On February 2, 2005, the Executive Board of the International Monetary Fund (IMF) completed the second and third reviews of Burkina Faso’s economic performance under a SDR 24.08 million (about US$36.6 million) Poverty Reduction and Growth Facility (PRGF) arrangement (see Press Release No. 03/82). The completion of the reviews enables the release of a further SDR 6.88 million (about US$10.5 million), which will bring the total amount drawn under the arrangement to SDR 13.76 million (about US$20.9 million).
In completing the reviews, the Executive Board granted a waiver of the nonobservance of two structural performance criteria and agreed to extend the three-year arrangement by two months to August 2006 from June 2006.
Following the Executive Board’s discussion of Burkina Faso, Anne O. Krueger, First Deputy Managing Director and Acting Chair, stated:
“Burkina Faso’s economy performed well during 2004. Economic growth remained robust and inflation low, and fiscal revenue and expenditure targets were met. However, several challenges to sustaining economic success lie ahead, especially in the face of a sharp fall in world cotton prices, a rise in oil prices, and worsening debt indicators. These challenges need to be addressed decisively if Burkina Faso is to achieve the Millennium Development Goals and debt sustainability.
“The authorities’ emphasis on price flexibility and on steps to strengthen competitiveness is well placed. If the world price of cotton does not rebound in the coming months, all parties—including the government as shareholder in the largest ginning company—are encouraged to discuss ways to increase the pass-through of world prices to all participants in the sector. In the electricity sector, the gradual move toward pricing based on cost recovery as well as the ongoing investment program will increase efficiency and improve the competitiveness of the economy. With regard to labor market reform, the decrees and regulations that accompany the recently passed labor law should be issued expeditiously, as the new regulatory framework will help improve labor market flexibility and reduce the cost of doing business in Burkina Faso.
“The authorities will continue to focus on poverty-reducing, pro-growth policies while reducing the external debt ratios in the medium term. The reorientation of public spending in key social sectors is welcome, and the planned increase in the wage bill is rightly targeted primarily to the priority health and education sectors. The wage increase is consistent with the overall spending limits under the government’s economic program. The projected fiscal deficit is expected to be financed with net donor flows in the form of grants, debt relief, and highly concessional borrowing. The external debt burden is projected to decline in 2005, and a further reduction of the high debt burden remains a key priority over the medium term. In this regard, critical policy priorities will be to maintain prudent fiscal policies, obtain more grants, and continue the outward-oriented and efficiency-enhancing reform agenda.
“Ongoing efforts to strengthen good governance should be bolstered by a swift follow-up on the findings of the report of the High Authority on the Coordination of the Fight Against Corruption,” Ms. Krueger said.
The PRGF is the IMF’s concessional facility for low-income countries. PRGF-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners, and articulated in a Poverty Reduction Strategy Paper, or PRSP. This is intended to ensure that each PRGF-supported program is consistent with a comprehensive framework for macroeconomic, structural, and social policies, to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent, and are repayable over 10 years with a 5 ½-year grace period on principal payments.