This paper proposes that the Executive Board determine that the global COVID-19 pandemic constitutes a Qualifying Public Health Disaster (QPHD) under the CCRT

Abstract

This paper proposes that the Executive Board determine that the global COVID-19 pandemic constitutes a Qualifying Public Health Disaster (QPHD) under the CCRT

Determination of Global Pandemic

1. The global COVID-19 pandemic meets the criteria for a Qualifying Public Health Disaster (QPHD). The Executive Board recently approved changes to the CCRT, including an expansion of the scope of a QPHD for debt service relief under the CC window of the Trust. Under the new, alternative test for a QPHD, the Executive Board may determine that a QPHD exists where a life-threatening global pandemic is inflicting severe economic disruption across the Fund’s membership and is creating balance of payments needs on such a scale as to warrant a concerted international effort to support the poorest and most vulnerable countries through substantial additional grant support and debt service relief.1 In making the determination of the occurrence of a QPHD under this alternative test, the Fund will be guided by the assessments of the World Health Organization (WHO).2 The Director General of the WHO, on March 11, 2020, declared that COVID-19 constituted a global pandemic, noting that this was the first time that a coronavirus had caused a pandemic. At that time, the WHO reported that there were 118,000 cases in 114 countries; as of April 7, 2020, the number of reported cases had grown to about 1.3 million in 173 member countries, with about 73,000 confirmed deaths. In addition to the human toll, the pandemic has been inflicting severe economic disruption across the Fund’s membership. As of April 7, 2020, the Fund has received about 70 requests for urgent balance of payments support through the Rapid Credit Facility (RCF), Rapid Financing Instrument (RFI), or augmentations of existing Fund arrangements. The Fund is acting rapidly to respond to these urgent requests for emergency support. Other international organizations such as the World Bank are responding forcefully to meet the needs of their membership. The balance of payments needs are of an exceptional scale, warranting a concerted international effort to support CCRT-eligible countries through substantial additional grant support and debt service relief.

2. Up to 29 IMF member countries can potentially qualify for CCRT debt service relief in connection with the COVID-19 pandemic. These are members with per capita income below the IDA operational threshold (or twice that level for small states) that have debt outstanding to the Fund and are not already covered by HIPC debt relief. To allow for immediate debt service relief to all qualifying countries, the debt relief is initially committed for a period of six months from April 14, 2020, with any further tranches of such relief being committed only once sufficient resources have been secured, up to a cap of two years from the date of the Board determination that a global pandemic exists. Executive Board qualification of all 29 CCRT-eligible members would require about SDR 183 million in grant support to cover the first six months of debt service relief from the CCRT following the date of the Board decision. About SDR 680 million in grant resources would be needed to cover all CCRT-eligible debt service to the Fund falling due in the full two-year period.3

Figure 1.
Figure 1.

Global Spread of COVID-19, as of April 8, 2020

Citation: Policy Papers 2020, 022; 10.5089/9781513540603.007.A001

Source: The Johns Hopkins University.

Funding Status of the CCRT

3. Recent contributions to the CCRT allow for the delivery of an initial six-month period of debt service relief for all 29 potentially qualifying countries. With only SDR 150 million in available financial resources for both the natural disaster and health crises windows, the CCRT was severely underfunded already before the current pandemic. The IMF has launched an urgent fund-raising effort among a broad spectrum of its members to raise SDR 1 billion in new grants for the CCRT, with the option of making contributions contingent on agreed triggers. On March 11, the United Kingdom announced a commitment to provide a total of £150 million (SDR 136 million), half of which was disbursed on April 8, 2020, and the other half could be disbursed, contingent on need, in September 2020. Japan provided US$100 million in grant support that will be immediately available for debt service relief. The People’s Republic of China and the Netherlands have pledged additional grants, and other IMF members have indicated that they are considering further contributions. On the basis of these disbursements and pledges, staff recommends immediate approval of the first tranche of debt service relief for all qualifying member countries in the period covering the six months from April 14 through October 13, 2020.

Requests for Assistance Under the CCRT

4. Twenty-five countries are requesting CCRT grant assistance under the CC Window at this juncture; a further four countries are expected to request assistance in the coming weeks. In addition to establishing that the COVID-19 pandemic is a QPHD, qualification of a CCRT-eligible member for CCRT relief requires that the Executive Board determine that: (i) the country is experiencing an exceptional balance of payments need arising from the spread of the QPHD and the country’s response to it, based on available information; and (ii) the macroeconomic policy framework put in place by the authorities to address the balance of payments needs created by the global pandemic, as outlined in a letter of intent, is appropriate.

5. Staff considers that these conditions are met for the CCRT-eligible members that have requested assistance from the CCRT. The authorities for each of these countries have submitted a letter of intent containing a request for assistance from the CCRT and outlining the policy responses to the crisis that are being undertaken. For each country, staff has provided its assessment of the exceptional balance of payments need arising from the QPHD and of the appropriateness of the authorities’ proposed macroeconomic policy response. The letter from the authorities and the staff assessment for each country are contained in 25 separate attachments to this paper.

6. Pending available resources in the CCRT, the Executive Board will decide on a possible new tranche for all previously qualified countries toward the end of the initial six-month period of debt service relief. Subject to availability of resources in the CCRT, it is expected that future tranches will be approved by the Executive Board in six-monthly intervals, up to a cap of two years, taking into account the likely need of other potentially qualifying members. These future Executive Board decisions would be based on an umbrella Board paper that informs the Board on the availability of CCRT resources and provides brief updates for each country (1–2 pages for each case) on the topics (health sector response, macroeconomic policies) covered in the original staff appraisal. A CCRT-eligible country that has qualified for CCRT relief under the CC window would not need to be requalified by the Executive Board, and would not need to re-apply, for future tranches of debt service relief.

Technical Modifications to the CCRT Decision

7. To facilitate operational implementation of the provision of assistance for debt relief under the CC window, staff proposes technical amendments to the CCRT instrument, clarifying the timing of the transfer of interest and charges to the CCRT umbrella subaccounts.4 Because the amount of interest and charges on eligible debt covered by CCRT grants is not known until the date at which they are due, it is proposed that grants to cover such interest and charges be transferred to the CCRT umbrella subaccounts upon their due date and effective payment on the same day, rather than immediately as is done for repayments and repurchases. A corresponding change is made to the definition of eligible debt.

Table 1.

CCRT Eligible Countries, as of end-March 2020

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Small states are eligible if GNI per capita is twice the prevailing IDA operational threshold.

While Somalia is CCRT-eligible, its upcoming debt service obligations to the Fund will be covered by HIPC relief.

Table 2.

Eligible Debt Service for Relief from the CCRT

(In SDR)

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The request from these four countries is expected in coming weeks.

Eligible debt service includes estimates for the GRA charges.

Annex 1.A. Islamic Republic of Afghanistan: Staff Appraisal—CCRT Request

Afghanistan faces an exceptional balance of payments need from the impact of COVID-19 and has requested support under the Catastrophe Containment window of the CCRT.

Economic impact. The pandemic is having a severe impact on Afghanistan’s economy. A large influx of Afghan migrants from neighboring countries, weak capacity in the context of fragility, and the domestic conflict make the country vulnerable to the pandemic. Intermittent closures of the border with Pakistan, the second largest export market, have led to a significant drop in agricultural exports and disrupted imports, causing prices of essential goods to spike. Inflows of remittances are expected to halve due to the return of Afghan workers from host countries, many of which are oil exporters whose economic prospects have weakened due to the pandemic and the sharp drop in oil prices. To slow the spread of the virus, the government introduced drastic social distancing measures, including placing Kabul and other large cities under lockdown, which have inhibited domestic activity. As a result, output is expected to contract by 3 percent this year, compared to 3.5 percent growth projected earlier, and the fiscal position is expected to worsen as domestic revenue plummets while the budget takes on large pandemic-related expenditure, including 0.55 percent of GDP for health. The shock has also opened a large balance of payment need, estimated at about $800 million (about 4.3 percent of GDP).

Macroeconomic policies. With containment measures in place and most urgent health needs being addressed, the authorities are mobilizing their efforts and financial resources, including from donors, to mitigate the economic fallout of the pandemic. To ensure funding for the health sector as well as social relief to the affected households, the authorities are postponing non-priority spending, including some non-health capital projects, and planning to allow the fiscal deficit to rise to 4 percent of GDP. Once the pandemic passes, they are committed to bring the deficit to within 1 percent of GDP over the next two years. The central bank will continue to focus on price stability and will limit foreign exchange interventions to addressing disorderly market conditions. It also stands ready to support the resiliency of the financial sector, ensure adequate liquidity in banks, and, when justified, exercise forbearance as lenders are encouraged to forbear or reschedule loan repayments by otherwise solvent borrowers.

IMF program status. The sixth and final review under the ECF arrangement was concluded in December 2019. Afghanistan requested emergency financing under the RCF in March 2020.

Staff appraisal. Staff supports the authorities’ request for debt relief under the CCRT. With GNI per capita of $550, Afghanistan meets the CCRT income threshold of $1,175. Staff assesses that it is facing an exceptional BOP need stemming from the impact of COVID-19, and the authorities are committed to pursuing appropriate macroeconomic policies to address its economic fallout.

Upcoming debt service. Afghanistan has debt service of SDR 2.4 million falling due in the initial period of debt service relief from April 14 to October 13, 2020. The debt service falling due in the 24 months from April 14, 2020 (the maximum potential period of debt service relief, subject to availability of resources and decisions of the Executive Board) amounts to SDR 10.1 million.

Table 1.

Islamic Republic of Afghanistan: Selected Economic Indicators, 2017–25

(Quota: SDR 323.8 million)

(Population: approx. 34.7 million; 2016)

(Per capita GDP: approx. US$554; 2018)

(Poverty rate: 54.5 percent; 2016–2017)

(Main exports: dried and fresh fruits and vegetables, medical seeds, 2018)

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Sources: Afghan authorities, United Nations Office on Drugs and Crime, WITS database, and IMF staff estimates and projections.

Excluding the narcotics economy.

Comprising mainly current spending.

Defined as domestic revenues minus operating expenditures.

Public sector only. Incorporates committed but not yet delivered debt relief. Debt relief recorded fully at time of commitment.

Public debt includes promissory note issued by MoF to settle DAB’s Kabul Bank exposure.

In months of next year’s import of goods and services

CPI-based, vis-a-vis the U.S. dollar. Positive – real appreciation of the Afghani.

Table 4.

Islamic Republic of Afghanistan: Balance of Payments, 2017–25 1/

(In millions of U.S. dollars, unless otherwise indicated)

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Sources: Afghan authorities and Fund staff estimates and projections.

BoP data exclude the narcotics economy.

As the breakdown between capital grants and current grants is difficult to identify, all grants are included in current transfers.

Excluding IMF.

The grant for the debt service falling due in the 18 months from October 14, 2020 is subject to the availability of resources under the CCRT.

In months of next year’s import of goods and services.

Incorporates committed but not yet delivered debt relief. Debt relief recorded fully at time of commitment.

Table 3.

Islamic Republic of Afghanistan: Debt Service to the IMF, 2020–22

As of February 29, 2020 (in SDR)

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Annex 1.B. Letter of Intent—CCRT Request Islamic Republic of Afghanistan

Kabul, Afghanistan

April 8, 2020

Ms. Kristalina Georgieva

Managing Director

International Monetary Fund

Washington, D.C. 20431

Dear Ms. Georgieva,

The COVID-19 pandemic is having severe effects on the health prospects of the general public, economic activity, and social well-being across the globe.

Afghanistan has not been an exception. It is experiencing an economic contraction, a widening fiscal deficit, and an exceptional balance of payments need arising from the pandemic and containment measures implemented domestically and globally. More specifically, we are experiencing severe shocks in the area of public health and economic activity as detailed below:

  • The medical impact to date includes 367 infections, 7 deaths, and 18 recoveries. Although growing, our testing capacity to identify infections is not sufficient to cope with more than 7,000 Afghans returning from neighboring countries daily. More generally, our administrative and healthcare capacity, especially in rural areas, as well as resources are limited. We conservatively estimate that some $100 million would be needed to meet the most immediate medical needs. We have taken strong measures to slow the spread of the virus and are mobilizing resources to cushion its impact on the economy.

  • Assuming that the outbreak abates by end-July we anticipate that: i) real output will contract by 3 percent in 2020 compared with a pre-crisis projection of 3.5 percent growth; ii) the overall budget deficit will widen to close to 4 percent of GDP on account of rising health spending, social outlays for the affected population, and a large revenue loss; and iii) a balance of payments need of about $800 million (about 4.3 percent of GDP) will emerge due to the crisis. These projections are of course subject to a high degree of uncertainty given the evolving nature of the pandemic. Should the outbreak persist well into the third quarter, Afghanistan will suffer a deeper output loss and face a larger deficit.

Our response to date has had several dimensions:

  • We have already allocated Af 1.9 billion for emergency health spending, which is funding key measures underway including i) testing of suspected cases; ii) setting up special wards to boost hospitalization and care capacity; and iii) procuring the most urgent medical supplies. With further increases planned in coming months, our outlays for the health sector will grow by some 57 percent (or 0.55 percent of GDP) over the course of 2020. We realize that our strong containment measures, including placing Kabul and other large cities under lockdown, put at risk the livelihoods of thousands of families. We therefore plan to roll out a social protection package to provide temporary and targeted relief to Afghans who have lost their income. We are also assessing if there are fiscal resources to support badly affected sectors to avoid permanently scarring our fragile economy and its prospects.

  • To create fiscal space for these and other related outlays to support livelihoods and economic activity, we have started to curtail nonessential spending, including by suspending some non-health capital projects. However, because additional spending demands are expected to be much larger, we project the overall fiscal deficit to widen to near 4 percent of GDP. We count on donor support to help us meet part of this fiscal financing need and hope to mobilize domestic sources to cover the remaining financing. Once the pandemic passes, we expect the fiscal deficit to decline as tax revenues recover and pandemic-related spending phases out. In addition, we plan to implement revenue and expenditure measures that will bring the fiscal deficit down to within 1 percent of GDP by 2022.

  • Given the need to support economic activity, the Central Bank sees monetary tightening as being premature at this juncture, but it stands ready to use monetary policy measures and auctions of foreign exchange and capital notes to support price stability. It will allow the exchange rate to adjust to developments in the balance of payments while limiting foreign currency interventions only to prevent disorderly market conditions. The Central Bank is ready to provide liquidity to banks through its facilities in a predictable and transparent manner. To prevent a large number of credit defaults by viable borrowers, the Central Bank will encourage lenders to reschedule debt service as needed and is prepared to exercise forbearance on capital. Finally, we will ensure that the level of our international reserves remains commensurate to elevated risks facing Afghanistan, including deeper-than expected aid cuts over the medium term.

Against this backdrop, and given the large balance of payments need created by the impact of the pandemic, we hereby request grant assistance under the Catastrophe Containment (CC) window of the Catastrophe Containment and Relief Trust (CCRT) to cover our debt service to the IMF falling due in the 24-month period from April 14, 2020 (the maximum potential period of debt service relief, subject to availability of resources and decisions of the Executive Board) or as much as is available from these resources. Afghanistan has debt service of SDR 2,400,000 falling due from April 14 to October 13, 2020. The debt service falling due in the 24 months from April 14, 2020 (the maximum potential period of debt service relief, subject to availability of resources and decisions of the Executive Board) amounts to SDR 10,050,000. This debt service relief will help contain the exceptional balance of payments need resulting from the pandemic and free up resources to address public health needs and sustain economic activity.

We are working closely with IMF staff in seeking to maintain broad macroeconomic stability during the current global pandemic and will continue to do so in the post-pandemic recovery period. We are seeking financial support from the IMF and have submitted a request for emergency financing under the Rapid Credit Facility. We are confident that strong IMF support for Afghanistan will help catalyze wider support from other development partners.

We authorize the IMF to publish this letter and all Board documents related to this request.

Sincerely yours,

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Annex 2.A. Benin: Staff Appraisal—CCRT Request

Benin faces exceptional balance of payments needs resulting from the impact of COVID-19 and has requested support under the Catastrophe Containment window of the CCRT.

Economic impact. The COVID-19 pandemic is expected to have a severe impact on the Beninese economy. Various containment and prevention measures introduced to stem the spread of the virus, coupled with global spillovers (lower remittances, trade, and FDI) are expected to significantly impact both domestic and external demand, resulting in lower economic growth. Real GDP growth for 2020 is estimated within the range from 2.0 to 4.5 percent, down from a pre-COVID-19 forecast of 6.7 percent.5 On the fiscal side, the COVID-19 will lead to a revenue shortfall and higher health-related expenditure. Additionally, some non-priority domestically-financed capital expenditures may be postponed. Preliminary estimates point to an overall fiscal deficit (commitment basis, including grants) of at least 3.5 percent of GDP in 2020—compared to 1.8 percent of GDP pre-COVID-19. The contribution of the COVID-19 to the higher fiscal deficit is estimated at 1.0 percent of GDP, out of which 0.4 percent of GDP corresponds to the expected revenue shortfall and 0.7 percent of GDP to additional health-related spending. In addition, despite the positive terms-of-trade shock, the BoP overall balance is expected to deteriorate sharply in 2020, because of the contraction of export markets and lower capital inflows. The resulting balance-of-payments (BoP) need due to the COVID-19 shock is estimated at, at least, 1.0. percent of GDP.6

Macroeconomic policies. The authorities are taking significant measures to suppress the nascent virus outbreak. For a two-week period starting on March 31, 2020, the authorities have decided to establish a cordon sanitaire around ten cities most exposed to the pandemic in order to isolate the infected population and contain the spread of COVID-19. In addition, since March 19, 2020, the authorities have also (i) significantly limited the transit of people across land borders; (ii) restricted the issuance of entry visas to the country; (iii) introduced a systematic and compulsory quarantine of all people coming to Benin by air; and (iv) suspended all public gatherings including conferences, funerals, festivals, political rallies, sporting events, and religious activities. On top of the fiscal measures noted above, the authorities are also contemplating a larger expenditure package of CFA 60 billion (0.7 percent of GDP), described in the attached Letter of Intent. They are currently reaching out to donors and international institutions to finance this package. For the purposes of acquiring the necessary medical equipment, the authorities have already mobilized US$ 16 million (0.1 percent of GDP) from the World Bank, which is also exploring options to either accelerate the timeline of the existing Development Policy Operation’s (DPO) for Benin, or replace it with Supplemental Financing.

At the regional level, the central bank (BCEAO) for the West African Economic and Monetary Union has taken preemptive steps to better satisfy banks’ demand for liquidity and mitigate the negative impact of the pandemic on economic activity. These steps include raising the liquidity made available to banks, ensuring that refinancing rates to remain close to the floor of the monetary policy corridor of 2.5 percent, expanding collateral to access central bank refinancing, and setting-up a framework with the banking system to support firms with repayment difficulties.

IMF program status. Benin’s three-year arrangement under the Extended Credit Facility for SDR111.42 million (about US$158.1 million or 90 percent of the country’s quota at the time of approval of the arrangement) was approved on April 7, 2017. The forthcoming sixth review, to be conducted in April, will mark the end of the ECF arrangement. Performance has been very satisfactory throughout the 2017–20 program. Preliminary information suggests that all end-December 2019 quarterly performance criteria and structural benchmarks under review have been met. At the time of the sixth and final review, the authorities will request an augmentation of access equivalent to 50% of quota to meet the country’s fiscal financing needs and related BoP needs, arising from the joint shocks of the COVID-19 and the prolonged border closure with Nigeria. The authorities are also aware of the possibility of requesting an RCF disbursement in the event Benin faces additional BOP needs later on, and will consider this option after the program expires.

Staff appraisal. Staff supports Benin’s request for debt relief under the CCRT. Benin meets the income threshold with GNI per capita of US$870, below the threshold of US$1,175, and staff assesses that it faces exceptional BOP needs stemming from the impact of COVID-19 and is pursuing appropriate macroeconomic policies to address the disaster.

Upcoming debt service. Benin has debt service of SDR 7.4 million (CFA 6 billion) falling due in the initial period of debt service relief from April 14, 2020 to October 13, 2020. The debt service falling due in the 24 months from April 14, 2020 (the maximum potential period of debt service relief, subject to availability of resources and decisions of the Executive Board) amounts to SDR 23.3 million (CFA 18.8 billion).

Table 1.

Benin: Selected Economic and Financial Indicators, 2018–2025

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Sources: Beninese authorities; and IMF staff estimates and projections.

Includes re-exports and imports for re-export, except for EBS/19/398 for which re-export activities arerecorded in current transfers.

In 2024 and 2025, the decline in the overall balance of payments reflects the first repayment of the 2019 eurobond.

Table 2.

Benin: Balance of Payments, 2018–25

(CFA billion)

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Sources: Beninese authorities; IMF staff estimates and projections.

Includes re-exports and imports for re-export, except for EBS/19/398.

Re-export activities are captured in current transfers for EBS/19/398.

In 2024 and 2025, the decline in the financial account and overall balance of payments reflects the first repayment of the 2019 eurobond.

Corresponding to scheduled repayment to the IMF from April 14th, 2020 to October 13th, 2020.

Corresponding to scheduled repayment to the IMF from October 14th, 2020 to April 13th, 2022. The grant for the debt service falling due in the 18 months from October 14, 2020 is subject to the availability of resources under the CCRT.

Table 3.

Benin: Debt service due to the IMF over the 24 months from April 14, 2020

As of February 29, 2020 (in SDR)

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Annex 2.B. Letter of Intent—CCRT Request Benin

Cotonou, Benin

April 2, 2020

Ms. Kristalina Georgieva

Managing Director

International Monetary Fund

Washington, D.C. 20431

Dear Ms. Georgieva,

The Covid-19 pandemic is having severe effects on both the health prospects for the general public and on the level of economic activity across the globe.

We, in Benin, are experiencing an exceptional balance of payments need arising from the pandemic and our response to it, as detailed below. More generally, we are suffering severe shocks in the area of public health and on economic activity:

  • As of April 2, 13 cases have been reported in Benin, compared to 3 cases a week before. The 13 identified cases have been in contact with more than 300 people, who have been placed under quarantine or are being actively searched for.

  • We currently anticipate that: i) real output growth in 2020 will decline to 4.5 percent or less, compared with pre-crisis projections of 6.7 percent; ii) the impact on the fiscal deficit of rising health and related outlays and a fall-off in tax revenues will be, at least, 1.0 percent of GDP (out of which 0.7 percent of GDP for higher expenditure and 0.4 percent of GDP from lower revenues); and iii) the emerging balance of payments need resulting from the COVID-19 crisis is projected to be, at least, US$158 million (equivalent to 1.0 percent of GDP).

Our response to the crisis has several dimensions:

  • We plan to increase public health expenditure by CFA 60 billion (0.7 percent of GDP) over the course of 2020. This envelope will allow to (i) purchase medical equipment for risk prevention and mitigation, including ventilators, protective masks, and drugs; (ii) build temporary retention areas for quarantined people; and (iii) purchase material to deal with the implications of a possibly larger virus outbreak, including special medical ambulances and electric incinerators.

  • We are also seeking to create budgetary space for these and other outlays to support economic activity, particularly in the poorer areas of the country, by suspending or sharply curtailing outlays not seen as essential to tackling the immediate crisis (including non-health capital expenditure and non-heath related purchases of goods and services), but we still expect an increase in the primary budget deficit on the order of 1.0 percent of GDP due to the COVID-19. We hope that additional donor support will help meet part of this fiscal financing need, with the remaining financing expected to come from domestic sources.

Against this backdrop, and given the large balance of payments need created by the impact of the coronavirus, we hereby request grant assistance under the Catastrophe Containment (CC) window of the Catastrophe Containment and Relief Trust (CCRT) to cover our debt service to the IMF falling due in the 24-month period from April 14, 2020 to April 13 2022 or as much as is available from resources. This debt relief will free up budgetary resources to address public health needs and support economic activity in key sectors; it will also help contain the exceptional balance of payments need resulting from the pandemic.

We are working closely with IMF staff in seeking to maintain broad macroeconomic stability during the current global pandemic and will continue to do so in the post-pandemic recovery period. We are actively seeking additional support from the IMF and will soon submit a request for augmentation under the ECF arrangement on the order of SDR 62 million (50 percent of quota). We are confident that strong IMF support for our country will help catalyze wider support from other development partners.

We authorize the IMF to publish this letter and all staff Board documents related to this request for debt relief from the CCRT.

Sincerely yours,

/s/

Romuald WADAGNI

Minister of Economy and Finance

Annex 3.A. Burkina Faso: Staff Appraisal—CCRT Request

Summary. Burkina Faso faces exceptional balance of payments needs resulting from the impact of COVID-19 and has requested support under the Catastrophe Containment window of the CCRT.

The macroeconomic impact of the COVID-19 pandemic is projected to be large. Real growth is projected to decline to 2 percent in 2020, about 4 percentage points lower than previously projected, with major impact being felt in the agriculture, tourism, transport and mining sectors. The current account deficit is projected to widen relative to previous projections, as production and export of gold and cotton as well as remittances decline due to disruptions in the global supply chain and transport networks. Public finances are under substantial pressures rising from health and related outlays (1 percent of GDP), a fall-off in domestic revenues (2.1 percent of GDP) and other mitigating measures (0.7 percent of GDP), further compounding the existing policy challenges of addressing the effects of the security crisis. Consequently, resulting balance-of-payments (BoP) needs are estimated at 1.9 percent of GDP. These macroeconomic projections are highly uncertain at this stage.

Macroeconomic policies. The authorities have taken urgent measures to contain the spread of virus, including social distancing and border closures, as well as measures to limit the harmful economic effects of COVID-19 on businesses, workers and the most vulnerable segments of the population. The government adopted measures to support health workers, frontline agents and impacted public sector’s employees, as part of the overall national emergency response plan. Tax relief to the sectors most affected by the pandemic shock is envisaged, including through lower rates for turnover-based taxes, delayed tax payments, waiving late payment penalties and accelerated depreciations for investment. These responses and many others will lead to a widening of the fiscal deficit to 5.0 percent of GDP, compared to previous projection of 2.9 percent of GDP (at the time of the 3rd ECF review completed in December 2019). The regional central bank (BCEAO) for the West-African Economic and Monetary Union has taken preemptive steps to better satisfy banks’ demand for liquidity and mitigate the negative impact of the pandemic on economic activity. The BCEAO first raised the liquidity made available to banks at its weekly and monthly auctions of March 23, allowing average refinancing rates to remain relatively close to the floor of the monetary policy corridor of 2.5 percent. This was followed, starting with the weekly refinancing auction of March 30, 2020, by the adoption of a full allotment strategy at a fixed rate of 2.5 percent thereby allowing banks to satisfy their liquidity needs fully at a lower rate. On March 21, 2020, the BCEAO had also announced: (i) an extension of the collateral framework to access central bank refinancing to include bank loans to prequalified 1,700 private companies; and (ii) the setting-up a framework with the banking system to support firms with repayment difficulties.

IMF program status. Burkina Faso is implementing a 3-year ECF arrangement approved in March 2018, in the amount of SDR 108.36 million (90 percent of quota). Preliminary information suggests that implementation of the program was satisfactory; all quantitative performance criteria (QPCs) and all-but-one indicative targets for end-December 2019 were met. The mission for the fourth review has been postponed due to the high degree of uncertainty regarding the duration and scale of the COVID-19 pandemic, and the difficulties of conducting a full review mission in current circumstances. Burkina Faso has requested support under the Rapid Credit Facility (RCF).

Staff appraisal. Staff supports Burkina Faso’s request for debt relief under the CCRT. Burkina Faso meets the income threshold with GNI per capita of US$660, below the threshold of US$1,175, and staff assesses that it faces exceptional BOP needs stemming from the impact of COVID-19 and is pursuing appropriate macroeconomic policies to address the disaster.

Upcoming debt service. Burkina Faso has debt service of SDR 8.7 million falling due in the initial period of debt service relief from April 14 to October 13, 2020. The debt service falling due in the 24 months from April 14, 2020 (the maximum potential period of debt service relief, subject to availability of resources and decisions of the Executive Board) amounts to SDR 39.5 million.

Table 1.

Burkina Faso: Selected Economic Indicators, 2018–25

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Sources: Burkinabè authorities; and IMF staff estimates and projections.

Percent of beginning-of-period broad money.

Table 2.

Burkina Faso: Balance of Payments, 2017–25

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Sources: Burkinabè authorities and BCEAO; and IMF staff estimates and projections.