Press Release No. 08/71

Press Release No. 08/71

An International Monetary Fund (IMF) team led by Mr. Norbert Funke visited Burkina Faso during March 19-April 2 for the 2nd review of the program supported under the Poverty Reduction and Growth Facility (PRGF).¹ The mission reviewed economic developments and prospects, and discussed with the authorities their policies that aim at consolidating macroeconomic stability and fostering conditions that can sustain high economic growth and reduce poverty.

The mission held discussions with the Minister of Economy and Finance Jean-Baptiste Compaoré; Central Bank of West African States (BCEAO) National Director Bolo Sanou, other ministers and senior officials of the Government of Burkina Faso, representatives of the private sector, labor unions, nongovernmental organizations, and development partners.

The mission issued the following statement in Ouagadougou on April 2:

"Real GDP growth is projected to edge up slightly in 2008 to about 4.5 percent from 4 percent in 2007. Adverse terms of trade shocks and weather conditions were the main reasons for last year's growth slowdown. This year, growth will be supported by a rebound in cotton production and the opening of several gold mines, while continued high oil prices and the euro appreciation have dampening effects on competitiveness. In the short-term inflation may stay elevated until the food situation improves in the region, which is expected with the next harvest. Inflation is projected to decline to about 3 percent at year-end.

"Overall performance under the PRGF-supported program has been good, and the IMF Executive Board is expected to consider the second review under the PRGF arrangement in early summer. All quantitative performance criteria and most benchmarks were met. Noteworthy are the government's success in raising revenue through continued efforts to strengthen tax and customs administration, which allowed it to meet its budget deficit and revenue targets. Social expenditures increased by 9.3 percent but they remained below their target, reflecting in part capacity weaknesses in implementing capital expenditures, which the government is addressing.

"Fiscal policy this year will need to strike a balance between accommodating social needs and preserving macroeconomic stability. As the increase in food prices is likely to be temporary, the fiscal stance (in terms of government budget deficit target as a share of GDP) should remain broadly unchanged in 2008 (5.4 percent of GDP). Within this fiscal space, the government has taken measures to mitigate the social impact of higher food and energy prices. If rising prices were to fuel expectations of accelerating inflation, some tightening of fiscal policy would be necessary. Reducing the fiscal deficit in the medium-term to below 3 percent of GDP, through strong efforts to increase revenue, will be key to preserve debt sustainability.

"Structural reforms included in the government's program should help to put the economy on a strong, sustainable growth path for the medium term. Financial sector reform aims to facilitate access to finance and strengthen the stability of the sector, thereby supporting growth. The mission agreed with the focus on other measures to strengthen public financial management, improve external competitiveness through productivity enhancing reforms, create a more business friendly environment, and improve governance.

"The mission team would like to thank the authorities for their hospitality as well as the close collaboration and the very constructive policy dialogue."

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¹ The PRGF is the IMF's concessional facility for low-income countries. PRGF-supported programs are based on country owned poverty reduction strategies adopted in a participatory process involving civil society and development partners and articulated in the country's Poverty Reduction Strategy Paper. This is intended to ensure that PRGF-supported programs are consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 51/2-year grace period on principal payments.