Burkina Faso and the IMF

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Burkino FasoLetter of Intent

Ouagadougou, October 18, 2002

The following item is a Letter of Intent of the government of Burkina Faso, which describes the policies that Burkina Faso intends to implement in the context of its request for financial support from the IMF. The document, which is the property of Burkina Faso, is being made available on the IMF website by agreement with the member as a service to users of the IMF website.
 

Mr. Horst Köhler
Managing Director
International Monetary Fund
Washington, D.C. 20431

Dear Mr. Köhler:

1. On behalf of the government of Burkina Faso, I am pleased to inform you of the progress achieved in the first half of 2002 in implementing the program supported by the Poverty Reduction and Growth Facility (PRGF) arrangement approved by the Executive Board of the International Monetary Fund on September 10, 1999.

2. In 2002, which has seen multiparty general elections held in May and a subsequent cabinet reshuffle, the economy has performed well, boosted by record cotton production in late 2001; this good performance, in turn, has led to an upturn in consumption, manufacturing, and services. A satisfactory level of tax revenue collection, in particular import duties, and control of expenditures in the first quarter enabled all quantitative benchmarks and indicators to be met as at end-March 2002, except for—because of some expenditure overruns—the indicator on current expenditures.

3. Expenditures related to goods and services and transfers accelerated during the second quarter for essentially two reasons. First, subsidies on fuel deliveries for electricity production and on the price of butane gas and cooking oil were higher than forecast, owing to the rise in world oil and gas prices. Second, expenditures linked to the electoral cycle were higher than expected. Consequently, the indicator on current expenditure and the performance criterion relating to the government's net domestic credit were exceeded as at end-June 2002. The government of Burkina Faso is requesting a waiver for nonobservance of the performance criterion on the government's total net domestic budget financing.

4. The structural performance criterion as at end-June 2002 relating to the appointment of three judges at the Supreme Audit Office was achieved through the appointment in June 2002 of the president of the Supreme Audit Office and the presidents of its three chambers. In contrast, the structural performance criterion relating to the abolition of the 59 tariff lines that are still subject to administratively set customs values was not observed, as described in my letter of June 24, 2002. The West African Economic and Monetary Union (WAEMU) Commission adopted by regulation a list of products eligible to retain their administratively set customs values in the WAEMU member states, and a WAEMU Council of Ministers directive approved on May 23, 2002, proposed that member countries submit a request for extension of existing customs valuations to the World Trade Organization (WTO). Burkina Faso would like to benefit temporarily from the opening thus offered by the WAEMU authorities. In any event, at end-May 2002, the government reduced the number of products subject to administratively set customs values from 59 to 33 and lowered the reference values for 29 products. The 33 remaining items comprise the group for which a request for extension of customs values has already been submitted to the WTO. The government will comply with the WTO's decisions in this regard, and it will either abolish immediately those reference values for tariff items no longer accepted by the WTO or will abolish them after the grace period allowed by the WTO. The Burkina Faso government requests a waiver for nonobservance of this performance criterion.

5. The government has relentlessly pursued its poverty reduction program, as described in the poverty reduction strategy paper (PSRP). A second PRSP progress report, prepared after a broad-ranging consultation of civil society and development partners, will be sent to you under separate cover. The fiscal resources allocated to the social sectors have continued to increase. In particular, after a fairly slow start in 2001, the use of resources resulting from debt-service relief under the Heavily Indebted Poor Countries (HIPC) Initiative accelerated sharply in 2002. The entire remainder of the funds from the HIPC Initiative resources of 2001 were committed by mid-September, and the bulk of the funds relating to 2002 resources will be committed before year's end.

6. The outlook for the rest of 2002 remains good. The new cotton crop is promising, despite the fall in world prices. The financial position of the textile fiber company, SOFITEX, remains precarious, but the government is confident that the entity can break even if world prices do not fall further. Despite the expiration of the program, and with a view to establishing a solid basis for a new PRGF-supported program covering 2003-05, the government is determined to meet the end-2002 macroeconomic objectives defined in consultation with the IMF staff. In particular, measures have been taken to sustain the level of tax revenue and restrict the level of expenditure, and the overall budget deficit (on a commitment basis and excluding use of HIPC Initiative resources) will be kept below 4 percent of GDP at end-2002. In addition, some key structural policy options, which could constitute the core of the new program, have already been discussed with Fund staff.

7. The government is counting on the continued support of the International Monetary Fund and is looking forward to the conclusion of the sixth PRGF review. As in the past, the government gives its consent for the publication of the IMF staff report.

Sincerely yours,

/s/


Jean-Baptiste M. P. COMPAORE
Minister of Finance and Budget
Officier de l'Ordre National

Table 1. Burkina Faso: Quantitative Performance Criteria, Benchmarks, and Indicators for the Second- and Third-Year Programs Under the Poverty Reduction and Growth Facility Arrangement, 2001–02
(In billions of CFA francs; cumulative from beginning of year)

    2001
2002
    End-December
End-March
End-June
End-Sept.
End Dec.
    Performance
Criteria  
Actual Benchmark Actual Performance
Criteria  
Actual Proj. Proj.

Performance criteria and benchmarks1                
Ceiling on cumulative change in net bank credit to government -5.2        -11.9        . . .          . . .          . . .        . . .       
  Adjusted ceiling for shortfall in external resources 8.7          . . .          . . .          . . .        . . .       
Ceiling on cumulative change in total net domestic budget financing (both bank and nonbank)2 . . .          10.3        1.3        -3.2        2.4        0.4        -6.3       
  Adjusted ceiling for shortfall in external assistance . . .        . . .        . . .          -7.1          . . .        . . .       
Ceiling on the cumulative amount of new nonconcessional borrowing                
  contracted or guaranteed by the government3 0.0        0.0        0.0        0.0        0.0        0.0        0.0        0.0       
  Of which: less than one year's maturity3,4 0.0        0.0        0.0        0.0        0.0        0.0        0.0        0.0       
Accumulation of domestic payments arrears3,5 0.0        0.0        0.0        0.0        0.0        0.0        0.0        0.0       
Accumulation of external payments arrears3 0.0        0.0        0.0        0.0        0.0        0.0        0.0        0.0       
Indicators1                
Current government revenue6 231.0        210.4        50.0        53.2        117.5        122.5        186.1        256.3       
Expenditure on wages and salaries2 98.2        97.5        26.1        24.0        52.1        48.4        78.2        102.2       
Current expenditure 219.8        218.8        61.5        66.6        122.9        145.0        184.4        256.7       
Adjustment factors1,7                
Balance of payments assistance 74.2        60.3        21.7        21.5        27.4        31.3        57.2        76.4       
  Adjustment lending (excluding IMF) 54.3        33.1        21.7        21.5        21.7        21.5        47.3        47.3       
  Adjustment grants 19.9        27.2        0.0        0.0        5.7        9.9        9.9        29.1       
  Debt relief8 0.0        0.0        0.0        0.0        0.0        0.0        0.0        0.0       

Sources: Burkinabe authorities; and staff estimates and projections.
1As defined in the technical memorandum of understanding.
2Excluding HIPC initiative related-transactions.
3To be observed on a continuous basis. Excluding treasury notes and bonds issued in CFA francs on the regional WAEMU market.
4Excluding normal import-related credits and treasury notes and bonds issued in CFA francs on the regional WAEMU market.
5For 2000, includes retroactive wage adjustments that have been included in wages and salaries.
6Excluding revenue collected through treasury checks.
7For 2001 and 2002, the limits on net credit to government are to be adjusted upward by the amount of the shortfall in balance of payments assistance (excluding debt relief under the HIPC Initiative); for 2001, these adjustments are limited to a maximum of CFAF 4 billion by end-March, CFAF 7 billion by end-June, CFAF 12 billion by end-September, and CFAF 20 billion by end-December. For 2002, the adjuster for a shortfall in external assistance is limited to a maximum of CFAF 1 billion by end-March, CFAF 20 billion by end-June, CFAF 25 billion by end-September, and CFAF 30 billion at end-December.
8Excluding debt relief under the HIPC Initiative.

Table 2. Burkina Faso: Structural Benchmarks and Performance Criteria
for the 2001–02 Program

Measures

Date

Status


Introduce of automatic domestic price-setting mechanisms for petroleum products reflecting movements in international prices.1 End-March 2001 Observed
Adopt audited budget acts (Lois de règlement) from 1995 to 1998.1 End-March 2001 Observed
Finalize of the interconnection of the payroll and civil service databases. End-June 2001 Observed
Set up a centralized database to track social outlays and outcomes, in particular for health and education.1 End-June 2001 Observed
Securitize the deposits of the Postal Savings Bank (CNE) with the treasury.1 End-September 2001 Observed
Amend the value-added tax (VAT) legislation so that henceforth VAT credits will offset VAT liabilities on receipts. End-December 2001 Postponed2
Adopt the administrative and institutional stipulations for the effective operation of the Supreme Audit Court (Cours des Comptes). End-December 2001 Delayed
Make operational the anticorruption unit that will be independent of the government and that will have jurisdiction to investigate and review cases and to refer cases to competent judicial authorities.1 End-December 2001 Observed
Eliminate of the 59 tariff lines still subject to administratively set customs values, as specified in the order No. 01-037/MCPEA/MEF of May 28, 2001.1 End-June 2002 Not observed3
Appoint three magistrates to the Supreme Audit Court.1 End-June 2002 Observed

1Performance criterion.
2Under discussion within the West African Economic and Monetary Union (WAEMU).
3In June 2002, 26 tariff lines were eliminated. In line with a March 2002 directive of the WAEMU, an extension of the remaining 33 lines will be requested from the World Trade Organization (WTO), but the valuations on 29 of the remaining 33 lines were lowered in June 2002.
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