Burkina Faso and the IMF
Country's Policy Intentions Documents
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Mr. Horst Köhler
Dear Mr. Köhler:
1. On behalf of the government of Burkina Faso, I am pleased to inform you of the progress achieved in the first half of 2002 in implementing the program supported by the Poverty Reduction and Growth Facility (PRGF) arrangement approved by the Executive Board of the International Monetary Fund on September 10, 1999.
2. In 2002, which has seen multiparty general elections held in May and a subsequent cabinet reshuffle, the economy has performed well, boosted by record cotton production in late 2001; this good performance, in turn, has led to an upturn in consumption, manufacturing, and services. A satisfactory level of tax revenue collection, in particular import duties, and control of expenditures in the first quarter enabled all quantitative benchmarks and indicators to be met as at end-March 2002, except for—because of some expenditure overruns—the indicator on current expenditures.
3. Expenditures related to goods and services and transfers accelerated during the second quarter for essentially two reasons. First, subsidies on fuel deliveries for electricity production and on the price of butane gas and cooking oil were higher than forecast, owing to the rise in world oil and gas prices. Second, expenditures linked to the electoral cycle were higher than expected. Consequently, the indicator on current expenditure and the performance criterion relating to the government's net domestic credit were exceeded as at end-June 2002. The government of Burkina Faso is requesting a waiver for nonobservance of the performance criterion on the government's total net domestic budget financing.
4. The structural performance criterion as at end-June 2002 relating to the appointment of three judges at the Supreme Audit Office was achieved through the appointment in June 2002 of the president of the Supreme Audit Office and the presidents of its three chambers. In contrast, the structural performance criterion relating to the abolition of the 59 tariff lines that are still subject to administratively set customs values was not observed, as described in my letter of June 24, 2002. The West African Economic and Monetary Union (WAEMU) Commission adopted by regulation a list of products eligible to retain their administratively set customs values in the WAEMU member states, and a WAEMU Council of Ministers directive approved on May 23, 2002, proposed that member countries submit a request for extension of existing customs valuations to the World Trade Organization (WTO). Burkina Faso would like to benefit temporarily from the opening thus offered by the WAEMU authorities. In any event, at end-May 2002, the government reduced the number of products subject to administratively set customs values from 59 to 33 and lowered the reference values for 29 products. The 33 remaining items comprise the group for which a request for extension of customs values has already been submitted to the WTO. The government will comply with the WTO's decisions in this regard, and it will either abolish immediately those reference values for tariff items no longer accepted by the WTO or will abolish them after the grace period allowed by the WTO. The Burkina Faso government requests a waiver for nonobservance of this performance criterion.
5. The government has relentlessly pursued its poverty reduction program, as described in the poverty reduction strategy paper (PSRP). A second PRSP progress report, prepared after a broad-ranging consultation of civil society and development partners, will be sent to you under separate cover. The fiscal resources allocated to the social sectors have continued to increase. In particular, after a fairly slow start in 2001, the use of resources resulting from debt-service relief under the Heavily Indebted Poor Countries (HIPC) Initiative accelerated sharply in 2002. The entire remainder of the funds from the HIPC Initiative resources of 2001 were committed by mid-September, and the bulk of the funds relating to 2002 resources will be committed before year's end.
6. The outlook for the rest of 2002 remains good. The new cotton crop is promising, despite the fall in world prices. The financial position of the textile fiber company, SOFITEX, remains precarious, but the government is confident that the entity can break even if world prices do not fall further. Despite the expiration of the program, and with a view to establishing a solid basis for a new PRGF-supported program covering 2003-05, the government is determined to meet the end-2002 macroeconomic objectives defined in consultation with the IMF staff. In particular, measures have been taken to sustain the level of tax revenue and restrict the level of expenditure, and the overall budget deficit (on a commitment basis and excluding use of HIPC Initiative resources) will be kept below 4 percent of GDP at end-2002. In addition, some key structural policy options, which could constitute the core of the new program, have already been discussed with Fund staff.
7. The government is counting on the continued support of the International Monetary Fund and is looking forward to the conclusion of the sixth PRGF review. As in the past, the government gives its consent for the publication of the IMF staff report.Sincerely yours,