Burkina Faso: Request for a Three-Year Arrangement Under the Extended Credit Facility—Staff Report; Staff Supplement; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Burkina Faso
In the context of the request for a three-year arrangement under the extended credit facility, the following documents have been released and are included in this package:
The staff report for the Request for a Three-Year Arrangement Under the Extended Credit Facility, prepared by a staff team of the IMF, following discussions that ended on April 9, 2010, with the officials of Burkina Faso on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on June 1, 2010. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF.
A staff supplement of June 1, 2010 updating information on recent developments.
A Press Release summarizing the views of the Executive Board as expressed during its June 14, 2010 discussion of the staff report that completed the request and/or review.
A statement by the Executive Director for Burkina Faso.
The documents listed below have been or will be separately released.
Letter of Intent sent to the IMF by the authorities of Burkina Faso*
Memorandum of Economic and Financial Policies by the authorities of Burkina Faso*
Technical Memorandum of Understanding*
*Also included in Staff Report
The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.
Copies of this report are available to the public from
International Monetary Fund • Publication Services
Request for a Three-Year Arrangement Under the Extended Credit Facility
Prepared by the African Department
Approved by Peter Allum and Thomas Dorsey
June 1, 2010
Discussions. The sixth review and negotiations for a three-year arrangement under the ECF took place in Ouagadougou during March 26–April 9, 2010. The staff team met with the ministers of Economy and Finance, Mining, Commerce, and Civil Service, the National Director of the BCEAO and other senior officials. The staff also held discussions with representatives of civil society organizations, the donor community, and members of parliament. The team comprised Ms. Malangu Kabedi-Mbuyi (head), Messrs. Gudmundsson, Boutin-Dufresne, and El Harrak (all AFR). Ms. Adenauer, the IMF Resident Representative assisted the mission.
Last ECF arrangement. The Executive Board approved a three-year ECF arrangement on April 23, 2007 with an access of 10 percent of quota, augmented twice to help the authorities mitigate the impact of adverse exogenous shocks. The program was instrumental in helping Burkina Faso preserve macroeconomic stability, and secure a higher level of external budgetary support. Because the authorities’ request to extend the program period was not submitted to the Board on time, the arrangement was not extended beyond its expiry date of April 22, 2010 to permit completion of the sixth review. This report informs the Executive Board on performance under the former ECF arrangement, including the period covered by the sixth review. It also proposes that access under the successor ECF arrangement be increased from the norm of 75 percent of quota (based on Burkina Faso’s outstanding debt to the Fund of 116.9 percent of quota at end-2009), to 76.67 percent of quota. The difference represents an amount equivalent to the disbursement that would have become available on completion of the sixth review.
New ECF arrangement. In the attached Letter of Intent, the authorities are requesting a new three-year ECF arrangement for SDR 46.15 million (76.67 percent of quota) to support their medium-term policy framework and structural reform agenda.
Last Executive Board discussion. On December 14, 2009, the Executive Board concluded the 2009 Article IV consultation and the fifth ECF review, and approved an augmentation of access of 55 percent of quota.
I. Recent Economic Developments and Performance under the Program
II. Policy Framework under the New ECF-Supported Program
A. Fiscal Policy and Public Financial Management
B. External Debt Sustainability
C. Private Sector Development
III. Access, Program Monitoring, and Risks
IV. Staff Appraisal
1. Selected Economic and Financial Indicators, 2007–14
2. Balance of Payments, 2007–14
3. Consolidated Operations of the Central Government, 2007–14
4. Monetary Survey, 2008–15
5. Indicators of Capacity to Repay the Fund, 2008–15
6. Schedule of Disbursements under the ECF Arrangement, 2010–13
7. Poverty-Reducing Social Expenditures, 2001–10
8. Selected Indicators on the Millennium Development Goals, 1990–2008
Box 1. Performance Under the Last ECF-Supported Program, 2007–09
1. Recent Economic Developments, 2005–09
2. External Sector Indicators, 2000–10
3. Medium-Term Outlook, 2010–14
4. Burkina Faso/WAEMU–Macroeconomic Developments and Prospects, 2002–13
Appendix I. Letter of Intent
Attachment I. Memorandum of Economic and Financial Policies for 2010/13
Attachment II. Technical Memorandum of Understanding
List of Acronyms
Automated system for customs data
Central Bank of West African States
tax on industrial and commercial profits
OHADA National Commission
Country Policy and Institutional Assessment
Financial Sector Assessment Program
single progressive tax on wages and salaries
Large taxpayer office
Millennium Challenge Corporation
Memorandum of Economic and Financial Policies
Medium taxpayer office
Organization for the Harmonization of Business Law in Africa
public financial management
Poverty Reduction Strategy Paper
real effective exchange rate
Stratégie pour une Croissance Accélérée et pour le Développement Durable (Strategy for Accelerated Growth and Sustainable Development)
Société Burkinabè des Fibres Textiles (The largest cotton ginning company)
West African Economic and Monetary Union
Macroeconomic and financial developments in 2009 were mixed. Economic activity was subdued because of the impact of adverse exogenous shocks, notably the global economic downturn. Inflation eased, mostly reflecting the decline in global food and fuel prices. The fiscal outturn was better than anticipated with higher revenue, thanks to efficiency gains in tax administration, and lower nonpriority expenditure. Credit to the economy slowed significantly reflecting low economic activity and commercial banks’ heightened caution in an uncertain environment. The external position improved, owing to a strong export performance and improved terms of trade.
Performance under the last ECF-supported program (2007–09) was broadly satisfactory. Most quantitative targets were met, and structural reforms progressed, although at a slow pace in some areas. Revenue performance fell short of program goals, mainly because of delays in fiscal reforms. The impact of the 2009 global economic downturn on international cotton prices and demand for textiles eroded somewhat the gains from recent reforms in the cotton sector. In particular, it pointed to the need to set up a sustainable price-smoothing mechanism for ginning companies. The ECF-supported program was instrumental in helping Burkina Faso preserve macroeconomic stability and mobilize budgetary support.
The authorities have prepared a medium-term policy framework to consolidate recent progress and enhance growth prospects and poverty reduction efforts, for which they are requesting IMF support under the ECF. This framework underpins a program that focuses on fiscal consolidation to sustain macroeconomic stability, and on a reform agenda geared to supporting private sector development. Priority structural reforms cover the financial sector, the cotton sector, the business environment, and public financial management.
Burkina Faso’s risk of debt distress is high. Results from the Debt Sustainability Analysis show that the threshold for the present value of debt-to-export ratio would be breached starting in 2015, pointing to Burkina Faso’s lack of diversification and dependence on cotton. All other indicators are well-below their indicative thresholds. Sensitivity tests show that the debt outlook is vulnerable to persistent large fiscal deficits, which underscores the need for fiscal consolidation and prudent borrowing policies.
There are risks to the program, mostly linked to the economy’s vulnerability to weather-related and terms of trade shocks. While it is difficult to mitigate these risks in the short-run, the efficient implementation of reforms envisaged under the program provides a sound basis to contain them in the medium-term. In the short-run, Burkina Faso’s strong performance under IMF-supported programs in the last several years augurs well for a successful implementation of the new program.
Staff supports the authorities’ request for a new ECF arrangement with the access level at 76.67 percent of quota, equivalent to SDR 46.15 million.
Front Matter Page
INTERNATIONAL MONETARY FUND
Request for a Three-Year Arrangement Under the Extended Credit Facility—Informational Annex
Prepared by the African Department (In collaboration with other departments)
Approved by Peter Allum and Thomas Dorsey
June 1, 2010
Relations with the Fund. Describes financial and technical assistance from the Fund and provides information on the safeguards assessment and exchange rate system. Outstanding purchases and loans amounted to SDR 70.38 million (116.9 percent of quota) at end-April 2010.
Statistical Issues. Assesses the quality of statistical data. Weaknesses in a broad range of economic statistics are hampering the analyses of economic developments in the country.
I. Relations with the Fund
II. JMAP Implementation
III. Statistical Issues
Front Matter Page
INTERNATIONAL MONETARY FUND AND INTERNATIONAL DEVELOPMENT ASSOCIATION
Joint IMF/World Bank Debt Sustainability Analysis 2010 1
Prepared by the staffs of the International Monetary Fund and the International Development Association
Approved by Michael Atingi-Ego and Thomas Dorsey (IMF) and Sudarshan Gooptu and Sudhir Shetty (IDA)
June 1, 2010
The results of this debt sustainability analysis (DSA) are consistent with those from the previous DSA. Burkina Faso is classified as a medium performer2 and its risk of debt distress is high, because under the baseline scenario, the present value (PV) of debt-to-exports ratio is breached starting in 2015. All other indicators remain below their indicative thresholds. Under a less favorable scenario, with higher fiscal deficits and lower growth, there would be a significant deterioration in the PV of debt-to-GDP and PV of debt-to-revenue ratios. An alternative scenario assuming scaled-up aid shows a significant improvement in debt indicators, reducing the risk of debt distress from high to moderate. Fiscal consolidation and export diversification are critical to support long-term debt sustainability.
Burkina Faso: Request for a Three-Year Arrangement Under the Extended Credit Facility: Staff Report; Staff Supplement; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Burkina Faso