Burkina Faso: Fourth Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility
Author: International Monetary Fund
Publication Date:
28 Jul 2009
eISBN:
9781451804003
Language:
English
Keywords:
ISCR; CR; debt; PRGF arrangement; authority; GDP deflator; West public finance management mission; financial asset; CFA franc; common currency; BCEAO authority; Tax administration core functions; Government finance statistics
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This paper focuses on the Fourth Review for Burkina Faso under the Poverty Reduction and Growth Facility program. All quantitative performance criteria were met, notably the targets for the fiscal deficit, revenues, and social expenditure. The authorities reiterated their commitment to reforming tax policy. Despite progress on preparation, some delays have occurred because of delays in delivery of technical assistance, inadequate domestic capacity, and the challenging external context. The priority for 2009 is to sustain the reform momentum in a difficult environment.

Abstract

This paper focuses on the Fourth Review for Burkina Faso under the Poverty Reduction and Growth Facility program. All quantitative performance criteria were met, notably the targets for the fiscal deficit, revenues, and social expenditure. The authorities reiterated their commitment to reforming tax policy. Despite progress on preparation, some delays have occurred because of delays in delivery of technical assistance, inadequate domestic capacity, and the challenging external context. The priority for 2009 is to sustain the reform momentum in a difficult environment.

Burkina Faso—Relations with the Fund

(As of March 31, 2009)

I. Membership Status: Joined: May 2, 1963; accepted Article VIII in 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(SDR million; based on existing use of resources and present holdings of SDRs):

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Implementation of HIPC Initiative:

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VIII. Implementation of MDRI Assistance:

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IX. Safeguards Assessments:

The Central Bank of West African States (BCEAO) is the common central bank of the countries of the West African Economic and Monetary Union, which includes Burkina Faso. The most recent safeguards assessment of the BCEAO was completed on November 4, 2005. The assessment indicated progress has been made in strengthening the bank's safeguards framework since the 2002 assessment and identified some areas where further steps would help solidify it.

The BCEAO now publishes a full set of audited financial statements and improvements have been made to move financial reporting closer to International Financial Reporting Standards (IFRS). Furthermore, an internal audit charter has been put in place, mechanisms for improving risk management have been established, and follow-up on internal and external audit recommendations has been strengthened.

The results of continuous safeguards monitoring indicate that while certain vulnerabilities remain in internal control systems and legal structure, there has been some progress in other areas, including through: (i) improving the external audit process by adopting a multi-year audit program; (ii) establishing an audit committee; (iii) expanding disclosures on financial positions of WAEMU countries with the Fund in the notes to the annual financial statements; and (iv) further strengthening of the effectiveness of the internal audit function.

X. Exchange Rate Arrangement:

Burkina Faso is a member of the West African Economic and Monetary Union (WAEMU) and has no separate legal tender. The union’s common currency, the CFA franc, is pegged to the euro at a rate of CFAF 655.957 = EUR 1, consistent with the official conversions rate of the French franc to the Euro and the previous fixed rate of the CFA franc to the French franc of CFAF 100= F 1. On May 6, 2009, the rate of the CFA franc in terms of SDR was CFAF 750.80 = SDR 1.0. Effective January 1, 2007, the exchange arrangement of the WAEMU countries has been reclassified to the category of conventional pegged arrangement from the category of exchange arrangement with no separate legal tender. The new classification is based on the behavior of the common currency, whereas the previous classification was based on the lack of a separate legal tender. The new classification thus only reflects a definitional change, and is not based on a judgment that there has been a substantive change in the exchange regime or other policies of the currency union or its member. The exchange system is free of restrictions on the making of payments and transfers on current international transactions.

XI. Article IV Consultations:

The periodicity of Burkina Faso’s Article IV consultation is set in accordance with the July 15, 2002 Executive Board Decision on consultation cycles. Discussions on the 2007 Article IV consultation and first review under the Poverty Reduction and Growth Facility (PRGF) were held during the period September 19–October 4, 2007 in Ouagadougou. The staff report and the Selected Issues and Informational Annex were considered by the Executive Board on January 9, 2008. The next article IV consultation is scheduled for September 2009.

XII. 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. 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 broadly concurred with the mission assessment. On July 31, 2002, the authorities formally adopted an action plan based on the recommendations of the final ROSC.

An STA mission during May 8–21, 2003 assisted the authorities in preparing a data ROSC. The report was published in March 2004. The mission found that most of the methodologies used in the compilation of macroeconomic statistics are in broad conformity with internationally accepted guidelines. However, most datasets are affected by limited or impaired source data arising from irregularity in the conduct of surveys (national accounts), use of outdated weights (CPI), or low response rate to surveys (balance of payments). For CPI and government finance statistics, data dissemination meets the SDDS requirement, but for other macroeconomic datasets, timeliness falls short of GDDS recommendations. The authorities broadly concurred with the main findings of the mission as well as the recommendations made to address them.

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’ approval of 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 endorsed by the authorities.

XIII. Technical Assistance:

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

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XIV. Resident Representative:

Ms Isabell Adenaeur took up the post of Resident Representative in June 2008.

Burkina Faso—Joint Management Action Plan (JMAP) Implementation

IMF and World Bank Joint Management Action Plan (Update)

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Burkina Faso: Statistical Issues

Overall, data provision is adequate for surveillance purposes, but serious shortcomings hamper economic and program monitoring. The country has participated in the General Data Dissemination System (GDDS) since December 2001 and its metadata are posted on the Dissemination Standards Bulletin Board (DSBB). However, the metadata have not been updated since 2001. Following the conversion of the National Institute of Statistics and Demography (INSD) into an autonomous agency, its human and material resources were significantly increased in 2002.

The country has received technical assistance (TA) under the government finance statistics (GFS) component of the regional GDDS project (funded by Japan) for member countries of the West African Economic and Monetary Union (WAEMU).1 A data ROSC mission visited Burkina Faso in May 2003 and the report was published in March 2004. The May 2006 and September 2006 STA missions helped the authorities update the statistical plans for improvement and recommended further increasing resources to support statistical reforms, especially to the INSD, for additional staff and survey work. This was seen as a prerequisite to enhanced overall effectiveness of technical assistance.

Real sector

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

The quality of the national accounts estimates is affected 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 limited informal sector surveys conducted in 1989 and 1996. Although included in the directory of industrial and commercial enterprises, most medium and small enterprises belonging to the “modern sector” fall short of submitting accounting statements or tax declarations. Other deficiencies revealed from GDDS metadata are the residual estimation of private household consumption in the absence of an adequate framework to validate data (i.e., supply-use tables). The country has completed, with TA from the Fund and other donors, the current price accounts for the period 1999–2001 (with 1999 as the new base year). A work program aiming at improving the quality of the national accounts and producing estimates for missing years has been set up with AFRITAC West assistance.

The consumer price index compiled by the INSD follows the methodology of the harmonized index adopted by the WAEMU member countries. The index only covers 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 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—subject to the availability of funding—to update the weights. Currently, the base year is 1996. When a product is unavailable, its price is presumed to remain unchanged for a period of up to three months, which is in conformity with the WAEMU methodology. However, best practice would impute a price change for these items on the basis of the prices recorded for closely related products. The software package used for calculating the consumer price index needs to be improved. 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 Central Bank of West African States (BCEAO) and AFRISTAT websites.

The authorities do not compile a producer price index or wholesale price index. According to plans for improvement posted on the DSBB, the development of these indices is not envisaged, even for the medium term.

Government finance

In general, GFS compilation is constrained by a lack of coordination among fiscal agencies. The data ROSC identified as areas for improvement the production of functional and ministerial breakdown of expenditure, extending the coverage of the TOFE to the general government, and basing compilation on the Treasury ledger. The above-mentioned areas benefited from the June–July 2007 FAD/AFRITAC West public finance management mission. It provided a medium-term strategy to improve budget management, furthered the progress on prior STA recommendations, and strongly encouraged the authorities to adopt functional classification of expenditure and other methods consistent with GFSM 2001. Annual data are published in the International Financial Statistics (IFS) through 2005. No detailed monthly or quarterly data have been reported to STA for publication. The 2007 Government Finance Statistics Yearbook includes data for 2004, 2005 and 2006 that were for the first time reported in the format of the Government Finance Statistics Manual 2001 (GFSM 2001). The data cover budgetary operations only, but include a breakdown by function for 2004.

Monetary and financial statistics

Preliminary monetary data are prepared by the national agency of the BCEAO and released officially (including to the IMF Statistics Department (STA)) by the BCEAO headquarters. Most of the problems in the monetary statistics are not specific to Burkina Faso, but affect all member countries of the WAEMU. For example, the BCEAO has encountered difficulties in estimating currency in circulation in each WAEMU member country due to large backlogs of unsorted banknotes held by the central bank in its various national agencies. In August 2005, the BCEAO informed STA of a change in the method to estimate currency in circulation in the WAEMU countries. The new method, based on updated sorting coefficients (“coefficients de tri”), has been applied backwards to time series from December 2003 and aims at improving the accuracy and timeliness of monetary statistics in the WAEMU countries. The African Department and STA await more information from the authorities to review the new methodology. Meanwhile, however, key monetary aggregates such as broad money, net foreign assets and other monetary indicators have undergone substantial revisions.

In August 2006, as part of the authorities’ efforts to implement the methodology in the Monetary and Financial Statistics Manual, the BCEAO reported to STA monetary data for June 2006 for all member countries using Standardized Report Forms (1SR-central bank, 2SR-other depository corporations, and 5SR-monetary aggregates). In response to STA’s comments, the BCEAO has recently provided a revised 1SR and indicated that 2SR is being revised. There has been improvement in the timeliness of depository corporations and interest rate data. The authorities now report monetary data to STA regularly, and the lag has been reduced from about six months to four or less.

Balance of payments

Regarding trade data, the customs computer system (ASYCUDA) was upgraded in 1999, and its implementation in the main border customs offices is complete; this allowed for better monitoring of import data and should improve the coverage of informal trade. Further improvement of services and transfers (especially workers’ remittances) coverage is clearly linked to the future intensification of the contacts with reporting bodies. The 2003 data ROSC mission found that the response rate for the survey among industrial and commercial enterprises was only 40 percent. To address this, the mission recommended that more attention and resources be devoted to improve data collection.

In the financial account, the foreign assets of the private nonbank sector are well covered through the use of data from the Bank for International Settlements. The organization of annual surveys for the reporting of foreign direct investment transactions 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 settlement reports will soon be used to assess the existing information. 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.

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

The BCEAO national agency disseminates balance of payments statistics with a seven-month lag, in partial compliance with the recommendations of the GDDS, and annual international investment position data with an eighteen-month lag. Updates for the IFS and the BOPSY since 2001 are pending.

Despite reiterated requests, BOP and IIP data have not been reported to STA for publication in IFS and the BOPSY since 2006.

Burkina Faso: Table of Common Indicators Required for Surveillance (May, 2009)

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Any reserve assets that are pledged or otherwise encumbered should be specified separately. Also, data should comprise short-term liabilities linked to a foreign currency but settled by other means as well as the notional values of financial derivatives to pay and to receive foreign currency, including those linked to a foreign currency but settled by other means.

Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

Foreign, domestic bank, and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.

Including currency and maturity composition.

Includes external gross financial asset and liability positions vis-á-vis nonresidents.

Daily (D); weekly (W); monthly (M); quarterly (Q); annually (A); irregular (I); and not available (NA).

These columns should only be included for countries for which Data ROSC (or a Substantive Update) has been published.

Reflects the assessment provided in the data ROSC or the Substantive Update (published on…) and based on the findings of the mission that took place during…, for the dataset corresponding to the variable in each row. The assessment indicates whether international standards concerning concepts and definitions, scope, classification/sectorization, and basis for recording are fully observed (O); largely observed (LO); largely not observed (LNO); not observed (NO); and not available (NA).

Same as footnote 9, except referring to international standards concerning (respectively) source data, assessment of source data, statistical techniques, assessment and validation of intermediate data and statistical outputs, and revision studies.

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 cannot be added.

2

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.

3

The Multilateral Debt Relief Initiative (MDRI) provides 100 percent debt relief to eligible member countries that are qualified for the assistance. Grant assistance from the MDRI Trust and HIPC resources provide debt relief to cover the full stock of debt owed to the Fund as of end-2004 that remains outstanding at the time the member qualifies for such debt relief.

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: Fourth Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility and Request for Modification of Performance Criteria: Staff Report; Staff Supplement; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Burkina Faso
Author: International Monetary Fund
Volume/Issue:
Volume 2009: Issue 222
Publisher:
International Monetary Fund
ISBN:
9781451804003
ISSN:
1934-7685
Pages:
93
DOI:
https://doi.org/10.5089/9781451804003.002