Press Release: IMF Executive Board Completes Sixth Review Under Burkina Faso's PRGF Arrangement, Request for Waivers of Performance Criteria, Augmentation of Access and Approves US$14.0 Million Disbursement
September 8, 2006Press Release No. 06/195
The Executive Board of the International Monetary Fund (IMF) completed today the sixth review under the Poverty Reduction and Growth Facility (PRGF) arrangement for Burkina Faso (see Press Release No. 06/51). The Board also granted Burkina Faso's request for waiver of nonobservance of two performance criteria and for augmentation of access by 10 per cent of quota (SDR 6.0 million (about US$8.9 million). Completion of the review enables the release of a final disbursement of approximately SDR 9.5 million (about US$14.0 million) under the arrangement. This will bring the total amount drawn under the arrangement to SDR 30.1 million (about US$44.5 million).
After the Executive Board's discussion of Burkina Faso, Mr. Takatoshi Kato, Deputy Managing Director and Acting Chair, issued the following statement:
"The Burkinabè authorities are to be commended for Burkina Faso's robust economic performance in recent years in the context of strong implementation of Fund-supported programs. Over the past one and a half years, the economy performed well despite adverse external shocks. Growth increased strongly in 2005, as record cereal and cotton harvests more than offset the negative impact of rising world oil prices and lower world cotton prices. Macroeconomic policy implementation in 2006 continued to be good and economic prospects are generally favorable, with growth expected to reach 5.6 percent, notwithstanding a further deterioration in the terms of trade. Progress on structural reforms has been somewhat slower, especially in the area of privatization of public utilities.
"The terms-of-trade shocks have led to a substantial decline in foreign exchange reserves at the national branch of the Central Bank of West African States (BCEAO), creating a need for augmentation of access to Fund resources to moderate the expected decline in reserves in 2006.
"The authorities' strategy to pass through world prices to domestic producers and consumers is well placed and will facilitate the adjustment of the economy to the recent terms-of-trade shocks. The continued implementation of the automatic pricing mechanism for petroleum products is therefore welcome. The recent increase in electricity tariffs is also a step in the right direction, but further headway should be made in linking tariffs to costs while safeguarding the poorest households. The proposed new producer price mechanism for cotton could represent a substantial improvement over the previous system by linking producer prices more closely to world cotton prices, thereby aligning incentives for producers with world market conditions.
"The 2006 fiscal program strikes an appropriate balance between responding to urgent expenditure needs and maintaining debt sustainability. The use of resources freed up by the Multilateral Debt Relief Initiative (MDRI) and the availability of additional budgetary support to increase priority expenditures are welcome. A strict management of non-priority expenditures is required to preserve the fiscal space for priority expenditures. The projected fiscal deficit is expected to be financed mostly with net donor flows in the form of grants, debt relief, and highly concessional borrowing, and the envisaged fiscal deficit is consistent with maintaining debt sustainability.
"To preserve the gains in debt sustainability as a result of MDRI relief, which has lowered all external debt indicators well below their policy-dependent thresholds, critical policy priorities will be to maintain prudent fiscal policies, improve revenue mobilization, obtain grants to the extent possible, and continue to borrow only on highly concessional terms.
"Strengthened efforts on growth-enhancing structural reforms will be essential to reduce poverty and facilitate the timely achievement of the MDGs," Mr. Kato 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 country's Poverty Reduction Strategy Paper. 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.