Press Release: IMF Approves Third-Annual Loan for Burkina Faso Under the ESAF
May 31, 1995The International Monetary Fund (IMF) today approved the third annual loan for Burkina Faso under the enhanced structural adjustment facility (ESAF)1 equivalent to SDR 17.7 million (about $27.1 million), in support of the Government's economic and financial program for 1995. The loan is available in two equal semiannual installments, the first of which is available immediately. The country's first annual program under the ESAF was approved by the IMF on March 31, 1993, and the second on March 28, 1994.
After a difficult start, Burkina Faso was broadly successful in implementing a comprehensive adjustment program centered on the devaluation of the CFA franc, which occurred in January 1994. The strong financial policies put in place contributed to a rapid deceleration of inflationary pressures. The growth in exports, combined with a reorientation of imports and a shortfall in foreign-financed public investments, reduced the external current account deficit and enabled Burkina Faso to make a sizable contribution to the external reserve holdings of the regional monetary union. Price controls imposed in the aftermath of the devaluation were lifted, and utility rates were increased. Adverse weather, however, limited the growth of real GDP to 1.2 percent, well below the 3.3 percent target of the program.
The Medium-Term Strategy and The 1995 Program
In order to consolidate gains in competitiveness and achieve high, sustainable growth, the authorities have decided to continue their adjustment and reform efforts, guided by the overall strategy that they had adopted in previous IMF- supported programs. The macroeconomic objectives for 1995-97 include raising average real GDP growth to 5 percent annually, which would imply an average per capita growth of some 2 percent; lowering the rate of inflation to 3 percent by 1997; and reducing the external current account deficit (excluding official transfers) by 2 percentage points of GDP, to less than 12 percent, by 1997.
Consistent with this medium-term strategy, the program for 1995 envisages raising the GDP growth rate to 5.3 percent (based on a recovery of output and value added in the primary sector, agro-processing, public works, and (construction), lowering average inflation to about 8 percent, and reducing the external current account deficit (excluding official transfers) to 13 percent of GDP.
To achieve these objectives, the authorities are strengthening public finances, and accelerating structural reforms. Actions will be taken to increase the tax base, and improve tax and customs administration in the medium term, and make fiscal management more rigorous and transparent; meanwhile, even with the protection of outlays in the social sector, domestic expenditure and net lending is programmed to be reduced by more than 1 percentage point of GDP. The authorities intend to maintain a prudent monetary policy stance, so as to ensure that domestic demand growth remains consistent with the balance of payments objectives.
The authorities intend to supplement their macroeconomic policies with structural reforms to enable the private sector to play the leading role in economic activity. The monopoly of rice and sugar imports will be eliminated, according to a timetable to be agreed with the World Bank. Privatization will be pursued actively.
The restructuring of the banking system will be accelerated, and pricing policies will seek to provide adequate incentives to producers and to cover utility company costs. Together with other CFA franc countries, the Burkinabe authorities are working on a legal framework for business activity.
Addressing Social Costs
The Governments's program will contribute to poverty alleviation through more rapid growth in per capita income, and improved access to basic social services and job creation, particularly in the primary sector. In the short term, actions are being taken to protect the poorest and most vulnerable groups through promoting income-generating activities and the targeted distribution of food aid. The budget also includes an appropriation to purchase generic medicines and to finance schoolbook-lending schemes.
The Challenge Ahead
The full implementation of the policies included in the 1995 program will enable the Government to achieve its growth, inflation, and balance of payments objectives. The fiscal component, which is of particular importance, should lead to higher public savings and increase the government contribution to investment while protecting social outlays. Program performance in 1994, however, highlights the need for the authorities to improve the quality and timeliness of the data required to closely monitor developments under the program, and to allow the formulation of an appropriate policy response.
Burkina Faso joined the IMF on May 2, 1963, and its quota2 is SDR 44.2 million (about $67.7 million). Its outstanding use of IMF credit currently totals SDR 33 million (about $51 million).
Sources: Burkinabè authorities; and IMF staff estimates
1. The ESAF is a concessional IMF facility for assisting eligible low-income developing members that are undertaking economic reforms to strengthen their balance of payments and foster growth. ESAF loans carry an interest rate of 0.5 percent, and are repayable over 10 years, with a 5 1/2-year grace period.
2. A member's quota in the IMF determines, in particular, its subscription, voting weight, access to IMF financing, and its share in the allocation of SDRs.