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.
At the outset, I would like to convey Burkina Faso’s authorities appreciation for the continued support of Executive Directors and Management. I would also like to thank Staff for continued constructive policy advice and valuable technical assistance provided to the authorities.
Thanks to continued implementation of sound economic policies the authorities have, despite an adverse external environment, realized a real GDP growth rate of 5 percent in 2008, an increase from to the 3.6 percent growth rate recorded when the program started. This acceleration reflected the success of the measures taken by my authorities to diversify and improve productivity in the agricultural sector, and increased gold production. Inflation abated recently settling at 6.8 percent year-on-year in March 2009 after reaching 15.1 percent in June 2008 on account of the commodities and oil price shocks. Furthermore, all quantitative performance criteria and most of the benchmarks set under the program were met. Notably, my authorities increased revenue collection, contained the overall deficit within the program limits, even though they increased spending in order to mitigate the impact of the multiple exogenous shocks.
Going forward, my authorities are cognizant of the challenges ahead, including the risks posed by a deepening of the global downturn, high poverty rates and the economy’s exposure to exogenous shocks. They remain committed to implement sound policies with the support of their development partners, including the IMF. To that regard, they are requesting the completion of the fourth review under the PRGF supported program and the modification of performance criteria on the ceilling on overall fiscal deficit to allow for a slightly higher deficit reflecting the impact of the current global downturn, and on tax policy reform to reflect recent board decision on structural conditionality.
II. Prospects and medium term policies
The global financial crisis is having a significant impact on Burkina Faso’s macroeconomic outlook through real sector channels such as reduced demand for exports, lower inflows of foreign direct investments and remittances, and a decline of trade related fiscal revenues. As a result, GDP growth is projected to decline to 3.5 percent, although inflation is expected to revert towards the WAEMU’s regional average of 3 percent. My authorities will seek to mitigate the impact of the global financial crisis while aiming at protecting vulnerable households, and promoting a pro-poor and sustainable growth agenda.
Notably, on fiscal policy, my authorities are committed to intensify reforms aimed at creating the fiscal space required to support their growth and poverty reduction goals while preserving medium term debt sustainability. In order to achieve this objective, my authorities will strive to improve revenue collection and the effectiveness of public spending. On the revenue side, my authorities will pursue efforts to broaden the tax base including through a comprehensive tax policy reform which will aim at simplifying and modernizing tax legislation for both corporate income tax and the VAT, and streamlining exemptions. They are also committed to improve customs and tax administrations through the expanded coverage of the tax management system (SINTAX) and usage of the ASYCUDA transit module for customs clearances. On the expenditure side, my authorities are committed to increase the efficiency of public spending through improvements in budget execution and reforms in public expenditure management with a view to rationalizing expenditure processes. While they strive to minimize non-priority spending, they are increasing well targeted social spending and growth enhancing capital expenditures, particularly in infrastructure and rural development. In this vein, emergency measures taken in 2008 to address food and fuel price increases pressures have been phased-out in favor of more targeted interventions.
On debt sustainability and public debt management, my authorities are committed to preserving medium term debt sustainability through prudent debt policies. They will continue to adhere to their annual debt strategy which sets annual borrowing ceilings compatible with medium term debt sustainability.
As regards the debt-to-export ratio which led to the high risk of debt distress mentioned in the DSA, my authorities are committed, in addition to the aforementioned prudent debt policies, to promoting exports through measures aimed at improving the economy’s competitiveness and diversifying exports, including through reforms in the key cotton sector and the realization of the Samendeni dam project. They reiterate their commitment to a continued close consultation with their development partners including the World Bank as well as the stakeholders involved as they seek to achieve their goals. Although the report makes the conservative assumption that Burkina Faso will remain a medium performer throughout the forecast horizon, my authorities are committed to intensify their institutional reforms in order to regain quickly their traditionally held strong performer rating in the Country Policy and Institutional Assessment (CPIA) ranking.
On monetary and exchange rate policies, which are conducted at the regional level by the regional Central Bank (BCEAO), my authorities priority is to contain inflation below 3 percent in line with the WAEMU’s regional convergence criteria. In this respect, the pegged exchange rate regime has served Burkina’s economy well by anchoring inflation expectations. In order to stimulate growth and preserve the financial system from the liquidity and contractionary risks related to the global financial crisis, the BCEAO recently announced a 50 basis points reduction of its target rate.
Regarding the financial sector, my authorities are closely working with the Breton Woods institutions to formulate and implement a comprehensive action plan to strengthen the financial sector. This action plan, which will incorporate the latest FSAP recommendations, will aim particularly at i) overhauling the supervisory and regulatory framework to improve its effectiveness and enhance its oversight of non-banking and micro-finance institutions, ii) promote increased access to financial services, and iii) improve risk management.
On structural reforms, the authorities are committed to steadfastly implement structural reforms aimed at diversifying and improving the economy’s competitiveness with the view to reducing its vulnerability to exogenous shocks while promoting sustainable long run growth. They will focus on improving productivity and diversifying agricultural production, notably in the cotton sector where they are experimenting with high yield crops. They are also actively seeking support towards realizing the Samendeni dam project which will help reduce the vulnerability of the agriculture sector to the vagaries of the weather while allowing for more diversified counter seasonal productions.
My authorities are also committed to promote a sustainable private sector led growth, including through measures aimed at improving the business climate. In the cotton sector in particular they are actively seeking the participation of strategic investors in the capital of SOFITEX. On economic and administrative governance, my authorities are determined to intensify their institutional reforms in close consultation with the World Bank. They reiterate their commitment to international best practices in the management of natural resources as evidence by their adhesion to the EITI.
III. Conclusion
My authorities will continue to steadfastly implement their reform agenda in order to realize further progress towards reaching the Millennium Development Goals. In this endeavor they are deeply appreciative of the assistance provided by their development partners. Given the significant development needs and the challenging external environment, further strong support from the Fund and the international community will be critical.
In light of the overall strong program performance and the strength of the authorities policies going forward, I request Directors approval of my authorities request for the completion of the fourth review of the PRGF program and modification of performance criteria on fiscal deficit ceilling and tax reform.