Press Release: IMF Approves US$34 Million Three-Year PRGF Arrangement for Burkina Faso
June 11, 2003
The Executive Board of the International Monetary Fund (IMF) today approved a three-year, SDR 24.08 million (about US$34 million) arrangement under the Poverty Reduction and Growth Facility (PRGF) for Burkina Faso, which will support the government's economic reform program for 2003-06. The decision will make available to Burkina Faso an amount equivalent to SDR 3.44 million (about US$5 million).
The PRGF is the IMF's concessional facility for low-income countries. It is intended that PRGF-supported programs are 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 (PRSP). This is intended to ensure that PRGF-supported programs are consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5 ½-year grace period on principal payments.
In commenting on the Executive Board's decision, Anne Krueger, First Deputy Managing Director and Acting Chair, stated:
"Burkina Faso's performance under three medium-term PRGF-supported programs during 1993-2002 was broadly satisfactory, and the policy agenda laid out in the PRSP adopted in 2000 is being followed faithfully. Real GDP growth has recovered over the period, inflation has remained low, and progress has been made in improving expenditure management and implementing structural reforms. However, Burkina Faso's economy remains fragile, and vulnerable to external shocks. Poverty remains high, and limited administrative capacity and poor infrastructure pose a challenge to efforts to raise the social indicators. A further strengthening of governmental institutions, well-targeted and effective public spending, measures to improve competitiveness and economic diversification, and encouragement of private sector and rural development will be needed to alleviate poverty and achieve sustained economic growth.
"The authorities' fiscal consolidation efforts should continue. Particular attention needs to be paid to revenue collection, which has been weak and has fallen short of the level required to meet the convergence criterion on revenue collection set by the West African Economic and Monetary Union. In light of this, the authorities appropriately plan to strengthen customs administration and tax administration, control, and collection in the coming months.
"The authorities will also continue to contain domestically financed public expenditure, and remain current on all domestic and external payments obligations. At the same time, resources will be reserved to protect social sector spending, in particular for education and health. The government intends to strengthen transparency in public finance management and the effectiveness of public spending, including HIPC Initiative-related spending. Further progress is expected in promoting good governance, combating corruption, and further encouraging public debate on economic and social policy. The program and the PRSP policy agenda are appropriately focused on fostering economic growth and working toward achieving the Millennium Development Goals.
"The government's program is appropriately ambitious, and well aligned with the country's PRSP policy agenda. It merits the support of the international community. All multilateral and non-Paris Club creditors are urged to participate fully in the HIPC Initiative for Burkina Faso," Ms. Krueger said.
Recent Economic Developments
Since 1993, Burkina Faso has satisfactorily implemented three PRGF-supported programs associated with the conduct of sound macroeconomic policies and significant structural reforms. Under these programs, and following the devaluation of the CFA franc in 1994, the real GDP growth rate increased to 4.7 percent on average during 1996-2002 from 3.5 percent during 1990-95, despite two drought years in 1998 and 2000 and terms of trades shocks in 2000 and 2002.
Inflation remained low, but the external current account deficit widened during 1996-2002, reflecting, among other things, a weak performance in noncotton exports. Fiscal policy improved generally, with the overall fiscal deficit contained. Major structural reforms have been carried out, including in the areas of price, trade liberalization, and governance.
Achieving the macroeconomic objectives of the program will require the implementation of appropriate fiscal policies and key structural reforms, including in tax administration, fiscal transparency, and governance.
The fiscal program for 2003-04 aims at containing the basic budget deficit (including HIPC Initiative-related social spending) at 4.5 percent of GDP in 2003 and at reducing it to 3.5 percent of GDP in 2004. The overall fiscal deficit (excluding grants) would be limited to 11.0 percent of GDP in 2003 and reduced to 10 percent of GDP in 2004. To improve fiscal transparency and good governance, the government will implement its medium-term action plan to strengthen public finance management. Government revenue is projected to increase to 11.4 percent of GDP in 2003 and to 12.3 percent of GDP in 2004. On the expenditure side, the ratio to GDP of total budgetary outlays and net lending, excluding foreign-financed investment and lending, will increase from 15.7 percent of GDP in 2002 to 17.1 percent of GDP in 2003 and fall to 16.7 percent in 2004.
The program also calls for reducing the stock of expenditures committed but for which payment orders have not been issued by CFA 15 billion in 2003, and stabilizing them in 2004, with the view of maintaining them below 10 percent of total expenditure. The regional central bank BCEAO will continue to pursue a prudent monetary policy in 2003-04 aimed at containing inflationary pressures and at reinforcing the external position of the banking system.
On the structural front, the cotton sector has been liberalized gradually in recent years, with the emphasis on strengthening the role of producers' associations. To ensure the long-term viability of the sector, the government's strategy involves opening the sector to private sector participation, with a view to improving further efficiency and competitiveness.
Burkina Faso joined the Fund on May 2, 1963. Its quota is SDR 60.20 million (about US$85 million), and its outstanding use of IMF resources totaled SDR 89.07 (about US$126 million ) as of end March, 2003.