Press Release No. 09/107

Press Release No. 09/107
April 1, 2009

An International Monetary Fund (IMF) team, led by Mr. Norbert Funke, visited Burkina Faso during March 18-April 1, 2009 to conduct the fourth review under the three-year economic program supported by the Poverty Reduction and Growth Facility (PRGF), the IMF’s concessional facility for low-income countries. It reviewed economic developments and prospects, including the impact of the global financial crisis and the oil and food price shocks, and the authorities’ policies to consolidate macroeconomic stability, promote high economic growth and reduce poverty. The mission held very fruitful discussions with the Minister of Economy and Finance, Lucien Marie Noël Bembamba, Central Bank of West African States (BCEAO) National Director Bolo Sanou, other ministers and senior government officials, representatives of the private sector, labor unions, nongovernmental organizations, and development partners.

Mr. Norbert Funke, Mission Chief for Burkina Faso issued the following statement today in Ouagadougou:

“There are signs that economic activity may be slowing. Real Gross Domestic Product (GDP) growth is projected to decrease in 2009 to about 3½ percent, from 5 percent in 2008. Last year, favorable weather conditions and the authorities’ measures to stimulate agricultural production supported growth. But the global financial crisis has started to affect economic activity. Lower external demand, depressed cotton prices, tighter liquidity conditions, and downward pressure on financial flows outweigh the positive impact of lower international oil prices and higher gold prices. Inflation is declining, and should fall to just over 3 percent by the end of 2009.

“In this difficult external environment, economic performance has been broadly in line with the objectives under the PRGF-supported program. Supported by progress in tax and customs administration and measures to contain current expenditure, targets for revenue collection and the fiscal deficit have been achieved. The authorities are following through in key reform areas, including tax policy, public financial management, and the financial sector. The IMF Executive Board is expected to consider the fourth review under the PRGF arrangement in June 2009.

“The mission and the authorities agreed that the 2009 fiscal stance and the composition of expenditure should seek to help mitigate the impact of the food price shock and the international financial crisis, while preserving debt sustainability. A modest increase in the fiscal deficit to about 5.3 percent of GDP would be warranted to offset pressures on revenues, as growth slows, and to cover social spending needs. Investment in infrastructure is also needed to unlock the country’s growth potential. Over the medium term, the authorities should aim to increase revenue and to reduce the deficit to below 3 percent of GDP in order to stabilize debt ratios. This adjustment will be supported by tax reform, which focuses on revising the business tax, streamlining tax exemptions, and strengthening the Value Added Tax (VAT).

“The mission supports the authorities’ efforts to effectively protect the most vulnerable groups of the population from the current adverse shocks. The authorities have phased out the temporary suspensions of tax and customs duties on some core consumer goods, which were not well targeted. Instead, they have begun, with the help of donors, to launch a pilot project for a cash transfer system in the two biggest cities of the country. Other programs, such as school lunches and a reduction in fees for basic health services, are being expanded. Over the medium term, it will be crucial to set up a basic social protection system, which the authorities are currently examining with the support of the World Bank.

“Structural reforms, as envisaged by the government, should help to put the economy again on a sustainable growth path. The mission welcomes the focus on measures to strengthen public financial management, further enhance the business environment, and improve governance. The authorities should also closely monitor developments in the cotton sector and promote measures to improve its productivity, so as to limit the budgetary risk.

“The mission team would like to thank the authorities for their hospitability, close collaboration, and very fruitful policy dialogue.”