IMF Executive Board Completes Fourth Review Under Burkina Faso's PRGF Arrangement and Approves
US$5.1 Million Disbursement
The Executive Board of the International Monetary Fund (IMF) has completed the fourth review of Burkina Faso's economic performance under a SDR 24.08 million (about US$35.7 million) Poverty Reduction and Growth Facility (PRGF) arrangement (see Press Release No. 03/82). The completion of the review enables the release of a further SDR 3.44 million (about US$5.1 million), which will bring the total amount drawn under the arrangement to SDR 17.2 million (about US$25.5 million).
In completing the review, the Executive Board granted a waiver of the nonobservance of the end-March 2005 quantitative performance criterion on the cumulative change in net domestic financing to the government.
Following the Executive Board's discussion of Burkina Faso, on September 7, 2005, Anne O. Krueger, First Deputy Managing Director and Acting Chair, stated:
"The authorities of Burkina Faso are to be commended for their sound macroeconomic policies and their progress toward the Millennium Development Goals. Economic performance in 2004 was relatively strong, despite the adverse external shocks that emerged in the second half of the year, notably the sharp decline in world cotton prices and the increase in world oil prices. Economic growth remained robust, inflation was low, and all fiscal targets were met.
"The sharp decline in Burkina Faso's terms of trade has reduced economic growth prospects for 2005, and presents the authorities with substantial challenges. The authorities' program strikes an appropriate balance between the need for fiscal restraint in the face of this shock and the need to push ahead with priority expenditures in support of the poverty reduction strategy. Revenues have been in line with the authorities' target and expenditures have remained oriented toward key social services, notably health and education, as well as growth and productivity-enhancing capital investments.
"The authorities are implementing reforms to broaden the tax base and strengthen tax administration, in order to boost tax revenue further. Progress with other structural reforms to enhance external competitiveness is urgently needed. A priority in this area is the power sector, where the authorities should move toward pricing based on cost recovery. This will reduce the need for budgetary subsidies, thereby freeing up resources for priority poverty-reducing programs. Pushing ahead with the power sector investment program will help reduce costs, improve the quality of service, and enhance competitiveness of the economy.
"The authorities are making progress in strengthening governance, as evidenced by the follow up to the report of the High Authority on the Coordination of the Fight Against Corruption, including the approval of the National Strategy for Good Governance. These efforts will be bolstered with the forthcoming approval of a comprehensive strategy for combating corruption.
"The government's policy with respect to the mostly private cotton sector has generally served the sector and economy well. The government has encouraged producers to find their own solution to the recent decline in world cotton prices without recourse to budget subsidies. With the assistance of its development partners, the government will continue to support the sector through projects to improve infrastructure, enhance productivity, and conduct research.
"The authorities' draft medium-term expenditure framework envisages a scaling up of outlays to accelerate progress toward the MDGs. The authorities are encouraged to proceed with these expenditures only if financing can be obtained on terms consistent with long-term debt sustainability. In this context, it will be necessary to attract external financing on highly concessional terms, preferably in the form of grants," Ms. Krueger said.
The PRGF is the IMF's concessional facility for low-income countries. 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 the 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 5½-year grace period on principal payments.
IMF EXTERNAL RELATIONS DEPARTMENT