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
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Publication Date:
30 Jun 2003
eISBN:
9781451803693
Language:
English
Keywords:
ISCR; CR; spending; PRGF loan; PRSP policy agenda; PRGF-supported program; agenda; government; HIPC Initiative; private sector; debt service; CFA franc; reform program; Poverty reduction strategy; West Africa
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This paper assesses Burkina Faso’s 2003 Article IV Consultation and a Request for a New Three-Year Arrangement Under the Poverty Reduction and Growth Facility (PRGF). Burkina Faso’s performance under PRGF-supported programs during 1993–2002 and in implementing the policy agenda laid out in the Poverty Reduction Strategy Paper adopted in 2000 was satisfactory. Real GDP recovered strongly, and inflation remained low. The economic, financial, and social situation remains fragile and difficult. The IMF staff has supported the government structural reform strategy aimed at promoting good governance, economic diversification, competitiveness, and private sector development.

Abstract

This paper assesses Burkina Faso’s 2003 Article IV Consultation and a Request for a New Three-Year Arrangement Under the Poverty Reduction and Growth Facility (PRGF). Burkina Faso’s performance under PRGF-supported programs during 1993–2002 and in implementing the policy agenda laid out in the Poverty Reduction Strategy Paper adopted in 2000 was satisfactory. Real GDP recovered strongly, and inflation remained low. The economic, financial, and social situation remains fragile and difficult. The IMF staff has supported the government structural reform strategy aimed at promoting good governance, economic diversification, competitiveness, and private sector development.

I. Introduction

1. In concluding the 2002 Article IV consultation on April 9, 2002, Executive Directors commended the authorities for their continued sound economic policies and progress in structural reforms, in particular their prudent management of the cotton sector. They stressed the need to maintain steady and rapid growth, strengthen the external position, and achieve durable poverty reduction. Burkina Faso has accepted the obligations of Article VIII, Sections 2, 3, and 4, and maintains an exchange system free of restrictions on the making of payments and transfers for current international transactions.

2. In the attached letter dated May 28, 2003 (Appendix I), the Minister of Finance and Budget of Burkina Faso requests a three-year arrangement under the Poverty Reduction and Growth Facility (PRGF) in an amount equivalent to SDR 24.08 million, or 40 percent of quota (Table 1). Assuming the loans under the new arrangement are fully disbursed and taking account of repayments, Burkina Faso’s outstanding use of Fund resources would amount to SDR 69.2 million (equivalent to 115 percent of quota) at end-December 2006, down from SDR 93.0 million (equivalent to 154.6 percent of quota) at end-December 2002 (Tables 2 and 3).

Table 1.

Burkina Faso: Proposed Schedule of Disbursements under the PRGF Arrangement 2003–06

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Source: International Monetary Fund.

In addition to the generally applicable conditions under the Poverty Reduction and Growth Facility (PRGF) arrangement.

Table 2.

Burkina Faso: Fund Position During the Period of the Proposed PRGF Arrangement, 2003–06

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Source: IMF, Finance Department.
Table 3.

Burkina Faso: IMF Credit Position and Projected Payments to the IMF, 2002–12 1/

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Source: IMF, Finance Department.

Assumes two disbursements of SDR 3.44 million each year from 2003 to 2005 and one disbursement of the same amount in 2006

3. The requested PRGF arrangement is in support of an economic program for the period April 2003–March 2006 that is outlined in the memorandum of economic and financial policies (MEFP) for 2003–06 (Appendix I, Attachment, Annex I), and it is in line with Burkina Faso’s poverty reduction strategy paper (PRSP) and its second progress report, which were prepared by the authorities in a participatory process involving civil society. The Executive Boards of the Fund and the World Bank discussed the PRSP in June 2000 and found it to be a sound basis for poverty reduction and concessional support. In concluding the discussions on the second progress report in November 2002, Executive Directors noted the acceleration in the use of the resources freed under the Initiative for Heavily Indebted Poor Countries (HIPC Initiative) in the first half of 2002, following a slow start in 2000 and 2001. They stressed, however, that stronger efforts needed to be made to increase the effectiveness of education and health sector spending, address remaining institutional weaknesses and infrastructure bottlenecks that limited absorptive capacity, strengthen the linkages between the PRSP and the budget, and improve the tracking of social outcomes.

4. In April 2002, the IMF and World Bank Boards agreed that Burkina Faso had fulfilled the conditions for reaching the completion point under the enhanced HIPC Initiative. They also agreed to grant Burkina Faso exceptional debt relief (topping up) to achieve debt sustainability and mitigate the adverse effect of terms of trade shocks on the country’s debt ratios. In this context, Paris Club creditors agreed in June 2002 to grant Burkina Faso a stock-of-debt treatment on Cologne terms.1 They also committed topping-up relief and additional bilateral debt forgiveness, and agreed on an equal distribution of this additional relief among creditors. The authorities are seeking the participation of Burkina Faso’s non-Paris Club bilateral and multilateral creditors in the HIPC Initiative.

5. The World Bank has supported Burkina Faso’s reform program since the early 1990s through a number of project and sector credits, with total cumulative commitments through May 12, 2003 of US$1,359.5 million. The Country Assistance Strategy (CAS) for 2001–03 was approved by the World Bank Executive Board in November 2000 in support of Burkina Faso’s PRSP. Progress in implementing the CAS has been satisfactory. Burkina Faso fulfilled all the triggers for the base-case scenario and most of the triggers for the high-case scenario, with good portfolio performance and total lending reaching US$351.4 million during fiscal years (FY) 2001–03. On April 8, 2003, the World Bank Board extended the CAS for 18 months, with a base-case grant and lending scenario of about US$300 million for FY 2004–05.2 Summaries of Burkina Faso’s relations with the Fund and the World Bank Group are presented in Appendices II and III, respectively.

6. Legislative elections were held in Burkina Faso on May 5, 2002. For the first time, all opposition parties participated in the elections, which were judged to be fair by international observers. President Compaoré’s ruling party (Congrès Pour la Démocratie et le Progrès—CDP) obtained 57 out of the 111 seats in parliament (51 percent), with the remaining seats going to representatives of 13 different parties. Prime Minister Paramanga Yonli was reappointed in June 2002 to head a new cabinet comprising 26 ministers, of which 3 ministers are not members of the ruling party.

II. Recent Developments and Program Performance

7. Since 1993, Burkina Faso has satisfactorily implemented three PRGF-supported programs, associated with the conduct of sound macroeconomic policies and significant structural reforms. Under the programs, and following the devaluation of the CFA franc in 1994, the real GDP growth rate increased to 4.7 percent on average during 1996–2002 from 3.5 percent on average during 1990–95, despite two drought years in 1998 and 2000, and terms of trade shocks in 2000 and 2002 (Box 1). In addition, inflation remained low, but the external current account deficit widened during 1996–2002, reflecting, inter alia, a weak performance in noncotton exports. The acceleration in growth was spurred by a tripling of cotton production, a boom in construction triggered by public investment in basic infrastructure and social equipment, and private investment in housing, as well as an expansion in trade and transportation. Fiscal policy improved generally, with the overall fiscal deficit contained. However, revenue collection weakened, and constraints in administrative capacity prevented the authorities from fully using the resources freed under the HIPC Initiative during 2000–02. Major structural reforms have been carried out, including in the areas of price and trade liberalization, and governance. However, despite a steady increase in social expenditure, Burkina Faso continues to be characterized by a high incidence of poverty (see para. 21 below), the resource base of the economy is still very narrow, and factor costs, including water, energy, telecommunications, and transportation, are very high.

Burkina Faso: Real GDP Growth by Sector and Component of Demand, 1990–2002

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Sources: Burkinabé authorities; and staff estimates.

8. Overall performance under the PRGF-supported program during 1999–2002 was satisfactory, despite a difficult external environment, including terms of trade shocks, and continued tensions in Côte d’Ivoire, Burkina Faso’s most important regional trading partner. In particular, the crisis that erupted in Côte d’Ivoire in September 2002 has adversely affected Burkina Faso’s economic performance. The closing of the border between the two countries since the beginning of the crisis has cut off supplies to industrial units, and many enterprises have lost goods in transit, with negative consequences for their cash-flow position. The railway between Abidjan and Ouagadougou ceased operations, and trade has had to be rerouted from Abidjan through the ports of Tema in Ghana, Lomé in Togo, and Cotonou in Benin, significantly driving up transport costs.

9. Real GDP growth is estimated to have remained at 4.6 percent in 2002 (Table 4), or 1 percentage point lower than projected at the time of the sixth and final PRGF-supported program review in November 2002 (see EBS/02/183, 10/30/02).3 This downward revision reflects mainly a lower-than-envisaged growth of cereal production, exacerbated by the adverse impact of the crisis in Côte d’Ivoire. Cereal production increased by only 0.3 percent for the 2002/03 crop year, following a 36 percent rise in 2001/02. Production in the secondary and tertiary sectors was hampered by the Ivoirien crisis, although the adverse impact was reportedly mitigated in the secondary sector by a drawdown of existing stocks of inputs and spare parts, which ran out only toward end-December 2002. On a positive note, following the record cotton output realized in the 2001/02 crop year, production increased even further by 5.7 percent to 400,000 tons in 2002/03, notwithstanding an effective reduction in the producer price of seed cotton of 12.5 percent.4

Table 4.

Burkina Faso Selected Economic and Financial Indicators, 2000–06

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Sources; Burkinabé authorities; and staff estimates and projections.

In percent of beginning-of-period broad money.

Revenue, excluding grants, minus expenditures, excluding foreign-financed investment outlays. From 1998 on, revenue includes taxes paid by contractors on fa reign-financed public investments using checks issued by the treasury.

In percent of exports of goods and services

After traditional debt-relief mechanisms and before original Heavily Indebted Poor Countries (HIPC) Initiative assistance delivered as of end-2001.

10. The disruptions resulting from the Ivoirien crisis also contributed to an increase in the year-on-year consumer price index of 3.9 percent at end-December 2002 (Table 4), compared with 1 percent at end-December 2001 and the objective of 2 percent for 2002. The real effective exchange rate appreciated by 5.2 percent in 2002, mainly owing to the weakening of the U.S. dollar against the euro, to which the CFA franc is pegged (Figure 1).

Figure 1.
Figure 1.

Burkina Faso: Real and Nominal Effective Exchange Rates, January 1990 - November 2002

(Index, 1990–100)

Citation: IMF Staff Country Reports 2003, 197; 10.5089/9781451803693.002.A001

Source: IMF, Information Notice System.

11. Fiscal performance was satisfactory under the PRGF-supported program in 2002, in spite of a weakening in revenue collection toward the end of the year that was partly due to the negative impact of the crisis in Côte d’Ivoire. Tax revenue fell short of the indicative target by CFAF 13 billion (or 0.6 percent of GDP) at end-2002 (Table 5), owing to large shortfalls in the value-added tax (VAT), and in income and profit taxes. The shortfalls also reflected continued weaknesses in tax administration, including in the two large and medium-sized taxpayers’ units in Ouagadougou and Bobo-Dioulasso, respectively, and in the control of refund claims. Customs receipts, however, were on target, as a result of improved customs controls and accelerated procedures, as well as a reduction in exemptions.

Table 5.

Burkina Faso Consolidated Operations of the Central Government, 2000–06

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Sources: Bunkinabe authorities; and staff estimates and projections

Includes HIPC resources.

Revenue includes taxes un goods and services paid during the execution of public investment projects using checks issued by the treasury.

On a commitment basis and including the tax component of the public investment projects which is paid by the treasury

Revenue (excluding grants) minus expenditure, excluding foreign-financed investment and net lending outlays.

Float during the year. Decline of stock of expenditure committed hut not paid: (−).

Contentious debt under negotiation with non-Paris Club creditors.

Table 6.

Burkina Faso: Fiscal Operations, 2003–04

(In billions of CFA francs)

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Sources: Burkinabé authorities; and staff estimates and projections.
Table 7.

Burkina Faso: Fiscal Impact of the HIPC Initiative, 2000–06

(In billions of CFA francs, unless otherwise specified)

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Sources; Burkinabé authorities; and staff estimates and projections.

Excludes foreign-financed investment.

Table 8.

Burkina Faso: Poverty-Reducing Social Expenditures, 1996–2003 1/

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Sources: Burkinabé authorities; and staff estimates and projections.

Including use of HIPC Initiative resources.

12. Current expenditure exceeded the program target by CFAF 13 billion (or 0.6 percent of GDP), reflecting (i) unforeseen humanitarian assistance and increased border patrol and security spending as a result of the crisis in Côte d’Ivoire; (ii) higher-than-forecast spending on goods and services, including for telephones, electricity, and water; and (iii) larger-than-planned outlays for the May 2002 legislative elections. As budgetary appropriations for current expenditure were exceeded, spending commitments for the government’s consumption of telephones, electricity, and water in 2002 were recorded only in early 2003, for a total amount of CFAF 14.6 billion, of which CFAF 9.7 billion represented the consumption for the first three quarters and were considered a carried-over domestic debt from 2002.5 However, domestically financed capital expenditure remained 22 percent below projections because of continued constraints on absorptive capacity, including as regards the use of HIPC Initiative-related resources in the social sectors. Only CFAF 28.2 billion (or 1.3 percent of GDP) of HIPC Initiative resources was actually committed in 2002, against a program target of CFAF 47.7 billion (or 2.2 percent of GDP), reflecting both institutional constraints and physical bottlenecks.6 Thus, the overall fiscal deficit, including grants, was contained at 5 percent of GDP, compared with 3.8 percent of GDP, compared with a programmed target of about 6 percent of GDP;7 the basic fiscal deficit8 was held at a programmed target of 4.3 percent of GDP (Figure 4).

Burkina Faso: Experience with the Absorption of Resources Freed Under the HIPC Initiative

Burkina Faso received CFAF 7.1 billion in debt relief through the HIPC Initiative in 2000, CFAF 26.5 billion in 2001, and CFAF 20.8 billion in 2002. However, no HIPC Initiative-related expenditure was committed in 2000, and only CFAF 6.6 billion was committed in 2001 and CFAF 28.2 in 2002, accounting for only 64 percent of the total available resources. On a cash basis, only 41 percent of available resources were spent. The reasons for Burkina Faso’s absorption problem were institutional weaknesses, as well as physical bottlenecks beyond the government’s control.

Institutional constraints arose because the setup of the three tiers of committees to execute and monitor social expenditures, created in June 2000, was very complex: (i) a ministerial oversight committee, chaired by the Prime Minister, is the decision-making body of PRSP implementation; (ii) an interministerial technical monitoring committee coordinates the implementation of sectoral action plans; and (iii) sectoral monitoring groups are responsible for implementing the PRSP within ministerial departments. This structure did not become fully operational because of irregular meetings of sectoral groups and a lack of clear sectoral policies at the ministry level for allocating of resources to reduce poverty. In addition, HIPC Initiative-related spending had to follow special administrative procedures, and many line ministries lacked the human resources to master them, so that spending remained well below targets. Moreover, the lack of a fully operational decentralized administrative structure did not allow for an efficient and swift execution of poverty-reducing projects in remote areas. Finally, budgetary disbursement procedures had to be adapted to facilitate disbursements at the local level, while ensuring proper tracking.

Physical bottlenecks emerged because poverty reduction expenditure is most strongly needed in rural areas, where basic infrastructure is often lacking. In the absence of basic physical and financial infrastructure, exogenous shocks in the form of poor weather conditions hampered construction work, including the construction of schools and rural roads, which, in turn, delayed disbursements.

Social expenditures, funded with debt relief under the HIPC Initiative, were significantly accelerated in 2002, when the government established a special treasury account for HIPC Initiative expenditure and a special HIPC Initiative bank account at the BCEAO. A specific guide on HIPC Initiative spending procedures will be distributed to ministries in 2003, and training for their staff is foreseen. Moreover, the government has launched a comprehensive decentralization and deconcentration program in order to improve the efficiency and targeting of social spending. Instructions guiding budget deconcentration procedures were issued in 2002 and are being implemented. Finally, regular and frequent meetings are held by the financial directorates of concerned ministries regularly to review HIPC Initiative-related expenditure. These measures will help to strengthen the absorptive capacity.

13. The overall fiscal deficit was partly financed by an increase in the stock of spending commitments for which payment orders had not been issued (dépenses engagées et non mandatées—DENMs). Also, there was a sharp increase in deposits of public enterprises at the treasury.9 Important nonproject assistance from the Fund, the World Bank, the European Union, and other donors was disbursed during November and December 2002. Most of these amounts remained as government deposits at the Central Bank of West African States (BCEAO) at end-2002 in addition to unused HIPC Initiative resources.

14. Broad money grew by less than 1 percent in 2002 (Table 9). The mobilization of external assistance led to a fall in net bank credit to the government of about 11 percent of beginning-of-year stock of money which, in turn, facilitated an expansion of 18.1 percent in credit to the economy. Most of the credit was short-term, including about one-fifth as crop credit to SOFITEX. The net foreign assets of the banking system improved by 2 percent of beginning-of-year stock of money, owing mainly to increases in commercial banks’ net foreign assets. Burkina Faso’s contribution to the strengthening in the international reserves position of the BCEAO was very limited.

Table 9.

Burkina Faso: Monetary Survey, 2001–04

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Sources: Burkinabé authorities; and staff estimates and projections.

15. The current account deficit, excluding grants, is estimated to have narrowed to 12.9 percent of GDP in 2002 (10.3 percent, including grants), from 13.6 percent in 2001 (10.5 percent, including grants) (Table 10 and Figure 3). Imports of capital goods rose moderately and cotton exports declined by 7.5 percent in nominal value because the fall in world market prices and disruptions in normal transportation routes more than offset the bumper harvest in 2001/02. Workers’ remittances declined slightly from their 2001 level.

Table 10.

Burkina Faso Balance of Payments, 2000–08

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Sources: Central Bank of West African States (BCEAO), and staff estimates and projections.

The World Bank program loans have been reclassified to budgetary program grants from 2003 onward.

Outstanding government bonds and T-bilis issued on the regional market that are held by resident in countries other than Burkina Faso.

Includes portfolio investment and foreign direct investment.

In 2003–06, does not include the increase in liabilities owing to possible IMF disbursements.

In 2003–06, IMF financing is included in the financing gap.

Contentious debt in negotiation with non-Paris Club creditors.

Includes IMF financing in 2003–06.

In percent of exports of goods and services.

Table 11.

Burkina Faso: External Financing Requirements, 2003–06

(In billions of CFA francs)

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Sources; Burkinabé authorities; and staff estimates and projections.

Outstanding government bonds and T-bilis issued on the regional market that are held by resident in countries other than Burkina Faso.

Includes the share of topping-up assistance of the Fund, which remains undisbursed.

Table 12.

Burkina Faso; Tracking Delivery of HIPC Initiative Assistance—Original and Enhanced Framework

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Sources: Burkinabé authorities; and staff estimates.

Agreement on debt cancellation signed on June 20, 2002.

Cancellation of 85 percent of debt stock agreed on June 20, 2002 (agreement not signed).

Agreement not signed.

Table 13.

Burkina Faso: Expenditure Accountability Assessment and Action Plan (AAP)—Update Table

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Action plans were agreed by the government, the IMF, and World Bank at the time of the 2001 AAP mission. In the meantime, the government has adopted an action plan for the improvement of budget management (PRGB) in July 2002 that encompasses the recommendations of the AAP and other analytical work, including the Country Financial Accountability Assessment (CFAA). The implementation of the PRGB is supported by the World Bank’s Poverty Reduction Support Credit (PRSC). The AAP update table does reflect only certain elements of the government’s public expenditure reform program.

S = short term, i.e. action that is expected to be completed in one year. M = medium term, i.e action that is expected to be completed in 2–3 years.

Degree of implementation, i.e. whether implementation has been initiated (11), is not yet started (NS), or is complete (FI, for fully implemented).

16. There was further progress in the implementation of structural reforms in 2002. In the area of governance, the High Authority to Fight Corruption was created, as well as the Auditor General Office, and in July 2002 the authorities adopted an action plan to ensure transparency and accountability in fiscal management. With respect to public enterprise divestiture, one government-owned hotel was sold, and progress was made in preparing for the sale of ginning plants in two zones in the cotton-producing region. However, there was only limited progress in privatizing large public utilities and in bringing down Burkina Faso’s high factor costs, and more generally, in improving the competitive position of the economy. The privatization of the national telecommunications company (ONATEL) scheduled for 2002, could not be completed because the creation of a regulatory authority and the split-up of the mobile and fixed-line segments of the company were delayed. Reform of the energy sector was also slower than expected, because the authorities did not develop a coherent strategy for the sector, including an appropriate regulatory framework.

III. Policy Discussions

17. Notwithstanding the broadly satisfactory progress made during 1999–2002 under the PRGF-supported program, Burkina Faso’s economic and financial 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 thus Burkina Faso’s ability to achieve the Millennium Development Goals (MDGs) poses a daunting challenge; 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 economic growth and poverty reduction. The discussions for the 2003 Article IV consultation and a new program, which took place against the backdrop of continued concerns about the implications of the conflict in Côte d’Ivoire, and about the volatility of world cotton prices, focused, therefore, on (i) taking stock of achievements and remaining challenges; and (ii) the design of a medium-term program aimed at furthering the PRSP agenda during 2003–06, with a view to tackling the remaining challenges, boosting growth, reducing poverty, and making progress toward the MDGs.

A. Taking Stock: Achievements and Challenges

18. In the discussions, the staff indicated that it shared the authorities’ views that appropriate macroeconomic policies and structural reforms implemented since 1993 had significantly contributed to improving real GDP growth performance and inflation from the second half of the 1990s through 2002. Satisfactory progress has also been made in implementing the policy agenda laid out in the PRSP (see the joint staff assessment of the second annual PRSP progress report—EBD/02/144, 10/02/02) and the last PRGF-supported program (see Section II). Burkina Faso has demonstrated ownership of its policy agenda in the PRSP process. However, prospects for strong sustained real GDP growth and poverty reduction will depend critically on how successfully Burkina Faso rises to the challenges it faces, namely, the lack of economic diversification, a weak competitive position, inadequate government revenue collection performance, limited absorptive and policy implementation capacity, including in the management of social sectors, and the adverse impact of recent political and social tensions in neighboring Côte d’Ivoire.

19. Burkina Faso’s exports remain highly concentrated in cotton and, to a lesser extent, livestock products, making the country extremely vulnerable to commodity price volatility. As the threefold increase in cotton output—which reflected both prudent management and the country’s comparative advantage—constituted a major engine of growth in the past decade (1993–2002), economic diversification has so far been elusive. Obstacles to developing nontraditional exports stem from the structural rigidities in the business environment and the economy’s weak competitiveness, including high factor costs. The staff agreed with the authorities that structural measures implemented in the areas of price and trade liberalization, the cotton sector, and governance (MEFP, para. 8) have helped improve the business environment. However, the preparation of sectoral strategies in energy and telecommunications has been delayed as has the privatization of ONATEL, the national electricity company (SONABEL), and the petroleum product distribution company (SONABHY). In updating the PRSP toward the end of 2003, the authorities have stated their intention to firm up their strategy for economic diversification and for increased competitiveness in a participatory process involving the civil society.

20. With very weak revenue collection performance, Burkina Faso also relies heavily on external donor assistance. At 11.1 percent in 2002, the ratio of tax revenue to GDP remains substantially below the 17 percent level required to meet the convergence criterion in the WAEMU. Because of this structural deficiency—due to institutional and organizational problems and tax evasion—fiscal consolidation efforts in Burkina Faso have so far been based on the containment of domestically financed public spending. In the circumstances, the country depends heavily on external assistance, including under the HIPC Initiative, to maintain basic government services, realize necessary investment, and carry out its poverty reduction agenda. In addition, given the limited administrative capacity in the social sectors, expenditure control resulted in a decline in the share of education and health in the government budget during 1998–2002 (MEFP, para. 4).

21. In spite of sustained real GDP growth during 1996–2002, the reduction of the share of social spending impeded an improvement in social indicators—which remain below the sub-Saharan average. Achieving the MDCs constitutes, therefore, a major challenge for Burkina Faso. The 1998 household survey has established that 45 percent of the population lives below the poverty line;10 the illiteracy rate is estimated at 74 percent; and the gross primary school enrollment rate has remained below 45 percent, with high gender inequality and repetition rates (Table 14). The infant mortality rate and the maternal mortality rate are very high, and overall, social indicators did not improve significantly during the 1990s. Moreover, attaining the objectives of the social development agenda included in the PRSP would not be sufficient to achieve the MDGs.

Table 14.

Burkina Faso: Poverty and Social Indicators, 2002

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Source: World Bank.
Table 15.

Burkina Faso: External Public Debt, 2002–2006

(In millions of U.S. dollars, unless otherwise indicated)

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Sources: Burkinabé authorities; and staff estimates and projections.

In 2003–06, amortizations apply only to debt disbursed until 2001.

22. The recent crisis in Côte d’Ivoire highlights the vulnerability of Burkina Faso’s landlocked economy, which has been heavily dependent on the Ivoirien economy, access to the port of Abidjan, and the railway and road links between Ouagadougou and Abidjan for more than two-thirds of total imports and exports. While the consequences of the trade and transport disruptions on real GDP growth were somewhat mitigated in 2002 by existing stocks of goods, the economy is bearing the full adverse impact of the crisis in 2003. Assuming that all trade and transport disruptions would cease by end-June 2003, real GDP growth is projected to weaken to 2.6 percent of GDP in 2003, compared with the precrisis projection of 5.7 percent presented in the second annual PRSP progress report. Consumer price inflation, which already reached 3.9 percent in 2002 on a 12-month basis, is projected to increase further to 5 percent in 2003. The weakening in Burkina Faso’s prospects for growth and higher prospective inflation will result in a reduction in incomes, including in poor rural areas, further hampering the achievement of poverty reduction objectives.

B. Medium-Term Poverty Reduction Strategy

23. Burkina Faso has been implementing its poverty reduction strategy since June 2000. The PRSP involves a strategy aligned on four axes (i) achieving higher growth and a more diversified economy; (ii) improving access to social services for the poor; (iii) increasing employment opportunities and income-generating activities for the poor; and (iv) promoting good governance. During the discussions, the authorities indicated their intention to reflect the adverse impact of the crisis in Côte d’Ivoire in preparing the third annual progress report on the PRSP in July 2003, with the participation of civil society, and to revise downward the PRSP baseline growth projections for 2003-06. They also plan to review the objectives of the social development agenda during the preparation of the updated PRSP toward end-December 2003, with a view to approaching closer the MDGs. They stressed, however, the need for caution and indicated that the targets should be realistic in view of the constraints on administrative and absorptive capacity. The proposed PRGF-supported program focuses on (i) strengthening the country’s record of macroeconomic stability; and (ii) tackling Burkina Faso’s challenges, in particular, the competitiveness issues, in order to diversify the economy, improve growth prospects, and reduce poverty.

Macroeconomic framework and sources of growth

24. The authorities recognize that achieving the PRSP objectives requires sustaining Burkina Faso’s record of macroeconomic stability during 2003–06. Accordingly, the medium-term macroeconomic objectives, following the crisis in Côte d’Ivoire, are to (i) reduce inflation to less than 3 percent during 2004–06, on an end-of-year basis, from 5 percent expected in 2003; and (ii) narrow the external current account deficit (excluding official transfers) to about 12 percent of GDP by 2006 from about 13 percent of GDP in 2002 and 14 percent in 2003. Following a slowdown in economic growth during 2002–03 triggered by the disruption in production, transport, and trade, the macroeconomic framework projects a progressive recovery of the rate of real GDP growth to 5.2 percent by 2006, compared with the average of 4.7 percent during 1996–2002; such an increase would allow real per capita income to rise gradually by about 3 percent in 2006. This economic recovery is weaker than was envisaged at the time of the conclusion of the last PRGF review in November 2002, but, overall, the poverty reduction strategy remains the same.

25. Growth projections are premised on a modest increase in cotton output during 2004–06,11 and successful implementation of competitiveness and economic diversification strategies, which would lead to increased investment in the secondary and tertiary sectors (see Box 3). Domestic savings are projected to increase from about 5 percent of GDP in 2002 to about 9 percent of GDP in 2006 as a result of continued fiscal consolidation and, to a lesser extent, a positive response of the private sector savings to the new enterprise development framework (Figure 2). With rising investment, both the public and the private sectors would continue to record negative investment-savings balances; these imbalances would be covered by net transfers from abroad. Following a sudden fall in 2002 in the midst of the regional crisis and the shortfall in project grants, gross national savings are projected to rise substantially during 2003–06, reflecting a further increase in official transfers from abroad.

Figure 2.
Figure 2.

Burkina Faso: Investment and Savings, 1997–2006

(In percent of GDP)

Citation: IMF Staff Country Reports 2003, 197; 10.5089/9781451803693.002.A001

1/ Budgetary grants, technical assistance, worker remittances, and other transfers, including from nongovernmental organizations.Sources: Burkinabé authorities; and staff estimates and projections.
Figure 3.
Figure 3.

Burkina Faso: External Sector Developments, 1997–2006

Citation: IMF Staff Country Reports 2003, 197; 10.5089/9781451803693.002.A001

Sources: Burkinabé authorities; and staff estimates and projections.
Figure 4.
Figure 4.

Burkina Faso: Fiscal Sector Developments, 1997–2006

(In percent of GDP)

Citation: IMF Staff Country Reports 2003, 197; 10.5089/9781451803693.002.A001

1/ Commitment basis; including grants.Source: Burkinabé authorities; and staff estimates and projections.

Burkina Faso: Diversification and Sources of Growth

The sources of growth in Burkina Faso are cotton sector development, diversification and higher efficiency in agriculture, and local transformation of traditional export commodities and increased output in secondary and tertiary sectors through an improvement in competitiveness, including by reductions in factor costs.

Burkina Faso is the second-largest cotton producer in sub-Saharan Africa, with its total output increasing to 400,000 metric tons in 2002/03. The cotton sector, which accounted for 56 percent of Burkina Faso’s total export earnings over the last five years and about 10 percent of value added in the agriculture sector, is critical to the country’s economic development. It is estimated that about 2 million people (or 17 percent of the population) depend directly or indirectly on cotton; in 2002 cotton producers’ gross income reached CFAF 76.7 billion, equivalent to 3.7 percent of GDP. The country produces cotton of a very high quality and enjoys a comparative advantage, as it is one of the most competitive cotton producers in the world. Cotton is typically produced on small plots, with average yields of about 1.1 tons per hectare; however, the most efficient producers in Burkina Faso can reach yields of 2.0–2.5 tons per hectare, which indicates a large scope for productivity growth through improved use of tools and machinery, fertilizers, and pesticides.

Growth opportunities must focus on agriculture, as about four-fifths of the population lives in rural areas and is dependent on agriculture. The agricultural sector in Burkina Faso in general is very highly labor intensive and suffers from low efficiency, high illiteracy, and diseases. Improvements in literacy and health will increase productivity and facilitate agricultural diversification into other export crops.

An example of a successful initiative toward diversification in agriculture is the SOPROFA (Société de promotion des filières agricoles). This Bobo-Dioulasso-based firm, in partnership with the government, has adopted the integrated approach (filières intégrées) to develop exports of various nontraditional agricultural products, such as sesame, mangoes, tomatoes, strawberries, soybeans, and various oleaginous products both unprocessed and transformed for better conservation. SOPROFA reported plans to inject up to CFAF 17 billion into the rural economy during the current crop year.

The authorities explained during the discussions that they aimed at establishing a business environment that was private-sector friendly, reducing factor costs and liberalizing and privatizing utilities companies (water, electricity, and telecommunications), and at strengthening the financial sector (see para. 29 and MEFP, para. 23). The integration of Burkina Faso into the west African electricity grid—realized for Bobo-Dioulasso in 2001 and scheduled for Ouagadougou in 2005—will help bring electricity costs to levels in line with costs in neighboring Côte d’Ivoire (currently US$0.2345 per kilowatt for industrial users in Burkina Faso, compared with US$0.0554 in Côte d’Ivoire and US$0.0873 in Europe). The reforms and physical improvements will help to process traditional export commodities, including cotton and livestock products, diversify agriculture, and make the outlook more favorable for the secondary and tertiary sectors.

26. To achieve the program objectives, and in accordance with the PRSP, the economic reform efforts should continue to focus on three key policy components: (i) a prudent fiscal policy aimed at reducing the basic budget deficit from 3.8 percent of GDP in 2002 to 3.1 percent of GDP by 2006, following an increase to 4.5 percent of GDP in 2003 that reflects the use of HIPC Initiative resources carried over from 2002; (tax revenue would increase by about 2.5 percent of GDP over the same four-year period to 13.6 percent of GDP, and the ratio to GDP of public spending would stabilize, while spending priorities for education, health, and the needs of the rural population are reinforced and domestically financed, poverty-reducing public investment would rise); (ii) appropriately prudent monetary conditions to contain inflation and strengthen the international reserves position; and (iii) important structural reforms to promote private sector development and investment, improve competitiveness, foster diversification of the economy, strengthen regional integration, and continue to promote good governance. Because of the nature of the policy issues involved, close collaboration with the World Bank staff will be critical. Most of the structural reform agenda, consistent with the PRSP and the PRSP progress reports, will continue to be supported by the World Bank, the African Development Bank (AfDB), the European Union, and bilateral donors. The authorities have discussed with these donors how they could most effectively support the implementation of the country’s PRSP.

27. The proposed PRGF arrangement will concentrate on macroeconomic issues and particularly emphasize on improving fiscal transparency and good governance, as well as key structural policies relating to trade policy and regional integration. The World Bank will take the lead on other key structural reforms, including (i) déconcentration and decentralization; (ii) reforms in the cotton sector; (iii) reform of the energy and telecommunications sectors; (iv) diversification and competitiveness; and (v) reforms in education and health (Box 4 and Appendix III). Reforms in the area of governance will be implemented under the umbrella of the government’s action plan to strengthen public finance management. This action plan was adopted in mid-2002; it incorporated the recommendations of the Budget Management Improvement Action Plan (Plan d’Action pour le Renforcement de la Gestion Budgétaire—PRGB), the Report on the Observance of Standards and Codes (ROSC), and the Country Financial Accountability Assessment (CFAA) in drawing up measures to strengthen budget formulation, execution, and reporting.

Burkina Faso: Coverage of Structural Conditionality Under the Proposed PRGF Arrangement

The structural measures identified by the staff and the authorities for the first year of the proposed new arrangement are essential for the successful implementation of the macroeconomic strategy (see Table 2 of Appendix I, Attachment I). Key areas include the following:

  • strengthening tax revenue—establishment of a computerized tax management system for big enterprises;

  • budget formulation—timely submission to parliament of the 2004 budget and adoption of WAEMU-conforming budget nomenclature;

  • budget execution—regularization of annual budget execution by closing all remaining private accounts at the treasury; and

  • budget reporting and good governance—swift submission of annual audited budget act for 2001 to parliament and timely submission of annual audited budget act for 2002.

Structural conditionality in earlier programs

The structural reform agenda, prepared in collaboration with the World Bank, focused on strengthening tax administration and public finance management, lowering factor costs, promoting good governance, and accelerating trade liberalization. In addition, the World Bank supported reforms in the area of privatization, energy and telecommunications, the cotton sector, the private sector, and the judicial system. Major achievements included the followings: (i) adoption of an action plan to strengthen public finance management; (ii) initiation of the computerization of tax revenue collection; (iii) adoption of a transparent and fully flexible petroleum price-setting mechanism—an element that has been carried over to the new program; (iv) interconnection of the data banks of the civil service payroll with the government employment database and a new system of merit-based promotion; (v) submission of audited annual budget execution laws (lois de règlement) to parliament; (vi) lower electricity costs through the interconnection of the city of Bobo-Dioulasso with the electricity grid of Côte d’Ivoire; (vii) more competition in the telecommunications sector through adoption of a new regulatory framework and the sale of two cellular licenses to the private sector; (viii) creation of an anticorruption unit; (ix) operationalization of the Auditor General Office; and (x) elimination of most tariff lines subject to administratively set customs values.

Structural areas covered by World Bank lending

Areas of World Bank conditionality (described in more details in Appendix III) in previous and ongoing lending operations include the following: (i) economic management and reform (budget formulation and execution, expenditure management, procurement, civil service reform, and decentralization of government services); (ii) infrastructure support (electricity and telecommunications supply, roads, and water); (iii) agriculture and rural development (cotton sector reform); (iv) private sector development (utility reform to lower factor costs, improve investment climate, and facilitate the creation of enterprises); (v) human resource development (strengthening the provision and efficiency of education and health services).

Competitiveness, exchange rate, trade policy, and balance of payments outlook

28. Competitiveness and external sector policies. While real effective exchange rate developments suggest that Burkina Faso has largely maintained the external competitiveness gains from the 1994 devaluation of the CFA franc, evidence of low factor productivity relative to high labor costs has raised concerns about competitiveness in the secondary and tertiary sectors. As discussed above (para. 19), high factor costs (including water, energy, telecommunications, and transportation), infrastructure bottlenecks, impediments to foreign direct investment, inadequate access to credit and financial services, and limited external market access, constitute significant obstacles to the development of the private sector and the diversification of the economy.

29. The authorities have initiated a series of structural reforms aimed at rendering the business environment more private-sector friendly and reducing utility costs to industry. Against this background, and as part of the World Bank-financed Competitiveness and Enterprise Development Project and Energy Sector Project, they are aiming to enhance the efficiency of the economy through privatization and utility reform, improve the investment climate, and promote private sector development. In particular, the projects seek to roll back government involvement through the liberalization and privatization of the telecommunications sector, the privatization of SONABEL and SONABHY, and other measures to promote private enterprise and to improve the efficiency of electricity services (Appendix III). The government has already established a regulatory authority (ARTEL) for the telecommunications sector (MEFP, para. 24) to ensure competition, quality of service, better coverage, and consumer protection. It is also laying out a regulatory framework for the energy sector. In addition, the authorities indicated their intention to promote financial sector development, including microfinance (see para. 43 below).

30. Regarding trade policy and regional integration in the context of the West African Economic and Monetary Union (WAEMU),12 Burkina Faso has implemented most of the regional norms of the union. Even though compliance with the regional macroeconomic convergence criteria has proved difficult (Table 18), important progress has been made, including the adoption and implementation of the common external tariff (CET) in 2000, the harmonization of the VAT, and the adoption by parliament in January 2003 of a new budget framework law (MEFP, para. 16). To mitigate the losses from the introduction of the CET, Burkina Faso is implementing the decreasing protection tax (Taxe Dégressive de Protection—TDP), which provides temporary and declining protection for selected products, and is expected to be phased out by end-December 2003, as agreed within the WAEMU.13 While the WAEMU is negotiating with the World Trade Organization (WTO) over customs valuation, Burkina Faso continues to apply administratively set customs values for 33 tariff lines.14 It does not maintain nontariff import restrictions, except for a quantity-based restriction on the import of sugar—which has, however, not been enforced since mid-2002. With these limited restrictions, the index of trade policy restrictiveness compiled by Fund staff is estimated at 5 on a scale of 1 to 10.15

31. The exchange system is free of restrictions on the making of payments and transfers on current international transactions. Furthermore, Burkina Faso is expected to benefit from the provisions of the Cotonou Convention.16 As a result, exports to the European Union could enjoy nonreciprocal preferential treatment in the form of exemption from import duties. Goods from Burkina Faso could also enjoy nonreciprocal preferential access to markets of developed countries other than European Union member countries under the generalized system of preferences. However, the scope of this preferential treatment is limited, owing to the small number of products exported by Burkina Faso. At the WAEMU level, Burkina Faso does not face formal legal or regulatory impediments with respect to its exports.

32. Balance of payments outlook. Achieving the program’s objectives for the external current account deficit will hinge on (i) the ongoing structural reforms, including export diversification efforts, aimed at reducing the country’s vulnerability to commodity price volatility, (ii) a return to normalcy of the Ivoirien economy, and (iii) changes in foreign aid flows. Exports of goods are expected to increase by 7 percent on annual average during 2003–06 in nominal terms, owing to both larger volumes of cotton shipments and a projected recovery of world cotton prices, as well as an increase in nontraditional agricultural exports, an acceleration of gold exports stemming from the exploitation of new mines, and a sustained recovery of livestock exports from their fall in 2002–03. Following a surge in 2003 caused by high capital goods imports and increased volumes of petroleum product import, which were needed for infrastructure construction, the modest increase in imports during 2004–06 (of about 3 percent on annual average) would be consistent with a containment of aggregate demand. Private transfers would increase steadily, assuming a return to normalcy in Côte d’Ivoire, and net private capital inflows, which almost doubled in 2002 following the sale of a wireless phone licenses are projected to remain stable at about 1.2 percent of GDP, as ONATEL, SONABEL, and SONABHY are expected to be privatized.

33. Program financing. The financing requirements for 2003–06, after private capital inflows, are expected to be covered by concessional assistance from multilateral and bilateral creditors and donors, including the World Bank, the AfDB, and the European Union, as well as by Fund assistance under the requested PRGF arrangement and debt relief. There still remains a residual financing gap of CFAF 51.6 billion (US$86 million) for 2004–06 (Table 10). For 2003, the financing requirements, after private capital inflows and the government’s project financing, are estimated at about CFAF 337.2 billion (US$559 million), and the residual financing gap, which is estimated at CFAF 5.8 billion, after HIPC Initiative assistance and concessional budgetary assistance (MEFP, para. 31), could be covered by PRGF disbursements. The authorities are committed to signing all bilateral agreements under the June 2002 Paris Club stock-of-debt operations on Cologne terms by the new deadline of end-September 2003 (MEFP, para. 32). They are also seeking additional budgetary assistance to cover the residual gap for 2004–06 from their main multilateral and bilateral donors, including under the framework of a memorandum of understanding signed by six donors in 2002 to coordinate the phasing and conditionality of their budgetary support to the PRSP process (Box 5). The authorities also intend to organize a United Nations Development Program (UNDP)-sponsored donor roundtable meeting to help mobilize the necessary project and nonproject support. The completion of the first review of the program will be contingent on adequate financing for 2004.

Burkina Faso: Donor Coordination: A Memorandum of Understanding for Joint Budgetary Support Through the PRSP Process

In 2002, six of Burkina Faso’s major donors (the European Union, Belgium, Denmark, The Netherlands, Sweden, and Switzerland) signed a memorandum of understanding, in agreement with the authorities, to set out the objectives and procedures of donors’ budgetary assistance to Burkina Faso. The memorandum reaffirmed that the PRSP provided the basis and was the framework for coordinated joint budgetary assistance from the donor community. It also stressed the need to (i) ensure greater country ownership in the formulation and implementation of the authorities’ poverty reduction strategy; (ii) improve the monitoring of performance indicators in priority sectors; and (iii) disburse donor assistance increasingly in the form of nontied budgetary support, and enhance the regularity and predictability of this budgetary support.

Under the framework of the memorandum of understanding, donors will jointly support Burkina Faso’s poverty reduction strategy by harmonizing their disbursements with the budget execution cycle. They intend to program their budgetary assistance over a three-year rolling period in the context of the medium-term expenditure framework (MTEF).

Regarding the principles of disbursement, donors agreed to make their annual assistance available in two tranches:

  • the first tranche would be disbursed upon the successful completion of the Fund’s PRGF review;; and

  • the second (variable) tranche would be disbursed, following the preparation of the PRSP progress report and upon the completion of the donors’ joint annual PRSP review.

No additional conditionality is required for the disbursement of the tranches, which would be delivered in fixed amounts. However the second tranche of the European Union’s budgetary assistance is variable; it is disbursed in an amount that could vary, depending on the authorities’ performance in relation to specified PRSP indicators.

These outcome indicators are in the education and health sectors and under the government’s medium-term action plan to strengthen public finance management. As indicated in paragraph 27, this action plan, which was adopted in July 2002, incorporates recommendations of the fiscal transparency module of the ROSC for Burkina Faso and the World Bank’s Country Financial Accountability Assessment.

The memorandum of understanding promotes a steady dialogue between the government and donors on the implementation of the PRSP. Donors participate in all monitoring meetings of the PRSP on a quarterly basis, and they receive all data and information on PRSP and program implementation, similar to those required by the Fund under the PRGF arrangement.

34. Debt sustainability. Debt relief under the enhanced HIPC Initiative from all of Burkina Faso’s creditors amounts to US$514 million in net present value (NPV) terms at end-2001, including US$176 million under the original HIPC Initiative framework17 and US$129 million of topping up, or exceptional debt relief. With this additional treatment, the total nominal debt-service relief provided under the HIPC Initiative is about US$930 million. The Fund’s share of the topping-up assistance remains undisbursed, as satisfactory financing assurances are not yet in place. So far, financing assurances have been provided by the IMF, the World Bank, the AfDB, the European Investment Bank, the West African Development Bank, and Paris Club creditors, accounting for 76.1 percent of the total assistance anticipated. The authorities are actively seeking the participation of their other multilateral creditors and non Paris Club creditors to debt relief for Burkina Faso under the HIPC Initiative, including the topping up (MEFP, para. 32). The Minister of Finance and Budget is planning to visit the Islamic Development Bank and the OPEC Fund (accounting jointly for 5.7 percent of total assistance) in June 2003, as well as non Paris Club creditors, to secure creditors’ responses to the authorities requests.

35. This exceptional treatment, together with additional bilateral assistance beyond HIPC Initiative relief (US$22 million in NPV terms), reduced Burkina Faso’s NPV of debt-to-export ratio to the HIPC Initiative target of 150 percent at the completion point reference date of end-2001. However, in line with the HIPC Initiative completion document, (EBS/02/55, 03/28/02), and including new external debt, the NPV of debt-to-export ratio is projected to rise to 180 percent by 2006 and peak at 190 percent in 2011, before declining progressively to 180 percent by 2015 (Table 16). To ensure debt sustainability in the long term, the authorities should continue to rely on highly concessional external assistance, with a grant element of at least 35 percent (MEFP, para. 32).

Table 16.

Burkina Faso: New External Borrowing and Debt Indicators, 2002–15

(In millions of U.K. dollars, unless otherwise indicated)

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Sources: Burkinabé authorities; and staff estimates and projections.

Government revenue, excluding grants.

Table 17.

Burkina Faso External Debt Service by Creditor, 2002–06

(In thousand of U S dollars, unless otherwise indicated)

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Sources: Burkina be authorities; and staff estimates and projections.

AfDF= African Development Fund; AfDB = African Development Bank; ASECHA = Agence pour la Sécurité et al Navegation Aériene; BADEA = Arab Bank for Economic Developments Africa; BOAD = West African Development Bank; ECOWAS =Economic Community of West African States; AFDB European Investment Bank, EU = European Union; ŒAD = International Fund for Agricultural Development; IsDB = Islamic Development Bank and OPEC =Organization of Petroleum Exporting Countries.

Société International de Recherche et Explotation Miniére.

Table 18.

Burkina Faso: Compliance with WAEMU Convergence Criteria, 2000–06

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Sources: Burkinabé authorities; West African Economic and Monetary Union; Central Bank of West African States; and staff estimates and projections.

Total revenue, excluding grants, minus total expenditure, excluding foreign-financed investment outlays.

C. Economic and Financial Program for 2003–04

36. The first annul program to be supported under the three-year PRGF arrangement covers the period April 2003–March 2004 and thus straddles two fiscal years (2003 and 2004). Achieving the macroeconomic objectives for this period (see para. 24) will require the implementation of appropriate fiscal policies and key structural reforms, including in tax administration, and fiscal transparency and good governance. The key elements of the program are discussed in the following sections; a more detailed description is provided in the authorities’ memorandum of economic and financial policies for 2003–06.

Fiscal policy

37. The fiscal program for 2003–04 aims at containing the basic budget deficit (including HIPC Initiative-related social spending) at 4.5 percent of GDP in 2003 and at reducing it to 3.5 percent of GDP in 2004, compared with a level of 3.8 percent of GDP in 2002.18 The overall fiscal deficit (excluding grants) would be limited to 11.0 percent of GDP in 2003 and reduced to 10 percent of GDP in 2004, compared with 10.4 percent of GDP in 2002.19 The widening in the basic budget deficit and in the overall fiscal deficit in 2003 reflects an increase of HIPC Initiative-related outlays of 1 percentage point to 2.3 percent of GDP in 2003,20 including provisions for humanitarian assistance necessitated by the displacement of populations resulting from the crisis in Côte d’Ivoire, and an on-lending operation, equivalent to 0.6 percent of GDP made by the government in April 2003 to help develop a business district.21 For 2004, it is projected that the backlog of HIPC Initiative-related resources will be exhausted, that the adverse impact of the crisis in Côte d’Ivoire will subside, and that new revenue-increasing measures will bear fruit. The draft revised budget for 2003, which was submitted by the authorities to the National Assembly in mid-April 2003, is in line with these objectives.22 The authorities are also committed to submitting to the National Assembly in September 2003 a draft budget for 2004 (a structural indicative target) that will be consistent with these objectives (MEFP, para. 15).

38. Government revenue is projected to increase to 11.4 percent of GDP in 2003 and to 12.3 percent of GDP in 2004 from 11.1 percent of GDP in 2002, through the implementation of tax administration measures that the government has yet to finalize. As the economy has to bear the brunt of the adverse impact of the crisis in the region in 2003 and because most of the measures foreseen are scheduled late in the year—such as the computerization of the tax management system in the two large and medium-sized taxpayers’ units, which is envisaged as a structural performance criterion for end-October 2003 (MEFP, para. 17)—the authorities were not confident that revenue collection will improve significantly in 2003. However, they are committed to preparing an action plan to strengthen tax and customs revenue collection by the time of the first review under the PRGF arrangement. The staff believes that this action plan, which will be based on the recommendations made by a recent Fund technical assistance mission,23 should cover, inter alia, (i) the strengthening of the control of large taxpayers through establishing a single large taxpayers’ unit in the tax administration’s main office in Ouagadougou; (ii) effective implementation of the new computer system for tax management; (iii) the introduction of a taxpayer registration system; and (iv) the modernization of customs administration through strengthening control valuation and implementing the customs computerization system (SYDONIA) in major field offices. The authorities should also implement measures to crack down on tax and customs exemptions and reinforce internal tax control mechanisms.

39. On the expenditure side, total budgetary outlays and net lending, excluding foreign-financed investment and lending, will increase from 15.7 percent of GDP in 2002 to 17.1 percent of GDP in 2003 and fall to 16.7 percent in 2004—reflecting mainly further efforts to catch up with expenditure financed by resources freed by the HIPC Initiative (see para. 37 above).24 The wage bill will be contained at 4.7 percent of GDP during 2003–04, the same ratio as in 2002—by making the merit-based promotion system operational, and enhancing the single computerized system for civil service and payroll management (MEFP, para. 18). The ratio to GDP of current transfers is projected to stabilize at its 2002 level, in spite of a new subsidy of CFAF 2 billion granted in 2003—to help offset the impact of higher transportation costs on the prices of inputs to cotton farmers—and continued support of the price of petroleum products to SON ABEL. Other current expenditure would also stabilize in 2003-04 in terms of GDP, owing to measures to reduce the government’s outlays for the consumption of telephones, electricity, and water (MEFP, para. 19), and public investment is set to increase; meanwhile greater provisions have been made for humanitarian expenditure and spending for the social sectors in general (MEFP, para. 20).

40. The program calls also for reducing the stock of expenditures committed but for which payment orders have not been issued (DENMs) by CFAF 15 billion in 2003, and stabilizing them in 2004, with the view to maintaining them below 10 percent of total expenditure, excluding foreign-financed investment, the wage bill, and interest obligations. In addition, deposits at the treasury, which amounted to CFAF 94.6 billion at end-2002, should decline by CFAF 22 billion in 2003, and by CFAF 13 billion in 2004. The closure of all nonfinancial private accounts at the treasury constitutes a performance criterion of the program at end-September 2003.25

41. To improve fiscal transparency and good governance, the government will implement its medium-term action plan to strengthen public finance management (MEFP, para. 16). In this context, it has made the Auditor General Office fully operational since end-2002, and the annual audited budget acts (lois de règlement) for 1995–2000 were submitted to parliament in mid-April 2003. The submission of the annual audited budget act for 2001 to parliament by end-September 2003 (an indicative target), and that for 2002 by end-March 2004 (a structural performance criterion), as well as setting out a timetable for the preparation of the general balance sheets of treasury operations for 2001 and 2002 by the time of the first review of the program constitute critical steps of the government progress in improving fiscal transparency and accountability. To better track social expenditure and outlays financed by HIPC Initiative-related resources, the government is also committed to adopting the WAEMU budgetary nomenclature, with specific codes for such spending by end-September 2003 (an indicative target). More generally, it will bring the budgetary system into complete harmony with the WAEMU framework in 2003.

Monetary policy

42. The regional central bank (BCEAO) will continue to pursue a prudent monetary policy in 2003–04 aimed at containing inflationary pressures and at reinforcing the external position of the banking system, with a view to supporting the fixed parity of the CFA franc vis-à-vis the euro. The net foreign assets of the banking system are projected to decline moderately by 0.5 percent of beginning-of-period broad money in 2003 and to rise by 1.7 percent in 2004. Broad money would increase by 9.2 percent in 2003 and by 7.1 percent in 2004, about the same rates as for nominal GDP. The strengthening of public finances is expected to allow net bank credit to the government to contract by 0.3 percent of beginning-of-period broad money in 2003 and by 0.4 percent in 2004, which, in turn, will allow credit to the private sector to rise by 14.5 percent in 2003 and by 8.1 percent in 2004. In accordance with the decision taken by the WAEMU Council of Ministers in September 2002 to eliminate member governments’ statutory advances from the BCEAO, the treasury will issue government bills on the regional money market to finance its operations, foster the development of the regional market for government securities, and promote financial sector development (MEFP, para. 21).

43. The overall health of the banking system is satisfactory with regard to compliance with prudential ratios. The only ratio that none of the banks respect is the portfolio structure ratio which mainly reflects a lack of diversification of the economy. Nonperforming loans have declined to a very low level because of the greater provisions made by banks. The staff welcomed this development and encouraged the authorities to strengthen the role of the regional banking commission in bank supervision. It also urged them to strengthen financial sector development, promote microfinance (Box 6), and move ahead with the reform of the legal and judiciary system to further improve the recovery of loans. The authorities intend to prepare a sector strategy in this area by end-March 2004, in the process of updating the PRSP (MEFP, para. 22). The staff encouraged them to adopt legislation to combat money laundering and the financing of terrorism at an early stage, as intended in the context of the WAEMU.

Burkina Faso: Microfinance

The microfinance sector is pivotal in providing credit and financial services to all those who have limited access to banks’ services, especially the rural population and women. At least 1.3 million people (about 10 percent of total population) directly benefited from the services of microfinance institutions at end-2001. End-December 2000 data show that, from 1998 to 2000, the number of structures increased from 16 to 36 and of counters from 267 to 343. During the same period, both deposits and the stock of credit increased by about 34 percent.

Following an expansion period that started in the early 1990s, the sector is moving toward a consolidation and professionalization phase whose objectives are to (i) reorganize by restructuring nonviable entities; (ii) improve surveillance by, among other measures, placing larger microfinance institutions under the scrutiny of the BCEAO and audit cabinets; and (iii) reinforce capacities through a better training of the personnel and the use of modern equipment. This evolution will be conducted within the framework of the Action Plan for the Financing of the Rural Sector (Plan d’Action pour le Financement du Monde Rural or PAFMR). During the discussions, the staff encouraged the authorities to pursue this new wave of reforms in the sector in order to provide a better regulatory framework of microfinance institutions in the context of the poverty reduction strategy. A conference on the sector is expected to take place in July 2003.

In spite of its rapid growth in recent years, the microfinance sector remains marginal in the overall financial system. At end-2000, it still represented only 6 percent of total deposits of the banking system and 6.4 percent of its credits. Its main strength remains its accessibility, as it has about 70 percent of all bank counters. The increase in the penetration rate from 20.6 percent in 1998 to 25.6 percent in 2000 reflects the success of the microfinance institutions in meeting the needs of the population.

Structural issues

44. In addition to the structural measures described above, key elements of the medium-term structural reform agenda are governance, price and trade liberalization, the acceleration of the privatization program, and continued reform of the cotton sector.

45. Regarding governance, besides strengthening transparency in public finance management as described in paragraph 41, the authorities are determined to crack down on all cases of fraud and corruption. They are committed to making the High Authority to Fight Corruption operational by end-June 2003 (MEFP, para. 25); the Authority will work closely with the government’s control and inspection agencies, and the reform of the judiciary will continue, with donor assistance. In the area of price and trade liberalization, the automatic adjustment mechanisms for petroleum product retail prices (a continuous indicative target) and for water rates implemented by the government (MEFP, para. 24) are flexible and fully transparent. In addition, the government will review the cost structure of the electricity utility (SONABEL), with a view to preparing cost-cutting measures. It will conduct a review of the telecommunications sector, with the aim of eliminating the monopoly of the telephone company. The government is committed to launching the bids for the privatization of the telecommunications company (ONATEL) by end-September 2003 and to conducting those of SONABEL and the petroleum product distribution company (SONABHY) by the end of 2004 (MEFP, para. 24).

46. The cotton sector has been liberalized gradually in recent years, with the emphasis on strengthening the role of producers’ associations. To ensure the long-term viability of the sector, the government’s strategy involves opening the sector to private sector participation, with a view to improving further efficiency and competitiveness. The monopoly of the cotton development company (SOFITEX) on the collection and marketing of seed cotton was eliminated in December 2001, and two zones will be opened for private operators in May 2003 (MEFP, para. 24). For the crop year 2003/04, the government raised the effective producer price for cotton by 5.7 percent to CFAF 185 per kilogram, by reintroducing a bonus of CFAF 10 per kilogram, in view of the recent increase in world prices.

Statistical issues

47. Burkina Faso’s economic and financial statistical database is adequate, but further work is needed to improve the quality and coverage of statistical information, in particular for the national accounts statistics and fiscal data. The authorities are addressing these issues. They are also planning to finalize a household survey by end-December 2003 (MEFP, para. 29). Moreover, the country has achieved full participation in the General Data Dissemination System (GDDS). A ROSC mission on the data module visited Ouagadougou in May 2003 and made recommendations in this area. Statistical issues are summarized in Appendix IV.

Risks for the program, proposed access, and capacity to repay the Fund

48. There are two major potential exogenous risks to the economic outlook and a successful implementation of the program, namely (i) the impact of regional social and political tensions on the economy of Burkina Faso, especially the crisis in Côte d’Ivoire, and (ii) the volatility of world commodity prices, mainly for cotton and oil. Delays (beyond end-June 2003) in the full resolution of the regional crisis may depress economic activity further in Burkina Faso, put upward pressures on inflation, impose additional strains on the budget and the balance of payments, and make it more difficult to achieve the government’s macroeconomic objectives. A possible deterioration in the terms of trade owing to a further decline in world cotton prices may oblige the government to provide more subsidies to the cotton sector in order to avoid lowering producer prices below production costs. Continued subsidies to cotton farmers in industrialized countries could jeopardize crop development in Burkina Faso. In addition, increases in world oil prices could encounter resistance to retail price adjustments and compromise the collection of taxes owed on petroleum product imports. Other major risks include natural risks, such as possible drought and pest infestation, as well as the HIV/AIDS pandemic.

49. The proposed access under the PRGF arrangement (see para 2 above) is set in view of the strength of the authorities’ program, and taking into account Burkina Faso’s present indebtedness to the Fund, its projected external financing needs over the next three years, the adverse impact of the Côte d’Ivoire’s crisis, and the risks for a possible decline in world cotton prices. Under the proposed access, Fund disbursements would be smaller than scheduled repayments obligations to the Fund, and Burkina Faso’s net outstanding use of Fund resources is projected to decline substantially during 2003–06, consistent with the prospects for this program to be an exit program. Burkina Faso has always met its debt-service obligations to the Fund on schedule, and, given the prospective improvements in its fiscal and balance of payments positions and the strength of the BCEAO’s international reserves position, the country can be expected to meet its future obligations promptly.26

Program monitoring

50. The first year of the proposed PRGF-supported program will be monitored through quantitative performance criteria for end-September 2003 and end-March 2004, and quantitative quarterly indicative targets (MEFP, Table 1), as well as structural performance criteria and indicative targets (MEFP, Table 2). The authorities have provided further evidence of their continued commitment to the program by implementing the following two prior actions in mid-April 2003: (i) submission to the National Assembly of a draft revised budget for 2003; and (ii) submission to the National Assembly of draft annual audited budget acts (lois de règlement) for the period 1995–2000.

51. Six semiannual reviews of the proposed PRGF-supported program will be conducted, with the first two reviews (related to quantitative performance criteria for end-September 2003 and for end-March 2004) to be completed by end-December 2003 and by end-June 2004, respectively. Disbursement of the second to seventh loans under the PRGF arrangement will be subject to the observance of performance criteria and the completion of a semiannual review.

IV. Staff Appraisal

52. Burkina Faso’s performance under three medium-term 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. However, notwithstanding the good progress made during the last decade, Burkina Faso’s economic, financial, and social situation remains fragile, and the country, landlocked and one of the poorest in the world, continues to depend heavily on external assistance and the monoculture of cotton. The economy thus remains very vulnerable to terms of trade fluctuations and the volatility of aid flows. This vulnerability has been exacerbated by the crisis in neighboring Côte d’Ivoire.

53. Burkina Faso needs now to consolidate the gains achieved in implementing its poverty reduction strategy and in strengthening fiscal consolidation, and to move toward economic diversification and increased competitiveness, with a view to fostering higher growth, and making progress toward achieving the MDGs. The fiscal consolidation efforts so far have derived from the containment of domestically financed public spending; revenue collection performance has been very weak, with Burkina Faso falling considerably short of the level required to meet the convergence criterion set by the WAEMU in this area. The authorities need to substantially improve tax and customs revenue collection, and in this context, the staff would urge them to follow up on the recent Fund technical assistance mission on tax and customs administration, with a view to preparing an action plan to reduce exemptions and strengthen the administration, control, and collection of taxes in the coming months. It is also essential to make operational the computerization of the two large and medium-sized taxpayers’ units by end-October 2003, as intended.

54. Although the authorities have taken a prudent stance in projecting government revenue collection in 2003, they have committed themselves to fully absorbing all HIPC Initiative-related resources made available so far, including the unused carryover from 2000–02, in order to finance priority education, health, and other poverty-reducing spending. This process presents a risk for macroeconomic stability, as it is likely to increase the ratio of the basic budget deficit to GDP in 2003; however, it will also help improve national ownership, align fiscal policy with the policy agenda of the PRSP, and ensure greater country commitment to successful program implementation. The authorities should strictly adhere to the fiscal policy stance agreed for 2003 and 2004, closely monitor ongoing projects, including the business district development project in Ouagadougou (the ZACA project), strengthen the effectiveness of public spending, including HIPC Initiative-related social spending, and adhere to the newly established medium-term expenditure framework (MTEF) developed with the Fund and the World Bank. In this regard, it is essential to contain domestically financed expenditure, including the wage bill and public investment, while providing adequately for education and health, and to remain current on all external debt-service obligations.

55. In making operational the Auditor General Office and the High Authority to Fight Corruption, the government has demonstrated its continued resolve to strengthen transparency in public finance management, promote good governance in public policy, combat corruption, and implement steadfastly the program and the PRSP policy agenda. The staff believes that the government is committed to opening economic and social policy to public debate, and is also determined to implement the agreed measures in a timely manner.

56. On the basis of real effective exchange rate developments, Burkina Faso, along with other WAEMU countries, has maintained the external competitiveness gains from the 1994 devaluation of the CFA franc. However, high factor costs constitute an obstacle to economic diversification. In addition, there are risks that a drought or a terms of trade shock, combined with the limited administrative capacity in Burkina Faso, could hamper program implementation. The authorities will need technical and financial assistance to help prepare and implement the reforms needed to achieve economic diversification, improve competitiveness, and make further progress toward reaching the MDGs. Continued determination on the part of the authorities to develop and carry out the strategies is also needed. In this regard, the staff welcomes the competitiveness and private sector development strategy approved by the government in 2002, aimed, inter alia, at promoting new export crops, reducing factor costs, and privatizing public enterprises. It is crucial that these efforts are pursued, and other sectoral strategies developed and implemented during 2003-06 in accordance with the PRSP (including for education, health, energy, and infrastructure).

57. In the banking sector, the central bank should continue to monitor closely lending activities and bank portfolio performance, and financial sector development should be promoted, including microfinance, with a view to increasing access to bank credit and financial services for small and medium-sized enterprises and the rural sector. There also is an urgent need to improve the quality and timeliness of external debt data. In that context, the staff urges the authorities to prepare plans to follow up on the recommendations of the recent ROSC data module.

58. As is intended, the third annual PRSP progress report should be prepared soon to take account of the adverse impact of the crisis in Côte d’Ivoire on the macroeconomic framework, and the full poverty reduction strategy for 2003–06 should be updated by end-2003, following a participatory process involving the civil society. In this regard, and because the social database is weak, the staff would stress the importance of finalizing the necessary household survey and poverty assessments at an early date, and of developing an adequate series of social and poverty indicators in a timely manner, taking into account the timetable and participatory process for the revision of the PRSP.

59. In view of the strength of the authorities’ program and its alignment to the country’s PRSP policy agenda, and taking account of the exceptionally severe real shock imposed on the economy and finances of Burkina Faso by the regional crisis, the staff believes that the government’s reform program merits the support of the international community and recommends Board approval of the authorities’ request for a new three-year arrangement under the PRGF.

60. It is proposed that the next Article IV consultation with Burkina Faso be held in accordance with the provisions of the decision on consultation cycles approved on July 15, 2002.

APPENDIX I Letter of Intent

Translated from French

Ouagadougou, May 28, 2003

Mr. Horst Köhler

Managing Director

International Monetary Fund

700 19th Street, N.W.

Washington, D.C. 20431

U.S.A.

Dear Mr. Köhler:

1. During the past three years, the Burkina Faso authorities implemented macroeconomic policies and structural reforms in the context of the poverty reduction strategy paper (PRSP) adopted by the country in early 2000. This PRSP and its first two progress reports served as a reference for financial support by donors and lenders, including the International Monetary Fund and the World Bank. To consolidate the progress achieved and intensify reform efforts, the government adopted an economic and financial reform program for 2003–06, the objectives of which are set forth in the PRSP adopted in 2000 and amended by the second progress report, which was discussed by the Executive Boards of the Fund and the World Bank in November 2002.

2. The attached memorandum of economic and financial policies (Annex I) sets out the government’s economic objectives and policies for 2003–06, as well as the specific objectives and measures envisaged for the first year of the program, from April 2003 to March 2004. In support of these objectives and policies, the government requests a three-year arrangement under the Poverty Reduction and Growth Facility (PRGF) in an amount equivalent to SDR 24.08 million (40 percent of quota). The government is also counting on continued assistance from the Fund, the World Bank, and the international financial community in the context of the enhanced Initiative for Heavily Indebted Poor Countries (HIPC Initiative).

3. The government believes that the policies set forth in the attached memorandum will enable it to meet the objectives of its program, but it is ready to take all other measures that may prove necessary to this end. During the period of the proposed three-year arrangement, the authorities will consult with the Managing Director of the Fund on the adoption of any measures that may be appropriate, either at their own initiative or at the request of the Managing Director. Moreover, following the period of implementation of the arrangement, and as long as Burkina Faso has outstanding financial obligations to the Fund resulting from loans disbursed under the arrangement, the government will consult with the IMF, from time to time, on Burkina Faso’s economic and financial policies, at its own initiative or at the request of the Managing Director.

4. The government will provide to the Fund any information that the Fund may request for the purpose of monitoring progress made in implementing the economic and financial policies and the measures needed to achieve the program objectives. A technical memorandum of understanding describing the quantitative performance criteria and benchmarks of the program is attached (Annex II). In addition, Burkina Faso will conduct two semiannual reviews of the program with the Fund during the first year, to be completed by end-December 2003 and by end-June 2004, respectively.

/s/

Jean-Baptiste Compaoré

Minister of Finance and Budget

Attachments: Memorandum of economic and financial policies for 2003–06 and technical memorandum of understanding

ATTACHMENT I Burkina Faso: Memorandum of Economic and Financial Policies for 2003–06

May 28, 2003

I. Introduction

1. During the past three years, the government of Burkina Faso implemented macroeconomic policies and structural reforms in the context of the poverty reduction strategy paper (PRSP) adopted by the country in 2000. Overall, these measures and reforms helped to achieve the macroeconomic objectives, particularly as regard consolidation, fiscal, control of inflation, and liberalization of the economy. During this period, the government’s efforts were supported by technical and financial assistance from the International Monetary Fund, the World Bank, and several other multilateral and bilateral donors and lenders.

2. However, the economic and financial situation of the country remains fragile despite the progress achieved. Burkina Faso’s economy and external position are dependent upon a very narrow economic base dominated by cotton exports, remittances from nationals of Burkina Faso living abroad, and foreign assistance. Per capita income is very low, and the high factor costs continue to constrain economic growth and the development of the private sector. Access to basic social services is limited, and the poverty rate is very high. Moreover, the crisis that erupted in Côte d’Ivoire in September 2002 has seriously disrupted transportation, trade, and production in Burkina Faso. In this context, the government is aware of the need to consolidate the advances made during 1999–2002, to intensify fiscal adjustment, and to accelerate structural reforms, with a view to diversifying the economy in the years ahead, to achieving sustainable growth, and to reducing poverty significantly, while maintaining domestic and external financial balances.

3. Accordingly, the government has adopted a program of economic reforms for 2003–06, based on the objectives set forth in the PRSP adopted in 2000 and updated in the second progress report discussed with the boards of the International Monetary Fund and the World Bank in November 2002. This memorandum of economic and financial policies analyzes the recent performance of the economy of Burkina Faso, and sets out the government’s economic and financial objectives and policies for 2003–06, as well as the specific objectives and measures for the April 2003–March 2004 period.

II. Performance Under the 1999–2002 Program and Recent Economic Developments

4. Since 1993, Burkina Faso has satisfactorily implemented three three-year programs supported by Fund resources. In the context of these programs, and following the devaluation of the CFA franc in 1994, the real GDP growth rate increased overall despite several years of drought, the external current account deficit decreased, and the rate of inflation remained low. More recently, the government of Burkina Faso successfully implemented a medium-term program in 1999–2002 within the framework of its PRSP. This program enabled Burkina Faso to continue to reduce the inflation rate (as measured by the consumer price index) from over 5 percent in 1998 to 2.3 percent in 2002, on an annual average basis, and to reduce the external current account deficit (excluding official transfers) from 13.7 percent of GDP in 1998 to 12.9 percent of GDP in 2002. Real GDP growth averaged 4.2 percent for the 1999–2002 period (the same average rate as for the 1993–98 period).

5. With regard to public finances, the overall fiscal deficit (excluding grants) stood at 10.4 percent of GDP in 2002, compared with 9.0 percent of GDP in 1998, reflecting a downward trend in tax revenue collection. Total expenditure stabilized at about 22 percent of GDP during 1998–2002. Government expenditure, excluding foreign-financed investment, totaled 15.7 percent of GDP in 2002, compared with 13.6 percent of GDP in 1998. On the same basis, spending for education declined from 15.2 percent of total expenditure in 1998 (or 2 percent of GDP) to 12.4 percent in 2002 (or 1.9 percent of GDP), including Initiative for Heavily Indebted Poor Countries (HIPC Initiative) expenditure. Over the same period, spending for health also declined from 14.6 percent of expenditures (or 1.9 percent of GDP) to 11.2 percent (or 1.8 percent of GDP). Regarding government revenue, steps taken during the program period to improve tax administration have resulted in higher receipts from taxes on international trade in general. However, fuel oil subsidies granted to Burkina Faso’s national electricity company, SONABEL, have continued to limit returns from customs duties and specific excises on petroleum products. Moreover, the collection of direct taxes and indirect domestic taxes has suffered from the weak control of the tax base and the informal sector.

6. In spite of the overall fiscal deficit and owing to the mobilization of budgetary assistance from the main donors and lenders, as well as external public debt relief granted within the framework of the HIPC Initiative, the government eliminated all of its domestic arrears in 2002, and continued to remain current on the service of external debt to its multilateral and bilateral creditors. Nevertheless, efforts to improve the country’s fiscal position were thwarted in the second half of 2002, in part owing to the negative impact of the crisis in Côte d’Ivoire. Tax collection weakened further, particularly with respect to the value-added tax (VAT) and income and profit taxes, resulting in a shortfall of CFAF 13 billion in revenue. Expenditure on humanitarian assistance and security that had not been included in the budget had to be made, while water, electricity, and telephone expenditure increased more rapidly than expected, resulting in excess current spending of CFAF 13 billion. In these circumstances, the government expanded its domestic debt by increasing the level of stock of expenditure committed and for which payment orders had not been issued, as well as of deposits with the treasury. However, investment spending financed by domestic resources remained considerably below forecast levels, reflecting the very low rate of absorption of HIPC Initiative resources.

7. On the financial side, the money supply increased by an annual average of 3.4 percent during the 1999–2002 period, or less than the nominal GDP growth rate, while the improvement in public finances limited the expansion of the banking system’s net credit to the government. In these circumstances, the net foreign assets of the banking system continued to improve, and credit to the economy increased in real terms during the program period.

8. On the structural side, the government eliminated price controls and liberalized internal trade, including the marketing of agricultural commodities. The government also eliminated quantitative import restrictions, except for a minimum quantity of 1,000 tons per operator for sugar imports. In addition, it applied the common external tariff of the West African Economic and Monetary Union (WAEMU), although Burkina Faso continues to maintain a small number of reference valuations for customs while awaiting a decision from the World Trade Organization (WTO). The government also liberalized the pricing system, except for the prices of goods and services produced by public utilities, such as water and electricity. In 2001, the government introduced an automatic mechanism for adjusting prices of petroleum products as a function of world prices and local distribution costs. Since 2001, water rates have been adjusted annually. In the public sector, the government privatized or liquidated several state-owned enterprises in 1999–2002. However, there were delays in the implementation of the overall reform of public administration. With respect to governance, in 2001 the government published a decree establishing High Authority to fight Corruption and made the Auditor General Office operational in 2002. It also adopted an action plan for improving budget management (PRGB) in July 2002 that aims to ensure transparency and accountability in the fiscal sector.

III. Medium-Term Strategy and Objectives for 2003–06

9. The government is committed to consolidating the gains made in 1999–2002 and to strengthening macroeconomic policies and structural reforms in order to solve the economic and social problems of Burkina Faso, improve the medium-term economic growth prospects, reduce poverty, and raise the population’s standard of living while continuing to reduce internal and external financial imbalances. The government has decided to take new steps within the framework of a medium-term program covering the 2003–06 period. The government’s policy will center around four main themes: (a) pursuing of a prudent fiscal policy that aims to expand the tax base and grant priority to social sectors and infrastructure maintenance in the allocation of government spending; (b) contributing to the implementation of the regional monetary policy to contain inflation and to strengthen the international reserves position of the banking system while supporting the promotion of microfinance; (c) accelerating the implementation of structural reforms that aim to promote the development of the private sector and strengthen the foundations of sustainable economic growth; and (d) implementing an ambitious social program, particularly with regard to poverty reduction, focused on the education and health sectors. Special emphasis will be placed on strengthening good governance.

10. The 2003–06 adjustment strategy aims to (a) contain inflation at less than 3 percent by 2006; and (b) limit the current external deficit (excluding official transfers) to 11.7 percent of GDP in 2006, or 8.7 percent of GDP, including official transfers. The government will also work to (a) intensify its poverty reduction efforts; (b) support job creation by promoting the private sector; (c) develop human resources; and (d) strengthen environmental protection and implement a sustainable development strategy through a synergy resulting from the administration of the sector policies contained in the PRSP. The average annual real GDP growth rate is anticipated to be 5.2 percent in 2006, after dipping to 2.6 percent in 2003; this acceleration will allow an increase in per capita income of 2.7 percent. The balance of payments should continue to improve as a result of diversification efforts, particularly in agriculture, agribusiness, and livestock products. Private investment is expected to increase from 10.9 percent of GDP in 2002 to 12.5 percent of GDP in 2006, reflecting efforts to diversify and improve competitiveness, and gross national savings are expected to rise from 7.9 percent of GDP in 2002 to 12.8 percent of GDP in 2006.

11. To reach its medium-term adjustment strategy objectives, the government will focus its efforts on pursuing a prudent fiscal policy that aims to reduce the government’s basic budget deficit from 3.8 percent of GDP in 2002 to 3.1 percent of GDP in 2006, while increasing budget allocations for the education and health sectors. The Central Bank of West African States (BCEAO) will also follow a prudent monetary policy that aims to contain inflation, improve the central bank’s international reserves position, and support the parity of the CFA franc vis-à-vis the euro. The government will also expand its structural reforms, so as to promote diversification of the economy and development of the private sector through healthy competition, while improving public sector efficiency.

12. After broadly liberalizing the economy, the government adopted a letter of private sector development policy that set forth the priorities for actions to be taken to ensure effective promotion of private enterprise. In this regard, the government will strengthen the legal and regulatory framework, in order to make it more favorable to the development of private investment and to private foreign capital inflows, as well as to promote the private sector as an engine of economic growth. Moreover, the government will move to improve the operations of the judicial system, and it will implement the program to privatize public enterprises, with the assistance of the World Bank.

13. The government is convinced that achieving sustainable economic growth will help reduce poverty. In order to increase life expectancy and improve the population’s standard of living, the government intends to strengthen the fight against the major endemic diseases, particularly malaria and AIDS, expand access to primary health care, intensify the vaccination of children, increase enrollment and literacy rates, and improve housing, particularly for the most impoverished. Moreover, the government aims to reduce infant and child mortality rates and intensify its information, education, and communication campaigns with regard to health and family planning by conducting an outreach program among women, particularly in rural areas.

IV. The Program for 2003–04

14. In the context of the PRSP, the primary macroeconomic objectives of the program for the first year are to (a) contain the rate of inflation at 5 percent in 2003 and 3 percent in 2004, year-on-year; and (b) limit the external current account deficit (excluding official transfers) to 14.2 percent of GDP in 2003 and 12.6 percent of GDP in 2004. Real GDP growth is projected at 2.6 percent in 2003 and 4 percent in 2004, compared with 4.6 percent in 2002. With regard to government finance, the program aims to contain the basic government budget deficit at 4.5 percent of GDP in 2003 and to reduce it to 3.5 percent of GDP in 2004. To achieve these objectives, a set of measures will be implemented during 2003–04 in the areas of fiscal policy, monetary policy, the external sector, and structural reforms.

A. Macroeconomic Policies
Fiscal policy

15. Fiscal policy will aim to limit the fiscal deficit (on a commitment basis, including HIPC Initiative-related expenditure) to 11.0 percent of GDP in 2003, compared with 10.4 percent of GDP in 2002, and to reduce it to 9.9 percent in 2004; it will also aim to limit the basic deficit to 4.5 percent of GDP in 2003 and to reduce it to 3.5 percent of GDP in 2004, compared with 3.8 percent of GDP in 2002. The evolution at the basic budget deficit in 2003 reflects a forecast of a rise in social expenditure financed by HIPC Initiative resources from 1.3 percent of GDP in 2002 to 2.3 percent of GDP in 2003, owning, in turn, to the usage of existing funds carried over from 2002, as well as a loan equivalent to 0.6 percent of GDP that the government made to a company (SONATUR) in April 2003 to finance the Commercial and Administrative Zone Development Project (ZACA). The draft supplementary budget for 2003, which was submitted to the National Assembly in April 2003, and the budget proposal for 2004, which will be submitted to the National Assembly by end-September 2003, are and will be consistent with the program’s objectives. The draft supplementary budget for 2003 is based on a set of administrative measures that aim to rationalize indirect domestic taxation, expand the tax base, and bring the growth of expenditure under control, while improving the capacity to absorb HIPC Initiative resources. In the event of tax revenue shortfall, the Minister of Finance will reduce spending commitments up to the extent of the revenue shortfall to meet the program objectives. In addition, on the occasion of the first review of the program, the government will revise the budget for 2004 to take account of revenue collection performance. The government of Burkina Faso remains current on its external payment obligations. The government has also decided to conduct an audit of domestic debt and will continue, through end-June 2003, to close deposit accounts opened with the treasury, keeping only the accounts of entities required to deposit their funds in a treasury account, in accordance with current regulations. In any event, by end-September 2003 the government will close all accounts of nonfinancial private enterprises that remain open with the treasury. The government will not accumulate domestic or external payment arrears during the program period. Moreover, the government will substantially reduce expenditure on a commitment basis for which payment orders have not yet been authorized. It established a monthly meeting of a committee for the control and follow-up of such expenditure in May 2003, with the participation of the Minister of Finance.

16. In the context of the action plan for improving budget management, and with a view to strengthening good governance, transparency, and staff accountability, in accordance with the objectives of the PRSP, the draft annual audited budget acts for 1995–2000 were reviewed by the Auditor General Office in late 2002; the government then submitted the budget acts to the National Assembly at end-March 2003. Following the same procedure of prior review by the Auditor General Office, the government will submit the draft annual audited budget act for 2001 to the National Assembly by end-September 2003, and the draft annual audited budget act for 2002 by end-March 2004. During the program period, the government, in accordance with the studies of the Country Financial Accountability Assessment (CFAA), the Report on the Observance of Standards and Codes (ROSC), and the Budget Management Improvement Action Plan (PRGB), will reach agreement with the Auditor General Office concerning an administrative audit of the individual accounts of the accountants (comptes de gestion) for the government’s financial operations for the years prior to 2001, and it will produce these accounts regularly in future. The government will finalize the timetable for preparation of the comptes de gestion for 2001 and 2002 at the first program review. The government submitted the budget framework law, in accordance with West African Economic and Monetary Union (WAEMU) directives, to parliament, which approved it in January 2003. By September 2003, it will also adopt the WAEMU general rules of public accounting and its budget nomenclature, inserting specific codes to identify social expenditure and HIPC Initiative-related expenditure.

17. Revenues are expected to increase by 12.5 percent to CFAF 291.7 billion in 2003, and by 15.6 percent to CFAF 337.3 billion in 2004. To achieve this increase, the authorities will strengthen fiscal and customs administration, and intensify collection efforts during the 2003–04 period through a number of approaches. First, they will establish an inventory of all tax and customs exemptions by end-September 2003, with a view to strengthening controls of legal exemptions and increasing the tax base. Second, the authorities will strengthen tax audit departments at the Directorate General of Taxation and within the customs administration. The number of audit squads at the Directorate General of Taxation has been increased from five to seven, and the number of teams per squad has grown from three to five since November 2002 at the regional directorates in the center and west. In addition, four other squads are shared by the center-west, east, and north regional directorates and the Office of Investigation and Audit. Third, by end-October 2003 the authorities will bring online a computer system to monitor deposits and payments, and to track the collection of outstanding taxes in the large and medium-sized taxpayers’ units of the regional tax directorates in the center (Ouagadougou) and west (Bobo-Dioulasso). These two divisions collect 85 percent and 10 percent, respectively, of domestic taxes. Fourth, the authorities will ensure the application of all tax and customs laws, particularly for the informal sector. Implementation of this set of measures should increase in government revenues from 11.1 percent of GDP in 2002 to 12.3 percent of GDP in 2004. In this regard, the government will take advantage of the recommendations of the March 2003 IMF technical assistance mission to develop an action plan to strengthen the collection of taxes and customs duties before the first review of the program.

18. On the expenditure side, control of government spending, exclusive of interest on public debt, will be pursued by controlling the wage bill. To achieve this, the government will continue implementation of its public administration reform program during the program period, in order to introduce increased flexibility in managing the civil service. In light of the objectives for inflation and civil service staffing levels, the government will by December 2003 implement the merit-based compensation and promotion system adopted in 2001. It will also continue to improve the integrated computer system for civil service and payroll management. In light of the outcomes expected in terms of revenue recovery, no general salary increase is planned for the 2003–04 period. Application of this salary policy will limit the increase in the wage bill to 8.1 percent in 2003 and 6 percent in 2004, reflecting mainly the planned integration of people on temporary contacts in the education and health sectors, and in the revenues collection agencies. This salary policy will also stabilize the ratio of government wage expenditure to GDP at 4.7 percent in 2003–04.

19. Other current expenditure for goods and services should stabilize at approximately 2.6 percent of GDP during the 2003–04 period, while reflecting the priority given to improving nonwage expenditure for the education, health, agriculture, and infrastructure maintenance sectors. This stabilization of expenditure for goods and services is due to savings measures that aim to reduce water, electricity, and telephone expenditure. Transfer expenditure will also stabilize at 3.2 percent of GDP in 2003–04, despite higher humanitarian assistance outlays triggered by the crisis in Côte d’Ivoire and price support for agricultural inputs in cotton-growing areas. The government will prepare sector development strategies and continue to conduct sector reviews of government expenditure, with the technical assistance of the World Bank. After the reviews of spending in the rural development and transportation infrastructure sectors, the government will review education spending (particularly secondary and higher education) and expenditure in the judicial system. The government will also deepen its public investment planning and medium-term expenditure framework (MTEF). The MTEF for 2004–06 will continue to reflect the priorities stated in the PRSP. Generally, the government will work to improve the monitoring of public investments, particularly externally funded investments, by integrating them into the computerized expenditure system (CID).

20. The government will increase the budgetary appropriation ceiling for health and education expenditure and for poverty reduction in general, in accordance with the PRSP. Total expenditure for education (excluding foreign-financed investment and including HIPC Initiative-related expenditure), which amounted to 12.4 percent of total expenditure in 2002 (1.9 percent of GDP), is forecast at 14.8 percent in 2003 (2.5 percent of GDP) and at 15.4 percent in 2004 (2.5 percent of GDP). The strong increase in the share of education in total spending in 2003 reflects the acceleration in the use of resources freed under the HIPC Initiative. The government may further increase its education expenditure in the context of the accelerated Education for All Initiative. In the health sector, spending (excluding foreign-financed investment) will increase from 11.2 percent of total expenditure in 2002 (1.8 percent of GDP) to 11.8 percent in 2003 (2 percent of GDP), and to 12.3 percent in 2004 (2 percent of GDP).

Monetary policy and the financial sector

21. The regional central bank will pursue a prudent monetary policy in 2003–04. It will aim to contain inflation, and to limit the decline in the net foreign assets of the banking system in 2003 to 0.5 percent of the end-December 2002 money supply, before increasing them in 2004 by 1.7 percent of the end-December 2003 money supply. The use of resources from the HIPC Initiative account of the treasury at the central bank will limit the contraction of net bank credit to the government in 2003 to 0.3 percent of the end-December 2002 money supply and in 2004 to 0.4 percent of the end-December 2003 money supply. In light of the decision by the WAEMU member countries to reduce BCEAO advances to governments, the treasury will issue bills and government paper to finance its operations, to lend funds to SONATUR and SONABEL, and to contribute to the development of a regional financial market. Credit to the private sector is expected to increase by 14.5 percent in 2003 and by 8.1 percent in 2004—a pace higher than inflation—reflecting the projected diversification of the economy and the development of financial intermediation. The money supply is expected in increase by 9.2 percent in 2003 and by 7.1 percent in 2004—the same pace as nominal GDP growth.

22. To strengthen the development of the financial sector in accordance with the PRSP, improve the mobilization of domestic savings, and promote its intermediation for financing the private sector, the government will pursue its judicial system reform program with the assistance of the World Bank, with a view to permitting foreclosure on collateral and improving loan collections. It will also encourage small and medium-sized enterprises to implement accounting standards, and it will continue its efforts to develop the microfinance sector, or as to increase the population’s access to credit and financial services, particularly on the part of women and inhabitants of rural areas, and to reduce poverty. In the context of its PRSP, the government will by end-March 2004 prepare a sector strategy for the development of the financial sector, with the assistance of its lenders. The Banking Commission of the West African Monetary Union (WAMU) will further strengthen banking supervision to ensure that banks continue to observe prudential ratios.

B. Structural Policies

23. Private sector competitiveness and development. The government will design and implement an action plan to strengthen incentives for private sector activity and investment, with the assistance of the World Bank, particularly by strengthening the legislative and regulatory framework and the judicial system. In the context of this project, which will be implemented in July 2003, the government’s aim is to ensure long-term economic development through a reduction in factor costs and an increase in productivity, in accordance with the PRSP. To achieve this objective, the government will (a) simplify the formalities involved in establishing an enterprise, (b) promote a private sector-government dialogue through regular meetings of a joint committee responsible for examining the obstacles to business development, (c) continue liberalization of the telecommunications sector, (d) work to reduce the production costs of electricity and expand access to energy infrastructure, including in rural areas, (e) strengthen arbitration for trade disputes, (f) continue the privatization program, and (g) set up a competition committee responsible for proposing solutions to problems that impede promotion of the private sector.

24. The government will continue to implement its privatization and public enterprise reform program during the program period, with the assistance of the World Bank, to increase the incentives to produce and invest. In the telecommunications sector, the government will by end-September 2003 issue invitations to bid for the privatization of the telecommunications company (ONATEL). It has already established a regulatory authority (ARTEL) and opened cellular telephony to competition. In the energy sector, the government will privatize SONABEL and the oil company (SONABHY) by end-2004. It will reexamine the structure of electricity production and distribution costs, in consultation with the World Bank, with a view to introducing savings measures. It will continue to apply the automatic adjustment mechanism for public water rates as a function of costs. The government will also continue to apply the automatic adjustment mechanism for retail pricing of petroleum products as a function of import and distribution costs. In the agricultural sector, the government will in May 2003 issue an invitation to bid in order to permit two new firms to become established in two cotton-producing areas still operated by the cotton development company (SOFITEX).

25. Good governance. The government is committed to following a consistent practice of transparency and good governance. In addition to moving toward greater transparency in the management of public affairs, as described above, the government will by end-June 2003 make operational the High Authority to Fight Corruption. It will fight and suppress any act of fraud or corruption brought to its attention. The high authority will work with the monitoring agencies (the State Inspector’s Office and Inspectorate of Public Finances) and the Auditor General Office to investigate irregularities. The government will also continue the reform of the judicial system, with the assistance of donor or lender organizations.

26. Poverty reduction. Achieving sustainable per capita revenue growth will help reduce poverty in Burkina Faso. In particular, price subsidies for cotton producer inputs and the social safety net for the consumption of butane gas and domestic kerosene should help to raise the standard of living of the population, particularly in rural areas. However, structural measures, including the program to reform public enterprises, will affect the quality of life of salaried populations in urban areas. With lenders’ support, and in consultation with civil society, the government will prepare by end-July 2003 the third annual progress report on its PRSP. It will also update the PRSP in December 2003.

27. The revised PRSP will make sector policies consistent and take environmental issues into account in the various sectors involved. Moreover, it will include highly targeted measures that aim, among other things, to raise further the enrollment and literacy rates; improve primary health care; increase the participation of women in development activities; and reduce rural-to-urban migration, particularly by promoting the employment of youth, controlling demographic growth, promoting social protection, and preserving natural resources (water, land, forests, and wildlife). The PRSP will continue to form the single reference for interventions of the government and development partners. To that end, one of the objectives of revising the PRSP will be to ensure that it provides a real strategy for sustainable development. To ensure the effective monitoring of progress achieved in reaching the social and poverty reduction objectives, a system of indicators will be established in consultation with partners. The authorities will report the annual figures relating to these indicators to the International Monetary Fund and the World Bank.

28. With regard to education, the government recognizes that enrollment and literacy rates are low with respect to the PRSP objectives. With lenders’ support, the government will continue to implement its plan to develop basic education, with a view to accelerating Burkina Faso’s progress toward the Millennium Development Goals (MDGs). The government is already proposing to build or rehabilitate 3,600 classrooms per year in primary schools, particularly in rural areas, and to recruit and train an average of 8,700 new teachers per year. In the health sector, vaccination rates have improved, and the level of staffing of health districts has risen and the price of medications has decreased, in accordance with the PRSP objectives. The government will hold a sector roundtable of lenders to examine the National Health Development Plan that it adopted in July 2001, and to seek financing for projects to support health districts.

29. Statistics. The government will redouble its efforts to improve the quality and timeliness of its statistical data. It will provide Fund staff with the basic data required in the context of the Article IV consultations, and will strengthen program control and monitoring. The government will conduct a new statistical household survey by end-December 2003 with the technical assistance of the World Bank, and it will prepare a series of social and poverty indicators to monitor in the context of its poverty reduction policy.

V. External Sector and Borrowing Requirements

30. In the external sector, the government will pursue its objective of reducing the external current account deficit by implementing the macroeconomic and structural adjustment policies described in this memorandum, without having recourse to restrictions on current transactions.

31. Overall, the external current account deficit (excluding official transfers) is projected at CFAF 336.8 billion in 2003, or 14.2 percent of GDP, and CFAF 321.5 billion in 2004, or 12.6 percent of GDP (compared with 12.9 percent of GDP in 2002), Given the amortization of the external public debt (CFAF 41.0 billion) and the projected negative contribution of Burkina Faso to the international reserves of the central bank (CFAF -6.9 billion), gross external financing requirements will amount to CFAF 370.8 billion in 2003. These financing requirements will be covered in part by grants and project and nonproject concessional lending from multilateral and bilateral donors and lenders, and by private capital flows. Residual borrowing requirements of CFAF 5.8 billion will remain, which the government intends to cover by applying disbursements from the arrangement requested under the PRGF in 2003. The government will provide program financing assurances for 2004 at the first review.

32. To cover its financing requirements, the government will continue to seek grants and highly concessional loans only. In this respect, it will not contract or guarantee new nonconcessional external loans (with a grant element of less than 35 percent) having terms of maturity of more than one year, except for treasury bills offered on the WAEMU capital market. Moreover, the government will not contract or guarantee external loans having an original maturity of less than one year. To regularize its relations with its main foreign creditors and donors, Burkina Faso will ensure current service of its external debt and will not accumulate domestic or external payment arrears during the program period. The Paris Club agreed to extend to end-September 2003 the deadline for signing the June 2002 bilateral agreements on the treatment of the stock of debt. The government will sign those bilateral agreements as soon as possible, before the new deadline. It will also seek the participation of all its multilateral creditors and its non-Paris Club bilateral creditors in providing assistance to Burkina Faso in the context of the HIPC Initiative.

VI. Monitoring of Program Execution

33. To monitor the progress made in implementing the program, the government has established quantitative performance criteria and indicative targets for end-June, end-September, and end-December 2003, and for end-March 2004 (Table 1), as well as structural performance criteria and indicative targets (Table 2). The government will also provide the International Monetary Fund with the statistical data and information specified in the attached technical memorandum of understanding, on a monthly basis, as well as any information it deems necessary, or that the Fund staff requests for program-monitoring purposes. During the program period, the government will not impose or intensify restrictions on the making of payments and transfers on current international transactions without the approval of the International Monetary Fund, introduce or modify multiple currency practices, conclude bilateral payment agreements inconsistent with the Article VIII of the IMF’s Articles of Agreement, or introduce or intensify import restrictions for balance of payments reasons.

34. The government will conduct two reviews of the program with the International Monetary Fund to evaluate the progress made during the first year. The first of these reviews will be held by end-December 2003, and the second by end-June 2004.

Table 1.

Burkina Faso: Quantitative Performance Criteria and Indicative Targets for the 2003–04 Program Under the Poverty Reduction and Growth Facility Arrangement, 2003–04

(In billions of CFA francs; cumulative from beginning of year)

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Sources: Burkinabé authorities; and staff estimates and projections.

Performance criteria at end-September 2003 and end-March 2004.

For 2003 and 2004, the ceiling on the cumulative change in net domestic financing is to be adjusted upward (downward) by the amount of shortfall (surplus) in balance of payments assistance (excluding debt relief under the HIPC Initiative). At end-September 2003, the adjustment is limited to a maximum of CFAF 30 billion.

Excluding treasury notes and bonds issued in CFA francs on the regional West African and Economic Monetary Union (WAEMU) market.

To be observed on a continuous basis.

Revenue (excluding grants) minus expenditure, excluding foreign-financed investment outlays and net lending.

Including HIPC Initiative expenditure.

Table 2.

Burkina Faso: Prior Actions, Structural Performance Criteria, and Indicative Targets for the 2003–04 Program

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Performance criterion.

ATTACHMENT II INTERNATIONAL MONETARY FUND BURKINA FASO: Technical Memorandum of Understanding

Ouagadougou, May 28, 2003

1. This memorandum of understanding defines the quantitative performance criteria and indicative targets for the program supported by the Poverty Reduction and Growth Facility (PRGF) of the International Monetary Fund (IMF). It also sets the deadlines for reporting data to Fund staff to facilitate program monitoring.

I. Definitions

2. For the purposes of this memorandum, the following definitions of “debt,” “government,” “payments arrears,” and “government obligations” will be used:

  • As specified in point 9 of the Guidelines on Performance Criteria with Respect to Foreign Debt adopted by the Executive Board of the IMF on August 24, 2000,1 debt will be understood to mean a current, that is, not contingent, liability, created under a contractual arrangement through the provision of value in the form of assets (including currency) or services, and which requires the obligor to make one or more payments in the form of assets (including currency) or services, at some future point(s) in time; these payments will discharge the principal and/or interest liabilities incurred under the contract. Debts can take a number of forms, the primary ones being as follows: (i) loans, that is, advances of money to obligor by the lender made on the basis of an undertaking that the obligor will repay the funds in the future (including deposits, bonds, obligations, commercial loans, and buyers’ credits) and temporary exchanges of assets that are equivalent to fully collateralized loans under which the obligor is required to repay the funds, and usually pay interest, by repurchasing the collateral from the buyer in the future (such as repurchase agreements and official swap arrangements); (ii) suppliers’ credits, that is, contracts where the supplier permits the obligor to defer payments until some time after the date on which the goods have been delivered or the services provided; and (iii) leases, that is, arrangements under which property is provided that the lessee has the right to use for one or more specified periods of time, which are usually shorter than the total expected life of the property, while the lessor retains the title to the property. For the purpose of this guideline, the debt is the present value (at the inception of the lease) of all lease payments expected to be made during the period of the agreement, excluding those payments that cover the operation, repair, or maintenance of the property. Treasury bills and bonds issued in CFA francs on the WAEMU (West African Economic and Monetary Union) regional market, are included in domestic debt for the purposes of this memorandum.

  • Government is defined as the central government of Burkina Faso and does not include any political subdivision, government-owned entity, or central bank having a separate legal personality.

  • External payments arrears are external payments due but unpaid. Domestic payments arrears under the 2003–04 program are domestic payments due (following the expiration of a 90-day grace period, except where the obligation provides for a specific grace period, in which case that grace period will apply) but unpaid.

  • Government obligation is any financial obligation of the government accepted as such by the government (including any government debt).

II. Quantitative Performance Criteria
A. Cumulative Change in Net Domestic Financing to the Government
Definition

3. Under the 2003–04 program, net domestic financing of the government is defined as the sum of (i) net bank credit to the government, including both the net bank credit to the treasury as defined below, and other government claims and debts vis-à-vis national banking institutions; and (ii) the unredeemed stock of government bills and bonds held outside national commercial banks.

4. Net bank credit to the treasury is defined as the balance of the treasury’s claims and debts vis-à-vis national banking institutions. Treasury claims include the cash holdings of the Burkinabé Treasury, deposits with the central bank, deposits with the commercial banks, secured obligations, and government deposits with the postal system (CCP). Treasury debt to the banking system includes funding from the central bank (including statutory advances, consolidated advances, IMF financing, and refinancing of secured obligations), government securities held by the central bank, funding from commercial banks (including government securities held by commercial banks), and CNE (Caisse Nationale d’argne Postale)/CCP securitized deposits.

5. Net bank credit to the government is calculated by the Central Bank of West African States (BCEAO), whose figures are deemed valid within the context of the program. The stock of treasury bills and other government debt is calculated by the Ministry of Finance.

6. As of December 31, 2002, net domestic financing of the government was CFAF -23.8 billion, made up of CFAF -43.8 billion in net bank credit to the government and CFAF 20 billion in unredeemed stock of government bills and bonds.

Quantitative performance criterion/indicative targets

7. The ceiling on the cumulative change (from January 1, 2003 onward) in net domestic financing of the government is set at CFAF 42.2 billion at June 30, 2003 and CFAF 33.8 billion at September 30, 2003. These ceilings represent an indicative target at end-June 2003 and a performance criterion at end-September 2003. The ceiling is projected at CFAF 23.4 billion at December 30, 2003 and CFAF 23.8 billion at March 31, 2004 (from January 1, 2004 onward). These figures will be re-examined and set as an indicative target at end-December 2003 and as a performance criterion at end-March 2004, when the first program review takes place.

Adjustment

8. The ceilings on the cumulative change in net domestic financing to the government will be subject to adjustment when program forecasts differ from actual disbursements of external budgetary assistance, excluding external debt relief (whether in the context of traditional mechanisms or under the Heavily Indebted Poor Countries (HIPC) Initiative). When disbursements exceed forecasts, the ceilings will be adjusted downward by the amount of excess disbursements. In contrast, when disbursements fall short of forecasts, the ceilings will be adjusted upward by the amount of the shortfall. However, upward adjustments of ceilings are limited to a maximum of CFAF 10 billion at end-June 2003, a maximum of CFAF 30 billion at end-September 2003, and a maximum of CFAF 60 billion at end-December 2003.

Reporting deadlines

9. Data on net bank credit to the government will be forwarded monthly to the IMF by BCEAO staff, and those on the stock of government bills and other government debt by the Ministry of Finance within six weeks following the end of each month.

B. Nonaccumulation of Domestic Payments Arrears
Definition

10. The government undertakes not to accumulate any new domestic payments arrears on government obligations. The treasury keeps records of domestic payments arrears on government obligations and records pertinent repayments.

Performance criterion

11. The government will not accumulate any domestic payments arrears on government obligations in 2003 and 2004. Said nonaccumulation of domestic payments arrears is a performance criterion, to be observed continuously.

Reporting deadlines

12. Data on outstanding balances, accumulation, and repayment of domestic arrears on government obligations will be reported monthly within four weeks following the end of each month.

C. Nonaccumulation of External Payments Arrears
Performance criterion

13. The government’s external debt is the stock of debt owed or guaranteed by the government. External payments arrears are external payments due but unpaid on the due date. Under the program, the government undertakes not to accumulate external payment arrears on its debt, with the exception of external payments arrears arising from government debt being renegotiated with external creditors, including non-Paris Club member bilateral creditors and multilateral creditors participating under the enhanced HIPC Initiative. Nonaccumulation of external payments arrears is a performance criterion, to be observed continuously.

Reporting deadlines

14. Data on outstanding balances, accumulation, and repayment of external payment arrears will be forwarded monthly within four weeks following the end of each month.

D. Nonconcessional External Debt Contracted or Guaranteed by the Government of Burkina Faso
Performance criterion

15. The government undertakes not to contract or guarantee any external debt maturing in one year or more with a grant element of less than 35 percent (calculated using the interest reference rate for borrowed foreign currencies provided by the IMF). This performance criterion applies not only to debt as defined in point 9 of the Guidelines on Performance Criteria with Respect to Foreign Debt, adopted by the IMF’s Executive Board on August 24, 2000,2 but also to all commitments contracted or guaranteed for which value has not been received. However, this performance criterion does not apply to treasury bills and bonds issued in CFA francs on the WAEMU regional market. This commitment is a performance criterion, to be observed continuously.

Reporting deadlines

16. Details on any government loan (terms of the loan and creditors) must be reported monthly within four weeks of the end of each month. The same requirement applies to guarantees extended by the government.

E. Government Short-Term External Debt

17. The government undertakes not to accumulate or guarantee any new external debt with a contractual maturity of less than one year. This performance criterion applies not only to debt as defined in point 9 of the Guidelines on Performance Criteria with Respect to Foreign Debt, adopted by the IMF’s Executive Board on August 24, 2000, but also to commitments contracted or guaranteed for which value has not been received. Excluded from this performance criterion are import- and export-related loans and treasury bills and bonds issued in CFA francs on the WAEMU regional market. This obligation is a performance criterion to be observed continuously. As of December 31, 2002, the government of Burkina Faso had no short-term external debt.

III. Other Quantitative Indicative Targets

18. The program also includes indicative targets on the basic balance of the government budget, total government revenue, current expenditure, the government’s wage bill, and expenditure committed but not authorized.

Definitions

19. The basic balance of government financial operations is defined as the difference between total government revenue (excluding grants and the proceeds of privatization) and total government expenditure, excluding foreign-financed investment. It is valued according to the statement of government budgetary execution, which is established monthly in the central government’s financial operations table prepared by the Permanent Secretariat for the Monitoring of Financial Policies and Programs (SP-PPF), in collaboration with the other directorates of the Ministry of Finance and Budget.

20. Total government revenue is valued on a cash basis. It includes all tax and nontax revenue collected by the Directorate General of Taxation, the Directorate General of Customs, the Burkinabé Treasury and the revenue collection units at ministries and institutions, and it includes revenue from treasury checks.

21. Expenditure is valued on a commitment basis, including expenditure financed from HIPC Initiative funds. It includes current expenditure and capital expenditure financed by the Treasury.

22. Current expenditure is defined as the difference between total expenditure (including expenditure financed from HIPC Initiative resources) and capital expenditure and net loans. It is made up of payroll, expenditure on goods and services, interest on the debt (domestic and foreign), transfers, subsidies, and other current expenditure.

23. The wage bill is defined as the entire government payroll (on a commitment basis), including wages and benefits for all permanent and temporary civilian and military personnel, and the wage bill paid out of HIPC Initiative funds.

24. Expenditure committed for which a payment orders have not been issued (DENMs) is defined as all expenditure proposed for commitment that has been certified by the financial comptroller (including HIPC Initiative expenditure) but for which the payment authorization (mandat) has not been issued and forwarded to the treasury. Its stock is valued according to the statement of government budgetary execution, which is established monthly in the central government’s financial operations table prepared by the SP-PPF, in collaboration with the other directorates of the Ministry of Finance and Budget.

25. At end-December 2002, the basic deficit was valued at CFAF 83.4 billion, made up of CFAF 259.4 billion in revenue and CFAF 342.9 billion in expenditure, excluding foreign-financed investments. Total revenue was made up of the following:

  • total revenue (customs, Directorate General of Taxation): CFAF 240.9 billion; and

  • nontax revenue, including capital revenue: CFAF 18.5 billion.

Expenditure, excluding foreign-financed investment, was made up of the following:

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26. The stock of DENMs was valued at CFAF 40.8 billion at end-December 2002.

Other quantitative indicative targets

27. The ceiling for the cumulative basic deficit (from January 1, 2003 onward) of government financial operations is established at CFAF 52.2 billion at June 30, 2003 and at CFAF 70 billion at September 30, 2003. These ceilings are end-June 2003 and end-September 2003 indicatives targets. The ceiling is projected at CFAF 106 billion at December 30, 2003 and at CFAF 25.9 billion at March 31, 2004 (from January 1, 2004 onward). These figures will be reexamined during the first program review.

28. The floor for total government revenue (cumulative from January 1, 2003 onward) is set at CFAF 136.3 billion at June 30, 2003 and at CFAF 209.2 billion at September 30, 2003. These floors are end-June 2003 and end-September 2003 indicatives targets. The floor is projected at CFAF 291.7 billion at December 30, 2003 and CFAF 69 billion at March 31, 2004 (cumulative from January 1, 2004 onward). These figures will be reexamined and established as indicative targets when the first program review takes place.

29. The respective ceilings for current expenditure and the wage bill (cumulative from January 1, 2003 onward) are established at CFAF 140.3 billion and CFAF 55.3 billion at June 30, 2003, and at CFAF 205.4 billion and CFAF 84.1 billion at September 30, 2003. These ceilings are end-June 2003 and end-September 2003 indicatives targets. They are projected, respectively, at CFAF 269.8 billion and CFAF 111.4 billion at December 30, 2003, and at CFAF 69.3 billion and CFAF 28.3 billion at March 31, 2004 (cumulative from January 1, 2004 onward). These figures will be reexamined and established as indicative targets when the first program review takes place.

30. The ceiling for the cumulative increase (from January 1, 2003 onward) in the stock of DENMs is set at CFAF 12 billion at end-June 2003 and CFAF 15 billion at end-September 2003. These ceilings are indicatives targets. The floor for the cumulative reduction of the stock of DENMs is projected at CFAF 15 billion at end-December 2003 and at zero at March 31, 2004 (from January 1, 2004 onward). These figures will be reexamined and established as indicative targets at end-December 2003 and at end-March 2004, when the first program review takes place.

Reporting deadlines

31. Details on the basic balance of the government budget, total revenue, current expenditure, the wage bill, and the DENMs will be sent monthly to IMF staff by the SP-PPF of the Ministry of Finance and Budget within six weeks following the end of each month.

IV. Additional Information for Program-Monitoring Purposes
A. Public Finance

32. The government will report the following to Fund staff:

  • a monthly government flow-of-funds table (TOFE) and the 13 customary appendix tables, to be forwarded monthly within six weeks following the end of each month; if the data on actual investment financed by external grants and loans are not available in time, a linear implementation estimate based on the annual projections will be adopted;

  • complete monthly data on domestic budgetary financing (net bank credit to the government and stock of unredeemed treasury bonds and bills), to be provided monthly within six weeks following the end of each month;

  • quarterly data on implementation of the public investment program, including details on financing sources (these data will be sent quarterly within six weeks following the end of each quarter);

  • monthly data on foreign debt stock and service, to be sent within four weeks following the end of each month;

  • monthly data on prices and the taxation of petroleum products, including (i) the price structure prevailing during the month; (ii) the detailed calculation of the price structure, going from the f.o.b.-MED price to the retail price; (iii) the volumes purchased and made available for consumption by the petroleum distributor (SONABHY); and (iv) the breakdown of receipts from the taxation of petroleum products—customs duties, tax on petroleum products (TPP), and value-added tax (VAT)—and of subsidies, to be provided within four weeks following the end of each month; and

  • the status of accounts with the treasury, classified by major category (administrative services, state enterprises, mixed enterprises, public administrative enterprises, international organizations, private depositors, and others), and to be provided monthly within four weeks following the end of each month.

B. Monetary Sector

33. The government will provide monthly the following information within six weeks following the end of each month:

  • the consolidated balance sheet of monetary institutions;

  • the monetary survey, within six weeks following the end of each month for provisional data, and ten weeks following the end of each month for final data;

  • borrowing and lending interest rates; and

  • customary banking supervision indicators for bank and nonbank financial institutions, if necessary.

C. Balance of Payments

34. The government will report the following to Fund staff:

  • any revision of balance of payments data (including services, private transfers, official transfers, and capital transactions), whenever they occur;

  • foreign trade statistics compiled by the National Statistics Institute, within three months following the end of the month concerned; and

  • preliminary annual balance of payments data, within nine months following the end of the year concerned.

D. Real Sector

35. The government will report the following to Fund staff:

  • disaggregated monthly consumer price indices, within two weeks following the end of each month;

  • provisional national accounts, within six months after the end of the year; and

  • any revision of the national accounts.

E. Structural Reforms and Other Data

36. The government will report the following information:

  • any study or official report on Burkina Faso’s economy, within two weeks following its publication; and

  • any decision, order, law, decree, ordinance, or circular with economic or financial implications, upon its publication or, at the latest, when it enters into force.

F. HIPC Initiative

37. The government will report monthly, within three weeks following the end of each month, monthly data on resources, uses, and balances in the special account established at the BCEAO for the use of resources generated by a reduced debt burden under the HIPC Initiative.

G. Summary of Data Requirements
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APPENDIX II Burkina Faso: Relations with the Fund

(As of March 31, 2003)

I. Membership Status: Joined: May 2, 1963; accepted Article VIII on June 1996

II. General Resources Account:

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III. SDR Department:

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IV. Outstanding Purchases and Loans:

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V. Latest Financial Arrangements:

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VI. Projected Payments to Fund (without HIPC Assistance) (SDR Million; based on existing use of resources and present holdings of SDRs):

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Projected Payments to Fund (with Board-approved HIPC Assistance) (SDR Million; based on existing use of resources and present holdings of SDRs):

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VII. Implementation of HIPC Initiative:

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VIII. Safeguards Assessments:

The Central Bank of the West African States (BCEAO) is the common central bank of the West African states, which includes Burkina Faso. An on-site safeguards assessment of the BCEAO proposed specific remedies to alleviate vulnerabilities that were identified by the staff. Although Fund staff and BCEAO authorities disagreed on the initial modalities of the recommendations, the following specific understandings were subsequently reached regarding the key remedies.

Financial reporting framework. Fund staff recommended that the BCEAO formally adopt International Accounting Standards (IAS) and publish a complete set of financial statements, including detailed explanatory notes. It was agreed by the BCEAO and Fund staff that the BCEAO will strive to improve its financial and accounting reporting by aligning its practices with those recommended by IAS, as adopted internationally by other central banks.

Internal controls system: The staff noted that the absence of oversight of the bank’s governance, financial reporting, and internal control practices by an entity external to the management of the BCEAO represented a significant risk. It was agreed by the BCEAO and Fund staff that, after seeking the opinion of the external auditor (Commissaire Contrôleur), BCEAO staff will propose to the BCEAO Board of Directors that they adopt a resolution whereby the external auditor will be required to apprise the Board of Directors, during its annual review and approval of the financial statements, of the state and quality of internal controls within the bank.

The staff will follow up on the progress of the BCEAO in implementing the proposed recommendations as part of the ongoing safeguards monitoring process.

IX. Exchange Rate Arrangement:

Starting on January 1, 1999, Burkina Faso’s currency, the CFA franc, has been pegged to the euro at the rate of €1=CFAF 655.957. The exchange rate as of March 31, 2003 was CFAF 834.5=SDR 1. The exchange and trade system is free of restrictions on the making of payments and transfers on current international transactions.

X. Article IV Consultations:

Burkina Faso is on the standard 12-month consultation cycle. The 2002 Article IV consultation discussions and the fifth review under the Poverty Reduction and Growth Facility (PRGF) were held during the period January 29-February 14, 2002 in Ouagadougou. The staff report (EBS/02/48; 3/15/02) and the statistical annex (SM/02/84; 3/15/02) were considered by the Executive Board on April 9, 2002.

XI. ROSC/AAP:

An FAD mission visited Ouagadougou during May 7–18, 2001 to assist the authorities undertake a draft fiscal module of a Report on the Observance of Standards and Codes (ROSC). The final report, which was issued in July 2002, found that Burkina Faso was making good progress in a number of areas to increase the transparency and accountability of government. But additional efforts are needed to bring a number of improvements to the point of implementation, particularly with regard to expenditure tracking at the local level and external audit functions. Initial discussions indicated that the authorities were in broad agreement with the mission assessment. On July 31, 2002, the authorities formally adopted an action plan based on the recommendations of the final ROSC.

The team, jointly with World Bank staff, also discussed a HIPC Initiative Assessment and Action Plan (AAP) with the authorities. The aim was to assess the capacity of the public expenditure management system to track poverty-reducing public expenditures under the HIPC Initiative and the need for technical assistance to enhance that capacity. The mission secured the officials’ agreement with the jointly prepared preliminary assessment; identified the main needs for technical assistance on upgrading the capacity to track such expenditures; and drew up a draft outline action plan. This plan identifies the main needs for further technical assistance to improve tracking of poverty-reducing expenditures. The AAP has been communicated to the authorities by the staff of the IMF and the World Bank for final endorsement.

XII. Technical Assistance:

Significant technical assistance has been provided since 1989, more recently especially in the fiscal area:

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XIII. Resident Representative:

Mr. Robert Franco took up the post of Resident Representative in early December 2000.

APPENDIX III Burkina Faso: Relations with the World Bank Group

(As of May 12, 2003)

Partnership in Burkina Faso’s development strategy

1. The government of Burkina Faso outlined its development strategy in a poverty reduction strategy paper (PRSP) in May 2000. The Bank and Fund Board endorsed this strategy in June 2000, as well as the first (December 2001) and second (November 2002) annual progress report. The government intends to fully update the PRSP in 2003. The PRSP sets out the following four pillars of the government’s strategy: (i) accelerating equitable growth; (ii) promoting access to social services; (iii) increasing employment and income-generating activities for the poor; and (iv) promoting good governance.

2. The Fund has supported Burkina Faso under three arrangements under the Poverty Reduction and Growth Facility between 1993 and 2002, and the authorities intend to request a subsequent fourth arrangement in 2003. The Fund takes the lead in the policy dialogue on macroeconomic policies and monitors macroeconomic performance through quantitative performance criteria. In addition, it established recently structural performance criteria in the areas of tax policy, financial transparency and good governance, and trade policy. The Bank is supporting the implementation of the PRSP in the areas of public finance management, good governance, decentralization, health, education, and cotton reform through a series of poverty reduction support credits (PRSC), complemented with a portfolio of specific projects to address issues relating to AIDS, basic education, infrastructure investments, rural development, and private sector development, as outlined below.

The Country Assistance Strategy (FY 00-03) and the Bank portfolio

3. The general objective of the November 2000 Country Assistance Strategy (CAS) for the World Bank is to support the government’s efforts, as described in the June 2000 PRSP, to achieve sustained high growth rates, to reduce the high incidence of poverty, and to improve the nutrition, health, and education of the rural population, which constitutes the largest group among the poor. The CAS has three specific objectives: (i) supporting policies and programs aimed at improving the supply side of the economy in order to allow for sustained, broad-based, and export-oriented growth; (ii) improving public finance management to increase efficiency of public spending, and (iii) ensuring that the allocation process and public spending effectiveness goals result in a special emphasis on social services.

4. The Bank’s assistance to the PRSP is intended to be selective and complementary to activities supported by other donors. Specifically, the Bank envisages a program and related country budget allocation that will (i) give priority to supervision of ongoing projects; (ii) acknowledge the important role of donors; (iii) consolidate lending operations into fewer but broader resource transfer mechanisms that are more closely integrated with the government’s own budgetary allocation and execution processes; and (iv) include a share of nonlending services to foster a robust analytical base for consensus and partnership building.

5. To refocus its assistance program and put a consistent emphasis on rapid growth with poverty reduction, the Bank Group strategy in Burkina Faso focuses attention on (i) key social sectors, where there are viable long-term strategies or where they can be developed; (ii) longer-term economic reforms to improve competitiveness and reduce business costs; (iii) the improvement of public resource management; and (iv) the adapting of Bank-supported programs to the subregional framework and potentials. Bank lending to Burkina Faso takes the form of results-driven programmatic credits (PRSCs) and self-standing projects for capacity building, support for community driven development activities (concentrating on rural, social, or HIV/AIDS interventions) and infrastructure investments directly targeted to poverty alleviation and private sector development. There is a continued commitment to analytical and advisory activities, as knowledge is the critical input for progress in the substantive areas presented in the PRSP.

6. The March 2003 CAS Progress Report (i) assesses the progress made in implementing the PRSP and the FY01-03 CAS, (ii) provides an update on the economic and social developments, (iii) elaborates the new challenges that Burkina Faso is facing, and (iv) identifies the risks for continued implementation of the PRSP and CAS. The progress report confirms that the strategy set out in the 2000 CAS remains appropriate and proposes an extension of this strategy for 12–18 months to cover the period until the new CAS is prepared. The new CAS is expected to follow closely the full update of the PRSP, which will likely be completed by end-2003/early 2004.

7. Assessment of country policies. In close collaboration with the Burkinabé authorities, IDA has undertaken substantial analytical work over the past three years to assess key social, structural, and sectoral development policies and identify policy and institutional reform priorities for poverty reduction. IDA has relied on a combination of the PRSP and its annual progress reports, a second priority poverty survey and two poverty profiles, sectoral policy notes, and informal papers on specific issues, such as constraints in growth and competitiveness, or the dynamics of poverty and income inequality. IDA has also helped the Burkinabé authorities carry out analytical work in key sectors (education, health, rural development, energy, transport, and private sector development) and assisted with the preparation of a comprehensive economic study on long-term sources of growth and competitiveness in 2001. On poverty reduction, two further studies are planned in the near future, a participatory poverty assessment (2002–03) and the third national household survey (2002–03).

8. Since the beginning of the structural reforms in the early 1990s, the World Bank has approved, in addition to support for investment projects, two structural adjustment credits, an economic recovery credit, an agricultural sector adjustment credit, a transport adjustment credit, an economic management reform credit, and two poverty reduction support credits (PRSC-1 and PRSC-2). The Bank’s cumulative commitments to Burkina Faso as of May 12, 2003, amount to US$1,359.5 million equivalent for 64 operations, comprising 61 IDA credits and 3 IFC investments.

9. The current portfolio amounts to commitments of US$504.3 million, of which US$353 million is undisbursed. IDA’s active portfolio in Burkina Faso is as follows:

  • The PRSC-2 was approved in July 2002 for US$35 million. The PRSC program focuses on key sectoral action plans and reforms to improve public finance management, the competitiveness of the economy, and to facilitate the country’s integration into the regional and world economy.

  • Three operations support IDA’s strategy in the agriculture sector. A second agricultural services project (US$41.3 million, FY98) aims at increasing agricultural productivity and farmers’ incomes, improving natural resource management, and promoting institutional development. A private irrigation project (US$5.2 million, FY99) supports provision of the demand-driven services necessary for the development of an efficient, sustainable small irrigation subsector in Burkina Faso. A community-based rural development program (US$66.7 million, FY01) aims at reducing poverty and promoting sustainable development in rural areas. Its first phase provides for building local capacity to plan and implement rural development projects, accelerating the pace of public transfers for decentralized rural development, and supporting implementation of the country’s decentralization framework.

  • To support human resource development, four operations are being implemented. In education, a basic education operation (US$32.6 million) was approved in January 2002 by the World Bank Executive Board. The project provides support for the government’s ten-year basic education program, which will be implemented in three phases, the first of which covers the period 2001–05. The main development objective of Phase I of the ten-year program is to lay the foundation for accelerating the development of basic education, while ensuring adequate quality and financial sustainability. A post-primary education project (US$26 million, FY97) finances parts of the government’s post-primary education strategy. The Bank also assists the country with the implementation of a new development learning center (US$2.5 million, FY03) for distance-learning activities that will give the Burkinabé access to the latest research worldwide. A HIV/AIDS disaster response project (US$22 million, FY02) underpins the implementation of the government’s 2001–04 medium-term HIV/AIDS/STIs strategic plan, which has been endorsed by the country’s technical and financial partners.

  • In the urban sector, an urban environment project (US$37 million, FY95) aims at improving living conditions through priority urban works and urban services benefiting low-income groups. Under this project, supplemental financing of US$22 million for the government’s decentralization process was approved in FY02.

  • A water supply project (US$70 million, FY01) aims at increasing access to adequate and reliable potable water in Ouagadougou through expanded distribution and tertiary water networks and improved urban water subsector management.

  • In the mining sector, a mining sector capacity building and environmental management project (US$21.4 million, FY97) supports regulatory reform and training, institutional strengthening and resource management, environmental management, and small-scale artisanal mining.

  • A technical assistance credit for private sector development (competitiveness and enterprise development project, US$30.7, FY03) provides support to implement the privatization program; improve the quality, access, and cost of telecommunications; and promote the development of a strong indigenous private sector in Burkina Faso through a streamlined business environment and well-targeted financial and nonfinancial services to small and medium-sized enterprises.

  • The Bank approved a transport sector project in April 2003 for US$92.1 million. It is expected that this project will be effective by June 2003. The project concentrates on rural roads as the rural economy is the main source of income and employment for 80 percent of the population.

The Bank’s proposed lending program is as follows:

  • In the energy sector, the Bank is considering assisting the government, through a sector reform operation (FY04) aimed at introducing private sector participation to improve the efficiency of the provision of electricity services and the supply of hydrocarbon products to the economy, and at increasing access to infrastructure services, especially for rural communities.

  • A third poverty reduction support credit (PRSC-3) is envisaged for Board presentation in early FY04.

Bank-Fund collaboration in specific areas

10. Cotton sector. The Bank and Fund staffs jointly follow developments in the cotton sector because of its importance for macroeconomic aggregates and rural incomes. The Fund staff focuses on the overall financial management of the cotton sector in order to limit spillover effects for government finances and the banking sector. The Bank staff is accompanying the government’s structural reform agenda in the sector under a series of PRSCs. These reforms aim at creating a more competitive environment by introducing additional operators over time, while safeguarding the historical achievements of a prudent financial management and the involvement of producer organizations in decision-making processes, including the setting of producer prices.

11. Public finance management and good governance. The Bank and the Fund closely collaborate in supporting the government’s reforms in the area of public finance management and good governance. Important elements of the reform program are enshrined in the government’s own action plan for the improvement of budget management and incorporate the main recommendations of the HIPC Assessment and Action Plan prepared jointly by Bank and Fund staff and the Country Financial Accountability Assessment (CFAA). Recently, the Bank’s PRSC focused on the creation and operationalization of the Auditor General Office, resumption of regular submissions of budget audit laws to the Auditor General Office and the National Assembly, and revisions of procurement laws and regulations. The Bank’s PRSC is also supporting extensions of the computerized expenditure circuit to deconcentrate budget execution and, together with sector-specific projects, is assisting with the preparation for the political decentralization planned for 2003. The PRGF-supported program included measures to ensure the effectiveness of the Auditor General Office, and the Fund has given technical assistance in the area of tax and customs administration. Both the Bank and Fund staffs have followed jointly the government’s anticorruption policies, including the creation of the High Authority to Fight Corruption.

12. Promotion of private sector activity. Given the importance of private sector development for accelerating growth, the Bank and Fund staffs take a close common interest in policies that foster competition, as well as privatization. The Fund focuses on trade policies and monitors the financial performance of public enterprises. The Bank has taken the lead in assisting with the privatization of the energy and telecommunications sectors and removing administrative obstacles to the creation of enterprises and private investment.

Statement of IDA Credits

(In millions of U.S. dollars)

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Source: World Bank. N/e: Not yet effective

For additional information, please contact A. David Craig, Country Director, Tel. 473-2589 or Jan Walliser, Senior Country Economist, Tel. 473-2329.

APPENDIX IV Burkina Faso: Statistical Issues

1. In January 2001, Burkina Faso formally adopted the General Data Dissemination System (GDDS) as its statistical development framework, and a country coordinator has been named. During the GDDS workshop in Bamako in March-April 2001, draft GDDS metadata were prepared for all five sectors, including plans for improvements; they were posted on the Data Standards Bulletin Board (DSBB) in December 2001. Following the conversion of the National Institute of Statistics and Demography (INSD) into an autonomous agency, its allocations in human and material resources were significantly raised in the 2002 budget.

2. Burkina Faso has received technical assistance under the government finance statistics component of the regional GDDS project (funded by Japan) for member countries of the West African Economic and Monetary Union (WAEMU)1. Assistance under the real sector statistics component of the project will be afforded to Burkina Faso under phase II of the project during 2003. A data module ROSC mission visited Burkina Faso in May 2003.

Real sector

3. Serious problems have been identified both in the area of national accounts and price statistics. The INSD compiles the national accounts following the harmonized WAEMU guidelines, which are globally in line with the 1993 SNA. Annual data are available on estimates of GDP by economic activity (19 industries) and by expenditure categories at current and constant (1985) prices, as well as of institutional sector accounts, a general table of transactions and an overall balance of goods and services.

4. The quality of the national accounts estimates is impaired by the scarcity of suitable data sources and by deficiencies in statistical practices. In particular, the informal sector is not properly captured, with estimates derived from the limited informal sector surveys conducted in 1989 and 1996. With regard to administrative data, most of the medium and small enterprises belonging to the “modern sector” fall short of submitting accounting statements or tax declarations, although they are recorded in the directory of industrial and commercial enterprises. Other deficiencies emerging from GDDS work on metadata are the residual estimation of private household consumption in the absence of an adequate framework to validate data (i.e., supply-use tables), and the use of an outdated base year (1985) for constant price estimates. Plans for improvement under the GDDS include a survey of the informal sector and the compilation of a health satellite account requested by the Ministry of Health. The final 1993–1997 national accounts were published in 2001.

5. The consumer price index compiled by the INSD follows the methodology of the harmonized index adopted by the WAEMU member countries. The index covers only expenditures by households living in the capital. Further restrictions are the exclusion of non-African households, various types of purchased goods and services, as well as the services of owner-occupied dwellings. The weight for the item “food, beverages, and tobacco” (33.9 percent of the total) is very low in comparison with neighboring countries. A possible explanation is that the survey from which the weights are taken did not cover a full year. There are plans—dependent on finding appropriate funding—to update the weights. The base year for the index is 1996. If a product is unavailable, its price is presumed to remain unchanged for a period of up to three months. This is in conformity with the WAEMU methodology, but best practices would impute a price change for these items on the basis of the prices recorded for closely related products. The software package (CHAPO) used for calculating the consumer price index needs some improvement. There do not seem to be other major problems concerning the index, whose periodicity and timeliness meet SDDS requirements. The index is published by the INSD and is also available on the websites of the BCEAO and AFRISTAT.

6. The authorities do not compile a producer price index or wholesale price index. According to Burkina Faso’s plans for improvement posted on the Data Dissemination Bulletin Board, the development of these indices is not envisaged even for the medium term.

Government finance

7. The last summary annual data published in International Financial Statistics (IFS) are for 2000. No detailed data have been reported for the past five years to STA; hence, the 2002 Government Finance Statistics (GFS) Yearbook covers only 1984–93, with limited details and coverage, and the data relate only to budget operations and capital expenditures financed through grants. No data are reported on extrabudgetary and social security operations, as well as on operations financed by foreign loans. The compilation of GFS is constrained by a lack of coordination among fiscal agencies, which has a negative impact on the reliability and timeliness of these data.

Monetary accounts

8. Preliminary monetary data for Burkina Faso are prepared by the national agency of the Central Bank of West African States (BCEAO) and released officially with a lag of two to three months. Most of the problems in the monetary statistics are not specific to Burkina Faso but concern all member countries of the WAEMU. One statistical problem arises from the difficulties the BCEAO has encountered in estimating currency in circulation in each WAEMU member country because of the large backlog of unsorted banknotes held by the central bank in its various national agencies. A second problem has been the slower-than-expected implementation of the new accounting system by banks since its introduction on January 1, 1996. These delays contribute importantly to the lag in reporting monetary statistics.

9. A technical assistance mission visited the BCEAO in August 1997 to address issues affecting monetary and financial statistics. The mission recommended that timing targets for reducing delays in producing the principal report forms be established. The BCEAO is working on additional measures to accelerate the bank note sorting operations in order to expedite the reporting of monetary statistics.

10. A follow-up monetary and financial statistics, mission visited the headquarters of the BCEAO in May 2001 and found that the situation had improved recently. The mission reviewed the procedures for collecting and compiling monetary statistics, and addressed the outstanding methodological issues that concerned all the member countries of the WAEMU. The authorities agreed on an action plan for the implementation of the Monetary and Financial Statistics Manual (MFSM) and on the introduction of an area-wide page for the WAEMU in the IFS, which subsequently took place in January 2003. The mission discussed the provision of future technical assistance in monetary statistics for the region.

11. Following the recommendations of the 2001 monetary and financial statistics mission, a regional seminar on monetary and financial statistics was organized by the BCEAO in Dakar during April 22–25, 2003. An expert from STA participated in the seminar. Participants agreed to set up a working group of representatives from the national agencies and various departments of the BCEAO’s headquarters; the working group will follow-up on the seminar’s recommendations to foster implementation of the MFSM.

Balance of payments

12. Since December 1998, the responsibility for compiling and disseminating balance of payments statistics has been formally assigned to the BCEAO through area-wide legislation adopted by the WAEMU member countries. The national agency of the BCEAO is responsible for completing and disseminating the balance of payments statement, while the BCEAO headquarters delineates the methodology and calculates the international reserves managed on behalf of the participating countries. Data consistency has significantly improved over the past few years, with a full transition to the Balance of Payments Manual, fifth edition (BPM5), improved sourcing methods, and the training of staff. This improvement was supported by technical assistance provided by STA (a Statistical Advisor was posted at the BCEAO headquarters in Dakar from July 1996 through July 1999) and contributed to the reporting of better yearly balance of payments data in the framework of the BPM5 for the period 1996–99. This improvement, coupled with the backward revision of data from 1988 onward, has created a consistent series of annual balance of payments statistics. The BCEAO national agency disseminates balance of payments statistics with a seven-month lag, and annual international investment position data with an eighteen-month lag, in full consistency with the recommendations of the GDDS guidelines. Regarding trade data, the customs computer system (SYDONIA) was upgraded in 1999, and its installation in the main border customs offices is complete; this allows for a better monitoring of import data and should improve the coverage of informal trade. The further improvement of services and transfers (especially workers’ remittances) coverage is clearly linked to the future intensification of the contacts with reporting bodies; this implies that the authorities’ commitment to strengthen the human and technical resources should be enhanced.

13. Concerning the financial account, the foreign assets of the private nonbanking sector are still not well covered, especially the assets of WAEMU residents, which are obtained through the Bank for International Settlements (BIS) data. The organization of annual exhaustive surveys for the reporting of foreign direct investment transactions in Burkina Faso is still at a preliminary stage. The BCEAO authorities have indicated that they are looking forward to integrating two additional sources aimed at improving the quality of the balance of payments reports: the regional stock exchange transactions, and the firms’ balance sheet database (centrale des bilans). They have also indicated that quarterly data derived from banking settlements reports will soon be used to assess the existing information. In addition, the BCEAO has recently implemented a compilation system allowing commercial banks to report data on payments involving nonresidents. The balance of payments compilers receive payments statements every ten days; however, the information is not used in the compilation of the annual balance of payments statements but rather to support data quality controls and to provide early information to the BCEAO authorities.

14. The follow-up mission at the BCEAO headquarters (April 17–28, 2000) highlighted improvements in published data. However, the mission pointed out serious shortages in the human and technical resources that were hampering the implementation of the Statistical Advisor’s recommendations.

15. The computer debt-management system software, SYGADE, developed by the United Nations Conference on Trade and Development (UNCTAD), was introduced in 1999 and is fully operational. Information on debt disbursement has also been fully integrated with the expenditure-monitoring system

Burkina Faso: Core Statistical Indicators

(As of May 12, 2003)

article image

Up-to-date data available upon request from BCEAO; also updated regularly in press.

Customs data available monthly in conjunction with fiscal data.

Revised periodically during year.

EIS = IMF, Economic Information System; FIN = IMF, Finance’s Department; BCEAO = Central Bank of West African States.

Preliminary use for staff only; actual data unrestricted.
1

It provided for the cancellation of 87 percent of remaining pre-cutoff-date commercial claims (US$22 million).

2

The grant and lending program under the high-case scenario is slightly over US$350 million for the two fiscal years. The next CAS will closely follow the full update of Burkina Faso’s PRSP, currently scheduled for end-December 2003.

3

In accordance with the new harmonized methodology for preparing national accounts in the West African Economic and Monetary Union (WAEMU), Burkina Faso is adding the value added of the central government to the tertiary sector’s GDP. In the process, the authorities have revised upward the GDP series beginning in 1990, effectively increasing the nominal and real levels by about 10 percent over the levels reported previously. However, the trends in terms of growth rates have not changed significantly.

4

For the 2002–03 crop year, producers did not receive the bonus of CFAF 25 per kilogram—their share of the pretax profits of the cotton development company (SOFITEX) for the 2000/01 season—that had been paid in the 2001/02 crop year. Thus, the effective producer price dropped from CFAF 200 per kilogram in 2001/02 to CFAF 175 per kilogram in 2002/03.

5

In order to control expenditure, the authorities had, in view of the revenue shortfall and current spending overruns, already stopped commitments on current expenditure on goods and services at end-November 2002, in accordance with the regulation. Commitments continued on investment and on HIPC Initiative-related social spending, which were short of targets.

6

For a more detailed discussion of the absorption problem of HIPC Initiative-related resources in Burkina Faso, see Box 2.

7

Excluding grants, the overall fiscal deficit stood at 10.4 percent of GDP in 2002.

8

Defined as government revenue, excluding grants, minus total expenditure, excluding foreign-financed investment and lending.

9

Deposits at the treasury increased by CFAF 30.6 billion (1.4 percent of GDP) to CFAF 94.6 billion (4.3 percent of GDP), and the DENMs by CFAF 12.4 billion (0.6 percent of GDP) to CFAF 40.8 billion (1.9 percent of GDP) at end-2002.

10

The poverty line was defined in Burkina Faso in 1998 as an annual income of CFAF 72,690, or US$0.34 per day.

11

As indicated in Box 3, cotton producers still have scope for productivity growth, the realization of which could, however, be slow.

12

For a comprehensive discussion of trade policy and regional integration, see staff report on the 2002 discussions with the WAEMU (SM/03/75, 2/21/03).

13

The TDP is a temporary surtax applied on the c.i.f. value of industrial and agro-industrial products that has declined linearly since July 1999. It was envisaged that the surtax would reach a zero rate in January 2003. However, the WAEMU decided on December 2002 to extend the implementation ofthe TDP at rates of 2.5 to 5 percent until end-December 2003.

14

The number of tariff lines was reduced from 59 to 33, and the reference values on 29 of those were reduced by an average of about 20 percent in 2002.

15

The index of trade restrictiveness combines the main elements of customs tariff protection, namely, the unweighted average level of statutory tariffs, and nontariff barriers in relation to trade and production. Countries are rated on a scale from 1 to 10, with 1 indicating complete openness and 10 indicating complete restrictiveness.

16

The convention regulates relations between the European Union and the African, Caribbean and Pacific (ACP) countries in the areas of trade cooperation and development aid. Burkina Faso ratified the convention on May 6, 2002.

17

Burkina Faso reached the completion point under the original HIPC Initiative in July 2000 and under the enhanced HIPC Initiative in April 2002.

18

Excluding HIPC Initiative-related social spending, the basic fiscal deficit would narrow from 2.5 percent in 2002 to 2.1 percent of GDP in 2003 and 2004.

19

Including grants, the overall fiscal deficit would be reduced to 3.3 percent of GDP in 2004 from 5.0 percent of GDP in 2002.

20

The expansion in HIPC Initiative-related social spending is predicated on the assumption of a full use of resources that will be made available under the Initiative in 2003, as well as those carried over from 2000–02 (see Box 2).

21

The on-lending, which was financed by the issuance of four-year treasury bonds on the WAEMU regional market, was made to the government-owned urban development company (SONATUR) to develop a business district (projet d’aménagement de la zone d’activités commerciales et administratives—ZACA) in the capital city, Ouagadougou (MEFP, para. 15). The ZACA project is scheduled to repay the total amount during 2005–07, as it sells developed land to private operators. The government made a bridge loan equivalent to 0.4 percent of GDP to the electricity utility company, SONABEL, in April to help finance a power generator ahead of the approval of the World Bank-proposed energy sector credit. This second loan is scheduled to be refinanced by the World Bank by end-September 2003 on IDA terms.

22

The original budget law, approved in late 2002, did not incorporate the effect of the crisis.

23

The technical assistance mission that visited Burkina Faso in March 2003, following the PRGF arrangement negotiation mission, noted persisting weaknesses in tax administration and recommended the taking of priority measures to improve collection performance. The authorities will review these recommendations in the coming months, with a view to preparing and implementing their action plan.

24

The authorities are committed to containing spending commitments further in the event of tax revenue shortfall in 2003 and to reassessing the budget for 2004 at the time of the first review of the program, to take account of tax collection performance (MEFP, para. 15).

25

During the discussions, the staff agreed with the authorities on the need for microfinance institutions in rural areas to maintain the savings of their members in accounts with decentralized treasury offices.

26

Financial obligations to the Fund are expected to peak in 2004, when repayments interests and charges will total SDR 14.1 million, equivalent to 22.5 percent of total debt-service obligations, 5.3 percent of projected exports of goods and services, and 3.8 percent of government revenue (Table 3).

1

See EBS/00/128 (6/30/00) - “Limits on External Debt or Borrowing in Fund Arrangements—Proposed Change in Coverage of Debt Limits.”

2

See para. 2.

1

Assistance committed under the original framework is expressed in net present value (NPV) terms at the completion point, and assistance committed under the enhanced framework is expressed in NPV terms at the decision point. Hence, these two amounts can not be added.

2

Excludes commitment of additional enhanced HIPC Initiative assistance of SDR 10.93, million subject to receipt of satisfactory financial assurances from other creditors.

3

Under the enhanced framework, an additional disbursement is made at the completion point corresponding to interest income earned on the amount committed at the decision point but not disbursed during the interim period.

1

Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal, and Togo.

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Cover IMF Staff Country Reports
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
Author:
International Monetary Fund
Volume/Issue:
Volume 2003: Issue 197
Publisher:
International Monetary Fund
ISBN:
9781451803693
ISSN:
1934-7685
Pages:
108
DOI:
https://doi.org/10.5089/9781451803693.002
  • Figure 1.
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    Figure 1.

    Burkina Faso: Real and Nominal Effective Exchange Rates, January 1990 - November 2002

    (Index, 1990–100)

  • Figure 2.
    View in gallery
    Figure 2.

    Burkina Faso: Investment and Savings, 1997–2006

    (In percent of GDP)

  • Figure 3.
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    Figure 3.

    Burkina Faso: External Sector Developments, 1997–2006

  • Figure 4.
    View in gallery
    Figure 4.

    Burkina Faso: Fiscal Sector Developments, 1997–2006

    (In percent of GDP)

Figure 1.

Burkina Faso: Real and Nominal Effective Exchange Rates, January 1990 - November 2002

(Index, 1990–100)
Figure 2.

Burkina Faso: Investment and Savings, 1997–2006

(In percent of GDP)
Figure 3.

Burkina Faso: External Sector Developments, 1997–2006
Figure 4.

Burkina Faso: Fiscal Sector Developments, 1997–2006

(In percent of GDP)