Statement by Kossi Assimaidou, Executive Director for Burkina Faso

This study discusses how Burkina Faso’s economy recovered from the 2009 downturn. Recent economic and social developments used to overcome the 2009 downturn are explained. Discussions on fiscal policy and mitigating measures against exogenous shocks, external sector policies and reforms, and prospects for accelerated growth under the new Poverty Reduction Strategy Paper (PRSP) are focused in this paper. The performance of the program will be monitored by structural benchmarks and quantitative targets. Finally, the conclusion of the second Extended Credit Facility (ECF) review and medium-term policy was recommended by IMF staff.

Abstract

This study discusses how Burkina Faso’s economy recovered from the 2009 downturn. Recent economic and social developments used to overcome the 2009 downturn are explained. Discussions on fiscal policy and mitigating measures against exogenous shocks, external sector policies and reforms, and prospects for accelerated growth under the new Poverty Reduction Strategy Paper (PRSP) are focused in this paper. The performance of the program will be monitored by structural benchmarks and quantitative targets. Finally, the conclusion of the second Extended Credit Facility (ECF) review and medium-term policy was recommended by IMF staff.

I would like to convey my authorities’ appreciation for the Fund’s continued support to Burkina Faso and the quality of the policy dialogue during the discussions under the Extended Credit Facility (ECF) program review held in Ouagadougou in March-April 2011. The staff report is well balanced and reflects the broad convergence of views between the authorities and staff on the key challenges facing Burkina Faso.

My authorities have continued to implement the ECF-supported program amid a particularly difficult environment. The external context was marked by the global economic and financial crisis and by regional instability, including the post-electoral crisis in Cote d’lvoire with which Burkina has close trade links. Higher fuel and food prices—largely imported—added pressures on the cost of living. On the domestic front, Burkina Faso also faced a severe socio-political crisis characterized by broad social demands and violent protests.

In addressing these multiple crises, the authorities privileged dialogue and negotiations with domestic stakeholders, and close consultations with development partners. They are thankful for the continued support of the international community to Burkina Faso throughout these very challenging times.

Amid the difficult environment, the authorities implemented steadfastly the ECF-supported program. They made progress in achieving the program’s goals of consolidating macroeconomic stability, promoting sustainable growth and furthering poverty reduction. All quantitative performance criteria were met with comfortable margins. All structural benchmarks at end-December 2010 were also met. The authorities also made so far good progress on reform measures envisaged for 2011.

Looking forward, the authorities are committed to further implement reforms in order to consolidate the gains already achieved and reduce remaining vulnerabilities, notably those related to rising fuel and food prices, revenue constraints and volatile social context. They request the completion of the second review under the ECF. They also request a modification of performance criteria on the overall fiscal deficit for June and December 2011 to take into account their response to the multiple crises they have faced recently.

I. Recent Economic Developments

Driven by the mining and agricultural sectors, real GDP growth in 2010 is estimated at 7.9 percent, which represents acceleration relative to 2009 (3.2 percent). Despite pressures from higher international prices, inflation rate declined to -0.6 percent—well within the regional norms—thanks to good harvest. Although investment-related imports increased sharply, the external position strengthened as well, with improved terms of trade and higher volumes of exports, particularly gold.

On fiscal policy, the authorities implemented reforms aimed at mobilizing revenue and strengthening expenditure controls, and met their overall budget deficit target. Key measures undertaken in the area of revenue collection are improvements in taxpayers’ database management, a simplification of customs procedures and stepped-up inspections, and large taxpayer compliance actions. As a result, revenue increased to 15.6 percent in GDP in 2010, compared to 13.7 percent in 2009, with tax revenues increasing by 14.4 percent. In parallel, the authorities’ efforts to control expenditure led to a reduction in current spending and a lower wage bill. Additional spending was directed towards social spending, particularly in education and health, and investment outlays, including the reconstruction of infrastructure damaged by severe flooding in 2009 and 2010.

Regarding the financial sector, the authorities continued to implement their financial sector development strategy. They organized outreach activities in order to promote access to banking services. They also undertook an audit of the insurance sector’s regulatory body in order to ensure that it fully meets its mandate.

With respect to structural reforms, the authorities intensified reforms aimed at enhancing the public sector’s effectiveness and promoting the private sector, including through the privatization of CCVA, a transfer of shares in the Banque de I’Habitat, and the strengthening of natural resources management through adherence to the Extracted Industries Transparency Initiative’s standards.

In the cotton sector, the authorities sought to consolidate the financial position of SOFITEX, the cotton ginning company. They also undertook to reallocate cotton production areas between cotton ginning companies, with the view to improving the productivity and viability of smaller ginneries.

II. Policy and Reform Agenda for 2011

Fiscal and Debt Policies

Fiscal policies will seek to support the authorities’ objectives of accelerated and sustainable development, while preserving macroeconomic stability. The reforms envisioned will strengthen revenue mobilization, and enhance the effectiveness of spending. On the revenue side, key measures planned include the implementation of the corporate income tax, an expansion in the computerization of the tax offices, investments in capacity in the customs offices, and increased joint inspections by customs and tax administrations.

On the expenditure side, the authorities will seek to increase spending directed at priority sectors. They plan to increase investments in areas identified by the Strategy for Accelerated Growth and Sustained Development (SCADD) as critical to achieve their poverty reduction and accelerated growth objectives, including in education, health and infrastructure. Expenditure in the latter sector includes outlays to increase energy supply, notably solar-powered rural electrification.

Given the heightened near-term uncertainty stemming from the unsettled economic environment—both domestically and in advanced countries—the authorities have made contingency plans to reduce spending allocations or adjust line-ministries’ appropriations to make up for any budget shortfall, with the view to preserving fiscal sustainability.

The authorities remain committed to pursuing prudent debt policies, aimed at preserving debt sustainability. They will seek in priority financing in the form of grants or concessional loans. They will also undertake reforms to further strengthen their debt management capabilities, in line with the recommendations of the World Bank’s recent debt management performance assessment mission.

Structural Reforms

The authorities’ reform agenda going forward will be informed by the SCADD which envisions a multipronged growth enhancement and diversification strategy based on regional competitiveness clusters.

The structural reform agenda in 2011 focuses on implementing priority projects identified by SCADD, with the view to reaching sustainably high growth levels which will support the authorities’ poverty reduction objectives. To this end, the authorities will promote private sector’s participation in priority sectors, including through Public-Private Partnerships (PPPs), and financial sector development, notably through the implementation of the recently-adopted strategy to promote PPPs.

As regards the financial sector, the authorities plan to intensify the implementation of this sector’s strategy, including through reforms aimed at promoting micro-finance and enhancing the quality of the postal office’s financial services.

In the cotton sector, the authorities will pursue reforms undertaken as part of their comprehensive strategy aimed at putting this sector on a sustainable path, and reducing risks to the budget stemming from it. They will seek to further enhance the productivity of SOFITEX by reducing costs, improving risk management, and reducing the government’s stake in the company. A review of the price-smoothing and producer price determination mechanisms is envisioned.

III. Poverty Reduction and Growth Strategy

The authorities’ SCADD provides the framework for achieving Burkina Faso’s growth and poverty reduction goals for 2011-15. It builds on progress made and lessons drawn under the implementation of the PRSP during the last decade. It is also consistent with the country’s ambitious long-term development strategy (Burkina Faso Vision 2020).

The authorities acknowledge challenges to the successful implementation of their SCADD. In particular, they recognize the need to incorporate lessons from the recent political and social developments in this strategy going forward and the necessity to enhance revenue collection in a medium-term fiscal strategy to meet the financing needs of the SCADD. More broadly, the authorities greatly value the recommendations made by the World Bank and Fund staffs to advance growth-enhancing reforms, give priority to governance and accountability, improve the business environment further, and address administrative capacity constraints. In this regard, they hope that they can continue to count on technical assistance and financial support from these institutions and other development partners.

IV. Conclusion

Although my authorities continue to face unprecedented challenges, they managed to meet all performance criteria and benchmarks under the ECF-supported program. They are committed to implement further reforms under the new poverty reduction strategy—SCADD—to further accelerate growth and reduce poverty. I would appreciate Directors’ support of my authorities’ requests for the conclusion of the second review under the ECF program and modification of performance criteria. They also count on the continued strong support of the international community, notably the Fund, to Burkina Faso during this critical period.

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