Statement by Mr. Assimaidou and Mr. Diallo on Burkina Faso Executive Board Meeting, December 16, 2013

This paper focuses on Burkina Faso’s Seventh Review Under the Extended Credit Facility (ECF) Arrangement and Request for a new three-year ECF arrangement. Economic activity in Burkina Faso continued to grow at a brisk pace in 2013. Growth projections have been revised slightly downwards to 6.8 percent in 2013 and 2014. The authorities are requesting a successor three-year ECF arrangement to meet projected balance of payments needs. Based on ad referendum agreements, the requested successor ECF-supported program aims to address long-term structural issues, while preserving stability in a potentially more challenging macroeconomic environment going forward.

Abstract

This paper focuses on Burkina Faso’s Seventh Review Under the Extended Credit Facility (ECF) Arrangement and Request for a new three-year ECF arrangement. Economic activity in Burkina Faso continued to grow at a brisk pace in 2013. Growth projections have been revised slightly downwards to 6.8 percent in 2013 and 2014. The authorities are requesting a successor three-year ECF arrangement to meet projected balance of payments needs. Based on ad referendum agreements, the requested successor ECF-supported program aims to address long-term structural issues, while preserving stability in a potentially more challenging macroeconomic environment going forward.

On behalf of my Burkina Faso’s authorities, I would like to thank staff for the comprehensive report and the close policy dialogue with the authorities. The authorities broadly share staff’s recommendations and value their advice and policy guidance in the formulation of their adjustment program. They are also thankful for the technical assistance provided by the IMF.

Recent Economic Developments and Program Performance

Burkina Faso’s authorities continued to implement sound economic policies, notwithstanding an economic environment marked by an expected slowdown in economic activity on account of lower gold and cotton world prices, and the under-execution of public investment spending.

Albeit lower than the 9 percent growth rate registered in 2012, the pace of real GDP growth continued to remain strong, at an estimated 6.8 percent in 2013. The sources of growth remained broad-based, mostly driven by the secondary and tertiary sectors. The current account position deteriorated to 3.5 percent of GDP from the 0.8 percent in 2012, owing to lower gold export proceeds. Notwithstanding, the short run volatility in commodities world price, the mining sector’s prospects remain promising with the forthcoming exploitation of new mines and the planned expansion of existing activities. Inflation declined below the WAEMU’s 3 percent convergence criterion during the review period.

Against this background, program implementation has been strong. All end-June 2013 quantitative performance criteria were met, as well as all structural benchmarks. The government is also on track to meet all end-December 2013 goals.

On fiscal policy, in particular, the authorities’ revenue mobilization efforts were directed at improving tax compliance, reducing fraud and corruption, and broadening the coverage of the VAT on imports in the mining sector. Spending was constrained, while provisions for social spending and job creating investments were increased. The authorities also took steps to improve the execution rate of investment spending with the creation of ministerial committee to review projects with spending execution rate below 50 percent. Progress was also made towards streamlining and computerizing the public expenditure chain with the adoption, by the Council of Ministers, of an action plan to that effect.

Structural reforms were aimed at realizing the objectives of SCADD, the homegrown development strategy, and increasing the resilience of the economy to shocks, including in the key cotton sector.

Notwithstanding the progress achieved, Burkina Faso remains vulnerable to climate-related and geopolitical shocks and to risks of deterioration of terms of trade—with the increased volatility of key trade goods prices such as gold, cotton or oil, in addition to the daunting poverty reduction needs. The authorities are fully aware of the challenges ahead and are committed to promote an inclusive growth, diversify, and strengthen the resilience of the economy. In recognition of these risks, and to support the implementation of their homegrown development strategy (SCADD), while consolidating macroeconomic stability and catalyzing donor’s assistance, the authorities are requesting an ECF successor arrangement.

Challenges and Policies under Successor ECF arrangement

The successor ECF arrangement seeks to build on the achievements realized under previous Fund programs, and incorporates the recommendations of the latest Ex-post assessment update, to address the country’s medium-term challenges while consolidating macroeconomic stability. In line with SCADD objectives, the main challenges on which the authorities plan to focus their efforts are: i) the effective management of proceeds from the exploitation of natural resources ii) improving the quality and pace of investment spending; iii) transforming high GDP growth rates into more inclusive growth; iv) ensuring of an adequate supply of electricity at an affordable costs;

Fiscal policy

The authorities’ goal under the new ECF arrangement is to further their inclusive growth agenda by allocating resources towards priority investment and social spending, while preserving fiscal sustainability.

After years of steady reforms aimed at improving revenue collection, the tax to GDP ratio in Burkina increased to 17 percent of GDP, and is expected to reach 19.1 percent under the new Fund supported program. Going forward, the authorities plan to consolidate customs and tax administration reforms under way, such as the migration to ASYCUDA World, and the interconnection between the taxes and customs administration databases in order to improve information sharing. They will also broaden the tax base, including with the implementation of a new tax on mobile phones.

The authorities will shift focus from revenue mobilization efforts, to improving the pace of execution of public investment and the quality of spending. Following a review of the public expenditure chain, four major reform areas were identified: i) the procurement process; ii) the expenditure authorization process; iii) insufficient digitalization; iv) donor approval procedures; An inter-ministerial committee tasked with monitoring the implementation of investment spending will also ensure of its quality. Moreover, steps are planned towards the adoption of a program budget. With the forthcoming mining sector’s boom expected to further bolster revenues, the authorities are open to discussions within the WAEMU framework on fiscal rules to govern the use of natural resource revenues.

Debt policy

The authorities remain determined to preserve debt sustainability by following prudent debt policies, and by intensifying efforts to diversify exports in the context of SCADD implementation. Furthermore, a comprehensive five-year debt management strategy was recently prepared. The authorities will also continue to seek to borrow under the most favorable terms. In light of the limited availability of concessional financing, notably due to the exceptionally low-interest rate environment, the authorities welcome the increased flexibility in the use of the nominal limit on non-concessional borrowing to strengthen debt management capabilities, and build experience in non-concessional lending.

Financial Sector Development

The banking sector in Burkina Faso remains sound, adequately capitalized and profitable. The authorities are committed to improving access to financial services. To achieve this objective they will pursue the implementation of the National Microfinance Strategy to strengthen the micro finance sector. In this vein, they plan to build the institutional capacity of the Decentralized financial system support unit within the Chamber of Business. Moreover, the national postal service, SONAPOST, is expected to adopt an action plan to implement a strategy to provide basic financial services throughout the country, using its comparative advantage that enables it to cover a broad geographical region.

Structural reforms

The authorities will vigorously pursue the implementation of SCADD with the view to fostering an inclusive and broad-based growth model. Key measures include the development of the Bagré growth pole project; and the launch of a new growth hub in the Sahel region for which preparatory work has been initiated. The authorities will also intensify efforts to promote a private sector-driven growth by improving further the climate for business; and fostering the establishment of processing units.

Energy shortages have been a major impediment to growth and to doing business in Burkina Faso. Hence, energy sector policy will be geared towards improving the supply of energy and the resilience of the power grid, through regional interconnections, the construction of new power projects and the development of solar energy. The authorities are also committed to improving further the financial situation of SOBABEL, the national electricity company and SONABHY, the hydrocarbon importing company. Amongst others, options to improve cost recovery will be envisioned.

In order to better share the dividends of higher growth, and with a projected mining sector windfall, the authorities are taking steps to strengthen the social safety net, including with the planned universal health care coverage, and the scaling up of investment in education. Besides recruiting teachers and building new schools, the authorities will also focus on the development of vocational and technical schools providing skills matching the labor market needs.

The authorities are also determined to further improve the management of natural resources, with advice from Fund’s technical assistance. Already an EITI complying member, the authorities plan to broaden transparency along the mining production chain, and are thriving to have one of the most transparent system to manage mining revenues in Africa, by working toward EITI++. In this vein, they are taking steps to publish online all research permits in the mining sector, as well as all approval decrees, contracts and feasibility studies.

The authorities will also continue to strengthen the cotton sector, which has had the strongest growth performance in West African over the past decade, as an essential component of their development and poverty reduction strategy given the sector’s weight on exports, and the share of the poor employed in this sector. Amongst others, the authorities will ensure that SOFITEX’s business decision are taken based on realistic assumptions on yield, commodities price projections and an updated business plan.

Conclusion

Burkina Faso’s performance, under the program, has been strong. As staff notes in their report (para.9) “Burkina Faso has been one of the fastest growing non resource-rich SSA countries”, with the main cause being “sound macroeconomic policy management and consistent efforts to support growth.” My authorities are committed to sound policies in strengthening the resilience of the economy, and fostering an inclusive and poverty reducing growth going forward. In support of their efforts, I would appreciate the Board’s approval of my authorities’ requests for the completion of the present review and for a successor 3-year ECF arrangement to meet projected balance of payments needs.