Press Release: IMF Approves New Three-Year Loan for Burkina Faso under ESAF
June 14, 1996
The International Monetary Fund (IMF) today approved a new three-year loan under the enhanced structural adjustment facility (ESAF)1 for Burkina Faso totaling the equivalent of SDR 39.8 million (about $57 million) to support the Government's economic and financial reform program for 1996-98. The first annual loan for 1996-97, equivalent to SDR 13.3 million (about $19 million), will be disbursed in two equal installments, the first of which is available immediately.
Burkina Faso successfully implemented an economic reform program supported by ESAF loans during the period 1993-95. Considerable progress was made in reducing financial imbalances, restoring external competitiveness, and removing structural rigidities and impediments to growth. Real GDP growth was over 4 percent in 1995, the first significant increase since 1991, and the annual rate of inflation was reduced to below 4 percent at end-1995 from 29 percent at end-1994. The fiscal deficit was reduced to 0.2 percent of GDP in 1995 from 2.3 percent in 1994. Considerable progress has been made in reducing the size of the Government and its role in the economy, including removal of extensive government regulations on prices, trade, and domestic marketing; in consolidating public finances, and in restoring the financial health of the banking system. Building upon the country's rapidly improving economic performance in 1995, the authorities decided to consolidate and deepen the reform effort under a new ESAF-supported economic program that will encourage domestic saving and investment to underpin economic growth and effectively address poverty reduction.
Medium-Term Strategy and the 1996 Program
The medium-term strategy for 1996-98 aims at an annual real GDP growth of over 5 percent, an annual rate of inflation of about 3 percent, and a reduction in the external current account deficit (excluding grants) to 10 percent of GDP by 1998 from about 13 percent in 1995. Within this medium-term framework, the 1996 program seeks to achieve a real GDP growth rate of 5.3 percent, to limit the yearly inflation to 3.5 percent by the end of the year, and to maintain the external current account deficit (excluding grants) at less than 13 percent of GDP, reflecting the impact of a weak harvest on cotton exports in late 1995.
To achieve the program objectives, a central focus of the medium-term strategy will be to strengthen government finances. The overall fiscal balance (excluding grants) is projected to improve by about 3 percentage points of GDP over the period 1996-98, based mainly on strong revenue collection and contained expenditures which should fall to 5.5 percent of GDP in 1996 from 9.2 percent in 1995. Revenue measures adopted in the 1996 budget include introducing an excise tax on nonalcoholic beverages, broadening the base for applying the VAT on imports, increasing excise taxes on domestic and imported tobacco products, and expanding the tax base on wages and salaries to include all benefits. The continuation of tight credit policies to preserve competitiveness and encourage financial savings is also a key element of the program.
Structural Reform Policies
Structural reforms envisaged under the program are critical for providing incentives to assure increased private sector investment. These reforms include additional privatization of public enterprises; prompt completion of the financial sector restructuring that began in 1991; civil service reform; reforms of the judiciary system, labor code, and regulatory environment; and the elimination of remaining trade restrictions.
Addressing Social and Environmental Aspects
The projected GDP growth over the medium term is expected to increase employment opportunities. In the short term, the budget includes allocations to provide for wider access to basic social services, in particular increased access to primary education in the rural areas and to basic health care. Other measures being implemented under the program include increased supply of clean water, particularly to every school and medical unit. The Government's environmental action plan is targeted toward improved land and natural resource management, including forests and water.
The Challenge Ahead
Burkina Faso's external debt service obligations are expected to be sustainable following the debt stock reduction operation requested under the program. However, the authorities must remain steadfast in implementing a cautious debt management strategy ensuring that it be based on grants and very concessional loans to finance development projects and programs, taking into account the likelihood that foreign financing of the public investment program will be somewhat more subdued than in previous years.
Burkina Faso joined the IMF on May 2, 1963; its quota2 is SDR 44.2 million (about $64 million); and its outstanding use of IMF credit currently totals SDR 50.52 million (about $73 million).
Sources: The Burkinabe authorities; and IMF staff estimates.
1. The ESAF is a concessional IMF facility for assisting eligible members that are undertaking reform programs to strengthen their balance of payments and improve their growth prospects. 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, the amount of its subscription, its voting weight, its access to IMF financing, and its allocation of SDRs.