Press Release No. 07/10

Press Release No. 07/10

Martin Petri, International Monetary Fund (IMF) Mission Chief to Burkina Faso, made the following statement today in Ouagadougou:

"An IMF mission team visited Ouagadougou during January 10-24 for discussions on a new program supported under the Poverty Reduction and Growth Facility (PRGF).¹ The discussions on a new PRGF arrangement, notably the fiscal targets for 2007, will continue in the period ahead and their successful conclusion would open the way for consideration by the IMF Executive Board.

"The mission held constructive discussions with Minister of Finance and Budget Jean-Baptiste Compaoré; Minister of Economy and Development Seydou Bouda; Central Bank of West Africa States (BCEAO) National Director Bolo Sanou, other senior officials of the Government of Burkina Faso, members of parliament, representatives of the private sector, labor unions, nongovernmental organizations, and development partners.

"Burkina Faso's 2006 macroeconomic performance was generally strong despite substantial economic challenges resulting from low world cotton prices and high oil prices. Cereal and cotton harvests have been good, which bolstered growth and led to declining cereal prices and overall food-price inflation. The construction and service sectors also performed well, and overall real GDP growth is estimated at 6.4 percent, while average inflation remained low at 2.4 percent. The overall fiscal deficit including grants was 5.2 percent of GDP as expected, with a sizeable shortfall in domestic revenues offset by higher external grants and expenditure cuts.

"Real GDP growth in 2007 is projected at 6½ percent, slightly above trend growth. The processing of the strong 2006 cotton harvest should support real GDP growth in 2007. Another positive growth impulse is likely to come from lower world oil prices and larger government spending. Downside risks for growth outlook could result from the financial difficulties in the cotton sector, if they are not resolved shortly. Inflation is projected at about 2 percent.

"Once concluded, a new PRGF-supported program would help Burkina Faso move towards the Millennium Development Goals (MDG) of reducing the poverty rate to below 35 percent by 2015 while achieving per-capita growth rates of at least 4 percent. The program' policies would be consistent with those described in the authorities' Poverty Reduction Strategy Paper (PRSP). It would focus on (i) raising domestic revenues; (ii) strengthening public financial management to allow for better domestic absorption of aid and more effective poverty-reducing spending; (iii) increasing private sector participation to accelerate growth and diversify economic activity; and (iv) maintaining debt and fiscal sustainability.

"In 2007, the main focus of the program would be on improving tax administration, which is critical for mobilizing the resources needed to support priority spending. A comprehensive program to reform public financial management, and overhaul and simplify the tax system would be developed in the context of biannual program reviews. These reforms would contribute to lowering the costs of complying with tax and customs administration, broaden the tax base through the elimination of exemptions, and reduce the scope for corruption. This would facilitate private sector investment and contribute to sustainable economic growth.

"Regarding the policies for 2007, the mission cautioned against accelerating spending before sufficient and durable resources have been identified, thereby strictly limiting the accumulation of new debt. With the additional revenue effort and strong economic growth, this should allow for important increases in real spending, particularly on poverty reduction and infrastructure. The stakeholders in the cotton sector are working hard to put the sector on a sustainable basis. The government intends to participate in SOFITEX's recapitalization in proportion to its share in the company. Looking forward, the private sector is expected to take the lead in finding a sustainable solution to the sector's problems, in particular agreeing on a sustainable producer price mechanism based on world market prices."

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¹ 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.