Statement by Mr. Assimaidou, Executive Director for Burkina Faso, June 8, 2012

This paper presents findings of the Fourth Review Under the Extended Credit Facility Arrangement for Burkina Faso. Near-term policy discussions focused on specifying 2012 financing needs arising from the shocks to help prevent crowding out the authorities’ development program—Strategy for Accelerated Growth and Sustainable Development. The authorities have implemented decisive adjustment measures, without which financing needs would be much higher. Program performance was strong in 2011, despite domestic social unrest and political turmoil in neighboring Côte d’Ivoire. All quantitative performance criteria and all indicative targets were met.

Abstract

This paper presents findings of the Fourth Review Under the Extended Credit Facility Arrangement for Burkina Faso. Near-term policy discussions focused on specifying 2012 financing needs arising from the shocks to help prevent crowding out the authorities’ development program—Strategy for Accelerated Growth and Sustainable Development. The authorities have implemented decisive adjustment measures, without which financing needs would be much higher. Program performance was strong in 2011, despite domestic social unrest and political turmoil in neighboring Côte d’Ivoire. All quantitative performance criteria and all indicative targets were met.

My Burkina Faso’s authorities thank staff, Management, and the Executive Board, for their continued support in their efforts to implement the Extended Credit Facility (ECF) program. They are very appreciative of the constructive policy dialogue held in Ouagadougou with Staff in the context of the last review mission.

Burkina Faso’s authorities have continued to demonstrate a strong commitment to prudent policies and sound reforms, amidst a challenging environment due to the instability in the region, and the weakening of the global economy. In this context, all program performance criteria were met. Moreover, all indicative targets were implemented, except for the one related to social expenditures, which was missed owing to delays in the mobilization of resources. Most of the structural benchmarks were also achieved.

Although growth has recovered, mounted social demands, geo-political crises in the sub-region, the food shortages brought by low rainfalls, as well as the increased international oil prices, are generating additional pressures on the limited resources available. The conflict in Mali in particular has so far, led to an inflow of more than 57,000 refugees in Burkina Faso. In addition to the current challenges, the authorities continue to face the daunting task of making inroads towards the Millennium Development Goals.

In order to address the balance of payments needs arising from the response to the crisis, and preserve macroeconomic stability, while pursuing their growth and sustainable development strategy (SCADD), the authorities are requesting an augmentation of access under the existing ECF arrangement, and the completion of the fourth review.

I. Recent Economic Developments

Real GDP growth decelerated markedly in 2011, settling at 4.2 percent, well below the expected 7.9 percent, due to unfavorable weather conditions and the social unrest in the first half of the year. The policy environment in 2012 has also been challenging due to political instability in the sub-region, and the poor rainy season which caused a food crisis in West Africa.

The authorities responded to the different challenges by taking initiatives to appease social tensions at home, and by conducting mediations aimed at reducing geo-political tensions in the sub-region, in close partnership with the United Nations, and regional organizations.

The inflow of refugees overwhelmed the capacities of NGOs and other agencies which are endeavoring to assist them, and the government took the lead to supplement their efforts until further resources become available from the UN and other donors. The authorities also took measures to address food insecurity stemming from this years’ drought. All these measures have severely tested the capacity of Burkina Faso. Nevertheless, program implementation has been maintained.

On fiscal policy, despite the difficult social context, the authorities managed to meet the fiscal deficit objective. They exceeded their revenue target notably through reforms aimed at improving tax and customs administration. In order to reduce fraud and increase compliance, scanners were deployed at customs offices, the SYLVIE system was launched, and efforts were made which helped reduce the large taxpayer non-filer rate to 3 percent, well below the initial goal of 5 percent.

Going forward, recent adoption of a new petroleum pricing mechanism, and increased retail oil prices, will be instrumental in sustaining strong revenue performance and protecting public finances, notably by ensuring the pass through of international oil prices to domestic prices.

On spending, the government stepped up efforts to control spending and improve its efficiency, including through the expansion of auditing activities of line ministries, and improved payroll management.

The authorities continued to contract external financing only on concessional terms, with a view to preserving debt sustainability. They also pursued efforts to improve their debt management capabilities by implementing the recommendations made by the 2011 World Bank’s DeMPA mission. Notably, they conducted training sessions on risk management, and on SYGADE to improve cash flow management and forecasting.

As regards financial sector policies, the authorities sought to improve access to financial services by adopting a new microfinance development strategy, and an implementation plan.

On structural reforms, the authorities’ actively implemented their strategy for accelerated growth and sustainable development (SCADD). They inaugurated the Bagré growth pole, a pilot project designed to use synergies and economies of scale in an integrated set of rural development projects. They also continued to improve governance and transparency in the natural resources sector, in line with EITI’s recommendations. Regarding cotton, a strategy was adopted with the goal of reducing the public sector’s stake in the sector.

II. Policies for the Remainder of 2012

The authorities will seek to mitigate the impact of the crises, and to strengthen the economy’s resilience to future shocks, while pursing the implementation of their accelerated growth and development strategy, SCADD.

Fiscal Policy

Fiscal policy will aim at creating the fiscal space needed to finance growth enhancing priority investments, and to meet crisis related increases in social spending, while preserving medium term fiscal sustainability.

The government plans to carry forward the remaining phases of the food crisis response, and to allocate additional resources for refugees assistance operations. Beyond spending related to crises response, the authorities will re-allocate resources towards public investment projects identified as critical by SCADD, including rural development infrastructures such as dams and irrigation systems. They will also aim at controlling spending and enhancing further its efficiency, including through improvements of budget control processes and in the procurement systems.

On the revenue side, the authorities will pursue efforts to improve revenue collections. In this regard, they plan to consolidate reforms underway, and to continue the modernization of the customs and revenue administration offices, and to deploy additional modules on the customs management software. They also plan to step up their efforts to reduce fraud and further ensure tax compliance. To that effect, tax collection units will be added, and the coverage of tax audits will be expanded. Efforts will also be made to install customs units at mining sites, and improve their inspection mechanism.

Debt policies

The authorities remain committed to the preservation of debt sustainability. They welcome the reclassification of Burkina in the new DSA as at “moderate risk” of debt distress, which results from years of adherence to prudent borrowing policies and the support of their development partners in the form of grants and concessional lending. Looking forward they are committed to further improve this record through sound debt policies, and the strengthening of their debt management capacity.

They plan to continue to seek financing for priority projects on concessional terms or in the form of grants. However, given the increasingly limited availability of concessional resources, reflecting the impact of the global financial crisis on traditional donors’ finances, the authorities intend to tap non-concessional resources for some profitable investment projects.

Financial Sector Policies

As regards the financial sector, the authorities will intensify their efforts to increase access to the financial services, including for small and medium-sized enterprises. They will also closely monitor the transition of the banking system to the new regulatory framework requiring added capital ratios.

Structural reforms

The authorities plan to further their ambitious structural reforms agenda under the framework provided by the homegrown growth and poverty reduction strategy, SCADD. This growth and poverty reduction strategy provides for sustained investments in human capital, particularly in the health and education sectors. Along with building a skilled labor force, the authorities plan to launch additional regional growth clusters building on lessons learned from the pilot Bagré growth pole.

Each growth pole will harness the country’s competitive advantage to build a diversified and striving economy. Investments in rural development, notably in water resources management, will help secure the food supply and reduce the economy’s vulnerability to weather-related shocks. In addition to boosting productive sectors, the authorities plan to remove growth bottlenecks, by investing in transportation infrastructures and in improving the availability and affordability of energy supply.

They will also seek to promote private sector development, including through measures aimed at facilitating the creation and financing of small businesses, and at improving the business climate. On the latter, they will seek to reduce production factors costs, notably of energy, and to improve the legal framework for doing business.

Given the rapid growth of the mining sector’s share in the economy, the authorities plan to implement reforms with the technical assistance of the World Bank and the IMF in order to make the best use of the natural resources in promoting a sustainable development. They intend to review the legal framework to improve transparency in the sector and harmonize the legislation with regional mining standards, while improving the management of mining permits. They also hope to realize the fiscal revenue potential of the mining sector and to leverage its contribution to their efforts to diversify the economy.

In the cotton sector, the authorities will seek the assistance of an investment bank to help implement their recently adopted strategy to reduce the government’s stake in the sector. Higher international cotton prices and the sector’s expansion could help improve SOFITEX’s balance sheets.

III. Conclusion

In spite of a difficult policy making environment, marked by the food crisis, and geo-political tensions and a subsequent inflow of refugees, the authorities have steadfastly implemented their program of economic and financial reforms, with Fund’s support. They remain committed to sound policies going forward, to accelerate growth and reduce poverty while increasing the economy’s resilience to future shocks. To assist their reform efforts, they are requesting the support of the Board for the completion of the fourth review under the ECF arrangement, the modification of performance criteria, and an augmentation of access to help cope with balance of payments needs stemming from the crises.

Given the strong commitment of the authorities to the ongoing program, and the determination of the authorities to achieve their growth and poverty reduction objectives, I would appreciate the support of Directors to the requests of my Burkinabé authorities.

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