## _cr08168 ## Source details **Canonical URL:** [_cr08168](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2008/_cr08168.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2008/_cr08168.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2008/_cr08168.pdf.json) --- ### Executive summary — main findings and program request - Recent macroeconomic performance: average real GDP growth above 6 percent; inflation low and stable. - External shock: weather-related declines in cotton exports and increased oil prices reduce growth and worsen debt sustainability. - Authorities requested an increase in access under the PRGF arrangement of 15 percent of quota (SDR 9.03 million); upon completion of this review, a disbursement of SDR 3.51 million will be available. - Structural conditionality: two structural performance criteria and two benchmarks were missed, though substantive measures often in place. - Major structural achievement: adoption of a pricing mechanism for cotton that links domestic producer prices to world prices. - Program risks concentrated on: - Insufficient domestic revenue effort. - Continued cotton sector difficulties. - Adverse external environment (commodity prices, exchange rate developments). - Weather-related agricultural vulnerabilities. ### Macroeconomic developments and outlook - Recent outturns (annual percentage change and shares as reported): - GDP at constant prices: 2004 = 4.6; 2005 = 3.5; 2006 = 7.1. - Consumer prices (annual average): 2004 = -0.4; 2005 = 4.0; 2006 = 6.4. - Tax revenue (percent of GDP): 2004 = 11.8; 2005 = 12.3; 2006 = 11.4. - Overall fiscal balance, excluding grants (percent of GDP): 2004 = -8.6; 2005 = -9.6; 2006 = -9.4. - Overall fiscal balance, including grants (percent of GDP, excluding MDRI grants): 2004 = -4.3; 2005 = -4.3; 2006 = -4.9. - Current account balance (excluding current official transfers, percent of GDP): 2004 = -13.4; 2005 = -12.3; 2006 = -14.6. - External debt to official creditors (percent): 2004 = 41.2; 2005 = 34.8; 2006 = 37.6. - 2007–08 outlook and drivers: - Cotton production: 2007 likely almost 50 percent below original program in volume terms; production projected to rebound in 2008 but remain about 30 percent below program forecast. - Real GDP growth forecast: about 4½ percent for 2007 and 2008 (down from about 6½ percent in recent years). - Inflation: negative in much of 2007; expected to be slightly negative for the year as a whole. - Current account: deficit excluding official transfers likely to widen in 2007 and 2008; expected increase in gold production could partly offset; higher grant inflows including MCC disbursements should help. - Projections (selected series, exact values preserved): - Real GDP growth (selected years): 2004 4.6; 2005 7.1; 2006 5.5; 2007 6.5; 2008 prog. 4.2; 2009 prog. 6.3; 2010 proj. 4.5; 2011 proj. 6.1. - Consumer prices (annual average): 2004 -0.4; 2005 6.4; 2006 2.4; 2007 2.0; 2008 prog. -0.7; 2009 prog. 2.0. - Current account balance (excl. official transfers, percent of GDP): 2004 -13.4; 2005 -14.6; 2006 -12.5; 2007 -13.8; 2008 prog. -14.1. ### Fiscal performance, 2007 mid-year and 2008 fiscal stance - June 2007 performance (selected exact figures and outcomes): - Government revenue at end-June: fell short by less than 0.1 percent of GDP (CFAF 2 billion about 1 percent reported elsewhere). - Grants at end-June: exceeded projections by 0.3 percent of GDP (CFAF 8 billion). - Expenditure (commitment basis): higher-than-expected payments for goods and services; poverty-reducing expenditures fell marginally short. - End-June performance criterion on the fiscal deficit, including grants (payments-order basis): met. - 2007 year-end outlook: - Nominal revenue year-end target lowered because of lower-than-expected growth and inflation; still 1 percentage point of GDP higher than in 2006 and exceeding the programmed increase by 0.2 percentage points. - Grants projected to be 2 percent of GDP higher than previously programmed due to faster execution and budget support. - 2008 fiscal stance and trade-offs: - Authorities targeted an overall deficit including grants (commitment basis) of CFAF 192 billion (5.4 percent of GDP) for 2008. - Decision on use of additional grants: use about ¼ of additional grants to reduce the 2008 deficit to 5.4 percent of GDP; remaining grants offset revenue losses and allow a slight increase in net lending. - Original envisioned deficit for 2008: 5.7 percent of GDP. ### Fiscal projections and composition (selected table extracts, exact figures) - Total revenues and grants (billions of CFA francs; percent of GDP where shown in source): - Total revenues and grants (billions): 628 (2006 Prog.), 678 (2007 Prog.), 683 (2007 Proj.), 732 (2008 Prog./Proj.). - Percent of GDP: 17.8 (2006); 18.2 (2007 Prog.); 20.4 (2007 Proj.); 18.2 (2008 Prog.); 20.8 (2008 Proj.). - Domestic revenues (billions and percent of GDP): 450, 440, 508, 478 — 12.3, 13.1, 13.3, 13.6. - Grants (billions and percent of GDP): 178, 238, 175, 255 — 5.6, 5.2, 7.2, 4.7, 7.2. - Expenditure and net lending (billions and percent of GDP): 841, 885, 896, 924 — 22.9, 24.4, 26.4, 23.9, 26.2. - Overall balance (commitment basis, billions and percent of GDP): -213, -207, -213, -192 — -5.1, -6.2, -6.2, -5.7, -5.4. - Excluding grants (commitment basis, billions and percent of GDP): -391, -445, -388, -447 — -10.7, -11.3, -13.4, -10.3, -12.7. ### Structural reforms — tax, customs, PFM, and cotton - Tax policy and administration: - Objectives: generate further revenue and simplify/eliminate nuisance taxes. - Measures: full computerization of large and medium taxpayer offices; simplification of exemptions; reduction of corporate income tax from 35 percent to 30 percent in 2008 budget (revenue loss about CFAF 10 billion = 0.3 percent of GDP). - Targets: reduce nonfiler rate below 5 percent in 2008; reduce rate of VAT declarations with zero or negative tax liability from 49 percent to less than 20 percent via issue-oriented audits. - Timetable: single tax code submission to parliament by December 31, 2007 (expected met); draft tax reform legislation to parliament by end-December 2008 (structural benchmark). - Customs administration: - Single customs declaration form implemented in all offices in November 2007. - Customs-specific valuation database in place in all computerized offices. - ASYCUDA modules and selectivity: target to assign at least 50 percent of customs declarations to green and blue channels (structural benchmark end-September); limit deviations from ASYCUDA recommendations to less than 10 percent. - Public Financial Management (PFM): - New public finance strategy and multi-year action plan approved. - PEFA-based review: good score on budget credibility and transparency; weaknesses in ex-post controls and scope to improve ex-ante controls. - Comprehensive system for tracking foreign-financed expenditures: development begun; full implementation delayed until at least 2009. - Introduce comprehensive system for tracking poverty-reducing expenditures by end-June 2008 (structural benchmark). - Plan to merge three institutions into Autorité Supérieure de Contrôle d’État (ASCE) with expanded audit and legal powers; develop action plan for scaled-up audit activities by December 31, 2008. - Cotton sector reforms: - Producer floor price mechanism: producer floor price linked to world prices (centered five-year moving average) discounted by 5.1 percent. - Producer floor price: CFAF 145 per kg for 2007/08 (down from CFAF 165 per kg for 2006/07). - SOFITEX recapitalization: total recapitalization expected CFAF 34 billion (1 percent of GDP) in 2007; government intends to reduce ownership over time. - Smoothing fund under design; discount between producer floor price and moving average could be linked to fund financial condition. ### Debt sustainability analysis (Appendix I) — baseline and scenarios - Main finding: risk of debt distress increased because of export outlook deterioration and potential change in performance rating. - Export revisions and cotton assumptions: - 2006/07 harvest: 15 percent lower than expected. - 2007/08 harvest reduction: 30 percent. - Projected rebound in 2008/09: 30 percent (assuming normal weather). - Long-term export projections revised downwards by approximately 12 percent; exports-to-GDP share revised down by about 1 percentage point. - Baseline and alternative borrowing needs (percent of GDP): - Historical (Average 2002–06) current account balance: -10.0 (percent of GDP). - Baseline projections (2007–25) current account balance: -9.1 (percent of GDP). - Baseline net borrowing requirements: 3.1 (percent of GDP). - Under conservative private inflows assumptions (Box 1), net borrowing of 5½ (percent of GDP) required — unsustainable for stabilizing NPV of debt-to-exports below indicative threshold. - Sustainable non-debt financing of about 4½ (percent of GDP) implies sustainable current account deficit about 7½ (percent of GDP); to keep NPV of debt-to-exports below threshold net borrowing should not exceed 3 (percent of GDP). - Scenario implications: - Yellow-light (maintain moderate risk; 50:50 loan:grant mix for another five years): dampens increase in NPV of debt-to-exports. - Red-light (reclassification to medium performer with 100 percent grant allocation): could, if sustained up to 10 years, dampen trajectory enough to keep NPV of debt-to-exports below 150 percent threshold. - Selected debt indicators (exact values preserved where shown in source): - NPV of external debt (percent of GDP, selected series): 18.1; 19.0; 10.6; 11.5; 13.1; 14.8; 16.1; 14.2; 19.8; 21.1; 22.0; 20.3. - NPV of external debt (percent of exports, selected series): 162.0; 185.4; 88.1; 104.7; 124.2; 127.6; 135.8; 127.6; 170.3; 182.3; 184.1; 173.5. - Debt service-to-exports (percent), selected values: 8.0; 7.7; 5.6; 5.8; 5.8; 6.5; 6.5; 6.3; 7.8; 9.4; 10.6; 8.6. ### Program implementation, PRGF financing, and staff recommendations - PRGF access and disbursements (selected schedule, exact amounts and dates): - SDR 0.5 million — April 23, 2007 — Following Executive Board approval of the three-year PRGF arrangement. - SDR 3.51 million — December 31, 2007 — Observance of the performance criteria for June 30, 2007, and completion of the first review under the arrangement. - SDR 4.014 million — May 31, 2008 — Observance of the performance criteria for December 31, 2007, and completion of the second review under the arrangement. - Additional disbursements scheduled through March 30, 2010 as listed in source. - Outstanding Fund credit, end of period (Millions of SDRs, selected): 72.4 (2005); 23.2 (2006); 24.2 (2007); 35.3 (2008); 37.3 (2009). - Staff supports augmentation of access (authorities requested 15 percent of quota = SDR 9.03 million) to cushion reserve drawdown and mobilize donor resources. - Staff proposal: change definition of performance criterion for overall deficit, including grants, from payment-order basis (ordonnancement) to commitment basis (engagement) because better quality data available on commitment basis. - Staff recommendation: grant waivers for missed structural criteria based on corrective actions; complete first review and proceed with PRGF-supported program given satisfactory policy implementation overall. ### Key policy recommendations and priorities - Increase domestic revenues to create fiscal space for poverty-reducing expenditures while keeping debt sustainable: - Modernize revenue administration; broaden the tax base. - Address potential RER overvaluation via structural reforms to improve competitiveness (productivity gains). - Improve climate for private sector development: - Financial sector strengthening; public utilities and infrastructure; corruption reduction. - Reform public financial management to ensure efficient use of public resources and strengthen governance. - Restore viability and liberalize the cotton sector; reduce government role and design a self-financing, transparent smoothing fund. - Scale up aid, preferably grant financing, to support growth and poverty reduction while keeping debt sustainable. - Prioritize timely implementation of structural agenda given institutional resource constraints. *Source: IMF Country Report _cr08168 - Executive Summary* ### Executive Summary ...................................................................................................... ### _cr08168 - Executive Summary ### Executive summary: main findings - Burkina Faso’s recent macroeconomic performance was good: average real GDP growth was above 6 percent and inflation was low and stable. - The country is facing a severe external shock from weather-related declines in cotton exports and increased oil prices, which is expected to reduce growth and has negatively impacted the debt sustainability outlook. - The authorities requested an increase in access under the PRGF arrangement of 15 percent of quota (SDR 9.03 million). Upon completion of this review, a disbursement of SDR 3.51 million will be available. - Structural policy implementation experienced delays: two structural performance criteria and two benchmarks were missed, although the substance of measures was often in place. - Adoption of a pricing mechanism for cotton that links domestic producer prices to world prices was a major achievement. - Program risks are concentrated on the domestic revenue effort, the cotton sector, the external environment, and weather-related vulnerabilities. ### Introduction / Developments since the 2005 Article IV consultations - Macroeconomic outturns in 2005–06 exceeded projections from the 2005 Article IV consultation: - GDP at constant prices: 2004 = 4.6, 2005 = 3.5, 2006 = 7.1 (annual percentage change). - Consumer prices (annual average): 2004 = -0.4, 2005 = 4.0, 2006 = 6.4. - Tax revenue (percent of GDP): 2004 = 11.8, 2005 = 12.3, 2006 = 11.4. - Overall fiscal balance, excluding grants (percent of GDP): 2004 = -8.6, 2005 = -9.6, 2006 = -9.4. - Overall fiscal balance, including grants (percent of GDP, excluding MDRI grants): 2004 = -4.3, 2005 = -4.3, 2006 = -4.9. - Current account balance (excluding current official transfers, percent of GDP): 2004 = -13.4, 2005 = -12.3, 2006 = -14.6. - External debt to official creditors (percent): 2004 = 41.2, 2005 = 34.8, 2006 = 37.6. - Positive performance reflected sound policy implementation, delayed pass-through of world cotton prices to producers, and additional debt relief (MDRI). - Revenue effort remained low relative to peers in WAEMU, necessitating cuts in planned expenditure increases. ### Recent economic developments and outlook - Cotton production in 2007 is likely to fall short by almost 50 percent in volume terms relative to the original program, primarily because of late rainfalls; a lower 2006 production base (about 15 percent less than expected) and lower cotton producer prices also contributed. - Production is projected to rebound in 2008 but likely remain about 30 percent below the program forecast. - Real GDP growth is forecast at about 4½ percent for 2007 and 2008, down from about 6½ percent in recent years, mainly due to lower cotton production and higher oil prices. - Inflation: negative in much of 2007, expected to be slightly negative for the year as a whole. - Current account balances: - The current account deficit, excluding official transfers, will likely widen in 2007 and 2008 because of lower cotton production and higher oil prices. - An expected increase in gold production could partly offset these effects. - Higher grant inflows, including disbursements from the US Millennium Challenge Corporation (MCC), should help rein in the current account deficit, including transfers. - Debt sustainability: - Burkina Faso’s NPV of debt-to-GDP ratio is in line with the regional average, but export-based ratios are almost twice the averages. - With exports revised downward because of lower cotton production, the NPV of debt to exports is projected to rise close to its indicative threshold in the Fund/World Bank Debt Sustainability Analysis. - A reclassification of debt distress risk as high in the next joint DSA is possible given uncertainties including CPIA performance. ### Surveillance priorities — External competitiveness - Several indicators suggest the real exchange rate (RER) is overvalued: - Competitive pressures in the cotton sector. - Sluggish noncotton export performance. - Some estimates of the RER (results are not unambiguous). - Large and persistent current account deficits. - Euro appreciation has exacerbated the cotton sector’s financial difficulties by offsetting the recovery in U.S. dollar cotton prices and weighed on export performance. - Start-up of large gold mining operations, supported by high gold prices, should partially offset the loss in cotton exports, but cotton remains the most important export. - Membership in WAEMU provides ready access to foreign exchange and an RER deemed in line with fundamentals at the last Article IV consultation; fiscal policies have generally been sound. - Authorities intend to address competitiveness concerns through structural reforms aimed at improving competitiveness over time. ### Key policy issues and recommendations - Increase domestic revenues to create fiscal space for poverty-reducing expenditures while keeping debt sustainable: - Undertake firm efforts to modernize revenue administration. - Reform the tax regime by broadening the tax base. - Address potential real exchange rate overvaluation via structural reforms to improve competitiveness. - Improve the climate for private sector development to sustain growth, focusing on: - The financial sector. - Public utilities and infrastructure. - Corruption reduction. - Reform public financial management (PFM) to ensure efficient use of public resources and to strengthen governance. - Restore viability of the cotton sector through further reforms and government disengagement from the sector. - Scale up aid, preferably grant financing, to support growth and poverty reduction while keeping debt sustainable. ### Program implementation and risks - Implementation: delays in structural conditionality (two structural performance criteria and two benchmarks missed), though many measures' substance was in place. - Financing and program support: - Authorities requested an increase in PRGF access of 15 percent of quota (SDR 9.03 million); SDR 3.51 million available upon review completion. - Main program risks: - Insufficient domestic revenue efforts. - Continued difficulties in the cotton sector. - Adverse external environment (commodity prices, exchange rate developments). - Weather-related vulnerabilities affecting agricultural output. *Source: IMF Country Report _cr08168 - Executive Summary* ### 8. Econometric analysis of Burkina Faso’s RER produces no clear-cut ### 8. Econometric analysis of Burkina Faso’s RER produces no clear-cut evidence of overvaluation, but suggests some loss of competitiveness ### Real exchange rate (RER) assessment - As of August, 2007, the RER has appreciated by 30 percent since the 1994 devaluation, although it is still 30 percent lower than before it. - Staff calculations using cointegration methods suggest that the RER was broadly in line with its fundamentals in 2006 (Figure 5). - Other studies produce contradictory results: one study finds undervaluation and another overvaluation. - Broad agreement across studies: - The recent deterioration in the terms of trade would have tended to depreciate the equilibrium real exchange rate (ERER). - The actual real exchange rate appreciated, leading to a loss of competitiveness. - Key uncertainties and limitations: - Difficulty determining the ERER level prior to the terms of trade shock. - Model uncertainty, data quality issues, and a short sample period complicate inference about overvaluation. ### Current account, financing, and external debt sustainability - The current account deficit, including official transfers, averaged 10 percent of GDP in 2002–06. - If such a deficit were maintained for many years and financed entirely through borrowing, the NPV of debt-to-exports ratio would be unsustainable (Figure 6). - Historical financing mix (Text Table 3; Average 2002–06): - Current account balance: -10.0 (percent of GDP) - Other non-debt creating inflows: 6.5 (percent of GDP) - Project grants: 2.9 (percent of GDP) - Private and other nonpublic-debt capital inflows1: 4.4 (percent of GDP) - Change in NFA (- represents increase): -0.8 (percent of GDP) - Net borrowing requirements: 3.4 (percent of GDP) - Baseline projections (2007–25, Text Table 3): - Current account balance: -9.1 (percent of GDP) - Other non-debt creating inflows: 6.0 (percent of GDP) - Project grants: 2.9 (percent of GDP) - Private and other nonpublic-debt capital inflows1: 3.5 (percent of GDP) - Change in NFA: -0.5 (percent of GDP) - Net borrowing requirements: 3.1 (percent of GDP) - Alternative scenario and sustainability thresholds: - Under conservative assumptions for private inflows (Box 1), net borrowing of 5½ percent of GDP would be required; this would be too high to stabilize the NPV of debt-to-exports ratio below its indicative threshold. - With sustainable non-debt-financing inflows of about 4½ percent of GDP (project grants 3 percent of GDP + private inflows 2 percent of GDP − NFA buildup ½ percent of GDP), a sustainable current account deficit would be about 7½ percent of GDP. - To keep the NPV of debt-to-exports ratio below its indicative threshold, net borrowing requirements should not exceed 3 percent of GDP (in line with baseline borrowing plans). - Box 1 summary points: - In 2002–06 the average current account deficit of 10 percent of GDP was mostly financed by non-debt inflows (project grants, private inflows, errors and omissions). - Project grants could be about 3 percent of GDP going forward. - A build-up of NFA of about ½ percent of GDP per year is consistent with ~3½ months of import cover. - Conservative sustainable private inflows estimate: 2 percent of GDP (versus a five-year average of about 4½ percent of GDP that included about 2½ percent in errors and omissions). - With 4½ percent of GDP in sustainable non-debt inflows, a 10 percent of GDP current account deficit implies net borrowing requirements of 5½ percent of GDP and is therefore unsustainable. ### Sources of adjustment to the current account deficit - Baseline consolidation mostly stems from public sector efforts: - In the past five years the public sector savings-and-investment imbalance accounted for about a third of the total current account deficit (Figure 7). - Stronger revenue effort should boost government savings, reducing the public sector S-I gap to almost balance. - Private sector S-I gap is not expected to narrow much because efforts to improve the business environment and promote private-sector-led growth will likely raise private sector investment. - Policy responses if private capital inflows do not materialize: - Tighten fiscal policy to reduce net borrowing and bring NPV of debt-to-exports ratio below threshold. - Or induce private sector adjustment via a real depreciation of the exchange rate; however, due to low trade openness and high dependence on commodity exports, a relatively large real depreciation would likely be needed to materially affect the trade balance. ### Growth prospects and public investment - Growth over the past 10 years was strong, with acceleration in the mid-1990s that broadly carried into recent years (Figure 8). - Cotton sector: - The 1994 large devaluation likely contributed to growth acceleration by boosting cotton production and exports. - Cotton accounts for 5 percent of GDP but drives other activities. - Growth outside cotton was broad based (telecommunications, transportation). - Public investment plans: - Authorities intend to raise public investment spending by about 2½ percent of GDP over 2007–10 from its average in the preceding five years (Figure 9). - For 2007, this includes approximately 1 percent of GDP for the recapitalization of SOFITEX; for 2008 and beyond the bulk is intended for infrastructure projects. - Grants from the U.S. MCC are about 1 percent of GDP over 2008–10 to finance a substantial part of additional expenditures. - Growth impact of public investment: - Empirical literature suggests a 1 percentage point increase in the public investment-to-GDP ratio could increase the per capita GDP growth rate by about 0.2 percentage points. - Consequently, the envisioned increase in public investment spending should contribute about ½ percentage points to medium-term GDP growth, as reflected in the baseline. - Caveats: - Grant inflows create fiscal space but a higher revenue effort is needed to make expenditure levels sustainable over the medium term. - The euro’s recent appreciation will make it harder to expand the exports base. ### Structural and non-price competitiveness issues - Main constraints for doing business (surveys): - (i) access and cost of finance; - (ii) tax regulations and tax rates; - (iii) corruption; - (iv) an inefficient government bureaucracy. - Initiatives underway: - Regional FSAP (late 2007) and a Burkina Faso-specific FSAP planned for spring 2008 to assess financial sector access constraints. - Program work to improve tax administration and streamline the tax code. - Business environment progress: - Burkina Faso is ranked among the five top reformers in Africa in the Doing Business 2008 report. - Absolute rankings remain among the least competitive in the world and are in line with the WAEMU average (Text Table 4). - Selected indicators (Text Table 4): - Ease of doing business: Overall ranking 163 out of 175. - Global competitiveness index: Overall ranking 119 out of 128. - Selected component rankings included (as reported): Dealing with licenses 168; Registering property 164; Trading across borders 154; Employing workers 153; Enforcing contracts 143; Starting a business 131; Paying taxes 129; Getting credits 117; Protecting investors 99; Closing a business 90. - Global competitiveness components reported (as reported): Health and primary education 127; Higher education and training 119; Macroeconomy 119; Infrastructure 113; Technological readiness 106; Business sophistication 101; Market efficiency 89; Innovation 70; Institutions 67. ### Public sector efficiency, tax and PFM reforms - Tax reform objectives: - Generate further revenue and simplify/eliminate nuisance taxes. - Key tax administration measures: (i) full computerization of large and medium taxpayer offices (monitoring taxpayer obligations); (ii) simplification of exemptions to improve productivity and lower compliance and administrative costs. - Public finance strategy and PFM findings: - New public finance strategy and multi-year action plan approved; benefited from FAD and AFRITAC-West input. - PEFA-based review (spring 2007) findings: - Good score on budget credibility (except revenue projections too optimistic) and comprehensiveness/transparency of the budget. - Weak effectiveness of ex-post controls. - Scope to improve ex-ante controls; FAD PFM mission recommended simplifying expenditure procedures and eliminating redundant controls. - Domestic debt audit (mid-2007) found weaknesses leading to expenditure commitments outside the budget and payment delays; these are being addressed. ### Governance and corruption - Burkina Faso ranks relatively well on governance and corruption indicators compared with WAEMU, SSA, and other low-income countries, but recent slippages noted. - Transparency International CPI score declined from 3.4 in 2005 to 2.9 in 2007 (a score below 3 suggests a perception of rampant corruption); confidence interval ranges from 2.6 to 3.4. - Within Africa, Burkina Faso ranked 17 out of 52 countries in 2007. - Authorities’ response: - Plan to merge three institutions into Autorité Supérieure de Contrôle d’État (ASCE) to investigate government agencies, monitor audit offices, take direct legal action, and independently publish reports. - ASCE is integral to strengthening public financial management via better ex-post controls. ### Policy implications and recommendations going forward - Enhancing private sector efficiency is a key medium-term challenge to address potential RER overvaluation and bolster growth: - WAEMU membership rules out nominal depreciation; adjustment must come through productivity gains. - Productivity increases, particularly through liberalization in the cotton sector, are critical given part of the cotton price shock is likely permanent. - Public sector reforms and growth-oriented public investment can support private-sector productivity by improving the investment climate. - Fiscal policy and external sustainability: - Increased risk to external public debt sustainability reinforces the need for medium-term fiscal consolidation to reduce external imbalances. - To sustain high poverty-reducing expenditures, consolidation requires strong increases in revenue via ongoing and envisaged revenue reforms. - Reforms will take time and justify a somewhat back-loaded adjustment path. - Gains in public sector efficiency are important to create fiscal space without pressuring the deficit. - Authorities agreed on the need for medium-term fiscal adjustment but emphasized it should not come at the expense of reduced growth. *IMF staff report content (chapter 8) from the provided PDF.* ### 20. While some indicative fiscal targets for June 2007 were narrowly missed, ### _cr08168 - 20. While some indicative fiscal targets for June 2007 were narrowly missed, ### Fiscal performance: June 2007 - Indicative fiscal targets for June 2007: some narrowly missed; the deficit target was observed. - Government revenue at end-June: fell short by less than 0.1 percent of GDP. - Grants at end-June: exceeded projections by 0.3 percent of GDP. - Expenditure (commitment basis): higher-than-expected payments for goods and services due to one-off expenditures (e.g., ongoing decentralization), larger externally financed capital spending, and higher-than-projected expenditure execution rates through June. - Poverty-reducing expenditures: fell marginally short of the target. - End-June performance criterion on the fiscal deficit, including grants (payments-order basis): met. ### 2007 year-end fiscal outlook - Deficit target for 2007: expected to be observed despite lower projected revenue. - Nominal revenue year-end target: lowered because of lower-than-expected growth and inflation; still 1 percentage point of GDP higher than in 2006, exceeding the programmed increase by 0.2 percentage points. - Grants: projected to be 2 percent of GDP higher than previously programmed due to faster execution of grant-financed projects and some budget support grants. - Additional spending: mainly on capital projects and moderately higher current expenditure (utilities and wages); projections include allocations to complete SOFITEX’s recapitalization and repay VAT refund requests. - Implementation note: year-end target for the deficit, including grants, projected to be met despite higher expenditure. ### Structural conditionality and implementation status (high-level) - Tax administration delays: some structural reforms delayed though substantive measures often in place. - Large taxpayer office: did not promptly send automatic reminders to all late filers and non-filers starting in July (continuous structural performance criterion). Implementation to begin February 1, 2008 under new director of computerization. - VAT refunds: payment of VAT refunds delayed (structural benchmark); rectified as of November 15, 2007. - Customs administration: - Customs-specific valuation database: put in place in all computerized offices as planned. - Single customs declaration form: nearly met by end-June; implemented in all offices in November 2007. - ASYCUDA modules (fully functional in computerized offices starting with Ouagadougou): structural benchmark delayed until end-December 2007. - Public financial management: - Introduce comprehensive system for tracking foreign-financed expenditures: substantial delays until at least 2009. - Tax policy: - Submit single tax code consolidating all tax legislation by December 31, 2007: expected to be met. - Secure approval from Council of Ministers for tax policy reform strategy by December 31, 2007: likely delay; expected to be met by end-April 2008. - Cotton sector: - Adopt formula-based producer price mechanism linking producer price to world prices: Met (June 30, 2007 benchmark). - Secure government approval of liberalization strategy for SOFITEX by December 31, 2007: Expected to be met. ### Fiscal program for 2008 and medium term: key projections and composition - Revenue outlook: - Fall in cotton production and reduced economic growth: lower tax revenue in nominal terms. - Intended corporate income tax reduction: revenue lower by about CFAF 10 billion (0.3 percent of GDP). - Revenues projected as ratio to GDP: 13.6 percent of GDP. - Grants: - Reclassification of debt distress risk (low to moderate): financing from World Bank and African Development Bank became half grants. - First grant disbursement expected from the MCC. - Grants projected at 7.2 percent of GDP in 2008, up from 4.7 percent of GDP under the original program. - Expenditures: - Nominal expenditure projections broadly in line with original program except for greater net lending due to on-lending of a concessional loan by the French Development Agency for the cotton smoothing fund and a loan to the state-owned electricity company for a large capital project. - Domestic financing: - Increased relative to original program target due to revenue reduction and slightly higher expenditures; mostly covered by privatization receipts expected from sale of a 20 percent share of ONATEL. - Text Table 6 summary (selected exact figures): - Total revenues and grants: 628 (2006 Prog.), 678 (2007 Prog.), 683 (2007 Proj.), 732 (2008 Prog./Proj.) — Percent of GDP: 17.8 (2006), 18.2 (2007 Prog.), 20.4 (2007 Proj.), 18.2 (2008 Prog.), 20.8 (2008 Proj.) [table preserves layout in source]. - Domestic revenues: 450, 440, 508, 478 — 12.3, 13.1, 13.3, 13.6 (percent of GDP) etc. - Grants: 178, 238, 175, 255 — 5.6, 5.2, 7.2, 4.7, 7.2 (percent of GDP) as shown in table. - Expenditure and net lending: 841, 885, 896, 924 — 22.9, 24.4, 26.4, 23.9, 26.2 (percent of GDP). - Overall balance (commitment basis): -213, -207, -213, -192 — -5.1, -6.2, -6.2, -5.7, -5.4 (percent of GDP). - Excluding grants: -391, -445, -388, -447 — -10.7, -11.3, -13.4, -10.3, -12.7 (percent of GDP). ### Fiscal stance and trade-offs for 2008 - Additional grants related to debt distress revision (about 1¼ percent of GDP): trade-off between using them to reduce the fiscal deficit and maintaining expenditures to avoid exacerbating negative growth impacts and jeopardizing Millennium Development Goals. - Authorities’ decision: use about ¼ of the additional grants to reduce the 2008 deficit to 5.4 percent of GDP; remaining grants offset revenue losses and allow a slight increase in net lending. - Original envisioned deficit for 2008: 5.7 percent of GDP. ### Structural fiscal agenda for 2008 (tax and customs) - Tax administration reforms: - Consolidate reforms of the large taxpayer office. - Introduce systematic notification system for non-filers and issue-oriented taxpayer audits: target to reduce non-filer rate below 5 percent in 2008. - New procedures for VAT refunds and sufficient budgetary resources: eliminate past delays in VAT refunds. - Revised regulations: focus large and medium taxpayer offices on largest 500 and 1,500 medium taxpayers respectively; subject small taxpayers to simplified taxation instead of regular VAT (structural benchmark for end-June). - Eliminate withholding taxes for large taxpayers. - Customs administration reforms: - Reduce direct contact between customs officials and traders; use ASYCUDA’s selectivity module to choose customs channel. - Limit deviation from ASYCUDA recommendations for customs channel to less than 10 percent. - Program selectivity module to assign at least 50 percent of customs declarations to green and blue channels (structural benchmark for end-September). - Interface customs-specific valuation database with ASYCUDA for dues calculation and risk assessment. ### Tax policy reform timetable and targets - Ambitious revenue targets for 2009+: require tax policy reform agenda approved by parliament in 2008/09. - Work informed by FAD tax policy mission (November/December 2007). - Objectives: broaden tax base for major taxes, eliminate nuisance taxes, simplify tax system. - Corporate income tax rate reduced from 35 percent to 30 percent in 2008 budget. - Draft tax reform legislation: to be submitted to parliament by end-December 2008 (structural benchmark); bulk of reforms expected to take effect in 2010. - Key tax policy measures included in 2009 budget to be submitted to parliament in September 2008 (structural benchmark). ### Public financial management reforms for 2008 - Focus: strengthen budget execution, ex post controls, and expenditure tracking. - Review ex-ante controls and redundancies; develop an action plan by end-December 2008 (structural benchmark). - New institution ASCE: develop action plan for scaled-up audit activities, ensure sufficient funding in 2009 budget, develop modalities for publication of audit reports and systematic follow up. - Comprehensive system for tracking poverty-reducing expenditures expected by end-June 2008 (structural benchmark). ### Cotton sector reforms and recapitalization - Producer price mechanism (2007/08): producer floor price linked to world cotton prices (centered five-year moving average) discounted by 5.1 percent. - Producer floor price: CFAF 145 per kg for 2007/08 (down from CFAF 165 per kg for 2006/07). - If current price levels prevail, ginning companies should break even in 2007/08 campaign; farmers might earn a small bonus. - SOFITEX recapitalization: - Total recapitalization expected to require CFAF 34 billion (1 percent of GDP) in 2007. - Government intends to reduce ownership over time; working with World Bank and other donors on rehabilitation, productivity improvement, and reduced government role (end-December 2007 structural benchmark). - Smoothing fund: discount between producer floor price and moving average could be linked to financial condition of the fund; technical work continues. ### Other structural reforms: financial sector - Financial system: stable overall, relatively efficient and profitable; loan portfolio quality better than WAEMU average. - Deterioration in bank soundness indicators: weighted capital-adequacy ratio declined significantly (regional FSAP), reflecting cotton sector troubles and weak balance sheets at new banks. - Priorities: strengthen banking and insurance systems; increase access to finance for rural sector, housing and SMEs; improve judicial system for credit. - National FSAP: opportunity to address Anti-Money Laundering and Combating the Financing of Terrorism standards implementation. ### Program issues and risks - Current account: anticipated widening from lower cotton production and higher oil prices. - Projected current account deficit for 2008: about CFAF 35 billion (about 1 percent of GDP) larger than originally programmed. - Authorities’ request: augment access by 15 percent of quota to cushion reserve drawdown. - With approved access of 10 percent of quota under program, augmentation would increase total access to 25 percent of quota (below norm of 35 percent for countries under a fifth PRGF arrangement). - Staff proposal: change definition of performance criterion for overall deficit, including grants, from payment-order basis (ordonnancement) to commitment basis (engagement) because better quality data available on commitment basis. - Risks to program: - Revenue administration reforms and tax policy reform must be implemented timely; institutional capacity at revenue agencies could be tested. - Delays in tax policy proposals could push 2009 fiscal targets out of reach. ### Staff appraisal (summary) - Macroeconomic environment in 2006 and 2007: difficult, but overall policy performance strong. - Authorities implemented adjustment measures in response to cotton sector crisis, rising oil prices, and other challenges. - New cotton producer price mechanism: major step toward sustainable cotton ginning companies. - Petroleum prices and electricity tariffs: adjusted to cap subsidies up until recent spike in oil prices. - Fiscal stance: in line with program targets; revenue effort fell short of expectations. - Real exchange rate: appears somewhat overvalued, but external imbalances are modest. - Modesty of external imbalances reflects appropriate adjustment policies, ability to draw on WAEMU reserves, and CFA franc’s value being broadly appropriate for WAEMU zone per last WAEMU Article IV consultation. *Source: _cr08168 (IMF staff report).* ### 39. Fiscal performance in the first six months of 2007 was mixed. The ### _cr08168 - 39. Fiscal performance in the first six months of 2007 was mixed. ### Fiscal performance: first six months of 2007 - The performance criterion on the overall deficit target was observed. - The indicative targets for revenue and poverty-reducing expenditures were narrowly missed. - Most structural measures were put in place, despite some delays. - The authorities are requesting waivers for two performance criteria related to tax and customs administration. - The required measure for customs administration reform has since been implemented. - The tax administration measure will be implemented starting in February 2008, under the oversight of the recently appointed new head of computerization. - The cotton producer price mechanism—an important structural benchmark—was adopted as planned. - Recommendation: Going forward, the authorities should aim for a more timely implementation of the structural agenda. ### Fiscal stance and debt sustainability (2008) - The planned fiscal stance for 2008 seeks to balance adjusting to a worse debt sustainability outlook and protecting expenditures under adverse economic conditions. - Additional grants from the World Bank and the African Development Bank related to Burkina Faso’s moderate risk of debt distress rating eased this balancing act considerably. - Further reductions in the fiscal deficit, including grants, will be needed to stabilize the NPV of debt to exports below its indicative threshold. ### Fund access, reserves, and donor mobilization - The staff supports the authorities’ request for an augmentation of access. - Rationale: - Cotton exports are declining and oil imports are rising, making 2008 a difficult year for Burkina Faso’s economy. - The projected drawdown in reserves poses no risk to economic stability, but it is appropriate for the authorities to manage this drawdown by drawing on Fund resources. - An augmentation could help to mobilize additional donor resources. ### Structural agenda and revenue reforms (2008–2009/10) - The structural agenda for 2008 focuses on reforms to raise revenue. - Tax and customs administration efforts aim to consolidate computerization by integrating new tools into the workflow; these efforts will require considerable management resources. - Constraints in management resources could derail program implementation. - Ambitious revenue targets starting in 2009 require tax policy reform. - The authorities intend to plan for such reforms in 2008 and implement them in 2009/10. - Concern: The decision to lower the corporate income tax rate outside a comprehensive reform package was unfortunate, as it removes one potentially positively perceived element of the reform. ### Public finance strengthening, audits, and prioritization - The authorities’ strategy for strengthening public finances is commendable, although further prioritization may be needed given resource constraints. - An audit of domestic debt obligations uncovered some flaws in the expenditure system, which are being addressed. - Staff welcomes the authorities’ work on a study to expedite payments and eliminate redundant controls. - Given the comprehensive reform agenda, it will be important to focus on priority areas. ### Cotton sector reform (2007–2008) - Moving the cotton sector reform agenda forward is a priority. - Achievements in 2007: - SOFITEX recapitalized. - A new producer price mechanism established. - Focus for 2008: - Consolidate reforms and continue disengaging the government from the cotton sector. - The World Bank and other donors will assist the authorities with improving the design of the smoothing fund and the liberalization strategy. ### Governance and business environment - The authorities intend to improve governance and the business environment. - Governance measures: - Merger of agencies engaged in financial control into an independent agency with increased powers is promising. - It will be important to expand the agency’s resources. - The agency can take direct legal action and independently publish its reports. - Improving government transparency by publishing reports on budget implementation would be beneficial. - Business environment: - The authorities’ work with the World Bank to improve Burkina Faso’s Doing Business indicators is commendable and should be continued to increase competitiveness. ### Program performance and staff recommendation - Performance under the PRGF-supported program has been satisfactory. - On the basis of policies set forth in the authorities’ Letter of Intent, the staff recommends that: - The request for waivers be granted. - The first review under the PRGF arrangement be completed. *Source: _cr08168 - 39. Fiscal performance in the first six months of 2007 was mixed.* ### 47. Staff proposes that the next Article IV consultation take place in ### _cr08168 - 47. Staff proposes that the next Article IV consultation take place in ### Staff recommendation - Staff proposes that the next Article IV consultation take place in accordance with the July 15, 2002, Executive Board decision on consultation cycles. ### Macroeconomic outlook and key projections (selected) - GDP at constant prices: 4.6 (2004); 7.1 (2005); 5.5 (2006); 6.5 (2007); 4.2 (2008 prog.); 6.3 (2009 prog.); 4.5 (2010 proj.); 6.1 (2011 proj.); 3.5 (2012 proj.); 8.6 (2013 proj.); 5.8 (2014 proj.); 6.0 (2015 proj.); 6.0 (2016 proj.). - GDP deflator: 3.9 (2004); 2.4 (2005); 2.5 (2006); 2.5 (2007); -0.5 (2008 prog.); 2.3 (2009 prog.); 1.6 (2010 proj.); 2.4 (2011 proj.); 2.6 (2012 proj.); 2.5 (2013 proj.); 2.5 (2014 proj.); 2.3 (2015 proj.); 2.3 (2016 proj.). - Consumer prices (annual average): -0.4 (2004); 6.4 (2005); 2.4 (2006); 2.0 (2007); -0.7 (2008 prog.); 2.0 (2009 prog.); 2.0 (2010 proj.); 2.0 (2011 proj.); 2.0 (2012 proj.); 2.0 (2013 proj.); 2.0 (2014 proj.); 2.0 (2015 proj.); 2.0 (2016 proj.). - Consumer prices (end of period): 0.7 (2004); 4.5 (2005); 1.5 (2006); 2.0 (2007); 0.9 (2008 prog.); 2.0 (2009 prog.); 2.0 (2010 proj.); 2.0 (2011 proj.); 2.0 (2012 proj.); 2.0 (2013 proj.); 2.0 (2014 proj.); 2.0 (2015 proj.); 2.0 (2016 proj.). ### Monetary and financial aggregates (selected) - Broad money (M2) annual changes: -7.2 (2004); -3.8 (2005); 10.2 (2006); 9.1 (2007); 15.8 (2008 prog.); 8.7 (2009 prog.); 6.2 (2010 proj.); 8.6 (2011 proj.); 9.0 (2012 proj.); 8.4 (2013 proj.); 8.4 (2014 proj.); 8.4 (2015 proj.); 8.4 (2016 proj.). - Credit to the private sector (percent of beginning-of-period broad money): 6.1 (2004); 14.9 (2005); 11.2 (2006); 8.7 (2007); 9.6 (2008 prog.); 8.9 (2009 prog.); 7.4 (2010 proj.); 8.9 (2011 proj.); 11.4 (2012 proj.); 5.2 (2013 proj.); 8.1 (2014 proj.); 9.8 (2015 proj.); 9.5 (2016 proj.). - Net domestic assets (banking system) (percent change): 1.3 (2004); 12.7 (2005); 1.8 (2006); -6.9 (2007); -10.8 (2008 prog.); -12.2 (2009 prog.); -3.4 (2010 proj.); 10.0 (2011 proj.); 9.5 (2012 proj.); 6.9 (2013 proj.); 10.0 (2014 proj.); 5.2 (2015 proj.); 7.1 (2016 proj.). ### External sector and prices (selected) - Exports (f.o.b.; valued in CFA francs) annual changes: 36.3 (2004); -2.4 (2005); 26.1 (2006); 10.3 (2007); -3.8 (2008 prog.); 10.8 (2009 prog.); 1.3 (2010 proj.); 7.1 (2011 proj.); 22.0 (2012 proj.); 8.6 (2013 proj.); 11.0 (2014 proj.); 7.8 (2015 proj.); 5.7 (2016 proj.). - Imports (f.o.b.; valued in CFA francs) annual changes: 22.1 (2004); 8.6 (2005); 8.5 (2006); 5.6 (2007); 5.9 (2008 prog.); 8.1 (2009 prog.); 12.8 (2010 proj.); 6.2 (2011 proj.); 6.8 (2012 proj.); 6.2 (2013 proj.); 5.7 (2014 proj.); 5.7 (2015 proj.); 5.3 (2016 proj.). - World cotton price (US cents per pound): 62.0 (2004); 55.2 (2005); 58.1 (2006); 61.7 (2007); 60.5 (2008 prog.); 62.2 (2009 prog.); 61.0 (2010 proj.); 62.8 (2011 proj.); 61.5 (2012 proj.); 63.3 (2013 proj.); 62.0 (2014 proj.); 62.5 (2015 proj.); 63.0 (2016 proj.). - Average petroleum spot price (US$ per barrel): 37.8 (2004); 53.4 (2005); 64.3 (2006); 60.8 (2007); 71.3 (2008 prog.); 64.8 (2009 prog.); 88.5 (2010 proj.); 64.5 (2011 proj.); 83.0 (2012 proj.); 64.3 (2013 proj.); 81.0 (2014 proj.); 80.5 (2015 proj.); 80.3 (2016 proj.). ### Fiscal outcomes and projections (central government, selected) - Current revenue (percent of GDP): 12.8 (2004); 12.3 (2005); 12.3 (2006); 13.1 (2007); 13.3 (2008 prog.); 13.6 (2009 prog.); 13.6 (2010 proj.); 14.5 (2011 proj.); 14.6 (2012 proj.); 14.9 (2013 proj.); 15.0 (2014 proj.); 15.4 (2015 proj.); 15.8 (2016 proj.). - Tax revenue (percent of GDP): 11.8 (2004); 11.4 (2005); 11.3 (2006); 12.0 (2007); 12.2 (2008 prog.); 12.4 (2009 prog.); 12.6 (2010 proj.); 13.3 (2011 proj.); 13.6 (2012 proj.); 13.7 (2013 proj.); 13.9 (2014 proj.); 14.3 (2015 proj.); 14.7 (2016 proj.). - Total expenditure (commitment basis, percent of GDP): 21.4 (2004); 21.7 (2005); 22.9 (2006); 24.4 (2007); 26.7 (2008 prog.); 23.9 (2009 prog.); 26.2 (2010 proj.); 23.8 (2011 proj.); 24.6 (2012 proj.); 23.6 (2013 proj.); 24.7 (2014 proj.); 24.5 (2015 proj.); 24.6 (2016 proj.). - Overall fiscal balance, incl. grants (commitments, percent of GDP): -4.3 (2004); -4.9 (2005); -5.1 (2006); -6.2 (2007); -6.2 (2008 prog.); -5.7 (2009 prog.); -5.4 (2010 proj.); -4.7 (2011 proj.); -4.5 (2012 proj.); -4.3 (2013 proj.); -4.1 (2014 proj.); -3.9 (2015 proj.); -3.7 (2016 proj.). - Overall fiscal balance, excl. grants (commitments, percent of GDP): -8.6 (2004); -9.4 (2005); -10.7 (2006); -11.3 (2007); -13.4 (2008 prog.); -10.3 (2009 prog.); -12.7 (2010 proj.); -9.2 (2011 proj.); -10.0 (2012 proj.); -8.7 (2013 proj.); -9.7 (2014 proj.); -9.1 (2015 proj.); -8.8 (2016 proj.). ### External and current account (selected) - Exports of goods and services (percent of GDP): 10.7 (2004); 10.0 (2005); 11.7 (2006); 11.9 (2007); 10.7 (2008 prog.); 12.1 (2009 prog.); 10.3 (2010 proj.); 12.0 (2011 proj.); 11.4 (2012 proj.); 12.0 (2013 proj.); 11.7 (2014 proj.); 11.7 (2015 proj.); 11.5 (2016 proj.). - Imports of goods and services (percent of GDP): 24.3 (2004); 24.6 (2005); 24.6 (2006); 25.6 (2007); 25.4 (2008 prog.); 25.2 (2009 prog.); 25.2 (2010 proj.); 26.6 (2011 proj.); 24.7 (2012 proj.); 26.6 (2013 proj.); 24.3 (2014 proj.); 25.4 (2015 proj.); 24.8 (2016 proj.). - Current account balance (excl. official transfers, percent of GDP): -13.4 (2004); -14.6 (2005); -12.5 (2006); -13.8 (2007); -14.1 (2008 prog.); -13.4 (2009 prog.); -16.0 (2010 proj.); -12.8 (2011 proj.); -14.5 (2012 proj.); -12.4 (2013 proj.); -13.8 (2014 proj.); -13.0 (2015 proj.); -12.5 (2016 proj.). - Current account balance (incl. official transfers, percent of GDP): -10.4 (2004); -11.4 (2005); -9.6 (2006); -10.6 (2007); -10.1 (2008 prog.); -10.5 (2009 prog.); -12.2 (2010 proj.); -10.0 (2011 proj.); -12.1 (2012 proj.); -9.9 (2013 proj.); -11.5 (2014 proj.); -11.3 (2015 proj.); -10.8 (2016 proj.). ### Debt and reserves (selected) - External debt (percent of GDP): 41.2 (2004); 37.6 (2005); 19.9 (2006); 20.7 (2007); 20.9 (2008 prog.); 24.4 (2009 prog.); 23.6 (2010 proj.); 27.5 (2011 proj.); 26.5 (2012 proj.); 29.5 (2013 proj.); 28.7 (2014 proj.); 29.7 (2015 proj.); 30.9 (2016 proj.). - NPV of external debt (percent of GDP): 18.1 (2004); 19.0 (2005); 10.6 (2006); 12.2 (2007); 11.5 (2008 prog.); 14.3 (2009 prog.); 13.1 (2010 proj.); 16.2 (2011 proj.); 14.8 (2012 proj.); 17.3 (2013 proj.); 16.1 (2014 proj.); 17.0 (2015 proj.); 17.8 (2016 proj.). - NPV of external debt as percent of exports: 164.4 (2004); 185.4 (2005); 88.1 (2006); 101.0 (2007); 104.6 (2008 prog.); 116.6 (2009 prog.); 124.2 (2010 proj.); 132.8 (2011 proj.); 127.6 (2012 proj.); 141.2 (2013 proj.); 135.8 (2014 proj.); 142.9 (2015 proj.); 152.1 (2016 proj.). - Gross international reserves (billions of CFA francs): 318.1 (2004); 243.6 (2005); 275.3 (2006); 415.9 (2007); 396.0 (2008 prog.); 406.4 (2009 prog.); 370.2 (2010 proj.); 419.9 (2011 proj.); 362.9 (2012 proj.); 375.6 (2013 proj.); 360.4 (2014 proj.); 346.0 (2015 proj.). ### Central government consolidated operations (selected nominal levels) - Total revenues and grants (billions of CFA francs): 461.8 (2004 est.); 496.7 (2005 est.); 570.1 (2006 est.); 340.2 (2007 June prog.); 346.4 (2007 December prog.); 628.4 (2008 proj.); 678.3 (2009 proj.); 683.3 (2010 prog.); 732.4 (2011 proj.); 775.0 (2012 proj.); 772.5 (2013 proj.); 854.8 (2014 proj.); 859.5 (2015 proj.); 932.7 (2016 proj.); 1,022 (2017 proj.). - Total revenues (billions of CFA francs): 344.5 (2004); 365.2 (2005); 392.4 (2006); 230.1 (2007 Jun); 228.1 (2007 Dec); 450.4 (2008); 440.3 (2009); 508.4 (2010); 477.6 (2011); 591.9 (2012); 559.8 (2013); 660.0 (2014); 624.1 (2015); 695.7 (2016); 774.6 (2017). - Total expenditure and net lending (billions of CFA francs): 577.0 (2004); 642.0 (2005); 733.7 (2006); 420.1 (2007 Jun); 459.8 (2007 Dec); 841.5 (2008); 885.2 (2009); 896.3 (2010); 924.3 (2011); 968.4 (2012); 943.6 (2013); 1,044 (2014); 1,029 (2015); 1,109 (2016); 1,206 (2017). ### Poverty-reducing social expenditures and MDG indicators (selected) - Total poverty-reducing social expenditure (billions of CFA francs): 80.4 (2001); 108.9 (2002); 116.6 (2003); 145.0 (2004); 161.8 (2005); 167.2 (2006); 203.8 (2007 est./proj.). - As percent of GDP: total poverty-reducing social expenditure 3.9 (2001); 4.7 (2002); 4.7 (2003); 5.4 (2004); 5.5 (2005); 5.2 (2006); 6.1 (2007). - Education (billions of CFA francs): 35.1 (2001); 42.7 (2002); 47.9 (2003); 56.9 (2004); 64.5 (2005); 70.6 (2006); 77.5 (2007). - Health (billions of CFA francs): 27.3 (2001); 38.5 (2002); 37.9 (2003); 48.1 (2004); 54.2 (2005); 55.7 (2006); 61.9 (2007). ### Balance of payments highlights (selected) - Exports, f.o.b. (billions of CFA francs): 253 (2004); 247 (2005); 312 (2006); 352 (2007 prog.); 300 (2008 proj.); 390 (2009 proj.); 304 (2010 proj.); 417 (2011 proj.); 371 (2012 proj.); 412 (2013 proj.); 444 (2014 proj.); 469 (2015 proj.). - Imports, f.o.b. (billions of CFA francs): -498 (2004); -541 (2005); -586 (2006); -655 (2007 prog.); -621 (2008 proj.); -709 (2009 proj.); -700 (2010 proj.); -753 (2011 proj.); -748 (2012 proj.); -791 (2013 proj.); -835 (2014 proj.); -880 (2015 proj.). - Trade balance (billions of CFA francs): -245 (2004); -293 (2005); -275 (2006); -304 (2007 prog.); -321 (2008 proj.); -319 (2009 proj.); -396 (2010 proj.); -335 (2011 proj.); -377 (2012 proj.); -379 (2013 proj.); -392 (2014 proj.); -411 (2015 proj.). - Current account (– = deficit, billions of CFA francs): -281 (2004); -337 (2005); -306 (2006); -367 (2007 prog.); -334 (2008 proj.); -395 (2009 proj.); -431 (2010 proj.); -409 (2011 proj.); -464 (2012 proj.); -479 (2013 proj.); -512 (2014 proj.); -532 (2015 proj.). - Months of imports of goods and services: 5.8 (2004); 4.0 (2005); 4.2 (2006); 5.7 (2007); 5.7 (2008 prog.); 5.2 (2009 prog.); 4.8 (2010 proj.); 5.0 (2011 proj.); 4.4 (2012 proj.); 4.3 (2013 proj.); 3.9 (2014 proj.); 3.5 (2015 proj.). ### IMF financing and PRGF disbursement schedule (selected) - Outstanding Fund credit, end of period (Millions of SDRs): 72.4 (2005); 23.2 (2006); 24.2 (2007); 35.3 (2008); 37.3 (2009); 37.6 (2010); 35.2 (2011); 30.5 (2012); 16.5 (2013); 11.2 (2014); 6.1 (2015). - Fund credit, net charges (Millions of SDRs): 1.8 (2005); -12.8 (2006); -0.5 (2007); -10.5 (2008); -1.5 (2009); 0.2 (2010); 2.9 (2011); 5.2 (2012); 6.4 (2013); 7.6 (2014); 7.3 (2015). - PRGF disbursements (Millions of SDRs): 10.3 (2005); 12.9 (2006); 1.0 (2007); 11.0 (2008); 2.0 (2009); 1.0 (2010); 0.0 (2011–2015). - Schedule of PRGF disbursements and conditions (amounts and dates): - SDR 0.5 million — April 23, 2007 — Following Executive Board approval of the three-year PRGF arrangement. - SDR 3.51 million — December 31, 2007 — Observance of the performance criteria for June 30, 2007, and completion of the first review under the arrangement. - SDR 4.014 million — May 31, 2008 — Observance of the performance criteria for December 31, 2007, and completion of the second review under the arrangement. - SDR 4.014 million — November 30, 2008 — Observance of the performance criteria for June 30, 2008, and completion of the third review under the arrangement. - SDR 1.004 million — May 31, 2009 — Observance of the performance criteria for December 31, 2008, and completion of the fourth review under the arrangement. - SDR 1.004 million — November 30, 2009 — Observance of the performance criteria for June 30, 2009, and completion of the fifth review under the arrangement. - SDR 1.004 million — March 30, 2010 — Observance of the performance criteria for December 31, 2009, and completion of the sixth review under the arrangement. - Assumption: augmentation of access in 2008 of 15 percent of quota (SDR 9.03 million) is assumed in PRGF phasing. ### Social and development indicators (selected MDG-related) - Malnutrition prevalence, weight for age (% of children under 5): 32.7 (1995); 34.3 (2000); 37.7 (2005). - Poverty headcount ratio at $1 a day (PPP) (% of population): 51.4 (1995); 44.9 (2000); 27.2 (2005). - Net primary school enrollment (% net): 29 (1990); 36 (2000); 45 (2005). - Immunization, measles (% of children ages 12-23 months): 79 (1990); 43 (1995); 59 (2000); 84 (2005). - Mortality rate, under-5 (per 1,000): 210 (1990); 204 (1995); 196 (2000); 191 (2005). - GDP per unit of energy use and other environmental indicators as reported in source tables. *Sources: Burkinabè authorities; IMF staff estimates and projections; IMF Country Report No. 07/153, May 9, 2007; IMF Finance Department.* ### APPENDIX I. BURKINA FASO: DEBT SUSTAINABILITY ANALYSIS (UPDATE) ### APPENDIX I. BURKINA FASO: DEBT SUSTAINABILITY ANALYSIS (UPDATE) ### Overview and main finding - The risk of debt distress has increased because of deterioration in the export outlook and uncertainty about maintaining status as a strong performer. - A forthcoming joint DSA planned for 2008 will reassess both aspects based on additional data. - The update focuses on external public debt, as domestic debt is small in Burkina Faso. ### Export outlook and implications - Cotton developments: - The 2006/07 cotton harvest was 15 percent lower than expected. - Projections for the 2007/08 harvest were reduced by another 30 percent because of unfavorable weather; a reduction in producer prices also contributed. - Assuming normal weather in 2008/09, cotton production is projected to rebound by 30 percent, but the long-run production outlook remains below the previous trajectory. - Non-cotton exports: - Revised to incorporate an earlier-than-expected startup of commercial gold mining operations, which initially offsets some of the cotton decline. - Aggregate revisions: - Overall, export projections have been revised downwards by approximately 12 percent in the long term. - The exports-to-GDP share was revised down by about 1 percentage point. ### Fiscal stance and borrowing requirements - Revenue path (in percent of GDP) remains unchanged in the medium term. - Expenditures over the medium term are higher because of additional capital spending and a higher base in 2007. - External borrowing requirements in 2007 and 2008 are expected to decline considerably relative to previous projections because of: - Higher grants (including U.S. Millennium Challenge Corporation (MCC) grants and additional resources from the World Bank and the African Development Bank after Burkina Faso’s classification as having a moderate risk of debt distress). - Larger recourse to domestic financing facilitated by substantial privatization receipts in 2007. ### Debt sustainability baseline and scenarios - Medium-term effect: - Reduced external borrowing requirements lower the NPV of debt-to-exports ratio below its previous trajectory over the medium term. - Long-term effect: - Deterioration in the export outlook dominates in the long term, pushing the NPV of debt-to-exports ratio closer to its indicative threshold. - Yellow-light scenario (assumes maintenance of a moderate risk of debt distress and a 50:50 loan:grant mix for another five years): - If the 50:50 mix is maintained for 2009–13, the increase in the NPV of debt-to-exports ratio would be considerably dampened. - Likely support from the World Bank and African Development Bank under this rating would lead to a more favorable trajectory for debt ratios than the baseline projects. - Red-light scenario (assumes reclassification to medium performer resulting in a high risk of debt distress and 100 percent grant disbursements): - In the baseline projection, a breach of the NPV of debt-to-exports ratio threshold would occur if Burkina Faso is reclassified as a medium performer. - Under a sustained red-light status for 10 years, the trajectory for the NPV of debt-to-exports ratio might be dampened enough to keep it below the 150 percent threshold. - Figures reference thresholds of 150 percent and 200 percent for NPV of debt-to-exports. ### Performance rating risk - The World Bank’s CPIA score in 2006 declined below the threshold for strong performers. - Absent a strong improvement in the 2007 rating, Burkina Faso could be reclassified as a medium performer, which would lower indicative thresholds and raise the risk of debt distress. - Such reclassification could prompt the World Bank and African Development Bank to switch to a ‘red light’ loan/grant allocation mechanism (100 percent grants). ### Key quantitative findings and indicators (select extracts from Appendix Table I.1 and related text) - Cotton production/rebound assumptions: - 2006/07 harvest: 15 percent lower than expected. - 2007/08 harvest reduction: 30 percent. - Projected rebound in 2008/09: 30 percent. - Aggregate export revisions: - Long-term export projections: revised downwards by approximately 12 percent. - Exports-to-GDP share: revised down by about 1 percentage point. - NPV of external debt (selected values from Appendix Table I.1, percent of GDP and percent of exports): - NPV of external debt (percent of GDP), selected years in table: 18.1, 19.0, 10.6, 11.5, 13.1, 14.8, 16.1, 14.2, 19.8, 21.1, 22.0, 20.3. - NPV of external debt (percent of exports), selected years in table: 162.0, 185.4, 88.1, 104.7, 124.2, 127.6, 135.8, 127.6, 170.3, 182.3, 184.1, 173.5. - Debt service-to-exports ratio (percent), selected values: 8.0, 7.7, 5.6, 5.8, 5.8, 6.5, 6.5, 6.3, 7.8, 9.4, 10.6, 8.6. - Total gross financing need (millions of U.S. dollars), selected values: 541.9, 636.4, 591.1, 370.1, 837.5, 846.6, 859.7, 690.2, 851.1, 1,084.5, 1,594.1, 1,078.7. - Noninterest current account deficit that stabilizes debt ratio (percent): 10.9, 14.7, 27.1, 8.9, 9.3, 8.8, 8.9, 13.0, 7.6, 7.6, 7.1, 7.8. - Key macroeconomic assumptions (selected): - Real GDP growth (percent), selected series: 4.6, 6.4, 2.4, 7.1, 5.5, 4.2, 4.5, 6.3, 6.0, 5.6, 5.9, 5.8, 5.9, 5.9. - GDP deflator in US dollar terms (change in percent), selected series: 14.3, 4.3, 11.8, 2.6, 3.3, 7.0, 3.4, 3.0, 3.2, 3.7, 2.3, 2.2, 2.2, 2.4. - Effective interest rate (percent), selected series: 0.8, 0.4, 0.4, 0.7, 0.7, 0.9, 1.0, 1.6, 1.6, 1.1, 1.3, 1.3, 1.5, 1.3. - Growth of exports of G&S (U.S. dollar terms, percent), selected series: 46.9, 10.6, 22.1, 1.0, 27.2, 2.1, 3.8, 20.7, 11.8, 11.1, 8.2, 8.5, 9.2, 8.5. - Grant element of new public sector borrowing (percent), selected series: 46.4, 45.0, 44.2, 42.4, 43.9, 44.4, 44.4, 42.3, 39.2, 35.7, 40.5 (table shows "..." for earlier years). - Memorandum item: - Nominal GDP (millions of U.S. dollars), selected entries: 5,114; 5,620; 6,124; 6,826; 7,373; 8,075; 8,829; 13,441; 19,984; 29,660. ### Sensitivity and stress tests (select results) - Appendix Table I.2 and Figure I.5 present sensitivity analysis and alternative scenario outcomes for key public external debt indicators (NPV of debt-to-GDP, NPV of debt-to-exports, debt service-to-exports). - Selected scenario outcomes for the NPV of debt-to-exports ratio (percent), baseline and stress variants: - Baseline trajectory and multiple bound tests show large dispersion under shocks such as: - Real GDP growth at historical average minus one standard deviation. - Export value growth at historical average minus one standard deviation. - U.S. dollar GDP deflator shock. - Net non-debt-creating flows shock. - One-time 30 percent nominal depreciation in 2007. - Under A2 (new public sector loans on less favorable terms in 2007–25), NPV of debt-to-exports ratio outcomes rise substantially relative to baseline (table entries show large increases in later years). ### Policy-relevant implications (from analysis) - Export shocks (notably to cotton) materially worsen the debt outlook; early startup of gold mining mitigates but does not fully offset the decline. - Continued access to concessional finance and grants from multilateral institutions under a ‘yellow-light’ or, if needed, ‘red-light’ allocation mechanism materially affects debt trajectories: - A maintained 50:50 loan/grant mix for 2009–13 (yellow-light) would dampen increases in the NPV of debt-to-exports ratio. - A sustained switch to 100 percent grants (red-light) for up to 10 years could prevent breaching the 150 percent NPV of debt-to-exports threshold. - Fiscal management: - Higher medium-term expenditures increase budgetary pressures, but higher grants and privatization receipts reduce external borrowing needs in the near term. - The relationship between the World Bank’s CPIA-based performance rating and debt thresholds is critical; a downgrade to medium performer would lower thresholds and raise the probability of a high risk of debt distress. *Source: APPENDIX I. BURKINA FASO: DEBT SUSTAINABILITY ANALYSIS (UPDATE), IMF staff and Burkinabè authorities (extracted from the supplied content).* ### APPENDIX II. ATTACHMENT I. BURKINA FASO: MEMORANDUM OF ECONOMIC AND ### APPENDIX II. ATTACHMENT I. BURKINA FASO: MEMORANDUM OF ECONOMIC AND FINANCIAL POLICIES OF THE GOVERNMENT FOR 2007–08 ### I. Introduction — program purpose and recent outcomes - Program: update of Burkina Faso’s economic and financial program under the three-year Poverty Reduction and Growth Facility (PRGF) arrangement approved on April 23, 2007. - Objectives: consolidate macroeconomic stability and foster conditions to sustain high economic growth and reduce poverty. - 2006 performance highlights: - Economic growth: 5½. - Inflation: fell below the WAEMU convergence criterion of 3 percent. - Exports: grew strongly despite low international cotton prices and a strong euro. - Imports: higher than expected due to upward revision in historical petrol imports, increasing external current account deficits. - Fiscal policy: loosened as planned (fiscal balance excluding grants). - Revenue collections: fell short of expectations; increases in grants partly offset shortfalls. - Debt sustainability: benefited from MDRI relief, which cut the external debt stock in half. - Cotton sector and SOFITEX: - Limited pass-through of lower world cotton prices caused sizable financial losses among ginning companies. - SOFITEX (largest ginning company, partly government owned) was recapitalized to restore financial health. - A new producer price mechanism linked to world prices adopted; cotton output affected by adverse weather and lower prices. - Reforms and capacity: - Progress in computerizing tax and customs administration and setting up joint brigades against fraud. - Merger of Ministry of Finance and Budget and Ministry of Economy and Development to improve coordination. - Progress in computerizing the expenditure system. - Revenue ratio remains low by international standards and WAEMU criteria; further reforms required. ### II. Macroeconomic framework for 2007 and program implementation through September A. Recent economic developments and 2007 macroeconomic framework - Activity: - Economic activity remained robust despite cotton-sector difficulties. - Fiscal stimulus: total fiscal expenditures increased by over 30 percent year-on-year in H1 2007. - Inflation: - Declined steadily since H2 2006 and turned negative in recent months due to falling food prices (good grain harvests in 2005 and 2006). - Nonfood inflation: remained moderate despite full pass-through of world oil price increases to domestic petrol prices. - Cotton shock and growth implications: - 2007/08 cotton output expected to fall from 657,000 tons to 435,000 tons (a one-third decline). - Causes: late rainfall (adverse climate), producer floor price 12 percent lower than a year ago, delayed payments from the last campaign, late announcement of producer floor price. - Farmers shifting to maize, sorghum, millet largely for own consumption (not entering formal economy). - Bad weather reduced expected maize output; vulnerable farmers may need support. - Projected 2007 growth reduced to 4¼ percent; inflation expected to be slightly below zero. B. Program implementation and policies for the rest of 2007 - Fiscal performance to end-June: - Government revenues fell short by CFAF 2 billion (about 1 percent). - Grants exceeded projections by CFAF 8 billion. - Expenditures (commitment basis): higher than expected for goods and services due to one-off expenditures (utility payments, salaries from a 2006 agreement), decentralization program, larger externally financed capital spending, and higher execution rates. - On payment-order basis, expenditures were lower and end-June performance criterion on the fiscal deficit (including grants, payments-order basis) was met. - Indicative floor on social expenditures missed by less than 1 percent due to pressures related to SOFITEX recapitalization (amount larger than anticipated); some budgetary support moved to 2008. - Year-end 2007 outlook: - Nominal year-end revenue target reduced by CFAF 10 billion because of lower growth and inflation. - Revised revenue target represents an increase by one percentage point of GDP relative to 2006, exceeding programmed increase by 0.2 percentage points. - Measures to reach target: complete computerization of large taxpayer office, devote more resources to audit and collection enforcement, better use of ASYCUDA and import valuation database. - Grants projected about CFAF 60 billion higher than programmed (faster implementation of grant-financed projects and additional budget support). - Projected additional spending mostly foreign-financed capital spending and moderately higher current expenditures (utilities and wages). - Projections include CFAF 8 billion to complete SOFITEX recapitalization and CFAF 4 billion for payment of VAT refund arrears. - Structural reform progress and delays: - Met: adoption of new producer price mechanism for cotton in May (structural benchmark). - Petroleum automatic adjustment mechanism: to be implemented in 2008 despite high international oil prices and delayed implementation in July–November 2007. - SINTAX (tax administration computer system): modified so late filers and nonfilers will be automatically notified starting in July (continuous structural performance criterion); delayed transmission of filing information from local offices to LTO caused some notification delays; interim faxing of declarations to LTO until interconnection complete; new head of computerization to assure implementation starting after January 31, 2008. - VAT refund payments: circular issued to ensure refunds paid within 90 days; communications problems caused initial delays; as of November 15, 2007, all verified and unverified requests more than 90 days old were paid. - Customs single declaration form: in place in 14 of 15 computerized offices by end-June (missed structural performance criterion); Bingo office to use form after relocation; as of November 22, 2007 all customs offices are using the single customs declaration form. - Computerized customs valuation database: in place in all computerized offices (end-September structural benchmark met). - ASYCUDA remote access and selectivity modules: end-September benchmark not met in Ouagadougou; remote access tests for Ouagadougou rail office with seven brokers successful; plan to use remote access and selectivity modules in all computerized offices by December 31, 2007. ### III. Policies for 2008 — response to cotton shock and reform priorities - Overall assessment: - Cotton shock reduces exports and raises debt-sustainability risks. - Cotton exports in 2008 expected to be CFAF 44 billion lower than previously projected; cotton share of exports revised from 45 percent to 37 percent. - Offsetting factor: start of production in one major gold mine in 2007 and two more in 2008—expected to significantly boost gold production and exports. - Baseline NPV of debt-to-exports ratio will increase and almost reach the DSA threshold; risk of debt distress increased. - Need for policies to reduce debt, improve competitiveness, and stabilize NPV of debt-to-GDP at low levels. - Medium-term fiscal adjustment to raise government savings and reduce current account deficit. - Expected external support: estimated $500 million from the U.S. Millennium Challenge Account over next five years to increase capacity for capital spending while reducing overall fiscal deficit. A. Fiscal policy (2008) - Fiscal stance: - Aim: reduce fiscal deficit for 2008 to reflect increased risk while smoothing cotton shock impact. - After DSA changed risk of debt distress from “low” to “moderate”, the World Bank and African Development Bank converted half their financing to grants. - Despite potential to substantially lower deficit from originally envisioned 5.7 percent of GDP for 2008, cotton crisis and 2007 flood damages require social spending. - Lower growth expected to reduce tax revenues by about CFAF 10 billion (0.3 percent of GDP). - Policy decision: target a deficit, including grants (on a commitment basis), of CFAF 192 billion (5.4 percent of GDP) for 2008 to mitigate negative shock impacts. - Revenue policy: - Corporate income tax cut from 35 to 30 percent for 2008, expected revenue loss: CFAF 10 billion. - Rationale: increase private sector investment, improve competitiveness, boost revenues over time via growth and reduced tax evasion. - Small expected loss in customs revenues after WAEMU-ECOWAS free trade agreements implementation. - Nevertheless, plan to increase revenue-to-GDP ratio by 0.2 percentage points in 2008 through ambitious revenue administration reform requiring steadfast application of modern principles. - Expenditure priorities: - Prioritize spending given limited resources. - Expand health and education coverage in rural areas and provide free textbooks. - Increase social expenditures by CFAF 10 billion (more than the increase in current expenditures). - Keep firm control on current expenditures to allow greater infrastructure spending. - 2008 budget does not require further funds for SOFITEX recapitalization (which cost CFAF 34 billion in 2007). - Expected CFAF 24 billion funding from U.S. Millennium Challenge Account in 2008. - Expect to increase capital spending by CFAF 17 billion from 2007. - Collaboration with the World Bank to improve spending efficiency via public expenditure reviews and capital project analyses. B. Cotton sector reform - SOFITEX recapitalization: - Government contributed 75 percent of required recapitalization; expect to complete recapitalization by end-2007 for a combined total of CFAF 34 billion paid by government. - Working with World Bank and donors on restructuring strategy for SOFITEX; government decision on future liberalization expected by end-December (structural benchmark). - Sector strategy and instruments: - Strategy to restore long-term viability of cotton sector and reduce government involvement in ginning over time to be ready by mid-2008. - Creation of a price smoothing fund (fonds de lissage) to be finalized by early 2008 with inputs and financial resources from the French Development Agency. - Commit to ensuring fund operation rules make it self-financing under most scenarios and that its finances are fully transparent. - Joint study with the World Bank on addressing the cotton crisis impact in cotton-growing areas. C. Fiscal structural reform — revenue mobilization and PFM - Tax policy and legislation: - Unified tax code submission to parliament by end-December 2007 (structural benchmark). - Tax policy reform strategy expected to be approved by cabinet by end-April 2008 (structural benchmark). - Strategy focus: broaden tax base for major taxes, eliminate nuisance taxes, simplify system for taxpayers and administration. - Draft tax policy reform legislation to be submitted to parliament by end-December 2008 (structural benchmark) to meet revenue targets for 2009 and beyond. - Considering setting up a technical group on revenues within the Strategy for the Strengthening of Public Finances (SRPF). - Revenue administration — Large Taxpayer Office (LTO) emphasis: - LTO establishment a major milestone; minister of finance approved tax administration reform strategy with Fund inputs. - Strategy emphasis: equip LTO with resources and strategic orientation to implement reforms. - Targets: - Reduce nonfiler rate for large taxpayers from 12 percent in early 2007 to below 5 percent. - Reduce rate of VAT declarations with zero or negative tax liability from 49 percent to less than 20 percent via issue-oriented audits. - VAT refunds: allocated CFAF 6 billion in the budget to ensure verified VAT refund requests are paid promptly. - Computerization productivity gains contingent on integration of all software modules into workflow. - Scaling back decentralization plans and limiting resources for cadastre system due to limited reform resources. - Regulations to categorize taxpayers using turnover only (large, medium, small): objective to create ~500 large and ~1,500 medium taxpayers under the regular tax system; small taxpayers to use simplified taxation instead of VAT. - Implementation of these regulations: structural benchmark for end-June 2008. - Eliminate withholding for large taxpayers and simplify withholding for medium taxpayers starting in July 2008. - Customs administration reforms: - Aim: reduce direct contact between customs officials and traders to combat fraud using ASYCUDA. - ASYCUDA not yet applied systematically; planned measures: - Design selectivity system to assign at least 50 percent of customs declarations to green and blue channels. - Ensure nonadherence to ASYCUDA choice does not exceed 10 percent (structural benchmark end-September 2008). - Raise ratio of declarations in green and blue channels over time by improving risk assessment capabilities of selectivity module. - Interface customs valuations database with ASYCUDA by end-March 2008 to improve valuation and input for risk assessment. *Source: APPENDIX II. ATTACHMENT I. BURKINA FASO: MEMORANDUM OF ECONOMIC AND FINANCIAL POLICIES OF THE GOVERNMENT FOR 2007–08 (translated from French).* ### 19. PFM measures will be directed to improving budget execution and preparation, ### _cr08168 - 19. PFM measures will be directed to improving budget execution and preparation, ### Public Financial Management (PFM) reforms: budget execution, preparation, and controls - Objective: improve budget execution and preparation, and tracking of spending. - Study underway to expedite processing of payments and eliminate redundancies of controls; expected finalization by end-September 2008. - Action plan to be implemented over 2008 and 2009 (structural benchmark, end-December 2008). - Fundamental reform of the ex-post control framework to rationalize and increase effectiveness: - Draft laws to consolidate tasks of three bodies under a single authority: General Inspectorate of the State (Inspection générale de l’État), High Authority for the Coordination of the Fight Against Corruption (Haute autorité de coordination de la lutte contre la corruption), and National Commission for the Fight Against Fraud (Commission nationale de la lutte contre la fraude). - Extended jurisdiction to monitoring implementation of inspection recommendations and to judicial proceedings. - Study ways to scale up audit activities of the new institution during 2008 and provide corresponding resources in the 2009 budget. - Develop an action plan for scaled-up audit activities by the new institution by December 31, 2008. - Propose modalities by December 31, 2008 for publication of audit reports and systematic follow up on recommendations. - Improve reliability of revenue forecasts for budget preparation; addressed by technical groups of the steering committee beginning with the 2009 budget process. ### Expenditure tracking systems and timelines - Priority: track expenditures more closely. - Comprehensive system for tracking foreign-financed expenditures: - End-December 2007 structural benchmark completed for system development. - Technical development on first module (mobilization of funds) expected completed before year-end (2007). - Full implementation of all six modules delayed until 2009 at the earliest due to numerous interfaces and project complexity. - Interface development: - Establish interface between SIGASPE (integrated system for the management of wages and salaries) and CID (software for general expenditure tracking); work expected completed by December 2008. - Poverty-reducing expenditure tracking: - Pilot project applying the functional classification of GFSM 2001 to poverty-reducing expenditure tracking expected to be operational by end-June 2008 (structural benchmark). ### Internal and external expenditure control measures, audit findings, and remedial actions - Domestic debt audit (started in 2004) completed; supported by the Swiss Agency for Development and Cooperation. - Comprehensive inventory at December 31, 2006 shows government supplier claims amounting to about CFAF 78 billion. - CFAF 50 billion of these obligations examined and recognized obligations paid, including regularization of salary advancements (CFAF 18 billion). - Of CFAF 28 billion claims still under investigation in August 2007: - CFAF 15.4 billion relate to benefit claims on social security agencies (CARFO and CNSS) — to be dealt with according to conventions relating to these organizations. - CFAF 10.8 billion are contributions to international organizations — to be analyzed case by case. - Detailed report submitted to the Cabinet for instructions on treatment after verification and on preventive measures. - Objectives of periodic audits: - Ensure government institutions adhere to public expenditure processes. - Remind institutions about obligations of financial controllers. - Preventive institutional measures: - Regular meetings between the budget department and financial controllers of line ministries; adherence to budget law requirements. - Consideration of better defining the profile of financial controllers and the organizational structures they oversee to improve budget execution. - Identified oversight: April 2007 led to CFAF 3.3 billion paid to Libya counter to comparability-of-treatment clause under Paris Club agreements; no further payments will be made. ### Other structural reforms: governance, business environment, financial sector, and privatization - Business environment improvements (with IFC collaboration): - Introduced specialized commercial chambers. - Reduced judgment enforcement registration tax from 4 percent to 2 percent. - Reduced property transfer and registration fees. - Reduced time to register a company to 23 days. - Labor market: revised legislation expected to be finalized in 2008; ministry of labor adopted measures to improve fixed-term contracts use in the mining industry. - Governance: - Follow National Plan of Good Governance (PNBG) with emphasis on State role in development, fight against corruption, and improving legal system. - Government’s plan to fight corruption emphasizes streamlining governance institutions and creation of a single authority with mandate for general government supervision and fight against fraud and corruption; this authority will have power to bring suits and will publish its reports. - Burkina Faso to be one of eight countries carrying out comprehensive Governance and Anti-Corruption diagnostics with World Bank support in 2008; diagnostics will identify locus and vectors of corruption and include sector diagnostics and policy recommendations. - Financial sector: - World Bank financial sector review (now being finalized) finds overall stability, relative efficiency, and profitability; bank loan portfolio quality higher than sub-region average, though credit ratios have deteriorated due to troubles in the cotton sector and weaker balance sheets at new banks. - Consider steps to strengthen banking and insurance systems; increase access to finance for rural sector, housing, and SMEs; improve judicial system for credit. - Work with World Bank and Fund staff on a Financial Sector Assessment Program (FSAP), scheduled for WAEMU area in the last quarter of 2007 and for Burkina Faso in the first quarter of 2008. - Privatization timetable: - Additional government shares in ONATEL to be sold: 20 percent through public offering and 6 percent directly to ONATEL employees by mid-2008. - Based on new electricity law adopted in November 2007, preparing to solicit bids for private management of SONABEL. - Shares of SONHABY (national oil-importing company) scheduled to be sold in 2008. ### Program monitoring, quantitative targets, and structural conditionality - Program monitored against agreed quantitative financial targets (Table 1) and structural performance criteria and benchmarks (Table 2) and through program reviews. - Quantitative financial targets: - End-December 2007 and end-June 2008 targets are performance criteria. - End-March 2008 and end-September 2008 targets are indicative targets. - Program review schedule: - Second program review scheduled to be completed by end-July 2008. - Third program review scheduled to be completed by end-January 2009. - Technical Memorandum of Understanding (TMU) contains definitions of targeted variables and reporting requirements. - Change in definition of performance criterion on overall deficit including grants: - Changed from payment-order basis (base ordonnancement) to commitment basis (base engagement) after September 30, 2007 to facilitate program monitoring. - Selected quantitative figures from Table 1 (Billions of CFA francs; cumulative from beginning of year): - Ceiling on the overall fiscal deficit including grants: 140.3 (2006 actual); 70.0 (End-Mar. 2007 Prog. 6/); 30.2 (End-Jun. 2007 Act.); 80.0 (End-Sep. 2007 Prog. 6/); 58.5 (End-Dec. 2007 Act.); 155.0 (End-Mar. 2008 Prog.); 215.0 (End-Jun. 2008 Prog.); 35.0 (End-Sep. 2008 Proj.); 75.0 (End-Dec. 2008 Proj.); 105.0; 195.0. - Government revenue: 392.4 (2006); 95.0 (End-Mar. 2007 Prog. 6/); 93.7 (End-Jun. 2007 Act.); 230.0 (End-Sep. 2007 Prog. 6/); 228.1 (End-Dec. 2007 Act.); 340.0 (End-Mar. 2008 Prog.); 440.0 (End-Jun. 2008 Prog.); 100.0 (End-Sep. 2008 Proj.); 245.0 (End-Dec. 2008 Proj.); 355.0; 475.0. - Poverty-reducing social expenditures: 173.2 (2006); 45.0 (End-Mar. 2007 Prog. 6/); 42.1 (End-Jun. 2007 Act.); 95.0 (End-Sep. 2007 Prog. 6/); 94.3 (End-Dec. 2007 Act.); 150.0 (End-Mar. 2008 Prog.); 203.0 (End-Jun. 2008 Prog.); 40.0 (End-Sep. 2008 Proj.); 110.0 (End-Dec. 2008 Proj.); 160.0; 213.0. - Grants (memorandum item): 846.6 (2006); 39.5 (End-Mar. 2007 Prog. 6/); 52.4 (End-Jun. 2007 Act.); 110.0 (End-Sep. 2007 Prog. 6/); 118.4 (End-Dec. 2007 Act.); 140.2 (End-Mar. 2008 Prog.); 238.0 (End-Jun. 2008 Prog.); 59.1 (End-Sep. 2008 Proj.); 151.7 (End-Dec. 2008 Proj.); 234.9; 254.8. - Concessional loans (memorandum item): 133.2 (2006); 28.7 (End-Mar. 2007 Prog. 6/); 23.6 (End-Jun. 2007 Act.); 69.5 (End-Sep. 2007 Prog. 6/); 50.3 (End-Dec. 2007 Act.); 161.5 (End-Mar. 2008 Prog.); 122.9 (End-Jun. 2008 Prog.); 17.0 (End-Sep. 2008 Proj.); 50.7 (End-Dec. 2008 Proj.); 102.3; 145.7. - Structural conditionality (selected items from Table 2): - Tax policy: - Cabinet approval of comprehensive tax policy reform strategy by April 30, 2008 (Benchmark, 2nd review). - Submission to parliament of a draft 2009 budget that includes tax policy measures by September 30, 2008 (Benchmark, 3rd review). - Submit a comprehensive tax policy reform program to parliament by December 31, 2008 (Benchmark, 4th review). - Tax administration: - Use Sintax to generate a list of LTO late filers and nonfilers (VAT, corporate income, tax on income from securities, tax on income from real estate) and send reminders within a week after the declaration deadline; start date February 1, 2008; Continuous Performance Criterion. - Harmonize VAT thresholds and subject small taxpayers to simplified taxation by June 30, 2008 (Benchmark, 3rd review). - Customs administration: - During Q3 2008, assign at least 50 percent of customs declarations to green and blue channels and keep percentage of declarations selected but assigned for further controls by individual inspectors under 10 percent; September 30, 2008 (Benchmark, 3rd review). - Public financial management and governance: - Introduce comprehensive system for tracking poverty-reducing expenditures by June 30, 2008 (Benchmark, 3rd review). - Develop an action plan for improving effectiveness of ex ante expenditure controls, including elimination of redundant procedures, by December 31, 2008 (Benchmark, 4th review). *Source: IMF country documentation contained in the provided content unit.* ### 5. All these items are valued according to the statement of government budgetary ### _cr08168 - 5. All these items are valued according to the statement of government budgetary ### Adjustment; Grants and Concessional Loans - The overall deficit including grants is adjusted upward by the amount that grants fall short of what is programmed up to a maximum (see the MEFP, Table 1). - The overall deficit including grants will not be adjusted if grants are higher than programmed. - The overall deficit including grants will also be adjusted upward by the amount that concessional loans exceed what is programmed up to a maximum (see the MEFP, Table 1). ### Reporting Deadlines (deficit data) - The ministry in charge of finance will forward data to the IMF on the overall deficit excluding grants within six weeks after the end of each quarter. ### B. Nonaccumulation of Domestic Arrears — Definition and Performance Criterion - Definition: The government undertakes not to accumulate any new arrears on domestic government obligations. The treasury keeps records of such arrears and records repayments. - Performance criterion: The government will not accumulate any arrears on domestic government obligations during the program period. This is a performance criterion, to be observed continuously. - Reporting deadlines: Data on balances, accumulation, and repayment of arrears on domestic obligations will be reported within four weeks after the end of each month. ### C. Nonaccumulation of External Arrears — Performance Criterion - Definition: Government external debt is the stock of debt owed or guaranteed by the government. External arrears are external payments due but not paid on the due date. - Performance criterion: The government undertakes not to accumulate arrears on its external debt, except those arising from government debt that is being renegotiated with creditors, including non-Paris Club bilateral creditors. Nonaccumulation of external arrears is a performance criterion, to be observed continuously. - Reporting deadlines: Data on outstanding balances, accumulation, and repayment of external arrears will be forwarded within six weeks after the end of each month. ### D. Nonconcessional External Debt Contracted or Guaranteed by the Government - Performance criterion: The government undertakes not to contract or guarantee any external debt maturing in one year or more that has a grant element of less than 35 percent (calculated using the interest reference rate for borrowed foreign currencies provided by the IMF) beyond the ceiling indicated in the MEFP (Table 1). - Coverage: This applies to debt as defined in point 9 of the Guidelines (see ¶2), and to all commitments contracted or guaranteed for which value has not been received. It does not apply to treasury bills and bonds issued in CFA francs on the WAEMU regional market. - Observation: This performance criterion is to be observed continuously. - Reporting deadlines: Details on any loan (terms and creditors) to the government or guaranteed by the government must be reported within four weeks of the end of each month. ### E. Government Short-Term External Debt - Performance criterion: The government undertakes not to accumulate or guarantee any new external debt with a contractual maturity of less than one year. - Coverage and exclusions: Applies to debt as defined in point 9 of the Guidelines (see ¶2) and to commitments contracted or guaranteed for which value has not been received. Excluded are import- and export-related loans and treasury bills and bonds issued in CFA francs on the WAEMU regional market and normal short-term suppliers’ credits of one year or less. - Observation: This performance criterion is to be observed continuously. - Stock as of reference date: As of April 1, 2007, the government of Burkina Faso had no short-term external debt. ### III. Other Quantitative Indicative Targets - The program includes indicative targets on total government revenue and poverty-reducing social expenditures. #### A. Total Government Revenue — Definition and Reporting - Definition: Total government revenue is valued on a cash basis. It includes all tax and nontax revenue collected by the Directorate General of Taxation, the Directorate General of Customs, the Burkinabè Treasury, and revenue collection units at ministries and institutions, and it also includes revenue from treasury checks. VAT refunds are considered as expenditures. - Reporting deadlines: Details on total revenue will be sent to IMF staff by the SP-PPF of the Ministry of Finance and Budget within six weeks after the end of each month. #### B. Poverty-Reducing Social Expenditures — Definition and Reporting - Definition: Poverty-reducing social expenditures are defined by the PRSP priority sector programs and cover spending categories for the following ministries: Primary Education and Literacy; Health; Social Action and National Solidarity; Promotion of Women; Labor and Social Security; Employment and Youth; Agriculture, Water and Fishing Resources; Animal Resources; and Environment. They also cover rural roads and HIPC resources for infrastructure spending and for the Justice Ministry and the Ministry of Economy and Development. - Monitoring: Until 2006 these expenditures were compiled from budget execution tables and from the special HIPC account. Starting in 2007 they are monitored directly through the budget, as are all HIPC resources. - Reporting deadlines: The government will report within six weeks after the end of each month the monthly data on poverty-reducing social expenditures. ### IV. Structural Performance Criteria - The program incorporates structural performance criteria (see the MEFP, Table 2 in IMF Country Report No. 07/153 (5/09/2007)). #### A. Nonfiler Notices - Requirement: The government will use Sintax to generate a list of Large Taxpayer Office (LTO) late filers and nonfilers for the main tax categories and send reminders within a week after the deadline for returns. - Timing: This performance criterion will be observed on a continuous basis starting after January 31, 2008. - Definitions: A late filer is anyone who files a tax return after the deadline. A nonfiler is anyone in the database who did not file taxes. - Tax categories: The main tax categories are the VAT (TVA), the corporate income tax (BIC), the tax on income from securities (IRVM), and the tax on income from real estate (IRF). Declaration deadlines for the main tax categories are set in the tax code. - Coverage target: The government will send reminders to at least 98 percent of the late filers and nonfilers. ### V. Additional Program-Monitoring Information #### A. Public Finance — Data to be reported - Monthly government flow-of-funds table (TOFE) and customary appendix tables, to be forwarded within six weeks after the end of each month; if data on actual investment financed by external grants and loans are not available in time, a linear implementation estimate based on the annual projections will be used. - Complete monthly data on domestic budgetary financing (net bank credit to the government and stock of unredeemed treasury bonds and bills), to be provided within six weeks after the end of each month. - Quarterly data on implementation of the public investment program, including details on financing sources, to be sent within six weeks after the end of each quarter. - Quarterly data on external debt stock, external debt service, signing of external loans, and disbursements of external loans, to be sent within six weeks after the end of each quarter. - Monthly data on prices and the taxation of petroleum products, including: (i) prices prevailing during the month; (ii) detailed calculation of the price structure, from the f.o.b.-MED price to the retail price; (iii) volumes purchased and made available for consumption by the petroleum distributor (SONABHY); and (iv) a breakdown of receipts from the taxation of petroleum products—customs duties, tax on petroleum products (TPP), and value-added tax (VAT)—and of subsidies, to be provided within four weeks after the end of each month. - A monthly statement of the status of accounts with the treasury, classified by major category (administrative services, state enterprises, mixed enterprises, public administrative enterprises, international organizations, private depositors, and others), to be provided within six weeks after the end of each month. - Quarterly data for the large taxpayer office on (for TVA, BIC, IRVM, and IRF) the numbers of: registered taxpayers; declarations received on time; reminder letters sent to late and nonfilers. These quarterly statistics are to be provided within two weeks after the end of each quarter. - Quarterly data to be sent within 2 weeks of the end of the quarter: total number of customs declarations; number of declarations selected by channel; number of declarations by channel subject non-standard treatment. #### B. Monetary Sector — Data to be reported (monthly) - The consolidated balance sheet of monetary institutions. - Provisional data on the monetary survey (with final data provided ten weeks after the end of each month). - Borrowing and lending interest rates. - Customary banking supervision indicators for bank and nonbank financial institutions, if necessary. - Reporting deadlines: these items to be provided within six weeks after the end of each month. #### C. Balance of Payments — Data to be reported - Any revision of balance of payments data (including services, private transfers, official transfers, and capital transactions), as they occur. - Foreign trade statistics compiled by the National Statistics Institute, within three months after the end of the month concerned. - Preliminary annual balance of payments data within nine months after the end of the year concerned. #### D. Real Sector — Data to be reported - Disaggregated monthly consumer price indices, within two weeks after the end of each month. - Provisional national accounts. - Any revision of the national accounts. #### E. Structural Reforms and Other Data - Any study or official report on Burkina Faso’s economy, within two weeks after its publication. - Any decision, order, law, decree, ordinance, or circular that has economic or financial implications as soon as it is published or at the latest when it enters into force. ### Summary of Data Requirements (selected exact timing and items) - Real sector: Provisional national accounts — Variable — End of provisional estimate + eight weeks. - Real sector: Revisions of national accounts — Variable — End of revision + eight weeks. - Real sector: Disaggregated consumer price index — Monthly — Month’s end + two weeks. - Public finance: Net treasury and government position at the BCEAO and details of nonbank financing, including the stock of treasury bills and bonds — Monthly — Month’s end + six weeks. - Public finance: Government flow-of-funds table (TOFE) and the customary appendix tables — Monthly — Month’s end + six weeks. - Public finance: Execution of capital budget — Quarterly — End of quarter + six weeks. - Public finance: Poverty-reducing social expenditures — Monthly — Month’s end + six weeks. - Public finance: Structural of prices for petroleum products — Monthly — Month’s end + four weeks. - Public finance: Status of the deposit accounts with the public treasury, classified by major category — Monthly — Month’s end + six weeks. - Public finance: Statistics of the LTO on tax filings — Quarterly — End of quarter + two weeks. - Public finance: Statistics on customs declarations — Quarterly — End of quarter + four weeks. - Monetary and financial data: Monetary survey — Monthly — Month’s end + six weeks. - Monetary and financial data: Consolidated balance sheet of monetary institutions — Monthly — Month’s end + six weeks. - Monetary and financial data: Borrowing and lending interest rates — Monthly — Month’s end + six weeks. - Monetary and financial data: Banking supervision ratios — Quarterly — End of quarter + eight weeks. - Balance of payments: Balance of payments — Annual — End of year + nine months. - Balance of payments: Trade statistics — Quarterly — End of quarter + eight weeks. - Balance of payments: Revised balance of payments data — Variable — When revisions occur. - External debt: Outstanding external debt stock, arrears and repayments (if applicable) — Quarterly — End of quarter + six weeks. - External debt: Details of all new external borrowing — Quarterly — End of quarter + four weeks. *Prepared by the African Department; Approved by Thomas Krueger and Mark Plant; December 20, 2007. Outstanding purchases and loans amounted to SDR 23.72 million (39.4 percent of quota) at end-October 2007.* ### APPENDIX I. BURKINA FASO: RELATIONS WITH THE FUND ### APPENDIX I. BURKINA FASO: RELATIONS WITH THE FUND (As of October 31, 2007) ### I. Membership Status - Joined: May 2, 1963 - Accepted Article VIII in June 1996 ### II. General Resources Account - Quota: 60.20 (SDR Million) — In percent of quota: 100.00 - Fund holdings of currency: 52.82 — In percent of quota: 87.74 - Reserve position in Fund: 7.39 — In percent of quota: 12.27 - Holdings Exchange Rate: (no numeric value provided beyond headings) ### III. SDR Department - Net cumulative allocation: 9.41 (SDR Million) — In percent of allocation: 100.00 - Holdings: 0.09 (SDR Million) — In percent of allocation: 0.94 ### IV. Outstanding Purchases and Loans - Poverty Reduction and Growth Facility (PRGF) arrangements outstanding: 23.72 (SDR Million) — In percent of quota: 39.40 ### V. Latest Financial Arrangements - PRGF: Approval Date Apr. 23, 2007; Expiration Date Apr. 22, 2010; Amount Approved (SDR Million) 6.02; Amount Drawn (SDR Million) 0.50 - PRGF: Approval Date Jun. 11, 2003; Expiration Date Sept. 30, 2006; Amount Approved (SDR Million) 30.10; Amount Drawn (SDR Million) 30.10 - PRGF: Approval Date Sept. 10, 1999; Expiration Date Dec. 09, 2002; Amount Approved (SDR Million) 39.12; Amount Drawn (SDR Million) 39.12 ### VI. Projected Payments to Fund (SDR million; based on existing use of resources and present holdings of SDRs) - Forthcoming 2007–2011 projection lines as presented in source (tabular values preserved): - Principal: 0.69 2.41 - Charges/interest: 0.15 0.48 0.48 0.48 0.47 - Total: 0.15 0.48 0.48 1.17 2.88 - Note: Figures are reproduced exactly as presented in the source. ### VII. Implementation of HIPC Initiative - Original Framework decision point date: Sept. 1997 - Enhanced Framework decision point date: Jul. 2000 - Total assistance committed by all creditors (US$ Million): - Original Framework: 18 - Enhanced Framework: 229.00 324.15 (values shown in source) - Of which: IMF assistance (US$ million): 21.70 35.88 - (SDR equivalent in millions): 16.30 27.67 - Completion point date: Jul. 2000 Apr. 2002 - Disbursement of IMF assistance (SDR Million): - Assistance disbursed to the member: 16.30 27.67 43.97 - Interim assistance: ...4.15 4.15 - Completion point balance: 16.30 23.52 39.82 - Additional disbursement of interest income: ...2.01 2.01 - Total disbursements: 16.30 29.68 45.98 ### VIII. Implementation of MDRI Assistance - I. Total Debt Relief (SDR Million): 62.12 - Of which: MDRI 57.06 - Of which: HIPC 5.06 - II. Debt Relief by Facility (SDR Million) - Eligible Debt delivery date January 2006 - GRA / PRGF / Total: N/A 62.12 62.12 - Notes reproduced exactly as in source: - Assistance committed under the original framework is expressed in net present value (NPV) terms at the completion point, and assistance committed under the enhanced framework is expressed in NPV terms at the decision point. Hence, these two amounts cannot be added. - Under the enhanced framework, an additional disbursement is made at the completion point corresponding to interest income earned on the amount committed at the decision point, but not disbursed during the interim period. - The Multilateral Debt Relief Initiative (MDRI) provides 100 percent debt relief to eligible member countries that are qualified for the assistance. Grant assistance from the MDRI Trust and HIPC resources provide debt relief to cover the full stock of debt owed to the Fund as of end-2004 that remains outstanding at the time the member qualifies for such debt relief. ### IX. Safeguards Assessments - The Central Bank of West African States (BCEAO) is the common central bank for WAEMU, including Burkina Faso. - Most recent safeguards assessment of the BCEAO completed on November 4, 2005. - Assessment findings and follow-up (as presented): - Progress made in strengthening the bank's safeguards framework since the 2002 assessment; some areas need further steps. - BCEAO now publishes a full set of audited financial statements; financial reporting moved closer to International Financial Reporting Standards (IFRS). - An internal audit charter has been put in place; mechanisms for improving risk management established; follow-up on internal and external audit recommendations strengthened. - Monitoring of first half of 2007 indicates vulnerabilities remain in internal control systems and legal structure. - Some progress in improving external audit process (adoption of a multi year audit program), establishing an audit committee, expanding disclosures in notes to financial statements on financial positions with the Fund by countries, and strengthening the effectiveness of the internal audit function. ### X. Exchange Rate Arrangement - Burkina Faso is a member of the West African Economic and Monetary Union (WAEMU) and has no separate legal tender. - The CFA franc is pegged to the euro at CFAF 655.957 = EUR 1, consistent with the official conversion rate of the French franc to the Euro and the previous fixed rate of the CFA franc to the French franc of CFAF 100= F 1. - On April 28, 2006, the rate of the CFA franc in terms of SDR was CFAF 769.68 = SDR 1.0. - Effective January 1, 2007, the exchange arrangement of the WAEMU countries was reclassified to "conventional pegged arrangement" from "exchange arrangement with no separate legal tender". - The reclassification reflects a definitional change based on the behavior of the common currency, not a judgment of substantive policy change. - The exchange system is free of restrictions on the making of payments and transfers on current international transactions. ### XI. Article IV Consultations - Periodicity set in accordance with the July 15, 2002 Executive Board Decision on consultation cycles. - Discussions on the 2005 Article IV consultation and fourth review under the PRGF were held May 24—June 9, 2005 in Ouagadougou. - Staff report: IMF Country report No. 05/354, September 30, 2005. - Selected Issues and Statistical Annex: IMF Country Report No. 05/358, September 30, 2005. - Executive Board consideration date: September 7, 2005. ### XII. ROSC/AAP - FAD mission visited Ouagadougou May 7–18, 2001 to assist draft fiscal module of a Report on the Observance of Standards and Codes (ROSC). Final report issued July 2002. - Findings: Burkina Faso making good progress to increase transparency and accountability of government; additional efforts needed for implementation, particularly expenditure tracking at local level and external audit functions. - Authorities broadly concurred; on July 31, 2002 authorities formally adopted an action plan based on ROSC recommendations. - STA mission May 8–21, 2003 assisted in preparing a data ROSC; report published March 2004. - Findings: Most methodologies broadly conform with internationally accepted guidelines; datasets affected by limited or impaired source data (national accounts), outdated weights (CPI), low survey response (balance of payments). - CPI and government finance statistics meet SDDS dissemination requirements; other macro datasets timeliness falls short of GDDS recommendations. - Authorities broadly concurred; recommendations and implementation needs identified. - Joint IMF–World Bank HIPC Initiative Assessment and Action Plan (AAP): - Purpose: assess capacity of public expenditure management system to track poverty-reducing public expenditures and technical assistance needs. - Outcomes: officials approved preliminary assessment; main technical assistance needs identified; draft outline action plan drawn up and endorsed by the authorities. ### XIII. Technical Assistance - Significant technical assistance provided since 1989, with recent emphasis in fiscal area. - Representative entries (department, type of assistance, time of delivery, purpose) reproduced exactly as presented: - AFRITAC Tax Advisor, February 7–11, 2005: Review the progress made on: (1) the setup of the Large Taxpayer Unit and the Medium Taxpayers Office; (2) the steps to strengthen the fiscal control; and (3) the corporate registry reform. - AFRITAC Customs Advisor, February 14–18, 2005: Provide assistance to control transit merchandises in the country and travelers at Ouagadougou airport. - AFRITAC Customs, short-term Expert, February 14–23, 2005: Implement customs valuation code and establish a database for indicative import prices. - AFRITAC Microfinance Advisor, March 21–25, 2005: Assess the TA need of the Cellule responsible of the supervision of microfinance institutions and prepare a capacity-building program. - AFRITAC Short-term Expert, April 18–29, 2005: Training of auditors of the Tax administration. - AFRITAC PEM Advisor, June 27, July 1, 2005: Review of the public finance directives of WAEMU. - AFRITAC STA Advisor and Short-term Expert, June 27–July 5, 2005: Assist in setting up database for the TOFE (first or two scheduled missions) and expand further the scope of the TOFE (last of three scheduled missions). - AFRITAC Customs Advisor visits, July 10–16, 2005: Advise on customs enforcement and assessment of further TA needs. - AFRITAC Tax Advisor, August 8–12, 2005: (1) Review the status of implementation of the 2003 FAD mission’s recommendations; (2) update the tax directorate’s action plan; and (3) asses the DGI TA’s needs. - AFRITAC STA Short-term Expert, August 22–26, 2005: Assist with putting in place the database of public finances. - AFRITAC Customs Advisor, August 28–September 1, 2005: Advise on customs enforcement and assessment of further TA needs. - AFRITAC STA Short-term Expert, August 29–September 2, 2005: Assist and set up database for the TOFE (last of the two scheduled missions). - AFRITAC Microfinance Advisor, September 19–23, 2005: Strengthen operational systems for the surveillance of microfinance institutions. - AFRITAC STA Short-term Expert, September 19–23, 2005: Assist and setting up database for the TOFE (additional mission). - AFRITAC PEM Advisor, October 10–14, 2005: Review the status of implementation the January 2004 mission recommendations and assess the technical assistance needs. - AFRITAC Microfinance Advisor and Short-term Expert, November 21–December 16, 2005: Coach in microfinance inspections. - AFRITAC STA Advisor, December 6–15, 2005: Review the WAEMU directives on budgetary nomenclature. - AFRITAC Customs Advisor, January 23–25, 2006: Strengthen the dialogue between the customs administration and the private sector (regional workshop). - AFRITAC STA Advisor, March 11–25, 2006: Review the directive on the TOFE. - AFRITAC PEM Advisor, March 13–17, 2006: Review the directive on the TOFE. - AFRITAC Tax administration; Short term Expert, March 14–28, 2006: Assist in strengthening (1) operations of the LTU; and (2) tax auditing. - AFRITAC Customs Advisor, March 14–28, 2006: Assist in defining an action plan to improve revenue mobilization. - FAD Revenue administration mission, March 14–28, 2006: Advise on tax and customs administration reform strategy (including improvement of the large tax payer unit, and strengthening of the tax and customs organization and operations). - AFRITAC Custom Advisor, April 4–14, 2006: Strengthen the control of goods valuation. - AFRITAC Tax administration; Short term Expert, April 17–28, 2006: Strengthen the management of the most important taxpayers. - AFRITAC Tax Advisor, July 24–28, 2006: Follow up the implementation of the recommendations by the FAD mission in March 2006. - AFRITAC Microfinance Advisor, July 31–August 4, 2006: Identify the follow-up indicators from a distance. - AFRITAC Real statistic sector Advisor, September 11–20, 2006: Take stock of the implementation of the recommendations by the ROSC mission in March 2004. - AFRITAC Microfinance, Short term Expert, September 28–October 20, 2006: Accompany the agents of the Cell S-IFD. - AFRITAC Public expenditure Advisors, October 2–12, 2006: Review and follow up the implementation of the priority action plan in the PF strengthening strategy. - AFRITAC Microfinance; Short term Expert, October 2–20, 2006: Develop agent’s abilities in inspection and accompany them in the field. - AFRITAC Customs administration, Short-term Expert, November 20–December 1, 2006: Assess the implementation of preview recommendations relating to the control of goods valuation in the customs. - AFRITAC Tax Advisor, November 20–December 1, 2006: Strengthen capacities of the tax administration to fight tax evasion. - AFRITAC Macroeconomic statistics Advisor, March 5–9, 2007: Training in Government Statistics Manual 2001. - AFRITAC Debt Advisor, March 5–16, 2007: Study the situation of the administrative management of the internal and external debts. - AFRITAC Customs Advisor, March 12–23, 2007: Follow up the implementation of the recommendations by the FAD mission in March 2006, and assess the implementation of the goods valuation control in the customs. - AFRITAC Macroeconomic statistics Advisor, March 19–23, 2007: Training in Government finance statistics framework. - AFRITAC Tax Advisor, March 26–30, 2007: Assist in the implementation of the tax administration strengthening and modernization measures. - MCM Bank supervision, July 23–27, 2007: Technical assistance needs assessment and evaluation on bank supervision. - FAD Revenue administration mission: Advise on tax and customs administration reform strategy (including improvement of the large tax payer unit, and strengthening of the tax and customs organization and operations). - FAD/AFRITAC Public financial management: Assist in the implementation of the authorities’ reform agenda in public financial management. ### XIV. Resident Representative - Mr. Mario Zejan took up the post of Resident Representative in March 2004. *IMF staff report content (APPENDIX I. BURKINA FASO: RELATIONS WITH THE FUND).* ### 30. The current Bank Portfolio comprises 14 IDA and 2 GEF commitments of ### _cr08168 - 30. The current Bank Portfolio comprises 14 IDA and 2 GEF commitments of ### Current Bank Portfolio - The current Bank Portfolio comprises 14 IDA and 2 GEF commitments of US$ 579.7 million, of which US$ 418 million are undisbursed. ### IDA Lending Operations (As of November 21, 2007; in millions of U.S. dollars) - Energy Access Project — Approval Date: 07/26/2007 — IDA/GEF Commitments in US$ Million: 38.8 — Undisbursed Amount of Active Projects: 39.2 - Decentralized Urban Capacity Building — Approval Date: 05/29/2007 — IDA/GEF Commitments in US$ Million: 10.0 — Undisbursed Amount of Active Projects: 10.4 - Community Based Rural Development — Approval Date: 03/27/2007 — IDA/GEF Commitments in US$ Million: 74.0 — Undisbursed Amount of Active Projects: 75.6 - Agriculture Diversification & Market Development — Approval Date: 06/20/2006 — IDA/GEF Commitments in US$ Million: 66.0 — Undisbursed Amount of Active Projects: 68.3 - Post Primary Education — Approval Date: 06/20/2006 — IDA/GEF Commitments in US$ Million: 22.9 — Undisbursed Amount of Active Projects: 17.2 - Health Sector Sup. & AIDS — Approval Date: 04/27/2006 — IDA/GEF Commitments in US$ Million: 47.7 — Undisbursed Amount of Active Projects: 46.9 - Admin Capacity Building — Approval Date: 03/22/2005 — IDA/GEF Commitments in US$ Million: 7.0 — Undisbursed Amount of Active Projects: 5.1 - Power Sector Development — Approval Date: 11/30/2004 — IDA/GEF Commitments in US$ Million: 63.6 — Undisbursed Amount of Active Projects: 45.9 - GEF Sahel Lowland Ecosys Mgmt — Approval Date: 06/22/2004 — IDA/GEF Commitments in US$ Million: 4.5 — Undisbursed Amount of Active Projects: 2.3 - STATCAP — Approval Date: 03/25/2004 — IDA/GEF Commitments in US$ Million: 10.0 — Undisbursed Amount of Active Projects: 4.1 - Transp Sector — Approval Date: 04/08/2003 — IDA/GEF Commitments in US$ Million: 92.1 — Undisbursed Amount of Active Projects: 65.8 - Compet & Enterprise Development — Approval Date: 03/04/2003 — IDA/GEF Commitments in US$ Million: 30.7 — Undisbursed Amount of Active Projects: 24.7 - Development Learning Center — Approval Date: 07/29/2002 — IDA/GEF Commitments in US$ Million: 2.3 — Undisbursed Amount of Active Projects: 0.1 - GEF Nat Res Mgmt Partnership — Approval Date: 05/21/2002 — IDA/GEF Commitments in US$ Million: 7.5 — Undisbursed Amount of Active Projects: 0.0 - Basic Education Sector — Approval Date: 01/22/2002 — IDA/GEF Commitments in US$ Million: 32.6 — Undisbursed Amount of Active Projects: 8.3 - Ouaga Water Supply — Approval Date: 03/20/2001 — IDA/GEF Commitments in US$ Million: 70.0 — Undisbursed Amount of Active Projects: 4.1 - Total — IDA/GEF Commitments in US$ Million: 579.7 — Undisbursed Amount of Active Projects: 418.0 ### Bank’s proposed remaining lending program for the FY06–09 period - Will consist of: one programmatic development lending operation per fiscal year; and investment operations potentially in the water and education sectors subject to discussions with the Government and IDA availability. - Burkina will participate in regional projects to improve infrastructure networks and increase agricultural productivity. - Footnotes: - FY09 IDA allocation will depend on IDA 15 negotiations currently underway. - Regional projects mentioned: A regional aviation project, a regional transit facilitation project, a West Africa power pool project and a West African agricultural productivity program. ### IMF-World Bank collaboration - Areas in which the Fund leads: - The Fund takes the lead in the policy dialogue on macroeconomic policies and monitors macroeconomic performance through quantitative performance criteria. - Established structural performance criteria in the areas of tax policy, financial transparency and good governance, and trade policy. - Areas in which the Bank leads: - The Bank takes the lead in economic growth and poverty reduction. - Supporting implementation of the PRSP in the areas of cotton sector reform, public finance management, good governance, decentralization, energy sector and economic diversification and competitiveness through a series of poverty reduction support credits (PRSC). - Complemented with a portfolio of specific projects addressing HIV/AIDS, education, infrastructure investments in transport, water and sanitation, urban and rural development, private sector development, and statistical capacity building. - Areas of shared responsibility: - Bank and Fund staffs consult regularly and attend Board discussions in the other institution. - Collaboration areas include: debt sustainability assessments; level and composition of public expenditures; public financial management; anti-corruption efforts; and HIPC resource use. ### Statistical issues (Appendix III) - Overall: - Data provision is adequate for surveillance purposes, but serious shortcomings hamper economic and program monitoring. - Participated in the General Data Dissemination System (GDDS) since December 2001; metadata posted on the DSBB but not updated since 2001. - INSD converted into an autonomous agency; human and material resources were significantly increased in 2002. - Received technical assistance under the government finance statistics (GFS) component of the regional GDDS project (funded by Japan) for WAEMU member countries. - A data ROSC mission visited Burkina Faso in May 2003; report published in March 2004. - May 2006 and September 2006 STA missions helped update statistical plans and recommended increasing resources, especially to the INSD. - Real sector: - Serious problems in national accounts and price statistics. - INSD compiles national accounts following harmonized WAEMU guidelines, in line with the 1993 SNA. - Annual data available on GDP estimates by economic activity (19 industries) and by expenditure categories at current and constant (1985) prices, and by institutional sector accounts. - Quality affected by scarcity of suitable data sources and deficiencies in statistical practices. - Informal sector not properly captured; estimates derived from limited informal sector surveys conducted in 1989 and 1996. - Residual estimation of private household consumption in absence of supply-use tables; use of outdated base year (1985) for constant price estimates. - Completed current price accounts for 2000 and revised 1999 data with TA; work program set up with AFRITAC West assistance; INSD to receive further TA from AFRISTAT and INSEE-France. - Consumer Price Index: - Compiled by INSD following WAEMU harmonized methodology. - Index covers expenditures by households living in the capital; excludes non-African households, various types of purchased goods and services, and services of owner-occupied dwellings. - Weight for “food, beverages, and tobacco” is 33.9 percent of the total. - Current base year is 1996. - When a product is unavailable, its price is presumed unchanged for up to three months in conformity with WAEMU methodology. - Software package used for calculating the CPI needs improvement. - Index periodicity and timeliness meet SDDS requirements; published by INSD and available on BCEAO and AFRISTAT websites. - Authorities do not compile a producer price index or wholesale price index; development of these indices not envisaged per DSBB plans. - Government finance: - Annual data published in the International Financial Statistics (IFS) through 2005. - No detailed monthly or quarterly data reported to STA for publication. - The 2006 Government Finance Statistics Yearbook includes data for 2004 and 2005 reported in the format of GFSM 2001. - The data cover budgetary operations only, but include a breakdown by function. *Source: World Bank.* ### 2004. In general, GFS compilation is constrained by a lack of coordination among fiscal ### _cr08168 - 2004. In general, GFS compilation is constrained by a lack of coordination among fiscal ### Public finance management and Government Finance Statistics (GFS) - ROSC identified areas for improvement: production of functional and ministerial breakdown of expenditure, extending coverage of the TOFE to the general government, and basing compilation on the Treasury ledger. - June–July 2007 FAD/AFRITAC West public finance management mission: - Provided a medium-term strategy to improve budget management. - Furthered progress on prior STA recommendations. - Strongly encouraged adoption of functional classification of expenditure and other methods consistent with GFSM 2001. - Ongoing reforms: computerization of large taxpayer office, removal of exemptions, streamlining of the tax code, and strengthening public financial management and audit capacity. ### Monetary and financial statistics - Preliminary monetary data are prepared by the national agency of the BCEAO and released officially with a lag of two to three months. - Common problems across WAEMU member countries: - Difficulties estimating currency in circulation due to large backlogs of unsorted banknotes held by the central bank in its national agencies. - Slower-than-expected implementation of the new accounting system by banks since January 1, 1996, contributing to reporting lags. - August 2005: BCEAO informed STA of a change in the method to estimate currency in circulation using updated sorting coefficients (“coefficients de tri”); applied backwards to time series from December 2003. - Result: substantial revisions to key monetary aggregates such as broad money and net foreign assets. - Following a 2001 technical assistance mission, authorities agreed on an action plan for MFSM implementation and introduction of an area-wide page for the WAEMU in the IFS (achieved January 2003). - August 2006: BCEAO reported June 2006 monetary data for all member countries using Standardized Report Forms (1SR, 2SR, 5SR); STA reviewed and provided feedback; response pending. ### Balance of payments (BOP) and external statistics - BCEAO national agency disseminates BOP statistics with a seven-month lag; annual international investment position data with an eighteen-month lag (partial compliance with GDDS recommendations). - Trade data improvements: - SYDONIA customs computer system upgraded in 1999 and implemented in main border customs offices; should improve coverage of informal trade and monitoring of import data. - 2003 ROSC: response rate for survey among industrial and commercial enterprises was 40 percent; mission recommended more attention and resources to improve data collection. - Financial account coverage: - Foreign assets of private nonbank sector well covered using Bank for International Settlements data. - Annual FDI transaction surveys are at a preliminary stage. - BCEAO plans to integrate: regional stock exchange transactions and firms’ balance sheet database (centrale des bilans). - Quarterly data from banking settlement reports will soon be used to assess existing information. - Balance of payments compilers receive payments statements every ten days used for data quality controls and early information but not for annual BOP compilation. - Updates for the IFS and the BOPSY since 2001 are pending. ### Debt management and related systems - SYGADE debt-management system (UNCTAD software) introduced in 1999 and fully operational. - Information on debt disbursement fully integrated with the expenditure-monitoring system. ### Public Information Notice (PIN) — Article IV consultation conclusions (January 9, 2008) - Background findings: - Real GDP growth averaged 6 percent annually over the past 10 years. - Household survey poverty incidence reduced from 54.6 in 2000 to 46.4 percent in 2005. - Macroeconomic performance in 2006: real GDP growth around 5.5 percent; inflation fell below the WAEMU convergence criterion of 3 percent. - Fiscal policy loosened in 2006 with fiscal deficit (excluding grants) rising; limited revenue effort and lower-than-projected revenues led to expenditure cuts. - 2007–2008 outlook and risks: - Medium-term outlook impacted by weather-related declines in cotton exports and increased oil prices. - Real GDP growth expected to decline to roughly 4.5 percent for 2007; expected increase in gold production could partly offset effects. - Current account deficit (excluding official transfers) likely to widen in 2007 and 2008. - Higher grant inflows, including Millennium Challenge Corporation (MCC) disbursements, should help rein in the current account deficit. - Continued appreciation of the euro will make it harder to grow the exports base. - Policy recommendations by Executive Directors: - Maintain sound fiscal policy and press ahead with structural reforms to improve competitiveness, diversify the economy, and attract private investment. - Reduce the fiscal deficit by increasing the revenue-to-GDP ratio over the medium term. - Timely implementation of revenue administration and comprehensive tax policy measures; early adoption of planned tax policy reform encouraged. - Avoid contracting new non-concessional borrowing; seek grants where possible. - Strengthen public financial management, enhance transparency, and prioritize expenditure; welcome decision to join the Extractive Industries Transparency Initiative. - Liberalize the cotton sector, reduce government role, and re-activate automatic domestic petroleum price adjustment mechanism. - Strengthen the banking system; use upcoming FSAP to formulate reform measures. ### Key macroeconomic indicators and projections (selected, as presented) - GDP and prices: - GDP at constant prices: 2004 4.6; 2005 7.1; 2006 5.5 (Est.); 2007 4.2 (Proj.); 2008 4.5 (Proj.) - Consumer prices (annual average): 2004 -0.4; 2005 6.4; 2006 2.4 (Est.); 2007 -0.7 (Proj.); 2008 2.0 (Proj.) - Money and credit: - Credit to the private sector (percent of beginning-of-period broad money): 2004 6.1; 2005 14.9; 2006 11.2 (Est.); 2007 9.6 (Proj.); 2008 7.4 (Proj.) - Broad money (M2): 2004 -7.2; 2005 -3.8; 2006 10.2 (Est.); 2007 15.8 (Proj.); 2008 6.2 (Proj.) - External sector: - Terms of trade: 2004 11.0; 2005 -23.9; 2006 3.7 (Est.); 2007 -2.9 (Proj.); 2008 -6.1 (Proj.) - Real effective exchange rate (– = depreciation): 2004 -0.5; 2005 2.9; 2006 0.2 (Est.); 2007 ...... (Proj.) - Central government finances (percent of GDP): - Domestic revenue: 2004 12.8; 2005 12.3; 2006 12.3 (Est.); 2007 13.3 (Proj.); 2008 13.6 (Proj.) - Total expenditure (commitment basis): 2004 21.4; 2005 21.7; 2006 22.9 (Est.); 2007 26.7 (Proj.); 2008 26.2 (Proj.) - Overall fiscal balance, excl. grants (commitments): 2004 -8.6; 2005 -9.4; 2006 -10.7 (Est.); 2007 -13.4 (Proj.); 2008 -12.7 (Proj.) - Overall fiscal balance, incl. grants (commitments) (excluding MDRI grants): 2004 -4.3; 2005 -4.9; 2006 -5.1 (Est.); 2007 -6.2 (Proj.); 2008 -5.4 (Proj.) - External debt and NPV (percent of GDP): - External debt: 2004 41.2; 2005 37.6; 2006 19.9 (Est.); 2007 20.9 (Proj.); 2008 23.6 (Proj.) - NPV of external debt: 2004 18.1; 2005 19.0; 2006 10.6 (Est.); 2007 11.5 (Proj.); 2008 13.1 (Proj.) - NPV of external debt as percent of exports: 2004 164.4; 2005 185.4; 2006 88.1 (Est.); 2007 104.7 (Proj.); 2008 124.2 (Proj.) - NPV of external debt as percent of revenues: 2004 141.6; 2005 154.2; 2006 86.1 (Est.); 2007 86.5 (Proj.); 2008 96.6 (Proj.) ### IMF Executive Board actions under PRGF arrangement (Press Release No.08/04, January 9, 2008) - First review completed under the three-year, SDR 6.02 million (about US$9.5 million) PRGF arrangement. - Disbursement approved: SDR 3.51 million (about US$5.5 million), bringing total disbursements to SDR 4.01 million (about US$6.3 million). - Increase in access approved: SDR 9.03 million (about US$14.3 million). - Waivers granted for non-observance of two structural criteria related to the single customs document and notification of nonfilers, based on corrective actions taken. - PRGF terms: annual interest rate 0.5 percent; repayable over 10 years with a 5½-year grace period on principal. - IMF remarks (Mr. Murilo Portugal, Deputy Managing Director and Acting Chair): - New cotton producer price mechanism is a major step toward sustainable cotton ginning companies. - Resuming automatic price adjustment mechanism for domestic petroleum prices is critical. - Additional resources of SDR 9.03 million (about US$13.9 million) provided in balance-of-payment support. - Planned 2008 fiscal stance balances adjustment to deterioration in debt sustainability and protection of expenditures. - Need for reduction in fiscal deficit including grants over the medium term. ### Authorities’ statement and program implementation (Statement by Executive Director for Burkina Faso, January 9, 2008) - Authorities’ assessment: - 2006 growth: 5 ½. - Inflation fell below 3 percent. - External position benefited from MDRI; external debt stock reduced by half. - Program priorities under PRGF: - Tax and customs administration reforms; adoption of new public finance strategy; better tracking and prioritizing of expenditures. - Cotton sector reform and broader structural reforms to improve public sector efficiency, transparency, and business climate. - Requested Board support for completion of first review and augmentation of access by 15 percent of quota to smooth reserve adjustment. - Implementation note (end-2007 / early-2008 actions): - Missed performance criterion on single customs declaration form implemented. - Corrective actions initiated to address missed tax administration criterion; tax administration computer system functionalities used to automatically notify late tax filers; full implementation of notification measure targeted by end-January. *Source: IMF staff report and related public documents contained in the supplied content unit.* ### 2008. In customs administration, a single custom declaration form is being used since November ### _cr08168 - 2008. In customs administration, a single custom declaration form is being used since November ### Customs, tax administration, and public financial management - A single custom declaration form has been used since November 2007. - A computerized customs-specific valuation database is in place in all the computerized offices and will be used to improve the custom process. - Tax administration reforms and public financial management modernization are planned to raise the revenue-to-GDP ratio by 0.2 percentage point in 2008. - Plans to further modernize tax administration include front-loading tax reforms to broaden the tax base and lowering corporate income tax to a level in line with regional standards. - Authorities welcome technical assistance from the IMF, especially the recent FAD mission, which "will is a valuable input" to their reform strategy. ### Fiscal stance and spending priorities for 2008 - Authorities targeted a deficit of 5.4 percent of GDP for 2008. - Fiscal policy objectives: - Create fiscal space to make steady progress towards the millennium development goals while preserving macroeconomic stability. - Accommodate additional spending needs arising from the crisis in the cotton sector and recent flooding. - Spending constraints and prioritization: - Spending limited to priority areas and one-off priority spending, such as the recapitalization of SOFITEX or the payment of VAT refund arrears. - Further additional spending restricted to foreign-financed capital spending. - Plans to increase health- and education-related spending as well as infrastructure outlays. - Commitment to work with development partners, including the World Bank, to increase public spending efficiency through public expenditure reviews, project effectiveness analyses, and improved budget preparation and execution. - Steps planned to better track expenditures and improve internal and external expenditure controls. ### Exchange rate, financial sector, and banking soundness - Authorities took steps to reduce external competitiveness pressures following increases in some real exchange rate indicators, including structural reforms and a reduction of income taxes to a level in line with regional averages. - Measures to increase banking system soundness and promote financial development are underway. - Authorities will build on prior results to continue ensuring banking system soundness and reinforce the role of financial intermediation in promoting the private sector. ### Structural reforms: cotton sector, governance, and business climate - Cotton sector: - Authorities completed the recapitalization of SOFITEX to ensure the financial viability of cotton ginning companies that registered significant losses. - A new producer price mechanism for cotton was adopted, "which will be in line with world prices." - Authorities intend to finalize a strategy to reform and liberalize the cotton sector, consulting stakeholders to define a comprehensive strategy. - A price smoothing fund (fonds de lissage) is expected to be finalized with help from the Agence Française de Développement (AFD); key operating principles agreed include self-financing, sustainability, and transparency. - Governance and anti-corruption: - Implementation of the national strategy for good governance, the Plan National de Bonne Gouvernance (PNBG). - Institutions streamlined under a new Autorité Supérieure de Contrôle d'Etat (ASCE) vested with more autonomy and powers to take legal action. - Authorities committed to a steadfast implementation of the PNGB's and expect benefits from a comprehensive Governance and Anti-Corruption Diagnostics planned for 2008 with World Bank support. - Business climate improvements: - Notable progress reflected in Burkina Faso's rating improvement in IFC's Doing Business Report. - Administrative improvements: - Reduced time required to register a company to 23 days. - Halved the cost of enforcing judgments. - Reduced property registration and transfer fees. - Introduced specialized commercial chambers to provide a one stop window for businesses. - Authorities note reports from Transparency International, the World Bank's GICC and Doing Business Report, and the UNDP's Human Capital Index as informative inputs despite methodological concerns. ### Policy and reform agenda for 2008 (summary of planned actions) - Maintain prudent fiscal stance with a 5.4 percent of GDP deficit target for 2008. - Increase revenue collection through tax administration modernization and revenue administration reforms to raise revenue-to-GDP by 0.2 percentage point in 2008. - Front-load tax reforms to broaden the tax base and lower corporate income tax to regional levels. - Prioritize spending on health, education, and infrastructure; restrict non-priority additional spending to foreign-financed capital projects. - Improve public spending efficiency with development partners via expenditure reviews, project effectiveness analyses, and better budget execution and expenditure controls. - Finalize cotton-sector reform strategy and price smoothing fund with AFD support; ensure self-financing, sustainability, and transparency. - Continue governance and anti-corruption reforms under PNBG and strengthen ASCE's role. - Further reforms to improve competitiveness and increase the role of the private sector; promote financial sector development and reinforce financial intermediation. ### Conclusion and outlook - Authorities have demonstrated steadfast commitment to implementing PRGF-supported program policies and reforms despite significant challenges. - Significant progress achieved in tax and customs administration, anti-corruption steps, and business climate improvements; many reforms expected to yield results in the medium-term. - President Compaoré reiterated an objective to significantly improve the country's human capital in 2008 to help meet the MDGs and sustain broad-based economic growth. - Given the authorities' track record and commitment to sound economic policies and reforms, the staff seeks the Board's support to their requests. *Source: _cr08168 - 2008. In customs administration, a single custom declaration form is being used since November* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2008/_cr08168.pdf_