## 1bfaea2023001 ## Source details **Canonical URL:** [1bfaea2023001](https://www.imf.org/-/media/files/publications/cr/2023/english/1bfaea2023001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2023/english/1bfaea2023001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2023/english/1bfaea2023001.pdf.json) --- ### Executive summary — context and humanitarian impact - Following two military coups in 2022, Burkina Faso committed to return to constitutional order via democratic elections by July 2024; deviations could put at risk relationships with financial partners and donors. - Drivers of the recent shock: - Deteriorating security. - Unfavorable climate conditions and a bad harvest during the 2021-2022 season resulting from low rainfall. - Disruption of international supply-chains caused by the COVID-19 pandemic. - Russia’s invasion of Ukraine, including higher fertilizer costs. - Humanitarian and economic impact: - About 3.4 million Burkinabé (out of a population of 21.5 million) are in conditions of food crisis. - About 3.5 million Burkinabé estimated in acute food insecurity (Phase 3 or above of IPC/CH) per 2022 UN update. - Soum province assessed in food emergency (equivalent to Phase 4 in IPC/CH); Soum accounts for 4.4 percent of land area and 1.7 percent of population. - Internally displaced persons (IDPs): about 1.9 million — 8.5 percent of the population — as of end-December 2022. - Over 15 percent of the population suffering from acute malnutrition. - Adverse impact on the current account from price increases for key cereals and fertilizers estimated at 0.4 percent of GDP cumulatively during 2022 and 2023. - Overall costs to fully address food insecurity over the next year estimated up to 3.5 percent of GDP. ### Engagement with the IMF and emergency financing request - Prior to January 2022 coup, discussions on a possible Extended Credit Facility (ECF) had advanced on key program measures. - Authorities requested access to the Food Shock Window (FSW) under the Rapid Credit Facility (RCF) with a disbursement of 50 percent of quota (SDR 60.2 million, equivalent in reporting to US$79.2 million). - Staff support: - IMF staff support authorities’ request for an RCF/FSW disbursement to mitigate the food shock and protect the most vulnerable. - Rapid disbursement under the FSW seen as key to address the food-related balance-of-payments need and to catalyze donor support. ### Policy response to address the food crisis (authorities’ measures) - Use of FSW resources (committed): - Urgent financial and direct food support via well-targeted cash transfers and distribution of free food. - Sales of cereals at subsidized prices. - Improve clean water supply and distribution. - Sell key agricultural inputs such as fertilizers at subsidized prices. - Gradually lift temporary food-related export restrictions. - Domestic actions already implemented: - Pump prices kept constant and below international costs; subsequently raised pump prices by 17 percent in May 2022, by another 5 percent in August 2022, and by 13 percent in February 2023. - Fiscal cost of fuel subsidies in 2022 estimated at CFAF 595 billion, or 4.9 percent of GDP (up from an estimated 1.3 percent of GDP in 2021). - Waived customs duties on key food imports for 3 months in June 2022; cost estimated at CFAF 14 billion, or 0.12 percent of GDP. - Temporary ban on exports of grains (millet, corn, sorghum, and cowpea) and flours. - Capped price of fertilizers sold to cotton-producers at 2021 level, increasing fertilizer subsidies to CFAF 72.8 billion, or 0.6 percent of GDP, from 0.12 percent of GDP in 2021. ### Recent economic developments and outlook — growth, inflation, external, fiscal, financial - Growth and inflation: - Real GDP growth slowed to 0.4 percent y-o-y in 2022Q3. - Overall growth in 2022 projected to moderate to 2.5 percent (from 6.9 percent in 2021). - Headline inflation peaked at over 18 percent y-o-y in August 2022 (from 8 percent in December 2021); remained 9.6 percent in December 2022. - Annual average inflation expected at about 14.1 percent (highest among WAEMU countries); forecast to slow sharply to 1.5 percent in 2023 with end-of-period inflation for 2023 projected at 2.7 percent (WAEMU target band: 1 to 3 percent). - External sector: - Current account deficit estimated at 5.2 percent of GDP in 2022; projected to reduce to 4.4 percent of GDP in 2023 and reach 3 percent of GDP in 2025. - Nominal imports estimated to have increased by around 28 percent in 2022. - Gold exports (over 70 percent of total exports) estimated to have decreased due to recent gold mine closures. - Nominal cotton exports estimated to have increased by 56 percent y-o-y in 2022, supported by a 45 percent y-o-y increase in cotton prices and a good 2022-23 harvest. - Capital account supported by financial (mainly portfolio) inflows from regional bond market issuances. - Fiscal developments: - Overall fiscal deficit widened to 10.3 percent of GDP in 2022. - Tax revenue in 2022 projected at 16.9 percent of GDP (increase of 1.4 percent of GDP over 2021). - Current transfers increased to CFAF 1,009.7 billion (9 percent of GDP) in 2022 from 6.4 percent of GDP in 2021, mainly driven by fuel subsidies (4.9 percent of GDP). - Domestically financed public investment increased to about CFAF 875 billion (7.2 percent of GDP) in 2022 from nearly CFAF 528 billion (4.8 percent of GDP) in 2021, mostly driven by purchase of military equipment during Q4 2022. - Total gross financing needs of 13.6 percent of GDP in 2022 included amortization of existing domestic debt coming due (about 5.6 percent of GDP). - Financing sources in 2022 included new issuances of treasury bills and bonds, syndicated bonds, withdrawals from government deposits at the BCEAO amounting to 1.8 percent of GDP, and accumulation of payment floats of about 1.7 percent of GDP on subsidies owed to SONABHY. - New domestic debt included about CFAF 150 billion (1.2 percent of GDP) and CFAF 129.5 billion (1.1 percent of GDP) in subsidies converted into loans by issuing debt bonds and promissory notes to SONABHY. - Budget support from most donors remained suspended since January 2022, except for World Bank disbursements in August 2022: grant CFAF 60 billion (US$98 million) and loan CFAF 56 billion (US$92 million). - Financial sector: - Private sector credit growth decelerated to 7.2 percent in 2022 from 10.1 percent in 2021. - Banks held 13.6 percent of risk-weighted assets as equity capital at end-June 2022. - Loan exposure to the top 5 borrowers increased to 81 percent from 67 percent at end-2021. - Reported non-performing loans net of provisions as a share of total loans stood at 6.6 percent at end-September 2022. - Share of liquid assets in total bank assets increased to 21 percent at end-June 2022 from 19 percent at end-2021; share of liquid assets in total deposits increased to 29 percent from 26 percent. - Domestic bank exposure to sovereign securities remains a source of concentration risk. ### Risks — balance tilted to the downside - Main domestic risks: - Further security disruptions leading to renewed social and political uncertainty and negative impacts on real and external sectors. - Difficulties in revenue mobilization and high security-related spending needs adding pressure on the budget. - Key external risks: - A protracted war in Ukraine causing further supply disruptions. - Increasing geopolitical tensions. - An abrupt global recession. - Climate shocks affecting crops. - Specific policy action risk: - Government requisitions of gold from mining companies in February 2023: a total of 500 kg from two gold mines; payment modalities confidential and not consistent with best PFM practices — could undermine confidence and donor support. - Annex I Risk Assessment Matrix highlights several high-likelihood, high-impact risks including intensifying spillovers from Russia’s war in Ukraine; abrupt global slowdown; deepening geo-economic fragmentation; and widespread social discontent and terrorism. ### Food shock, balance-of-payments need, and humanitarian costs - Fertilizers: - Burkina Faso imports all fertilizers used; fertilizers represented about CFAF 33.2 billion in 2021, or 3 percent of GDP. - Food prices and consumption: - Between January and October 2022, food prices increased by 21 percent. - Food accounts for one half of consumption spending. - Estimated BOP need related to the global food shock: - Staff estimates the balance-of-payment need associated with the global food shock is around 0.4 percent of GDP cumulatively during 2022 and 2023 (largely driven by fertilizers). - Annex II quantification: Crops and All Fertilizers: 0.21 / 0.19 (2022 / 2023, percent of GDP); Fertilizers: 0.20 / 0.18. - Costs to tackle acute food insecurity: - Lifting out of hunger the additional 0.6 million people who fell into acute food insecurity between August 2021 and August 2022 would cost about 0.5 percent of GDP for one year (WFP-based). - Compensating all vulnerable households (US$1.9 or less per capita per day, about 43.7 percent of the population) for the rise in food prices in 2022 would require nearly 3½ percent of GDP. - Response plan (Plan de Réponse et de Soutien aux Populations Vulnérables, 2023): - Total cost: US$362 million (CFAF 216.4 billion). - IMF emergency financing under the FSW: SDR 60.2 million, US$79.2 million (less than total plan cost). - Immediate food assistance accounts for more than 80 percent of plan’s total cost. - Beneficiaries: 3.5 million people in a food crisis situation, including 550,000 in food emergency conditions and 20,000 in food catastrophe conditions. - Selected cost breakdown (sub-totals and line items): - Immediate food assistance sub-total: CFAF 178.6 bn / US$299.0 mn - Distribution of free food: CFAF 95.3 bn / US$159.7 mn - Monetary transfers: CFAF 63.3 bn / US$106.0 mn - Sale of cereals at subsidized prices: CFAF 19.9 bn / US$33.3 mn - Prevention and management of malnutrition; improving drinking water supply sub-total: CFAF 25.2 bn / US$42.2 mn - Care of children, pregnant and lactating women: CFAF 23.7 bn / US$39.7 mn - Improving drinking water supply and distribution: CFAF 1.5 bn / US$2.5 mn - Protection of livelihoods sub-total: CFAF 12.2 bn / US$20.4 mn - Distribution and sale of agricultural inputs at subsidized prices: CFAF 4.9 bn / US$8.3 mn - Measures to support livestock: CFAF 7.2 bn / US$12.1 mn - Evaluation and monitoring sub-total: CFAF 0.4 bn / US$0.6 mn - Total cost of Response Plan: CFAF 216.4 bn (US$362.2 mn). ### Fiscal and debt outlook — DSA findings and vulnerabilities - Fiscal trajectory: - Overall fiscal deficit (commitment basis) by percent of GDP: 2019 3.1; 2020 5.1; 2021 7.5; 2022 10.3; 2023 7.8; 2024 6.7; 2025 5.5; 2026 4.2; 2027 3.0. - Gross Financing Needs (percent of GDP): 2019 9.3; 2020 14.1; 2021 15.2; 2022 13.6; 2023 16.7; 2024 16.7; 2025 17.8; 2026 16.7; 2027 16.0. - Primary deficit (commitment basis) (percent of GDP): 2019 1.9; 2020 3.7; 2021 5.8; 2022 8.4; 2023 5.9; 2024 4.9; 2025 3.5; 2026 2.0; 2027 0.7. - Interest Payments (percent of GDP): 2019 1.2; 2020 1.4; 2021 1.8; 2022 1.9; 2023 1.9; 2024 1.8; 2025 2.1; 2026 2.3; 2027 2.4. - Amortization (percent of GDP): 2019 6.1; 2020 8.9; 2021 8.8; 2022 6.5; 2023 8.9; 2024 10.0; 2025 12.3; 2026 12.5; 2027 12.9. - Debt sustainability assessment (DSA): - Burkina Faso remains at moderate risk of external debt distress and overall public debt distress; debt remains sustainable over the medium term under baseline. - All external debt indicators remain below relevant indicative thresholds under baseline and most extreme stress tests; judgment applied given high uncertainties. - Overall public debt increased as a share of GDP and is very close to the threshold for a high debt distress risk rating, and breaches the relevant benchmark under the most extreme commodity price shock scenario. - Country classified with medium debt-carrying capacity with some, but limited, space to absorb shocks. - Public debt stock and composition: - Public debt stock (nominal, end-2022): 54.3 percent of GDP (up from 48.2 percent in 2021). - External debt: 46.6 percent of total debt stock (fell over 15 percentage points since 2017). - Domestic debt: 29.0 percent of GDP; share of total debt: 53.4 percent. - Stress-test insights: - Tailored commodity-price shock (one-standard-deviation decline) is the most extreme and can breach public debt benchmarks. - Under baseline, external PPG debt indicators remain below thresholds for next ten years; PV of external debt-to-GDP projected around 15 percent across horizon. - Under public sector DSA baseline, public sector debt peaks through 2026 and then marginally declines; PV of public debt-to-GDP comes close to 55 percent benchmark with a marginal breach in 2026 in some presentations. ### Policy implications, program prospects, and governance - Without significant reforms, current fiscal path carries substantial risks and could jeopardize growth potential and debt sustainability. - Financing risks: - With external budget support declining and absent concessional financing, deficits may need to be financed via historically high volumes of costly, non-concessional bond issuances on the regional sovereign bond market, and accumulation of debt to the non-banking sector, including SOEs. - Financing likely to become more expensive due to tighter global conditions and is subject to absorption, rollover and liquidity risks. - Authorities’ commitments and IMF conditions: - Use FSW resources to mitigate temporary challenges of the food price shock. - Implement efforts through a sound macroeconomic policy framework and achieve fiscal convergence within WAEMU in the medium-term. - Commit not to introduce new restrictions on international trade and to phase out existing temporary ones. - Strengthen PFM and transparency: channel FSW funds through the BCEAO as budget support; publish budget and budget execution reports annually on Ministry of Finance website; prepare semi-annual progress reports and publish audits on the cash transfer program and all food emergency spending by June 30, 2024; audits by the General Inspectorate of Public Finances; identify and publish beneficial owners for procurement related to water supply and agricultural inputs/food purchases. - Social protection and targeting: - Creation of a Social Registry and development of a well-targeted cash transfer system to benefit the most vulnerable. - Program prospects: - Authorities requested a resumption of discussions of a UCT-quality IMF-supported program to put public finances on a more sustainable footing; an IMF-supported program could catalyze resumption of external budget support (World Bank, EU, other partners). - Key reform areas for program discussions: extension of social protection; creating fiscal space for priority spending (including climate-resilient agriculture) by containing growth of the civil service wage bill, enhancing domestic revenue mobilization, and reforming energy subsidies. - Staff appraisal reiterates rapid emergency financing under FSW is warranted given urgent BOP need and potential to catalyze donor support. ### IMF access, capacity-to-repay, and operational modalities - Access calibration: - Urgent BOP needs associated with global food shock estimated around 0.4 percent of GDP cumulatively for 2022 and 2023; staff proposes access of 50 percent of quota (SDR 60.2 million). - Capacity-to-repay indicators: - Total outstanding credit to the IMF projected to peak at 227.8 percent of quota by end-2023, equivalent to 1.7 percent of GDP, 6.3 percent of exports, and 9.4 percent of government revenues. - Total obligations to the IMF projected to peak at about 21 percent of external debt-service obligations, 0.2 percent of GDP, and 0.8 percent of exports in 2026. - Financing outlook: - Highly concessional support from international partners expected to remain important to meet medium-term financing needs. - Authorities intend to intensify dialogue to secure concessional financing in 2023 and beyond. - Central bank safeguards: - BCEAO implemented all recommendations from the 2018 Safeguards Assessment; update assessment planned for 2023. ### Staff recommendation and concluding observations - Staff support the authorities’ request for a Rapid Credit Facility disbursement under the FSW and the planned use of resources to mitigate the food shock on the most vulnerable. - Urgent interventions recommended: - Accelerate direct food support. - Distribute well-targeted cash transfers. - Improve the supply of clean water. - Concluding policy message: - A rapid FSW disbursement is needed to address urgent BOP and humanitarian needs; subsequent negotiations on an IMF-supported arrangement would aim to restore macroeconomic stability, address debt vulnerabilities, and implement macro-critical reforms to entrench fiscal and debt sustainability. *Source: IMF staff report (excerpt).* ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Context - Following two military coups in 2022, Burkina Faso remains committed to return to constitutional order, via democratic elections, by July 2024. Deviations from this timeline could put at risk the relationships with financial partners and donors. - Drivers of the recent shock: - Deteriorating security. - Unfavorable climate conditions and a bad harvest during the 2021-2022 season resulting from low rainfall. - Disruption of international supply-chains caused by the COVID-19 pandemic. - Russia’s invasion of Ukraine, including higher fertilizer costs. - Humanitarian and economic impact: - About 3.4 million Burkinabé (out of a population of 21.5 million) are in conditions of food crisis, while one province is in a situation of food emergency, as defined by the World Food Program. - About 3.5 million Burkinabé are estimated to be in acute food insecurity (Phase 3 or above of IPC/CH) per the 2022 update of the United Nations Global Report on Food Crises. - Soum province: accounts for 4.4 percent of land area and 1.7 percent of population; assessed in food emergency (equivalent to Phase 4 in IPC/CH). - Internally displaced persons (IDPs): about 1.9 million — 8.5 percent of the population — as of end-December 2022. - Over 15 percent of the population suffering from acute malnutrition. - The adverse impact on the current account of price increases for key cereals and fertilizers is estimated to amount to 0.4 percent of GDP cumulatively during 2022 and 2023. - The overall costs to fully address food insecurity over the next year are estimated to be up to 3.5 percent of GDP. ### Engagement with the Fund - Prior to the January 2022 military coup, staff and the authorities held discussions on a possible Extended Credit Facility (ECF) arrangement; progress had been made on key program measures (see Policies). - Policy dialogue has continued with the objective of securing a new ECF arrangement once the immediate food crisis is addressed. - The authorities requested access to the Food Shock Window (FSW) under the Rapid Credit Facility (RCF), with a disbursement of 50 percent of quota (SDR 60.2 million). - The authorities remain committed to resume program negotiations after addressing urgent food needs. ### Policy response to address the food crisis - Use of FSW resources (committed by the authorities): - Provide urgent financial and direct food support to the most vulnerable households through well-targeted cash transfers and distribution of free food. - Sales of cereals at subsidized prices. - Improve clean water supply and distribution. - Sell key agricultural inputs such as fertilizers at subsidized prices. - Gradually lift temporary food-related export restrictions. - Domestic policy actions already implemented: - Kept pump prices constant and below international costs; subsequently raised pump prices by 17 percent in May 2022, by another 5 percent in August 2022, and by 13 percent in February 2023. - Fiscal cost of fuel subsidies in 2022 estimated at CFAF 595 billion, or 4.9 percent of GDP, up from an estimated 1.3 percent of GDP in 2021. - Waived customs duties on key food imports for 3 months in June 2022, cost estimated at CFAF 14 billion, or 0.12 percent of GDP. - Temporary ban on exports of grains (millet, corn, sorghum, and cowpea) and flours. - Capped price of fertilizers sold to cotton-producers at 2021 level, increasing fertilizer subsidies to CFAF 72.8 billion, or 0.6 percent of GDP, from 0.12 percent of GDP in 2021. ### Recent economic developments and outlook highlights - Growth and inflation: - Real GDP growth slowed to 0.4 percent y-o-y in 2022Q3. - Overall growth in 2022 projected to moderate to 2.5 percent, from 6.9 percent in 2021. - Headline inflation peaked at over 18 percent y-o-y in August 2022 (from 8 percent in December 2021); remained 9.6 percent in December 2022. - Annual average inflation expected at about 14.1 percent, the highest among WAEMU countries. - External sector: - Current account deficit estimated at 5.2 percent of GDP in 2022. - Nominal imports estimated to have increased by around 28 percent in 2022, driven by higher costs of food, fertilizers and energy imports. - Gold exports (over 70 percent of total exports) estimated to have decreased due to recent gold mine closures. - Nominal cotton exports estimated to have increased by 56 percent y-o-y in 2022, supported by a 45 percent y-o-y increase in cotton prices and a good 2022-23 harvest. - Capital account supported by financial (mainly portfolio) inflows from regional bond market issuances. - Fiscal developments: - Overall fiscal deficit widened to 10.3 percent of GDP in 2022. - Tax revenue in 2022 projected at 16.9 percent of GDP, an increase of 1.4 percent of GDP over 2021. - Current transfers increased to CFAF 1,009.7 billion (9 percent of GDP) in 2022 from 6.4 percent of GDP in 2021, mainly driven by fuel subsidies (4.9 percent of GDP). - Domestically financed public investment increased to about CFAF 875 billion (7.2 percent of GDP) in 2022 from nearly CFAF 528 billion (4.8 percent of GDP) in 2021, mostly driven by purchase of military equipment during Q4 2022. - Total gross financing needs of 13.6 percent of GDP in 2022 included amortization of existing domestic debt coming due (about 5.6 percent of GDP). - Financing sources in 2022 included new issuances of treasury bills and bonds, syndicated bonds, withdrawals from government deposits at the BCEAO amounting to 1.8 percent of GDP, and accumulation of payment floats of about 1.7 percent of GDP on subsidies owed to SONABHY. - New domestic debt included about CFAF 150 billion (1.2 percent of GDP) and CFAF 129.5 billion (1.1 percent of GDP) in subsidies converted into loans by issuing debt bonds and promissory notes to SONABHY. - Budget support from most donors remained suspended since January 2022, except for the World Bank which disbursed a budget grant (CFAF 60 billion, US$98 million) and loan (CFAF 56 billion, US$92 million) in August 2022. - Financial sector: - Private sector credit growth decelerated to 7.2 percent in 2022 from 10.1 percent in 2021. - Banks held 13.6 percent of risk-weighted assets as equity capital at end-June 2022. - Loan exposure to the top 5 borrowers increased to 81 percent from 67 percent at end-2021. - Reported non-performing loans net of provisions as a share of total loans stood at 6.6 percent at end-September 2022. - Share of liquid assets in total bank assets increased to 21 percent at end-June 2022 from 19 percent at end-2021; share of liquid assets in total deposits increased to 29 percent from 26 percent. - Domestic bank exposure to sovereign securities remains a source of concentration risk. ### Risks - Balance of risks is tilted to the downside. - Main domestic risks: - Further security disruptions leading to renewed social and political uncertainty and negative impacts on real and external sectors. - Difficulties in revenue mobilization and high security-related spending needs adding pressure on the budget. - Key external risks: - A protracted war in Ukraine causing further supply disruptions. - Increasing geopolitical tensions. - An abrupt global recession. - Climate shocks affecting crops. *IMF staff visit: an IMF team comprising Mr. Schindler (head), Messrs. Capelle, Comelli, Mpatswe and Raju (all AFR), Ms. Alnasaa (FAD), and Ms. Mitra (SPR) visited Ouagadougou during January 31 – February 8, 2023; Messrs. Ben Hassine (Resident Representative) and Mr. Ouattara (local economist) assisted the mission.* ### 11. The domestic security situation will continue to weigh on growth. As the measures ### 11. The domestic security situation will continue to weigh on growth. As the measures ### Growth outlook and sectoral projections - Economic activity is expected to recover slowly as measures implemented by recent governments to regain control of the national territory may eventually materialize in 2023 and in 2024. - Mining: - Mining activity is expected to accelerate during 2023 and 2024 as more mines reopen. - Projected mining sector growth: 6.7 percent in 2023 and 12 percent in 2024. - Agriculture: - Prices of fertilizers remain high and the relocation of displaced people will happen only progressively in 2023 and 2024. - Growth in agriculture is expected to remain at 2.6 percent in 2023, reaching its long-term average of 2.8 percent in 2024. ### Inflation outlook - Annual average inflation: - Peaked at 14.1 percent in 2022. - Forecast to slow sharply to 1.5 percent in 2023. - Drivers and risks: - Projected decline in international food and fuel prices in 2023 by -5.5 and -15 percent, respectively, and a strong base effect. - Local agricultural production remains low due to displacement and higher fertilizer and energy prices throughout 2022; local food prices expected to remain stable, if elevated. - Persistent core inflation reflecting second-round effects may mitigate the decline. - End-of-period inflation for 2023 projected at 2.7 percent, within the WAEMU inflation target band of 1 to 3 percent. - Uncertainty: a bad harvest could keep inflation higher; a better-than-expected harvest could lead to temporary deflation. ### External accounts and current account - Current account deficit: - Expected to persist in 2023. - Projected to be reduced to 4.4 percent of GDP in 2023 from 5.2 percent in 2022. - Expected to continue improving thereafter, reaching 3 percent of GDP in 2025. - Composition and financing: - Projected deficits result from a deterioration in the services balance, expected to more than offset projected trade surpluses reflecting buoyant gold exports. - Access under the FSW may catalyze some donor support, but such financing expected to remain limited in the absence of a credible policy framework and given the volatile political environment. - Fragile security conditions and political uncertainty expected to discourage private capital flows, leading to a BoP financing gap. ### Fiscal outlook, financing pressures, and vulnerabilities - Fiscal deficit and trajectory: - Fiscal deficit expected to remain high in 2023 at 7.8 percent of GDP. - Return to the WAEMU convergence target of 3 percent of GDP delayed to 2027 in the absence of measures to build fiscal space. - Spending pressures: - Elevated in 2023 and over the medium-term, especially as authorities revamp efforts to tackle the security crisis and humanitarian needs. - Authorities created the Patriotic Support Fund (FSP); staff recommends: - Limit the duration of the FSP to one year only. - Subject the fund to enhanced governance and transparency practices. - Financing risks: - With external budget support declining following the military coups and in the absence of concessional development partner financing, the fiscal deficit would need to be financed through historically high volumes of costly, non-concessional bond issuances on the regional sovereign bond market, and accumulation of debt to the non-banking sector, including SOEs. - This financing is likely to become more expensive going forward due to tighter global financing conditions, and is subject to absorption, rollover and liquidity risks. - Additional fiscal risks include cuts in needed development and capital spending, and accumulation of domestic payment arrears. ### Debt sustainability assessment - DSA findings: - Burkina Faso remains at moderate risk of external debt distress and overall public debt distress. - Debt remains sustainable over the medium term. - All external debt indicators remain below the relevant indicative thresholds under the baseline scenario and the most extreme stress tests. - Judgment applied given high uncertainties around the macroeconomic outlook and donor support; external debt distress risk assessed as moderate. - Overall public debt has increased as a share of GDP and is very close to the threshold for a high debt distress risk rating, and breaches the relevant benchmark under the most extreme scenario of a commodity price shock. - Burkina Faso has a medium debt-carrying capacity, with some, but limited space to absorb shocks on public and external debt. ### Key fiscal statistics (Text Table 1 excerpts, in percent of GDP) - Overall Fiscal Deficit (commitment basis): 2019 3.1; 2020 5.1; 2021 7.5; 2022 10.3; 2023 7.8; 2024 6.7; 2025 5.5; 2026 4.2; 2027 3.0 - Overall deficit (cash basis): 2019 3.1; 2020 5.2; 2021 6.4; 2022 7.1; 2023 7.8; 2024 6.7; 2025 5.5; 2026 4.2; 2027 3.0 - Gross Financing Needs: 2019 9.3; 2020 14.1; 2021 15.2; 2022 13.6; 2023 16.7; 2024 16.7; 2025 17.8; 2026 16.7; 2027 16.0 - Primary deficit (commitment basis): 2019 1.9; 2020 3.7; 2021 5.8; 2022 8.4; 2023 5.9; 2024 4.9; 2025 3.5; 2026 2.0; 2027 0.7 - Interest Payments: 2019 1.2; 2020 1.4; 2021 1.8; 2022 1.9; 2023 1.9; 2024 1.8; 2025 2.1; 2026 2.3; 2027 2.4 - Amortization: 2019 6.1; 2020 8.9; 2021 8.8; 2022 6.5; 2023 8.9; 2024 10.0; 2025 12.3; 2026 12.5; 2027 12.9 ### Risks - Domestic risks: - Further security disruptions leading to social and political uncertainty. - Fiscal risks from difficulties in revenue mobilization and pressures on spending, including on security and public sector wages. - Materialization of these risks could exacerbate food insecurity, increase internal displacement, and seriously hamper baseline macroeconomic projections (growth, inflation, external accounts), adding to sustainability risks. - Deteriorations in security conditions impact economic activity, especially mining and agricultural production, reducing exports and possibly FDI inflows. - Specific policy action risk: - Government requisitions of gold from mining companies in February 2023: a total of 500 kg from two gold mines. - While in line with existing mining code, payment modalities remain confidential and motives unclear. - Requisitions are not consistent with best PFM practices and could undermine confidence, adversely affect donor support and private investment (including FDI), increasing risks to the fiscal and real sectors. - External/global risks: - Rising food and energy prices from Russia’s war in Ukraine; more intense/protracted supply disruptions could affect food security, increase inflation and fiscal deficits. - Global slowdown or increasing geopolitical tensions could increase volatility in commodity prices, especially gold which comprises over 70 percent of exports, depressing economic activity and government revenue. - Climate shocks affecting crops could strain limited fiscal space. ### Food shock, balance-of-payments need, and humanitarian costs - Fertilizers: - Burkina Faso imports all fertilizers used; fertilizers represented about CFAF 33.2 billion in 2021, or 3 percent of GDP. - Food prices: - Between January and October 2022, food prices increased by 21 percent. - Food accounts for one half of consumption spending. - Estimated BOP need related to the global food shock: - Staff estimates the balance-of-payment need associated with the global food shock is around 0.4 percent of GDP cumulatively during 2022 and 2023, largely driven by the rise in the cost of (net) imports of fertilizers. - Costs to tackle acute food insecurity (estimates): - Lifting out of hunger for the additional 0.6 million people who fell into acute food insecurity between August 2021 and August 2022 would cost about 0.5 percent of GDP for one year (based on WFP’s “Global Operational Response Plan”). - Compensating all vulnerable households (US$1.9 or less per capita per day, about 43.7 percent of the population) for the rise in food prices in 2022 would require nearly 3½ percent of GDP. ### Authorities’ response plan and financing - IMF engagement: - Authorities requested IMF emergency financing, with discussions on a prospective IMF-supported program to start subsequently. - Rapid disbursement under the FSW is key to address the food-related BOP need. - IMF emergency assistance could catalyze financial and in-kind support from development partners. - Authorities’ commitments: - Use FSW resources to mitigate temporary challenges implied by the food price shock. - Implement efforts through a sound macroeconomic policy framework, including achieving fiscal convergence within WAEMU in the medium-term. - Commit not to introduce any new restrictions on international trade and to phase out existing, temporary ones. - 2023 food insecurity response plan (Plan de Réponse et de Soutien aux Populations Vulnérables): - Total cost: US$362 million (CFAF 216.4 billion). - IMF emergency financing under the Food Shock Window: SDR 60.2 million, US$79.2 million (less than the plan’s total cost). - Immediate food assistance accounts for more than 80 percent of the plan’s total cost. - Target groups and beneficiaries: - Populations affected by disasters during the 2022/23 agropastoral campaign; populations vulnerable to food insecurity and internally displaced persons; children under five-year old vulnerable to malnutrition and pregnant and lactating women; populations with low access to drinking water. - Beneficiaries: 3.5 million people in a food crisis situation, including 550,000 people in food emergency conditions and 20,000 in food catastrophe conditions. - Response plan cost breakdown (selected items): - Immediate food assistance sub-total: CFAF 178.6 bn / US$299.0 mn - Distribution of free food: CFAF 95.3 bn / US$159.7 mn - Monetary transfers: CFAF 63.3 bn / US$106.0 mn - Sale of cereals at subsidized prices: CFAF 19.9 bn / US$33.3 mn - Prevention and management of malnutrition; improving drinking water supply sub-total: CFAF 25.2 bn / US$42.2 mn - Care of children, pregnant and lactating women: CFAF 23.7 bn / US$39.7 mn - Improving drinking water supply and distribution: CFAF 1.5 bn / US$2.5 mn - Protection of livelihoods sub-total: CFAF 12.2 bn / US$20.4 mn - Distribution and sale of agricultural inputs at subsidized prices: CFAF 4.9 bn / US$8.3 mn - Measures to support livestock: CFAF 7.2 bn / US$12.1 mn - Evaluation and monitoring sub-total: CFAF 0.4 bn / US$0.6 mn ### Policy implications and program prospects - Without significant reforms, the current fiscal path carries substantial risks and could jeopardize growth potential and debt sustainability. - Lack of financing, or financing only on highly non-concessional terms, combined with an absence of reforms, may make the fiscal consolidation plan infeasible or force further cuts in public investment spending with adverse impacts on potential growth and debt sustainability. - Burkinabé authorities have requested a resumption of discussions of a UCT-quality IMF-supported program to put public finances on a more sustainable footing and are assessing a list of reform measures to form the basis for such a program. - An IMF-supported program could catalyze the resumption of external budget support, including from the World Bank, the European Union, and other partners. - Financing of the food insecurity response plan is ongoing and will be partly from government budgetary resources and partly from partners (UN Agencies, NGOs, multilateral and bilateral partners); IMF emergency support expected to be an important component. *Source: IMF staff report (excerpt).* ### 27. The authorities are committed to use the disbursed resources under the FSW to ### 27. The authorities are committed to use the disbursed resources under the FSW to ### Immediate response measures to the food crisis - Use of disbursed resources under the FSW to immediately implement key measures (LOI, paragraphs 5 and 6). - Measures to be implemented immediately: - Distribution of free food to the most vulnerable households. - Provision of well-targeted cash transfers. - Sale of cereals at subsidized prices to the most vulnerable households. - Protecting children, pregnant and lactating women from malnutrition. - Supporting farmers and herders through subsidized inputs: seeds, fertilizers, vaccinations and feed for livestock. - Ongoing improvement in the supply of clean water to mitigate the impact of the food crisis and improve agricultural production. - Acknowledged implementation constraints: - Some measures may not be fully targeted in the near term (e.g., fertilizer subsidies) due to capacity constraints and the scope and urgency of needs. - Commitment to provide more targeted support in the medium term, aligned with structural medium-term reform needs. ### Social protection and targeting - Authorities have been extending targeted social protection to the most vulnerable households. - Efforts underway and intended to continue: - Creation of a Social Registry to identify cash transfer beneficiaries. - Development of a system of well-targeted cash transfers to benefit the most vulnerable households. - These mechanisms have been instrumental to attend to the ongoing food emergency. ### Trade policy commitments - Authorities committed to gradually lift existing, temporary imposed measures suspending exports of cereals, and to refrain from introducing any new export or import restrictions. - Background: - Burkina Faso imposed restrictions on exports of key cereals including millet, sorghum, corn and cowpea to protect domestic supply. - Commitment is aligned with IMF, World Bank, and WTO advice to keep trade open and avoid restrictive measures that further exacerbate vulnerability. ### Transparency, governance, and public financial management (PFM) - Commitments for transparency and good governance in use of FSW resources: - Continue and further improve good PFM practices. - Timely publication on the Ministry of Finance website of the budget and budget execution reports on an annual basis. - Budget execution reports will include information on the use of FSW funds. - Progress toward establishment of the Treasury Single Account (TSA), including implementation of conclusions of the study on the impact of closure of public accounts, and recommendations of the Council of Ministers on centralization of public funds. - FSW funds to be channeled through the BCEAO and made available to the government as budget support. - Spending governed by the authorities’ emergency spending framework covering: (i) overall institutional arrangements; (ii) financing of emergency mechanisms; (iii) appropriate budgetary, accounting and financial management procedures; (iv) ex-post accountability mechanisms; and (v) tools to ensure the transparency of the framework. - Continued IMF support to further improve PFM practices, including accounting and public investment management. - Reporting, audits, and beneficial ownership: - Prepare semi-annual progress reports and publish audits on the implementation of the cash transfer program and all food emergency spending by June 30, 2024. - Audits to be performed by the General Inspectorate of Public Finances (Inspection Generale des Finances), including a review of procedures and protocols used to ensure payments were received by the intended and appropriate beneficiaries. - Commit to identification and publication of the beneficial owners of entities awarded public procurement contracts for contracts related to improving the supply of clean water, and for purchasing agricultural inputs and food to be sold at subsidized prices (LOI paragraph 7). ### IMF assistance modalities, access, and calibration - Access calibration: - Urgent balance-of-payment needs associated with the global food shock estimated around 0.4 percent of GDP cumulatively for the period 2022 and 2023 (see Text Figure 7). - Staff proposes an access of 50 percent of quota, equivalent to 0.4 percent of GDP. - Emergency financing provided to support policies that address the urgent balance-of-payments needs. - Authorities intend to resume discussions to negotiate an IMF-supported arrangement after FSW disbursement addresses urgent needs. - An IMF-supported arrangement would help create fiscal space to finance priority spending during the two-year transition period back to constitutional order (see Letter of Intent). - Authorities committed to implementing a UCT-program, building on past IMF-supported program track record and governance progress. ### Capacity to repay and financing outlook - Capacity-to-repay assessment (Table 7 references): - Total outstanding credit to the IMF projected to peak at 227.8 percent of quota by end-2023, equivalent to 1.7 percent of GDP, 6.3 percent of exports, and 9.4 percent of government revenues. - Total obligations to the IMF projected to peak at about 21 percent of external debt-service obligations, 0.2 percent of GDP, and 0.8 percent of exports in 2026. - Highly concessional support from international partners expected to remain important to meet medium-term financing needs and promote macroeconomic stability and growth. - Authorities intend to intensify dialogue with the international community to secure concessional financing in 2023 and beyond to create fiscal space. - Identified risks to capacity-to-repay indicators: - Further political and social instability with spillovers to the fiscal sector. - Increasing geopolitical fragmentation that may affect the external sector. ### Staff appraisal: causes, scale, and policy implications - Context and drivers of food insecurity: - Burkina Faso affected by a series of exogenous shocks: deteriorating security conditions with frequent terrorist attacks leading to an estimated 1.9 million internally displaced persons as of end-December 2022; extreme climate conditions including droughts; the COVID-19 pandemic; and the war in Ukraine with implications for international food, fuel and fertilizer prices. - Effects include climate change impacts on agriculture and a bad harvest during the 2021-2022 season resulting from low rainfall, disrupted international supply-chains from the COVID-19 pandemic, and higher fertilizer costs due to Russia’s invasion of Ukraine. - Estimated number of food insecure: about 3.4 million Burkinabé (out of a population of 21.5 million). - Rationale for IMF emergency financing: - Rapid emergency financing seen as key to mitigate the food crisis impact and address balance-of-payments need induced by acute food insecurity. - IMF emergency assistance could catalyze financial and in-kind support from development partners. - Qualification for Food Shock Window under the Rapid Credit Facility: - Country faces an urgent balance-of-payment need associated with acute food insecurity, as per the United Nations Global Report on Food Crisis (UNGRFC). - According to the GRFC Report, 3.4 million people are estimated to be in IPC/CH Phase 3. - The Soum province in the Sahel region is in a food emergency situation (equivalent to IPC/CH Phase 4). - Rapid disbursement under the RCF/FSW needed given fragile security conditions and that a UCT-quality program would not provide sufficiently rapid support. - Governance and PFM observations and recommendations: - Authorities committed to strong safeguards: publish semi-annual reports, audit the 2023 cash transfer program by June 30, 2024, and identify and publish ultimate beneficial owners for procurement contracts related to the response. - Areas needing continued governance improvements: - Requisitions of gold from mining companies do not reflect best PFM practices, discourage foreign direct investment, and may have adverse implications for donor support, increasing fiscal and real sector risks. - The Patriotic Support Fund (FSP) created to fund additional security measures through voluntary contributions should be phased out after one year and be subject to governance and transparency best practices. - Programmatic outlook: - Discussions on access to the Food Shock Window helped lay groundwork for a possible future Fund-supported program. - Authorities intend to resume program negotiations once key measures to address acute food insecurity are in place. - A future program would aim to restore macroeconomic stability, address growing debt vulnerabilities, and implement macro-critical reforms to entrench fiscal and debt sustainability. - Key reform areas to be pursued in program discussions include: extension of social protection to the most vulnerable; creating fiscal space for priority spending— including investing in climate-resilient agriculture—by containing growth of the civil service wage bill, enhancing domestic revenue mobilization, and reforming energy subsidies. ### Central bank safeguards - The BCEAO has implemented all recommendations from the 2018 Safeguards Assessment. - The assessment found that the BCEAO had broadly appropriate governance arrangements and a robust control environment. - An update assessment of the BCEAO is planned for 2023. *Source: IMF country report chapter content.* ### 41. Against this background, staff support the authorities’ request for a Rapid Credit ### 1bfaea2023001 - 41. Against this background, staff support the authorities’ request for a Rapid Credit ### Staff recommendation and immediate policy response - Staff support the authorities’ request for a Rapid Credit Facility disbursement under the FSW and their plan to use the resources to mitigate the impact of the food shock on the most vulnerable. - Urgent interventions recommended: - Accelerate direct food support. - Distribute well-targeted cash transfers. - Improve the supply of clean water. - Expected near-term effects: - Support the most vulnerable at a difficult time. - Improve the agricultural sector’s prospects. ### Socioeconomic context and vulnerabilities - Population (2020): 20.9 million - Per capita GDP (2020): 790.7 USD - Share of population below the poverty line (2022): 43.7% - Gini Index (2018): 47.3 - Life Expectancy (years): 61 - Literacy rate (2018): 39% ### Macroeconomic outlook (selected indicators and projections) - GDP at constant prices (annual percentage change, selected sequence reported): 5.7 1.9 6.9 2.5 4.9 5.9 5.8 5.3 5.2 - GDP deflator (annual percentage change, selected sequence reported): 1.6 6.8 -0.8 8.6 1.8 2.3 2.1 2.0 2.0 - Consumer prices (annual average, selected sequence reported): -3.2 1.9 3.9 14.1 1.5 2.3 2.0 2.0 2.0 - Current account (percent of GDP, sequence reported): -3.2 4.1 -0.4 -5.2 -5.2 -4.4 -3.8 -4.1 -4.0 ### Fiscal developments and projections (central government) - Current revenue (percent of GDP, sequence reported): 18.4 16.1 17.8 18.8 18.4 18.6 18.6 18.7 18.9 - Tax revenue (percent of GDP, sequence reported): 15.0 13.3 15.4 16.9 16.3 16.3 16.4 16.5 16.7 - Total expenditure and net lending (percent of GDP, sequence reported): 23.0 24.2 27.8 31.3 28.4 27.3 26.1 24.8 23.7 - Overall fiscal balance, incl. grants (commitments, percent of GDP, sequence reported): -3.1 -5.1 -7.5 -10.3 -7.8 -6.7 -5.5 -4.2 -3.0 - Total public debt (percent of GDP, sequence reported): 42.0 44.9 48.2 54.3 58.0 60.2 61.3 61.3 60.1 - Of which: external debt (percent of GDP, sequence reported): 23.6 22.9 25.1 25.3 24.5 23.7 22.9 22.3 21.9 ### External sector and financing - Exports of goods (CFAF billions, selected sequence reported): 2,301 2,790 2,914 3,113 3,199 3,513 3,800 3,990 4,220 - Of which: gold (CFAF billions, selected sequence reported): 1,686 2,279 2,280 2,230 2,388 2,649 2,902 3,054 3,244 - Of which: cotton (CFAF billions/tonnes as reported): 185 168 245 383 305 322 332 344 357 - Imports of goods (CFAF billions, selected sequence reported): -2,087 -2,024 -2,454 -3,153 -3,185 -3,400 -3,607 -3,823 -4,048 - Of which: oil (CFAF billions, sequence reported): -420 -286 -488 -782 -680 -685 -688 -696 -705 - Current account (CFAF billions, sequence reported): -307 428 -46 -631 -674 -616 -576 -667 -699 - BCEAO reserves (in billion USD, reported intermittently): 5 6 6 6 ... (months of next year's WAEMU imports reported: 5.6 5.4 5.6 4.5 ...) ### Monetary and financial sector - Money and credit: Broad money (M3) annual change (sequence reported): 8.8 18.0 19.1 ... - Private sector credit/GDP (percent, sequence reported): 28.1 28.3 29.4 ... - Selected financial soundness indicators (Dec-14 to Jun-22 highlights): - Gross NPLs / Total loans reported around: 8.6, 8.9, 8.9, 8.8, 7.4, 7.6, 7.8, 7.4, 6.6 - Provisions / NPLs reported around: 64.9, 67.6, 70.4, 66.4, 70.4, 69.1, 71.4, 71.4, 75.6 - Loans to deposits reported around: 99.8, 91.2, 86.1, 83.9, 85.7, 87.4, 77.6, 71.3, 74.5 ### Fiscal operations (selected levels, CFAF billions) - Total revenue and grants (2022 Act; 2023 Act; 2024 Prel; 2025–27 Proj reported): 1,882.0 1,975.3 2,223.9 2,551.9 2,679.7 2,901.5 3,124.6 3,354.6 3,628.5 - Total revenue (CFAF billions, selected): 1,747.7 1,659.4 1,946.6 2,288.3 2,396.3 2,618.5 2,835.7 3,062.1 3,314.6 - Tax revenue (CFAF billions, selected): 1,424.9 1,377.0 1,687.5 2,052.4 2,118.6 2,302.9 2,494.9 2,696.2 2,921.8 - Interest payments (CFAF billions, selected): 117.1 140.6 192.5 229.6 244.2 255.6 316.8 372.3 416.9 - Investment expenditure (CFAF billions, selected): 556.8 780.0 999.1 1,277.2 1,165.8 1,165.0 1,098.0 970.2 901.3 - Overall balance (commitment basis, CFAF billions, selected): -295.5 -524.6 -824.0 -1,255.3 -1,015.7 -941.5 -841.8 -691.8 -532.2 ### External financing requirements and IMF obligations - External financing need (CFAF Billions, 2022–27 sequence reported): Financing need -1,746 -1,092 -1,056 -1,023 -1,039 -1,020 (table header context indicates projection years) - Financing (CFAF billions, 2022–27 sequence reported): 1,746 787 777 878 900 893 - Financing Gap (reported sequence under memoranda): 0 3 0 5 2 7 9 1 4 5 1 3 9 1 2 8 (as presented in tables) - Indicators of capacity to repay the IMF (selected 2022 values and projections): - Fund obligations (principal, in millions of SDRs, selected): 6.8 14.2 16.3 30.7 42.2 41.2 41.0 45.2 27.7 12.0 12.0 6.0 0.0 0.0 - Total obligations in billions of CFAF (selected): 5.6 11.7 13.5 25.6 35.4 34.6 34.4 37.9 23.3 10.1 10.1 5.1 0.0 0.0 - Outstanding IMF credit based on existing and prospective drawings (in millions of SDRs, selected): 228.3 274.3 258.0 227.3 185.1 143.9 109.2 57.8 30.1 18.1 6.0 0.0 0.0 0.0 ### Key diagnostic observations from staff analysis and figures - Growth slowed in 2022 amid continued security and external shocks; industry and mining show reduced growth since 2020. - Private credit growth has been declining, reflecting the slowdown in growth. - Surging food prices led to a large increase in headline inflation since 2020; food inflation is a major driver. - Gold remains the main driver of total exports, though nominal gold exports are estimated to have decreased in 2022 as gold and cotton prices stabilized or declined. - Imports are increasingly driven by oil. - The current account deficit is expected to have widened substantially in 2022. - The real exchange rate has begun to depreciate, with a declining USD/CFAF rate. - Domestic revenue has continued increasing in 2022, but current spending remains high; the wage bill is high relative to peers. - Public investment expenditure increased in 2022 but less than total expenditures; domestic debt has increased to nearly 30 percent of GDP in 2022. *Source: Burkinabé authorities; and IMF staff estimates and projections as presented in the provided IMF content.* ### Annex I. Risk Assessment Matrix for Burkina Faso ### Annex I. Risk Assessment Matrix for Burkina Faso ### Risk Assessment Matrix — key risks, likelihood, impact, and policy responses - Intensifying spillovers from Russia’s war in Ukraine - Relative Likelihood: High - Impact if Realized: High - Consequences outlined: Further sanctions, exacerbated trade and financial disruptions, commodity price volatility; higher food, fertilizer and energy prices; higher subsidies spending and fiscal deficits. - Possible policy response: Create fiscal space; re-prioritize spending to address food emergency through cash transfers to protect the most vulnerable; seek from donors additional budget support and concessional financing. - Abrupt global slowdown or recession - Relative Likelihood: High - Impact if Realized: Medium - Consequences outlined: Sharp tightening of global financial conditions, spiking risk premia, widening external imbalances, fiscal pressures, capital outflows, sudden stops, debt and financial crises across EMDEs. - Possible policy response: Tighter financial conditions on the eurobond market may increase competition to raise bond finance on the regional bond market, leading to higher costs of deficit financing and deterioration of the overall fiscal balance. - Deepening geo-economic fragmentation and geopolitical tensions - Relative Likelihood: High - Impact if Realized: High - Consequences outlined: Deglobalization, reconfigured trade, supply disruptions, technological and payments systems fragmentation, rising input costs, financial instability, lower potential growth. - Possible policy response: Implement reforms to improve competitiveness; diversify exports; access new markets and pursue efforts to promote regional trade. - COVID-19 outbreaks - Relative Likelihood: Medium - Impact if Realized: High - Consequences outlined: Potential lockdowns, inhibited trade, supply chain disruptions, slower growth. - Possible policy response: Create fiscal space for higher health spending; re-prioritize public spending to support affected sectors and households; seek donor grants and concessional financing. - Natural disasters related to climate change - Relative Likelihood: Medium - Impact if Realized: High - Consequences outlined: Damage to infrastructure, amplified supply chain disruptions, inflationary pressures, water and food shortages, reduced medium-term growth; lower agricultural output and exports, food insecurity, rising poverty and internally displaced people. - Possible policy response: Re-prioritize spending to address food emergencies through cash targeted transfers to protect the most vulnerable; create fiscal space; seek concessional financing to invest in infrastructure to enhance resilience to climate-related shocks; step up efforts to safeguard food security. - Widespread social discontent, political instability, and intensification of terrorist activity - Relative Likelihood: High - Impact if Realized: High - Consequences outlined: Adverse impact on economic activity, revenues and foreign investment; higher fiscal deficit and financing needs; increased food insecurity and gold smuggling; rising internally displaced people. - Possible policy response: Seek from donors budget support, grants and concessional financing; re-prioritize spending; increase efforts to mobilize domestic revenues; re-prioritize spending to address social emergencies; implement social and financial inclusion; seek support from regional and international security arrangements. - Pressures for higher recurrent spending, particularly on wages; Revenue mobilization lags - Relative Likelihood: High - Impact if Realized: High (pressures on recurrent spending); Medium-High (revenue mobilization lags) - Consequences outlined: Crowding out of investment spending; pressure on fiscal deficit target and prices; reduced fiscal space and risk of higher fiscal deficit and financing needs. - Possible policy response: Contain recurrent spending, and pass legislation to contain the public wage bill; intensify efforts to mobilize domestic revenues; pursue tax policy and revenue administration reforms; optimize current spending and re-prioritize public investment. ### Annex II — Quantification of Balance of Payment Need Associated with the Global Food Shock - Methodology: Compares the value of net imports of five cereals (wheat, barley, maize, rice, sorghum) and all types of fertilizers in two scenarios (baseline using WEO October 2021 price indices; shock using WEO November 2022 projections). Net import volumes projected from UN Comtrade 2021 and grow proportionately with real GDP. Includes NPK fertilizers using the composite Fertilizer Index when specific forecasts are unavailable. - Staff’s overall estimate of Burkina Faso’s food-shock-related BOP needs over 2022-23: 0.4 percent of GDP, equivalent to 50 percent of quota or about SDR 60.2 million. - Text Table 1. Difference Between the Value of Net Imports in the Shock and Baseline Scenarios in 2022 and 2023 (Percent of GDP) - 2022 / 2023 - Crops and All Fertilizers: 0.21 / 0.19 - Staple crops (wheat, barley, maize, sorghum, rice): 0.01 / 0.01 - Fertilizers: 0.20 / 0.18 - Crops and Selected Fertilizers: 0.04 / 0.03 - Selected Fertilizers (Urea, DAP, and MOP): 0.03 / 0.02 ### Annex III — Quantification of the Fiscal Costs Associated with Food Price Inflation and Acute Food Insecurity - Approach 1: Compensating vulnerable households (those with less than US$1.9 per day per capita, 43.7 percent of population ≈ 9.4 million people) - Assumptions: Vulnerable households consume 50 percent of their budget on food and live with exactly US$1.9 per day per capita. - Total food consumption over the year for these households: CFAF 2,019.9 billion. - Food price increase from November 2021 to November 2022: 19.6 percent. - Cost to compensate these households for higher food costs: CFAF 395.9 billion, or 3.4 percent of GDP. - Approach 2: Lifting additional people out of acute food insecurity - Increased number in acute food insecurity (Phase 3 or above) from August 2021 to August 2022: 0.6 million (from 2.8 million to 3.4 million). - WFP operational cost per beneficiary: US$146.4 per beneficiary (derived from US$22.2 billion for 151.6 million people). - Cost to lift the 0.6 million additional people out of acute food insecurity for 12 months: 0.5 percent of GDP. ### Appendix I / Letter of Intent — key facts and requested support - Context and impacts - Internally displaced persons as of end-December 2022: about 1.9 million. - Population estimated: 21.5 million. - Estimated number now food insecure: about 3 million Burkinabé. - Identified balance-of-payments financing requirement due to the food crisis over 2022-2023: at least 0.4 percent of GDP. - Request to IMF - Request emergency financial support under the Food Shock Window (FSW) of the Rapid Credit Facility (RCF): SDR 60.2 million (50 percent of quota, or US$79.2 million), in the form of budget support. - Planned use of funds and broader response - Overall cost of the government’s intervention (PRSPV): at least US$362 million; implementation horizon extends to March 2024. - Planned immediate assistance: free food distribution, unconditional cash transfers, sale of cereals at subsidized prices. - Number of beneficiaries of these measures: approximately 3.5 million people in food insecurity crisis or worse, including at least 550 thousand people in emergency conditions and around 20 thousand people in a food catastrophe situation. - Planned allocation of part of FSW resources to improve water supply and distribution. - Transparency and governance commitments - Continue and improve Public Financial Management practices; timely publication on the ministry of finance website of the budget and budget execution reports, including use of FSW funds. - Pursue establishment of the Treasury Single Account (TSA) and implement recommendations on centralization of public funds. - Channel FSW funds through the budget under an emergency spending framework covering institutional arrangements, financing, budgetary/accounting procedures, ex-post accountability, and transparency tools. - Prepare semi-annual reports and publish the audit of the implementation of the 2023 cash transfer program by June 30, 2024, to be performed by the General Inspectorate of Public Finances (Inspection Generale des Finances). - Commit to identification and publication of beneficial owners of entities awarded public procurement contracts related to improving the supply of clean water and purchasing agricultural inputs and food to be sold at subsidized prices. - Trade policy commitment - Intend not to introduce or intensify restrictions on international trade on goods that would aggravate balance of payments difficulties; endeavor to gradually lift current trade restrictions on foodstuffs. - Forward engagement with IMF - Government intends to resume program discussions with the IMF in 2023 and stands ready to implement a Fund-supported program to create fiscal space and address medium-term structural challenges and balance-of-payments needs. *Annex I. Risk Assessment Matrix for Burkina Faso (content unit).* ### 10. In line with our commitment to transparency and accountability, we authorize the IMF ### 10. In line with our commitment to transparency and accountability, we authorize the IMF to publish this letter and the staff report for the request for disbursement under the FSW of the RCF. ### Annex I — Response Plan to Support Vulnerable Households, 2023: objectives, measures, and costs - Immediate food assistance - Distribution of free food: CFAF 95.3 (US$ 159.7) - Monetary transfers: CFAF 63.3 (US$ 106.0) - Sale of cereals at subsidized prices: CFAF 19.9 (US$ 33.3) - Sub-total: CFAF 178.6 (US$ 299.0) - Prevention and management of malnutrition; improving drinking water supply - Care of children, pregnant and lactating women suffering from moderate and severe malnutrition: CFAF 23.7 (US$ 39.7) - Improving drinking water supply and distribution: CFAF 1.5 (US$ 2.5) - Sub-total: CFAF 25.2 (US$ 42.2) - Protection of livelihoods - Distribution and sale of agricultural inputs (fertilizers, seeds) at subsidized prices: CFAF 4.9 (US$ 8.3) - Measures to support livestock (free vaccinations, free distribution of feed for livestock and poultry): CFAF 7.2 (US$ 12.1) - Sub-total: CFAF 12.2 (US$ 20.4) - Evaluation and monitoring of the agropastoral campaign - Data collection, evaluation and implantation of the 2023 Action Plan; preparation of the 2024 Action Plan: CFAF 0.4 (US$ 0.6) - Sub-total: CFAF 0.4 (US$ 0.6) - Total cost of the Response Plan: CFAF 216.4 (US$ 362.2) - Target groups: Populations affected by disasters during the 2022/23 agropastoral campaign; Populations vulnerable to food insecurity and internally displaced persons; Children under five-year old vulnerable to malnutrition and pregnant and lactating women; Populations with low access to drinking water. - Beneficiaries: 3.5 million people in a food crisis situation, including 550, 000 people in food emergency conditions and 20,000 in food catastrophe conditions. - Operators: National technical services, local authorities, NGOs, Associations, Private individuals, United Nations agencies. *Source: Burkinabe Authorities* ### Debt Sustainability Analysis (DSA) — headline risk assessments and judgment - Risk of external debt distress: Moderate - Overall risk of debt distress: Moderate - Granularity in the risk rating: Some, but limited, space to absorb shocks on external and public debt - Application of judgement: Yes — risk of debt distress increased based on high macroeconomic uncertainty, uncertainty regarding concessional finance from donors - Key summary: - Debt remains sustainable over the medium term; debt-carrying capacity classified as ’medium’. - Ratings unchanged from November 2020 DSA, but debt ratios have deteriorated significantly. - All external debt indicators remain below relevant indicative thresholds under the baseline scenario and the most extreme stress test. - Judgment applied given high macroeconomic uncertainty and uncertainty regarding concessional finance from donors (other than the World Bank); risk of external debt distress assessed as moderate. - Overall public debt breaches the relevant benchmark under the most extreme scenario of a commodity price shock. ### Public debt coverage and contingent liabilities - Coverage changes since 2020: - Expanded to include guarantees, local government debt, and non-guaranteed SOE debt. - Local government debt and SOE debt tracked through SYGADE and reported in a quarterly debt bulletin (Bulletin Statistique de la Dette). - Burkina Faso meets the “full disclosure” rating for all categories on the World Bank’s Debt Transparency Heat Map as the only IDA country. - Contingent liabilities - Contingent liabilities accounted for around 10 percent of public and publicly guaranteed (PPG) debt and 5 percent of GDP at end-2021. - Included items: SOE debt, debt guarantees, government debt further loaned for projects, and public private partnerships. - Combined contingent liability shock applied as a precautionary stress test. ### Background on public debt levels, composition, and issuance - Public debt stock (nominal stock, end-2022): 54.3 percent of GDP (up from 48.2 percent of GDP in 2021). - Debt composition at end-2022: - External debt: 46.6 percent of total debt stock (fell over 15 percentage points since 2017). - Domestic debt: 29.0 percent of GDP; share of total debt: 53.4 percent. - Issuance 2018–2022: - Cumulative Treasury bills and government debt securities: about CFAF 4,000 billion. - Bond issuance share: 68 percent; T-bills share: 32 percent. - Treasury bills raised: CFAF 1,275 billion (most with 12-month maturity). - Bonds issued: CFAF 2,691 billion, maturities between 3 and 10 years. - Average annual issuance during 2018–2022: 7.5 percent of GDP (compares with average budget deficit of 6.1 percent of GDP). - 2022 issuance: CFAF 948 billion (declined from 2021 but remained elevated). - Domestic debt financing via WAEMU regional bond market increased; budget support from donors other than the World Bank remained suspended since January 2022. ### Yields, market activity, and financing conditions - Yield curve movements: - Since beginning of 2020, yield curve shifted downward, indicating interest rates declined across all maturities. - Between September 30, 2022, and February 14, 2023, no securities issued on the regional bond market due to high long-term interest rates. - On February 15, 2023, issuance resumed with a 6-month Treasury Bill and a 5-year government bond. - Syndicated long-term bonds: - Issued by syndication to raise larger volumes at longer maturities (included between 10 and 12 years). - Syndicated bonds mainly held by WAEMU regional banks. - Most recently available information: interest rate on a 12-year bond issued by syndication is 6.40 percent. ### Macroeconomic forecasts, risks, and baseline assumptions (Box 1 and Table comparisons) - Recent macro performance and outlook: - Real GDP growth moderated to 2.5 percent in 2022 (from 6.9 percent in 2021). - Baseline assumes attainment of WAEMU fiscal deficit target of 3 percent of GDP by 2027, subject to downside risks. - Current account deficit widened sharply to 5.6 percent of GDP in 2022. - Gold and cotton price forecasts through the projection period slightly higher than previous DSA. - Key risks: - Domestic: security disruptions increasing social and political uncertainty; difficulties in revenue mobilization; spending pressures including security and public sector wages. - External: undiversified export base, high vulnerability to external price shocks, and uncertain concessional donor support. - Materialization of risks could exacerbate food insecurity, internal displacement, and hamper macro projections and debt sustainability. - Box 1 — Macroeconomic assumptions under this DSA vintage: - Real GDP in 2023 estimated to grow by 4.9 percent. - Growth stabilizes at around 5 percent in the medium term; risks tilted to the downside. - Inflation: peaked at 14.1 percent in 2022; annual average inflation forecasted to slow to 1.5 percent in 2023 and fall within WAEMU target band of 1 to 3 percent. - Fiscal balance: fiscal deficit in 2023 expected at 7.8 percent of GDP (larger than previous DSA estimate of 4 percent). - Drivers: higher security spending, higher subsidies, fall in donor grant support. - Financing: costly bond issuance on regional sovereign bond market, cuts in capital spending, and possible accumulation of domestic payment arrears. - Domestic debt composition assumed in the medium-term: - 45 percent in T-bills with an average interest rate of 5.4 percent - 30 percent in 3 to 5-year bonds with an average interest rate of around 7.2 percent - 25 percent in 8-year bonds with an average interest rate of 7.7 percent - Interest rates in assumptions comparable to previous DSA and higher than those reported by authorities in their latest debt bulletin. ### Realism tools and scenario analysis insights - Credibility of baseline: - Realism tools suggest baseline scenario credible relative to cross-country experiences and Burkina Faso’s historical experience. - External-debt-creation driven largely by current account and FDI dynamics; substantial residuals due to definition differences (currency basis for external debt vs residency basis for current account). - Fiscal and debt dynamics: - High energy subsidies in 2022: 4.9 percent of GDP. - Military and security-related expenditures in 2022: 4.6 percent of GDP (up from 3.4 percent in 2021). - Fiscal deficit widened to 10.3 percent in 2022 (from 7.5 percent in 2021). - Unexpected changes in public debt are in the upper quartile across low-income countries. - Planned fiscal adjustment: - Fiscal adjustment for next three years around 1 percent of GDP (dependent on spending discipline and improved security). - Estimated economic growth of 4.9 percent in 2023 is slightly below possible growth paths implied by plausible fiscal multipliers (0.2 to 0.8 percent). - Contribution from government capital to real GDP growth projected in line with historical magnitude; contribution from other factors expected to decline. *Source: Prepared jointly by the staffs of the International Monetary Fund (IMF) and the International Development Association (IDA); Burkinabe authorities.* ### Box 1. Macroeconomic Assumptions Underlying this DSA Vintage (continued) ### Box 1. Macroeconomic Assumptions Underlying this DSA Vintage (continued) ### Financing assumptions and external support - Beyond the medium-term, authorities are assumed to mobilize greater amounts from longer maturity instruments as the regional financial market develops. - The remainder of the deficit is assumed to be financed via external debt on gradually less generous terms to reflect additional non-concessional financing and conservative assumptions about the availability of concessional financing in future years. - The baseline assumption includes an annual net IDA-20 envelope from the World Bank projected to average about US$370 million per year over the medium term. - This DSA assumes an increase of non-concessional financing over the forecast horizon; non-concessional borrowing is assumed to expand to an average of around 30 percent of total external borrowing over time through the DSA horizon. - Consistent with the above, the grant element of new borrowing is assumed to decrease gradually over the forecast horizon. - The authorities’ medium term debt strategy favors exhausting concessional financing before exploring more expensive non-concessional options, including commercial ones. ### Current account, trade, and commodity dependence - The current account balance has been trending downward and is estimated to have reached a deficit of 5.2 percent of GDP in 2022. - Nominal imports are estimated to have increased by 28 percent in 2022, mainly due to the rise in costs of food, fertilizers and energy imports. - Gold exports, which account for over 70 percent of total exports, are estimated to have decreased on account of recent gold mine closures. - The current account deficit is expected to decrease from 2024 onwards, based on a recovery in gold production and exports. - Commodities constitute around 80 percent of total exports in Burkina Faso; tailored stress tests apply where commodities constitute more than 50 percent of total exports over the previous three-year period. ### Country classification and stress-test framework - Burkina Faso’s current debt-carrying capacity classification: ‘medium’. - The Composite Indicator (CI) index is 2.93 (calculated based on the October 2022 WEO and the 2021 CPIA), below the threshold of 3.05 for “strong.” - Indicative thresholds for the ‘medium’ category: - PV of external debt-to-GDP ratio: 40 percent. - PV of debt-to-exports ratio: 180 percent. - Debt service-to-exports ratio: 15 percent. - Debt service-to-revenue ratio: 18 percent. - Benchmark for the PV of total public debt for medium capacity: 55 percent of GDP. - Combined contingent liability shock applied: 8.5 percent of GDP (Text Table 3), composed of: - 1.5 percent of GDP for guarantees to the private sector. - 2 percent of GDP as standard SOE debt to reflect potential guaranteed and unguaranteed external and domestic debt of public companies. - Authorities estimate SOE debt to be about 4.6 percent of GDP. - No shock for PPPs since stock is still less than 1 percent of GDP. - Financial sector default value retained at 5 percent of GDP. - Tailored commodity-price shock: a sudden one-standard-deviation decline in 2022 export prices of gold, grains, and cotton, corresponding to declines of 19 percent, 28 percent, and 31 percent, respectively; this incorporates macroeconomic interactions on real GDP growth, inflation and primary balance. ### External debt sustainability (baseline and stress tests) - Under the baseline, all external PPG debt indicators remain below policy-relevant thresholds for the next ten years. - PV of external debt-to-GDP ratio: - Expected to remain around 15 percent over projection horizon. - Decreases from 16.5 percent in 2022 to 14.6 percent in 2032. - PV of external debt-to-exports ratio: - Projected to decline gradually from 58 percent in 2022 to 54.8 percent in 2032 (below 180 percent threshold). - PV of debt service-to-exports ratio: remains around 4 percent for the next 10 years. - Debt service-to-revenue ratio (excluding grants): peaks at 7.4 percent in 2025, then decreases to 5.1 percent in 2032. - Standardized stress tests: - Export shock has the largest negative impact on debt trajectory but does not trigger breach of external PPG debt indicators; PV of debt-to-exports ratio is significantly impacted but remains below 180 percent. - Other shocks (real GDP growth, primary balance, one-time 30 percent depreciation of the CFAF, contingent liabilities, commodity prices) do not lead to breaches of external debt thresholds under standardized tests. - Staff assessment: model signals low risk but overall risk of external debt distress assessed as moderate (as in November 2020 update) due to vulnerabilities, notably an escalation of the security crisis and its effects on GDP, gold production, donor support, and potential reliance on non-concessional or expensive domestic financing. ### Public sector debt sustainability (baseline and shocks) - Baseline projects a marginal downward trend of PPG public debt following a peak of 63 percent of GDP projected for end 2026. - Public debt dynamics: - Increase projected until 2026, mainly through issuance of domestic debt. - Planned fiscal adjustment allows debt ratio to be under control: public debt reaching 56.3 percent of GDP in 2032, and falling to 50.2 percent of GDP by 2042. - PV of public debt-to-GDP ratio comes close to the 55 percent benchmark; single marginal breach in 2026 at 55.1 percent due to reduced donor support and increased expenditure commitments (security, food, humanitarian crises), then reduces gradually to 50 percent in 2032. - PV of debt-to-revenue and grants ratio: peaks in 2026 at 268.4 percent, then decreases to 227.9 percent by 2032. - PV of debt service-to-revenue and grants ratio: escalates from 22.1 percent in 2022 to 74.9 percent by 2027, reflecting relatively short maturity of domestic financing and raising medium- to long-term liquidity risk concerns. - Most extreme standardized shock: commodity price shock breaches the PV of public debt-to-GDP benchmark of 55 percent in 2024 and continues to push the ratio higher over the forecast horizon; it is also the most extreme shock for PV of debt-to-revenue and debt service-to-revenue ratios. ### Risks, vulnerabilities, and fiscal pressures - Food and humanitarian crisis fiscal implications: - Cost to lift out of hunger, for one year, the additional 0.6 million people who fell into acute food insecurity between August 2021 and August 2022: about 0.5 percent of GDP. - Compensating all vulnerable households (about 43.7 percent of the population) for the rise in food prices in 2022 would require nearly 3½ percent of GDP. - Climate change increases volatility in agriculture and animal husbandry, raising risk of structural food insecurity. - Key priorities of new government action plan: addressing the security crisis; assistance to the most vulnerable households; improving governance; strengthening national reconciliation and social cohesion. - Debt portfolio and maturity structure: - More than 11 percent of the debt portfolio expected to mature within the year with an average maturity of 7.5 years. - Average maturity of domestic debt is 4.5 years. - Large short-term maturities expose portfolio to rollover and liquidity risks. - Baseline fiscal stance: - Under no reforms, fiscal deficit expected to remain high in 2023 at 7.8 percent of GDP. - Baseline assumes gradual fiscal consolidation, achieving WAEMU fiscal deficit convergence criteria of 3.0 percent of GDP in the medium term. - Structural vulnerabilities: - Highly concentrated export base (mainly gold, to a much lesser extent cotton) and vulnerability of primary exports and oil imports to external price shocks. - Need to diversify exports and improve export potential through security improvements, mining sector reforms, and diversification efforts. - Financing risks: - Uncertainty regarding donor budget support may force reliance on costly bond issuance and syndications on the regional market. - Increased reliance on expensive domestic financing and short domestic maturities raises liquidity and rollover concerns. ### Conclusions and policy implications - Staff assessment: Burkina Faso’s risk of external debt distress and overall debt distress remains moderate. - Baseline shows no breach of debt distress thresholds for external and public debt indicators; PV of debt-to-GDP ratio breached only in the commodity stress test, illustrating vulnerability to export price developments. - To avoid deterioration of the debt distress rating, key risks to address include: - Expenditures to address food insecurity and humanitarian crisis. - Expenditures to contain the security crisis. - Risks from limited donor support amid short debt maturities and rollover/liquidity risks. - Increased reliance on expensive domestic financing. - Undiversified export base with high vulnerability to external price shocks. - A Fund-supported program in the near term could help mitigate uncertainties about policy direction and catalyze donor finance. *Source: Box 1. Macroeconomic Assumptions Underlying this DSA Vintage (continued), IMF staff text provided in the source PDF.* ### 26. The authorities agree that Burkina Faso remains at moderate risk of debt distress with ### 26. The authorities agree that Burkina Faso remains at moderate risk of debt distress with ### Authorities' assessment and debt management strategy - Authorities concur that Burkina Faso "remains at moderate risk of debt distress with space to absorb shocks on external debt." - Policy priorities and actions noted by authorities: - Reduce risks and maintain a sustainable debt management strategy. - Mobilize more concessional external loans and actively engage with international donors. - Consider semi-concessional financing on terms more favorable than domestic sovereign debt markets. - Extend the maturity of the debt portfolio by favoring domestic debt with longer maturities. - Diversify the export base to reduce vulnerability to external shocks. ### External Debt Sustainability Framework — baseline indicators and projections (2019–2042) - External debt (nominal) 1/ (percent of GDP): - 2019: 23.6 - 2020: 22.9 - 2021: 25.1 - 2022: 25.3 - 2023: 24.5 - 2024: 23.7 - 2025: 22.9 - 2026: 22.3 - 2027: 21.9 - 2032: 20.1 - 2042: 17.6 - Average: 21.5 / Projections average: 22.2 - Change in external debt (percent of GDP): - 2019: 1.9 - 2020: -0.7 - 2021: 2.2 - 2022: 0.2 - 2023: -0.8 - 2024: -0.8 - 2025: -0.8 - 2026: -0.6 - 2027: -0.5 - 2032: -0.3 - 2042: -0.3 - Identified net debt-creating flows (percent of GDP): - 2019: 3.8 - 2020: -7.0 - 2021: -1.1 - 2022: 5.0 - 2023: 4.4 - 2024: 3.3 - 2025: 2.7 - 2026: 3.2 - 2027: 3.2 - 2032: 3.0 - 2042: 2.7 - Average: 4.5 / Projections average: 3.3 - Non-interest current account deficit (percent of GDP): - 2019: 2.9 - 2020: -4.3 - 2021: 0.2 - 2022: 4.9 - 2023: 4.9 - 2024: 4.1 - 2025: 3.5 - 2026: 3.8 - 2027: 3.7 - 2032: 3.5 - 2042: 3.2 - Average: 3.9 / Projections average: 3.9 - Endogenous debt dynamics (percent of GDP): - 2019: -0.1 - 2020: -2.2 - 2021: -1.9 - 2022: -0.4 - 2023: -0.9 - 2024: -1.1 - 2025: -1.0 - 2026: -0.9 - 2027: -0.8 - 2032: -0.7 - 2042: -0.5 - Residual (percent of GDP): - 2019: -1.9 - 2020: 6.3 - 2021: 3.3 - 2022: -4.8 - 2023: -5.2 - 2024: -4.1 - 2025: -3.5 - 2026: -3.8 - 2027: -3.6 - 2032: -3.3 - 2042: -3.0 - Average: -3.7 / Projections average: -3.8 - Selected sustainability indicators: - PV of PPG external debt-to-GDP ratio (projections shown): 15.4, 16.5, 16.1, 15.7, 15.2, 14.9, 14.7, 14.2, 13.4 (years not explicitly labeled in excerpt). - PV of PPG external debt-to-exports ratio (projections shown): 52.2, 58.0, 58.6, 56.4, 54.7, 54.7, 54.7, 56.7, 62.5. - PPG debt service-to-exports ratio (percent): 3.7, 2.9, 3.2, 3.9, 4.5, 4.6, 4.8, 4.6, 4.2, 4.0, 4.9. - PPG debt service-to-revenue ratio (percent): 5.5, 5.4, 5.3, 5.9, 6.7, 6.9, 7.2, 6.7, 6.0, 4.9, 4.7. - Gross external financing need (Billion of U.S. dollars): 0.8, -0.7, 0.3, 1.3, 1.4, 1.3, 1.3, 1.4, 1.5, 1.9, 3.6. - Key macroeconomic assumptions: - Real GDP growth (percent): 5.7, 1.9, 6.9, 2.5, 4.9, 5.9, 5.8, 5.3, 5.2, 5.2, 5.3, 5.4, 5.1 (multiple year sequence provided). - GDP deflator in US dollar terms (change in percent): -3.7, 8.9, 2.9, -3.3, 3.7, 1.6, 1.8, 1.6, 2.0, 2.0, 2.0, 0.0, 1.6. - Effective interest rate (percent) 4/: 1.4, 0.9, 1.0, 1.0, 1.0, 1.0, 1.1, 1.1, 1.2, 1.5, 2.0, 0.9, 1.2. - Growth of exports of G&S (US dollar terms, in percent): -1.0, 20.0, 8.5, -4.5, 5.0, 8.9, 7.8, 4.8, 5.9, 5.6, 5.8, 8.1, 5.2. - Grant element of new public sector borrowing (in percent) (selected projection values): 37.6, 31.7, 36.7, 36.4, 35.8, 35.2, 32.2, 26.1, ... , 34.6. - Government revenues (excluding grants, percent of GDP): 18.4, 16.1, 17.8, 18.8, 18.4, 18.6, 18.6, 18.7, 18.9, 20.3, 22.3, 16.6, 19.2. - Aid flows (Billion of US dollars) 5/: 156.3, 214.3, 337.8, 0.6, 0.5, 0.6, 0.6, 0.6, 0.7, 0.9, 1.2. - Grant-equivalent financing (percent of GDP) 6/ (selected projection values): 3.0, 2.8, 2.7, 2.6, 2.5, 2.5, 2.3, 1.7, ... , 2.5. - Nominal GDP (Billion of US dollars): 16, 18, 20, 20, 21, 23, 25, 26, 28, 40, 82 (presented without explicit year mapping in excerpt). - Nominal dollar GDP growth (percent): 1.8, 11.0, 10.0, -0.9, 8.7, 7.6, 7.6, 7.0, 7.3, 7.3, 7.4, 5.3, 6.7. - Memorandum items: - PV of external debt (percent of GDP) projections: 15.4, 16.5, 16.1, 15.7, 15.2, 14.9, 14.7, 14.2, 13.4. - Total external debt service-to-exports ratio (percent): 3.7, 2.9, 3.2, 3.9, 4.5, 4.6, 4.8, 4.6, 4.2, 4.0, 4.9. - PV of PPG external debt (Billion of US dollars): 3.0, 3.2, 3.4, 3.6, 3.7, 3.9, 4.2, 5.7, 11.1. - Non-interest current account deficit that stabilizes debt ratio (percent of GDP): 1.1, -3.6, -2.0, 4.7, 5.7, 5.0, 4.4, 4.4, 4.2, 3.8, 3.5. ### Public Sector Debt Sustainability Framework — baseline indicators and projections (2019–2042) - Public sector debt (percent of GDP) 1/: - 2019: 42.0 - 2020: 44.9 - 2021: 48.2 - 2022: 54.3 - 2023: 58.3 - 2024: 60.8 - 2025: 62.4 - 2026: 63.0 - 2027: 61.7 - 2032: 56.3 - 2042: 50.2 - Average: 34.3 / Projections average: 59.2 - Of which external debt (percent of GDP): 23.6, 22.9, 25.1, 25.3, 24.5, 24.0, 23.7, 23.7, 23.1, 21.0, 18.0, Average: 21.5 / Projections average: 23.0 - Change in public sector debt (percent of GDP): 3.8, 2.8, 3.3, 6.1, 4.0, 2.5, 1.6, 0.6, -1.3, -0.9, -0.4. - Identified debt-creating flows (percent of GDP): - 0.8, -0.5, 6.7, 4.9, 3.8, 2.2, 1.1, 0.0, -1.3, -0.5, -0.1. Average: 1.9 / Projections average: 0.7 - Primary deficit (percent of GDP): 2.1, 3.8, 5.7, 8.5, 6.3, 4.8, 3.4, 1.9, 0.6, 0.6, 0.6. Average: 3.1 / Projections average: 2.6 - Revenue and grants (percent of GDP): 19.9, 19.1, 20.3, 21.0, 20.6, 20.6, 20.5, 20.5, 20.7, 22.0, 23.5. Average: 19.6 / Projections average: 21.1 - Automatic debt dynamics (percent of GDP): -1.1, -4.2, 1.0, -3.5, -2.5, -2.6, -2.4, -2.0, -1.9, -1.1, -0.7. - Other sustainability indicators: - PV of public debt-to-GDP ratio (projection values shown): 39.2, 45.4, 49.9, 52.7, 54.4, 55.1, 54.1, 50.1, 45.9. - PV of public debt-to-revenue and grants ratio (projection values shown): 192.9, 216.6, 242.2, 255.9, 265.0, 268.4, 261.6, 227.9, 195.2. - Debt service-to-revenue and grants ratio 3/: 30.9, 38.8, 45.7, 22.1, 50.4, 58.2, 70.6, 72.9, 74.9, 62.6, 47.5. - Gross financing need 4/ (percent of GDP): 8.0, 11.1, 15.1, 13.1, 16.7, 16.8, 17.9, 16.9, 16.1, 14.4, 11.8. - Key macro-fiscal assumptions (selected): - Real GDP growth (percent): 5.7, 1.9, 6.9, 2.5, 4.9, 5.9, 5.8, 5.3, 5.2, 5.2, 5.3, 5.4, 5.1. - Average nominal interest rate on external debt (percent): 1.4, 0.9, 0.9, 1.0, 1.0, 1.0, 1.1, 1.1, 1.2, 1.5, 2.0, 0.9, 1.2. - Average real interest rate on domestic debt (percent): 3.1, -1.4, 8.8, -4.4, 2.7, 2.8, 3.3, 3.6, 3.8, 4.2, 4.8, 3.9, 2.9. - Inflation rate (GDP deflator, percent): 1.6, 6.8, -0.8, 8.6, 1.8, 2.3, 2.1, 2.0, 2.0, 2.0, 2.0, 1.4, 2.6. - Growth of real primary spending (percent, deflated by GDP deflator): 0.5, 6.2, 21.4, 16.1, -4.2, 0.1, -0.4, -1.3, -0.1, 6.1, 6.0, 8.9, 3.9. - Primary deficit that stabilizes the debt-to-GDP ratio 5/ (percent): -1.7, 0.9, 2.3, 2.4, 2.3, 2.3, 1.9, 1.3, 1.9, 1.5, 1.1, 0.5, 1.9. - PV of contingent liabilities: 0.0 across presented years. ### Stress tests, sensitivity analyses, and risk diagnostics - Stress tests and alternative scenarios presented for 2022–2032 include: - Historical scenario, commodity price shock, natural disaster, market financing shock, combined contingent liabilities, and bound tests (Real GDP growth, Primary balance, Exports, Other flows, Depreciation, Combination of B1–B5). - Key sensitivity table highlights (Table 4 and Table 5 excerpts): - PV of debt-to-GDP, PV of debt-to-exports, Debt service-to-exports ratio, Debt service-to-revenue ratio are presented under baseline, alternative scenarios, bound tests, and tailored tests with thresholds noted. - Table 4 and Table 5 provide multiple year series indicating stress-test outcomes and identify breaches where bold values indicate breach of thresholds (specific bold values are in original tables). - Figures summarize stress-test outcomes: - Figure 1 and Figure 2 present alternative scenario outcomes for public and PPG external debt indicators (Debt service-to-revenue ratio, PV of debt-to-exports ratio, PV of debt-to-GDP ratio, debt service-to-exports ratio) showing most extreme shock per indicator. - Figure 3 shows drivers of debt dynamics (contributions from price and exchange rate, real GDP growth, nominal interest rate, current account + FDI, residuals). - Figure 4 shows realism tools: public and private investment rates, fiscal adjustment and possible growth paths under different fiscal multipliers. - Figure 5 presents qualification of the "Moderate" category for 2022–2032 across thresholds for PV debt/GDP and PV debt/exports (x = 20 percent, y = 40 percent) and for debt service/exports and debt service/revenue thresholds (x = 12 percent, y = 35 percent). ### Recent information on external arrears and Fund engagement (Supplementary Information) - Burkina Faso has pre-HIPC Initiative legacy external arrears: - Arrears amounting to USD 54.7 million are due to Côte d’Ivoire. - Arrears amounting to USD 6.9 million are due to Libya. - These arrears represent 0.3 and 0.04 percent of GDP in 2022, respectively. - The combined impact is equivalent to less than 0.1 percent of GDP in NPV terms. - Implication: - The new information on arrears "does not change the thrust of the staff appraisal" and the macroframework and related DSA remain unchanged. - Consistent with the Fund’s lending-into-official-arrears (LIOA) policy, Côte d’Ivoire and Libya have consented to the Fund providing financing under the Food Shock Window of the Rapid Credit Facility despite these arrears. - Dates and statements: - Supplement prepared by the African Department, March 24, 2023. - Statement by Mr. Sylla, Executive Director for Burkina Faso, and Mr. Tall, Advisor to the Executive Director, March 27, 2023. *Sources: Country authorities; and staff estimates and projections. (Excerpts from IMF staff report tables, figures, and supplementary information provided in the original content unit.)* ### Introduction ### Introduction ### Context and Request - Authorities express appreciation for the Fund’s steadfast support and constructive engagement, including policy advice and capacity building. - Authorities valued productive discussions on their request for emergency financing through the Food Shock Window (FSW) under the Rapid Credit Facility (RCF) to address acute food insecurity. - The authorities contemplate engaging IMF staff on a new Extended Credit Facility (ECF) arrangement shortly after the FSW disbursement. ### Security, Humanitarian, and Political Situation - Security and socio-political conditions deteriorated significantly due to terrorist attacks and military power overtaking in January and September 2022. - After the September 2022 coup, an interim Government was formed; transition authorities pledged to hold elections and restore democratic rule by July 2024, consistent with ECOWAS calls. - About 2 million people (10 percent of the population) have been internally displaced and food supply activities have been critically disrupted. - About 4,000 schools, equivalent to 20% of the educational system capacity, are now closed. - Overlapping shocks include the war in Ukraine (food and fuel price shock), Covid-19 supply chain disruptions, and recurring extreme climate conditions including droughts. - The World Food Organization estimates that 16% of the population is in acute food insecurity conditions, with one province in food emergency. ### Recent Economic Developments and Outlook - Real GDP growth moderated to 2.5 percent in 2022, from 6.9 percent in 2021. - Average annual inflation rose to 14.1 percent in 2022 from 3.9 percent in 2021. - The fiscal deficit increased to 10.3 percent in 2022 (7.5 percent in 2021), driven by increased fuel and food subsidies, and security spending which accounted for 20% of total government outlays. - The current account reached a deficit of 5.2 percent of GDP in 2022 from a surplus the previous year, mainly due to costly food, fertilizers, and fuel imports. - For 2023, economic growth is expected to rebound with stronger activity in mining and agriculture aided by favorable weather conditions. - Inflation is expected to fall below the 3-percent WAEMU regional target, reflecting higher base effect. - Downside risks remain elevated: primary domestic risk is security; key external risks include persistent spillovers from the war in Ukraine and climate-related shocks. ### Macroeconomic Policies in 2023 - Authorities are committed to preserving macroeconomic stability while addressing urgent needs and advancing growth and poverty reduction. - Policy anchor: adherence to the regional medium-term fiscal convergence criteria. Fiscal Policy and Debt Management - Financing needs are expected to remain elevated in 2023 amid narrow fiscal space, limited budget support, and tighter global financial conditions. - Authorities will: - step up revenue mobilization efforts; - improve spending efficiency; - better target social transfers toward the most vulnerable households; - strengthen tax collection and public investment efficiency; - contain the civil service wage bill, reform energy subsidies, and strengthen the social safety net with World Bank support. - On the wage bill, steps taken include identifying and removing ghost workers, rationalizing the payroll, including through digitalization. - Further reforms are envisioned under the next Fund-supported ECF program. - Debt sustainability analysis (DSA) rates Burkina Faso’s risk of debt distress as moderate. - Although model-based estimates show a low risk of debt distress, macroeconomic and financing uncertainties remain elevated due to the security situation and availability of donors’ support, including the extent of concessional financing. - Authorities intend to prioritize concessional financing and strengthen debt management capacity with Fund support. Monetary and Financial Sector Policies - BCEAO monetary policy remains geared at preserving price stability while building adequate international reserve buffers. - Private sector credit growth decelerated, but banks’ capital adequacy and loan loss provisioning ratios remain adequate. - Banking liquidity improved, although exposure to sovereign debt and concentration risk increased. - The banking system has remained resilient due to a tighter regulatory framework and close supervision by the West African Banking Commission, with support from national authorities. ### The Impact of the Overlapping Shocks on Food Security - According to the World Food Organization, 2.6 million people in Burkina Faso were in acute food insecurity in 2022. - In the absence of urgent assistance, the number could rise to 3.5 million people (16 percent of the population). - The security situation has worsened since 2022, with adverse effects compounded by overlapping shocks. - Increase in fertilizer costs and food import prices, notably after the war in Ukraine, weighed on the balance of payments. - The external current account widened to 5.2% of GDP in 2022 from 3.2 percent before the pandemic. ### Immediate Policy Responses to Food Insecurity - Authorities’ near-term response strategy aims to: - support about 3.5 million people in acute food insecurity, including internally displaced persons; - relieve 550,000 people in food emergency conditions, and about 20,000 people in food catastrophe situation; - reduce the rate of chronic malnutrition among children, and pregnant and lactating women. - Specific measures include free food distributions, an unconditional cash transfers program, sale of cereals at subsidized price, and measures to boost agricultural productivity. - The response plan is estimated to cost approximately US$300 million and will use FSW resources to mitigate impacts on the most vulnerable. - Authorities commit to strong governance and transparency in the use of FSW resources, including: - enforcing and strengthening public financial management policies and controls; - strict emergency spending framework rules governing spending and procurement, and ex-post accountability mechanisms; - preparing a semi-annual execution report and carrying out an exhaustive audit of the 2023 cash transfer program. ### Conclusion and Forward Engagement - Burkina Faso faces unprecedented internal and external challenges; authorities aim to protect the population from terror attacks while addressing acute food security needs. - Given the country’s strong track record of policy implementation and commitment to sound policies, Executive Directors are called upon to support the request for immediate assistance under the Food Shock Window. - Continued Fund engagement—potentially through an ECF arrangement and the Resilience and Sustainability Facility—would help address structural challenges, anchor macroeconomic stability during and beyond the political transition, catalyze donor assistance, support medium-term reforms, and strengthen resilience to recurring shocks. *Source: Introduction (1bfaea2023001 - Introduction).* --- _Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1bfaea2023001.pdf_