Public Information Notice No. 01/66

Public Information Notice: IMF Concludes Article IV Consultation with Burkina Faso

July 16, 2001

On July 2, 2001, the International Monetary Fund (IMF) Executive Board concluded the Article IV consultation with Burkina Faso.¹

Background

Since 1991, Burkina Faso has been implementing reforms supported by the Fund through successive Enhanced Structural Adjustment Facility and Poverty Reduction Growth Facility (PRGF) arrangements.² The current PRGF arrangement was approved in September 1999 in support of a program covering the period 1999-2002. In July 2000, the IMF and World Bank Boards agreed that Burkina Faso had fulfilled the conditions for reaching the completion point under the original Heavily Indebted Poor Countries Initiative (HIPC) and the decision point under the enhanced (HIPC) Initiative, and that the poverty reduction strategy paper (PRSP) included a thorough analysis of poverty in Burkina Faso and a clear strategy to alleviate it.

Burkina Faso's macroeconomic performance has remained satisfactory under those programs. In 1999, real GDP grew by 6.2 percent, while the consumer price index (CPI) declined because of abundant food supplies. However, in 2000 the Burkinabè economy was buffeted by a number of exogenous shocks, including a severe drought which depressed cereal crops, the hike in oil prices, and adverse developments in the subregion that lowered workers' remittances. Real GDP growth for 2000 is now estimated to have reached 2.2 percent, resulting in a small decline of the per capita GDP growth and negative impact on poverty profiles. Consumer price inflation remained slightly negative in 2000, but prices rose somewhat in the first quarter of 2001 on account of the cereals shortage. The real effective exchange rate continued to depreciate in 2000 as a result of low inflation and the appreciation of the U.S. dollar against the euro, to which the CFA franc is pegged.

In 2000, fiscal revenue reached only 12.8 percent of GDP because of the economic downturn. Fiscal revenue was somewhat below the program benchmark, and wage outlays were marginally above the target, but an appropriate tightening of other outlays resulted in the program indicator on total primary expenditure to be met. At end-December 2000, the basic fiscal deficit reached 2.1 percent of GDP in line with the program target. However, the larger-than-programmed reduction in the stock of unpaid expenditure commitments resulted in the end-December quantitative performance criterion on cumulative change in net credit to the government being missed. Fiscal developments at end-March 2001 were generally in line with program projections.

Monetary policy, conducted at the regional level by the Central Bank for West African States, remained prudent. Credit to the economy rose in 2000 by 16 percent, reflecting delays in repaying the 1999/2000 crop credit because of low cotton prices and aggressive lending policies pursued by the three banks that entered the market in the past two years.

The external current account deficit (excluding grants) widened from 15.9 percent of GDP in 1999 to 17.9 percent of GDP in 2000. This was caused by a 10 percent deterioration of the terms of a trade on account of the low level of cotton prices and the sharp increases in petroleum prices, a collapse of gold exports because of the closing of several mines, and somewhat lower volume of cotton exports.

Executive Board Assessment

Directors noted that in 2000 the rate of economic growth in Burkina Faso had declined because of a severe drought and adverse economic shocks, including a rise in oil prices. Rekindling steady and rapid growth and strengthening the external position will require the sustained implementation of reforms over the medium term, as well as diversification of production and exports.

Directors stressed that to meet the challenges set out in the government's Poverty Reduction Strategy Paper, fiscal consolidation is a priority for this year and over the medium term. A strict limitation of nonessential outlays, and in particular public sector wages, and an increase in tax revenues are essential to free resources for investment and the social sectors. Note was taken of the recent completion of an audit of military expenditure, which could be helpful in this regard.

Directors welcomed the tightening of nonpriority outlays in the latter part of 2000 in response to the lower level of fiscal revenue. They noted that, in the first quarter of 2001, current government revenues were on target, while wage and other current outlays were below program indicators. Directors strongly encouraged the authorities to persevere in their efforts to broaden the tax base, including to the informal sector, to strengthen tax and customs administration, and to improve cash flow management at the Treasury. They welcomed the adoption of an automatic and transparent pricing mechanism for petroleum products to reflect international prices, and a taxation mechanism in line with regional norms.

Directors noted that the regional monetary policy of the BCEAO continues to serve Burkina Faso well, but needs to be buttressed by firm adherence to fiscal targets. They welcomed the authorities' support to the regional banking commission in its efforts to improve the health of the banking sector, as well as their efforts to promote the microfinance sector.

Directors noted the substantial challenges, including the effects of recurrent drought, that need to be met to achieve sustained economic development. They welcomed progress so far in structural reform, including efficiency gains in the cotton sector, improved public financial management, reform of the civil service and the judiciary, greater regional integration, improved governance, and advances in the privatization program, especially regarding telecommunications. They encouraged the authorities to proceed forcefully in continuing to implement their structural reform agenda.

Directors welcomed the completion of the fiscal module of the Report on the Observance of Standards and Codes. They encouraged the authorities to improve the quality, timeliness, and frequency of reporting of key data, notably on national accounts and the balance of payments, and welcomed Burkina Faso's decision to adopt the General Data Dissemination System.