## BURKINA FASO — FOURTH AND FIFTH REVIEWS UNDER THE EXTENDED CREDIT FACILITY ARRANGMENT, REQUEST FOR A WAIVER OF NONOBSERVANCE OF PERFORMANCE CRITERION AND REPHASING OF ACCESS ## Source details **Canonical URL:** [BURKINA FASO — FOURTH AND FIFTH REVIEWS UNDER THE EXTENDED CREDIT FACILITY ARRANGMENT, REQUEST FOR A WAIVER OF NONOBSERVANCE OF PERFORMANCE CRITERION AND REPHASING OF ACCESS](https://www.imf.org/-/media/files/publications/cr/2020/english/1bfaea2020002.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2020/english/1bfaea2020002.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2020/english/1bfaea2020002.pdf.json) --- ### Executive summary and context - Security crisis intensified since late 2018; as of September 2020 affected about 5.2 million people, with 2.2 million needing humanitarian assistance and over one million internally displaced. - About 300 health centers closed or partially functioning; more than 2,500 schools closed affecting about 350,000 students. - Presidential and legislative elections scheduled for November 2020. - COVID-19 first case recorded on 9th March 2020; confinement measures and travel restrictions imposed and progressively eased; passenger flights reopened August 1 with testing and quarantine protocols. - Fifth review marks the end of the current program implemented under deteriorating security conditions and persistent social tensions. ### Recent economic developments and key statistics - Real GDP: - 2019: 5.7 percent (growth decelerated from 6.8 percent in 2018). - 2020 Q1: contracted by 1.4 percent (y-o-y). - 2020 Q2: contracted by 8.6 percent (y-o-y). - 2020 full-year outlook (staff): contract by 2.8 percent (down from 6.0 percent forecast prior to the pandemic; 2 percent at the time of RCF request in April 2020). - 2021 projection (staff): recover to around 4.1 percent. - Medium term: stabilize around 5.6 percent. - Inflation: - 2019: -2.6 percent (y-o-y). - End-August 2020: 4.1 percent. - 2020 projection (staff): annual inflation projected to catch up to around 4.1 percent. - Authorities' expectation: inflation to recede to 1.4 percent at year end. - Fiscal balance: - 2019 overall fiscal deficit: 3.2 percent of GDP. - 2020 expected fiscal deficit: about 5.3 percent of GDP to accommodate COVID-19 and security shocks. - Fiscal consolidation prior to 2020: overall deficit declined from almost 8 percent of GDP in 2017 to just over WAEMU convergence criterion limit of 3 percent of GDP in 2019. - External and monetary: - Current account deficit widened to 4.8 percent of GDP in 2019 (from 4.1 percent in 2018). - Banking sector: nonperforming loans at 7.6 percent (end-2019). - Private credit growth at end-July 2020: 8.7 percent y-o-y (decelerated from an average 12.4 percent in January to April). - Social and public-sector impacts: - Security spending and wage bill increased significantly, crowding out some development spending. - Civil service unions periodically paralyzed public administration due to pay disputes. ### Program performance under the ECF arrangement - Overall assessment: performance during 2018-2020 described as satisfactory despite security crisis, pay disputes, and COVID-19. - 4th review (end-December 2019): - All end-December 2019 quantitative performance criteria (QPCs) met. - Four out of six indicative targets (ITs) met. - IT on overall fiscal deficit exceeded target by 0.3 percent of GDP due to higher than planned VAT reimbursement and weaker than expected external grants. - Stock of unpaid VAT refunds exceeded program target. - 5th review (end-June 2020): - Four out of five QPCs met. - Three out of six ITs met. - Missed QPC: net domestic financing (ceiling for net domestic financing of the government: CFAF 67 billion; outturn CFAF 236.9 billion). - Missed ITs: overall fiscal deficit, government revenue, stock of unpaid VAT (overall budget deficit including grants: outturn CFAF 323.8 billion; ceiling CFAF 141.00 billion; government revenue: outturn CFAF 791.1 billion; floor CFAF 888.00 billion; stock of certified VAT reimbursement requests not paid >30 days: outturn CFAF 57.45 billion; ceiling CFAF 40 billion). - IT met: floor of pro-poor spending (government stepped up social spending in response to COVID-19). - Authorities requested a waiver for the missed QPC. - Structural benchmarks: - All but one structural benchmark for the 4th and 5th reviews were met, including continuous commitment not to conclude any new wage agreements outside of the security sector and dematerialization of asset declarations (publicly accessible online). - Unmet benchmark: performance audit of SONABHY delayed; audit now expected to be completed by March 2021. ### Staff views, actions, and financing - Staff support: - Support for authorities’ request for a waiver for the missed QPC at end-June 2020, reflecting adjustments to the initial budget for urgent COVID-19-related spending. - Support completion of the reviews and release of the fifth and sixth disbursements under the ECF arrangement in the amount of SDR36.12 million. - Support for rephasing the fifth review to make its associated sixth disbursement available on November 13, 2020. - Authorities produced an audited report on COVID-19-related spending (up to end-June 2020) and committed to publish further reports along with all pandemic-related procurement contracts and their beneficial owners; shortfalls in the end-June 2020 spending report should be expeditiously addressed. - IMF provided emergency relief under the Catastrophe Containment and Relief Trust and relief for debt service due between April 14 and October 13, 2020 (about US$12 million). - Staff supports widening of the 2020 fiscal deficit since it is fully financed by additional external budget support. ### Outlook, risks, and priorities - Main risks: - Uncertainty surrounding the duration of the pandemic. - Ongoing security crisis. - Domestic risks include resurgence of COVID-19, further security disruptions, labor disputes. - External risks include intensified protectionism and global supply chain disruptions. - Debt sustainability: - DSA finds risk of external debt distress remains moderate. - Burkina Faso has a medium debt-carrying capacity based on the composite indicator of 2019 (CI index: 3.01). - Under baseline, external debt and debt service indicators remain below relevant thresholds; under a standard export shock, two external debt service thresholds are breached. - Conclusion: moderate risk of external debt distress and moderate overall risk of public debt distress, with substantial space to absorb shocks. - Policy priorities and recommendations: - Widening of the fiscal deficit in 2020 and 2021 warranted to accommodate COVID-19 spending, additional security needs, and post-COVID-19 recovery; such spending should be cost-effective and appropriately targeted while safeguarding macroeconomic stability and debt sustainability. - Boost domestic revenue mobilization (domestic revenue projected lower by 2.6 percent of GDP relative to the initial budget). - Good governance and accountability, especially for emergency spending; address shortfalls noted in end-June 2020 spending report. - Address the security crisis and promote higher and inclusive growth over the medium term. - Gradual return of the fiscal deficit to the WAEMU target of 3 percent of GDP by 2024 (one year later than the regional goal). - Promptly adopt and implement reforms to put the wage bill on a sustainable path. ### Fiscal framework, 2020 LFR adjustments, and financing - 2020 fiscal adjustments: - 2020 fiscal deficit projected to widen to 5.3 percent of GDP (a 2.3 percent of GDP deviation from the initial 2020 budget). - Domestic revenue collection projected to be lower by 2.6 percent of GDP relative to initial budget. - Current expenditure projected unchanged; investment projected to expand by 0.6 percent of GDP. - COVID-19-related health and transfers expenditures: 0.9 percent of GDP (financed within current expenditure envelope by keeping wage bill unchanged, cancelling non-priority goods and services -0.1 percent of GDP, and reducing transfers -0.7 percent of GDP). - Postponement of non-urgent investments (~1.1 percent of GDP); added COVID-19-related health investments (1.7 percent of GDP) and security investments. - FRE (COVID-19 Economic Recovery Fund): - FRE amount: CFAF 100 billion (CFAF 70 billion in 2020 and CFAF 30 billion in 2021) to leverage at least CFAF 200 billion in fresh credit during 2020-2021. - Schemes include guarantees, interest rate subsidization, and reduced-interest loans with specified CFAF allocations. - Key external financing items: - Fund’s RCF disbursements of about US$115.3 million (or 70 percent of quota). - Planned disbursement for the 4th and 5th ECF reviews and debt relief under the CCRT. - World Bank US$307.95 million. - African Development Bank US$61.5 million. - European Union Euro 116.36 million. - France Euro 36 million. - Debt service suspension under the DSSI: CFAF 13.9 billion (0.2 percent of GDP) in 2020 from participating creditors. ### Transparency, governance, COVID-19 oversight and anti‑corruption - All external COVID-19-related supports fully channeled through revised 2020 budget and coordinated by a High-level Oversight Committee (chaired by the Prime Minister) with civil society participation. - Deliverables and commitments: - First audited report on COVID-19-related spending up to end-June 2020 shared with staff (prior action). - All pandemic-related procurement contracts and their beneficial owners to be published. - Audited report on COVID-19-related spending at end-December 2020 to be published by end-June 2021. - Good governance progress: - Dematerialization and online publication of asset declarations completed (platform launched August 4, 2020; publication effective September 11, 2020). - ASCE-LC and the Court of Auditors prioritizing audits of COVID-19-related spending and high-risk sectors. - Staff urged authorities to publish statistics on corruption cases investigated and sanctioned. ### Public financial management, tax administration, and structural reforms - PFM advances: - Treasury Single Account (TSA) roadmap established; mapping of accounts completed; connectivity to Central Bank and SWIFT payments established; payments processed through systems since end-July 2020. - PEDE (government expenditure commitment plan) developed; experimental deployment scheduled January 1, 2021. - Implementation of accrual accounting scheme; deployment of public accountants delayed to January 1, 2022. - Tax and customs reforms: - Enforcing 2020 fiscal measures including tobacco tax increase from 45 to 50 percent. - Continued computerization of tax declaration and payment; interconnection between SINTAX and SYDONIA. - Adding ten fraud-sensitive products to SYDONIA’s value control (increasing monitored products to 30). - Ministerial order suspending VAT collection on imports of mining companies on a pilot basis until end-2020, with roadmap for reform in 2021 (prior action). - Roadmap to simplify and modernize VAT reimbursement process (prior action met). - Wage bill reform: - Political dialogue disrupted by pandemic and labor disputes; authorities plan to appoint a high-level committee of independent Burkinabè persons to finalize technical elements (salary/indemnity scenarios, draft organic law on pay and allowances, draft medium-term wage bill strategy). - Interim commitment: no new benefits to non-security sectors that would increase the wage bill (continuous structural benchmark) until comprehensive reform adopted. - Energy subsidies and SONABHY/SONABEL: - Favorable market conditions and partial fuel price mechanism reduced subsidies; MoU signed to set outstanding cross-debt at end-August 2020 (prior action). - Government validated outstanding financial obligations to SONABHY as of August 31, 2020: government indebted to SONABHY for CFAF 21,073,077,736 (balance after offsetting amounts due with estimated surplus in fuel pricing mechanism CFAF 68,381,684,665 as of August 31, 2020). - Subsidy deposit account credit: CFAF 23,190,600,277 as of August 31, 2020. - 2020 revised budget budgeted an additional CFAF 25 billion. ### Financial sector, inclusion, AML/CFT - Financial stability: - Financial sector appears resilient but pockets of vulnerability exist if disruptions persist. - Stability metrics (as at June 30, 2020): gross non-performing loans 7.46 percent; net non-performing loans 2.32 percent; two small institutions breached some prudential norms (each ~3.3 percent of banking market). - BCEAO regional measures welcomed; staff urged close monitoring and transparent implementation of recovery support schemes. - Financial inclusion: - National strategy aims to raise percentage of adults with bank/financial transaction account from 43 percent in 2017 to 75 percent by 2023. - BCEAO implemented temporary measures to facilitate mobile payments and provided additional liquidity to microfinance institutions. - AML/CFT: - Legal and institutional improvements adopted to criminalize terrorism financing and designate competent authority for targeted financial sanctions; pending validation by GIABA Technical Commission. - Staff urged stepping up efforts to address remaining macro-critical shortcomings to prevent potential gray listing by FATF. ### Social protection and healthcare - COVID-19 and security crisis highlighted need to scale up national healthcare and social safety nets. - Measures taken: - Expansion of existing cash transfer programs to nontraditional beneficiaries (including market vendors, most of whom are women). - In-kind support and subsidized utility bills for poorest populations. - Public health response plan costed at CFAF 177.9 billion (1.8 percent of GDP). - Staff recommendations: - Strengthen adherence to harmonized tool for collecting information on poor and vulnerable. - Accelerate Single National Registry of Beneficiaries and consolidate fragmented social safety nets to improve targeting. - Accelerate introduction of universal healthcare insurance scheme in coordination with development partners. ### Risk Assessment Matrix (RAM) — key risks and policy responses - External risks with Relative Likelihood and Impact if Realized: - Unexpected downside shift in the Covid-19 pandemic — Relative Likelihood: High; Impact if Realized: High. - Intensified geopolitical tensions and security risks — Relative Likelihood: High; Impact if Realized: Medium. - Oversupply and volatility in the oil market — Relative Likelihood: Medium; Impact if Realized: Medium/Low. - Tighter financing conditions in regional market — Impact if Realized: Tighter financing conditions, lower growth, increased fiscal needs. - Domestic risks with Relative Likelihood and Impact if Realized: - Pressures for higher recurrent spending, particularly on wages — Relative Likelihood: High; Impact if Realized: High. - Revenue mobilization lags — Relative Likelihood: High; Impact if Realized: High. - Intensification of terrorist attacks — Relative Likelihood: High; Impact if Realized: Medium/High. - Widespread social discontent and political instability — Relative Likelihood: High; Impact if Realized: High. - Cross-cutting policy responses: - Create fiscal space for higher health spending; re-prioritize public spending; seek additional grants and concessional financing. - Contain recurrent spending, especially wage bill; intensify domestic revenue mobilization. - Implement reforms to improve competitiveness, diversify exports, and pursue regional trade. - Allow flexibility in pump fuel prices by implementing automatic fuel price mechanism. - Safeguard food security and support agricultural productivity. ### Debt Sustainability Analysis (DSA) highlights - Classification: Burkina Faso’s debt-carrying capacity: medium (composite indicator: 3.01). - Public debt levels and composition: - Nominal public debt end-2019: 42.7 percent of GDP (external debt 55.6 percent share; domestic debt 44.4 percent share). - Baseline projects PPG public debt peak at 48.1 percent of GDP end-2022 then marginal decline. - Key DSA projections and vulnerabilities: - Under baseline, external PPG debt indicators remain below thresholds; under export shock, debt service-to-exports and debt service-to-revenue breach thresholds. - PV of external debt-to-GDP expected around 18 percent over projection; PV debt-to-exports rises but remains below 180 percent baseline; export shock pushes PV debt-to-exports above threshold. - Debt service-to-revenue and grants ratio projected to increase materially in early projection years due to short maturity of domestic financing. - Policy recommendations to preserve sustainability: - Maintain sound macro-fiscal framework; limit non-concessional borrowing; implement MTDS; control government guarantees and contingent liabilities. - Increase revenue mobilization and diversify exports. - Sequence toward longer-term domestic instruments as regional markets develop. ### Program monitoring, conditionality, and reporting - Quantitative performance criteria include ceilings on net domestic financing, external debt (in PV terms), accumulation of external payment arrears, guaranteeing of domestic loans to suppliers/contractors, and guaranteeing of bank pre-financing of public investments. - Continuous performance criteria: no new wage agreements increasing wage bill (except security sector); no new financial guarantees for domestic loans to suppliers or contractors; no guarantee of new bank pre-financing for public investments. - Reporting requirements: extensive monthly and quarterly data submissions across MINEFID, BCEAO, DGI, DGD, DGTCP, SONABHY, SONABEL and other agencies with specified deadlines (typically 4 weeks to 6 weeks; some items 2 weeks, 3 months, or other specified cadences). ### Staff recommendations and Board actions sought - Staff recommends: - Completion of the fourth and fifth reviews. - Rephasing of the fifth review to November 13, 2020. - Disbursement of SDR36.12 million under the ECF arrangement (release of fifth and sixth disbursements). - Support for the authorities’ request for a waiver of nonobservance for missed QPC on domestic financing at end-June 2020. - Rationale: - Corrective measures taken by authorities. - Overall strong performance for the 4th and 5th reviews. - Authorities’ Letter of Intent and MEFP outline measures to keep program objectives achievable. - Capacity to repay the Fund remains adequate; risks to the program manageable. *Source: BURKINA FASO — FOURTH AND FIFTH REVIEWS UNDER THE EXTENDED CREDIT FACILITY ARRANGMENT, EXECUTIVE SUMMARY and selected sections (October 29, 2020).* ### 14.52 million), in the form of grant assistance under the Catastrophe Containment and Relief ### BURKINA FASO — FOURTH AND FIFTH REVIEWS UNDER THE EXTENDED CREDIT FACILITY ARRANGMENT, REQUEST FOR A WAIVER OF NONOBSERVANCE OF PERFORMANCE CRITERION AND REPHASING OF ACCESS ### Executive summary and context - Security crisis has intensified since late 2018 and, as of September 2020, has affected about 5.2 million people, with 2.2 million needing humanitarian assistance and over one million internally displaced. - About 300 health centers are closed or functioning only partially, while more than 2,500 schools have closed, affecting about 350,000 students. - Presidential and legislative elections are scheduled for November 2020. - The COVID19 pandemic compounded existing challenges; first case recorded on 9th March 2020. Confinement measures and travel restrictions were imposed and progressively eased; passenger flights reopened August 1 with testing and quarantine protocols. - Program context: fifth review marks the end of the current program implemented under deteriorating security conditions and persistent social tensions. ### Recent economic developments and key statistics - Real GDP: - 2019: growth decelerated to 5.7 percent (from 6.8 percent in 2018). - 2020 Q1: contracted by 1.4 percent (y-o-y). - 2020 Q2: contracted by 8.6 percent (y-o-y). - 2020 full-year outlook: expected to contract by 2.8 percent (down from 6.0 percent forecast prior to the pandemic; 2 percent at the time of RCF request in April 2020). - 2021 projection: growth expected to recover to around 4.1 percent. - Medium term: stabilize around 5.6 percent. - Inflation: - 2019: -2.6 percent (y-o-y). - End-August 2020: 4.1 percent. - 2020 projection: annual inflation projected to catch up to around 4.1 percent. - Authorities' expectation: inflation to recede to 1.4 percent at year end. - Fiscal balance: - 2019 overall fiscal deficit: 3.2 percent of GDP. - 2020 expected fiscal deficit: about 5.3 percent of GDP to accommodate COVID19 and security shocks. - Fiscal consolidation path achieved prior to 2020: overall deficit declined from almost 8 percent of GDP in 2017 to just over WAEMU convergence criterion limit of 3 percent of GDP in 2019. - External sector and monetary: - Current account deficit: widened to 4.8 percent of GDP in 2019 (from 4.1 percent in 2018). - Banking sector: nonperforming loans at 7.6 percent (end-2019); private credit growth at end-July 2020 stood at 8.7 percent y-o-y (decelerated from an average 12.4 percent in January to April). - Social and public-sector impacts: - Security spending and the wage bill increased significantly, crowding out some development spending. - Civil service unions periodically paralyzed public administration due to pay disputes. ### Program performance under the ECF arrangement - Overall assessment: performance during 2018-2020 described as satisfactory despite security crisis, pay disputes, and COVID-19. - 4th review: - All end-December 2019 quantitative performance criteria (QPCs) met. - Four out of six indicative targets (ITs) met. - IT on overall fiscal deficit exceeded target by 0.3 percent of GDP due to higher than planned VAT reimbursement and weaker than expected external grants. - Stock of unpaid VAT refunds exceeded program target. - 5th review (end-June 2020): - Four out of five QPCs met. - Three out of six ITs met. - Missed QPC: net domestic financing. - Missed ITs: overall fiscal deficit, government revenue, stock of unpaid VAT. - IT met: floor of pro-poor spending (government stepped up social spending in response to COVID19). - Authorities requested a waiver for the missed QPC. - Structural benchmarks: - All but one structural benchmark for the 4th and 5th reviews were met, including continuous commitment not to conclude any new wage agreements outside of the security sector and dematerialization of asset declarations (publicly accessible online). - Unmet benchmark: performance audit of SONABHY delayed; audit now expected to be completed by March 2021. ### Staff views, actions, and financing - Staff support: - Support for authorities’ request for a waiver for the missed QPC at end-June 2020, reflecting adjustments to the initial budget for urgent COVID19-related spending. - Support completion of the reviews and release of the fifth and sixth disbursements under the ECF arrangement in the amount of SDR36.12 million. - Support for rephasing the fifth review to make its associated sixth disbursement available on November 13, 2020. - Authorities produced an audited report on COVID19-related spending and committed to publish further reports along with all pandemic-related procurement contracts and their beneficial owners. Shortfalls in the end-June 2020 spending report should be expeditiously addressed. - The IMF provided emergency relief under the Catastrophe Containment and Relief Trust and relief for debt service due between April 14 and October 13, 2020 (about US$12 million). ### Outlook, risks, and priorities - Main risks: - Uncertainty surrounding the duration of the pandemic. - Ongoing security crisis. - Policy priorities and recommendations: - Widening of the fiscal deficit in 2020 and 2021 is warranted to accommodate COVID19 spending, additional security needs, and post-COVID19 recovery, but such spending should be cost-effective and appropriately targeted while safeguarding macroeconomic stability and debt sustainability. - Focus on boosting domestic revenue mobilization, which was affected by the large contraction in economic activity. - Good governance remains paramount, especially in context of emergency spending; authorities should address shortfalls noted in the end-June 2020 spending report. - Address the security crisis and promote higher and inclusive growth over the medium term. - Gradual return of the fiscal deficit to the regional target of 3 percent of GDP by 2024 (one year later than the regional goal) to preserve policy space for growth and fiscal adjustments related to security and pandemic spending needs. - Promptly adopt and implement necessary reforms to put the wage bill on a sustainable path. *Source: BURKINA FASO — FOURTH AND FIFTH REVIEWS UNDER THE EXTENDED CREDIT FACILITY ARRANGMENT, EXECUTIVE SUMMARY and selected sections (October 29, 2020).* ### 8. The current account deficit is projected to narrow to 3.5 percent of GDP in 2020 down ### 1bfaea2020002 - 8. The current account deficit is projected to narrow to 3.5 percent of GDP in 2020 down ### External sector and current account - The current account deficit is projected to narrow to 3.5 percent of GDP in 2020 down from 4.8 percent of GDP in 2019. - The improvement primarily reflects: - the post-pandemic rally in gold prices, and - the reduction in international oil prices. - These mitigating factors are further supported by the projected increase of official transfers. - Downside offsets and risks: - lower remittances and tourism receipts, - potential disruptions to gold production from security or COVID-19 concerns. ### Macro outlook and balance of risks - The balance of risks is tilted to the downside. - Main domestic risks: - resurgence of COVID-19, - further security disruptions, - labor disputes that would depress economic activity and weigh on mining, cotton production, tourism, and government revenue and expenditure. - External risks: - spillovers from intensified protectionism, - global supply chain disruptions due to COVID-19, - downside risks to global growth. ### Debt sustainability - The Debt Sustainability Analysis (DSA) finds that Burkina Faso’s risk of external debt distress remains moderate. - Burkina Faso has a medium debt-carrying capacity based on the composite indicator of 2019. - Under the baseline scenario, all external debt and debt service indicators remain below relevant thresholds. - Under a standard stress test simulating a shock to export growth, two thresholds of external debt sustainability indicators (debt service-to-exports and debt service-to-revenue ratios) are breached. - Conclusion: the DSA indicates moderate risk of external debt distress and moderate overall risk of public debt distress, with substantial space to absorb shocks. The COVID19 shock has significantly affected macro aggregates, but debt remains sustainable. ### Fiscal framework and 2020 fiscal policy - The 2020 fiscal deficit is projected to widen to 5.3 percent of GDP, reflecting the impact of Covid19 on growth, revenue collection and spending needs. - This represents a 2.3 percent of GDP deviation from the initial 2020 budget (3rd ECF review), reflecting a net budget adjustment to cover COVID19 spending and additional security needs. - Domestic revenue collection is projected to be lower by 2.6 percent of GDP relative to the initial budget. - Expenditure adjustments relative to the original budget: - current expenditure projected unchanged, - investment projected to expand by 0.6 percent of GDP. - Budget rebalancing toward COVID19 and security spending included: - COVID19-related health and transfers expenditures of 0.9 percent of GDP (financed within current expenditure envelope by keeping wage bill unchanged, cancelling non-priority goods and services -0.1 percent of GDP, and reducing transfers -0.7 percent of GDP), - postponement of non-urgent investments (~1.1 percent of GDP), - added COVID19-related health investments (1.7 percent of GDP) and security investments. - Government expects to leverage a guarantee fund of CFA100 billion (CFA70 billion in 2020 and CFA30 billion next year) to help the financial sector inject at least CFA200 billion in fresh credit into the economy during 2020-2021. ### Financing and external support for 2020 - Staff supports the widening of the 2020 fiscal deficit, which is fully financed by additional external budget support. - Key external financing items mentioned: - Fund’s RCF disbursements of about US$115.3 million (or 70 percent of quota), - planned disbursement for the 4th and 5th ECF reviews and debt relief under the CCRT, - World Bank US$307.95 million, - African Development Bank US$61.5 million, - European Union Euro 116.36 million, - France Euro 36 million. - Debt service suspension under the DSSI: CFAF 13.9 billion (0.2 percent of GDP) in 2020 from participating creditors. - These external supports aim to help meet additional spending and financing needs from the pandemic. ### 2021 budget stance and medium-term fiscal policy - The 2021 draft budget submitted to parliament is in line with program objectives. - Key budget aggregates and shifts for 2021: - Revenue and grants amount to 21.5 percent of GDP, which is 1.0 percent of GDP lower than in 2020 due to a loss of grants (-1.5 percent of GDP) partly offset by an increase in domestic revenue (0.5 percent of GDP). - Expenditures amount to 27.0 percent of GDP, reflecting reductions in current expenditures (-0.2 percent of GDP) and investment (-0.5 percent of GDP) relative to 2020, higher interest payments (+0.5 percent of GDP), continued support for businesses hard hit by COVID19 (0.3 percent of GDP), and sustained domestically-financed investment in priority sectors. - The overall deficit of 5.5 percent of GDP is financed mostly through the domestic market. - Staff view: - fiscal stance of the 2021 budget is considered appropriate, - staff urged authorities to continue seeking additional grants and concessional financing to help maintain debt sustainability given moderate risk of debt distress and increased reliance on regional short-term and costly funding. - Medium-term target: - a gradual return of the fiscal deficit to the WAEMU target of 3 percent of GDP is now expected in 2024. ### Transparency, governance, and COVID19-related oversight - Authorities committed to accountability and transparency of Covid19-related spending. - All external Covid19-related supports are fully channeled through the revised 2020 budget and a High-level Oversight Committee (chaired by the Prime Minister) with civil society participation coordinates response and ensures transparency. - Deliverables and commitments: - first audited report on Covid19-related spending up to end-June 2020 has been shared with staff (prior action), - all pandemic-related procurement contracts and their beneficial owners will be published, - an audited report on Covid19-related spending at end-December 2020 will be published by end-June 2021. - With World Bank technical assistance, authorities adopted a new emergency spending framework covering institutional arrangements, financing of emergency mechanisms, budgetary/accounting/financial management procedures, ex-post accountability mechanisms, and transparency tools. ### Fiscal reforms and public financial management (PFM) - Tax administration and revenue mobilization measures: - phasing out some tax measures taken during Covid19, - commitment to strengthen tax and customs administration capacity to meet revised 2020 budget targets. - Specific reforms include: enforcing 2020 fiscal measures (tobacco tax rate increase from 45 to 50 percent), continued computerization of tax declaration and payment, interconnection between SINTAX and SYDONIA, adding ten fraud-sensitive products to SYDONIA's value control (increasing monitored products to 30), and extending customs IT interconnection with Côte d'Ivoire to the rail transport system. - VAT management: - ministerial order suspending VAT collection on imports of mining companies on a pilot basis until end-2020, with a roadmap for a more comprehensive reform in 2021 (prior action). - PFM advances: - Treasury Single Account (TSA) road map established with IMF and World Bank TA; mapping of accounts completed for consolidation and closure of redundant accounts. - Connectivity to the Central Bank and SWIFT payments established; since end-July 2020 payments are processed through these systems. - Planned deployment of public accountants within Tax, Customs, and Treasury administrations delayed to January 2022. - Efforts to improve public investment appraisal, selection and budgeting tools, and to limit fiscal risks associated with PPP programs via institutional and analytical capacity building with World Bank and FAD TA. - Wage bill reform: - political dialogue disrupted by the pandemic and labor disputes. Authorities plan to appoint a high-level committee of independent Burkinabè persons to facilitate negotiations and finalize technical elements: scenarios of salary and indemnity scales, draft organic law on pay and allowances, and draft medium-term wage bill strategy. - interim commitment: no new benefits to non-security sectors that would increase the wage bill (continuous structural benchmark) until the comprehensive reform package is adopted. - Energy subsidies: - favorable market conditions and partial implementation of the fuel price mechanism resulted in a surplus and significant reduction in subsidies (transfers). - authorities agreed to use the surplus to offset remaining subsidy payments due to SONABHY; memorandum of understanding signed to set outstanding cross-debt at end-August 2020 (prior action). ### Financial stability, inclusion, and AML/CFT - Financial stability: - risks from the pandemic and security crisis should be closely monitored. - the financial sector appears resilient but pockets of vulnerability could emerge if disruptions persist. - staff welcomes BCEAO regional measures to preserve financial stability and urged close monitoring of banking and microfinance sectors and transparent implementation of recovery support schemes. - Financial inclusion: - strategic plan aims to raise the percentage of the adult population with a bank and financial transaction account from 43 percent in 2017 to 75 percent by 2023. - BCEAO implemented temporary measures to facilitate mobile payments and provided additional liquidity to micro-finance institutions. - AML/CFT: - progress on addressing deficiencies from the 2018 AML/CFT assessment includes amending the law to criminalize terrorism financing and appointing the competent Authority for targeted financial sanctions and freezing assets linked to terrorism. - pending validation by the GIABA Technical Commission. - staff urged stepping up efforts to address remaining macro-critical shortcomings to prevent potential gray listing by FATF, which could affect correspondent banking relationships. ### Social protection and healthcare - Covid19 and the security crisis highlighted the need to scale up and improve national healthcare and social safety nets. - Measures taken: - expansion of existing cash transfer programs to nontraditional beneficiaries (including market vendors, most of whom are women), - in-kind support and subsidized utilities’ bills for the poorest populations. - Staff recommendations going forward: - strengthen adherence to the harmonized tool for collecting information on the poor and vulnerable, - accelerate the process toward a Single National Registry of Beneficiaries, - consolidate fragmented national social safety net programs and improve targeting. - Healthcare: - authorities focusing on COVID19 health response and accelerating introduction of a universal healthcare insurance scheme; staff encouraged close collaboration with development partners, especially the World Bank, to leverage synergies and improve effectiveness. *Sources: Burkinabè authorities; and IMF staff estimates and projections.* ### 25. Commendable progress has been made toward good governance (MEFP ¶98-¶99). The ### Commendable progress has been made toward good governance (MEFP ¶98-¶99) ### Good governance and anti-corruption progress - Dematerialization and online publication of asset declarations of government officials and members of parliament has been completed. - The state control and anti-corruption authority (ASCE-LC) and the Court of Auditors (Cour Supérieure des Comptes et Contentieux Administratifs) are prioritizing: - audits of Covid19-related spending; - regular checks on sectors presenting higher and systemic risks of corruption (e.g., Customs administration, national police, public procurements, and health sector). - Staff urged the authorities to continue strengthening anti-corruption deterrence by making public the statistics on cases of corruption and embezzlement that have been investigated and sanctioned. ### Program monitoring, reviews, and conditionality - Staff support completion of the 4th and 5th ECF reviews; authorities’ performance summarized in MEFP Tables 1–3. - Status of performance criteria: - All QPCs for the 4th review have been met. - Four out of five QPCs for the 5th review have been met. - Most ITs and structural benchmarks have also been met. - A waiver has been requested for the missed QPC at end-June 2020, resulting from budget adjustments to accommodate urgent COVID19-related expenditures; staff views the waiver request as justified. - Corrective actions taken by authorities include: - canceling some non-priority spending in 2020 to make space for COVID19-related spending; - submission of a 2021 budget that is in line with program objectives; - publication of the audit report on COVID19-related expenditures at end-June 2020, with a commitment to publish another audited report on such spending at end-December 2020. - Completion of the reviews will release a fifth and sixth disbursements under the ECF arrangement in the amount of SDR 36.12 million, in line with the disbursement schedule approved at the outset of the arrangement (Table 7). - The authorities are requesting a rephasing of the 5th review to make its related disbursement available on November 13, 2020. - The program is fully financed. Financial assurances are in place until the end of the program at end of March 2021. - The financing gap identified at the time of the RCF request has been closed through: - strong mobilization of external concessional loans and grants; - the Fund’s CCRT, ECF arrangement and emergency disbursement (RCF) of April 2020 to support the authorities’ Covid19 response. ### Capacity to repay, safeguards, and successor arrangements - Burkina Faso’s capacity to repay the Fund remains adequate (Table 8). - Obligations to the Fund would peak in 2026 at 1.1 percent of government revenue or 0.2 percent of GDP. - Safeguards assessments: - The BCEAO has only one recommendation outstanding from the 2018 safeguards assessment (strengthening the risk management function), which is in process. - The assessment found that overall the central bank has maintained a strong control culture. - Successor arrangement: - Authorities expressed interest in continuing medium-term policy and reform efforts through a new financial arrangement after the current program expires. - Discussions will likely continue after the elections to identify the form and modalities of future engagement with the Fund. ### Staff appraisal — macroeconomic outlook and fiscal response - Growth and outlook: - Real growth stood at 5.7 percent in 2019. - In 2020, real growth is projected to contract by 2.8 percent (down from 6 percent projected before the pandemic). - Growth is projected to rebound in 2021 and stabilize around 5.6 percent over the medium term. - Macroeconomic projections are subject to substantial uncertainty regarding the impact and persistence of the pandemic and security crises. - Fiscal policy and response: - Staff welcomes the authorities' response reflected in the revised 2020 budget and draft 2021 budget. - The 2020 revised budget raises healthcare spending, current transfers to support vulnerable households, and provides support to affected businesses, especially SMEs. - The fiscal deficit is projected to widen to 5.3 percent in 2020 and 5.5 percent in 2021 to accommodate the revenue shortfall and additional spending related to the pandemic and post-Covid19 recovery. - The widening fiscal deficit is financed by a combination of: - spending reprioritization; - substantial mobilization of external financing (grants and concessional loans and CCRT); - the temporary suspension of debt service under the DSSI initiative; - domestic financing from commercial banks. - Program performance and recommendations: - Staff commends the authorities’ satisfactory performance under the ECF-supported program despite challenging conditions. - All end-December 2019 QPCs and four out of six ITs were met. - Four out of five QPCs for end-June 2020 have been met. - The QPC on net domestic financing and ITs on the overall fiscal deficit, on government revenue and on VAT reimbursement were missed due to pandemic-related budget adjustments. - Most structural benchmarks were met. - Staff recommends: - completion of the fourth and fifth reviews; - rephasing of the fifth review to November 13, 2020; - disbursement of SDR 36.12 million under the ECF arrangement; - support for the authorities’ request for a waiver of nonobservance due to the missed QPC on domestic financing at end-June 2020. - Recommendation rationale: - corrective measures taken by the authorities; - overall strong performance for the 4th and 5th reviews; - the authorities' Letter of Intent and MEFP spell out measures necessary to ensure program objectives remain achievable; - capacity to repay the Fund remains adequate and risks to the program are manageable. *Source: IMF staff report (Burkina Faso).* ### Annex I. Risk Assessment Matrix ### Annex I. Risk Assessment Matrix ### Risk overview - The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path (the scenario most likely to materialize in the view of IMF staff). - The likelihood of risks listed is the staff's subjective assessment of the risks surrounding the baseline. - The RAM reflects staff views on the source of risks and overall level of concern as of the time of discussions with the authorities. Non-mutually exclusive risks may materialize jointly and interact. ### External risks - Unexpected downside shift in the Covid-19 pandemic - Relative Likelihood: High - Impact if Realized: High - Possible Policy Response: - Create fiscal space for higher health spending. - Re-prioritize public spending to support the most affected sectors and households. - Seek from donors additional grants and concessional financing. - Intensified geopolitical tensions and security risks - Relative Likelihood: High - Impact if Realized: Medium - Possible Policy Response: - Re-prioritize spending to address social emergencies; implement sustainable social inclusion reforms; seek support from regional and international security arrangements. - Oversupply and volatility in the oil market - Relative Likelihood: Medium - Impact if Realized: Medium/Low - Possible Policy Response: - Allow flexibility in pump fuel prices by implementing the automatic fuel price mechanism. - Tighter financing conditions in regional market (listed as an impact in table) - Impact if Realized: Tighter financing conditions in regional market, lower growth, and increased health spending leading to higher fiscal deficit and financing needs - Possible Policy Response: - Create fiscal space for higher health spending. - Re-prioritize public spending to support the most affected sectors and households. - Seek from donors additional grants and concessional financing. ### Domestic risks - Pressures for higher recurrent spending, particularly on wages - Relative Likelihood: High - Impact if Realized: High - Possible Policy Response: - Contain recurrent spending, especially the wage bill. - Intensify efforts to mobilize domestic revenues. - Revenue mobilization lags - Relative Likelihood: High - Impact if Realized: High - Possible Policy Response: - Pursue tax policy and revenue administration reforms; optimize current spending and re-prioritize public investment. - Higher frequency and severity of natural disasters related to climate change - Relative Likelihood: Medium - Impact if Realized: High - Possible Policy Response: - Re-prioritize spending to address food emergencies through targeted transfers. - Develop further food security strategy; In the medium-term, provide support to farmers through better seeds, feritilizer, and irrigation. - Step up efforts to safeguard food security. - Intensification of terrorist attacks - Relative Likelihood: High - Impact if Realized: Medium/High - Possible Policy Response: - Create fiscal space and maintain efforts to strengthen security services; seek further support from regional and international security arrangements; Step up efforts to safeguard food security. - Widespread social discontent and political instability - Relative Likelihood: High - Impact if Realized: High - Possible Policy Response: - Re-prioritize spending to address social emergencies; implement sustainable social inclusion reforms; seek support from regional and international security arrangements. - Adverse impact on economic activity, notably tourism, and government revenue; longer term impact on foreign investment; crowding out of productive capital spending; increasing food insecurity - (Listed as impacts connected to several domestic risks) - Possible Policy Response: - Create fiscal space and maintain efforts to strengthen security services; seek further support from regional and international security arrangements; Step up efforts to safeguard food security. ### Cross-cutting impacts and responses (extracted from table) - Impacts identified in the RAM include: - Increased volatility in BOP flows; less predictable fuel subsidy needs. - Adverse impact on economic activity; risk of higher fiscal deficit and financing needs. - Crowding out of investment spending; pressure on fiscal deficit target. - Lower agricultural output and exports, higher food prices; increased poverty. - Policy responses proposed across risks include: - Create fiscal space for higher health spending. - Re-prioritize public spending to support most affected sectors and households. - Seek donor and concessional financing. - Implement reforms to improve competitiveness, diversify exports, access new markets and pursue efforts to promote regional trade. - Allow flexibility in pump fuel prices by implementing the automatic fuel price mechanism. - Contain recurrent spending, especially the wage bill. - Intensify efforts to mobilize domestic revenues. - Strengthen security services and seek regional/international support. - Safeguard food security and support agricultural productivity through inputs and irrigation. - Pursue tax policy and revenue administration reforms; optimize current spending and re-prioritize public investment. *Annex I. Risk Assessment Matrix* ### 8.0 percent in 2018 to 1.0 percent and 1.6 percent, respectively. ### 1bfaea2020002 - 8.0 percent in 2018 to 1.0 percent and 1.6 percent, respectively. ### Growth and economic activity - Real GDP contracted by 8.6 percent in Q2 2020 and by 1.4 percent in Q1 2020, representing an average contraction of 5.0 percent for H1 2020. - Economic growth is projected at 1.5 percent in 2020 (way higher than IMF staff projection of -2.8 percent), down from 5.7 percent in 2019. - Sectoral projections for 2020: - Primary sector: +5.1 percent (compared to 1.0 percent in 2019). - Agriculture subsector: +8.2 percent. - Cash crops: +13.2 percent. - Cotton output expected to grow by 22.5 percent, corresponding to 566,498 metric tons. - Secondary sector: +1.8 percent (compared to 1.6 percent in 2019); drivers include cotton-ginning subsector (+5.1 percent), construction (+0.4 percent), and extractive industries (+1.7 percent). - Tertiary sector: activity projected to decline (no numeric projection provided in source excerpt). ### Inflation and prices - End-December 2019 inflation rate: -2.6 percent (below WAEMU convergence ceiling of 3.0 percent). - End-June 2020 year-on-year inflation rate: 1.1 percent (compared to -3.9 percent at end-June 2019). - Annual average inflation (H1 2020): -2.0 percent (compared to -0.4 percent). - H1 2020 year-on-year changes by category: - "Foodstuffs and non-alcoholic beverages": +3.5 percent. - "Education": +2.7 percent. - "Housing, water and electricity, gas and other fuel": -9.1 percent (attributed to government social measures). ### External sector and trade - Trade flows in 2019: - Imports: +2.3 percent. - Exports: +0.6 percent. - Trade surplus weakened due to larger import growth than export growth. - Exports were almost flat due to a decline in gold export volume despite a rise in gold price, and a drop in price and volume of cotton exports. - H1 2020 trade developments: - Imports: -6.2 percent (compared to H1 2019). - Exports: +23.9 percent (compared to H1 2019), driven primarily by mining sector resilience and increased gold export volumes amid steady international prices. - IMF staff view: external current account balance estimated to have deteriorated slightly in 2019 (IMF sees a wider deterioration). ### Banking, monetary aggregates, and liquidity - Banking sector claims on the economy grew by 11.1 percent in 2019 (after +14.4 percent in 2017 and +6.7 percent in 2018). - Net external assets of banking system increased by +4.5 percent in 2019. - Money supply growth as at December 31, 2019: 8.8 percent, reflecting: - Cash in circulation: +13.5 percent. - Bank deposits: +8.3 percent. - H1 2020 monetary aggregates: - Money supply: +10.4 percent. - Deposits: +12.3 percent. - Currency in circulation: +0.6 percent. - Counterparts: net external assets: +30.1 percent; claims on the economy: +6.0 percent. ### Public finances, revenue, and expenditures - Overall deficit (commitment basis): improved from 4.2 percent of GDP in 2018 to 3.2 percent in 2019. - Domestic revenue (excluding grants): total tax and nontax revenue amounted to 18.9 percent of GDP at end-2019 (compared to 17 percent in 2018). - Rise in income and profit taxes: +0.7 percentage point of GDP. - Increase in nontax revenue: +1.5 percentage points of GDP (linked to collection of CFAF 120 billion for renewal of mobile telephone licenses). - Current expenditure: increased from 15.4 percent of GDP in 2018 to 17.8 percent in 2019. - Wage bill growth: +1.4 percentage points of GDP; wage bill in 2019 fiscal year: about CFAF 139.3 billion. - Current transfers increase: +1.0 percentage points of GDP (linked to strengthened social measures and increased energy subsidies). - Capital expenditure: contracted by 2.4 percentage points of GDP compared to 2018, falling to 6 percent of GDP in 2019. - Decline attributable to externally financed investments (-1.0 percentage point of GDP) and domestically financed investments (-1.3 percentage points of GDP). ### 2020 budget execution and COVID-19 impact (as of end-June 2020) - Government financial operations deficit at end-June 2020: CFAF 323.8 billion (deterioration of CFAF 236.2 billion vs. year before). - Mobilization of revenue and grants contracted by 7.7 percent compared to end-June 2019 due to domestic revenue decline (-11.2 percent), while grants grew by 89.5 percent. - COVID-19 revenue mitigation measures that reduced collections: - Automatic waiving of late tax payment penalties and fines from April 1 to June 30, 2020. - Suspension of collection of tax payment arrears up to June 30, 2020 for the transport sector and hotel, restaurant, and tourism sector. - Suspension of onsite inspection operations up to June 30, 2020. - Application of a reduced VAT rate of 10 percent for the hotel and restaurant sector up to end-December 2020. - Expenditure implementation rates at end-June 2020: overall implementation rate rose from 46.3 percent (June 2019) to 47.2 percent (June 2020). - Current expenditure at end-June 2020: CFAF 852.8 billion (up from CFAF 780.7 billion at end-June 2019; +9.2 percent). - Increases attributable to current transfers (+CFAF 36.6 billion), personnel costs (+CFAF 24.8 billion), public interest payments (+CFAF 19.6 billion). - Capital expenditure at end-June 2020: CFAF 326.7 billion (up from CFAF 245.0 billion at end-June 2019; +33.3 percent), due in particular to externally financed investment outlays (+CFAF 90.9 billion). ### Public debt and debt management - Stock of public debt at end-December (year not explicitly restated in excerpt): CFAF 3,936.8 billion, composed of: - External debt: CFAF 2,188.2 billion (55.6 percent of outstanding debt stock). - Domestic debt: CFAF 1,748.6 billion (44.4 percent of outstanding debt stock). - Projected loan disbursements: external debt CFAF 336.70 billion; domestic debt CFAF 791.70 billion (including CFAF 690.32 billion in Fungible Treasury Bills and Fungible Treasury Bonds (BOATs)). - Provisional stock of public debt as of June 30, 2020: CFAF 4,465.73 billion, including: - External debt: CFAF 2,377.57 billion (53.24 percent). - Domestic debt: CFAF 2,088.16 billion (47.76 percent). - Drawings by June 30, 2020: - Mobilized through treasury bonds: CFAF 555.50 billion. - Drawdowns on external debt: CFAF 247.38 billion. - Implementation of the 2019-2021 Medium-Term Debt Management Strategy (MTDS) helped keep the risk of debt distress at a moderate level. ### Public-private partnerships (PPPs) and institutional reforms - PPP legal and institutional reform progress with IFC support: - PPP framework and development strategy adopted. - Preliminary draft of new PPP law and implementing decree prepared. - New PPP law innovations include: - Clear definition of public-private partnership distinguishing it from pre-financing and supplier credits. - Clarification of roles and functions of key public players in PPP process. - Creation of a PPP Unit in the law. - Requirement for budgetary and financial sustainability analysis prior to project inclusion in PPP program. - Framework for unsolicited offers under the principle of putting them in competition. - Specific implementing texts for local SME participation in PPP contracting and development of PPP framework at local authority level. - Expected adoption timetable: PPP law and implementing decree expected to be adopted; action plan envisages entry into force of new PPP law and decree in 2021. ### Program implementation and performance criteria (end-December 2019 and end-June 2020) - End-December 2019: - All quantitative performance criteria met as at December 31, 2019. - Indicative targets met except: - Accumulation of VAT credits: CFAF 62 billion (ceiling CFAF 40 billion). - Overall deficit ceiling including grants: CFAF 295.5 billion (target CFAF 258 billion). - Shortfalls attributed to VAT reimbursements and larger-than-programmed VAT credit stock. - End-June 2020: - All quantitative performance criteria met except: - Ceiling for net domestic financing of the government: CFAF 236.9 billion (ceiling CFAF 67 billion) due to financing of COVID-19 related expenditures. - Indicative targets: three of six achieved; three not met: - Overall budget deficit including grants: CFAF 323.8 billion (ceiling CFAF 141.00 billion). - Government revenue: CFAF 791.1 billion (floor CFAF 888.00 billion). - Stock of certified VAT reimbursement requests not paid for more than 30 days: CFAF 57.45 billion (ceiling CFAF 40 billion). - Non-achievement attributed to COVID-19 related disruptions, economic contraction, and lower tax revenue collection. ### Structural benchmarks and audits - Four out of five structural benchmarks for 4th and 5th reviews were met. - Completion of independent external audit of financial operations and accounting practices of SONABHY met. - Dematerialization of asset declarations of officials and creation of searchable database achieved, but with delay: - Platform development completed; official launch on August 4, 2020 (www.asce-lc.bf). - Publication of declarations of members of executive and legislative branches effective on September 11, 2020. - Remaining benchmark: performance audit of SONABHY and evaluation of performance contracts of SONABHY and SONABEL: - Government-SONABEL plan contract assessment report being drafted. - Government-SONABHY plan contract evaluation completed and report available. - Performance audit of SONABHY could not be carried out within allotted time; results of call for tender and shortlist forwarded to World Bank for non-objection. - Revised timetable: final audit report expected by March 2021. ### Implementation of PNDES (2016-2020) — selected results - Pillar 1 — Institutional reforms and modernization: - Revamped electoral code to enable Burkinabé living abroad to participate in elections. - Revisions of Criminal Code and Code of Criminal Procedure to strengthen human rights in criminal matters. - Law on organization of judicial system developed. - National security policy developed; operational capacities of Defense and Security Forces strengthened via personnel increases, acquisition of high-performance equipment, and construction of police stations and gendarmerie posts. - Agricultural Bank of Faso (BADF) operationalized for financing agriculture. - Pillar 2 — Human capital development: - Free healthcare policy for pregnant women and children under 5 resulted in 14,856,837 free healthcare treatments at a cost of more than CFAF 26 billion. - Launch of Emergency Medical Response Operations Center (CORUS). - Increase in medical and paramedical personnel; adoption of free family planning products and services. - Education: construction of infrastructure and increase in number of teachers; higher education structural investments at Thomas Sankara University and Nazi Boni University. - Drinking water access rate increased from 74 percent in 2018 to 75.4 percent in 2019 due to AEPS, autonomous water supply points, new boreholes, and human-powered pumps. - Pillar 3 — Revitalization of growth drivers and job creation: - Grain consumption coverage rate reached 100 percent. - Fisheries production increased from 27,700 metric tons in 2018 to 28,952 metric tons in 2019. - Coverage rate of livestock feeding needs improved to 95 percent (annual target 75 percent). - Transport and road infrastructure: rural tracks ratio rose from 32.6 percent in 2018 to 33.11 percent; paved roads ratio rose from 25.61 percent in 2018 to 26.72 percent. - Electricity sector: installed generation capacity increased from 359.5 MW in 2018 to 410 MW in 2019; renewable energies share of total production rose to 18.36 percent (from 16.87 percent in 2018). - Internet and bandwidth: fiber optic deployment of 861.8 km; bandwidth capacity reached 44.3 Gbps in 2019 (compared to 39.3 Gbps in 2018). - Planning: Government drafting new national development framework to guide public action for 2021-2025 in line with Law No. 034-2018/AN of July 27, 2018. *International Monetary Fund — Excerpt from PDF chapter/section (1bfaea2020002).* ### 1.1 percent in 2020, following an increase of 10.8 percent in 2019. This slowdown is expected to ### Burkina Faso — Economic and Fiscal Developments and Policy Measures (2020–2021) ### Macroeconomic outlook and growth projections - Real GDP growth projected at 1.1 percent in 2020, following an increase of 10.8 percent in 2019. - The slowdown in 2020 results from a decline in the commercial sector (down by 3.6 percent compared to growth of 5.4 percent in 2019) due to containment measures for COVID-19. - Growth projection for 2021 (under assumptions listed below) is 5.6 percent (the IMF expects 4.1 percent). - 2021 growth drivers: primary sector +5.9 percent and secondary sector +6.1 percent. - Projection caveat: 2020 growth is subject to uncertainties and downside risks. ### Inflation - Average inflation rate expected to rise to 1.1 percent in 2020 (the IMF expects 2.2 percent), compared to -3.2 percent in 2019. - Inflation increases driven by: alcoholic beverages, tobacco, and narcotics (+27.6 percent); education (+6.6 percent); restaurants and hotels (+5.2 percent). - Declines expected in: housing, water, gas, electricity, and other fuels (-2.0 percent); communications (-1.3 percent). - 2021 inflation expected to be somewhat below the regional convergence criteria of 3 percent. ### External current account and trade - Imports expected to decline by 1.0 percent in 2020 owing to global COVID-19 containment measures. - Exports expected to grow substantially, driven by mining (resilience from rise in international gold price). - External current account deficit expected to reach 3.5 percent of GDP in 2020, compared to 4.8 percent in 2019. ### Fiscal policy adjustments and 2020 Supplementary Budget (LFR) - COVID-19 entered Burkina Faso in early March 2020 and significantly impacted domestic revenue and created new spending priorities. - Draft Supplementary Budget (LFR) adopted by the National Assembly on July 9, 2020, to account for pandemic effects, security crisis, and November 2020 elections. Revenue guidelines in the 2020 LFR: - Strengthen monitoring and implementation of action plans to minimize revenue losses. - Develop initiatives to improve tax collection team performance in the field. - Bolster efforts to fight fraud, forgery, and corruption via computerization and interconnection of SINTAX and ASYCUDA for data sharing. Revenue-boosting measures implemented: - Expansion of tariff specification rules and ASYCUDA value control for 20 products susceptible to fraud. - Submission of 10 additional products to ASYCUDA value control, increasing monitored products to 30. - Extension of customs IT interconnection with Côte d’Ivoire to railway transport. - Monitoring fiscal measures under the 2020 Initial Budget (LFI): increase in tobacco tax rate from 45 percent to 50 percent; expansion of persons subject to withholding at source to include diplomatic and consular missions, international organizations, and similar entities; expansion of specific tax on telecommunications enterprises to include enterprises performing money transfers by mobile phone and increase in its rate from 5 percent to 7 percent. - Reforms to modernize tax administration, including online declaration improvements. Expenditure adjustments and priorities: - Budget adjustments made across the budget except for allocations to priority sectors: defense and security, organization of elections, management of internally displaced persons, emergency plan for the Sahel, salary and wages, scholarships and school allowances, hydrocarbon exemptions, water and electricity costs, and transfers to local authorities. - Public health response plan adopted at a cost of CFAF 177.9 billion (1.8 percent of GDP) for medical needs and building healthcare system resilience. - Social support measures to vulnerable populations affected by social distancing and quarantine. - Business and worker support measures including tax relief and direct/indirect financing to maintain production capacity, relieve cash flow pressures, and preserve jobs. ### COVID-19 Economic Recovery Fund (FRE) - FRE amount: CFAF 100 billion to be allocated to active businesses operating in hard-hit sectors during 2020-2021: CFAF 70 billion earmarked for 2020 and CFAF 30 billion for 2021. - FRE mainly implemented through a partnership with the banking system; interventions include partial guarantees to secure low-interest loans at 3.5 percent for SMEs and micro enterprises and 4 percent for large enterprises. FRE scheme structure: - Scheme 1 (cash flow credit or investment credit): government non-interest-bearing cash deposits totaling CFAF 30 billion (CFAF 20 billion in 2020 and CFAF 10 billion in 2021) as guarantee for loans to large enterprises; CFAF 40 billion (CFAF 25 billion in 2020 and CFAF 15 billion in 2021) as guarantee for loans to SMEs. - Scheme 2 (interest rate subsidization): FBDES provides a subsidy of 1.5 percent per annum to reduce the framework agreement rate to 4 percent per annum for eligible large enterprises and to 3.5 percent per annum for SMEs; CFAF 5 billion allocated in 2020 for this purpose. - Scheme 3 (reduced-interest loans): government grant of CFAF 20 billion (CFAF 15 billion in 2020 and CFAF 5 billion in 2021) to national financing funds to allow low-interest credits at 3.5 percent per annum for micro enterprises and informal sector clients. Management and oversight of FRE: - Two committees handle financing request management: one for banking system requests and one for decentralized financial services (SFDs) and national financing funds (FNFs). ### Governance, transparency, and accountability measures - Governance regulated by Ministerial Order No. 2020-260/MINEFID/SG/DGTCP establishing a financial management and accounting committee subject to state oversight bodies (ASCE-LC; IGF; Technical Inspectorate of line Ministries). - External development partner support included in revised Budget. - Government communications and committee quarterly and annual reports to justify resource utilization. - Audit report on spending up to end-June 2020 completed and submitted to the IMF in October 2020 (prior action). - Audit report on resources up to end-December 2020 to be published by end-June 2021. - For COVID-19 expenditures, all public procurement contracts and names of beneficiaries will be published and included in the review of public procurement contracts. Emergency public financial management system: - Government, with World Bank support, developed a PFM system for emergencies organized around five governance pillars: (i) institutional governance; (ii) emergency funding; (iii) adapted budgetary, accounting, and financial management procedures; (iv) a posteriori accountability mechanism; (v) tools for greater transparency. - Implemented through Ministerial Order No. 2020/000418/MINEFID/CAB of August 26, 2020. - System designed to be adaptable for future crises; lessons from each emergency to improve crisis governance and adapt PFM procedures. ### VAT reimbursements and CAST measures - Ministerial order No. 2020-0306/MINEFID/SG/DGI signed July 7, 2020 suspending collection of VAT on all imports of mining companies in the operational phase from July to December 2020 to reduce VAT credit liabilities. - As of September 7, 2020: 1,113 import files from mining companies received by DGI; 630 files totaling CFAF 93.35 million approved for VAT-exempt imports. - Government adopted a roadmap (prior action) to simplify and modernize VAT reimbursement to align with best practices over the medium term. ### Budget balances and 2021 fiscal framework - At end-December 2020, revised budget (LFR) targets an overall deficit of around 5.1 percent of GDP, with resources equal to 22.1 percent of GDP and expenditures representing 27.3 percent of GDP. - Under a deeper-than-expected slowdown, the deficit would reach 5.3 percent of GDP instead. - 2021 budget priorities: improving security and social cohesion; promotion of good governance; development of human capital; dynamic development of economic growth drivers. - Revenue strategy for 2021: continue optimizing domestic resource mobilization via online declaration promotion and better organization to broaden coverage of budget and capital expenditure; action to improve tax performance. - Expenditure strategy for 2021: emphasize defense and security; continue efforts for priority sectors (national education, health care, water and sanitation, agriculture, infrastructure); continue computerization of public procurement processes and public expenditure chain modernization. 2021 budget aggregates: - Draft 2021 budget projects CFAF 2,100.2 billion in revenue (21.5 percent of GDP) and CFAF 2,641.0 billion in expenditure (27.0 percent of GDP), resulting in a fiscal deficit of CFAF 540.8 billion (5.5 percent of GDP). - Compared to 2020 revised budget (LFR), total revenue exceeds projected amount by CFAF 39.3 billion in absolute terms and by 1.9 percent in relative terms. - Expenditure increases by 3.8 percent between 2020 and 2021, corresponding to CFAF 97 billion. - Budget deficit financing to rely on external budget support and regional bond market. - Draft 2021 law tabled in the National Assembly; revised draft submitted to Parliament in line with IMF-agreed framework (prior action). ### Debt management policy and developments - Public debt management objectives: meet financing needs while (i) ensuring payment of obligations at lowest possible cost; (ii) keeping risks manageable; (iii) supporting financial market development. - Medium-Term Debt Management Strategy for 2020 aims to keep debt distress risk at a moderate level. - Strategy contemplates continued recourse to concessional resources and consideration of less concessional resources given concessional resource challenges and rising domestic debt burden; aim to change domestic debt profile to improve average maturity based on cost-benefit analysis. - Regional market operations: simultaneous issues of Treasury bills and/or bonds with choice of maturities to increase coverage chances. Projected total amount of issues by end-December 2020: CFAF 942 billion. - Projected outstanding stock of debt at December 31, 2020: CFAF 4,253.5 billion (external debt CFAF 2,294.6 billion; domestic debt CFAF 1,958.9 billion). - Regulatory framework review underway to comply with international standards; order issued on preparation and publication of a statistical bulletin on debt, annual financing plan, and report on implementation of the annual financing plan — two bulletins published on the DGTCP website to date. - Support planned to DGTCP including a draft methodological guide for cash management to strengthen coordination between debt and cash management. ### Structural reforms (rest of 2020 and outlook for 2021) — Public finance reform highlights - Continued implementation of program budgeting with progress on preparation and execution of the budget, operationalization of budget programming instruments, and appointment of all program managers. - Draft guidance document regarding management oversight completed; guidance for appointment of program managers, operational program budget, and operational program unit available. - Future plans include: establishment of new networks of public accountants within Customs, Tax, and Treasury administrations (January 2022); improvement of government opening balance sheet preparation; accelerated operationalization of program managers; support to line ministries in defining operational program budgets and units; implementation of management oversight; continued implementation of SIN@FOLO integrated PFM system project. - A study planned to develop a guidance document for mapping operational program budgets and operational program units. *Source: IMF country report excerpt on Burkina Faso (2020–2021).* ### 64. Following the adoption of texts governing the Treasury Single Account (TSA) in 2019, the ### Following the adoption of texts governing the Treasury Single Account (TSA) in 2019 ### Treasury Single Account (TSA) and payments connectivity - The Public Treasury connected to the WAEMU STAR and SICA payment systems for transfers. - Payments have been executed via these systems since July 30, 2020. - An exhaustive inventory of public bank accounts at all local banks was completed in July 2020 to gradually integrate these accounts into the TSA system. - Adoption of a decree on the creation of the Treasury Single Account and a ministerial order setting out the terms and conditions for the opening and functioning of the TSA, as well as completion of the inventory of public accounts opened at commercial banks. ### Accounting reform (as at September 15, 2020) - Implementation of accrual accounting according to a redesigned scheme based on the current network of DGTCP accountants. - Postponement of the deployment of networks of public accountants at the General Directorate of Taxes and the General Directorate of Customs to January 1, 2022, pursuant to Decree No. 2020-0266/PRES/PM/MINEFID of April 10, 2020. - Preparation of the government’s first opening balance sheet as at January 1, 2019. - Strengthening of reform steering led by the Deputy Director General of the DGTCP, supported by a new Quality, Innovation, and Reform Department within the DGTCP. ### Government expenditure commitment plan (PEDE) and cash planning - Since May 2020, development of a government expenditure commitment plan (PEDE) to better align public expenditure commitments with the government’s cash position. - Outputs: methodological guide for drafting the PEDE; standard frameworks for sectoral commitment plans and the consolidated commitment plan (PEC); draft text on establishment and development of the PEDE. - PEDE management process implemented within the public financial information system in September 2020; experimental deployment scheduled to start on January 1, 2021, as part of execution of the state budget for fiscal year 2021. - The PEDE should be used to draw up a dynamic annual government cash flow plan (PATE), updated monthly. - Government will continue to produce annexes accompanying the draft budget in Parliament, in particular the monthly cash flow forecast plan, in accordance with Article 48 of Organic Law No. 073 on state Budget. ### Public procurement reforms - Main innovations: - Clarification of the role of stakeholders involved in the management of public procurement and public service delegations. - Adoption of the market price list as a reference for verifying the validity of prices. - Reduction in deadlines for parties involved in the procurement process. - Specific texts adopted to speed up implementation of actions related to insecurity and COVID-19. - Project to modernize the system through dematerialization of the process of managing public contracts and delegations of public service launched with development partner support. - Establishment of a control and reporting system adapted to managing COVID resources, to be used at year-end and intra-annually (including quarterly report of the Management Committee created to coordinate the response to COVID-19). ### Public investment management improvements (PIMA follow-up) - Authorities to address weaknesses identified by the Public Investment Management Assessment (PIMA) carried out in June 2017, focusing on: - Connection between programming and budgeting tools for public investment. - Strengthening the maturation system through ex ante assessments by line ministries and further assessments by a competent central body. - More rigorous selection of projects for inclusion in the budget. - Improvement of programming and commitment of expenditures to secure information on financing availability. ### Bringing the wage bill under control - A national conference on compensation for public employees created two committees: a technical committee and a monitoring committee. - Technical committee prepared a draft law on fundamental principles of the civil service and draft texts on wage and compensation scales for civil servants. - Monitoring committee provided guidance on implementation. - Social and health context difficulties emerged (protests against tax on bonuses and allowances; COVID-19). - Studies planned to define resumption of consultations; a high-level committee of independent persons will be set up to refine reform proposals in consultation with stakeholders and submit conclusions to participants by end-December 2020. - Government committed not to grant any new wage agreement (except for the security sector) leading to an increase in the wage bill before adoption of a comprehensive reform package. ### Improve performance in the energy sector - Evaluation of Government-SONABEL contract (2015-2019): - Government met 75 percent of its 16 commitments. - SONABEL met 50 percent of its 17 commitments. - Contract-plan called for recruitment of an external auditor to monitor application of the contract; results and recommendations to facilitate arrangements for SONABEL. - SONABHY contract status: - Out of 22 commitments under Government-SONABHY contract: two in progress, three partially implemented, three not implemented; the rest effectively implemented. - Implementation of memoranda of understanding: - Government-SONABEL-SONABHY Memorandum on financial transactions, fuel sale pricing to SONABEL, and Government-SONABHY Memorandum on implementation and clearance of SONABEL’s debt enabled clearing government debts to SONABEL and ensured regular payment by SONABEL of rescheduled debt owed to SONABHY. - Validation of outstanding financial obligations between government and SONABHY as of August 31, 2020 (prior action): - Government remains indebted to SONABHY for the sum of CFAF 21,073,077,736 (balance after offsetting amounts due to SONABHY with estimated surplus in fuel pricing mechanism of CFAF 68,381,684,665 as of August 31, 2020). - Balance on the subsidy deposit account at the General Payment Office showed a credit of CFAF 23,190,600,277 as of August 31, 2020. - The 2020 revised budget (LFR) has budgeted an additional CFAF 25 billion, which is currently being released. ### Retail fuel price adjustment mechanism - Drop in international petroleum prices and partial application of the retail fuel price adjustment mechanism substantially reduced energy subsidy burden: - Losses as of end-December 2019 were CFAF 9.13 billion, compared to CFAF 88.73 billion at end-2018. - Study completed on effects of retail fuel price changes on consumer goods prices, in collaboration with key players in the fuel supply chain, to contain inflationary pressures. - For 2020, continued application of the mechanism aims to further reduce fiscal burden; the decline in oil prices internationally suggests a surplus of about CFAF 75 billion is expected by end-2020. - Texts to delegate decision-making autonomy to the technical committee for setting pump prices are being finalized to allow direct adjustments within a predefined range. - Ongoing studies on (i) cost items of the price structure and (ii) the butane gas subsidy in Burkina Faso by end of 2020 to boost stakeholder confidence. - Continued communication activities throughout 2020. ### Stability of the financial sector (changes as at end-June 2020) - Increase in assets by 652.2 billion, 13.03 percent, and in liabilities by +533.34 billion, 11.68 percent, compared to end-December 2019, led to a deterioration of cash balance by 118.8 billion. - A 7.6 percent rise in obligations of lending institutions vis-a-vis the monetary authority during the first half of the year, reaching 930.18 billion as at June 30, 2020, due in part to hedging exposures on public securities issued in connection with pandemic response. - Portfolio quality remained virtually stable with gross and net non-performing loans rates of 7.46 percent and 2.32 percent, respectively, in June 2020 compared to 7.62 percent and 2.32 percent a year earlier. - Overall compliance with prudential norms, with the exception of two relatively small institutions (each accounting for around 3.3 percent of the banking market): one breached the risk-sharing standard; the other breached solvency and risk-sharing ratios. - BCEAO supportive actions enabled ongoing, lower-cost resources for lending institutions, broadened private instruments eligible for the refinancing window, granted accounting and prudential relief for maturities extended to pandemic-affected borrowers, and supported Union member states’ mitigation efforts. - In 2021, soundness should be strengthened via continued implementation of transitional provisions of the new prudential framework that came into force in 2018, with the corollary of an increase in equity. - Lending institutions expected to strengthen risk management and compliance systems to increase soundness while supporting economic recovery. ### Financial inclusion (National Strategy for Financial Inclusion - SNFI) - Five major actions: - Establishment of a committee to monitor declarations and commitments of technical and financial partners and stakeholders pursuant to ministerial Order No. 2020-00178/MINEFID/CAB of April 18, 2020. - Submission of a draft order establishing the monitoring system, including the SNFI Implementation Monitoring Committee (CSMO/SNFI) and thematic working groups for monitoring and evaluation. - Stakeholder validation of a draft document focusing on strengthening financial skills outside school, financial literacy from elementary school to higher education, coordination of partnerships, and monitoring and evaluation within a Financial Literacy Action Plan. - Hiring of a consultant to develop a communication plan. - Ongoing data collection for the 2019 report and updating of the 2020-2022 action plan of the SNFI. ### Social protection and single register of vulnerable persons - Establishment of a single register is fundamental to a coherent, effective, and sustainable social protection system. - Use of non-harmonized data collection tools by some entities necessitates funding for databases with different structures; momentum for the single register will come from continued targeting in municipalities still to be surveyed by the Permanent Secretariat of the National Council for Social Protection and stakeholder consultations to agree consensual measures for harmonized data collection. - Databases of municipalities already surveyed are available and used by several actors for beneficiary identification, enabling better coordination, synergy, greater impact, and avoidance of duplication. - Database on vulnerable households contains information on about 42,797 households (323,717 persons), of which 17,410 are vulnerable households (representing 138,611 persons); it covered 63 municipalities at end-December 2019. - 2019 targeting data currently being processed in 55 municipalities, which will expand the database to 118 municipalities by end-September. - COVID-19 response cash transfers expected to benefit 43,000 vulnerable households, including: - 3,000 people affected or infected by the disease, - 20,000 market vendors in Ouagadougou and Bobo Dioulasso, - 20,000 vulnerable people in the outskirts of Ouagadougou and Bobo Dioulasso. - Process had already reached more than 15,000 people and was ongoing. - Number of municipalities with social services increased from 195 at end-2019 to 270 as of June 30, 2020, enabling targeting in 81 additional municipalities for 2020 and continued implementation of the national program for vulnerable persons. - Eighth session of the National Council for Social Protection recommended: - Use of the social registry by stakeholders operating in municipalities covered so far. - Continued consultations among stakeholders to define a roadmap for coordinated progress toward a single registry. - A study to design the architecture of the single register system will be carried out to consolidate implementation. ### Poverty reduction (health, nutrition, training, employment, inequality) - Health promotion priorities: - Implementation of the COVID Pandemic Preparedness and Response Plan. - Free health care and improvement of its management. - Accreditation of health facilities for implementation of universal health insurance scheme. - Free family planning. - Nutritional interventions: - Continue treating severe acute malnutrition and strengthen management of intervention and food security stocks. - Targeted interventions in structurally deprived areas, support for agricultural production, unconditional cash transfers to vulnerable households, and sale of food based on social pricing. - Training and employment: - Broad expansion of the vocational training strategy through mobile training units. - Granting of subsidies and awarding of training scholarships for young people and women. - Strengthening benefits of the National Support Fund for Laid-Off and Retired Workers (FONA-DR) to finance 150 projects for laid-off and retired workers. - Emphasis on improving intervention capacity of funds financing youth micro-projects to promote self-employment. - Reducing social and gender inequality: - Accelerated implementation of the Project for the Integrated Care of Orphans and Other Vulnerable Children (PECI-OEV). - Increasing the number of vulnerable families benefiting from income-generating activities. - Accelerating implementation of the Integrated Program for the Empowerment of Women in Burkina Faso (PIAF-BF). *Source: https://www.imf.org/-/media/files/publications/cr/2020/english/1bfaea2020002.pdf* ### 95. Combating corruption remains a priority for the government, which is committed to ### 1bfaea2020002 - 95. Combating corruption remains a priority for the government, which is committed to ### Anti‑corruption actions and governance - The government is committed to implementing relevant laws and regulations, in particular Law No. 004-2015/CNT of March 3, 2015, on the prevention and suppression of corruption in Burkina Faso. - December 2019: ASCE-LC organized the first Anti-Corruption Night, chaired by the President of Faso, under the theme “Individual and collective responsibility in the fight against corruption in Burkina Faso.” - To ensure budgetary transparency, ASCE-LC and the Court of Auditors have regularly produced and transmitted public financial management reports to the President of Faso; the latest concern relates to the 2018 fiscal year. Reports related to financial management in 2019 are currently being prepared. - Structural benchmark completed: Proceed with the dematerialization of asset declarations of government officials by instituting online submissions and creating a searchable database (Completion date: March 2020, reset from December 2018) — Status: Met. ### AML/CFT system improvements since MER May 2019 - Progress made pending validation/assessment by the GIABA Technical Commission. Main notable legal and institutional improvements: - Application of the relevant provisions of the Criminal Code (Law No. 025-2018/AN of May 31, 2018) and the Code of Criminal Procedure (Law No. 044-2019/AN of May 29, 2019). - Adoption of Law No. 044-2019/AN [sic] of June 21, 2019, amending Law No. 025-2018/AN (Articles 361-23 and 361-24) criminalizing the financing of terrorism or terrorist organizations for all purposes. - Adoption of Decree No. 2019-1237/PRES/PM/MINEFID/MSECU/MJ of December 10, 2019, on designation of supervisory and control authorities with respect to non-financial sector reporting entities in combating money laundering and the financing of terrorism and the proliferation of weapons of mass destruction. - Decree No. 2020-0630/PRES/PM/MINEFID/MSECU/MJ of July 16, 2020, on designation of the competent authority for administrative freezing of assets and targeted financial sanctions and establishment of the Advisory Commission on the Administrative Freezing of Assets (CCGA). ### CENTIF and DNFBP guidance - CENTIF has taken steps to develop guidelines regarding the obligations of Designated Non-Financial Businesses and Professions (DNFBPs) in terms of AML/CFT and control and supervision guides. - The recruitment process of the consulting firm is in its final stage; the firm will have 90 days to develop the guidelines and control guides. ### Improvement of macroeconomic data and forecasting (AFT) - Ongoing technical working sessions for modeling and forecasting to update the automated forecasting tool (AFT) per the roadmap. - July 2020: a technical workshop to finish updating the AFT model reviewed construction of the new module and examined central and peripheral modules: “TRE,” “TOFE,” “Balance of Payments (BOP),” “Currency,” “Debt,” “Inputs,” “Assumptions,” “Outputs”. - The new AFT model construction took into account the new 2015 base year of the national accounts. - The next macroeconomic framework work, scheduled between late November and early December 2020, will be based on the new AFT model. ### Program conditionality: quantitative performance criteria and indicative targets (TMU highlights) - The TMU defines the quantitative performance criteria, indicative targets, and structural benchmarks for the ECF-supported program; reporting deadlines and data submission framework for IMF staff are set out. - Quantitative performance criteria include (2019 and 2020): - a ceiling on net domestic financing of the government; - a ceiling on the contracting or guaranteeing of external debt by the government in PV terms; - a ceiling on the accumulation of payment arrears on external debt service; - a ceiling on the guaranteeing of domestic loans to suppliers and contractors; and - a ceiling on the guaranteeing of bank pre-financing of public investments. - Net domestic financing definition components: - (i) net bank credit to the government (including claims associated with IMF disbursements); - (ii) the stock of unredeemed government bills and bonds held outside national commercial banks; and - (iii) privatization receipts and other government claims and debts vis-à-vis national nonbank institutions. - Reporting: The Ministry of the Economy and Finance will forward data on net domestic financing to the IMF within six weeks after the end of each quarter. - External debt and concessionality: - Debt concessionality threshold: a debt is considered concessional if it includes a grant element of at least 35 percent. - The present value (PV) of debt at the time it is contracted is calculated by discounting the borrower’s future debt service payments; the discount rate used is 5 percent. - External debt is defined as debt contracted or serviced in a currency other than the CFA franc; the performance criteria apply to external debt of the government, public enterprises that receive government transfers, other public entities with more than 50 percent government capital, and any private debt for which the government has extended guarantees constituting contingent liability. - Reporting deadlines for loans and guarantees: details on any loan (terms and creditors) contracted by the government must be reported within four weeks of the end of each month; same for guarantees extended by the government. - Non-accumulation of new external payment arrears by the government is a continuous performance criterion, with the exception of arrears arising from external payment obligations being renegotiated with creditors. ### Prior actions and structural benchmarks (selected) - Prior actions met (examples): - Submit the 2021 budget in line with program objectives — Prior action — Met. - Submit a roadmap for streamlining the VAT reimbursement process — Prior action — Met. - Submit an audited report of COVID19-related spending through end-June 2020 — Prior action — Met. - Sign an MoU between SONABHY and the government to validate cross-debt as of end-August 2021 — Prior action — Met. - Conclude no new agreements (except security sector) leading to an increase in the wage bill before a comprehensive reform package — From approval of the 2020 budget — Met. - Adoption by the Treasury Directorate of a roadmap with a detailed chronogram on the implementation of the Treasury Single Account — December 2019 — Met. - Not met: - Complete a performance audit of SONABHY, and an evaluation of the performance contracts with SONABHY and SONABEL upon their expiration — June 2020 — Not met. *Source: 1bfaea2020002 - 95. Combating corruption remains a priority for the government, which is committed to (IMF PDF chapter excerpt).* ### 17. The government undertakes to not provide new financial guarantees for domestic loans to ### 17. The government undertakes to not provide new financial guarantees for domestic loans to ### Performance criterion: prohibition of new financial guarantees for domestic loans - The government undertakes to not provide new financial guarantees for domestic loans to its suppliers or contractors. - This performance criterion shall be observed continuously. - For this performance criterion, “government” includes: - the central government, - institutions of an industrial or commercial nature (EPIC), - public administrative agencies (EPA), - public scientific and technical institutes, - public vocational establishments, - public health agencies, - local authorities, - public enterprises, - national corporations, - semi-public corporations (public corporations with financial autonomy, in which the government holds at least 50 percent of the capital), - and state agencies. ### E. Guaranteeing of New Bank Pre-Financing for Public Investments by the Government - The government undertakes not to guarantee new bank pre-financing for public investments. - Definition of pre-financing arrangement: - A private company granted a public works contract by the government obtains a loan from a domestic commercial bank or a group of commercial banks. - The Ministry of Finance guarantees this loan and signs an unconditional and irrevocable substitution of debtor agreement to service all principle and interest. - For this criterion, “government” includes the same entities listed under the performance criterion above. - This performance criterion shall be observed continuously. ### F. Quantitative indicative targets (overview) - The program also includes quantitative indicative targets for: - (i) the accumulation of domestic arrears; - (ii) the overall fiscal deficit (commitment basis, grants included); - (iii) total government revenue; - (iv) poverty-reducing current social expenditures; - (v) value added tax refunds; and - (vi) public-private partnerships. ### F. Accumulation of Domestic Arrears by the Government (definition and rules) - The government will not accumulate payment arrears on domestic obligations during the program period. - For this indicative target, a “domestic obligation” is one serviced in CFA francs, but it excludes government liabilities to local governments or any other public or government-owned entity with autonomous legal status not included in the table detailing the financial operations of the state (TOFE), except the central bank. - Payments are deemed to be in arrears per the following definition (except where terms stipulate a longer period): - (i) Debt unpaid for more than 30 days after the due date stipulated in the agreement between the parties (creditor/debtor). - (ii) Wages or pensions unpaid 90 days after their due date. - (iii) Payments for goods and services rendered received more than 90 days after processing of the supporting documents submitted by suppliers. ### G. Overall Fiscal Deficit Including Grants (definition) - For the program, the overall deficit including grants is valued on a commitment basis. - It is defined as the sum of the government’s net foreign and domestic financing, measured from the financing side, plus a cash basis adjustment. - Net foreign financing is the sum of new foreign borrowing less amortization. - Government net domestic financing is defined in paragraphs 10 and 11 above. - The cash basis adjustment is defined as the sum of: - (i) the total change in unauthorized expenditure commitments, - (ii) the change in pending bills, - (iii) the change in Treasury correspondent accounts’ deposits. ### H. Government Revenue (definition) - Government revenue is valued on a cash basis. - It includes all tax and non-tax revenue collected by: - the Directorate General of Taxation, - the Directorate General of Customs, - the Burkinabè Treasury, - and other government revenue collection units. - It also includes revenue from treasury checks. ### I. Poverty-Reducing Current Social Expenditures (definition) - Social spending is the sum of current expenditure included in the social spending program as defined in the budget. - The social spending program is defined as the sum of budget programs or parts of programs that target poor households and: - (i) ensure access to basic social services; - (ii) promote access to health services and nutrition programs; - (iii) fight against HIV/AIDS; - (iv) promote access to drinkable water; - (v) improve living conditions, including environment and sanitation; - (vi) ensure social protection. - Within these programs or parts of programs, only budget lines classified as social spending are retained. ### J. Certified and Unpaid VAT Refunds Older than 30 Days (definition) - The stock of value added tax (VAT) refund claims that have been certified but remain unpaid for more than 30 days is comprised of signed tax refund amounts. - The 30-day period starts from the date of signature of the tax refund certificate by the Director General of Taxes. ### K. Public Private Partnerships (definition) - A public-private partnership is defined as a long-term contract between a private party and a government entity, for providing a public asset or service, in which the private party bears significant risk and management responsibility, and remuneration is linked to performance. - It excludes pre-financing and supplier credit arrangements. ### Additional Information for Program Monitoring (reporting requirements summary) - The government agrees to submit specified data to IMF staff in paper format and/or MS Excel electronic files, with specified frequencies and deadlines. - Selected reporting items and frequencies include (institution — data — frequency — reporting deadline): - Ministry of Economy, Finance and Development (MINEFID) — The government’s fiscal reporting table (TOFE) and customary appendix tables — Monthly — 6 weeks. - MINEFID/BCEAO — Domestic budgetary financing (net bank credit to the government and stock of unredeemed government bonds and bills) — Monthly — 6 weeks. - MINEFID/DGD — Monthly data on execution rates by the customs office relative to monthly forecasts — Monthly — 6 weeks. - DGD/DGI — A quarterly report on outcomes and actions to improve control and supervision of taxpayers using the single taxpayer identification number — Quarterly — 6 weeks. - DGB/DGTCP — Data on implementation of the public investment program, including details on financing sources — Quarterly — 6 weeks. - DGTCP — The stock of external debt, external debt service, external debt contracted, and external debt repayment — Quarterly — 6 weeks. - DGTCP — Social poverty-reducing expenditures in table format — Monthly — 6 weeks. - SONABHY/DGTCP — Petroleum product prices, consumption and taxes and related detailed data — Monthly — 4 weeks. - SONABHY/MINEFID — Quarterly summary report of monthly data of SONABHY’s accounts — Quarterly — 6 weeks. - SONABEL/MINEFID — Quarterly summary report of monthly data of SONABEL’s accounts — Quarterly — 6 weeks. - DGTCP — A monthly statement of the accounts with the treasury, broken out by major category — Monthly — 6 weeks. - DGI/DGD — A quarterly activity report from the Investigation and Intelligence Directorate including taxpayer controls using the unique taxpayer identification number — Quarterly — 6 weeks. - DGD — Provide monthly customs revenue projections (on an annualized basis) by customs post, and report on monthly outcomes compared to projections — Monthly — 6 weeks. - DGD — Keep 'Champ 44' enabled for input of references from inspection notices for all customs declarations — Continuous. - DGI — Provide monthly DGI revenue projections (on an annualized basis) by type, and report on monthly outcomes compared to projections — Monthly — 6 months. - DGTCP — Provide monthly DGTCP revenue projections (on an annualized basis) by type, and report on monthly outcomes compared to projections — Monthly — 6 months. - DGI — A quarterly summary report of VAT refunds, including transfers received from the ACCT, cumulative amount paid since the beginning of the year, the stock of certified refund claims (Régisseur d’avance), and total VAT refund claims being processed (DGE, DLC) — Quarterly — 3 months. - DGCOOP/MINEFID, CIDPH — A monthly update of the PPP and sovereign guarantee databases; Monthly estimate of the implicit pump fuel price subsidy — 4 weeks. - NDs of the BCEAO — The consolidated balance sheet of monetary institutions — Monthly — 6 weeks. - BCEAO — The monetary survey: provisional data — Monthly — 6 weeks. - BCEAO — The monetary survey: final data — Monthly — 10 weeks. - BCEAO — The lending and borrowing interest rates — Monthly — 6 weeks. - BCEAO — The standard bank supervision indicators for banks and nonbank financial institutions — Monthly — 6 weeks. - BCEAO — Preliminary annual balance of payments data — Annual — 9 months. - INSD/MINEFID — Foreign trade statistics — Monthly — 3 months. - BCEAO — Any revision of balance of payments data (including services, private transfers, official transfers, and capital transactions) — As they occur — 2 weeks. - MINEFID — Provisional national accounts; and any revision of the national accounts — Annual — 2 weeks. - MINEFID — Disaggregated monthly consumer price indices — Monthly — 2 weeks. - MINEFID — Any study or official report on Burkina Faso’s economy, on the date published, or the date of entry into force — 2 weeks. - MINEFID — Any decision, order, law, decree, ordinance, or circular having economic or financial implications, on the date published, or the date of entry into force — 2 weeks. ### Debt sustainability: key findings and background on debt - Risk assessments: - Risk of external debt distress: Moderate. - Overall risk of debt distress: Moderate. - Granularity in the risk rating: Substantial space to absorb shocks. - Application of judgement: No. - The rating is unchanged from the April 2020 Debt Sustainability Analysis (DSA). - The macroframework underlying this DSA accounts for Burkina Faso’s recent GDP rebasing and incorporates the impact of the Covid-19 pandemic and the deteriorating security situation. - Current debt-carrying capacity is consistent with a classification of ’medium’. - All external debt indicators remain below the relevant indicative thresholds under the baseline scenario. - Under a standard stress test of a shock to exports, two of the thresholds for PPG external debt—debt service-to-exports and debt service-to-revenue ratios—are breached. - Overall public debt breaches the relevant benchmark under one scenario. - Policy recommendations to prevent deterioration of debt sustainability: - (i) maintain a sound macro-fiscal framework in the midst of the pandemic shock; - (ii) implement structural reforms to diversify its export base; - (iii) exercise control over government guarantees and contingent liabilities; - (iv) limit non-concessional borrowing and strengthen the implementation of its medium-term debt strategy to contain its debt service and gross financing needs. - Administrative details: - Approved by Catriona Purfield (IMF) and Marcello Estevão (IDA). - Prepared jointly by the staffs of the International Monetary Fund (IMF) and the International Development Association (IDA). - October 29, 2020. ### Background on public debt levels and composition (selected numeric indicators) - The nominal stock of public debt as of end-2019 stood at 42.7 percent of GDP, up by 5 percentage points of GDP compared to the previous year. - The increase in 2019 was driven by: - (i) an elevated budget deficit due to higher than planned VAT reimbursement; - (ii) weaker than expected external disbursements. - Composition of debt at end-2019: - External debt: 55.6 percent of the total debt stock at end-2019, down from 77.1 percent at end-2014. - Domestic debt: 44.4 percent of the total debt stock at end-2019. - Text Table 1: Public Debt Stock, 2014-19 (percent of GDP) - 2014: Public Debt 26.6; External Debt 20.5; share (in percent to total debt) 77.1; Domestic Debt 6.1; share (in percent to total debt) 22.9 - 2015: Public Debt 31.4; External Debt 23.2; share 73.9; Domestic Debt 8.2; share 26.1 - 2016: Public Debt 33.3; External Debt 23.7; share 71.1; Domestic Debt 9.6; share 28.9 - 2017: Public Debt 33.5; External Debt 21.1; share 62.8; Domestic Debt 12.4; share 37.2 - 2018: Public Debt 37.7; External Debt 21.5; share 57.0; Domestic Debt 16.2; share 43.0 - 2019: Public Debt 42.7; External Debt 23.7; share 55.6; Domestic Debt 19.0; share 44.4 - Memorandum items: - Overall fiscal balance: -1.6 (2014), -1.9 (2015), -3.0 (2016), -6.8 (2017), -4.2 (2018), -3.2 (2019). - GDP growth (in percent): 4.3 (2014), 3.9 (2015), 6.0 (2016), 6.2 (2017), 6.8 (2018), 5.7 (2019). - Coverage of public sector debt: - The country’s coverage currently includes external and domestic obligations of the central government yet excludes guarantees and non-guaranteed SOE debt. - An audit of SOE debt is underway; domestic debt of these state-owned enterprises is not covered in the baseline DSA, but the standard SOEs’ 2 percent share of GDP is included in the contingent liability stress test. - Domestic debt is defined as debt denominated in the regional currency, the FCAF. - Contingent liability shock default settings and items included (Text Table 3 / explanations): - Other elements of the general government not captured in 1.0 percent of GDP: 1.5 - Guarantees to private sector: (implied in components) - SOE's debt (guaranteed and not guaranteed by the government) 1/2 percent of GDP: 2.0 - PPP 35 percent of PPP stock: 0.0 - Financial market (the default value of 5 percent of GDP is the minimum value): 5.0 - Total (2+3+4+5) (in percent of GDP): 8.5 - Note: The default shock of 2% of GDP will be triggered for countries whose government-guaranteed debt is not fully captured under the country's public debt definition (1.). If it is already included in the government debt (1.) and risks associated with SoE's debt not guaranteed by the government is assessed to be negligible, a country team may reduce this to 0%. *Source: IMF/IDA staff report material provided for Burkina Faso program monitoring and DSA.* ### 4. This DSA update is consistent with the macroeconomic framework underlying the Staff ### 1bfaea2020002 - 4. This DSA update is consistent with the macroeconomic framework underlying the Staff ### Macroeconomic framework and assumptions - The DSA update is consistent with the macroeconomic framework underlying the Staff Report prepared for the fourth and fifth reviews of the three-year ECF program. - Real GDP Growth: - Current macro framework estimates growth to contract by 2.8 percent in 2020. - Growth is projected to recover to 5.6 percent over the medium term (stabilizing at 5.6 percent from 2022 onwards). - Growth rebound in 2021 is projected at 4.1 percent. - Fiscal stance and WAEMU commitment: - The macro framework projects a relaxation of the deficit target until 2023 above the 3 percent threshold consistent with Burkina Faso’s WAEMU membership commitment. - Fiscal deficit projections: 5.3 percent of GDP for 2020, 5.5 percent for 2021, 4.8 percent for 2022, 4.0 percent for 2023, stabilizing at 3.0 percent going forward (with planned return to 3 percent of GDP starting in 2024). - Off-budget and subsidy treatment: - Authorities continue to provide provisions for subsidies to the national oil company and are limiting cash adjustments, hence containing the off-budget debt creating flows. - Financing assumptions: - Non-concessional borrowing assumed to expand to an average of around 20 percent of total external borrowing over time starting from 2020. - Grant element of new borrowing is assumed to decrease gradually over the forecast horizon. - Domestic financing in 2020 is expected to increase by 2.2 percentage points of GDP to 21.2 percent of GDP. - Medium-term domestic financing composition assumed: 45 percent T-bills (average interest rate of 5.4 percent), 30 percent 3- to 5-year bonds (average interest rate of around 6.5 percent), 25 percent 8-year bonds (average interest rate of 7.6 percent). ### Commodities, production, and external sector assumptions - Gold and cotton price and production assumptions: - Gold prices have been revised upwards throughout the projection period; WEO gold price projections raised since the previous DSA for 2020 onward. - WEO cotton price projections have remained more or less stable since the previous DSA for 2020 onwards. - Gold production growth is expected to drop moderately over the medium term due to security-related constraints on exploration and past production suspensions (example: a 3-month suspension after November 2019 attack on road to SEMAFO Boungou mine). - New industrial gold mines coming on stream provide a buffer; continued escalation of security tensions or COVID-19 outbreaks at mines could lead to further suspensions and depress export receipts. - Current Account: - Current account deficit estimated to have reached 4.8 percent of GDP in 2019. - Projected to drop to 3.5 percent of GDP in 2020 and 2021 driven by external price conditions (primarily gold and oil). - Current account projected to worsen going forward with an average of 5.1 percent for the projection period through 2030. - Tailored commodity shock: - A one standard deviation decline in export prices of gold, grains, and cotton in 2020 corresponds to declines of 16 percent, 11 percent, and 15 percent, respectively, with macroeconomic interactions incorporated. ### Key projections and numeric table highlights (changes vs Apr-2020 DSA) - Select series from Text Table 4 (Current DSA vs Apr-2020 DSA): - Exports of goods (% of GDP): - 2019 est. Current DSA: 24.3; Apr-2020 DSA: 24.3 - 2020 Current DSA: 25.8; Apr-2020 DSA: 22.8 - 2021 Current DSA: 24.8; Apr-2020 DSA: 22.2 - 2025 Current DSA: 20.4; Apr-2020 DSA: 19.6 - 2028 Current DSA: 17.7; Apr-2020 DSA: 17.0 - Real GDP Growth (y/y): - 2019 est. Current DSA: 5.7; Apr-2020 DSA: 5.7 - 2020 Current DSA: -2.8; Apr-2020 DSA: 2.0 - 2021 Current DSA: 4.1; Apr-2020 DSA: 5.8 - 2025 Current DSA: 5.6; Apr-2020 DSA: 5.6 - 2028 Current DSA: 5.6; Apr-2020 DSA: 5.6 - Overall Fiscal Balance (% of GDP): - 2019 est. Current DSA: -4.8; Apr-2020 DSA: -4.4 - 2020 Current DSA: -3.5; Apr-2020 DSA: -4.3 - 2021 Current DSA: -3.5; Apr-2020 DSA: -4.5 - 2025 Current DSA: -5.2; Apr-2020 DSA: -5.3 - 2028 Current DSA: -6.0; Apr-2020 DSA: -6.2 - Current Account (% of GDP): - 2019 est. Current DSA: -3.2; Apr-2020 DSA: -2.7 - 2020 Current DSA: -5.3; Apr-2020 DSA: -5.0 - 2021 Current DSA: -5.5; Apr-2020 DSA: -3.5 - 2025 Current DSA: -3.0; Apr-2020 DSA: -3.0 - 2028 Current DSA: -3.0; Apr-2020 DSA: -3.0 - Gold (USD/ounce) and Cotton Prices (cts/lb) shown in table with upward revision for gold and stable cotton; specific table values preserved in source. ### Debt carrying capacity and classification - Burkina Faso classified as ‘medium’ debt-carrying capacity. - Composite Indicator (CI) index: 3.01 (based on October 2019 WEO and 2019 CPIA score), below threshold of 3.05 for “strong.” - Indicative thresholds for ‘medium’: - PV of debt-to-GDP ratio: 40 percent (threshold for external PPG debt); benchmark for PV of total public debt: 55 percent of GDP. - PV of debt-to-exports ratio: 180 percent. - Debt service-to-exports ratio: 15 percent. - Debt service-to-revenue ratio: 18 percent. ### Stress tests and sensitivity results - Combined contingent liability shock: - A combined contingent liability shock of 8.5 percent of GDP was applied: - 1.5 percent of GDP for guarantees to the private sector. - Standard SOE debt of 2 percent of GDP included. - Financial sector default value retained at 5 percent of GDP. - PPP shock not applied (stock < 1 percent of GDP). - Tailored commodity price shock: - Applied where commodities > 50 percent of total exports; Burkina Faso’s commodities constitute around 80 percent of total exports. - Shock magnitudes in 2020: gold -16 percent, grains -11 percent, cotton -15 percent. - Standardized stress test outcomes: - Under the baseline, all external PPG debt indicators remain below policy-relevant thresholds for the next ten years. - PV of external debt-to-GDP expected to remain around 18 percent; increases from 18.7 percent in 2020 to 19.4 in 2030 (after an initial reduction). - PV of debt-to-exports ratio expected to grow from 66.2 percent in 2020 to 100.4 percent in 2030 (below 180 percent threshold). - PV of debt service-to-exports ratio: around 5 percent for most of next 10 years (3.6 percent in 2020 rising to 6.9 percent in 2030). - Debt service-to-revenue ratio (excluding grants): increases from 5.6 percent in 2020 to 6.4 percent in 2030. - Export shock (standardized) is the largest negative shock: - PV of debt-to-exports reaches 212.4 percent in 2022 (vs 66.0 percent under baseline) and remains above 180 percent thereafter. - PV of debt service-to-exports breaches 15 percent threshold, reaching 19.5 percent in 2028 and remaining above thereafter. - Other shocks (real GDP growth, primary balance, one-time 30 percent depreciation of CFAF, contingent liabilities, commodity prices) do not lead to breaches of external debt thresholds under standardized tests. - Public sector debt sustainability: - Baseline projects a peak of PPG public debt at 48.1 percent of GDP for end-2022, then marginal downward trend. - PV of public debt-to-GDP ratio does not breach the 55 percent benchmark under baseline (remains around 40 percent). - PV of debt-to-revenue and grants ratio expected to peak at 194.7 percent in 2023, then fall to 168.9 percent by 2030. - PV of debt service-to-revenue and grants ratio escalates from 37.3 percent in 2020 to 50.9 percent by 2022 due to short maturity of domestic financing. - Under stress tests, exports shock would cause PV of debt-to-GDP ratio to peak at 56 percent of GDP, breaching the 55 percent benchmark (minimal deviations but breach present). Combined contingent liability shock is most extreme for debt service-to-revenue. ### Risks, vulnerabilities, and policy implications - Key risks and vulnerabilities: - Heightened fiscal risks from COVID-19 fallout and ongoing security crisis; fiscal framework projects deficit of 5.3 percent of GDP in 2020 and above WAEMU 3.0 percent until 2023. - Risk of deviation from planned fiscal consolidation to 3.0 percent of GDP by 2024. - Vulnerability of primary exports (gold, cotton) and imports (oil) to price shocks and to security deterioration. - High risk of debt shocks from contingent liabilities associated with off-budget activities: SOE debt, fuel subsidies, pre-financing of public investment projects, potential PPPs. - Rollover risk related to domestic financing and liquidity risk due to short maturity structure. - Increased non-concessional borrowing would raise financing costs and reduce grant element over time. - Policy recommendations and fiscal adjustment measures: - Fiscal consolidation over the medium term expected to be achieved through: - Increased revenue mobilization via reforms to broaden the tax base and strengthen DGI and DGD effectiveness. - Better control of expenditures, reforms to bring wage bill growth to a sustainable path, and reduction of energy subsidies. - Need to limit non-concessional borrowing and strengthen implementation of the Medium-Term Debt Strategy (MTDS). - Address export diversification and strengthen services exports to reduce vulnerability to export shocks. - Manage contingent liabilities and off-budget activities to limit fiscal risks. - Mobilize concessional financing where possible and sequence toward longer-term domestic instruments as regional financial market develops. ### Conclusions and risk ratings - External debt distress risk: assessed as ‘moderate’. - Baseline shows no breach of external debt distress thresholds; export shock breaches two external PPG debt indicators (debt service-to-exports and debt service-to-revenue), leading to ‘moderate’ classification. - Overall public debt distress risk: remains ‘moderate’. - Benchmark for PV of public debt-to-GDP breached for three years under exports shock scenario and external debt risk is moderate. - To avoid deterioration in debt distress rating, priority areas include: - Containing deviation from medium-term fiscal consolidation in response to COVID-19. - Diversifying exports and strengthening services exports. - Managing contingent liabilities from off-budget activities and SOEs, and carefully sequencing non-concessional borrowing while implementing MTDS. - Addressing rollover and liquidity risks from the short maturity profile of domestic debt. *Source: IMF staff estimates and World Economic Outlook projections (as presented in the DSA update).* ### 19. The authorities concurred with the results of the current DSA. They agreed that fiscal ### 19. The authorities concurred with the results of the current DSA. They agreed that fiscal ### Authorities' assessment and policy stance - The authorities concurred with the results of the current DSA. - They agreed that fiscal response to COVID-19 remains the most important concern in the short run. - In view of increasing debt service of domestic debt, the authorities are considering expanding external financing while giving priority to concessional financing. - Semi-concessional financing sources with conditions more favorable than domestic market conditions are also being actively considered. - The authorities reiterated commitment to maintain prudent overall debt levels with a view to rebalancing debt composition and maintaining the assessed risk of debt distress at a ‘moderate’ rating. - Concessional loans are defined as loans with a grant element above 35 percent. Semi-concessional loans refers to loans that have a material positive grant element but that is lower than 35 percent. ### External debt—baseline indicators and projections (selected) - External debt (nominal) (In percent of GDP): - 2017: 21.1 - 2018: 21.5 - 2019: 23.7 - 2020: 25.0 - 2021: 24.3 - 2022: 24.1 - 2023: 24.1 - 2024: 24.2 - 2025: 24.4 - 2030: 29.1 - Identified net debt-creating flows (In percent of GDP): - 2017: 2.7 - 2018: 2.7 - 2019: 6.6 - 2020: 4.5 - 2021: 3.6 - 2022: 3.4 - 2023: 4.2 - 2024: 4.4 - 2025: 4.5 - 2030: 6.7 - Non-interest current account deficit (In percent of GDP): - 2019: 4.4 - 2020: 3.4 - 2021: 3.2 - 2022: 3.6 - 2023: 4.4 - 2024: 4.7 - 2025: 4.9 - 2030: 7.3 - Sustainability indicators (selected): - PV of PPG external debt-to-GDP ratio (percent): 2019: 16.4; 2020: 18.7; 2021: 17.5; 2022: 17.5; 2023: 17.7; 2024: 17.9; 2025: 18.2; 2030: 23.8 - PV of PPG external debt-to-exports ratio (percent): 2019: 59.4; 2020: 66.2; 2021: 63.2; 2022: 66.0; 2023: 70.1; 2024: 73.5; 2025: 77.2; 2030: 100.4 - PPG debt service-to-exports ratio (percent): 2017: 3.5; 2018: 3.5; 2019: 4.3; 2020: 3.6; 2021: 4.3; 2022: 4.1; 2023: 4.2; 2024: 4.5; 2025: 4.6; 2030: 6.9; 2040: 13.5 - PPG debt service-to-revenue ratio (percent): 2017: 5.7; 2018: 5.7; 2019: 6.3; 2020: 5.6; 2021: 6.4; 2022: 5.7; 2023: 5.5; 2024: 5.6; 2025: 5.5; 2030: 6.4; 2040: 7.7 - Gross external financing need (Billion of U.S. dollars): - 2017: 0.8 - 2018: 1.0 - 2019: 1.1 - 2020: 0.8 - 2021: 1.0 - 2022: 1.1 - 2023: 1.3 - 2024: 1.5 - 2025: 1.6 - 2030: 2.9 - 2040: 7.5 ### Key macroeconomic assumptions (selected) - Real GDP growth (percent): - 2017: 6.2 - 2018: 6.8 - 2019: 5.7 - 2020: -2.8 - 2021: 4.1 - 2022–2029 (annual projection): 5.6 each year - 2030: 5.6 - Average (projection column): 6.0 - Historical average shown: 4.7 - GDP deflator in US dollar terms (change in percent) (selected years): - 2017: 4.1 - 2018: 7.1 - 2019: -8.1 - 2020: 4.4 - 2021: 10.0 - 2022: 3.3 - 2030: 2.3 - Average (historical/projection): -0.4; 3.4 - Effective interest rate (percent): - 2017: 0.9 - 2018: 1.0 - 2019: 1.5 - 2020: 0.5 - 2021: 1.5 - 2022: 1.4 - 2023: 1.5 - 2030: 2.1 - Average (projection): 1.0; 1.6 - Grant element of new public sector borrowing (percent) (selected projections): - 2021: 31.4 - 2022: 31.2 - 2023: 30.6 - 2024: 30.0 - 2025: 29.3 - 2026: 28.7 - 2027: 25.7 - 2028: 19.6 - Average projection shown: 28.7 - Government revenues (excluding grants, percent of GDP): - 2017: 16.9 - 2018: 17.0 - 2019: 18.9 - 2020: 18.0 - 2021: 18.5 - 2022: 19.0 - 2023: 19.2 - 2024: 19.5 - 2025: 19.8 - 2030: 21.0 - 2040: 23.4 - Historical average listed: 15.9; projection average: 19.7 ### Public sector debt—baseline indicators and projections (selected) - Public sector debt (percent of GDP): - 2017: 33.5 - 2018: 37.7 - 2019: 42.7 - 2020: 46.1 - 2021: 48.2 - 2022: 49.3 - 2023: 49.6 - 2024: 49.0 - 2025: 48.3 - 2030: 45.8 - Average historical/projection: 30.8; 47.6 - Change in public sector debt (percent of GDP): - 2019: 5.0 - 2020: 3.4 - 2021: 2.2 - 2022: 1.1 - 2023: 0.3 - 2024: -0.7 - 2025: -0.6 - 2030: -0.4 - Identified debt-creating flows (percent of GDP): - 2019: 2.6 - 2020: 5.7 - 2021: 2.8 - 2022: 1.3 - 2023: 0.5 - 2024: -0.6 - 2025: -0.6 - 2030: 0.4 - Primary deficit (percent of GDP): - 2017: 6.0 - 2018: 3.3 - 2019: 2.2 - 2020: 4.1 - 2021: 3.9 - 2022: 3.1 - 2023: 2.1 - 2024: 1.1 - 2025: 1.1 - 2030: 1.2 - PV of public debt-to-GDP ratio (percent) (selected): - 2019: 35.4 - 2020: 38.8 - 2021: 41.3 - 2022: 42.7 - 2023: 43.2 - 2024: 42.6 - 2025: 42.1 - 2030: 40.0 - PV of public debt-to-revenue and grants ratio (percent) (selected): - 2019: 173.7 - 2020: 172.5 - 2021: 192.0 - 2022: 193.9 - 2023: 194.7 - 2024: 190.2 - 2025: 185.6 - 2030: 168.9 - 2040: 147.0 - Debt service-to-revenue and grants ratio (percent): - 2017: 22.6 - 2018: 27.8 - 2019: 31.6 - 2020: 37.3 - 2021: 45.0 - 2022: 50.9 - 2023: 51.8 - 2024: 53.1 - 2025: 50.3 - 2030: 41.4 - 2040: 25.7 - Gross financing need (percent of GDP): - 2017: 10.3 - 2018: 8.3 - 2019: 8.4 - 2020: 12.4 - 2021: 13.4 - 2022: 14.3 - 2023: 13.6 - 2024: 13.0 - 2025: 12.5 - 2030: 11.0 - 2040: 8.0 ### Stress tests, sensitivity analyses, and risks (high-level) - Figures and tables present alternative scenarios, bound tests (e.g., real GDP growth, primary balance, exports, other flows, depreciation), and tailored tests (combined contingent liabilities, commodity price shocks). - Table 3 and Table 4 report sensitivity and tailored test outcomes for public and external debt indicators across 2020–2030 with thresholds and indications where breaches occur (bold where breaches are present). - Figure 1–5 illustrate indicators of public and PPG external debt under alternative scenarios, drivers of debt dynamics, realism tools for fiscal adjustment and growth multipliers, and qualification of the “moderate” category for debt distress. ### Implications for financing strategy and debt management - Given rising domestic debt service, policy direction emphasizes: - Prioritizing concessional external financing (grant element > 35 percent). - Considering semi-concessional financing with materially positive grant elements below 35 percent. - Rebalancing debt composition to contain risk of debt distress at a ‘moderate’ rating. - Fiscal response to COVID-19 remains the immediate priority, implying continued financing needs and careful management of both external and domestic borrowing. *Sources: Country authorities; and staff estimates and projections.* ### 1. On behalf of our Burkinabe authorities, we would like to thank the Board, ### On behalf of our Burkinabe authorities, we would like to thank the Board, ### Recent developments, program performance and outlook - The authorities appreciate the swift disbursement under the Rapid Credit Facility (RCF); this emergency assistance contributed to keep the program supported by the Extended Credit Facility (ECF) on track. - The security crisis: more than 2,400 casualties; affected about 5.2 million people; over one million internally displaced as of September 2020. - ECF performance through the 4th and 5th reviews: - All end-December 2019 quantitative performance criteria (QPCs) met for the 4th review. - Four out of six indicative targets (ITs) met for the 4th review. - Four out of five QPCs met for the 5th review. - All but one structural benchmark were met for each review, as well as all prior actions. - Growth and inflation developments: - Real GDP growth: 5.7 percent in 2019. - 2020 Q1 and Q2 real GDP growth contracted by 1.4 percent and 8.6 percent y-o-y, respectively. - Inflation rose to 4.1 percent at end-August 2020, compared to -2.6 percent y-o-y in 2019. - Current account deficit projected to narrow from 4.8 percent of GDP in 2019 to 3.5 percent of GDP in 2020 due to favorable gold and oil prices. - Divergent outlooks for 2020: - Authorities project growth to recover in H2 2020 and to stand at 1.5 percent at year-end. - Staff projects growth to contract by 2.8 percent. - Authorities expect inflation to fall further to 1.4 percent at year-end. - Risks: authorities remain mindful of downside risks, including a possible second wave of COVID-19 and labor disputes. ### Fiscal policy and reforms - 2020 fiscal stance and measures: - Revised 2020 budget accommodates a larger fiscal deficit: 5.3 percent of GDP compared to 3 percent initially. - Policy consistent with WAEMU temporary easing of fiscal rules to combat COVID-19 effects. - Revenue collection expected to fall; spending needs to increase substantially (COVID-19 spending and additional security outlays). - Efforts: keep the wage bill unchanged; cancel non-priority spending on goods and services; reduce transfers. - Support to hard-hit sectors and credit measures: - Rebalancing of expenditures has benefited transport, hospitality and restaurants. - Government set a CFA100 billion guarantee fund intended to leverage at least CFA200 billion fresh money over 2020-21. - Financing of the deficit: - Fully financed by IMF’s RCF disbursement and debt relief under the CCRT, plus additional resources from the World Bank, the African Development Bank, the European Union and bilateral partners. - 2021 budget stance: - Deficit widens to 5,5 percent of GDP. - Fiscal stance includes: increase in domestic revenue of 0.5 percent of GDP; reduction in current expenditures; continued support to hard-hit sectors; increase in investment to support recovery. - Fiscal reforms planned over 2021: - Increase tobacco tax rate from 45 to 50 percent. - Phase out some tax measures taken to respond to the pandemic. - Conduct a comprehensive reform of the VAT system. - Enhance computerization of tax declaration and payment procedures to fight corruption and fraud. - Public financial management reforms: Treasury Single Account (TSA); appointment of an independent and high-level committee for negotiations on a comprehensive wage bill reform package; energy subsidies reform. ### Debt policy - Debt sustainability is a key priority. - Authorities take positive note of the DSA indication that “the risk of external debt distress as well as the overall risk of public debt distress are moderate, with a substantial space to absorb shocks.” - Commitment to a prudent borrowing strategy prioritizing grants and concessional financing to maintain the country’s moderate risk of debt distress ranking. ### Financial sector policies - Continue to strengthen the financial sector and financial inclusion to support recovery. - Focus on financial stability issues amid the pandemic’s effects on businesses. - Regional central bank (BCEAO) measures have helped; authorities will continue to closely monitor banking and microfinance sectors. - Build on BCEAO measures to facilitate mobile payments to expand access to financial services, notably mobile banking and microfinance. - AML/CFT action: - Committed to addressing macro-critical shortcomings identified in the 2018 AML/CFT assessment. - Recent progress: amending the law to criminalize terrorism financing and appointing the competent Authority in matters of targeted financial sanctions and freezing assets linked to terrorism. - Efforts will be pursued to address remaining deficiencies. ### Governance and transparency of COVID-related spending - Progress in promoting good governance: - Completion of dematerialization and online publication of asset declarations of government officials and members of parliament. - Anti-corruption institutions to regularly check administrations exposed to systemic risks of corruption and misuse of public resources (e.g., customs administration and police). - Transparency measures for COVID-related assistance: - A high-level mechanism including civil society oversees all external COVID-related assistance to ensure transparency and accountability. - Anti-corruption authority and the Court of Auditors conduct priority audits of COVID-related spending. - The first audited report covering spending up to end-June 2020 has been shared with staff; such proceedings will continue and reports will be published going forward. ### Conclusion and request to Executive Directors - The combined security crisis and COVID-19 halted recent growth momentum. - With IMF and development partner assistance, authorities continue to respond to the crises while laying foundations for recovery; the ECF-supported program provides an appropriate framework. - The 4th and 5th review period continued to exhibit the authorities’ good performance since program inception. - Authorities request Executive Directors’ support for: - Completion of the 4th and 5th reviews under the ECF arrangement. - Approval of a request for a waiver of nonobservance of performance criterion and rephasing of access. *Source: IMF staff report text provided in the content unit.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2020/english/1bfaea2020002.pdf_