Press Release No. 08/228

Press Release: Statement by the IMF Staff Mission to Burkina Faso

October 2, 2008

An International Monetary Fund (IMF) team, led by Mr. Norbert Funke, visited Burkina Faso during September 17-October 1, 2008 to conduct the third 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, the impact of high food and oil prices, and the authorities' policies to consolidate macroeconomic stability and promote high economic growth and reduce poverty. The mission held very fruitful discussions with the Minister of Economy and Finance, Lucien 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.

The mission issued the following statement in Ouagadougou on October 1:

"There are signs that economic activity is recovering, and real GDP growth is projected to increase in 2008 to about 4.5 percent. Favorable weather conditions augur well for a rebound in agricultural production, an important driver of the pick-up in activity. The good harvest is also expected to reduce inflation towards the end of the year.

"In a difficult external environment, characterized by high food and oil prices, economic performance has been broadly in line with objectives under the PRGF-supported program. The IMF Executive Board is expected to consider the third review under the PRGF arrangement in December 2008. Continued efforts to strengthen tax and customs administration have helped to offset the loss in revenue associated with the temporary measures (suspensions of customs duties and value added tax (VAT) for a few basic products) to alleviate the impact of high world food and oil prices.

"The mission and the authorities agreed that the 2009 budget has to strike a balance between preserving debt sustainability and social and infrastructure needs. Plans to limit the fiscal deficit to below 5 percent of GDP in 2009 would be an important step towards reducing the deficit in the medium term to below 3 percent of GDP and stabilize debt ratios. Reducing the fiscal deficit will require sustained revenue administration efforts and moving ahead with tax policy reform. Priority areas include revising the business tax, streamlining tax exemptions, and strengthening VAT.

"Subsidies and transfers need to be better targeted to effectively reach the most needy segments of the population. The mission's analysis suggests that this is typically not the case for the temporary suspensions of customs duties and VAT and limited pass-through of international oil prices. International experience points to the advantages of better targeted measures, such as school feeding programs, reductions in fees for basic health services, and cash transfer systems. Based on our analyses, full pass-through of international fuel prices would help eliminate losses of the national oil company that may ultimately have to be borne by the government.

"Structural reforms, as envisaged by the government, should help to put the economy on a strong, sustainable growth path. Financial sector reforms need to facilitate access to finance and strengthen the stability of the sector. The mission welcomes the focus on measures to strengthen public financial management, increase productivity in the cotton sector, further enhance a business friendly environment, and improve governance.

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