IMF Executive Board Approves New US$67.7 Million ECF Arrangement for Burkina Faso

Press Release No. 10/241
June 14, 2010

The Executive Board of the International Monetary Fund (IMF) today approved a new three-year arrangement under the Extended Credit Facility (ECF) for a total amount equivalent to SDR 46.154 million (about US$67.7 million) for Burkina Faso. The approval will enable the first disbursement of an amount equivalent to SDR7.454 million (about US$10.9 million).

The new arrangement is designed to support the authorities’ program to consolidate recent progress and enhance growth prospects and poverty reduction efforts. The program will focus on fiscal consolidation to sustain macroeconomic stability, and on a reform agenda geared to supporting private sector development.

At the conclusion of the Executive Board discussion on Burkina Faso, Mr. Murilo Portugal, Deputy Managing Director and Acting Chair, stated:

“The Burkinabè authorities are to be commended for maintaining sound economic policies and the momentum of structural reforms in the last three years, despite a challenging environment marked by several exogenous shocks. Good policy performance contributed to macroeconomic stability, supported poverty reduction efforts, and helped mobilize needed budget support. The authorities’ timely response mitigated the impact of the global economic downturn and unfavorable weather conditions in 2009 on the cotton sector and the poorest segments of the population.

“The authorities’ medium-term policy and reform framework, which is supported by a new three-year arrangement under the Extended Credit Facility, seeks to enhance growth prospects and further reduce poverty. A stronger budget position will be essential to support macroeconomic stability and debt sustainability. Priority will be given to further improving revenue performance, including by implementing the tax reform strategy adopted in early 2010. Steps will also be taken to restrain nonpriority spending, to create fiscal space for pro-poor outlays and investment. Prudent borrowing policies and economic diversification will also be critical for long-term debt sustainability.

“The structural reform agenda gives priority to promoting private sector development through financial sector reforms, rehabilitation of the cotton sector, and further improvements in the business environment. Continued support from Burkina Faso’s development partners remains important for the program’s success in accelerating growth and achieving a sustained reduction in poverty,” Mr Portugal added.
ANNEX

Recent Economic Developments

In 2009, economic activity was negatively affected by the impact of adverse shocks. The global economic crisis affected the cotton sector; and unfavorable weather conditions weighed heavily on economic activity and domestic demand. Real GDP growth slowed to 3.2 percent compared with 5.2 percent in 2008. The CPI stood at 2.6 percent, down from 10.7 percent in 2008, mostly reflecting the decline in global food and fuel prices. Meanwhile, the external position strengthened in 2009 thanks to higher exports and improved terms of trade. The increase in exports reflects a strong performance in cotton volume and a surge in gold volume and prices. Imports stagnated because of the low economic activity and the decline in global oil prices. With the large increase in official transfers, the external current account deficit narrowed from 11.7 percent of GDP in 2008 to 6.3 percent of GDP in 2009.

Fiscal performance was consistent with countercyclical policies in response to adverse shocks. Expenditure increased to 24.2 percent of GDP, from 21.6 percent of GDP in 2008, partly reflecting one-off outlays to mitigate the impact of the global economic downturn on the cotton sector, and emergency spending generated by the September floods in Ouagadougou. Revenue rose by 0.5 percent of GDP to 13.6 percent of GDP, mostly because of measures introduced to strengthen tax administration and combat tax evasion. The basic primary budget deficit widened only moderately to 5.2 percent of GDP compared with 4.6 percent of GDP in 2008.

The medium-term outlook remains favorable. Economic growth is expected to pick up gradually. It will be driven mostly by the anticipated expansion in agriculture and gold production, and higher and more effective public investment. The expected global economic recovery, and new investment in the mining sector will also support growth.

Program Summary

Under the new ECF-supported program, the government aims to (i) consolidate the fiscal position and preserve macroeconomic stability; (ii) safeguard debt sustainability, and (iii) support private sector development. The macroeconomic objectives of the government’s program are:

  • Raise the real GDP growth above 6 percent by 2013;
  • Contain inflation below 3 percent;
  • Reduce the external current account deficit to 8.7 percent of GDP by 2013 from 10 percent in 2011;
  • Reduce the overall budget deficit from 5 percent of GDP in 2010 to 3.4 percent of GDP in 2013.

The structural reforms will focus on:

  • Intensifying measures linked to revenue collection and expenditure management and the implementation of fiscal reforms.
  • Restructuring of the state-owned cotton ginning company SOFITEX (Societe des fibres textiles), through the implementation of new cost-cutting measures; the adoption of a new internal audit structure; the preparation of a new risk management system, and a business plan; and the adoption of a procedures manual.
  • Advancing reforms in the financial sector.
  • Continuing to work toward creating a business-friendly environment, notably through the harmonization of business law with the regional regulations by the Organization for the Harmonization of Business Law in Africa (OHADA).

Burkina Faso: Selected Economic and Financial Indicators, 200714

  2007   2008   2009   2010 2011 2012 2013 2014

 

 

 

 

 

   

 

CR          

 

Act.

 

Act.

 

Prog.1 Est.

 

10/7 Proj. Proj. Proj. Proj. Proj.
  (Annual percentage change, unless otherwise indicated)

GDP and prices

                         

GDP at constant prices

3.6   5.2   3.1 3.2   4.2 4.4 4.7 5.5 6.2 6.5

GDP deflator

-1.0   7.8   2.0 4.2   2.0 2.0 2.0 2.0 2.0 2.0

Consumer prices (annual average)

-0.2   10.7   3.4 2.6   2.3 2.3 2.0 2.0 2.0 2.0

Consumer prices (end of period)

2.3   11.6   2.0 -0.3   2.0 2.0 2.0 2.0 2.0 2.0
                           

Money & credit

                         

Net domestic assets (banking system) 2

-5.5   16.5   4.7 0.6   5.3 9.7 12.1 11.1 9.7 9.7

Credit to the government 2

-9.6   4.7   1.5 0.2   0.1 7.9 -0.4 -0.4 -1.6 -1.6

Credit to the economy 2

0.6   14.0   3.2 1.3   5.1 1.8 12.5 11.5 11.4 11.3

Broad money (M2)

22.9   12.2   8.3 21.3   6.2 6.5 9.7 7.6 8.3 8.6

Velocity (GDP/M2)

4.0   4.0   3.9 3.6   3.9 3.6 3.5 3.5 3.5 3.5
                           

External sector

                         

Exports (f.o.b.; valued in CFA francs)

-2.9   3.9   27.4 41.7   12.6 23.4 16.5 17.4 8.4 8.0

Imports (f.o.b.; valued in CFA francs)

4.1   21.8   4.7 0.2   13.1 24.7 13.6 9.7 2.5 2.7

Terms of trade

1.2   -3.2   12.1 6.0   -6.6 -3.1 -2.2 1.6 -0.3 1.1

Real effective exchange rate (– = depreciation)

-0.6   7.1   ... 0.1   ... ... ... ... ... ...

World cotton price (US$ cents per pound)

63.3   71.4   57.5 62.8   58.0 77.0 78.0 78.0 78.0 78.0

Average petroleum spot price (US$ per barrel)

71.1   97.0   61.5 61.8   76.5 80.0 83.0 84.3 85.0 86.0
  (Percent of GDP, unless otherwise indicated)

Central government finances

                         

Current revenue

13.5   13.1   13.2 13.6   13.6 13.9 14.9 15.4 15.9 16.4

Of which: Tax revenue

12.5   12.1   12.1 12.5   12.5 12.8 13.8 14.3 14.7 15.2

Total expenditure

25.7   21.6   27.0 24.2   25.3 25.1 24.9 24.8 24.7 24.6

Of which: Current expenditure

13.8   12.3   13.4 12.6   13.0 12.6 12.5 12.5 12.5 12.5

Overall fiscal balance, excl. grants (commitments)

-12.1   -8.4   -13.8 -10.6   -11.7 -11.3 -9.9 -9.4 -8.9 -8.2

Overall fiscal balance, incl. grants (commitments)

-5.7   -4.5   -6.7 -4.7   -5.4 -5.0 -3.8 -3.5 -3.4 -3.0

Overall fiscal balance, incl. grants (cash basis)

-5.1   -4.0   -7.3 -3.1   -5.4 -7.1 -3.8 -3.5 -3.4 -3.0

Overall fiscal balance, incl. grants (payment orders)

-5.4   -5.5   -6.7 -4.7   -5.4 -5.0 -3.8 -3.5 -3.4 -3.0

Basic primary balance (commitments)

  -4.6   -5.2   -4.5 -1.1 -0.7 -0.5 -0.9

Basic primary balance (cash basis)

  -4.2   -3.6   -6.6 -1.1 -0.7 -0.5 -0.9
                           

Domestic financing

2.1   1.1   3.1 -0.2   0.5 3.4 -0.7 -0.8 -0.9 -0.8
                           

Savings and investment

                         

Current account balance (including current official transfers)

-8.2   -11.7   -9.1 -6.3   -10.5 -8.7 -10.0 -9.8 -8.7 -7.3

Current account balance (excluding current official transfers)

-12.5   -15.1   -13.8 -10.8   -14.9 -13.1 -13.7 -13.1 -11.7 -10.7

Gross investment

19.6   20.9   21.1 18.5   21.6 21.2 20.8 21.5 23.0 22.8

Government

9.0   6.4   10.1 8.5   8.8 8.8 8.6 8.6 8.6 8.6

Private

10.6   14.5   11.0 10.0   12.7 12.4 12.2 12.9 14.4 14.2

Gross domestic savings

5.4   4.3   5.9 6.2   5.3 6.8 5.9 7.2 10.2 11.1

Government

0.8   2.3   -0.2 1.6   1.1 1.6 2.8 3.4 3.8 4.3

Private

4.6   2.0   6.1 4.6   4.3 5.1 3.0 3.9 6.4 6.7

Gross national savings

11.3   9.2   12.0 12.1   11.1 12.5 10.8 11.8 14.4 15.5

Government

4.8   5.4   4.2 5.8   5.2 5.6 6.2 6.4 6.5 7.3

Private

6.6   3.8   7.8 6.3   5.9 6.8 4.6 5.4 7.9 8.2
                           

External sector and debt indicators

                         

Exports of goods and services

10.5   9.8   11.7 12.6   12.3 14.2 15.3 16.6 16.6 16.5

Imports of goods and services

24.7   26.5   27.0 24.8   28.5 28.6 30.3 30.9 29.4 28.2

External debt

18.5   21.7   20.6 23.8   22.2 26.4 28.9 30.8 32.4 33.5

NPV of external debt

12.0   11.6   13.4 15.7   14.9 17.7 19.8 21.4 22.8 23.9

NPV of external debt (percent of exports)

113.2   116.2   113.9 124.6   120.6 124.8 128.9 129.1 137.8 145.2

NPV of external debt (percent of revenues)

88.0   87.3   101.2 115.3   109.4 127.9 132.6 138.8 144.1 145.9
                           

Memorandum item:

                         

Nominal GDP (CFAF billions)

3,252   3,689   3,836 3,969   4,075 4,225 4,510 4,855 5,258 5,711
 

Sources: Burkinabè authorities and IMF staff estimates and projections. 

1 IMF Country Report 10/7.

2 Percent of beginning-of-period broad money.



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