Burkina Faso—Letter of Intent, Memorandum of Economic and Financial Policies, and Technical Memorandum of Understanding

Ouagadougou, March 14, 2002

Mr. Horst Köhler
Managing Director
International Monetary Fund
Washington, D.C. 20431

Dear Mr. Köhler:

1. On behalf of the government of Burkina Faso, and in the context of the fifth review of the program supported by an arrangement under the Poverty Reduction and Growth Facility (PRGF) approved by the Executive Board of the International Monetary Fund on September 10, 1999, I am pleased to forward to you the memorandum on economic and financial policies for 2002. The memorandum describes progress made in implementing the program in 2001, updates objectives for 2002 and the medium term, and the policies to be pursued to achieve these targets, and establishes performance criteria for end-June 2002.

2. The 2001 program was marked by a delayed economic recovery and serious cash flow pressures resulting from weak mobilization of tax revenue. This shortfall was offset by spending cuts, while maintaining priority poverty reduction expenditure, so that all the end-December 2001 quantitative performance criteria, benchmarks, and indicators were met, except for the tax revenue indicator.

3. The end-December 2001 structural performance criterion on anti-corruption was observed through the creation of an Anti-Corruption Authority. In contrast, there were a few delays in observing the end-December 2001 structural benchmarks related to making the Supreme Court Audit operational, which will be remedied before end-June 2002, and improving the procedures for recording VAT credits, because of the need to harmonize regional WAEMU guidelines.

4. The outlook for 2002, during which legislative elections are scheduled to be held in early May, remains favorable. The 2002/03 cotton crop is expected to be able to break even despite low international prices. Steps have been taken to ensure an appropriate level of tax revenues, and the overall fiscal deficit (commitment basis, excluding the use of HIPC resources) will be kept below 4 percent of GDP, as programmed. The government remains resolved to carry out all the reforms and measures contained in the program. It considers that the policies and measures described in the memorandum are adequate to achieve its program objectives, but it is ready to take any further measures that may prove necessary to this end.

5. Increased budgetary resources have been allocated to the priority programs geared towards poverty reduction as detailed in the Poverty Reduction Strategy Paper (PRSP). A first PRSP progress report, prepared after broad consultations with civil society and the country's development partners, was approved by the Executive Boards of the International Monetary Fund and the World Bank in November 2001. As a result of the delayed availability of some funds and the need to adopt adequate disbursement procedures, the use of the resources generated by debt-service relief obtained under the original Heavily Indebted Poor Countries (HIPC) Initiative and the interim assistance obtained under the enhanced HIPC Initiative started quite slowly. However, significant catch up is expected in 2002. We look forward to the consideration by the Executive Boards of the IMF and World Bank in March 2002 of the completion point under the enhanced HIPC Initiative.

6. The government counts on the continued support of the International Monetary Fund to help it meet its program objectives and requests the completion of the fifth review under the PRGF arrangement and the approval for the release of the sixth disbursement under the arrangement. It is seeking an extension of the three-year PRGF-supported arrangement for a period of three months, from September 9 to December 9, 2002. To assess the progress made in implementation of the program, the Fund will, together with the government of Burkina Faso, carry out a sixth review of the program supported by the PRGF arrangement by November 30, 2002. As in the past, the government consents to publication of the International Monetary Fund staff report.

Sincerely yours,

For the Minister of Economy and Finance

BURKINA FASO

Memorandum on Economic and Financial Policies for 2002

March 14, 2002

I. Program Implementation in 2001

1. Despite difficulties arising from a growth slump in 2000, Burkina Faso resolutely pursued the implementation of its 2001 program supported by the Poverty Reduction and Growth Facility (PRGF), as described in the Memorandum on Economic and Financial Policies of November 2, 2001. The government also stepped up its poverty reduction program, as outlined in the progress report on implementation of the Poverty Reduction Strategy Paper (PRSP) submitted in September 2001 and endorsed in November 2001 by the Executive Boards of the International Monetary Fund and the World Bank. Although all the triggers for the completion point of the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative had been met already as of March 2001, preparatory work was finalized to enable a review of this completion point by end-March 2002. The results indicate that additional relief at the completion point would be necessary to ensure debt sustainability, in light of a fundamental change in economic circumstances due to exogenous developments, investment relative to the assumptions made at the decision point.

2. As the government offset a large shortfall in tax receipts by expenditure cuts, all quantitative performance criteria, benchmarks, and indicators at end-December 2001 were observed, except for the current revenue indicator. The structural performance criterion at end-December 2001 related to the anti-corruption unit was observed through the creation of an Anti-Corruption Authority. However, some delays were incurred with respect to the structural benchmarks. All the arrangements to make the Supreme Audit Court operational could not be made on time; new premises are available, but magistrates could not be appointed before end-2001. Similarly, the procedures for recording VAT credits were not amended because the pertinent regional WAEMU guidelines have not yet been clarified.

3. The latest available estimates point to a real GDP growth of 5.7 percent in 2001. Stimulated by an increase in producer prices of approximately 18 percent (including the bonus payment), together with abundant rainfall, cottonseed production rose by about 45 percent to just over 400,000 metric tons. Since cotton producers represent approximately 20 percent of the population, the rise in incomes should contribute significantly to poverty reduction in cotton-producing areas. Annual inflation averaged 4.9 percent, essentially because of the strong pressure on grain prices, following the poor harvest of end-2000. However, as a result of the slide in year-end prices, year-on-year inflation stood at 1 percent in December 2001. The GDP deflator is estimated at 3.5 percent. Mainly as a result of a recovery in cotton exports and lower capital goods imports, the external current account deficit, excluding grants, fell to 15.9 percent of GDP in 2001, well below the 2000 level of 17.6 percent. Including grants, the current account deficit is estimated at 12.7 percent of GDP, about two percentage points of GDP lower than in 2000. The overall balance improved significantly, leading to an accumulation of gross foreign assets of about CFAF 27 billion.

4. The fiscal performance was weak in 2001. Tax receipts were extremely limited; at 12.5 percent of GDP, they were 1.5 percent of GDP below target. This deterioration was across the board, in particular direct corporate taxation (BIC). VAT receipts improved over the previous year, but performance remained below target. This shortfall in receipts was offset by cuts in current and capital expenditures. As a result, the overall deficit (on a commitment basis and including grants) was 4.8 percent of GDP, or 0.3 percent of GDP lower than the program target. Furthermore, a low level of expenditure commitments from the HIPC resources was made. The reduction in bank indebtedness was also larger than targeted by the performance criterion.

5. Expenditure on wages and salaries was in line with the program target of CFAF 98.2 billion. The authorities repaid in full the CFAF 7 billion in VAT credits owed to SOFITEX for the previous and current fiscal years. Efforts to improve public expenditure management were pursued, in particular at the Treasury, through the closing of 153 accounts, including most of the private sector accounts. The treasury bills issued in February 2001 to meet cash flow requirements were also redeemed in full. Despite strong cash flow pressures, the government secured the fiscal expenditure allocated to poverty reduction efforts, which continued to rise in 2001. By contrast, the disbursement of HIPC resources made available at end-2000 and in 2001 was slow as a result of the late arrival of some funds and the need to establish adequate disbursement procedures.

6. The money supply and credit to the economy grew, respectively, by 4.9 percent and 13.9 percent compared with end-2000, and crop credits were settled on time. Local banks observed the main WAMU prudential ratios. Doubtful and disputed credits (net of provisions) remained stable at 2.5 percent of total credit to the economy. Microfinance institutions (networks of people's banks and other local networks) continued to grow, in particular playing an increasing role in the financing of inputs for the cotton crop.

7. The structural reforms continued. December 2001 witnessed a stride in cotton sector reform with the elimination of SOFITEX's monopoly on the collection and marketing of seed cotton and the opening up of the eastern and central zones to private operators. In addition, the private sector is playing an increasingly important role in the supply of inputs, in particular insecticides and herbicides. Public expenditure management continued to improve, especially through the preparation of an overall program to harmonize the recommendations of the fiscal management improvement plan (PRGB), the ROSC, and the Country Financial Accountability Assessment (CFAA). The arrangements for offsetting VAT credits against VAT liabilities on receipts were not adopted because of inconsistencies in regional WAEMU guidelines. The government budget review laws for fiscal 1999 and 2000 were adopted by the Council of Ministers in February 2002 and forwarded to the Audit Office. In the area of good governance, the anti-corruption authority announced in the PRSP was set up in December 2001. This unit is empowered, in particular, to study anonymous or signed informant statements, to investigate and review cases, and to refer matters to the competent legal authorities. Similarly, new public procurement regulations were adopted in February 2002.

II. Objectives and Policies for 2002

8. With legislative elections scheduled for May, and a difficult international economic climate, the year 2002 will be full of uncertainties, especially concerning cotton export prices. The government wishes to continue encouraging the keen interest shown by farmers in expanding surface areas set aside for alternating cotton and grain crops, as this is one of the main factors for poverty reduction. SOFITEX, in cooperation with cotton producers, announced that the producer price would be maintained at CFAF 175 per kilo of cottonseed, but that no bonus would be paid given that SOFITEX will, at best, break even in 2001/02. This decision will be incorporated in a new amendment to the interprofessional agreement between SOFITEX and the National Union of Cotton Producers in Burkina Faso (UNPCB). It is also understood that the producer price could be lowered in October 2002 if international prices were to fall further. The government endorses these agreements and will not intervene to amend them. Provided a further rise in the cotton harvest and a normal year for grain, GDP growth is expected to reach 5.7 percent in 2002. The recovery in the agricultural sector could curb the rise in food prices, so that the annual inflation rate is not expected to average more than 2 percent.

9. As regards the balance of payments, a further rise in exports is expected in 2002, driven by the increase in the 2001/02 cotton volume. Imports are expected to rise only very modestly. In all, the current account deficit, excluding grants, should represent about 14 percent of GDP, compared with 15.9 percent in 2001. The overall deficit should also narrow, resulting in an increase in the official reserves, estimated at about CFAF 40 billion.

10. The main fiscal objective in 2002 and over the medium term is to raise the level of tax receipts in view of containing the overall deficit and limiting government indebtedness. To achieve this objective, the following measures have already been adopted, in particular through the 2002 Budget Law:

• A rise in the excise on petroleum products (TPP) applicable to super and regular gasoline and diesel oil;

• Transfer of the collection of the tourism development tax from the Tourism Board to the tax authority;

• A rise in the BIC and VAT tax thresholds within the framework of the WAEMU guidelines;

• An increase in the application threshold of the informal sector tax (CSI) and revision of the schedule.

To secure a level of tax receipts representing about 14 percent of GDP, the government decided to adopt a further set of receipts-related measures, including:

• A further rise in the TPP of CFAF 25 a liter on diesel oil and CFAF 20 a liter on premium and regular gasoline. These increases, which should yield CFAF 4.5 billion in 2002, are to be implemented in two equal parts. The first increase, which is to raise the TPP of CFAF 12.5 a liter on diesel oil and CFAF 10 a liter on premium and regular gasoline, constitutes a prior action for the consideration of the fifth review by the Executive Board and is subject to the misreporting guidelines. The second increase, which has to be implemented by April 15, is a prior action for the sixth review by the Executive Board. Moreover, the government will not reduce the TPP applicable to premium and regular gasoline or to diesel oil during the whole year;

• Strict enforcement of all tax requirements in the area of land rights (including property taxes, transfer taxes, matriculation and land registration fees, and building permits fees) and increased collection of taxes on the income of self-employed professionals (BNC);

• To control exemptions more effectively, the issuance by end-February 2002 of a new circular letter reiterating the need for the strict implementation of Circular 102/MEF dated June 28, 1999 on the tax system;

A few measures for improving revenue administration will also be adopted, as shown in Table 4 attached. Moreover, the tax and customs administrations will be strengthened. The authorities will make all necessary arrangements with their development partners to speed up the computerization of the DGI and Customs. Special emphasis will be placed on upgrading the large enterprise tax unit and tightening controls as regards the single identification number.

11. To control expenditure and limit the deficit, the government decided to freeze CFAF 11.8 billion (0.6 percent of GDP) of current expenditures below budget appropriations while preserving priority social spending. These savings pertain, in particular, to expenditure on goods and services and current transfers. Accordingly, current expenditure (excluding debt relief under the HIPC Initiative) is set at about CFAF 200 billion, or 10.8 percent of GDP, as programmed. In the absence of a general wage increase in 2002, the wage bill will rise by about 3 percent, taking account of the grade drift, in addition to an allocation for the second tranche of the revised indemnities grid. Following the hook-up with Côte d'Ivoire's electricity grid, the government is considering the possibility of raising the delivery price of DDO and fuel oil to SONABEL, so as to reduce its subsidy. The budgetary expenditure allocated to the priority sectors within the poverty reduction framework will once again be increased. The government will continue its policy, launched in 2000, of promptly paying its water, electricity, and telephone bills and will not incur any arrears in this regard. Capital expenditure is expected to rise as a result of a special effort to increase investment outlays, especially in the area of poverty reduction. Moreover, the government will continue to press the major donors for a better intra-year distribution of disbursements of external assistance so as to eliminate the liquidity problems experienced by the Treasury in the past.

12. To make up for the delays incurred, a special effort will be made with respect to HIPC resources. First, to increase transparency and ensure the availability of the funds, an account will be opened immediately at the BCEAO to receive all HIPC-related assistance from the beginning of fiscal 2002. From now on, all HIPC-financed expenditure will be settled through this account, starting with expenditure for fiscal 2002. A statement of credits, debits, and balances of this account will be provided monthly by BCEAO and forwarded to the IMF within the framework of the program. Second, at least 80 percent of the residual HIPC resources provided in 2000 and 2001 (totaling CFAF 22.5 billion at end-December 2001) will be committed by March 15, 2002. These two measures are prior actions for the Executive Board's consideration of the fifth program review and are subject to the misreporting guidelines. The remaining balance of 2000-01 assistance will be committed by April 30, 2002. Third, at least half of the 2000-01 HIPC-financed expenditure will be paid by June 30, 2002, and the other half by September 30, 2002. Fourth, the decree pertaining to the execution of 2002 HIPC-financed expenditure will be approved by end-April 2002. Fifth, all 2002 HIPC-financed expenditure, estimated at CFAF 25.2 billion, will be committed by December 31, 2002. Sixth, at least half of the 2002 HIPC-financed expenditure will be disbursed by December 31, 2002. In all, the approved commitments of HIPC-financed expenditure will total CFAF 47.7 billion (2.6 percent of GDP) in 2002, of which CFAF 22.5 billion will come from funds raised in 2000 and 2001 and CFAF 25.2 billion from funds raised in 2002. The expected distribution is 42 percent for current expenditure, and the remaining 58 percent for capital expenditure. The sectoral breakdown is expected to be 33 percent for health, 34 percent for basic education, 6 percent for rural roads, and 27 percent for the other social sectors.

13. In all, 2002 tax receipts are expected to represent 13.8  percent of GDP, or 0.7 percent of GDP lower than originally programmed. Excluding HIPC-financed expenditure, current and overall expenditure represent, respectively, 10.8 percent and 25.8 percent of GDP, as programmed. Given the lower revenue level, the overall deficit (excluding debt relief under the HIPC Initiative) is programmed at 3.3 percent of GDP, compared with 2.6 percent of GDP in the original program. Including HIPC-financed expenditure equivalent to 2.6 percent of GDP, the overall deficit will amount to 5.9 percent of GDP.

14. As regards regional integration, the government will continue its efforts to observe the WAEMU directives and standards, and in particular the convergence criteria, within a reasonable timeframe. It will continue amending its national legislation to comply with the five directives for harmonization of the legal, accounting, and government finance statistics framework. The draft organic budget law was already adopted by the Council of Ministers and submitted to the National Assembly. The new public accounting regulations could be adopted immediately after the law is passed. The government chart of accounts adopted in 1998 is already in conformity with WAEMU standards. Once the ongoing reconciliation procedure has been completed, the budget classification could be adopted by end-June 2002. Finally, as regards the summary table of fiscal operations, a payments order basis presentation has already been adopted at the beginning of 2002, and its scope could be expanded in 2003 with European Union support.

15. In line with BCEAO monetary policy objectives aimed at consolidating the Union's international reserves and maintaining a level of inflation consistent with that of the anchor currency, the money supply is projected to expand by approximately 11 percent in 2002, slightly exceeding the growth of nominal GDP. Credit to the government is expected to fall somewhat, and credit to the economy to grow moderately, after two years of rapid growth. With the bumper cotton crop, crop credits will be settled on time, and residual balances from earlier crops will be cleared. Strengthening of the banking system will continue, notably through an increase in the capital of the banks, and in particular of the only bank not yet in compliance with the new capital adequacy ratio that became effective on January 1, 2002. The government will continue to promote sound development of microfinance, in particular through supervisory capacity building. To implement the WAEMU Council of Ministers' decision to eliminate statutory advances from the BCEAO and allow full substitutability between bank financing and bills or bonds issued by the Treasury on the national or regional market, the new key performance criterion based on the cumulative change in net domestic financing (bank and nonbank) became effective in 2002. The ceilings adopted under this new criterion (excluding the impact of debt relief under the HIPC Initiative) limit domestic financing to CFAF 10.3 billion at end-March, and foresee a net debt reduction of, CFAF 3.2 billion at end-June, CFAF 8.6 billion at end-September, and CFAF 14.1 billion at end-December 2002, as shown in the attached Table 1.

16. The cotton sector reforms will be pursued with World Bank support. In particular, ginning factories in the areas recently opened up to the private sector will be sold with the support of the privatization commission. The role of the private sector in the marketing and financing of inputs will continue to be promoted. Similarly, the construction of rural roads in the cotton areas will be accelerated in order to increase the share of transportation provided by the private sector. With World Bank support, the privatization program will continue in 2002. The main matter to be addressed relates to ONATEL, the telecommunications company. The strategic report is expected in the spring of 2002, and a search for investors would ensue, for completion in early 2003. The call for bids for the privatization of airports management will also be issued this year. Progress will be made concerning the residual portfolio of state enterprises, in particular the opening up of the capital of SONABEL and SONABHY to private interests. The government is studying the possibility of quickly lowering electricity tariffs for certain user categories after the connection of Bobo Dioulasso to Côte d'Ivoire's electrical grid and will pursue the studies related to expanding the interconnection of the electricity network with the networks of certain countries in the subregion.

17. In keeping with the study on the competitiveness of the Burkinabè economy, the government made progress in liberalizing trade arrangements. After the deregulation of rice and sugar marketing in 1996 (except for a remaining rule on the volumes imported), the SOFITEX monopoly over cottonseed marketing was removed. Similarly, to comply with the pertinent WAEMU and WTO regulations, the government decided to eliminate by June 30, 2002 the 59 tariff lines still subject to administratively set customs values. This constitutes a structural performance criterion under the program.

18. The improvement of public expenditure management remains high on the government's priority list. Implementation of the budget management improvement plan (PRGB) has started, including its component pertaining to decentralized spending. The operational action plan consolidating the recommendations of the PRGB, ROSC, and CFAA will be completed by June 30, 2002 and quickly implemented. The preparation of the medium-term expenditure framework for 2003 will start as early as March 2002. Arrangements for the refund of VAT credits from VAT receipts will be made as soon as the WAEMU Commission has adopted the necessary administrative procedures at the regional level. To improve control over personnel and payroll management and reduce the large volume of retroactive wage payments, the government plans to hold individual ministries accountable for their staff and wage bill management, in particular by ensuring that the human resources divisions in ministerial departments become operational and by contemplating the delegation of wage commitments to these divisions. The civil service and payroll administrations' role would then be limited to an oversight of the system. The government will apply greater stringency in expenditure budgeting and management, especially for health and education, to avoid such practices as overinvoicing, contract splitting, nontransparency of the supplier database, and nonobservance of the fiscal year.

19. The Treasury will strive to establish reliable balances and operating accounts. The government also intends, with the support of a development partner, to perform a check and to confirm the balances of all accounts with banking institutions, so as to have reliable opening balances. At the same time, it will carry out an operation to clean up and consolidate bank accounts. In addition, it will work toward closing off public accounts held with commercial banks and centralizing these accounts (including those held jointly with donors) at the BCEAO or, if necessary, the public Treasury.

20. As regards good governance, the anti-corruption authority will begin its work shortly. Magistrates will be appointed to the Supreme Audit Court in the first half of 2002; this constitutes a structural performance criterion under the program. In addition, the government has made arrangements to combat money laundering and, following the events of September 11, 2001, has joined the international community in strengthening its arrangements to combat the financing of terrorism, as summarized in the responses to the Fund's questionnaire. Concretely, existing regulations include ceilings on the availability of foreign exchange for overseas travel, a domiciliation obligation for overseas transfers for foreign direct investments into Burkina Faso, and prior authorization of the Ministry of Economy and Finance for certain transactions with the rest of the world. Discussions are ongoing at the regional level to harmonize existing mechanisms within the CFA franc zone, taking the new concerns into consideration.

21. The program will continue to be monitored quarterly, based on the quantitative performance criteria, benchmarks, and indicators, as shown in Table 1 and defined in the technical memorandum of understanding, and on the structural performance criteria and benchmarks for end-June 2002, such as shown in Table 3. For 2002, the key benchmark/performance criterion is the ceiling on the cumulative change in net domestic budget financing. Others include zero ceilings on new nonconcessional borrowing ¹ and on the accumulation of domestic and external payments arrears. The quantitative indicators include a cumulative floor on government revenue and cumulative ceilings on the wage bill and current expenditure. The elimination of administratively set customs values and the appointment of magistrates to the Supreme Audit Court are structural performance criteria for end-June 2002.

22. Statistical data. The government continues its efforts to improve quality and timeliness in the production of the national accounts and other economic statistics. In this connection, it has requested technical assistance from the Fund, and will increase the human and physical resources allocated to the INSD. Since December 2001, the government began publishing its GDDS metadata on the DSBB on the Fund's web site, thus achieving full participation of Burkina Faso in the GDDS.

III. Poverty Reduction and Social Sectors

23. The first progress report on implementation of the Poverty Reduction Strategy Paper (PRSP) was considered by the Executive Boards of the International Monetary Fund and the World Bank in November 2001. To strengthen both the strategy and the participatory process, the authorities will ensure that the interministerial technical committee and the sectoral groups meet on a regular basis, with the participation of civil society and donors. An effort will also be made to strengthen the tracking system and to better define and monitor the indicators.

24. The monitoring unit created in June 2001 has made considerable progress in preparing the database on social spending, but there are still deficiencies in monitoring the impact indicators for measuring poverty trends. The government will continue its efforts to remedy these deficiencies by improving coordination among the units involved.

25. As stated above, HIPC-financed expenditure will be accelerated in 2002 to make up for the delays incurred in 2000 and 2001. For the future, the government will ensure strict fiscal year budgeting of HIPC-financed expenditure.

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INTERNATIONAL MONETARY FUND

BURKINA FASO

Technical Memorandum of Understanding

March 14, 2002

1. This memorandum of understanding defines the performance criteria and benchmarks of the program supported by the Poverty Reduction and Growth Facility (PRGF) Arrangement of the International Monetary Fund (IMF). It also sets the deadlines for reporting data to Fund staff to facilitate program monitoring.

I. Definitions

2. For the purposes of this memorandum, the following definitions of "debt," "government," "payment arrears," and "government obligations" will be used:

• As specified in point 9 of the Guidelines on Performance Criteria with Respect to Foreign Debt adopted by the Executive Board of the IMF on August 24, 2000, ² debt will be understood to mean a current, that is, not contingent, liability, created under a contractual arrangement through the provision of value in the form of assets (including currency) or services, and which requires the obligor to make one or more payments in the form of assets (including currency) or services, at some future point(s) in time; these payments will discharge the principal and/or interest liabilities incurred under the contract. Debts can take a number of forms, the primary ones being as follows: (i) loans, that is, advances of money to obligor by the lender made on the basis of an undertaking that the obligor will repay the funds in the future (including deposits, bonds, obligations, commercial loans, and buyers' credits) and temporary exchanges of assets that are equivalent to fully collateralized loans under which the obligor is required to repay the funds, and usually pay interest, by repurchasing the collateral from the buyer in the future (such as repurchase agreements and official swap arrangements); (ii) suppliers' credits, that is, contracts where the supplier permits the obligor to defer payments until some time after the date on which the goods have been delivered or the services provided; and (iii) leases, that is, arrangements under which property is provided that the lessee has the right to use for one or more specified periods of time, which are usually shorter than the total expected life of the property, while the lessor retains the title to the property. For the purpose of this guideline, the debt is the present value (at the inception of the lease) of all lease payments expected to be made during the period of the agreement, excluding those payments that cover the operation, repair, or maintenance of the property. Under the definition set out above, debt includes arrears, penalties, and judicially awarded compensation arising from the failure to make payment under a contractual obligation that constitutes debt are debt. Failure to make payment on an obligation is not considered debt by this definition (e.g., payment on delivery) will not give rise to debt. External debt excludes treasury bills and bonds issued in CFA francs on the regional financial market of the West African Economic and Monetary Union (WAEMU).

• Government is defined as the government of Burkina Faso and does not include any political subdivision or central bank or any government-owned entity with a separate legal personality.

• External payment arrears are external payments due but unpaid. Domestic payment arrears under the program for 2002 include domestic payments due (following the expiration of a grace period of 90 days, except where the obligation provides for a specific grace period, in which case that grace period will apply) but unpaid.

• Government obligation is any financial obligation of the government recorded as such by the government (including any government debt).

II. Quantitative Performance Criteria

A. Cumulative Change in Total Net Domestic Budget Financing of the Government

Definition

3. Within the framework of the 2002 program, total net domestic budget financing of the government is defined as the sum of: (i) net bank credit to the government, encompassing both the net bank credit to the Treasury as defined below and other government claims and debts vis-à-vis national banking institutions; and (ii) nonbank financing of the government, which includes, inter alia, treasury bills and bonds held outside the national banking institutions and the proceeds of asset sales by the government.

4. Net bank credit to the government is defined as the balance of the Treasury's claims and debts vis-à-vis national banking institutions. Treasury claims include the cash holdings of the Burkinabè Treasury, deposits with the central bank, deposits with the commercial banks, secured obligations, and government deposits with the postal system. Treasury debt to the banking system includes funding from the central bank (essentially IMF financing and refinancing of secured obligations), government securities held by the central bank, funding from commercial banks (including government securities held by commercial banks), and funding from the postal system (including deposits of the postal system with the Treasury).

5. Net bank credit to the government is calculated by the Central Bank of West African States (BCEAO), whose figures are deemed valid within the context of the program, and nonbank financing by the Treasury, whose figures are considered valid.

6. As of December 31, 2001, the stock of government domestic debt was CFAF 205.1 billion, made up of CFAF 145.8 billion in domestic debt (excluding BCEAO advances and debts related to expenditure procedures) and CFAF 59.3 billion in net banking credit to the government.

Performance criterion/Quantitative benchmarks

7. The ceiling on the cumulative change in net domestic budget financing is set at CFAF 10.3 billion at March 31, 2002, and CFAF -3.2 billion at June 30, 2002. These ceilings represent a benchmark at end-March 2002 and a performance criterion at end-June 2002. The ceiling is projected at CFAF -8.6 billion at September 30, 2002. This figure will be set as a benchmark at end-September 2002 at the time of the sixth program review.

Adjustment

8. The ceilings on the cumulative changes in total net domestic budget financing will be subject to adjustment if disbursements of external budgetary assistance, including traditional external debt relief-but excluding the assistance to be provided under the Heavily Indebted Poor Countries (HIPC) Initiative-exceed or fall short of program forecasts. In the event of excess disbursements at the end of each quarter (end-March 2002, end-June 2002, and end-September 2002), these ceilings will be lowered by the amount of the excess disbursements. In contrast, if at the end of each quarter disbursements are less than the expected amounts, the ceilings will be raised by the amount of the shortfalls (on a noncumulative basis) up to a maximum of CFAF 1 billion at end-March 2002, CFAF 20 billion at end-June 2002, and CFAF 25 billion at end-September 2002. Concerning HIPC Initiative assistance granted to Burkina Faso, the savings on debt service will be transferred to a special account maintained at the BCEAO and set aside for new poverty reduction programs as described in the Poverty Reduction Strategy Paper (PRSP), and in line with the 2001 and 2002 Budget Laws.

Reporting deadlines

9. Details on the net government position vis-à-vis the banking system will be forwarded by BCEAO staff, and those concerning nonbank financing of the government by the public Treasury within six weeks following the end of each month.

B. Nonaccumulation of Domestic Payment Arrears

Definition

10. The government undertakes not to accumulate any new domestic payment arrears on government obligations on a net basis. The Treasury surveys domestic payment arrears on government obligations and records pertinent repayments.

Performance criterion

11. The government will not accumulate any domestic payment arrears on government obligations in 2002. This nonaccumulation is a performance criterion to be observed continuously.

Reporting deadlines

12. Data on outstanding balances, accumulation, and repayment of domestic arrears on government obligations will be reported within four weeks following the end of each month.

C. Nonaccumulation of External Payment Arrears

Performance criterion

13. The government's external debt is the stock of debt held or guaranteed by the government. It excludes treasury bills and bonds issued in CFA francs on the WAEMU regional market. External payment arrears are debt obligations due but not paid on the due date. Under the program, the government undertakes not to accumulate external payment arrears on government debt, with the exception of external payment arrears arising from government debt being renegotiated with external creditors, including Paris Club creditors. This nonaccumulation is a performance criterion to be observed continuously.

Reporting deadlines

14. Data on outstanding balances, accumulation, and repayment of external payment arrears will be forwarded within four weeks following the end of each month.

D. Nonconcessional Foreign Loans Contracted or Guaranteed

by the Government of Burkina Faso

Performance criterion

15. The government undertakes not to contract or guarantee any foreign loans maturing in one year or more, with a grant element of less than 35 percent (calculated using the interest reference rate for borrowed foreign currencies provided by the IMF). This performance criterion applies not only to debt as defined in point 9 of the Guidelines on Performance Criteria with Respect to Foreign Debt, adopted by the IMF's Executive Board on August 24, 2000, ³ but also to commitments contracted or guaranteed for which value has not been received. However, this performance criterion does not apply to financing granted by the Fund or to Treasury notes and bonds issued in CFA francs on the WAEMU regional market. This obligation is a performance criterion to be observed continuously.

Reporting deadlines

16. Details on any government loan (terms of the loan and creditors) must be reported within four weeks of the end of each month. The same requirement applies to guarantees extended by the government.

E. Government Short-Term External Debt

Performance criterion

17. The government undertakes not to contract or guarantee any new external debt with a contractual maturity of less than one year. This performance criterion applies not only to debt as defined in point 9 of the Guidelines on Performance Criteria with Respect to Foreign Debt, adopted by the IMF's Executive Board on August 24, 2000, ⁴ but also to commitments contracted or guaranteed for which value has not been received. Excluded from this performance criterion are imports-related loans and treasury notes and bonds issued in CFA francs on the WAEMU regional market. This obligation is a performance criterion to be observed continuously. As of December 31, 2001, the government of Burkina Faso had no short-term external debt.

F. Structural Performance Criteria

Performance criterion

18. The 59 tariff lines still subject to administratively set customs valuations as specified in the order No. 01-037/MCPEA/MEF of May 28, 2001 will be eliminated by June 30, 2002.

19. Three magistrates will be appointed to the Supreme Audit Court by June 30, 2002.

Reporting deadlines

20. The information concerning the implementation of these structural performance criteria will be reported to the Fund within two weeks following its scheduled implementation date.

III. Quantitative benchmarks

21. The program also includes indicators on current fiscal revenue, the civil service wage bill, and total current expenditure.

22. Current fiscal revenue is defined as tax receipts, plus nontax receipts, excluding revenue from treasury checks.

23. Total current expenditure is defined as the difference between total fiscal expenditure, on the one hand, and capital expenditure plus net lending, on the other. Capital expenditure is defined as the sum of capital expenditure identified as such in the budget and foreign-financed investment outlays.

Reporting deadlines

24. This information will be reported to the IMF within four weeks following the end of each month.

IV. Additional Information for Program-Monitoring Purposes

A. Public Finance

25. The government will report to Fund staff the following:

• a monthly government flow-of-funds table (TOFE) and the 13 customary appendix tables, to be forwarded within three weeks (provisional version) and within six weeks (final version) following the end of each month; if the data on actual investment financed by external grants and loans are not available in time, a linear implementation estimate based on the annual projections will be adopted;

• complete monthly data on domestic budgetary financing, to be provided within six weeks following the end of each month;

• quarterly data on implementation of the public investment program, including details on financing sources, to be provided within six weeks following the end of each quarter;

• monthly data on debt service, to be provided within four weeks following the end of each month;

• monthly data on prices and the taxation of petroleum products, including (i) the price structure prevailing during the month; (ii) the detailed calculation of the price structure, going from the f.o.b.-MED price to the retail price; (iii) the volumes purchased and placed for consumption by the petroleum distributor (SONABHY); and (iv) the breakdown of receipts from the taxation of petroleum products-customs duties, tax on petroleum products (TPP), and value-added tax (VAT)-and of subsidies, to be provided within four weeks following the end of each month; and

• the status of accounts at the treasury classified by major category (administrative services, state enterprises, mixed enterprises, public administrative enterprises, international organizations, private depositors, and others), to be provided within four weeks following the end of each month.

B. Monetary Sector

26. The government will provide the following information within eight weeks following the end of each month:

• the consolidated balance sheet of monetary institutions;

• the monetary survey, within six weeks following the end of each month, for provisional data, and ten weeks following the end of each month, for final data;

• borrowing and lending interest rates; and

• customary banking supervision indicators, for bank and nonbank financial institutions, if necessary.

C. Balance of Payments

27. The government will provide the following information:

• any revision of balance of payments data (including services, private transfers, official transfers, and capital transactions) whenever they occur; and

• preliminary annual balance of payments data, within nine months following the end of the year concerned.

D. Real Sector

28. The government will report the following to Fund staff:

• disaggregated monthly consumer price indices, within two weeks following the end of each month;

• provisional national accounts, no later than six months after the end of the year; and

• any revision of the national accounts.

E. Structural Reforms and Other Data

29. The government will report the following information:

 

• any study or official report on Burkina Faso's economy, within two weeks following its publication; and

• any decision, order, law, decree, ordinance, or circular with economic or financial implications, upon its publication or, at the latest, when it enters into force.

F. HIPC Initiative

30. The government will report within three weeks following the end of each month:

• monthly data on credits, uses, and balances in the special account at the BCEAO established for the use of resources generated by debt reduction under the HIPC Initiative.

G. Summary of Data Requirements