Appendix I. Managing Natural Resource Windfalls
The management of natural resource windfalls is a central short- to medium-run challenge for policy makers in resource-rich countries, particularly developing countries.1 For intertemporal equity, it is crucial that these underground resources be not wasted but rather transformed into physical, human, and financial assets that could help support growth for generations to come. Moreover, resource windfalls, being typically large relative to the size of the domestic economy, can have macroeconomic consequences on inflation, competitiveness, and the structure of the economy, particularly with respect to the tradable and non-tradable sectors.
Annex I. The Burkinabé Authorities’ Reaction
The draft EPA Update was presented to and discussed with a wide group of stakeholders in Ouagadougou during May 6-8, 2013. The authorities appreciated the opportunity to review the Fund’s program engagement and discuss longer-term priorities and were broadly in agreement with the report’s findings and recommendations. They provided the following specific comments:
“The assessment report shows that, in the period from 2007 to 2012, growth fluctuated above regional norms, and reached an average of 5.3 percent. This calls for two (2) major observations:
Fluctuation in growth and weakness in growth for achieving the MDGs: The report seems to justify this situation by the unfavorable climatic conditions that prevail in Burkina Faso and unfavorable trends in global cotton prices. With regard to this first observation, it is important to stress two aspects in the upcoming programs. In addition to production support, such as fertilizer, seeds, supervision, etc., it is important to implement policies aimed at controlling water supply and promoting agricultural products, cotton processing in particular. Moreover, upcoming programs should do more in terms of taking the production of energy into account.
The Burkinabé economy is seriously exposed to external shocks: this situation is not unique to Burkina Faso. Cotton and gold are the leading sources of foreign currency. It would be helpful to emphasize quality tourism infrastructure that could support cultural events held in Burkina Faso such as the Panafrican Film and Television Festival of Ouagadougou (FESPACO), the International Art and Craft Fair (SIAO), etc..
Fiscal reforms requires modernizing revenue agencies, including by giving them adequate resources, so that the government is able to collect more revenue and better harness expenditures. To this end, future revenue programs should be bi-directional. The first direction should deal with the revenue collection agencies (modernization, training, interconnection and professionalism). The second direction should make customs, taxation and treasury services more accessible to users by streamlining them and improving awareness and proximity. Due to the obvious constraints of the tax administration in terms of modernization, it is very important to propose that future programs incorporate measures that address computerization, procedure reengineering, and the use of information technology and secure documents to control fraud and forgery.
Furthermore, in terms of revenue, it was indicated that progress in reforming revenue mobilization has been substantial. There have been about thirty IMF missions that have provided assistance in this area between 2006 and 2011. However, if, despite all the efforts, the regional tax ratio norm of 17 percent has not yet been achieved, questions may be raised as to the degree to which these reforms have been effectively implemented.
On the expenditure side, there must be an emphasis on the quality of expenditures, in other words, expenditures that could promote and facilitate private investments. In addition to social expenditures, these expenditures should be directed towards improving access to the major production areas and to facilities for processing and preserving agricultural products (such as tomatoes, mangoes, etc.). They must complement business climate improvements efforts. In this vein, it is important to welcome the creation of the commercial court.
The development of the mining sector is, to be sure, advantageous for companies that provide services. However, more analysis could be done to highlight the impact the mining sector has on the growth of the private sector overall, including in terms of creating new companies and the investments these companies make, etc..
Fighting poverty should be a major component of future programs and should take Burkina Faso’s specificities into account. In addition to the government’s ongoing efforts, quality technical training in this area should be encouraged and promoted with donors support. Likewise, the programs should provide for startup (credit, for example) and supervision (management) for young technicians who have been through the training centers that were established for this purpose. This support will be advantageous in that it will fight unemployment among youths and foster a sort of formalization of the activities of small crafts persons who, in the past, were in the informal sector. At the same time, this support will serve as a means through which the dividends from growth are passed on to those who are most vulnerable.”
Burkina Faso—Request for Three-Year Arrangement Under the Poverty Reduction and Growth Facility, (EBS/07/38, 4/11/07) and reviews, and Burkina Faso—Request for a Three-Year Arrangement Under the Extended Credit Facility, (EBS/10/104, 6/1/10) and reviews (until the Fifth Review of the 2010 arrangement under the ECF).
Burkina Faso—Ex Post Assessment of Longer-Term Program Engagement, (SM/06/294, 8/28/06).
On January 2008, an SDR 9.03 million increase in access was approved to help address the impact of higher oil prices and the adverse shock to the cotton sector (see EBS/07/153).
The successor ECF arrangement was increased from the norm of 75 percent of quota to 76.67 percent of quota. The difference reflected an amount equivalent to the disbursement that would have become available on completion of the sixth review. Because the authorities’ request to extend the program period was not submitted to the Board on time, the arrangement was not extended beyond its expiration date of April 22, 2010 to permit completion of the sixth review.
The authorities’ homegrown development program was defined in the Poverty Reduction Strategy Paper (PRSP) and its successor, the Strategy for Accelerated Growth and Sustained Development (SCADD), which was completed in 2011.
See Table 1, according to which 60 percent of access approved in the last two arrangements came from augmentations.
The Ten-Year Development Plan for Basic Education (PDDEB) was completed in 2010 and successfully increased the number of students and the ratio of books to students.
The Reproductive Health Project, which began in 2011, aims at improving the utilization and quality of reproductive health services in selected regions.
The Santiago Principles (2008) adopted by a group of internationally recognized funds, provide a set of generally accepted good operating principles that can help guide countries with the financial management of fund resources.
While it is difficult to provide any counterfactual in a country like Burkina Faso where the Fund has been continuously engaged for 22 years, the literature find that concessionary IMF programs under the PRGF (and its predecessors) were positively and significantly linked to official development assistance (see, for instance, Bird and Rowlands, 2009). The strong statistical association seems to reflect chiefly a convergence of interests between the IMF and aid donors, rather than liquidity or signaling effects from IMF lending.
See IMF (2012) Macroeconomic Policy Frameworks for Resource-Rich Developing Countries, August.