Public Information Notices
Burkina Faso and the IMF
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On June 11, 2003, the Executive Board of the International Monetary Fund (IMF) concluded the 2003 Article IV consultation with Burkina Faso.1
Since 1991, Burkina Faso's sustained adjustment effort has been supported by the IMF under successive Enhanced Structural Adjustment Facility and Poverty Reduction and Growth Facility (PRGF) arrangements.2 The latest PRGF arrangement, in support of a program covering the period 1999-2002, was approved in September 1999 and expired in December 2002; it was fully disbursed. Under the programs, the government of Burkina Faso implemented a broad range of macroeconomic and structural reforms that have contributed to liberalizing the economy, raising per capita GDP, and reducing internal imbalances. In April 2002, the IMF and the World Bank Boards decided that Burkina Faso had fulfilled the conditions for reaching the completion point under the enhanced Initiative for Heavily Indebted Poor Countries (HIPC Initiative). In November 2002, the Boards considered the second annual progress report of the poverty reduction strategy paper (PRSP) and agreed that the authorities' efforts to implement the strategy provided sufficient evidence of their continued commitment to poverty reduction.
Macroeconomic performance was broadly satisfactory in 2002 despite a difficult external environment, marked by terms of trade shocks and continued tension in Côte d'Ivoire, Burkina Faso's most important regional trading partner. Real GDP growth in 2002 stagnated at 4.6 percent, the same rate as in 2001 but 1 percentage point below projections, reflecting mainly lower growth of cereal production. Fortunately, following the record cotton production attained in the 2001/02 crop year, output increased by a further 5.7 percent in 2002/03 to 400,000 tons. The disruptions in trade and transport resulting from the crisis in Côte d'Ivoire contributed to a rise in the year-on-year consumer price index of 3.9 percent at end-December 2002, compared with 1 percent for end-December 2001 and an objective of 2 percent for 2002. The external current account deficit (excluding grants) narrowed to 12.9 percent of GDP in 2002 from 13.6 percent of GDP in 2001. The terms of trade deteriorated by 6.7 percent on account of weaker cotton export prices and higher world petroleum prices. The real effective exchange rate appreciated by 5.2 percent in 2002, mainly as a result of the depreciation of the U.S. dollar against the euro, to which the CFA franc is pegged.
Fiscal performance in 2002 was broadly satisfactory, in spite of a weakening in revenue collection toward the end of the year, partly owing to the adverse impact of the crisis in Côte d'Ivoire. The overall fiscal deficit, including grants, was contained at 5 percent of GDP, compared with a program target of almost 6 percent of GDP. Tax revenue fell short of the program indicative target, owing to shortfalls in the value-added tax, and in income and profit taxes. The shortfalls in taxes also reflected continued weaknesses in tax administration, in particular the large and medium-sized taxpayers' units. Current spending exceeded budgetary allocations, owing to (i) unforeseen humanitarian assistance, border patrol, and security spending as a result of the crisis in Côte d'Ivoire; (ii) higher-than-forecast spending on goods and services, including for telephones, electricity, and water; and (iii) larger-than-planned outlays for the May 2002 legislative elections. However, domestically-financed capital expenditure was 22 percent below projections, mainly reflecting problems in administrative capacity, including in the social sectors.
Monetary policy, conducted at the regional level by the Central Bank of West African States, remained prudent in 2002. A reduction in the net bank credit to the government of about 11 percent of beginning-of-period broad money was offset by an 18 percent increase in bank credit to the economy, while the net foreign assets of the banking system rose by 2 percent of beginning-of-period broad money. In the circumstances, broad money grew by less than 1 percent in 2002.
There was further progress in the implementation of structural reforms in 2002. In the area of governance, the High Authority to Fight Corruption was created, as well as the Auditor General Office, and the authorities adopted an action plan to ensure transparency and accountability in fiscal management in July 2002. With respect to public enterprise divestiture, one government-owned hotel was sold, and progress was made in preparing for the sale of ginning plants in two zones in the cotton sector. However, only limited progress was made in improving the competitive position of the economy and bringing down Burkina Faso's high factor costs in the area of electricity, water, and telephones. The privatization of the national telephone company, ONATEL, scheduled for 2002, could not be completed because of delays in the creation of a regulatory authority. Reform of the energy sector was also slower than expected because the authorities did not prepare a coherent strategy for the sector, including an appropriate regulatory framework.
Executive Board Assessment
Executive Directors welcomed the broadly satisfactory performance of Burkina Faso's economy under three medium-term PRGF-supported programs during 1993-2002, which, going forward, provides a good basis for implementing the policy agenda laid out in the PRSP. Real GDP growth has recovered, inflation has remained low, and progress has been made in improving public expenditure management, liberalizing the price and trade regimes, and enhancing regional integration within the West African Economic and Monetary Union (WAEMU).
Directors noted that despite the progress achieved, Burkina Faso's economy remains fragile, with a large external current account deficit, and heavy dependence on external assistance and a few export commodities, notably cotton. Poverty remains widespread, and poor infrastructure and limited administrative capacity hamper the implementation of measures to improve health and education. The landlocked economy has also been hurt by the crisis in neighboring Côte d'Ivoire, the country's major regional trading partner. Directors considered that in this environment, the authorities should maintain their central focus on achieving a competitive, efficient, and resilient economy capable of delivering sustained economic growth and faster improvement in the social indicators.
Directors endorsed the authorities' plans for further fiscal consolidation in 2003. They noted that fiscal consolidation has been focused on containing domestically financed public spending. They expressed concern that revenue collection remains weak, repeatedly falling short of program targets. Last year government revenue as a percentage of GDP fell back to the level of a decade ago, and well below that required to meet the convergence criterion on revenue collection set by the WAEMU. Directors urged the authorities to give high priority to improving tax and customs revenue collection, in line with the recommendations of the recent Fund technical assistance mission. Preparation of an action plan to reduce exemptions and strengthen tax administration, control, and collection should be a key element of this effort.
Directors noted that social spending has fallen short of the resources freed under the HIPC Initiative, and welcomed the authorities' commitment to use all HIPC Initiative-related resources in 2003 to finance priority education, health, and other poverty-reducing spending. Visible progress in these areas should help to boost national ownership of the program and better align fiscal policy with the policy agenda of the PRSP. Directors urged the authorities to keep strictly to the fiscal policy stance agreed for 2003 and 2004, closely monitoring ongoing projects and strengthening the effectiveness of public spending, including HIPC Initiative-related social spending. They welcomed the development of the medium-term expenditure framework (MTEF) in collaboration with the Fund and the World Bank. Directors considered that it will be essential to continue to contain domestically financed expenditure, including the wage bill and public investment, and called on the authorities to remain current on all domestic and external debt-service obligations.
Directors noted that in carrying out its monetary policy, the regional central bank, the Central Bank of West African States (BCEAO), focuses on containing inflation and supporting the exchange rate peg of the CFA franc to the euro. The BCEAO will continue to monitor lending activities and bank portfolio performance closely. Promoting financial sector development in Burkina Faso, including microfinance, will help small and medium-sized enterprises and the rural sector increase access to bank credit and financial services. The continued issuance of government bills on the regional money market will be conducive to financial sector development.
Directors welcomed the authorities' continued resolve to strengthen transparency in public finance management, promote good governance in public policy, combat corruption, open economic and social policy to public debate, and implement the program and the PRSP policy agenda in a timely manner. They commended the authorities for making operational the Auditor General's Office and the High Authority to Fight Corruption. They encouraged the authorities to adopt legislation to combat money laundering and the financing of terrorism, as planned in the context of WAEMU.
Directors welcomed the action plan to improve the business and investment environment, which focuses on strengthening the legal and judicial system, improving infrastructure, and streamlining the regulatory framework. They underscored the importance of a sound strategy to promote economic diversification, including alternative export crops, to strengthen growth prospects and protect the economy better against external shocks. Prospects for diversification would be improved by a reduction in factor costs in Burkina Faso, which are high in comparison with those in other countries in the region.
As part of the agenda of structural reforms designed to bolster competitiveness and encourage private sector development, Directors encouraged the authorities to develop and implement sectoral strategies in accordance with the PRSP-including in education, health, energy, telecommunications, and infrastructure-and to continue to liberalize trade policies, and accelerate the privatization of public enterprises, including the utility companies. Several Directors regretted that subsidies for cotton industries in industrial countries are undermining Burkina Faso's efforts to fully exploit its comparative advantage in this sector, and called for their dismantling.
Directors considered Burkina Faso's financial statistical database to be generally adequate, but called for improvements in the quality and coverage of national accounts and external debt data, and development of social and poverty indicators. Directors urged the authorities to follow up on the recommendations of the recent Report on Standards and Codes data module mission.
1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities.
2 On November 22, 1999, The IMF's concessional facility for low-income countries, the Enhanced Structural Adjustment Facility, was renamed the Poverty Reduction and Growth Facility, and its purposes were redefined. It is intended that PRGF-supported programs will in time be based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners, and articulated in a poverty reduction strategy paper. This is intended to ensure that each PRGF-supported program is consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. PRGF loans carry an interest rate of 0.5 percent a year, and are repayable over 10 years with a 5½ year grace period on principal payments.
IMF EXTERNAL RELATIONS DEPARTMENT