Statement by Kossi Assimaidou, Executive Director for Burkina Faso

Economic recovery has gained momentum, and short-term prospects have improved. Program implementation is good. Fiscal consolidation is essential for Burkina Faso’s macroeconomic stability and debt sustainability. Structural reforms remain focused on a few priority areas supporting growth and macroeconomic stability. Terms-of-trade and weather-related shocks are the main risks to the economic outlook. Executive Directors commend the government for their commitment to sound policies and encourage them to proceed with the reform agenda. The government also needs to sustain revenue mobilization to improve fiscal sustainability.

Abstract

Economic recovery has gained momentum, and short-term prospects have improved. Program implementation is good. Fiscal consolidation is essential for Burkina Faso’s macroeconomic stability and debt sustainability. Structural reforms remain focused on a few priority areas supporting growth and macroeconomic stability. Terms-of-trade and weather-related shocks are the main risks to the economic outlook. Executive Directors commend the government for their commitment to sound policies and encourage them to proceed with the reform agenda. The government also needs to sustain revenue mobilization to improve fiscal sustainability.

We thank staff for a well written report and for the constructive discussions recently held in Ouagadougou with the authorities, in connection to the first review of the Extended Credit Facility (ECF) arrangement. We also thank Management and Executive Directors for their continued support to Burkina Faso.

I. Recent Economic Developments And Program Performance

The real sector posted a strong recovery in 2010, with GDP growth projections increasing to 5.2 percent, reflecting the authorities’ forceful response to the crisis, as well as structural reforms efforts. The agriculture, notably cotton production, and the mining sectors were the main drivers of growth. Inflation remained subdued, well below the 3 percent regional convergence criterion.

However, in July 2010, Burkina Faso experienced again severe flooding which impacted more than 100,000 persons, causing losses of lives and significant infrastructure damages, especially in the Eastern and Northeastern parts of the country. The country continued as well to face the effects of the lingering global economic and financial crisis. A World Bank study concluded that the series of shocks have reversed six years of progress in poverty reduction in Burkina Faso, and that further deterioration is possible if the impact of the global crisis worsens.

Performance under the Extended Credit Facility has been strong, notwithstanding the exogenous shocks and a socio-political environment dominated by the recently concluded electoral cycle. All quantitative performance criteria were met except the criterion on the overall budget deficit, which was met with a month delay due to a late budget support disbursement. My authorities also sought to improve revenue collection, notably by implementing tax administration reforms, and enhancing the monitoring of revenue collection agencies. On spending, the authorities focused their efforts on improving efficiency, by streamlining budget allocation processes in order to improve the rate of execution of capital and poverty-related spending. They also improved the tracking of poverty-related expenditure. Structural reforms benchmarks were comfortably met.

Governance and state institutions were strengthened further in the run up to the Presidential elections. At the regional level, the authorities have been actively engaged in peace-brokering initiatives, which will contribute to the normalization of trade flows, and to regional integration.

In light of their overall program performance, and with the view to furthering their growth and poverty reduction agenda, as detailed in the following, the authorities request the completion of the first review under the ECF, and a waiver for the non-observance of a performance criterion.

II. Policies For 2011

In the period ahead, the authorities will continue to seek the consolidation of macroeconomic stability, and to achieve further poverty reduction gains. They are in the process of finalizing a homegrown Strategy for Accelerated Growth and Sustainable Development (SCADD) which will guide their actions. The key focus of SCADD will be the promotion of a pro-poor and sustainable growth path. To achieve this objective, the authorities plan to create the fiscal space needed, promote the development of the financial sector with the view to supporting a private sector-led development, and deepen structural reforms.

Fiscal and Debt Policies

The authorities’ fiscal policies will aim at supporting economic recovery while preserving medium-term fiscal and debt sustainability. To that regard, they will intensify their revenue mobilization efforts, including through new tax policy measures, the broadening of the tax base, and tax administration reforms. They will in particular seek to improve tax compliance of medium-sized enterprises, and enhance the controls and monitoring of revenue collection units.

As regards public spending, the authorities will focus on reallocating spending towards priority sectors, notably in infrastructure and social sectors such as health and education.

The authorities are committed to implementing prudent debt policies in order to preserve debt sustainability. In line with their poverty reduction strategy, they will seek to diversify exports towards high-value products and services, including mining, agriculture, livestock, and tourism. They are also seeking an update of the World Bank’s Debt Management Performance Assessment, which will help inform their policies. Moreover, they plan to further strengthen the debt management unit capabilities by improvement of its data base and IT framework.

The authorities are appreciative of the Fund’s ongoing efforts to overhaul its guidance on debt policies and limits in Fund-supported programs. Improvements to the Debt Sustainability Analysis, with a view to improving its flexibility, refining sustainability indicators, and integrating the contribution of public investment to growth would be helpful in their efforts to mobilize needed resources to implement their development strategy.

Financial Sector Policies

The authorities will follow up on the recently adopted action plan for the financial sector which aims at promoting financial development and stability. To foster financial sector development, they envision increasing competition in the banking sector by reducing further the government’s stake in the sector, and by taking steps towards the privatization of the postal financial services. Moreover, they plan to adopt a national strategy for microfinance in order to harness its contribution to development. They will also continue their efforts to strengthen the regulatory and supervisory framework, in particular for decentralized financial institutions.

Structural Reforms

On the structural reform front, the authorities will implement a comprehensive agenda, with the goal of accelerating growth and further reducing poverty. Their new strategy adopts a regional approach which takes advantage of regional specializations to create regional growth and competitiveness poles. The authorities plan also to increase investments in human capital to create the skills matching the labor market’s needs, with the view to creating employment.

The authorities’ efforts will also be directed towards improving the resilience of the economy to shocks through economic diversification. They will foster the development of the private sector by improving further the business climate and investing in critical infrastructure. Amongst the measures planned are the installment of a one-stop window for foreign trade with streamlined customs procedures, and the opening of commercial courts in Ouagadougou and Bobo Dioulasso to expedite the resolution of trade disputes.

In light of the increased share of the mining sector in economic activity in Burkina, the authorities will continue their efforts to adhere to international best practices in the management of natural resources, including through a timely implementation of EITI principles.

In the cotton sector, the authorities plan to deepen further the reforms already underway in order to put the sector on a sustainable financial footing. To this regard, they plan to move forward with the restructuration of SOFITEX, the main cotton ginning company, and to finalize the price-smoothing Fund.

III. Conclusion

Given Burkina Faso’s continued track record of strong program implementation, the significant challenges ahead, and the authorities’ adherence to sound policies to address these challenges, I call on Directors to support the completion of the first program review under the ECF arrangement, and to grant a waiver for the non-observance of a performance criterion.

Burkina Faso: First Review Under the Three-Year Arrangement Under the Extended Credit Facility and Request for a Waiver of Nonobservance of Performance Criterion-Staff Report; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Burkina Faso
Author: International Monetary Fund