IMF Executive Board Concludes 2011 Article IV Consultation with Burkina Faso

Public Information Notice (PIN) No. 11/162
December 27, 2011

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

On December 21, 2011, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Burkina Faso.1

Background

Sustained implementation of sound policies and reforms in recent years, as well as strong performance in key sectors driving growth helped the Burkinabè economy withstand several exogenous shocks in 2008-10. Economic growth has been robust; inflation has been trending down since the flare-up in 2008 caused by the global food and fuel prices; and the external current account deficit has narrowed, mostly reflecting the significant increase in gold exports. The authorities have maintained fiscal consolidation efforts, while mitigating the impact of exogenous shocks, and enhancing poverty reduction programs. In the later area, the authorities implemented a number of initiatives and took measures to support vulnerable groups. Key programs included school lunches, support to the elderly, and a cash transfer program. During 2001-10, the share of poverty reducing spending in total expenditure rose from 17.5 to 28 percent. These efforts were aided by progress in revenue mobilization and financial support from Burkina Faso’s development partners.

The authorities made important progress in implementing structural reforms in recent years, particularly in revenue collection, expenditure and Treasury cash flow management, cotton sector rehabilitation, the business environment, and the financial sector. In the later area, the authorities prepared strategies for the development of the financial and microfinance sectors, and implemented a divesture and rehabilitation program for selected banks. They continue to seek funding for the efficient implementation of the financial sector strategy. The authorities have also maintained a prudent borrowing policy, consistent with debt sustainability analysis that points to a high risk of debt distress for Burkina Faso.

In 2011, economic growth is projected at 5.6 percent, from7.9 percent in 2010, mostly driven by an expansion in the agriculture and mining sectors, which were marginally affected by the social turmoil and exogenous shocks in the first half of the year. Thanks to a good harvest, inflation is estimated to average 1.4 percent. The external current account (including grants) is projected to stabilize around 3½ percent of GDP, benefitting from the projected improvement in terms of trade; and the overall fiscal deficit (excluding grants) would increase to 10.9 percent of GDP, from10.1 percent of GDP in 2010, partly reflecting measures taken by the authorities to address adverse shocks in 2011.

The medium-term outlook is promising. Economic growth is forecast to reach 6.4 percent by 2013, thanks to the programmed public investment scaling-up, particularly in infrastructure; continued structural reforms; and the projected expansion in the mining sector. Inflation is expected to remain below 3 percent, thus complying with the West African Economic and Monetary Union (WAEMU) convergence criterion. The external current account deficit is projected to widen from 8.2 percent of GDP in 2011 to 10.9 percent in 2013, mainly because imports demand is expected to remain strong and to grow faster than exports in 2012-13. With continued measures to enhance revenue mobilization and expenditure management, the fiscal position is projected to improve in 2012 and over the medium-term, with the overall deficit declining from 10.9 percent of GDP in 2011 to 9 percent in 2013, notwithstanding an increase in investment and pro-poor spending.

Key risks to the economic outlook are related to the economy’s vulnerability to terms of trade shocks that might affect commodity prices, particularly for cotton, gold, and oil; and adverse changes to climatic conditions that would weaken growth prospects.

Executive Board Assessment

Executive Directors welcomed the authorities’ sustained implementation of sound policies and structural reforms, which has contributed to robust economic growth, low inflation, and a broadly favorable external position. They noted, however, that global uncertainties and climatic conditions pose downside risks to the near-term outlook. In addition, daunting macroeconomic challenges remain, and poverty is still widespread. Directors underscored that continued fiscal consolidation, improved social policies, and decisive implementation of structural reforms will be critical to achieve sustained, broad-based economic growth and poverty reduction.

Directors encouraged the authorities to maintain fiscal discipline within the context of a medium-term fiscal framework, while increasing investment and social spending. They welcomed the continued focus on revenue mobilization to boost domestic resource availability. Directors also emphasized the need to strengthen expenditure management, contain current spending, and increase targeted poverty-related spending. In particular, they underscored that wage policy should remain prudent and supportive of medium-term fiscal objectives, and they encouraged full pass-through of international fuel price movements to domestic fuel prices.

Directors agreed with the authorities’ focus on scaling up investment to close the infrastructure gap and boost economic growth. Nevertheless, they stressed the need to improve investment efficiency, and to ensure that investment financing strategies are consistent with long-term debt sustainability. They noted that Burkina Faso remains at a high risk of debt distress, and called for continued prudent debt management anchored on grants and highly concessional loans.

Directors stressed that further progress on structural reforms will be critical to enhance competitiveness and stimulate broad-based economic growth. They highlighted the importance of reforms to improve the business environment and support private sector development, including strengthening the regulatory and judicial framework. Continued rehabilitation of the cotton sector will be crucial. Directors also urged acceleration of financial sector reforms to reduce financial sector vulnerabilities and to broaden access to financial services.


Burkina Faso: Selected Economic Indicators, 2009–13
 
  2009 2010
Est.
2011
Proj.
2012
Proj.
2013
Proj.
 
  (Annual percentage change; unless otherwise indicated)
 

GDP and prices

         

GDP at constant prices

3.2 7.9 5.6 5.8 6.4

Consumer prices (annual average)

2.6 -0.6 1.9 2.0 2.0

Money and credit

         

Credit to the economy1

1.2 8.9 3.1 11.0 6.4

Broad money (M2)

18.2 19.1 19.1 13.6 8.5

External sector

         

Terms of trade

19.2 0.1 12.2 6.4 -1.9

Real effective exchange rate (– sign = depreciation)

2.6 -8.4 ... ... ...
  (Percent of GDP; unless otherwise indicated)

Central government finances

         

Domestic revenue

13.7 15.6 15.8 16.2 16.3

Total expenditure (commitment basis)

24.4 25.7 26.7 26.1 25.3

Overall fiscal balance, excl. grants (commitments)

-10.7 -10.1 -10.9 -9.9 -9.0

Overall fiscal balance, incl. grants (commitments)

-4.8 -5.6 -3.9 -3.0 -2.6

External sector and debt indicators

         

Exports of goods and services

12.4 18.1 24.1 24.6 24.4

Imports of goods and services

23.3 27.2 33.9 36.0 36.6

Current account balance (incl. current official transfers)

-4.4 -3.6 -3.5 -6.9 -7.6

Current account balance (excl. current official transfers)

-8.8 -7.5 -8.2 -9.9 -10.9

External debt

18.6 21.5 23.0 23.4 24.4

NPV of external debt

13.2 16.4 17.0 17.1 17.5

NPV of external debt as percent of exports

107.0 90.2 70.8 69.4 71.8

NPV of external debt as percent of revenues

98.6 104.8 107.8 105.5 107.7
 

Sources: Burkinabè authorities and IMF staff estimates and projections.

1 Percent of beginning-of-period broad money.


1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.



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