Front Matter Page
© 2003 International Monetary Fund
June 2003
IMF Country Report No. 03/197
Burkina Faso: 2003 Article IV Consultation and Request for a New Three-Year Arrangement Under the Poverty Reduction and Growth Facility—Staff Report; Public Information Notice and Press Release on the Executive Board Discussion
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of a combined discussion of the 2003 Article IV consultation with Burkina Faso and request for a new three-year arrangement under the Poverty Reduction and Growth Facility, the following documents have been released and are included in this package:
the staff report for the combined 2003 Article IV consultation and request for a new three-year arrangement under the Poverty Reduction and Growth Facility, prepared by a staff team of the IMF, following discussions that ended on April 9, 2003, with the officials of Burkina Faso on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on May 28, 2003. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF.
a Public Information Notice (PIN) and Press Release, summarizing the views of the Executive Board as expressed during its June 11, 2003, discussion of the staff report on issues related to the Article IV consultation and the IMF arrangement, respectively.
The document(s) listed below have been or will be separately released.
Letter of Intent sent to the IMF by the authorities of Burkina Faso*
Memorandum of Economic and Financial Policies by the authorities of Burkina Faso*
Statistical Annex
Technical Memorandum of Understanding*
*May also be included in Staff Report
The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.
To assist the IMF in evaluating the publication policy, reader comments are invited and may be sent by e-mail to pubIicationpolicy@imf.org.
Copies of this report are available to the public from
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International Monetary Fund
Washington, D.C.
Front Matter Page
INTERNATIONAL MONETARY FUND
BURKINA FASO
Staff Report for the 2003 Article IV Consultation and Request for a New Three-Year Arrangement Under the Poverty Reduction and Growth Facility
Prepared by the African Department
(In consultation with the Finance, Fiscal Affairs, Legal, Policy Development and Review, and Statistics Departments)
Approved by Amor Tahari and Martin Fetherston
May 28, 2003
The last arrangement under the Poverty Reduction and Growth Facility (PRGF), approved on September 10, 1999, expired on December 9, 2002, after a three-month extension. The sixth and final review of the PRGF-supported program was concluded on November 13, 2002, and the loans available under the PRGF arrangement were fully disbursed.
Discussions on the 2003 Article IV consultation and on a medium-term program that could be supported by a new three-year arrangement under the PRGF were initiated in Ouagadougou during February 17–March 7, 2003 and concluded in Washington during April 7–9.
The mission met with Prime Minister Paramanga Yonli and held discussions with the Minister of Finance and Budget (Mr. Compaoré), the National Director of the Central Bank of West African States (BCEAO—Mr. Zallé), and other senior officials, including the Ministers of Economy and Development, Commerce and Private Sector Development, Basic Education, Health, Justice, and Civil Service and Administrative Reform. Meetings were also held with representatives of the banks, public enterprises, the chamber of commerce, and the international donor community in Ouagadougou.
The staff team comprised Mr. Thiam (Head), Ms. Adenauer, Mr. Bouhga-Hagbé (EP), Mr. Williams, Mr. Zejan, and Ms. John (Administrative Assistant). Mr. Franco, the Fund’s Resident Representative in Burkina Faso, participated fully in the mission, as did Mr. Walliser of the World Bank. Mr. Nyambal, Advisor to the Executive Director for Burkina Faso, participated in the policy discussions.
The program for 2003–06 in support of which the authorities are requesting a new PRGF arrangement is in line with Burkina Faso’s PRSP, which was endorsed by the Fund and World Bank Executive Boards in June 2000 as a sound basis for poverty reduction and concessional assistance.
The authorities have agreed to publish the staff report, the letter of intent, and the memorandum of economic and financial policies (MEFP), following their consideration by the Executive Board.
Contents
Executive Summary
I. Introduction
II. Recent Developments and Program Performance
III. Policy Discussions
A. Taking Stock: Achievements and Challenges
B. Medium-Term Poverty Reduction Strategy
C. Economic and Financial Program for 2003–04
IV. Staff Appraisal
Boxes
1. Real GDP Growth by Sector and by Component of Demand, 1990–2002
2. Experience with the Absorption of Resources Freed Under the HIPC Initiative
3. Diversification and Sources of Growth
4. Coverage of Structural Conditionality Under the Proposed PRGF Arrangement
5. Donor Coordination: A Memorandum of Understanding for Joint Budgetary Support Through the PRSP Process
6. Microfinance
Figures
1. Real and Nominal Effective Exchange Rates, January 1990–November 2002
2. Investment and Savings, 1997–2006
3. External Sector Developments, 1997–2006
4. Fiscal Sector Developments, 1997–2006
Tables
1. Proposed Schedule of Disbursements Under the PRGF Arrangement, 2003–06
2. Fund Position During the Period of the Proposed PRGF Arrangement, 2003–06
3. IMF Credit Position and Projected Payments to the IMF, 2002–12
4. Selected Economic and Financial Indicators, 2000–06
5. Consolidated Operations of the Central Government, 2002–06
6. Fiscal Operations, 2003–04
7. Fiscal Impact of the HIPC Initiative, 2000–06
8. Poverty-Reducing Social Expenditures, 1996–2003
9. Monetary Survey, 2001–04
10. Balance of Payments, 2000–08
11. External Financing Requirements, 2003–06
12. Tracking Delivery of HIPC Initiative Assistance—Original and Enhanced Framework
13. Expenditure Accountability Assessment and Action Plan (AAP)—Update Table
14. Poverty and Social Indicators, 2002
15. External Public Debt, 2002–06
16. New External Borrowing and Debt Indicators, 2002–15
17. External Debt Service by Creditor, 2002–06
18. Compliance with WAEMU Convergence Criteria, 2000–06
Appendices
I. Letter of Intent
Attachment I: Memorandum of Economic and Financial Policies for 2003–06
Table 1: Quantitative Performance Criteria and Indicative Targets for the 2003–04 Program
Table 2: Prior Actions, Structural Performance Criteria, and Indicative Targets for the 2003–04 Program
Attachment II: Technical Memorandum of Understanding
II. Relations with the Fund
III. Relations with the World Bank Group
IV. Statistical Issues
V. Public Information Notice
Executive Summary
Since 1993, Burkina Faso has satisfactorily implemented three PRGF-supported programs, leading to sustained growth and very low inflation, improvements in the fiscal balances, and major structural reforms, including in the areas of price and trade liberalization, and governance. However, Burkina Faso continues to be characterized by a high incidence of poverty despite a steady increase in social expenditure.
Partly reflecting the adverse impact of the crisis in Côte d’Ivoire, the real GDP growth rate remained at 4.6 percent in 2002, or 1 percentage point lower than projected, and inflation, on a 12-month basis, accelerated to 3.9 percent in 2002, compared with 1 percent in 2001. The real effective exchange rate appreciated by 5.2 percent in 2002, mainly as a result of the depreciation of the U.S. dollar against the euro, to which the CFA franc is pegged. The overall fiscal deficit, including grants, was contained at 5 percent of GDP, compared with a programmed ceiling of almost 6 percent of GDP; excluding grants, it stood at 10.4 percent of GDP, compared with a target of 13.5 percent of GDP. Regarding structural reforms, the authorities instituted the High Authority to Fight Corruption and the Auditor General Office; they also adopted an action plan to ensure transparency and accountability in fiscal management. However, limited progress was made in privatizing large public utilities and bringing down Burkina Faso’s high factor costs, including electricity, water, and telephones.
Article IV consultation issues and key elements of the proposed program
Burkina Faso’s economic, financial, and social situation remains fragile as (i) the country continues to rely heavily on a very limited number of export commodities and on external assistance; (ii) most social indicators are still very weak; and (iii) there is a need to lower factor costs and to remove structural rigidities in order to increase competitiveness, with a view to diversifying the economic base and setting the stage for sustained growth and poverty reduction.
The economic and financial program for 2003–04 is based on a prudent scenario of real GDP growth rates of 2.6 percent in 2003, when the bulk of the adverse impact of the crisis in Côte d’Ivoire will be felt, and 4.0 percent in 2004. Consistent with the objectives of the PRSP, which recognizes appropriate macroeconomic policies and structural reforms as key elements for broad-based growth and poverty reduction, the new program aims to limit inflation and the external current account deficit, and contain the basic budget deficit, including HIPC Initiative-related spending, at 4.5 percent of GDP in 2003 and 3.5 percent in 2004, compared with 3.8 percent in 2002. Structural reforms will aim to further improve governance, foster economic diversification and trade liberalization, and increase competitiveness. Among other measures, the High Authority to Fight Corruption will be made operational by end-June 2003. A review of the cost structure of the electricity utility (SONABEL) will be conducted, with a view to preparing cost-cutting measures. Bids for the privatization of the telephone company (ONATEL) will be launched by end-September 2003.
In the medium-term framework, the projected rate of real GDP growth of 5.2 percent by 2006, compared with an average of 4.7 percent during 1996–2002, and the reduction of the current account deficit, excluding grants, to 12 percent of GDP by 2006 down from 13 percent in 2002 and 14 percent in 2003, are premised on a modest increase in cotton production, and successful competitiveness and diversification strategies, leading to increased investment in the secondary and tertiary sectors. The basic budget deficit would narrow to 3.1 percent by 2006, reflecting a strengthening in government revenue collection and a shift in spending priorities in favor of education, health, and the needs of the rural sector. The regional central bank will pursue a prudent monetary policy, with a view to supporting the fixed parity of the CFA franc vis-à -vis the euro. Further progress will be made on structural reforms to promote private sector development, improve competitiveness, diversification, and good governance, and strengthen regional integration.
Issues highlighted in staff appraisal
Burkina Faso’s performance under PRGF-supported programs during 1993–2002 and in implementing the policy agenda laid out in the PRSP adopted in 2000 was satisfactory. Real GDP recovered strongly, inflation remained very low, and significant progress was made in improving expenditure management, liberalizing the price and trade regime, and strengthening regional integration within the WAEMU. Nonetheless, Burkina Faso’s economic, financial, and social situation remains fragile and difficult, and the country, landlocked and one of the poorest in the world, continues to depend heavily on external assistance and the monoculture of cotton.
Revenue collection performance is very weak and Burkina Faso is falling considerably short of the level required to meet the convergence criterion of the WAEMU in this area. The staff urged the authorities to follow up on the recommendations of the recent Fund technical assistance mission on tax and customs administration.
The staff supported the government structural reform strategy aimed at promoting good governance, economic diversification, competitiveness, and private sector development. It urged the government to strictly adhere to the fiscal stance agreed for 2003 and 2004 and closely monitor ongoing projects.
Front Matter Page
Public Information Notice (PIN) No. 03/79
FOR IMMEDIATE RELEASE
June 30, 2003
International Monetary Fund
700 19th Street, NW
Washington, D.C. 20431 USA
Telephone 202-623-7100
Fax 202-623-6772
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Press Release No. 03/82
FOR IMMEDIATE RELEASE
June 11, 2003
International Monetary Fund
Washington, D.C. 20431 USA
Telephone 202-623-7100
Fax 202-623-6772
