Burkina Faso and the IMF
Heavily Indebted Poor Countries -- A Factsheet
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The International Monetary Fund (IMF) and the World Bank's International Development Association (IDA) agreed this week that Burkina Faso has taken the steps necessary to reach its completion point under the enhanced framework of the Heavily Indebted Poor Countries (HIPC) Initiative. Burkina Faso becomes the fifth country to reach this point, joining Bolivia, Mozambique, Tanzania and Uganda.1
Debt relief under the enhanced HIPC Initiative from all of Burkina Faso's creditors amounts to US$195 million in net present value (NPV) terms. This comes in addition to US$229 million in NPV terms the country received when it reached its completion point under the original HIPC framework in July 2000. Although this relief cuts its debt stock by nearly 50 percent, exogenous factors have adversely affected Burkina Faso's export performance and capacity, raising the NPV of debt to export ratio at completion point substantially above the 150 percent target set out under the enhanced HIPC framework. Despite prudent policy responses, Burkina Faso would not be able to exit from external debt rescheduling, a key objective of the HIPC Initiative.
In light of this, and as provided for under the HIPC Initiative, the Boards of the IMF and World Bank agreed that Burkina Faso would require exceptional debt relief, or "topping-up", to achieve debt sustainability, and endorsed an additional US$129 million in NPV terms of debt relief to mitigate the adverse effect on Burkina Faso's debt ratios resulting from exogenous shocks to its exports. 2 These factors included falling world cotton prices—resulting in part to heavy subsidies in industrialized country markets—political and economic events in neighboring countries, and crop damage due to agricultural parasites. With this additional treatment, the total nominal debt service relief provided under the HIPC Initiative is about US$930 million.
This exceptional treatment, together with additional bilateral assistance beyond HIPC relief (US$22 million in NPV terms), brings Burkina Faso's debt to exports ratio down to the HIPC target of 150 percent at the completion point reference date of end-2001. However, its debt level is projected to remain high during the next decade, with new borrowing contributing to this. This borrowing is of a highly concessional nature and is intended for poverty reduction and growth enhancing purposes. NPV of external debt as a percentage of GDP is projected to fall from over 30 percent in 2001 to 20 percent in 2003 and remain at an annual average below 22 percent through 2010. Moreover, the burden of debt service is expected to remain on a downward trend, with the ratio of debt service-to-exports falling from 23 percent in 1999 to 6 percent in 2003 and averaging 7.4 percent annually over 2001-2010. Debt service as a percentage of revenue declines from 11 percent in 1999 to 4.6 percent in 2003, and averaging 5.5 percent per annum over the coming decade.
The nominal debt service relief required of bilateral and commercial creditors under the enhanced HIPC Initiative, including the topping-up portion and additional relief provided by some Paris Club members on a voluntary basis, equals about US$120 million. Multilateral creditors will be expected to provide about US$410 million in nominal terms. Of this, IDA will provide $237 million. The IMF will provide US$52 million. While the topping-up assistance at completion point will be committed on an individual basis by each of Burkina Faso's creditors, it is expected that the majority of creditors, including the most important ones, will agree to help Burkina Faso reach a sustainable external debt position.
All of the policy reform conditions for the floating completion point pertaining to the areas of health, education and governance had been fully met, with targets exceeded in certain areas.
Poverty Reduction Strategy Paper:
Basic Education: Burkina Faso met or exceeded most targets listed in the PRSP for the year 2000, including gross enrollment rates for girls and primary school registration in rural areas. The budget allocation for basic education as a percentage of the total budget increased from 15.3 percent in 1999 to 18.3 percent in 2000. School infrastructure building efforts continued, with the construction of 159 schools, 342 latrines and 206 housing units. In March 2001, the government adopted the Education Policy Letter, which presented a plan to reform the hiring and retention of teachers.
Health: Notable progress has been achieved in raising immunization coverage rates, ensuring a good supply of essential drugs, and improving staffing of primary health facilities. This implementation record demonstrates that solid progress can be made in critical areas which will facilitate progress toward attaining the Millennium Development Goals. Overall health appropriations for 2000 increased by 11.3 percent from 1999. In response to the HIV/AIDS pandemic, an agreement was reached in May 2001 with three large pharmaceutical companies, which resulted in a substantial drop in the price of certain anti-retroviral drugs
The Economic Program:
Key Policy Measures and Reforms:
In the area of governance, the government has improved their budgeting and public expenditure management practices in recent years and established a multi-year program to enhance staff capabilities on public financial management matters. To combat corruption, in December 2001 the authorities launched a unit with the power to investigate cases and refer them to competent judicial authorities, and a newly created Supreme Audit Court, with senior jurisdiction over the control over public finances, will be fully operational by end 2002.
1 The completion point is when the debt relief committed by all creditors under the HIPC Initiative is committed irrevocably. The decision point, which precedes the completion point, is when debt relief is committed and begins on an interim basis.
2 The enhanced HIPC framework provides for the consideration of additional debt relief at the completion point in exceptional cases where exogenous factors are judged to have caused fundamental changes in a country's economic circumstances adversely affecting its debt sustainability and where the NPV of debt-to-export ratio remains significantly and durably above the threshold value (150 percent) despite adequate policy responses by country authorities. The analysis is based on an updated debt sustainability analysis ad a comprehensive reassessment of the country's circumstances.
IMF EXTERNAL RELATIONS DEPARTMENT