Ivory Coast Says Debt Targets Put Lid on Eurobond Temptation

(Bloomberg) -- Ivory Coast is opting to sell domestic debt rather than issue cheaper Eurobonds as the country seeks to balance its local and foreign exposure.

After selling 1.7 billion euros ($1.9 billion) of bonds in 2018 in the biggest issuance of debt in this currency by an African government, the world's largest cocoa producer held back from going to the market for a third straight year even as demand for similar emerging-market securities are soaring. The 2025 bonds that Ivory Coast sold in 2017 at 5.125% traded Thursday at yields below 4%.

With budgeted financing needs of 1.4 trillion CFA francs ($2.4 billion) for the 2019 fiscal year, the country has so far raised most of its debt on West Africa's regional market, Moussa Sanogo, secretary of state in charge of budget and public assets, said in an interview Thursday in neighboring Ghana's capital, Accra. While Ivory Coast won't completely rule out a Eurobond sale this year, it's unlikely, he said.

Under Ivory Coast's program with the International Monetary Fund, the government targets a debt ratio where external liabilities are equal to the domestic exposure, said Sanogo. While the CFA franc is pegged to the euro in a guarantee that is backed by France, the IMF program won't allow Ivory Coast to classify euro-denominated bonds as a local-currency liability, he said.

“This is an issue for us,” said Sanogo. “We have a peg with the euro, we have a strong arrangement with France. You cannot appreciate our debt in euro like debt in U.S. dollars.”

So far this year, the country has sold one-year debt at yields that often exceed 5.5% and more for longer-dated bonds. The IMF projects that total government debt will measure 52.5% of gross domestic product at the end of 2019 while 37.8% will be external debt.

Raising Revenue

Ivory Coast is on track to meet its budget deficit target of 3% of GDP this year, from 4% of GDP in 2018, said Sanogo. Revenue slightly exceeded forecasts in the first half, while expenses were lower than estimated because of higher participation by the private sector in government projects, he said.

The government is bringing more people and businesses into the tax net, with collections improving to 17.9% of GDP from 17.4% a year ago. However it still loses out on substantial amounts of revenue through exemptions that are aimed at encouraging investments, Sanogo said.

As a result, the expansion of the tax base won't necessarily correspond with economic growth, which is forecast to exceed 7% for an eighth consecutive year in 2019, he said.

“We're in a kind of dilemma.”

To contact the reporters on this story: Andre Janse van Vuuren in Accra at ajansevanvuu@bloomberg.net;Baudelaire Mieu in Abidjan at bmieu@bloomberg.net

To contact the editors responsible for this story: John McCorry at jmccorry@bloomberg.net, Rene Vollgraaff, Hilton Shone