 1.017 1.477 1.600 1.765

Financial Institutions debt 054 -100 -031 019 - -

Foreign assets - - - - - -

Foreign exchange, net 400 -524 011 018 088 1.515

a Financial liabilities 805 1.007 2.525 6.900 7.550 23.121

Currency & Deposit liabilitiesDemand 249 -137 1.276 3.373 -1.681 064Time 062 -054 -100 283 2.311 256

Financial Institutions debtShort-term 026 - 283 -500 1.219 857Long-term 468 1.198 1.066 3.744 5.371 5.337

Intermediary advances-/ - - - - 330 16.607

1/ CCI, BIDI, BNDA, and, starting in 75, BNEC.

2/ From BCEAO L3/ Includes -200 time deposits.

l/Annex Table 22. - CAA DEPOTS AND OTHER FINANCIAL INSTITUTIONS n.e.c.

1971 1972 1973 1974 1975 1976

Net Surplus 147 1.500 640 1.181 -425 -1.279

& Financial assets 3.073 -9.112 12.021 32.018 -9.971 35.916

Currency and DepositsAt Banking System -1.188 816 -389 2.185 -3.206 4.970

Currency & Dem. Deposits -1.688 1.316 -389 1.805 -3.371 4.543Time Deposits 500 -500 - 380 165 427

At other Financial Institutions 156 197 1.277 -650 3.729k' -043

Government debt 130 418 238 373 1.004 1.759

Business debt 2.632 4.601 6.376 4.761 13.074 7.674Short-term 374 2.618 642 711 9.975 4.707Long-term 2.258 1.983 5.734 4.050 3.099 2.967

Consumer debt 237 150 512 319 -464 -

Financial Institution debt 095 759 1.407 1.253 1.905 2.345

Foreign assets -420 -125 689 592 641 5.7823/

Foreign exchange 1.431 -15.928 1.911 23.185 -26.654 13.429

Financial liabilities 2.926 -10.612 11.381 30.837 -9.546 37.195

Currency and deposits 2.420 -9.174 4.924 34.063 -24.400 25.368Demand deposits 4.526 -3.998 2.047 8.782 -12.181 18.490Time deposits -2.106 -5.176 2.877 25.281 -12.219 6.878

Financial Institutions debt 1.006 707 5.812 1.834 6.582 9.997Short-term 1.082 -090 3.407 452 6.374 4.944Long-term -076 797 2.405 1.382 208 5.053

Intermediary advances4/ -500 -2.145 645 -5.060 8.272 1.830 X

1/ Consists of all financial institutions other than the Banking System and the Development Banks.2/ of which 4100 are demand deposits3/ of which 541 is short-term.4/ from BCEAO, Commercial Banks.

Annex Table 23. - CAA DEPOTS

1971 1972 1973 1974 1975 1976

Net Surplus 364 1.254 -630 166

& Financial assets 7.246 31.721 -13.145 17.117

Currency & demand deposits, banks -201 1.996 -3.371 3.418

Business debt 4.281 5.398 14.402 -2.466

Short-term 009 1.714 14.897 -3.755

Long-term 4.272 3.684 -495 1.289

Government debt 149 200 387 901

Consumer debt - - - -

Financial Institutions debt 1.091 951 1.905 1.968

Foreign assets 051 -009 186 -115

Foreign exchange, net 1.911 23.185 -26.654 13.411

A Financial liabilities 6.882 30.467 -12.515 16.951

Currency & deposits 6.237 35.527 -24.915 -21.365

Demand 3.456 10.469 -12.007 15.455

Time 2.781 25.058 -12.908 5.910

Financial Institutions debt - - 4.128 -6.244

Intermediary advances1/ 645 -5.060 8.272 1.830

1/ From BCEAO, Commercial Banks.

Annex Table 24. - OTHER FINANCIAL INSTITUTIONS, n.e.c.

1972 1972 1973 1974 1975 1976

Net Surplus 276 -073 205 -1.445

Financial assets 4.775 297 3.174 18.799

Currency and DepositsBanking System -188 189 165 1.552

Other Financial Inst. & Tresor 1.277 -650 3.729 -043

Government debt 089 173 617 858

3/Business debt 2.095 -637 -1.328 10.140-

Consumer debt 512 319 -464 -

Financial Institutions debt 316 302 - 377

Foreign assets 674 601 455 5.8972/

Foreign exchange, net - - - 018

Financial liabilities 4.499 370 2.969 20.244

Currency and Deposits -1.313 -1.464 515 4.003

Demand -1.409 -1.687 -174 3.035

Time 096 223 689 968

Financial Institutions debt 5.812 1.834 2.454 16.241

Short-term 3.407 452 2.246 11.188

Long-term 2.405 1.382 208 5.053

1/ SONAFI, COFINCI, CCP, CE, SAFCA, SIF, ASSURANCE.2/ 541 is short-term.3/ 8462 is short-term.

H

Annex Table 25. - GOVERNMENT

1971 1972 1973 1974 1975 1976

Net Surplus -13.517 -3.219 7.565 33.724 -37.208 51.618

Financial assets 18.183 8.198 10.202 43.932 13.615 130.004

Currency and DepositsAt Banking System 807 1.769 1.107 8.479 2.237 30.840

At Oth.Fin. Ins. & Tresor 3.060 -9.003 2.682 34.103 -18.735 22.899

Government debt 1.449 6.978 -1.646 -2.244 5.729 14.607

Business debt 10.062 6.875 6.140 2.288 8.036 50.705

Short-term 1.463 -663 1.522 -1.421 2.783 9.762

Long-term 8.599 7.538 4.618 3.709 5.253 40.943

Consumer debt 449 -032 -007 -547 -300 2.197

Financial Instit. debt 728 1.076 1.164 578 2.381 1.384

Foreign assets 1.628 535 762 1.275 8.144 13.433

Foreign exchange - - - - 6.123 -6.060

A Financial liability 31.700 11.417 2.637 10.208 50.823 78.386

Currency and Deposits 744 505 -044 -015 6.516 7.001

Government debt 24.276 8.082 10.149 19.710 37.582 57.883

Short-term 4.931 4.620 -771 4.492 14.326 10.731Long-term 19.345 3.462 10.920 15.218 23.256 47.152

Intermediary advances 6.680 2.830 -7.468 -9.487 6.725 13.502

1-

Annex Table 26. - TRESOR

1971 1972 1973 1974 1975 1976

Net Surplus -1.784 -3.146 10.778 5.664 -15.866 4.803

Financial assets 6.281 6.072 2.977 -893 7.442 32.839

Currency and DepositsBanks, Demand Deposits 515 1.000 097 114 287 7610th. Fin. Insti. Dem. Dep. -210 1.395 -1.155 -1.866 - 1.420

Government debt 628 1.530 -672 1.584 2.767 6.483

Business debt 3.613 1.105 3.427 308 2.787 20.795Short-term 2.403 -258 2.586 -464 1.649 1.806Long-term 1.210 1.363 841 772 1.138 18.989

Consumer debt 476 -032 -007 -547 -300 2.197

Financial Instit. debt 445 260 - - 215 564

Foreign assets 814 814 1.287 -486 1.686 619

Financial liability 8.065 9.218 -7.801 -6.557 23.308 28.036

Currency & Deposits, demand 7441/ 505 -044 -015 6.516 7.001

Government debt 1.251 5.883 -289 2.945 10.067 7.533Short-term 1.349 5.777 711 2.945 10.067 7.533Long-term -098 106 -1.000 - - -

Intermediary advances2/ 6.070 2.830 -7.468 -9.487 6.725 13.502

1/ Includes 240 Time Deposits.2/ From BCEAO.

Annex Table 27.- CAA DETTE, STABILIZATION FUNDS AND GOVERNMENT n.e.c.-/

1971 1972 1973 1974 1975 1976

Net Surplus -11.733 -073 -3.213 28.060 -21.342 46.815

& Financial assets 11.9023/ 2.126 7.225 44.825 6.173 97.165

Currency and depositsAt Banking System 292 769 1.010 8.365 1.950 30.079At Other Fin. Inst. & Tresor 3.270 -10.398 3.837 35.969 -18.735 21.479

Government debt 821 5.448 -974 -3.828 2.962 8.124

Business debt 6.449 5.770 2.713 1.980 5.249 29.910Short-term -940 -405 -1.064 -957 1.134 7.956Long-term 7.389 6.175 3.777 2.937 4.115 21.954

Financial Institutions Debt 283 816 1.164 578 2.166 819

Foreign assets 814 -279 -525 1.761 6.458 12.814V/

Foreign exchange - - - - 6.123 -6.060

A Financial liability 23.635 2.199 10.438 16.765 27.515 50.350

Government debt 23.025 2.199 10.438 16.765 27.515 50.350Short-term 3.582 -1.157 -1.482 1.547 4.259 3.198Long-term 19.443 3.356 11.920 15.218 23.256 47.152

Intermediary advances (Comm.Banks) 610 - - - - -

1/ Consists of all Government except Tresor.2/ of which 11.016 is short-term.3/ Includes -027 of Consumer debt not shown separately. W

U"Q I

Annex Table 28. - CAA DETTE

1971 1972 1973 1974 1975 1976

Net Surplus -5.948 -7.056 -12.347 -10.147

AFinancial assets 5.017 7.565 10.946 25.272

Currency and depositsBanks, demand deposits -/ - 735Other Financial Institutionsl/Demand deposits 4.204 3.709 -6.208 -533Time deposits - 804 -703 056

Government debt, short-term -842 -1.084 2.420 8.124

Business debt 1.983 1.744 2.629 15.176Short-term 036 -245 1.204 4.363Long-term 1.947 1.989 1.425 10.813

Financial Institutions debt 020 631 227 -

Foreign assets, short-term -348 1.761 6.458 7.774

Foreign exchange, net - - 6.123 -6.060

Financial liabilities 10.965 14.621 23.293 35.419

Government debt 10.965 14.621 23.293 35.419Short-term -475 -083 099 183Long-term 11.440 14.704 23.194 35.236

1/ C.A.A. Depots.

1/Annex Table 29. - STABILIZATION FUNDS-

1971 1972 1973 1974 1975

Net Surplus 805 33.182 -15.836 47.55S

Financial assets 805 34.163 -14.807 48.071

Currency and deposits 2.160 34.192 -18.024 33.692Banks 2.015 5.958 -1.783 24.680Demand deposits 3.040 4.903 -7.148 17.374Time deposits -1.025 1.055 5.365 7.306

Other Financial Instit.,! 145 28.234 -16.241 9.012Demand deposits 2.407 7.185 -5.712 5.682Time deposits -2.262 21.049 -10.529 3.330

Government debt - - 1.000 -

Business debt -1.355 -029 1.217 9.339Short-term -2.000 -1.011 - 1.097Long-term 645 982 1.217 8.242

Financial Institutions debt - - 1.000 -

Foreign assets -- - 5.040-3

t Financial liabilities - 981 1.029 514

Government debt, short-term - 981 1.029 514

1/ Caisse de Stabilisation et de Perequation des Prix.2/ Largely C.A.A. Depots.3/ of which 3.242 is short-term.

1/Annex Table 30.. - GOVERNMENT, n.e.c.l

1971 1972 1973 1974 1975 1976

Net Surplus 1.930 1.934 6.841 9.405

Financial assets 1.403 3.097 10.034 23.822

Currency and depositsBanking system -1.005 2.407 3.733 4.664Demand d-pos-its -833 024 -397 987Time deposits N -172 2.383 4.130 3.677

Other Fin. Institut.& Government -512 3.222 4.417 12.944Demand deposits -2.770 -070 2.584 10.070Time deposit 2.258 3.292 1.833 2.874

Government debt -132 -2.744 -458 -

Business debt 2.085 265 1.403 5.395Short-term 900 299 -070 2.496Long-term 1.185 -034 1.473 2.899

Financial Institutions debt 1.144 -053 939 819

Foreign assets -177 - - -

Financial liabilities -527 1.163 3.193 14.417

Government debt -527 1.163 3.193 14.417!/Short-term -1.007 649 3.131 2.501Long-term 480 514 062 11.916 a

1/ Government sector less Tresor, CAA dette, and the Stabilization Funds.Includes: FNI, CNPS, CRAD, FNA, FNH, OSHE, AYB, ARSO, LONACI, and the Communes.

2/ of which 2501 is short-term.

Annex Table 31. - CURRENCY AND DEPOSITS, BANKING SYSTEM (Banking System liab. 90.91)

1971 1972 1973 1974 1975 1976

Liabilities

Banking System A Liability 13.699 13.188 25.134 49.702 36.470 94.777BCEAO 5.222 5.501 6.822 25.156 10.077 23.149Commercial Banks 8.477 7.687 18.312 24.546 26.393 71.628Demand deposits 4.348 8.636 11.913 16.245 12.673 50.868Time deposits 4.129 -949 6.399 8.301 13.720 20.760

Assets

Non financial enterprise 7.063 2.013 15.265 17.062 21.669 29.479Currency and demand deposits 7.007 2.572 7.990 13.517 20.712 26.227Time deposits 056 -559 7.275 3.545 957 3.252

Households 6.930 7.635 8.373 18.546 14.018 27.154Currency and demand deposits 6.930 7.635 8.052 17.408 10.915 21.056Time deposits - - 321 1.138 3.103 6.098

Commercial Banks, Curr. and DD 058 551 538 2.217 749 2.968

Other Financial Institutions -1.159 1.220 -149 3.398 -2.203 4.336Devel. Banks, Curr. & DD 029 404 240 1.213 -! 1.003 -634CAA dep6ts, Curr. & DD ) ( -201 1.996 -3.371 3.418O.F.I., n.e.c. ) -1.188 816 ( -188 189 165 1.552

Curr. & DD ) -1.688 1.316 ( -188 -191 * 1.125Time Deposits ) 500 -500 ( - 380 165 427

Government 807 1.769 1.107 8.479 2.237 30.840Tr6sor, Curr. & DD 515 1.000 097 114 287 761CAA Dette, Curr. & DD ) ( - - - 735Stabilization Funds ) ( 2.015 5.958 -1.783 24.680Currency & Demand Deposits ) ( 3.040 4.903 -7.148 17.374

Time Deposits ) ( -1.025 1.055 5.365 7.306Government n.e.c. ) 292 769 -1.005 2.407 3.733 4.664

Currency & Demand Deposits ) -3.281 659 ( -833 024 -397 987 @

Time Deposits ) 3.573 110 ( -172 2.383 4.130 3.677

Total 13.699 13.188 25.134 49.702 36.470 94.777

1/ Includes -200 in time deposits.

Annex Table 32. - CURRENCY AND DEPOSITS, OTHER FINANCIAL INSTITUTIONS AND TRESOR LIABILITY (90,91)

1971 1972 1973 1974 1975 1976

\ Liabilities

Other financial institutions 2.731 -9.365 6.100 37.719 -23.770 25.688Develop. banks A liability

Demand deposits 249 -137 1.276 3.373 -1.681 064Time deposits 062 -054 -100 283 2.311 256

CAA DEp8ts & liability ) ( 6.237 35.527 -24.915 21.365Demand deposits ) ( 3.456 10.469 -12.007 15.455Time deposits ) ( 2.781 25.058 -12.908 5.910

O.F.I. n.e.c. ) 2.420 -9.174 ( -1.313 -1.464 515 4.003Demand deposits ) 4.526 -3.998 ( -1.409 -1.687 -174 3.035Time deposits ) -2.106 -5.176 ( 096 223 689 968

Government, 'demand depositsA/ 7441 505 -044 -015 6.516 7.001

Total 3.475 -8.860 6.056 37.704 -17.254 32.689

46 Assets

Non financial enterprises -338 010 1.773 3.487 -2.628 8.886Currency and demand deposits -021 181 1.602 2.310 -2.151 8.637Time deposits -317 -171 171 1.177 -477 249

Households 557 -064 -011 770 339 149Currency and demand deposits 360 -127 -107 547 - -Time deposits 197 063 096 223 339 149

Commer. Banks, curr. & dem. dep. 040 - 023 -0062/ 041 *

Other financial institutions 156 197 1.589 -650 3.729 757Dev. Banks, curr. & dem. dep. - - 312 - - 800CAA depots, curr. & dem. dep. ) ( - - - -

O.F.I. n.e.c. ) 156 197 C 1.277 -650 3.729 -043Currency & demand deposits ) 128 103 ( -1.197 331 4.100 -521Time deposits ) 028 094 C 2.474 -981 -371 478

Government 3.060 -9.003 2.682 34.103 -18.735 22.899Tresor, curr. & dem. dep. -210 1.395 -1.155 1' -1.866 - 1.420CAA Dette 4.204 4.513 -6.911 -477Currency & demand deposits ) ( 4.204 3.709 -6.208 -533Time deposits ) ( - 804 -703 056

Stabilization Funds ) ( 145 28.234 -16.241 9.012Currency & demand deposits ) ( 2.407 7.185 -5.712 5.682Time deposits ) ( -2.262 21.049 -10.529 3.330

Government n.e.c. ) 3.270 -10.398 ( -512 3.222 4.417 12.944Currency & demand deposits ) 5.222 -5.182 ( -2.770 -070 2.584 10.070Time deposits ) -1.952 -5.216 ( 2.258 3.292 1.833 2.874

Total OFI A Curr.& Dep. liab. 3.475 -8.860 6.056 37.704 -17.254 32.689

D M

1/ Includes 240 Time Deposits. O x2/ Includes -75 in BCEAO deposits. 0 .3/ Tresor liability.4/ Includes 40 Time Deposits.

Annex Table 33. - GOVERNMENT DEBT (Admin. Lia. 93-97)

1971 1972 1973 1974 1975 1976

/ Liabilities 24.276 8.082 10.149 19.710 37.582 57.883

Tresor 1.251 5.883 -289 2.945 10.067 7.533

Short-term 1.349 5.777 711 2.945 10.067 7.533

Other -098 106 -1.000 - - -

Other Government- 23.025 2.199 10.438 16.765 27.515 50.350

CAA dette n.a. n.a. 10.965 14.621 23.293 35.419

Caisses n.a. n.a. - 981 1.029 514

Government n.e.c. n.a. n.a. -527 1.163 3.193 14.417

,~Assets

Non financial Enterp. 4.416 -1.211 1.700 1.494 5.005 3.510

State Enterp.Other Enterp.

Households 865 467 100 1.899 2.405 200

Rest-of-world 17.341 1.430 9.469 17.702 23.181 37.762

Banking system 069 - 158 337 258 130

BCEAO - - - -

Commercial Banks 069 - 158 337 258 130

Other Financial Institutions 136 418 368 522 1.004 1.674

Devel. Banks 006 - 130 149 - -085

CAA depots ) ( 149 200 387 901OFI n.e.c. ) 130 418 ( 089 173 617 858

Government 1.449 6.978 -1.646 -2.244 5.729 14.607

Tresor 628 1.530 -672 1.584 2.767 6.483

CAA dette ) C -842 -1.084 2.420 8.124

Caisses ) 821 5.448 - - 1.000 -Government n.e.c. ) C -132 -2.744 -458 _ X

Total 24.276 8.082 10.149 19.710 37.582 57.883 '

Total, ex. Government holdings 22.827 1.104 11.795 21.954 31.853 43.276

1/ of which, short-term.

Annex Table 34. - BUSINESS DEBT (Non financial Business Lia. 93-97)

1971 1972 1973 1974 1975 1976

AnLiabilities

ABusiness debt 34.301 36.746 73.714 102.914 79.167 195.757Short-term 14.524 11.263 32.177 56.386 28.562 95.896Other 19.777 25.483 41.537 46.528 50.605 99.861

a Assets

Non financial Enterprises 217 1.189 223 1.368 1.275 6.539State Enterp.Other Enterp.

Households 1.334 1.307 1.630 738 1.222 3.750

Rest-of-world 4.972 7.472 23.230 28.499 20.228 43.096

Banking system 13.818 13.680 33.853 61.144 29.376 62.499BCEAO 4.718 203 22.505 39.133 -5.386 -28.058Commercial Banks 9.100 13.477 11.348 22.011 34.762 90.557

Other Financial Institutions 3.898 6.223 8.638 8.877 19.030 29.168Development Banks 1.266 1.622 2.262 4.116 5.956 21.494CAA dep8ts ) ( 4.281 5.398 14.402 -2.466OFI n.e.c. ) 2.632 4.601 ( 2.095 -637 -1.328 10.140

Government 10.062 6.875 6.140 2.288 8.036 50.705Tresor 3.613 1.105 3.427 308 2.787 20.795CAA Dette ) ( 1.983 1.744 2.629 15.176Stabilization Funds ) 6.449 5.770 C -1.355 -029 1.217 9.339Government n.e.c. ) ( 2.085 265 1.403 5.395

Total 34.301 36.746 73.714 102.914 79.167 195.757

>1-

O OCO

Annex Table 35. - CONSUMER DEBT (Household lia. 93-97)

1971 1972 1973 1974 1975 1976

,S Liabilities

Households&.liability 1.577 1.718 2.322 2.849 2.136 5.962Short-term 1.157 918 1.385 1.100 236 3.467Long-term 420 800 937 1.798 1.900 2.495

A Assets

Non financial Enterprise 250 100 -

Banking system 434 1.050 800 1.600 1.300 2.000BCEAO 434 450 - - - -Commercial banks - 600 800 1.600 1.300 2.000

Other financial institutions 444 600 1.529 1.796 1.136 1.765Development Banks 207 450 1.017 1.477 1.600 1.765CAA Depots ) ( - - - -O.F.I. n.e.c. ) 237 150 ( 512 319 -464 -

Government 449 -032 -007 -547 -300 2.197Tresor 476 -032 -007 -547 -300 2.197CAM Dette ) ( - - -

Stabilization Funds ) ( - -

Government n.e.c. ) -027 - ( - - - -

Total 1.577 1.718 2.322 2.849 2.136 5.962

zJ1fD

-4H

Annex Table 36. - FINANCIAL INSTITUTION DEBT (Banking System and Other Fin. Inst. lia. 93-97)

1971 1972 1973 1974 1975 1976

,nLiabilities

Commercial Banks, long-term 081 808 760 122 1.120 500

Development Banks 494 1.198 1.349 3.244 6.590 6.194Short-term 026 - 283 -500 1.219 857Long-term 468 1.198 1.066 3.744 5.371 5.337

CAA Dep8ts - - 4.128 -6.244Short-term ) ( - - 4.128 6.244Long-term ) ( -

O.F.I. n.e.c. 1.006 707 ( 5.812 1.834 2.454 16.241Short-term 1.082 -090 3.407 452 2.246 11.188Long-term -076 797 2.405 1.382 208 5.053

Total 1.581 2.713 7.921 5.200 14.292 16.691

t Assets

Non financial Entetprise- -053 128 200 801 5.300 -554Households - 250 - 475 2.801 5.596Rest-of-world 388 2-2 3.439 1.854 3.156 7.749

Short-term 340 -238 1.028 -445 223 -Long-term 048 490 2.411 2.299 2.933 7.749

Banking system 369 348 1.742 220 -1.251 172BCEAO -_ 075 _ - 091Commercial Banks 369 348 1.667 220 -1.251 081

Other Financial Institutions 149 659 1.376 1.272 1.905 2.345Development Banks 054 -100 -031 019 - -CAA depots ) ( 1.091 951 1.905 1.968O.F.I. n.e.c. ) 095 759 ( 316 302 - 377 ' z

Government 728 1.076 1.164 578 2.381 1.383 i xTresor 445 260 - - 215 564CAA Dette ) ( 020 631 227 -Stabilization Funds ) 283 816 ( - - 1.000 -Government n.e.c. ) ( 1.144 -053 939 819

Total 1.581 2.713 7.921 5.200 14.292 16.691

Annex Table 37. - FOREIGN ASSETS (Rest-of-World Lia. 93-97)

1971 1972 1973 1974 1975 1976

Liabilities

Rest-of-world liab. 6.692 13.196 15.391 23.502 1.613 65.501Short-term 3.469 12.624 14.425 20.854 553 57.291Other 3.223 572 966 2.648 1.060 8.210

6 Assets

Non financial Enterprise 4.614 11.333 11.823 13.219 -1.029 24.355State EnterpriseOther Enterprise

Households 223 - - - - -

Rest-of-world - - - - - -

Banking sytem 647 1.453 2.117 8.416 -6.143 21.931BCEAO 1.138 2.889 -3.727 496 2.000 4.744Commercial banks -491 -1.436 5.844 7.920 -8.143 17.187

Other Financial Instit. -420 -125 689 592 641 5.782Development banks - - - - - -CAA dep8ts ) -420 -125 ( 015 -009 186 -115O.F.I. n.e.c. ) ( 674 601 455 5.897

Government 1.628 535 762 1.275 8.144 13.433Tresor 814 814 1.287 -486 1.686 619CAA Dette ) ( -348 1.761 6.458 7.774Stabilization Funds ) 814 -279 ( - - - 5.040Government n.e.c. ) ( -177 - - -

Total 6.692 13.196 15.391 23.502 1.613 65.501X

Annex Table 38. - FOREIGN EXCHANGE, NET (98)

1971 1972 1973 1974 1975 1976

, Liabilities (net)

Rest-of-world liabilities -4.264 -16.578 -404 19.486 -13.626 7.085Rest-of-world Aassets -718 1.970 3.554 5.090 6.332 22.864

Rest-of-world,onet liabilities -3.546 -18.548 -3.958 14.396 -19.958 -15.779

,Assets (net)

BCEAO,6assets -6.519 602 -3.140 -5.694 8.596 -4.221BCEAO&liabilities -764 053 1.423 -783 2.758 3.462

BCEAO,&net assets -5,755 549 -4.563 -4.911 5.838 -7.683

Commercial banks4&assets 424 -728 814 1;977 -1.779 2.422Commercial banks& liabilities 046 1.917 2.131 5.873 3.574 19.402

Commercial banksjnet assets 378 -2.645 -1.317 -3.896 -5.353 -16.980

Government,6net assets - - - - 6.123 -6.060CAA Dette - - - - 6.123 -6.060

Other Fin. Inst., net assets 1.831 -16.452 1.922 23.203 -26.566 14.944Development banks 400 -524 011 018 088 1.515CAA Dep^ts ) 1.431 -15.928 ( 1.911 23.185 -26.654 13.411O.F.I. n.e.c. ) ( - - - 018

Total4net assets -3.546 -18.548 -3.958 14.396 -19.958 -15.779

(D m_j >4o H

Annex Table 39- - INTERMEDIARY ADVANCES (99)

1971 1972 1973 1974 1975 1976

&Liabilities

Government, TresorA liab. (BCEAO) 1.601 1/ 3.125 -4.726 - 9.301&assets(BCEAO) -5.079- 295 2.742 9.487 -6.725 -4.201

Gov't, Trgsorg! net liab. (BCEAO) 6.680 2.830 -7.468 -9.487 6.725 13.502

O.F.I. CAA depotsanet liab.(Comm. Bank, BCEAO) -500 -2.145 645 -5.060 8.272 1.830

O.F.I. Dev.Bks.& net liab.(BCEAO) - - - - 330 16.607

Totalanet liab. 6.180 685 -6.823 -14.547 15.327 31.939

aAssets

BCEAO asset (Tresor) 1.601 3.125 -4.726 - 9.301asset (Comm.Bank) - - - 2.400 22.200asset (Dev. Bank) - - - - 330 16.607liab. (TrEsor) -4.469 295 2.742 9.487 -6.725 -4.201liab. (CAA dep8t) - - - - 1.830 -1.830

BCEAO& net asset 6.070 2.830 -7.468 -9.487 7.625 54.139

Comm. Bank6asset - - - - 30 -Comm.Bank,Aliab. (CAA depots) 500 2.145 -645 5.060 -10.072 -

,aliab. (BCEAO) _ _ _ _ 2.400 22.200&liab. (Other Admin.) -610

Comm.Bank,anet asset 110 -2.145 645 -5.060 7.702 -22.200

Total&net assets 6.180 685 -6.823 -14.547 15.327 31.939 a|

-t H

1/ -610 of 71 figure is other admin., not Tresor.

ANNEX IPage 78

Notes on Flow of Funds Sources and Methods for the Ivory Coast

123. The Ivory Coast has an excellent set of basic Flow of Funds data.They appear as an integral part of Les Comptes de la Nation, a system whichfollows in broad outline the French national accounts. The main matrixpresentation of the Ivorian national accounts, the Tableau Economique d'En-semble (TEE), includes capital accounts for the major economic sectors, eachof which contains sector data for saving and gross (real) investment and whichis carried down to a capital account surplus (capacite de financement) ordeficit (besoin de financement). These sector surplus and deficit figuresare analyzed in another display, the Tableau des Operations Financieres(TOF), into sector flows for nine types of financial instruments (variation deselements d'actif, des elements de passif). This tableau also presents detailfor four subsectors of financial institutions. The TOF appears in two forms,a Tableau Resume and a Tableau Detaille, the latter providing detail forfinancial flows which links them to the liabilities of particular sectors.All these data are available on a consistent basis for 1966-75.

124. However, data for 1976 and subsequent years incorporate a number ofconceptual changes. The revised Ivorian scheme (the SICN) follows the linesof a recently introduced French system which moves toward agreement with thestandard UN system. At the time of the Mission definitive 1976 data were onlyavailable on the new system and the data through 1975 were only available onthe earlier basis.

125. The data problems that the Mission faced in the flow of funds areamay be grouped as follows: (a) Rearrangement and condensation of the basichistorical data for 1966-75 into forms suitable to a saving-investment processanalysis. This was completed from the published sources for 1971-75 and thedata are presented here in Annex I; (b) Provision of additional sector detailfor two sectors: other financial institution (autres organismes financiers)and other government (autres administrations). These data were obtained fromthe national accounts worksheets with the cooperation of M. B. Dromain of theDirection de la Statistique. These data for the years since 1973 are alsopresented here in Annex I; (c) Estimation of data for 1976 consistent with thehistorical time series. This was done with the help of M. Dromain by construc-ting a TOF Detaille for 1976 on the same conceptual basis as the earliersystem using preliminary data and the worksheets underlying the data of thenew system. These 1976 figures are the final year of the Annex I Tables.

126. As the accounts are currently presented, it is not possible tocarry forward the Annex I Tables beyond 1976 from the more recently publisheddata. This is because the TOF Detaille no longer contains the detail whichanalyzes financial asset acquisitions according to the sector of issue. It isthus much more difficult under the new system to get a picture of who isborrowing from whom.

127. The remainder of this section discusses first, the rearrangements ofthe earlier Comptes data for use in the Mission analysis and, second, thenature of the 1976 conceptual revisions to the Comptes.

ANNEX IPage 79

From Comptes to the Mission Tables

128. The primary problem with the TOF Resume as a format for substantiveanalysis is the difficulty in observing who is borrowing from whom. Sincethe TOF Detaille contains much more information, the problem was attacked byadopting a different method of condensing these data. The financial liabili-ties of the major sectors across a wide range of credit market instruments (93through 97 on the TOF) were lumped to provide sector borrowing totals, e.g.,government debt, business debt, consumer debt, etc., which become the transac-tion types for the substantive analysis. TOF categories for money and otherdeposits (90 and 91) were likewise lumped to provide two other transactiontypes: (1) currency and deposit liability for the banking system; and (2)currency and deposit liability for other financial institutions and Tresor.The remaining two TOF categories, foreign exchange (98), and intermediaryadvances (99) were retained. These results appear in the financial transac-tion tables of this annex.

The 1976 National Account Revisions

129. A complete reconciliation of the financial sections of the old andnew Comptes systems is beyond the scope of this annex. Instead, a briefdescription will be offered of the differences in the sectoring and trans-action type classifications of the two systems. The many changes in termi-nology between the systems which do not correspond to changes of substancewill in general be here ignored.

A. Changes in the Sector Classification

1. Noncorporate business enterprises were removed from the nonfinan-cial enterprise sector and in the new system are included in thehousehold sector.

2. Insurance companies were removed from the other financial insti-tutions sector and in the new system appear as a separate sector.

3. Certain nonprofit institutions (Administrations Privees) wereremoved from the government sector and in the new system appear asa separate sector.

B. Changes in the Classification of Transactions

1. Intermediary advances are eliminated as a transaction type. Partof it, Tresor advances to the BCEAO, is now assigned to money.The rest of intermediary advances is assigned to short-termcredit.

2. Insurance reserves were removed from short-term credit and appearas a separate transaction type in the new system.

ANNEX IPage 80

C. Changes in the Degree of Netting of Transactions

1. Rediscounts of loans from the commercial banks to the BCEAO aretreated gross in the new system. That is, the rediscounted loanis now treated as remaining in the portfolio of the commercialbank and the BCEAO advance is recorded as an added asset for theBCEAO and an added liability of the bank. This treatment has theeffect of presenting a larger flow of short-term credit in thenew system.

Finance in the Development of the Ivory Coast

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