Recent Economic Developments and Performance under the ECF arrangement

Economic activity picked up in 2016, following two years of weak growth. Preliminary estimates indicate that while growth in the first quarter was negatively impacted by the January terrorist attacks, it reached about 8.3 percent in the second quarter of 2016.

Overall, economic growth is projected to reach about 5.4 percent this year, driven by a strong recovery in the services and the production of the two new gold mines. Inflation declined at end-September 2016 on account of lower transport and energy prices and is expected to be contained below 1 percent at end-2016. The overall fiscal deficit is projected at 2.5 percent of GDP in 2016, slightly below its 2015 level. The current account balance is projected to improve this year, notably as a result of gold production and higher gold and cotton prices.

Program implementation remains strong, as noted in the staff report. All quantitative performance criteria and indicative benchmarks were met, most by wide margins. In the fiscal sector, the overall fiscal deficit at end-June 2016 was met with a wide margin as total revenue overperformance more than offset spending overruns caused by the implementation of the new civil servants’ employment framework and other public wage agreements.

On the structural front, six of the eight end-June 2016 structural benchmarks were met in a timely manner. In addition, the SONABHY’s quarterly financial report was transmitted as expected—albeit with delay. While the use of a standardized invoice by large and medium-sized enterprises did not take place as scheduled, progress is being made on this front and expected to completed by early 2017, as noted by staff.

As regard benchmarks set for the second half of 2016, the July 2016 benchmark concerning the payment by SONABHY to the government to clear the arrears of the state-owned power company, SONABEL was met as scheduled, and a second payment planned for 2017 has also already been made. Moreover, with respect to the repayment of capital gains owed to the State, an amount of CFAF 14.7 billion has been transferred by SONABHY to an account at the BCEAO. The authorities are requesting that the benchmark concerning combating fraud in the transport of fuel initially set for November 2016 be reprogrammed for end-December 2016, due to delays in its implementation.

As a result of the implementation of the program’s structural measures, significant inroads were made toward the program objectives of improving revenue mobilization, public financial management, and transparency and the financial position of publicly-owned energy sector enterprises.

Program for the remainder of 2016 and beyond

The authorities remain committed to implementing their economic and social program supported by the ECF. For the remainder of the program period, continued focus will be made on preserving macroeconomic stability and promoting sustained and inclusive growth, in line with the country’s PNDES. The authorities expect growth to be higher in 2017 with notably the implementation of the larger investment program envisaged in the PNDES, and the expected rebound in the agricultural output following abundant rainfall in 2016.

The draft 2017 budget, which is consistent with the PNDES, is geared notably towards creating fiscal space to increase public investment while preserving social expenditure and maintaining debt sustainability. In this regard, the efforts already being made by the revenue administrations will be pursued to increase mobilization of domestic revenue. The authorities intend to implement the recommendations of the Fund technical assistance mission on transfer pricing in 2017, and look to forward to further Fund support in the context of the tax code revision. Recurrent spending is expected to decline as a share of GDP, notably as a result of lower oil subsidies and measures taken to contain growth in both the wage bill and the workforce with the objective to return to a wage bill-to-tax revenue ratio of approximately 35 percent by 2019, which is a WAEMU convergence criterion. Fiscal reforms to improve cash management and accelerate the implementation of the investment program will be pursued.

Steps will be taken to further strengthen public financial management, building on recent reform measures implemented on this front. These include measures to ease implementation of development projects, programs and activities that were adopted by the National Assembly in July 2016 and which relate primarily to (i) raising public procurement thresholds, (ii) shortening the competition time frame in public procurement tenders, public service license contracts and public-private partnerships, (iii) reducing the approval time for contracts, (iv) eliminating double review of contracts financed with external resources, and (v) the relaxation of the conditions for the approval of the decisions of award commissions, contract selection, public service licensees and private partners. Following the adoption of these measures, a new procurement code was submitted to the National Assembly with the aim of complying with the WAEMU standard on the use of special procedures in public procurement management. Going forward, the authorities have requested a Public Investment Management Assessment (PIMA) in early 2017, to identify priority measures to improve the execution of the investment budget.

While Public debt remains sustainable with the debt sustainability analysis showing that Burkina Faso remains at a moderate risk of debt distress, the authorities are determined to continue strengthening debt management. In this regard, they will particularly seek to improve planning and monitoring of interventions in the regional markets and extend maturity of securities. A strategy to validate ‘irregular’ domestic debts identified in the annual report of the national anti-corruption authority will be adopted, upon verification of the corresponding amounts. The External Stability Assessment reported in Annex I shows that Burkina Faso’s CPIA rating is higher than its peers, illustrating the relative strength of the country’s policies and institutions. In this light, we encourage staff to continue working closely with the authorities strengthen institutional and debt management capacities further, notably with a view to improving the country’s debt distress rating.

The authorities plan to take advantage of continued low oil prices to pursue the reforms being undertaken in the energy sector. They will continue implementing the main recommendations of the SONABEL and SONABHY external audits, to ensure more efficient financial management and reduced operating costs. As regards SONABEL, the planned investments to facilitate energy imports from neighboring countries and support the development of solar energy will help the company to continue lowering its production costs and increase electricity generation. To avoid the accumulation of new government contingent liabilities vis-á-vis SONABHY in the event of an upturn in world oil prices, the authorities are also considering to gradually implement the automatic adjustment mechanism for hydrocarbon prices in the domestic market.

The authorities will pursue reforms to improve the competitiveness of the economy as envisaged in the PNDES. In particular, the authorities will finalize a national financial inclusion strategy in 2017. This will provide an opportunity to consolidate the various financial inclusion and microfinance initiatives and to prioritize the key reforms that will facilitate improved access to financial services. While the banking system remains sound, relatively profitable and well-capitalized, vulnerabilities related weak credit growth and credit concentration need to be addressed. Against this background, ongoing efforts to promote financial sector development and stability will thus be sustained in close collaboration with the BCEAO.

Request for Access Augmentation and Future Engagement with the Fund

In July 2016, the authorities adopted a new national development plan (Plan National de Développement Economique et Social, PNDES), which sets out strategic guidelines for economic and social development for the period 2016-2020. The PNDES draws on the presidential program, the “Burkina 2025” vision, and regional and global initiatives such as the African Union’s Agenda 2063 and the Sustainable Development Goals. The overall objective of the PNDES is to structurally transform the Burkina Faso economy into one of the strong, sustainable, resilient and inclusive growth that creates decent jobs for all and brings an improvement in social well-being. The plan is built on three strategic pillars: (i) institutional reform and administrative modernization, (ii) development of human capital, and (iii) stimulation of sectors that are drivers of economic growth and job creation. The plan envisages a notable increase in public investment to upgrade energy, transportation, and water management infrastructure. The plan also includes a strategy to improve value added in the cotton sector as well as agricultural diversification outside the cotton sector, to reduce the country’s external vulnerability.

To mobilize the financing needed for the PNDES a donor roundtable was held in Paris on December 7-8, 2016, with the World Bank acting as the lead of the technical and financial partners.¹ Significant donors’ pledges were received on that occasion, demonstrating the interest of the country’s partners in assisting the authorities in the implementation of their development plan. The Burkinabe authorities greatly appreciated the contribution of the Fund at this event.

In order to support the PNDES and ensure continuity, the Burkinabe authorities are requesting an extension of the program by nine months until September 2017 and an augmentation of SDR 4.47 million to be disbursed upon completion of a seventh review in June 2017. The authorities have expressed an interest in a successor arrangement which is likely to be requested at the time of the seventh review of the current arrangement.

Conclusion

Our Burkinabe authorities have continued to implement the ECF-supported program satisfactorily. Despite a difficult security situation in early 2016, the government managed to keep the program on track. In particular, the adoption of two supplementary budgets helped strengthen the tools at the government’s disposal to execute the program and safeguard poverty-reducing social expenditures. Going forward, the authorities are committed to implementing prudent policies in the context of the newly adopted PNDES, which notably envisages a scaling-up of public investment.

In light of the good progress made in the implementation of the program, they are requesting the completion of the sixth review under the ECF as well as the modification of the performance criterion on non-concessional borrowing, an extension of the current arrangement by nine months until September 2017, and an augmentation of access under the current arrangement that will be disbursed at the time of the seventh review. We would appreciate Directors’ favorable consideration of the authorities’ requests.