Statement by Mr. Assimaidou on Burkina Faso Executive Board Meeting, July 1, 2013

This paper discusses Burkina Faso’s Sixth Review Under the Three-Year Arrangement under the Extended Credit Facility and Requests for Extension of the Arrangement, Modification of Continuous Performance Criterion, and Rephasing of Disbursement. Domestic revenue collection over performed by a significant margin in 2012, and program performance remains good. In 2012, domestic revenues were higher than targeted by 1.7 percentage points of revised GDP. Lower financing needs resulted in government savings in the banking system. The authorities are prioritizing improvements in public investment planning, spending capacity to meet infrastructure, and training needs that constrain growth.

Abstract

This paper discusses Burkina Faso’s Sixth Review Under the Three-Year Arrangement under the Extended Credit Facility and Requests for Extension of the Arrangement, Modification of Continuous Performance Criterion, and Rephasing of Disbursement. Domestic revenue collection over performed by a significant margin in 2012, and program performance remains good. In 2012, domestic revenues were higher than targeted by 1.7 percentage points of revised GDP. Lower financing needs resulted in government savings in the banking system. The authorities are prioritizing improvements in public investment planning, spending capacity to meet infrastructure, and training needs that constrain growth.

I would like to convey the appreciation of my Burkina Faso authorities’ to the IMF for its constructive technical and financial engagement. The authorities thank Fund’s staff country team, as well as the Ex-Post Evaluation mission for the candid and helpful policy discussions recently held in Ouagadougou in the context of this sixth ECF program review. They are also grateful for Fund’s valuable contribution to the high level Conference on Inclusive Growth.

Burkina Faso’s economic growth momentum remained strong in spite of a difficult external environment marked by the conflict in neighboring Mali. This conflict resulted in a significant influx of refugees and livestock, and heightened security measures to contain regional geo-political risks. The authorities, however, pursued steadfastly the implementation of the economic program supported under the ECF program which continued to anchor their reform efforts aimed at promoting growth and reducing poverty, while preserving macroeconomic stability.

Burkina Faso’s performance under the program remains strong. All quantitative performance criteria have been met. All but two structural reforms benchmarks were implemented as well. Remedial actions were taken to fulfill the goal of the unmet benchmarks. My authorities, therefore, request the completion of the sixth ECF program review, an extension of the current ECF program, and the addition of a seventh review to allow them to carry on to fruition reforms underway, notably structural reforms in public financial management and in the energy and state-owned enterprises sectors. The extension will also allow for discussions for a successor program to be completed in time to avoid an interruption in program coverage.

Going forward, daunting development challenges remain, notably in translating high growth rates into poverty reduction, and in strengthening the resilience of the economy in the face of increased volatility in commodities prices. The authorities’ remain committed to implement sound economic policies as they address these challenges, guided by the homegrown poverty reduction and sustainable growth strategy (SCADD).

Recent Economic Developments

Real GDP grew by 9 percent in 2012, following a 5 percent increase in 2011. Economic growth momentum was sustained by the buoyancy of the primary and secondary sectors on account of higher gold and cotton exports, improved agricultural productivity, as well as a good harvest. Although recently in decline, inflation was higher than the regional average due to increases in fuel prices and the lingering effect of the previous year’s drought spell. The trade balance improved due to higher volumes and prices of cotton and gold exports. However, increases in infrastructure related investments needs lead to a deterioration of the current account.

On fiscal policy, the authorities aimed at improving revenue mobilization and the allocation of spending towards growth and poverty reduction actions.

On the revenue side, they focused on strengthening and streamlining tax and customs administration, combating fraud, and enhancing tax compliance. In this vein, they established revenue collection units, acquired and tested the SYLVIE custom management software, and developed a cross-checking module to share information between government agencies with the view to limit fraud. As a result, the tax ratio increased by 1.7 percentage point of GDP in 2012.

On spending, the authorities endeavored to control the wage bill and improve the efficiency of spending, including by completing the census and biometric enrollment of civil servants, and preparing a review of civil service compensation scheme with the view to streamlining it. Priority spending, particularly social and investment spending, was increased. However, one-off increases in spending related to elections, food security, and the refugees contributed to an increase by 0.7 percent of GDP in the overall deficit on a cash basis in 2012. Additional revenue mobilization and expenditure control efforts helped offset this increase and register a budget surplus in the first quarter of 2013.

On debt policy, the authorities submitted a medium term debt strategy to the National Public Debt Committee with the view to preserving debt sustainability.

The authorities’ structural reforms focused on the implementation of SCADD whose overall objective is the achievement of strong, sustained and inclusive economic growth. Key steps taken include the promotion of growth poles, and support infrastructure in agriculture and mining sectors. They also took steps to improve the financial operations and management of key state owned enterprises, including SONABHY (the state-owned oil importer) and SONABEL (the state-owned electric company). Higher cotton prices and production levels helped improve the financial outlook of the cotton sector. SOFITEX, the main cotton ginning company benefited from this improved outlook.

Policies for the Remainder of 2013

Government policies will continue to be informed by SCADD priorities. In this regard, the authorities will seek to promote an inclusive and sustainable growth, while consolidating reforms already in train to ensure that macroeconomic stability is preserved.

The macroeconomic outlook is expected to be favorable with the real growth momentum sustained at 7 percent. Inflation is expected to revert towards the regional average following the good 2012-2013 agricultural season. Exports, particularly of gold and cotton are expected to remain strong, with the trade balance improving.

Fiscal Policy

The authorities’ fiscal policies will focus on consolidating reforms aimed at mobilizing revenue and in improving spending efficiency. Tax and customs administration reforms already in train will be carried to fruition to further improve revenue collection. Moreover, the authorities plan to broaden the tax base by overhauling the taxation of the mining resources sector.

Spending will be further aligned with SCADD priorities and will seek to foster a pro-poor and inclusive growth. To that purpose, the authorities will step up expenditure control and prioritization efforts, with a particular emphasis on improving the quality of public expenditure and building the capacity for investment planning and execution. They plan to create a high level committee to monitor the implementation of investments projects. Moreover they will intensify efforts to modernize and computerize public spending systems. The authorities will also strengthen the social safety net, by implementing the recently adopted national action plan which, amongst others, provide for universal health care.

Debt Policy

Debt policy will continue to aim at preserving medium term debt sustainability, by improving further debt management capability, and following a prudent borrowing strategy. The authorities welcome the results of the DSA which point to an improved debt outlook. They are nonetheless resolved to further strengthen debt sustainability by mitigating vulnerabilities identified by the DSA’s most stringent stress tests. In particular, they will prioritize efforts to diversify the export base of economy.

Furthermore, the authorities will continue efforts to secure concessional financing for their development agenda. For selected investment projects in hydro agriculture and transportation, with high returns and positive development impact, and for which concessional financing is insufficient, they plan to have recourse to non-concessional financing to close the financing gap. They will seek the most favorable terms preferably in the context of public-private partnerships. The authorities extensively consulted developments partners, including the IFC and the IDB, and other interested stakeholders in selecting or evaluating the projects, and welcome the DSA’s finding that the projects will not lead to a deterioration of the debt outlook.

Monetary and Financial Sector Policies

Financial sector policy will focus on deepening the financial system, and improving access to financial services. A strategy for improving the quality of financial services provided by the national Post service will be adopted. Micro finance development efforts will also be continued.

Structural Reforms

The authorities will efforts will center on the implementation of SCADD to promote a pro-poor growth agenda and broaden the basis for growth. In line with the findings of the annual review of SCADD, the authorities identified sectors and regions where stronger capacity will help improve the implementation of the strategy. Amongst the priorities retained are the promotion of the Bagre’s growth pole, a cluster of agri-business enterprises and research centers located in the special economic zone of Bagré; infrastructure investments particularly in hydro-agriculture, and transportation.

The authorities will also continue to build on the progress already achieved to further improve the business environment and promote a private-sector driven growth. In light of the increased share of the private sector-led mining sector in the economy, the authorities plan a revision of the mining code to better align it with international standards. Steps are planned to improve the provision of electricity, a major constrain to doing business. The authorities also will continue to improve the delivery of public service and procurement processes including by streamlining administrative procedures and improving efficiency.

Regarding the cotton sector, the authorities continue to envision divesting the government’s ownership share in SOFITEX when conditions become favorable. To that regard they plan to update the projected financial situation of the ginning company’s business plan in line with the sector’s strategy.

Ex-Post Assessment and Successor Program with the Fund

The authorities broadly agree with the ex-post assessment update report’s findings and recommendations. Fund engagement has been very helpful in anchoring their reforms efforts and in the progress they made towards achieving their growth and poverty reduction objectives. The increase in the domestic revenue efforts has been a notable achievement under the Fund program with tax revenue increasing from 15 percent of GDP in 2007, to 18.7 in the 2013 supplemental budget law, above the WAEMU’s 17 percent convergence criteria. Social expenditure increased from an average of 4.8 percent in 2006 to 7.5 in 2012. Capital expenditure has also been higher than regional average.

The report also identified areas with potential for further improvements, which could be addressed in the context of a successor program. The authorities value the policy dialogue with the IMF as well as the technical and program related assistance provided. The IMF plays also an important catalytic role in helping mobilize and make the most of external resources. Although they have not yet settled on a definitive path for future relations, they are keen to further reinforce the relationship with the institution, and intend to start discussions at the time of the next review on a successor program.

Conclusion

In light of the implementation of program performance criteria, and the authorities’ commitment to sound policies going forward, I would appreciate Director’s support to the authorities’ requests.

Burkina Faso: Sixth Review Under the Three-Year Arrangement Under the Extended Credit Facility, Requests for Extension of the Arrangement, Modification of Continuous Performance Criterion, and Rephasing of Disbursement—Staff Report; Staff Supplements; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Burkina Faso
Author: International Monetary Fund. African Dept.