Abstract
Requests for Disbursement Under the Rapid Credit Facility and Rephasing of Access Under the Extended Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for Burkina Faso
Introduction
On behalf of our Burkinabe authorities, we thank Staff, Management and the Executive Board for their continued support under the ECF arrangement, including in the current difficult circumstances. Burkina Faso is facing a rapid and large spread of the coronavirus (COVID-19) pandemic. The socio-economic consequences of the outbreak are substantial and compound the impact of the security crisis which has led to more than 800,000 internally displaced people and more than 2,400 casualties. These combined shocks are heavily exacerbating the pressures on public finances and external buffers and disrupting economic activity in addition to the human losses.
The authorities are determined to contain the coronavirus outbreak and have undertaken a bold set of health and social distancing measures. In addition, they will adjust the government’s budget to mitigate the impact of the pandemic. In this context, they have prepared a response and mitigation plan estimated to cost CFAF 256.4 billion, equivalent to 2.7 percent of GDP.
To meet the urgent fiscal and balance of payments needs and effectively implement their response plan, the authorities are requesting from the IMF a disbursement under the Rapid Credit Facility (RCF) of SDR 84.28 million (70 percent of the country’s quota). Estimates indicate that the RCF disbursement will not impact Burkina Faso’s debt sustainability and its capacity to repay the Fund. The authorities are also hopeful that the urgent disbursement will help catalyze financing support from other partners.
Socio-Economic Impact of the Coronavirus Pandemic
Burkina Faso is the most affected country in the West Africa region with 384 cases recorded from March 9 to April 7 and more than twenty fatalities. The economy will be adversely impacted as activity will slowdown notably in the mining, cotton and tourism sectors, in addition to the spillovers resulting from containment measures undertaken by neighboring countries and main trading partners. This public health crisis will reverse the macroeconomic and development progress achieved in recent years under the ECF-supported program. Growth is now expected to fall to 2 percent from 5.7 percent in 2019. Inflation will increase due to the rise in food prices. The fiscal deficit will expand to 5 percent of GDP against 2.7 percent previously projected, thus exceeding the WAEMU convergence criterion of 3 percent of GDP and triggering the need for a temporary deviation. Given the disruptions in gold and cotton exports as well as the decline in remittances and tourism inflows, the current account deficit should also deteriorate significantly.
Pandemic Response Measures
Fiscal Measures
In addition to their efforts to fight the terrorist attacks, the authorities will focus on the containment, mitigation and treatment of the coronavirus disease. In this context, expenditures in the health system will increase considerably to protect the population, provide adequate health care, including through appropriate incentives to healthcare workers. Despite budgetary constraints, the authorities will implement a wide range of tax relief measures, including lowering import duties and VAT, and rates for turnover-based taxes. They will also delay tax payments for the sectors most affected by the crisis. In addition, expenditures will be reprioritized based on public finance laws and regulations in place. The authorities are committed to ensure that the expansionary fiscal measures to alleviate the impact of the disease will be not only targeted but also temporary.
Financial Measures
It is worth noting that the financial sector in Burkina Faso remains resilient. However, to mitigate the potential negative impact of the pandemic on the financial sector of its member countries, the regional central bank (BCEAO) announced on March 21, 2020 a set of measures to provide liquidity to banks and safeguard financial stability. These measures include increasing by CFAF 47.5 billion the total liquidity made available to banks through auctions, an extension of the collateral framework to access the BCEAOs’ refinancing and establishing a framework to support firms facing difficulties as a result of the disease. The central bank has also allocated FCFA 25 billion to the Trust Fund of the West African Development Bank (BOAD) to enhance its capacities in financing urgent investment expenditures. The BCEAO plans to enhance its communication on the special program for refinancing credit to SMEs while encouraging further usage of electronic money.
Performance under the ECF-Supported Program
Despite the very challenging circumstances confronting the country, the ECF-supported program approved in March 2018 is being implemented steadfastly and program performance continues to be satisfactory. Preliminary data indicate that all quantitative performance criteria set for end-December 2019 have been met. All indicative targets but one were also achieved. In addition, all structural benchmarks for end 2019 were realized. In view of the large spread of the COVID-19 with severe consequences, the authorities share the view that it will be difficult to complete on time the fourth review initially scheduled for June 2020. Therefore, they are requesting a rephasing of the fifth disbursement related to the fourth review to July 2020.
Conclusion
Our Burkinabe authorities remain committed to the implementation of their economic reform program while effectively addressing the adverse effects of the coronavirus pandemic including through temporary fiscal measures.
Based on the urgency to meet the financing needs stemming from the fight against the COVID-19 and the satisfactory performance under the ECF-supported program, our Burkinabe authorities would appreciate the Executive Board’ s approval of their request for a disbursement under the RCF.