Information about Sub-Saharan Africa África subsahariana
Journal Issue
Share
Article

Burkina Faso: Sixth Review Under the Arrangement Under the Poverty Reduction and Growth Facility and Request for Waiver of Performance Criteria and Augmentation of Access

Author(s):
International Monetary Fund
Published Date:
October 2006
Share
  • ShareShare
Information about Sub-Saharan Africa África subsahariana
Show Summary Details

I. Recent Developments

1. Macroeconomic performance in 2005 remained strong despite adverse external shocks. Rising world oil prices and lower world cotton prices led to a deterioration in the terms of trade by about 25 percent (Table 1). Nevertheless, real GDP growth increased strongly on account of record cereal and cotton harvests, which more than offset the decline in disposable income (estimated at about 2 percent of GDP by staff) as a result of the decline in the terms of trade. The strong growth performance and the fact that cotton ginning companies did not pass through the decline in world cotton prices to cotton producers for the harvest 2004/05 helped to mitigate the negative impact of the terms of trade shock on poorer households. Rising domestic gasoline prices and a sharp upsurge in food prices in the first half of 2005 pushed average annual inflation to above 6 percent, but inflationary pressures eased in the second half of the year as food prices retreated as a result of the good harvest. The fiscal deficit in 2005 (on a cash basis, excluding grants) was substantially smaller than programmed (Table 2), despite a revenue shortfall, because many expenditure authorizations were not executed but used to rebuild balances in the treasury accounts of autonomous and semi-autonomous agencies (dépôts au trésor) to a level consistent with the long-term trend.1 Consequently, the end-December indicative target on domestic financing was observed by a large margin (Appendix I, Table 1). The external current account deficit (excluding current official transfers) widened by about 1.5 percentage points of GDP, with higher oil prices, lower cotton prices, and a build up of unsold cotton stocks—as a result of the unfavorable price environment—being key factors behind the larger deficit (Table 4). Credit growth (excluding crop credit) declined from about 22 percent in 2004 to 12.5 percent in 2005, in line with the slowdown in economic activity in non-agricultural sectors owing to the unfavorable external environment (Table 3).

Table 1.Burkina Faso: Selected Economic and Financial Indicators, 2004-06
200420052006
Est.Proj. 1/Est.Proj. 1/Rev. Proj.
(Annual percentage change; unless otherwise specified)
GDP and prices
GDP at constant prices4.67.57.14.45.6
GDP deflator2.83.53.22.82.3
Consumer prices (annual average)-0.46.46.42.13.1
Consumer prices (end of period)0.74.54.52.01.9
Money and credit
Net domestic assets (banking system) 2/1.313.712.810.54.6
Credit to the government 2/-3.73.70.94.2-2.7
Credit to the private sector 2/6.112.014.96.36.6
Broad money (M2)-7.26.0-3.77.38.1
Velocity (GDP/M2)4.44.65.04.65.0
External sector
Exports (f.o.b.; valued in CFA francs)36.31.4-3.023.422.5
Imports (f.o.b.; valued in CFA francs)15.117.313.89.514.5
Terms of trade14.6-31.0-24.7-0.3-2.7
Real effective exchange rate (- = depreciation)-0.62.9
World cotton price (US$ cents per pound) 3/62.054.055.259.557.0
Average petroleum spot price (US$ per barrel) 3/37.854.253.461.866.5
(In percent of GDP; unless otherwise indicated)
Gross investment18.719.917.920.216.8
Government7.76.97.57.47.4
Nongovernment sector11.013.010.412.89.4
Gross domestic savings6.77.14.78.13.5
Government savings4.84.43.95.04.9
Nongovernment savings1.92.70.83.1-1.4
Gross national savings9.810.57.611.56.3
Central government finances
Current revenue12.712.612.213.313.3
Of which: Tax revenue11.711.711.212.312.3
Total expenditure21.220.621.422.323.4
Of which: Current expenditure10.511.211.111.912.4
Overall fiscal balance, excluding grants-8.6-8.0-9.2-9.0-10.0
Overall fiscal balance, including grants-4.2-3.9-4.8-4.216.6
External sector
Exports of goods and services10.69.09.810.210.9
Imports of goods and services22.621.823.022.224.2
Current account balance (excluding current official transfers)-11.9-12.3-13.2-11.3-13.2
Current account balance (including current official transfers)-8.9-9.3-10.3-8.7-10.5
Debt indicators
External debt in percent of GDP34.333.033.035.517.8
NPV of external debt in percent of GDP18.118.318.319.910.5
NPV of external debt in percent of exports183.1202.7186.1195.596.0
NPV of external debt in percent of revenues141.5145.1150.2149.178.8
Nominal GDP (in billions of CFA francs)2,7183,0263,0053,2463,247
Sources: Burkinabe authorities; and Fund staff estimates and projections.

MF Country Report No. 06/107, March 13, 2006.

In percent of beginning-of-period broad money.

Source: WEO.

Sources: Burkinabe authorities; and Fund staff estimates and projections.

MF Country Report No. 06/107, March 13, 2006.

In percent of beginning-of-period broad money.

Source: WEO.

Table 2.Burkina Faso: Consolidated Operations of the Central Government, 2004-08
20042005200620072008
Est.Prog. 1/Proj. 2/Est.Proj. 2/Rev. Proj.Proj.Proj.
(In billions of CFA francs)
Total revenues and grants461.8529.9503.9496.7588.21,298.3636.9693.7
Total revenues344.5377.9380.9365.2432.3432.3478.3539.0
Tax revenue318.2349.9353.8336.8399.2399.2440.9496.4
Non-tax revenue26.328.027.128.433.133.137.442.5
Grants117.3152.0123.0131.5155.8866.0158.6154.8
Project70.393.365.773.8101.9101.9104.0106.0
Program47.158.757.457.853.956.054.648.8
MDRI relief 3/708.10.00.0
Of which: IMF54.10.00.0
Expenditure and net lending 4/577.0650.8623.4642.0724.6758.6842.6911.9
Current expenditure284.5342.4339.6332.4384.9403.8437.0468.3
Wages and salaries119.0140.7141.6141.4151.8157.8171.9182.4
Goods and services62.976.876.075.388.091.3115.7119.5
Interest payments19.119.517.818.217.315.316.516.5
Domestic6.47.36.96.45.95.98.06.0
External12.712.210.911.711.49.48.510.5
Current transfers82.799.8102.896.1125.8137.4130.8147.6
Safety net and other expenditures0.85.61.41.52.02.02.12.3
Capital expenditure297.8315.4297.2322.7342.4345.3406.6444.6
Net lending-5.4-7.0-13.4-13.2-2.89.5-1.0-1.0
Of which: fonds de lissage12.50.00.0
Overall balance (commitment basis)-115.2-120.9-119.5-145.3-136.4539.7-205.7-218.1
Excluding MDRI grants-168.4
Excluding grants-232.5-272.9-242.5-276.8-292.2-326.3-364.3-372.9
Cash basis adjustment8.5-10.03.925.2-4.80.00.00.0
Overall balance (cash basis)-106.7-130.9-115.6-120.1-141.2539.7-205.7-218.1
Excluding MDRI grants-168.4
Excluding grants-224.0-282.9-238.6-251.7-297.0-326.3-364.3-372.9
Financing108.4130.9115.5121.6141.2-554.9159.0156.5
Foreign118.5113.6119.8136.1128.4-523.9159.0156.5
Drawings119.9122.3127.2136.6137.1138.0166.6164.4
Project loans79.887.191.4100.893.293.2116.3120.6
Adjustment aid40.135.335.835.843.944.850.343.8
Amortization-26.2-48.3-39.5-24.5-36.1-682.3-17.4-16.9
Of which: MDRI-654.0
Debt relief (excl. MDRI)24.839.532.224.027.420.49.89.1
Domestic financing-10.017.3-4.3-14.512.8-31.00.00.0
Banking sector-24.924.123.25.627.6-16.20.00.0
Central bank-28.821.449.628.027.6-16.20.00.0
Of which: IMF5.3-1.1-1.1-1.3-2.6-48.50.00.0
Commercial banks3.92.7-26.4-22.40.00.00.00.0
Nonbanks14.9-6.8-27.4-20.2-14.8-14.80.00.0
Memorandum item:
Domestic financing excluding IMF-15.318.3-3.2-13.315.417.50.00.0
Errors and omissions-1.70.00.0-1.50.00.00.00.0
Financing gap-1.70.00.00.00.015.246.761.6
Identified possible financing10.40.00.0
Of which: grants10.40.00.0
loans0.00.00.0
Residual financing gap4.846.761.6
Memorandum items:
Poverty-reducing social expenditures145.0160.5166.2166.2181.1199.4
Of which: education56.968.054.759.574.279.5
health48.158.153.650.857.664.3
Poverty-reducing social expenditures excl. HIPC resources101.5128.3127.8156.0
Flow relief from the MDRI10.3
Sources: Burkinabè authorities and Fund Staff estimates and projections.

IMF Country Report No. 05/354, September 30, 2005.

IMF Country Report No. 06/107, March 13, 2006.

Multilateral Debt Relief Initiative stock-of-debt operation, including cancellation of debt treated under the enhanced HIPC Initiative, shown on accrual basis. Includes IMF, World Bank, and African Development Bank. For the World Bank and African Development Bank, implementation of the stock-of-debt operation is assumed for July 1, 2006. The stock-of-debt operation increases domestic and external amortization payments in 2006, which is offset by MDRI grants, and lowers amortization and interest from 2006 onwards. MDRI stock-of-debt relief from the Fund is higher than in the balance of payments because of a valuation adjustment by the BCEAO.

On an authorization basis.

Sources: Burkinabè authorities and Fund Staff estimates and projections.

IMF Country Report No. 05/354, September 30, 2005.

IMF Country Report No. 06/107, March 13, 2006.

Multilateral Debt Relief Initiative stock-of-debt operation, including cancellation of debt treated under the enhanced HIPC Initiative, shown on accrual basis. Includes IMF, World Bank, and African Development Bank. For the World Bank and African Development Bank, implementation of the stock-of-debt operation is assumed for July 1, 2006. The stock-of-debt operation increases domestic and external amortization payments in 2006, which is offset by MDRI grants, and lowers amortization and interest from 2006 onwards. MDRI stock-of-debt relief from the Fund is higher than in the balance of payments because of a valuation adjustment by the BCEAO.

On an authorization basis.

Table 2a.Burkina Faso: Consolidated Operations of the Central Government, 2004-08
20042005200620072008
Est.Prog. 1/Proj. 2/Est.Proj. 2/Rev. Proj.Proj.Proj.
(In percent of GDP, unless otherwise specified)
Revenue12.713.312.612.213.313.313.614.1
Grants4.35.44.14.44.826.74.54.1
Expenditure and net lending21.222.920.621.422.323.423.923.9
Current expenditure10.512.111.211.111.912.412.412.3
Capital expenditure11.011.19.810.710.510.611.511.6
Overall balance (commitment basis)-4.2-4.3-3.9-4.8-4.216.6-5.8-5.7
Excluding MDRI grants-5.2
Excluding grants-8.6-9.6-8.0-9.2-9.0-10.0-10.3-9.8
Overall balance (cash basis)-3.9-4.6-3.8-4.0-4.416.6-5.8-5.7
Excluding MDRI grants-5.2
Excluding grants-8.2-10.0-7.9-8.4-9.2-10.0-10.3-9.8
Foreign financing4.44.04.04.54.0-16.14.54.1
Domestic financing-0.40.6-0.1-0.50.4-1.00.00.0
Domestic financing excl. IMF-0.60.6-0.1-0.40.50.50.00.0
Cash basis adjustment0.3-0.40.10.8-0.10.00.00.0
Financing gap-0.10.00.00.00.00.51.31.6
Errors and omissions-0.10.00.00.00.01.31.6
Memorandum items:
External financing8.79.48.08.98.810.59.08.1
Of which: grants4.35.44.14.44.826.74.54.1
net loans3.42.62.93.73.1-16.84.23.9
debt relief0.91.41.10.80.80.60.30.2
External financing and financing gap8.69.48.08.98.811.010.39.8
Basic balance-3.0-3.3-2.8-3.4-3.0-4.0-4.1-3.8
Flow relief from the MDRI0.30.3
GDP (in billions of CFA francs)2,7182,8383,0263,0053,2463,2473,5213,821
Sources: Burkinabè authorities and Fund Staff estimates and projections.

IMF Country Report No. 05/354, September 30, 2005.

IMF Country Report No. 06/107, March 13, 2006.

Sources: Burkinabè authorities and Fund Staff estimates and projections.

IMF Country Report No. 05/354, September 30, 2005.

IMF Country Report No. 06/107, March 13, 2006.

Table 3Burkina Faso: Monetary Survey, 2003-06
2003200420052006
Dec.Dec.Dec.Dec.Mar.Dec.Dec.
Proj.1/Est.Est.Proj. 1/Rev. Proj.
(In billions of CFA francs)
Net foreign assets 2/331274226171220204191
Central Bank of West African States (BCEAO)293232221165220200186
Assets391318306244268282230
Liabilities 3/4/98868579488345
Commercial banks384256156
Net domestic assets342350436430431505458
Net domestic credit369385484484484553508
Net credit to government 3/283279-2354-7
Credit to the economy341382457475506499515
Crop credit40151863902068
Other301367439413416479447
Other items (net) 5/-28-35-48-54-53-48-49
Broad money 2/673624662601651710649
Of which: bank deposits368399425401437459436
(Annual changes in percent of stock of broad money of 12 months earlier, unless otherwise specified)
Memorandum items:
Net foreign assets43.6-8.4-7.7-16.6-1.3-3.23.4
Net domestic assets10.41.313.712.8-0.410.54.6
Net credit to government2.4-3.73.70.9-9.94.2-2.7
Credit to the economy9.46.112.014.910.06.36.6
(annual percentage change)13.712.019.724.415.09.28.3
(excluding crop credit)19.221.919.712.511.89.18.2
Money supply54.0-7.26.0-3.7-1.77.38.1
Of which: bank deposits12.94.74.10.31.85.05.9
Currency velocity (GDP/broad money)3.84.44.65.05.04.65.0
Sources: Burkinabè authorities and Fund Staff estimates and projections.

IMF Country Report No. 06/107, March 13, 2006.

From December 2003 onwards, reflects the BCEAO’s revised estimates of currency in circulation.

MDRI relief from the Fund is reflected from 2006 onwards.

For 2006, assumes augmentation of access under the Fund arrangement.

Includes valuation adjustment related to MDRI relief.

Sources: Burkinabè authorities and Fund Staff estimates and projections.

IMF Country Report No. 06/107, March 13, 2006.

From December 2003 onwards, reflects the BCEAO’s revised estimates of currency in circulation.

MDRI relief from the Fund is reflected from 2006 onwards.

For 2006, assumes augmentation of access under the Fund arrangement.

Includes valuation adjustment related to MDRI relief.

Table 4Burkina Faso: Balance of payment, 20040-08
20042005200620072008
Est.Proj. 1/Est.Proj. 1/Rev. Proj.Proj.Proj.
(In billions of CFA francs)
Exports, f.o.b.253232245287301328356
Of which: cotton163151143202187208230
Imports, f.o.b.-458-490-522-537-597-626-662
Of which: petroleum products-72-139-101-170-139-140-147
Trade balance-205-258-276-250-296-298-306
Services and income (net)-137-146-142-157-146-151-159
Services-121-129-120-141-136-141-147
Income-16-17-22-16-10-10-12
Current transfers (net)101121110126102107106
Private20322139142023
Official81898987888782
Current account (- = deficit)-241-283-308-281-341-341-360
Excluding current official transfers-322-372-397-368-428-428-442
Capital transfers106110125136833121123
Project grants706674102102104106
Other capital transfers364451347311717
Of which: MDRI stock of debt relief (incl. IMF)704
Of which: IMF MDRI stock of debt relief50
Of which: Remaining HIPC Initiative relief2540403020109
Financial operations11612579124-482185190
Official capital968897101-544149147
Disbursements120127137137138167164
Project loans80911019393116121
Program loans40363644455044
Amortization-24-40-40-36-682-17-17
Of which: MDRI stock of debt relief (IDA and AfDB)-654
Private capital 2/2137-1823623642
Errors and omissions-38010000
Overall balance-57-48-103-2110-34-47
Financing574810321-25-12-14
Net foreign assets574810321-25-12-14
Net official reserves61116721-25-12-14
Of which: gross official reserves7312752413-17-22
IMF (net)-8-1-1-3-4400
Of which: IMF MDRI stock of debt relief-50
Net foreign assets, commercial banks-437360000
Change in arrears (- = reduction)0000000
Financing gap000015.24762
Identified possible financing10.400
Residual financing gap4.84762
Memorandum items:(In percent of GDP; unless otherwise indicated)
Debt service relief from MDRI 3/0.30.3
Trade balance (- = deficit)-7.6-8.5-9.2-7.7-9.1-8.5-8.0
Cotton export volume (thousands of metric tons)202.8260.0247.7306.6298.7322.9347.1
Current account (- = deficit)-8.9-9.3-10.3-8.7-10.5-9.7-9.4
Excluding current official transfers-11.9-12.3-13.2-11.3-13.2-12.2-11.6
Overall balance (- = deficit)-2.1-1.6-3.4-0.70.3-1.0-1.2
Total debt-service ratio after HIPC 4/9.28.911.18.7203.94.95.1
Gross international reserves (in billions of CFA francs)318.1306.0243.6282.1230.4247.7269.6
In months of imports of goods and services6.25.64.24.73.53.63.7
GDP at current prices (in billions of CFA francs)2,7183,0263,0053,2463,2473,5213,821
Sources: Central Bank of West African States (BCEAO); and Fund staff estimates and projections.

IMF Country Report No. 06/107, March 13, 2006.

Includes portfolio investment and foreign direct investment.

Multilateral Debt Relief Initiative.

In percent of exports of goods and services.

Sources: Central Bank of West African States (BCEAO); and Fund staff estimates and projections.

IMF Country Report No. 06/107, March 13, 2006.

Includes portfolio investment and foreign direct investment.

Multilateral Debt Relief Initiative.

In percent of exports of goods and services.

Selected Economic Indicators, 2004-2006
200420052006
Est.Prog. 1/Proj. 2/Est.Proj.
Real GDP growth (%)4.63.57.57.15.6
CPI (annual average, % change)-0.44.06.46.43.1
Revenue (% GDP)12.713.312.612.213.3
Expenditure and net lending (% GDP)21.222.920.621.423.4
Overall fiscal balance (cash basis), excluding grants (% GDP)-8.2-10.0-7.9-8.4-10.0
Overall fiscal balance (cash basis), including grants (% GDP)-3.9-4.6-3.8-4.016.6
Domestic financing (% GDP)-0.40.6-0.1-0.5-1.0
Current account balance, excluding current official transfers (% GDP)-11.9-12.3-12.3-13.2-13.2
Current account balance, including current official transfers (% GDP)-8.9-9.1-9.3-10.3-10.5
Terms of trade (% change)14.6-26.4-31.0-24.7-2.7
Source: Burkinabè authorities, and Fund staff estimates.

IMF Country Report No. 05/354, September 30, 2005.

IMF Country Report No. 06/107, March 13, 2006.

Source: Burkinabè authorities, and Fund staff estimates.

IMF Country Report No. 05/354, September 30, 2005.

IMF Country Report No. 06/107, March 13, 2006.

CPI Inflation Rates, Monthly, January 2000-June 2006

(Percent change from 12 months earlier)

Source: Burkinabè authorities.

Cotton and Oil Prices, Daily, January 1999-June 2006

Source: Thomson Datastream.

2. Macroeconomic developments in the first half of 2006 have generally been encouraging, with the exception of a further deterioration in the external terms of trade. Inflation fell to 3.7 percent for the 12-month period ending in May. There are signs of a good cereal harvest, which would bolster real GDP growth and reduce inflationary pressures further. However, since the beginning of the year the external environment has worsened somewhat as a result of a decline in world cotton prices, higher world oil prices, and a strengthening of the euro to which the local currency is pegged.

Selected Nominal and Real Exchange Rates, Monthly, January 1992April 2006

(2000 = 100)

Source: IMF (Information Notice System)

II. Program Performance

3. Macroeconomic policy through March 2006 was generally in line with the program. The end-March quantitative performance criterion on domestic financing was observed, as were all other quantitative performance criteria (Appendix I, Table 2). The indicative targets for fiscal revenue and the basic balance were observed as well; however, the current expenditure target was exceeded (by a small margin) because of higher-than-expected outlays on goods and services, and the expenditure target on wages and salaries was also (narrowly) missed.

4. Performance with regard to structural reforms has been less satisfactory, with only one of three structural performance criteria having been observed (Appendix I, Table 3). The Joint Brigade of the Tax and Customs Directorates was established before the end-December 2005 target date, thereby meeting one of the structural performance criteria. The Brigade completed the targeted number of audits by the end-March 2006 test date, but the submission of the report to the Minister of Finance was delayed owing to personnel changes at the Directorate of Tax Administration. The census of taxpayers in Ouagadougou and Bobo-Dioulasso started ahead of schedule, but completion is not expected until August 2006 because of a strike by census workers. All structural benchmarks were observed.

III. Report on the Discussions

A. Macroeconomic Framework and Request for Augmentation

5. Macroeconomic prospects are relatively favorable notwithstanding the deterioration in the terms of trade. Real GDP growth in 2006 is expected to decline to 5.6 percent from 7.1 percent in 2005, as agricultural growth slows following the strong output expansion in the previous year. In the wake of good rainfalls, an expected good cereal harvest should keep inflation low. The fiscal deficit (cash basis, excluding grants) is projected to widen relative to 2005, but would be mostly financed by concessional external resources, including those freed up by MDRI. Despite a temporary boost to exports from the sale of cotton stocks built up during 2005, the current account deficit is projected to be broadly unchanged from its 2005 level, reflecting largely the increase in oil imports because of higher oil prices. While the overall balance of payments in 2006 is projected to register a surplus owing to the impact of the stock-of-debt reduction provided under MDRI by the Fund, gross international reserves of the national branch of the BCEAO are projected to fall for a third consecutive year.

6. Against the background of declining reserve levels, the authorities are requesting an augmentation of access under the PRGF equivalent to 10 percent of quota (SDR 6.0 million). The request is based on the balance of payments need resulting from the severe terms of trade shocks taking place over the previous two years—oil prices have climbed to historic highs in this period whereas world cotton prices fell by 40 percent during the course of 2004 and have not significantly recovered since then. The reserve cover fell from about 6 months of imports in 2004 to only 4 months of imports in 2005, well below the WAEMU average of about 5 months in the same year, and would fall further to below 3.5 months in 2006 in the absence of additional Fund support. The requested augmentation would help to moderate the decline in reserves. The decrease in the reserve cover is likely to bottom out in 2006, as smaller current account deficits in 2007 and 2008 in relation to GDP will contribute to a rebuilding of reserves. The projected narrowing in the current account deficits is the result of adjustment processes in the economy that are already under way, reflected, for example, in the decline in credit growth to the economy (excluding crop credi The agreement between cotton producers and ginning companies last year to reduce producer prices by 17 percent for the harvest 2005/06 and the steadfast implementation by the authorities of the automatic pricing mechanism for petroleum products, which assures full pass through of changes in world oil prices, have been important policy measures to facilitate this adjustment). The proposed reform of the cotton producer price setting mechanism (see paragraph 15), and the planned increase in electricity tariffs (see paragraph 16) are likely to aid the adjustment process as well.

Agricultural Production, 1996/97–2006/07

(In thousands of metric tons)

Source: Burkinabe authorities.

Agricultural Production, 1996/97–2006/07

(In thousands of metric tons)

Source: Burkinabe authorities.

Current Account and Fiscal Overall Balance Projections

(in percent of GDP)

Source: Burkinabe authorities; and Fund staff estimates.

Terms of Trade, 1985–2007

(1999=10)

Source: Burkinabe authorities; and Fund staff estimates.

7. There are a number of risks to the macroeconomic outlook: a renewed weakening of the world cotton price, a further strengthening of the euro, or additional increases in the world oil price could add pressure on the balance of payments, whereas the recurrent threat of drought could adversely affect real GDP growth and inflation.

B. Fiscal Policy

8. Discussions on fiscal policy focused on preserving fiscal sustainability, absorbing MDRI resources, and addressing additional expenditure needs. The authorities concurred to keep domestic financing (excluding the IMF) broadly in line with the previously agreed target for 2006, but to use additional resources, largely from external sources, to raise spending. Higher priority expenditures, which reflect the availability of additional external budgetary support and debt service savings provided under the MDRI, include larger outlays on investment projects, as well as higher utility costs and payments for retroactive civil service promotions in the health and education sectors. The latter two expenditure items are contingent on the verification of utility invoices and the outcomes of negotiations with labor unions (see paragraph 9). Additional expenditure needs identified by the authorities in non-priority sectors consist of a larger fuel subsidy to SONABEL owing to higher world oil prices (see paragraph 16) and VAT reimbursements as a result of past claims by the cotton sector that were recently settled. The authorities agreed to expenditure cuts in other non-priority areas to offset part of these expenditure increases. The authorities also intend to set aside resources for a possible zero interest loan (0.4 percent of GDP), largely financed by donor grants, to the envisaged fonds de lissage (see paragraph 15). Overall, total spending and net lending would be on the order of 23.4 percent of GDP, about one percent of GDP higher than previously projected, but in line with the original program.

Additional Expenditures and Net Lending, 2006 1/
% of GDP
Priority social sectors0.4
Wages and salaries0.1
Goods and services 2/0.2
Of which: Utility bills0.1
Domestically financed investment0.1
Non-priority social sectors0.3
Wages and salaries0.1
Goods and services (utility bills)0.1
VAT reimbursements0.2
Electricity subsidy (SONABEL)0.2
Offsetting expenditure cuts-0.2
Net lending (fonds de lissage)0.4
Total1.1

Compared to projected spending in IMF Country Report No. 06/107, March 13, 2006.

Including spending to reconstitute the food security stock.

Compared to projected spending in IMF Country Report No. 06/107, March 13, 2006.

Including spending to reconstitute the food security stock.

9. The staff urged the authorities to move cautiously with regard to committing additional spending for civil service promotions and higher utility bills. The government estimates that retroactive civil service promotions would cost CFAF 18 billion (0.6 percent of GDP). While formal promotions have not been implemented since 2003, because of problems in operationalizing the new merit-based promotion system, compensation has nonetheless been raised on an ad hoc basis. The mission urged the authorities to take these increases into account in its negotiations with labor representatives. Should the government determine that it is obligated to provide further compensation increases, it will spread payments over a number of years, with a maximum of CFAF 6 billion (0.2 percent of GDP) being paid in 2006. Recent bills by utility companies indicate that real consumption by government has increased by some 60 percent over last year. The authorities explained that the additional charges come in the context of the decentralization of government and the expansion of health and education facilities, but the mission urged the authorities to verify the additional charges. The budgeted CFAF 5 billion (0.2 percent of GDP) represents a good faith down payment by government that will be made only after the utility companies have provided all information necessary to validate these charges.

10. Recent revenue data indicate that the annual revenue target (equivalent to 13.3 percent of GDP) is achievable. The better revenue performance relative to 2005 reflects increasing computerization and an enhanced fight against fraud in customs administration, whereas tax administration benefits from better control of tax declarations and the computerization of large and medium-sized taxpayer units. The fiscal deficit (excluding grants) is expected to amount to 10 percent of GDP, 1 percent higher than previously projected on account of the higher expenditures and unchanged revenue performance.

11. Domestic financing requirements (excluding the IMF) remain essentially at the level of previous projections. Additional expenditures would be financed mostly through concessional external resources, consisting of MDRI debt service savings and additional budgetary support, as well as possible donor support for the fonds de lissage (from the European Union and the Agence Francaise de Developpement) and for higher spending on food security. In case donor support would not materialize, the resulting financing gap would be closed by foregoing the loan to the fonds de lissage and cuts in non-priority spending. Domestic resources for financing the additional expenditures include cash savings as unexecuted expenditure authorizations from 2005 are not expected to unwind in 2006 (see paragraph 1), resulting in a smaller cash basis adjustment relative to previous projections. The net domestic financing requirements (excluding the IMF) would stay broadly in line with previous projections. The residual financing gap could be covered with the support of additional Fund resources.

Fiscal Operations, 2005-2006(In percent of GDP)
20052006
Prog. 1/Proj. 2/Est.Prog. 1/Proj. 2/Rev. Proj.
Revenue13.312.612.214.013.313.3
Grants5.44.14.43.44.826.7
Of which: MDRI21.8
Expenditure and net lending22.920.621.424.722.323.4
Overall balance (commitment basis)-4.3-3.9-4.8-7.3-4.216.6
Excluding MDRI grants-5.2
Excluding grants-9.6-8.0-9.2-10.7-9.0-10.0
Foreign financing4.04.04.52.64.0-16.1
Domestic financing0.6-0.1-0.50.40.4-1.0
Of which: Domestic financing excl. IMF0.6-0.1-0.40.50.50.5
Cash basis adjustment-0.40.10.8-0.2-0.10.0
Errors and Omissions / Financing gap0.00.00.04.50.00.5
Sources: Burkinabe authorities and Fund Staff estimates and projections.

IMF Country Report No. 05/354, September 30, 2005.

IMF Country Report No. 06/107, March 13, 2006.

Sources: Burkinabe authorities and Fund Staff estimates and projections.

IMF Country Report No. 05/354, September 30, 2005.

IMF Country Report No. 06/107, March 13, 2006.

Financing for Additional Expenditures and Net Lending, 2006 1/
% of GDP
Additional spending needs1.1
External resources0.7
MDRI debt service savings0.3
Additional food security stock and budget support0.1
Possible support for the fonds de lissage0.3
Domestic resources0.2
Cash adjustment0.1
Domestic financing (excl. IMF)0.1
Residual financing gap0.2

Compared to projected spending in IMF Country Report No. 06/107, March 13, 2006.

Compared to projected spending in IMF Country Report No. 06/107, March 13, 2006.

12. The envisaged fiscal stance is consistent with maintaining debt sustainability. Fund staff has updated the external debt sustainability analysis (DSA) to incorporate the proposed expenditure increases in 2006 as well as the likely spillover into 2007 and 2008, which would raise spending by about 0.7 and 0.5 percent of GDP respectively in these two years. 2 Medium-term fiscal expenditures are otherwise based on the authorities’ Priority Action Plan for 2006-08 (see paragraph 19). The DSA shows that the implied fiscal stance is consistent with maintaining Burkina Faso’s external debt ratios at levels well below the policy-dependent thresholds. This reflects partly that a substantial share of the proposed expenditure increases is financed through grants and MDRI savings. Domestic debt levels are expected to remain largely unchanged in relation to GDP.

13. The authorities will continue implementing reforms to strengthen tax and customs administration with a view to raising the relatively low revenue-to-GDP ratio. The completion of the taxpayer census is a prior action for conclusion of the sixth PRGF review. The Minister of Finance intends to validate updated multi-year plans to strengthen tax and customs administrations by end-September 2006, and will appoint a director to supervise the implementation of the plans and to coordinate technical assistance. Key actions to be taken during the second half of 2006 include speeding up VAT reimbursement procedures, and strengthening customs administration through streamlining documents and improving the use of customs valuation and declaration data (see MEFP, paragraph 11). The authorities will also approve a new investment code by end-December. The staff advised the authorities to design the new investment code with a view to replacing specific and costly tax exemptions with broad-based growth-oriented incentives, for example accelerated depreciation schedules.

Burkina Faso: Selected debt-sustainability Indicators, (Baseline Scenario), 2004-2025 1/

(In percent)

Source: Burkinabe authorities and IMF-World Bank staff estimates.

C. Cotton Sector Issues

14. The cotton ginning companies suffered sizeable financial losses in 2005 (about 1 percent of GDP), and further losses are expected for 2006 (about 0.3 percent of GDP). These losses reflect the slump in world cotton prices since 2004; the relative strength of the euro in the past two years; an incomplete pass through of the decline in world cotton prices to local cotton producers; and rising transportation costs linked to higher world oil prices.

15. In March 2006, cotton farmers and ginning companies agreed to a new mechanism for determining the producer price of cotton and for financing a sustainable cash reserve fund as a buffer against future price shocks (fondsdelissage). Farmers and ginning companies agreed to lower the producer price of cotton for the upcoming 2006/0 crop to CFAF 165 per kilo (from CFAF 175 last year). For future years, a new pricing mechanism has been agreed in principle by the Interprofessional Association of Cotton Producers of Burkina Faso (IACB) that would link the producer price of cotton to a centered moving average of historical and forecast world cotton prices. Thus, the producer price would change yearly based solely on movements in actual and forecast world market prices. To support this mechanism, sector participants wish to create a fonds de lissage, which would be drawn upon in those years in which the realized world cotton price falls below the floor of the band surrounding the centered-average price, and be replenished in years when the realized price is above the ceiling of the band (see Box 1). The government is seeking donor support to establish the fund, and some donors have expressed an interest in providing such support. The government would onlend these resources plus its own contribution as a zero-interest loan to the fund. The fonds de lissage is intended to be self financing after the initial funding, and the government loan would be repaid once the fund reaches a sufficiently high level through replenishments by the cotton ginning companies. However, a number of outstanding issues remain regarding the pricing mechanism (including the width of the intervention band; see Box 1), the operation of the fonds de lissage, and its legal status. The staff welcomed the principle of linking producer prices of cotton to movements in world prices, and calls for a wide intervention band to ensure that recourse to the fonds de lissage takes place only in exceptional circumstances. The onlending arrangement will commence only after all issues have been resolved to the satisfaction of all participants, including the government and donors. The government has also suggested that all cotton company shareholders (including the state) consider the merits of an augmentation of capital, which would help strengthen the financial position of the cotton companies after two years of sizeable financial losses. It is currently seeking donor support to help finance an augmentation of the shares of cotton farmers.

Box 1.Cotton Price Setting Mechanism and Fonds de Lissage

The proposed price setting mechanism for cotton producer prices would link the domestic producer price to past and expected future developments of cotton world prices via a multi-year centered moving average of the Cotlook Index A price index.1 In addition, a band would be established around the producer price that would determine the operation of the fonds de lissage (literally: smoothing fund) whenever the realized cotton world price deviates from the projection:

  • Realized price is above the band: Based on a pre-determined formula, ginning companies would use part of their surplus to build up cash reserves in the fonds de lissage, and the remainder would be distributed between producers and ginning companies.
  • Realized price falls within the band: No replenishments or drawings take place.
  • Realized price falls below the band: Ginning companies pay producers the agreed domestic producer price, but can draw on the fonds de lissage according to a pre-determined formula to help finance the price difference. If the fonds de lissage is depleted—either because balances were low at the beginning of the period or because of a severe price shock—a negotiated settlement between producers and ginning companies is envisioned that could include a lowering of the domestic producer price.

Key elements of this mechanism have not yet been settled, including how projected cotton prices would be determined, or the width of the band. A narrow band would imply frequent recourse and replenishment of the fonds de lissage, whereas a wide band would lead to transactions only in exceptional cases.

1 The Cotlook Index A is an independently published cotton price index that mirrors closely world market prices for cotton from Burkina Faso.

D. Energy Pricing and Structural Reforms

16. Discussions on energy pricing focused on taxes on retail petroleum products and the budget subsidy to the state-owned electricity company (SONABEL). The authorities faced pressures to reduce petroleum-based taxes to mitigate the impact of rising world oil prices, but have consistently implemented the monthly automatic pricing mechanism that assures a full pass-through of world prices. However, they indicated that it would not be feasible to contain the subsidy to SONABEL to the CFAF 18 billion (0.6 percent of GDP) programmed for 2006. Doing so would require raising electricity tariffs on the order of 30 percent, which, in the face of rising retail fuel prices, could generate social unrest. Leaving tariffs unchanged would require raising the subsidy to CFAF 27 billion (0.8 percent of GDP). As a compromise, the authorities agreed to raise tariffs by 12.5 percent, which would require raising the subsidy to CFAF 23 billion. In case this amount is exceeded because of unforeseen developments, including a lower-than-expected yield of the tariff increase or higher world oil prices, the authorities agreed to reduce other non-priority spending accordingly to ensure that any additional subsidies remain budget neutral. The increase in electricity tariffs is a prior action for the completion of the sixth PRGF review. The authorities also intend to work with the World Bank to design an electricity-tariff setting mechanism that will link prices to costs, while providing incentives for efficiency, thereby helping to ensure that the subsidy to SONABEL will not increase further from current levels. The authorities expect to eliminate all electricity subsidies (except, possibly, for low-income households) by 2009, when the World Bank-supported project of interconnecting the electrical grid between Burkina Faso and Cote d’Ivoire is expected to be completed.

Domestic Gasoline, August 2002 June 2006

(CFA francs per liter)

Source: Burkinabè authorities.

17. Progress on privatization has been mixed. The privatization of ONATEL, the state-owned telecommunications company, is advancing. The call for expressions of interest in April resulted in a shortlist of seven bidders, and the authorities expect to sell a majority of shares before the end of the year. Progress regarding the other large public enterprises, notably SONABEL and SONABHY (the state-owned petroleum importing company) has largely stalled, as tenders for the selection of a private operator of SONABEL and bidding documents for private sector participation in SONABHY have not been issued. Also, there has been little progress with regard to a new law on the legal and regulatory framework for the electricity sector, and, consequently, the regulatory agency for the electricity sector could not be established.

18. The authorities are working to improve the business environment. A recent survey by the World Bank found that Burkina Faso ranks second from the bottom on its “Doing business” index. While the authorities dispute some of the numbers being used in this index, they recognize the need to improve the business environment. To this end, they launched a World Bank-supported project in July 2006 focusing on streamlining business-related procedures and regulations, and enhancing labor market flexibility while preserving appropriate worker protection to encourage formal employment. This reform is supplemented by ongoing efforts to strengthen the justice system, which led recently to enhanced autonomy of the General Inspectorate of Judicial Services and disciplinary actions against magistrates accused of unethical or illegal activities (see MEFP, paragraph 13).

E. Scaling Up, Poverty Reduction Strategy, and Priority Action Plan

19. The authorities indicated that the upcoming Priority Action Plan (PAP) for 2007-09 will have a stronger focus on scaling up of priority expenditure programs.3 The PAP is a key input into the medium-term fiscal expenditure framework because it operationalizes the Poverty Reduction Strategy (PRS) by establishing priority policy reforms and key investments. The PAP for 2006-08 aims to raise real GDP growth to around 7 percent per year, but it does not provide a detailed road map towards other Poverty Reduction Strategy Paper (PRSP) goals, including for achieving the MDGs. The development of detailed multiyear costing plans of PRSP goals and measures to remove absorptive capacity constraints would be useful to deepen the links with achieving the MDGs. The authorities have agreed to the general approach, and their intention to include scaling-up scenarios in the upcoming PAP for 2007-09 is an important step in this direction.

F. Ex Post Assessment

20. The Ex Post Assessment (EPA), covering the post-devaluation period 1994-2005, finds that program implementation and ownership by the authorities were strong. However, the Fund-supported programs did not succeed in raising domestic revenue effort sufficiently and the economy remains vulnerable to external shocks. The EPA also suggests that selectivity in fiscal indicators would have been more desirable in program design, and noted the absence of indicators to monitor the overall deficit. Main priorities for Fund involvement over the medium term should be to: (i) increase the domestic revenue effort; (ii) help develop stronger absorptive capacity along with progress in the public financial management system; and (iii) increase private sector participation to enhance economic diversification. Future Fund programs should focus more closely on the link between the fiscal stance and debt sustainability.

21. The authorities concurred with the main findings and conclusions of the report. They noted that the initial conditions were weak, and emphasized in particular that the relatively low revenue-to-GDP ratio reflected the large share of the lightly-taxed agricultural sector in the economy, which explains partly why Burkina Faso performed less well in this regard than some of its neighbors. Nevertheless, the authorities recognized that more resolve was needed to tackle the low revenue-to-GDP ratio, including through a reassessment of tax exemptions and stronger implementation of revenue administration reforms.

G. Post Program Issues

22. The authorities indicated their desire to maintain a close policy dialogue with the Fund following the current PRGF arrangement. They are considering the relative merits of a low-access successor PRGF arrangement and an arrangement under the Fund’s Policy Support Instrument. The discussion on the appropriate course of action will be held after the completion of the Ex Post Assessment.

IV. Staff Appraisal

23. The external environment in 2006 has proved more difficult than expected, but macroeconomic management remains strong. Despite higher oil prices and the renewed decline in cotton prices since the beginning of the year, economic growth proved resilient, inflation declined, and the fiscal stance was broadly in line with the program. Although two quantitative indicative targets were missed, albeit by small margins, all quantitative performance criteria for the sixth review were observed. It is regrettable that two structural performance criteria were not met, but the required actions will be taken before the completion of the sixth review, and all structural benchmarks were met.

24. The staff supports the authorities’ request for an augmentation of access. This is justified on the basis of the balance of payments need arising from the deterioration in cotton prices and the hike in world oil prices over the past two years, which have led to a substantial decline in the reserve level at the national branch of the BCEAO. The proposed augmentation would help to moderate the expected decline in gross international reserves in 2006, the third consecutive year in which reserves would be falling. The balance of payments need is likely to be temporary, since there are signs that the economy is already adjusting to the adverse environment, facilitated by appropriate policy measures. The proposed augmentation of access of 10 percent of quota would increase total access under the program to 50 percent of quota, just marginally above the norm (45 percent of quota) for countries, like Burkina Faso, that are on their fourth PRGF arrangement, and would have only a minimal effect on Burkina Faso’s external debt stock, which is sustainable, and on its debt service burden.

25. The proposed expenditure increases strike an appropriate balance between responding to urgent needs, utilizing MDRI resources for increasing poverty-reducing expenditures, and maintaining debt sustainability. While the overall fiscal stance is looser than previously envisaged, it is nevertheless consistent with the original program and would not have a significant adverse effect on debt sustainability. Debt service savings resulting from MDRI relief and additional budgetary support have been fully incorporated into the program to increase poverty-reducing expenditures. Regarding higher payments for utility bills, staff encourages the authorities to audit these claims carefully before effecting full payment.

26. The proposed new producer price mechanism for cotton would represent a substantial improvement over the previous system. Previously, ginning companies were bearing most of the downside price risk, which contributed to the erosion of their financial health during the recent downturn in world cotton prices. The new pricing mechanism, in contrast, links producer prices to world market prices, thereby aligning incentives for producers with world market conditions—an innovation that will likely strengthen the sector. In operationalizing the proposed fonds de lissage, a premium should be placed on the fund’s financial sustainability, and there should be no expectation of government support beyond the initial funding. Rules should include a relatively wide intervention band, which would ensure that drawings on the fonds de lissage take place only in exceptional circumstances. The design should also make certain that adequate surpluses are accumulated in good years. Transparency in the operation of the fonds de lissage would be critical as well, including publication and auditing of its books.

27. The maintenance of the fuel pricing mechanism, which ensures full pass through of changes in world oil prices, and steps to privatize the state-owned telecommunication company are major accomplishments. However, progress in other structural reforms has been disappointing. Further efforts are needed to reduce electricity subsidies which have little benefit for the poor; to move towards an automatic tariff setting mechanism that links tariffs to costs; to reform the regulatory environment; and to engage the private sector in the energy industry. The proposed electricity tariff increase is an important step in this direction.

28. Going forward, it would be useful for the authorities to develop scaling-up scenarios consistent with achieving the MDGs. This work would benefit from close cooperation with donors. At the same time, the authorities should vigorously pursue growth-enhancing structural reforms to raise the growth performance of Burkina Faso’s economy, which is indispensable for reducing poverty.

29. The staff recommends that the sixth review under the PRGF arrangement be completed. The non-observance of the two structural performance criteria should be viewed against the background that the required actions were subsequently taken or constitute prior actions under the sixth review, and against the long track record of macroeconomic stability and structural reform. On this basis, as well as on the policies set forth in the supplemental letter of intent, the staff recommends the approval of the authorities’ request for waivers and augmentation of access.

Table 5Burkina Faso: External Debt Sustainability Framework Including Impact of MDRI, Baseline Scenario, 2004-2025 1(In percent of GDP, unless otherwise indicated)
ActualHistoricalStandardEstimateProjections
Average 6/Deviation 6/2005-102011-25
2004200520062007200820092010Average201520202025Average
External debt (nominal) 1/34.133.017.821.424.427.029.125.433.531.831.232.2
Change in external debt-8.2-1.1-15.23.63.02.62.1-0.80.2-0.4-0.10.1
Identified net debt-creating flows1.97.69.78.47.97.06.17.83.42.20.42.8
Non-interest current account deficit8.68.43.210.010.39.69.48.67.89.35.54.22.34.8
Deficit in balance of goods and services12.013.213.312.511.911.310.612.17.65.93.96.7
Exports10.69.810.911.011.011.211.510.913.013.614.213.2
Imports22.623.024.223.522.922.422.123.020.519.418.119.9
Net current transfers (negative = inflow)-3.7-5.52.2-3.6-3.1-2.9-2.6-2.7-2.8-3.0-2.2-1.8-1.8-2.0
Other current account flows (negative = net inflow)0.30.50.10.10.10.10.10.10.10.20.20.1
Net FDI (negative = inflow)-0.5-0.40.2-0.4-0.4-0.4-0.4-0.4-0.4-0.4-0.5-0.5-0.5-0.5
Endogenous debt dynamics2/-6.3-2.0-0.2-0.8-1.0-1.2-1.3-1.1-1.6-1.6-1.5-1.5
Denominator: 1+g+ρ+gρ1.21.11.01.11.11.11.11.11.11.11.11.1
Contribution from nominal interest rate0.30.30.20.20.20.30.30.30.40.40.40.4
Contribution from real GDP growth-5.4-2.3-0.4-1.0-1.3-1.4-1.6-1.3-2.0-1.9-1.9-1.9
Contribution from price and exchange rate changes-1.2
Residual (3-4) 3/-10.1-8.8-25.0-4.8-4.9-4.4-4.0-8.6-3.2-2.5-0.4-2.7
o/w exceptional financing0.00.0-17.60.00.00.00.0-2.90.00.00.00.0
NPV of external debt 4/17.518.310.512.414.015.416.614.519.619.219.819.3
In percent of exports164.6186.196.0112.7126.9138.0144.4134.0151.1141.8139.0146.7
In percent of revenues138.3150.278.891.199.1106.7111.9106.3115.8105.8109.3108.6
Debt service-to-exports ratio (in percent)8.37.85.14.44.64.65.15.26.57.17.16.7
Debt service-to-revenues ratio (in percent)7.06.34.23.53.63.53.94.25.05.35.65.3
Total gross financing need (millions of U.S. dollars)465.8592.5620.4621.1659.5658.4657.0634.8736.7908.5847.7820.5
Non-interest current account deficit that stabilizes debt ratio16.811.125.56.06.46.05.710.15.34.6244.7
Key macroeconomic assumptions
Real GDP growth (in percent)15.07.111.37.31.36.06.66.5645.76.46.66.66.5
GDP deflator in US dollar terms (change in percent)2.82.53.33.22.32.32.22.22.22.42.42.22.22.2
Effective interest rate (percent) 5/0.70.40.40.90.61.31.21.21.21.11.21.21.31.2
Growth of exports of G&S (US dollar terms, in percent)49.910.823.42.015.59.09.110.411.99.712.69.99.910.4
Growth of imports of G&S (US dollar terms, in percent)27.610.414.912.49.34.96.26.76.97.77.57.87.47.4
Grant element of new public sector borrowing (in percent)32.934.933.433.633.633.833.732.330.026.830.7
Memorandum Item:
Nominal GDP (millions of US dollars)5,1525,7075,9156,4146,9837,5978,26212,60719,25529,491
Source: Staff simulations.

Includes public external debt.

Derived as [r - g - ρ(1+g)]/(1+g+ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g =real GDP growth rate, and ρ = growth rate of GDP deflator in U.S. dollar terms.

Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes. Includes also capital transfers—in particular project grants, which are projected to average over 3 percent of GDP in 2006-10—and private, non-debt creating capital inflows.

Assumes that NPV of private sector debt is equivalent to its face value.

Current -year interest payments devided by previous period debt stock.

Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability.

Source: Staff simulations.

Includes public external debt.

Derived as [r - g - ρ(1+g)]/(1+g+ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g =real GDP growth rate, and ρ = growth rate of GDP deflator in U.S. dollar terms.

Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes. Includes also capital transfers—in particular project grants, which are projected to average over 3 percent of GDP in 2006-10—and private, non-debt creating capital inflows.

Assumes that NPV of private sector debt is equivalent to its face value.

Current -year interest payments devided by previous period debt stock.

Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability.

Table 6Burkina Faso: Schedule of Disbursements Under the PRGF Arrangement, 2003-06
AmountAvailable DateConditions Necessary for Disbursement 1/
SDR 3.44 millionJune 11, 2003Following Executive Board approval of the three-year PRGF arrangement
SDR 3.44 millionMarch 19, 2004Observance of the performance criteria for September 30, 2003 and completion of the first review under the arrangement
SDR 3.44 millionFebruary 2, 2005Observance of the performance criteria for March 31, 2004 and completion of the s econd review under the arrangement 2/
SDR 3.44 millionFebruary 2, 2005Observance of the performance criteria for September 30, 2004 and completion of the third review under the arrangement 2/
SDR 3.44 millionSeptember 7, 2005Observance of the performance criteria for March 31, 2005 and completion of the fourth review under the arrangement
SDR 3.44 millionMarch 15, 2006Observance of the performance criteria for September 30, 2005 and completion of the fifth review under the arrangement
SDR 3.44 millionSeptember 29, 2006Observance of the performance criteria for March 31, 2006 and completion of the sixth review under the arrangement 3/
Source: International Monetary Fund.

In addition to the generally applicable conditions under the Poverty Reduction and Growth Facility (PRGF) arrangement.

The second and third reviews under the arrangement were completed simultaneously on February 2, 200

Including the requested augmentation of SDR 6.02 million (10 percent of quota), the disbursement would total SDR 9.46 million.

Source: International Monetary Fund.

In addition to the generally applicable conditions under the Poverty Reduction and Growth Facility (PRGF) arrangement.

The second and third reviews under the arrangement were completed simultaneously on February 2, 200

Including the requested augmentation of SDR 6.02 million (10 percent of quota), the disbursement would total SDR 9.46 million.

Table 7Burkina Faso: IMF Credit Position and Projected Payments to the IMF, 2005-15 1/
20052006200720082009201020112012201320142015
(In millions of SDRs, unless otherwise indicated)
Fund credit, net charges1.8-12.50.40.40.41.12.84.25.25.24.5
Poverty Reduction and Growth Facility
(PRGF) disbursements10.312.90.00.00.00.00.00.00.00.00.0
PRGF repayments11.70.00.00.00.00.72.43.84.94.94.2
PRGF charges and interest0.40.40.40.40.40.40.40.40.40.40.3
MDRI relief 2/7.410.911.79.68.26.43.11.00.30.0
Quota60.260.260.260.260.260.260.260.260.260.260.2
Exchange rate: CFA francs per SDR
(period average)778.1789.3790.9790.8790.8791.0791.0791.0791.0791.0791.0
(In billions of CFA francs, unless otherwise indicated)
Exports of goods and services295355387421464518562629705792892
Tax revenue3373994414965526156847648549551,069
GDP3,0053,2473,5213,8214,1494,5074,8895.3215,7936,3106,877
Outstanding Fund credit, end of period
In millions of SDRs72.42i 223.223.223.222.520.116.311.56.62.4
In billions of CFA francs56.418.318.418.418.417.815.912.99.15.21.9
In percent of quota120.338.638.638.638.637.433.427.119.011.04.1
Debt service to the Fund
In millions of SDRs12.10.40.40.40.41.12.84.25.25.24.5
In billions of CFA francs9.40.30.30.30.30.92.23.34.14.13.6
In percent of exports of goods and services3.20.10.10.10.10.20.40.50.60.50.4
In percent of tax revenue2.80.10.10.10.10.10.30.40.50.40.3
In percent of GDP0.30.00.00.00.00.00.00.10.10.10.1
Sources: IMF, Finance Department.

Assumes 2 disbursements in 2006 of SDR 3.44 million each and an augmentation of 10 percent of quota (SDR 6.02 million).

Annual relief on principal and interest, net of remaining HIPC assistance.

Sources: IMF, Finance Department.

Assumes 2 disbursements in 2006 of SDR 3.44 million each and an augmentation of 10 percent of quota (SDR 6.02 million).

Annual relief on principal and interest, net of remaining HIPC assistance.

Table 8Burkina Faso: Selected Indicators on the Millennium Development Goals
199019941997200020032004
Eradicate extreme poverty and hunger(2015 target: halve 1990 US$1 a day poverty and malnutrition rates)
Income share held by lowest 20%77
Malnutrition prevalence, weight for age (% of children under 5)33343838
Poverty gap at $1 a day (PPP) (%)77
Poverty headcount ratio at $1 a day (PPP) (% of population)2727
Poverty headcount ratio at national poverty line (% of population)4646
Prevalence of undernourishment (% of population)191717
Achieve universal primary education(2015 target: net enrollment to 100)
Literacy rate, youth total (% of people ages 15-24)31
Persistence to grade 5, total (% of cohort)697676
Primary completion rate, total (% of relevant age group)20.429.224.225.228.229.5
School enrollment, primary (% net)363840
Promote gender equality and empower women(2015 target: education ratio 100)
Proportion of seats held by women in national parliament (%)481212
Ratio of girls to boys in primary and secondary education (%)69.773.576.3
Ratio of young literate females to males (% ages 15-24)64.6
Share of women employed in the nonagricultural sector (% of total nonagricultural employment)131314151515
Reduce child mortality(2015 target: reduce 1990 under 5 mortality by two-thirds)
Immunization, measles (% of children ages 12-23 months)794541597678
Mortality rate, infant (per 1,000 live births)11310097
Mortality rate, under-5 (per 1,000)210196192
Improve maternal health(2015 target: reduce 1990 maternal mortality by three-fourths)
Births attended by skilled health staff (% of total)41.5313838
Maternal mortality ratio (modeled estimate, per 100,000 live births)1000
Combat HIV/AIDS, malaria, and other diseases(2015 target: halt, and begin to reverse, AIDS, etc)
Children orphaned by HIV/AIDS260,000260,000
Contraceptive prevalence (% of women ages 15-49)81414
Incidence of tuberculosis (per 100,000 people)157.7191.4
Prevalence of HIV, female (% ages 15-24)
Prevalence of HIV, total (% of population ages 15-49)22
Tuberculosis cases detected under DOTS (%)16.217.717.118.1
Ensure environmental sustainability(2015 target: various)
CO2 emissions (metric tons per capita)0.10.10.10.10.1
Forest area (% of land area)2625
GDP per unit of energy use (constant 2000 PPP $ per kg of oil equivalent)
Improved sanitation facilities (% of population with access)1312
Improved water source (% of population with access)3951
Nationally protected areas (% of total land area)11.511.5
Develop a global partnership for development(2015 target: various)
Aid per capita (current US$)38.845.335.529.840.847.6
Debt service (PPG and IMF only, % of exports of G&S, excl. workers’ remittances)81520139
Fixed line and mobile phone subscribers (per 1,000 people)1.92.83.66.923.537.4
Internet users (per 1,000 people)00.20.83.94.1
Personal computers (per 1,000 people)0.10.20.81.32.12.2
Total debt service (% of exports of goods, services and income)71215
Unemployment, youth female (% of female labor force ages 15-24)
Unemployment, youth male (% of male labor force ages 15-24)
Unemployment, youth total (% of total labor force ages 15-24)
Other
Fertility rate, total (births per woman)7.36.96.56.66.5
GNI per capita, Atlas method (current US$)350240270250290350
GNI, Atlas method (current US$) (billions)2.92.32.82.83.64.4
Gross capital formation (% of GDP)18.219.32522.718.719.1
Life expectancy at birth, total (years)47.545.946.847.748.1
Literacy rate, adult total (% of people ages 15 and above)21.8
Population, total (millions)8.59.610.411.312.412.8
Trade (% of GDP)35.637.135.634.431.931.5
Source: World Development Indicators database, April 2006.
Source: World Development Indicators database, April 2006.
Table 9Burkina Faso: Poverty-Reducing Social Expenditure, 2001-2006.1/
200120022003200420052006
Est.Proj.
(In billions of CFA francs)
Total poverty-reducing social expenditure80.4108.9116.6145.0151.3199.4
Current expenditure64.976.783.894.0106.6144.8
Capital expenditure15.532.232.850.944.754.6
Health27.338.537.948.150.864.3
Current expenditure24.131.529.931.936.751.9
Capital expenditure3.26.98.016.314.112.4
Education35.142.747.956.959.579.5
Current expenditure29.830.537.644.250.463.7
Capital expenditure5.312.210.312.79.115.8
Rural roads1.91.82.33.33.74.3
Current expenditure0.00.00.00.00.00.1
Capital expenditure1.91.82.33.33.64.3
Women’s welfare and other poverty-reducing
social expenditure16.225.928.536.637.351.3
Current expenditure11.114.716.318.019.429.2
Capital expenditure5.111.212.218.617.922.1
(As percentage of GDP)
Total poverty-reducing social expenditure3.84.84.65.35.06.1
Current expenditure3.13.43.33.53.54.5
Capital expenditure0.71.41.31.91.51.7
Health1.31.71.51.81.72.0
Current expenditure1.11.41.21.21.21.6
Capital expenditure0.20.30.30.60.50.4
Education1.71.91.92.12.02.4
Current expenditure1.41.31.51.61.72.0
Capital expenditure0.30.50.40.50.30.5
Rural roads0.10.10.10.10.10.1
Current expenditure0.00.00.00.00.00.0
Capital expenditure0.10.10.10.10.10.1
Women’s welfare and other poverty-reducing
social expenditure0.81.11.11.31.21.6
Current expenditure0.50.60.60.70.60.9
Capital expenditure0.20.50.50.70.60.7
(As percentage of total expenditure)
Total poverty-reducing social expenditure17.522.324.124.923.126.6
Current expenditure14.115.717.316.116.319.3
Capital expenditure3.46.66.88.76.87.3
Health5.97.97.88.37.88.6
Current expenditure5.26.46.25.55.66.9
Capital expenditure0.71.41.72.82.11.7
Education7.68.79.99.89.110.6
Current expenditure6.56.27.87.67.78.5
Capital expenditure1.22.52.12.21.42.1
Rural roads0.40.40.50.60.60.6
Current expenditure0.00.00.00.00.00.0
Capital expenditure0.40.40.50.60.60.6
Women’s welfare and other poverty-reducing
social expenditure3.55.35.96.35.76.8
Current expenditure2.43.03.43.13.03.9
Capital expenditure1.12.32.53.22.73.0
Sources: Burkinabe authorities; and staff estimates and projections.

Includes use of HIPC Initiative resources and MDRI flow relief in 2006, and excluding foreign-financed investment.

Sources: Burkinabe authorities; and staff estimates and projections.

Includes use of HIPC Initiative resources and MDRI flow relief in 2006, and excluding foreign-financed investment.

Appendix I

Ouagadougou, August 25, 2006

Mr. Rodrigo de Rato

Managing Director

International Monetary Fund

700 19th Street NW

Washington, DC 20431

USA

Mr. de Rato:

1. The government of Burkina Faso has successfully implemented the measures contained in its economic program implemented with the support of the International Monetary Fund through its Poverty Reduction and Growth Facility. The program, which was approved by the IMF Board on June 11, 2003 for an amount equivalent to SDR 24.08 million (40 percent of quota), runs through September 2006.

2. The attached memorandum of economic and financial policies (MEFP) supplements the one attached to my letter to you dated February 27, 2006. The MEFP attached to that letter established quantitative performance criteria (for end-March 2006) and structural performance criteria (through mid-May 2006) for the completion of the sixth and final review under the PRGF arrangement.

3. All quantitative performance criteria for the completion of the sixth review were observed. We met one of the three structural performance criteria, and requisite actions for a second structural performance criterion were implemented with a delay. The third structural performance criterion, the completion of the taxpayer census in Ouagadougou and Bobo-Dioulasso and the submission to the Minister of Finance of the implementation report, was not observed, and completion of these measures constitutes a prior action for the completion of the sixth review under the PRGF arrangement. In addition, the increase in electricity tariffs by 12.5 percent constitutes a second prior action for completion of the sixth review. On the basis of this performance, and on the strength of the policies set forth in the attached memorandum, we request waivers for the nonobservance of two structural performance criteria, and that the IMF complete the sixth review under the PRGF and disburse the seventh loan in the amount of SDR 3.44 million.

4. In addition, the deterioration in Burkina Faso’s terms of trade caused by higher world oil prices has considerably weakened our external position. The Government of Burkina Faso is determined to forcefully address these challenges and, to facilitate the adjustment and address the temporary additional balance of payments needs, requests an augmentation of access under the PRGF arrangement in an amount equivalent to SDR 6.02 million (10 percent of quota).

Sincerely yours,

/s/

Jean-Baptiste Compaoré

Minister of Finance and Budget

Officer of the National Order

Ouagadougou, Burkina Faso

Attachment I: Burkina Faso

Memorandum of Economic and Financial Policies of the Government for 2006

I. Main Economic and Fiscal Developments in 2005

1. Burkina Faso faced substantial economic challenges in 2005. A sharp decline in world cotton prices and a surge in world oil prices led to a near 25 percent deterioration in the external terms of trade and contributed to a balance of payments deficit. The relatively poor cereal harvest late in the previous year, along with rising world oil prices, pushed average inflation to 6.4 percent in 2005. However, conditions improved somewhat in the second half of the year. Strong agricultural growth offset a slowdown in other sectors, pushing real GDP growth to an estimated 7.1 percent in 2005, and inflationary pressures eased late in the year as food prices fell. Nonetheless, rising world oil prices continue to put upward pressure on transport costs and downward pressure on non-agricultural growth prospects. In the context of the deteriorating external environment, enterprises, notably in the cotton sector, increased their recourse to bank credit, driving the growth in credit to the economy to some 24 percent for the year as a whole. Nonetheless, the quality of commercial bank balance sheets remained satisfactory as adequate provisioning has been made to manage increased credit risk.

2. The overall fiscal deficit in 2005 (on a cash basis, excluding grants) was smaller than programmed (8.4 percent of GDP), despite a shortfall in revenue. As many expenditure authorizations were used to rebuild account balances of autonomous and semi-autonomous agencies (comptes de trésor), the indicative target on domestic financing was observed by a comfortable margin.

II. Macroeconomic Framework for 2006 and Program Implementation through March

3. The projection for real GDP growth in 2006 has been revised upward to 5.6 percent to reflect early signs of a good cereal harvest, which is expected to offset the negative impact of a further deterioration in terms of trade on non-agricultural sectors. Inflation eased to 3 percent for the 12 months ending April 2006, owing to the continued impact of declining food prices. The external outlook has deteriorated since the 2006 program was designed, with the terms of trade projected to fall by another 2.7 percent on the basis of rising world oil prices. While the overall balance of payments is projected to register a surplus on account of the impact of reduction of debt under the multilateral debt relief initiative (MDRI), the generally weaker external environment is expected to result in a further, but more moderate, loss of international reserves. Monetary and exchange rate policy will continue to conducted a the regional level by the BCEAO with the objective of maintaining inflation to 2-3 percent.

4. Despite these adverse developments, macroeconomic policy implementation through March 2006 was satisfactory and all quantitative performance criteria were observed. A continued high implementation rate of the public investment program, financed by project grants, and higher spending on priority social programs resulted in a moderately higher fiscal deficit than projected. Progress regarding structural reforms was mixed. The Joint Brigade of the Tax and Customs Directorates (JBTCD) was established before the end-December 2005 target date, thereby meeting one of three structural performance criteria under the program. The other two structural criteria were not observed. The JBTCD completed the targeted number of audits by end-March 2006, but the submission of the report to the Minister of Finance was delayed owing to personnel changes at the Directorate of Tax Administration. The completion of the taxpayer census and the submission of the report to the Minister of Finance was not completed as scheduled because of delays in settling contract disputes with census workers. All structural benchmarks were observed.

III. Policies for the Remainder of 2006

5. Fiscal policy will be somewhat more expansionary in 2006 than previously programmed. The revenue target of CFAF 432 billion (13.3 percent of GDP) remains achievable, but additional expenditure needs will require an increase in total non-interest outlays, including net lending, by about CFAF 36.1 billion (1.1 percent of GDP). The additional expenditures comprise a larger fuel subsidy to SONABEL (CFAF 5 billion); retroactive payments for civil service advancements that had been frozen since 2003 (CFAF 6 billion); higher utility bills linked to the decentralization of government and the establishment of new structures (CFAF 5 billion); VAT reimbursements (CFAF 6 billion); the fonds de lissage (CFAF 12.3 billion); and food security (CFAF 0.6 billion). To partially offset these additional expenditures, outlays in non-priority sectors will be reduced by CFAF 5.5 billion. In addition to the spending needs identified above (some of which are in priority sectors), another CFAF 6.6 billion is available for increasing spending in priority sectors. Any increase in the subsidy to SONABEL in 2006 beyond the CFAF 5 billion currently envisaged will be fully offset by reductions in non-priority sector outlays.

6. Against this background, total expenditure and net lending is projected to be on the order of CFAF 759 billion (23.3 percent of GDP) and the overall fiscal deficit (excluding grants) would be about 10 percent of GDP. Total spending in priority sectors would be CFAF 199.4 billion (6.1 percent of GDP). After taking into account the portion of recently obtained donor budget support and resources freed up in 2006 under the MDRI that could be used for these outlays (applied only to priority social sectors), additional domestic financing (excluding the onlending of IMF resources), a financing gap of about CFAF 15.2 billion remains. Given identified possible financing from donors, the remaining gap could be closed with the support of the requested augmentation from the IMF in the amount of 10 percent of quota (about CFAF 4.8 billion).

7. The CFAF 5 billion in additional provisions for SONABEL is the amount that will be needed after the increase in electricity tariffs of 12.5 percent. SONABEL is also taking measures to reduce internal costs by changing the fuel mix, and SONABHY (the petroleum importing company) is also implementing measures to reduce the cost of delivering fuels. We are also working to accelerate the extension of the Cote d’Ivoire interconnection to Ouagadougou, which will further reduce costs and the need for subsidy. Finally, we also intend to implement a tariff setting mechanism that will link tariffs to costs, while providing incentives for improving efficiency in electricity generation. We are working closely with the World Bank in these areas, but substantial savings from these innovations are not expected before 2007.

8. Concerning the payments for retro-active public service advancements, the government estimates that the total cost of these advancements would be CFAF 18 billion. However, while formal advancements of public servants have not been implemented since 2003, salaries and indemnities have been raised on an ad-hoc basis during this period. These increases will be taken into account in assessing the government’s additional financial obligation in this area. Should the government determine that it is legally obligated to pay the full CFAF 18 billion, it will spread the payment over a number of years, with a maximum of CFAF 6 billion to be paid in 2006.

9. The proposed fonds de lissage will help manage the risk associated with volatile world cotton prices and promote a more flexible response to changing world market conditions. The basic principles of the new fund and the associate automatic mechanism for establishing the cotton producer price have been adopted by the Interprofessional Association of Cotton Producers of Burkina Faso (AICB). Further work is needed to finalize the parameters of the new price-setting mechanism, the regulations governing the use of the fund, and the establishment of an adequate financial oversight system. Resources obtained for the fonds de lissage will be disbursed only after this work has been completed to the satisfaction of all stakeholders. Any resources provided to the fund by the government (which includes all donor contributions) would be made in the form of an interest-free loan to be repaid after the balance in the fonds de lissage reaches a sufficiently high level. In addition, the government is suggesting that all shareholders of cotton companies consider augmenting their capital. In that regard, the government has opened a dialogue with development partners to see if they could make resources available to help producers with their contribution.

10. Recent bills by utility companies indicate that total additional charges could total CFAF 11 billion in 2006. These additional charges come in the context of the decentralization of government, the establishment of new municipal and regional structures, and the expansion of health and education facilities. The provisioned CFAF 5 billion represents a good faith down payment by government that will be made only after the utility companies have provided all information necessary to validate the additional charges. Should the validity of the additional charges be verified, the balance will be paid in the context of the 2007 budget.

11. The government will continue to push ahead with the fiscal reforms outlined in its previous memorandum, and will implement additional measures in 2006 to strengthen tax and customs administrations. The Minister of Finance will validate updated multi-year plans to strengthen tax and customs administration by September 2006, and appoint a director of a steering committee to supervise working groups to implement the reform plans and to coordinate technical assistance made available by donors. In addition, the Council of Ministers will approve a new investment code before the end of the year, which will enhance investment incentives while reducing revenue losses through exonerations. Key measures to strengthen tax and customs administration in the second half of the year include:

Tax Administration

  • Install the tax management system (Sintax) at the two Directorates of Small and Medium Entreprises (DPME, Direction des Petites et Moyennes Entreprises);
  • Generate automatically the list of nonfilers at the DPME each month;
  • Reorganize tax files and teams at the DPME by sectoral activity;
  • Produce an evaluation report of the program of ad hoc VAT audits, and assign objectives for ad hoc audits for 2007;
  • Finish assigning Unique Taxpayer Numbers (IFU, Identifiant Financier Unique) to all firms in the DGE and the DPME, and update the taxpayer file;
  • Link the Unique Taxpayer Number database to the tax management system (Sintax) at the DGE and the DPME;
  • Improve management of the Remaining Balances (RAR, Restes a Recouvrer) by classifying the files in order of recoverability and amounts involved; and
  • Put in place a mechanism to accelerate VAT refunds with a view to paying reimbursements within 60 days.

Customs Administration

  • Start implementing the Unique Customs Declaration Form (DDU, Déclaration en Douane Unique);
  • Implement monthly reconciliation of customs declaration data with Cotecna, and produce statistics; and
  • Set up computerized database for customs valuation (valeur en douane).

12. The structural reforms for the energy sector, set forth in the government’s previous MEFP (paragraph 8), will be implemented following the completion of the comprehensive energy sector reform strategy. Tenders for the selection of a private operator for the management of SONABEL and for private sector participation in SONABHY are unlikely to be realized this year. However, we are on schedule for selling a majority stake in ONATEL before the end of the year.

13. As noted in the government’s previous letter of intent, we will continue to improve the business environment by streamlining procedures and costs for the transfer of property and the licensing of businesses, enhance labor market flexibility. The government’s National Action Plan for the Reform of Justice (PANJR) is a key element of its efforts to fight corruption and to improve governance and the business climate. The General Inspectorate of Judicial Services has been given more autonomy. As a result, the Higher Judicial Council has recently applied disciplinary actions against magistrates (including arrest) accused of unethical or illegal activities. The government will increase the number of high tribunals from 13 to 20, increase the number of courts specializing in commercial and financial cases, and provide additional training for magistrates in the area of financial and commercial law. It will also enhance the independence of magistrates in the Auditor General Office (Cour des Comptes) by conferring them the same status as other judicial officers.

IV. Post Program Relations with the Fund

14. The government would like to maintain a close policy dialogue with the IMF with an arrangement either under the Poverty Reduction and Growth Facility or the Policy Support Instrument. We will shortly inform the IMF of our preference, and will request that a mission return to Burkina Faso in September-October to hold negotiations on the next arrangement.

Table 1Burkina Faso: Quantitative Performance Criteria and Indicative Targets for the Program

Under the Poverty Reduction and Growth Facility Arrangement, 2005
(In billions of CFA francs; cumulative from beginning of year)
20042005
Dec.End-Dec.
ActualProg. 1/Prog. 1/Actual
Adj. 2/
Performance criteria and indicative targets 3/
Ceiling on cumulative change in net domestic financing to government 3/-9.717.38.9-14.5
Ceiling on the cumulative amount of new nonconcessional external debt
contracted or guaranteed by the government4/5/0.00.00.00.0
Of which: less than one year’s maturity 4/5/0.00.00.00.0
Accumulation of domestic payments arrears 5/0.00.00.00.0
Accumulation of external payments arrears 5/0.00.00.00.0
Indicative targets
Government revenue344.5377.9377.9365.2
Current expenditure284.5342.4342.4332.4
Expenditure on wages and salaries119.0140.7140.7141.4
Basic balance 6/7/-82.0-92.5-92.5-102.3
Change in the stock of expenditure authorized but without payment orders 7/7.43.03.03.6
Adjustment factors
Balance of payments assistance89.899.298.8
Adjustment lending42.840.541.0
Adjustment grants47.158.757.8
Debt service after HIPC relief14.221.012.2
Memorandum item:
Social spending145.0160.5160.5166.2
Sources: Burkinabe authorities; and Fund staff estimates and projections.

IMF Country Report No. 05/354, September 30, 2005.

Target on net domestic financing adjusted to reflect the excess or shortfall in balance of payments assistance and deviations in external debt service compared to program projections.

For 2005, the ceiling on the cumulative change in net domestic financing is to be adjusted upward (downward) by the amount of shortfall (surplus) in balance of payments assistance. The downward adjustment does not apply to the first CFAF 25 billion in excess balance of payments support, provided that additional spending is for priority social programs. At end-December 2005, the adjustment is limited to a maximum of CFAF 50 billion.

Excluding treasury notes and bonds issued in CFA francs on the regional West African and Economic Monetary Union (WAEMU) market. This ceiling excludes supplier credits with a maturity of one year or less.

To be observed on a continuous basis.

Revenue (excluding grants) minus expenditure, excluding foreign-financed investment outlays and net lending.

Including HIPC Initiative expenditure.

Sources: Burkinabe authorities; and Fund staff estimates and projections.

IMF Country Report No. 05/354, September 30, 2005.

Target on net domestic financing adjusted to reflect the excess or shortfall in balance of payments assistance and deviations in external debt service compared to program projections.

For 2005, the ceiling on the cumulative change in net domestic financing is to be adjusted upward (downward) by the amount of shortfall (surplus) in balance of payments assistance. The downward adjustment does not apply to the first CFAF 25 billion in excess balance of payments support, provided that additional spending is for priority social programs. At end-December 2005, the adjustment is limited to a maximum of CFAF 50 billion.

Excluding treasury notes and bonds issued in CFA francs on the regional West African and Economic Monetary Union (WAEMU) market. This ceiling excludes supplier credits with a maturity of one year or less.

To be observed on a continuous basis.

Revenue (excluding grants) minus expenditure, excluding foreign-financed investment outlays and net lending.

Including HIPC Initiative expenditure.

Table 2.Burkina Faso: Quantitative Performance Criteria and Indicative Targets for the Program Under the Poverty Reduction and Growth Facility Arrangement, 2006(In billions of CFA francs; cumulative from beginning of year)
20052006
Dec.End-Mar.End-JuneEnd-Sep.End-Dec.
ActualProg. 1/Progr.ActualRev. Proj.Rev. Proj.Proj. 2/Rev. Proj.
Adj.
Performance criteria and indicative targets 3/
Ceiling on cumulative change in net domestic financing to government 4/-14.514.8-31.3-50.3-51.7-45.512.8-31.0
Ceiling on the cumulative amount of new nonconcessional external debt
contracted or guaranteed by the government 5/ 6/0.00.00.00.00.00.00.00.0
Of which: less than one year’s maturity 5/ 6/0.00.00.00.00.00.00.00.0
Accumulation of domestic payments arrears 6/0.00.00.00.00.00.00.00.0
Accumulation of external payments arrears 6/0.00.00.00.00.00.00.00.0
Indicative targets
Government revenue365.287.787.787.9213.4314.8432.3432.3
Current expenditure332.491.291.294.4199.9302.8384.9403.8
Expenditure on wages and salaries141.437.137.138.678.1118.4151.8157.8
Basic balance 7/8/-102.3-23.7-23.7-22.9-54.3-98.8-97.1-131.2
Change in the stock of expenditure authorized but without payment orders 8/3.6-7.0-7.0-9.1-2.01.03.00.0
Adjustment factors
IMF MDRI relief on principal due after 20060.045.345.345.345.3
Balance of payments assistance 9/98.824.022.463.5109.3103.1111.0
Adjustment lending41.02.72.714.555.049.255.0
Adjustment grants57.821.319.749.054.453.956.0
Debt service after HIPC relief12.26.03.78.5667.020.1671.3
Memorandum item:
Social spending166.235.130.491.4145.0181.1199.4
Sources: Burkinabe authorities; and staff estimates and projections.

IMF Country Report No. 05/354, September 30, 2005.

IMF Country Report No. 06/107, March 13, 2006.

Performance criteria at end-March 2006.

The ceiling on the cumulative change in net domestic financing is to be adjusted in line with the specifications set out in paragraph 7 of the TMU of IMF Country Report No. 06/107, March 13, 2006.

To be observed on a continuous basis.

Revenue (excluding grants) minus expenditure, excluding foreign-financed investment outlays and net lending.

Including HIPC Initiative expenditure.

Includes identified financing only.

Sources: Burkinabe authorities; and staff estimates and projections.

IMF Country Report No. 05/354, September 30, 2005.

IMF Country Report No. 06/107, March 13, 2006.

Performance criteria at end-March 2006.

The ceiling on the cumulative change in net domestic financing is to be adjusted in line with the specifications set out in paragraph 7 of the TMU of IMF Country Report No. 06/107, March 13, 2006.

To be observed on a continuous basis.

Revenue (excluding grants) minus expenditure, excluding foreign-financed investment outlays and net lending.

Including HIPC Initiative expenditure.

Includes identified financing only.

Table 3.Burkina Faso: Structural Performance Criteria and Benchmarks and Prior Actions for the sixth PRGF Review in 2005-06
MeasuresDatesMeasures
1.Production by the Tax Directorate of monthly outcomes and quarterly progress reports on the 10 management indicators for three computerized offices (DGE, Kadiogo I, Houet I).From end-March

2005
Observed
2.Launch by the Tax Directorate of a comprehensive census of large and medium-sized enterprises in Ouagadougou and Bobo-Dioulasso and publication of a report on the status of its implementation.End-December 2005Observed
3.Establishment of a fully operational Joint Brigade of the Tax and Customs Directorates with an annual work program for 2006. 1/End-December 2005Observed
4.Submission to the Minister of Finance of a report on the six joint audits of the Joint Brigade of the Tax and Customs Directorates.1/End-March 2006Not observed; done

in April 2006
5.Completion of the taxpayer census in Ouagadougou and Bobo-Dioulasso, and submission to the Minister of Finance of an implementation report. 1/15 May, 2006Not observed; prior

action for the completion of the sixth review
6.Implementation of the automatic price structure adjustment mechanism for petroleum products in relation to costs.ContinuousObserved
7.Increase electricity tariffs by 12.5 percent.Prior action for the completion of the sixth review

Performance criterion.

Performance criterion.

Appendix II: Burkina Faso Relations with the Fund

(As of June 30, 2006)

I. Membership Status: Joined: May 2, 1963; accepted Article VIII in June 1996

II. General Resources Account:

SDR MillionIn percent of quota
Quota60.20100.00
Fund holdings of currency52.8587.80
Reserve position in Fund7.3512.21
Holdings Exchange Rate

III: SDR Department:

SDR MillionIn percent of allocation
Net cumulative allocation9.41100.00
Holdings0.020.16

IV: outstanding Purchases and Loans:

sDR MillionIn percent of quota
Poverty Reduction and Growth Facility (PRGF)13.7622.86
arrangements

V. Latest Financial Arrangements:

ApprovalExpirationAmount ApprovedAmount Drawn
TypeDateDate(SDR Million)(SDR Million)
PRGFJun. 11, 2003Sep. 30, 200624.0820.64
PRGFSep. 10, 1999Dec. 09, 200239.1239.12
PRGFJun. 14, 1996Sep. 09, 199939.7839.78

VI. Projected Payments to Fund (SDR million; based on existing use of resources and present holdings of SDRs):

Forthcoming
20062007200820092010
Principal0.69
Charges/interest0.210.420.420.420.42
Total0.210.420.420.421.10

VII. Implementation of HIPC Initiative:

OriginalEnhanced
FrameworkFrameworkTotal
I.Commitment of HIPC assistance
Decision point dateSep. 1997Jul. 2000
Assistance committed
by all creditors (US$ Million)1229.00324.15
Of which: IMF assistance (US$ million)21.7035.88
(SDR equivalent in millions)16.3027.67
Completion point dateJul. 2000Apr. 2002
II.Disbursement of IMF assistance (SDR Million)
Assistance disbursed to the member16.3027.6743.97
Interim assistance4.154.15
Completion point balance16.3023.5239.82
Additional disbursement of interest income22.012.01
Total disbursements16.3029.6845.98

VIII. Implementation of MDRI Assistance:

I. Total Debt Relief (SDR Million)362.12
Of which: MDRI57.06
Of which: HIPC5.06
II. Debt Relief by Facility (SDR Million)
Eligible Debt
Delivery dateGRAPRGFTotal
January 2006N/A62.1262.12

IX. safeguards Assessments:

The Central Bank of West African States (BCEAO) is the common central bank of the countries of the West African Economic and Monetary Union. A new safeguards assessment of the BCEAO was completed on November 4, 2005. The assessment found that progress has been made in strengthening the BCEAO’s safeguards framework of the bank since 2002 when the last safeguards assessment took place.

The BCEAO now publishes a full set of audited financial statements, and improvements have been made to move financial reporting closer to International Financial Reporting Standards (IFRS). Furthermore, an internal audit charter has been put in place, mechanisms have been established to improve risk management and risk prevention, and follow-up on internal and external audit recommendations has been strengthened.

The new assessment identified a number of areas where further steps would help solidify the progress made. The main recommendations relate to improvements in the external audit process (including the adoption of a formal rotation policy), further enhancement of the transparency of the financial statements by fully adopting IFRS, and further strengthening of the effectiveness of the internal audit function.

X. Exchange Rate Arrangement:

Starting on January 1, 1999, Burkina Faso’s currency, the CFA franc, has been pegged to the euro at the rate of €1=CFAF 655.957. The exchange rate as of June 30, 2006 was CFAF 763.3=SDR 1. The exchange and trade system is free of restrictions on the making of payments and transfers on current international transactions.

XI. Article IV Consultations:

The periodicity of Burkina Faso’s Article IV consultation is set in accordance with the July 15, 2002 Executive Board Decision on consultation cycles. Discussions on the 2005 Article IV consultation and fourth review under the Poverty Reduction and Growth Facility (PRGF) were held during the period May 24—June 9, 2005 in Ouagadougou. The staff report (IMF Country Report No. 05/354, September 30, 2005) and the Selected Issues and Statistical Annex (IMF Country Report No. 05/358, September 30, 2005) were considered by the Executive Board on September 7, 2005.

XII. ROSC/AAP:

An FAD mission visited Ouagadougou during May 7-18, 2001 to assist the authorities undertake a draft fiscal module of a Report on the Observance of Standards and Codes (ROSC). The final report, which was issued in July 2002, found that Burkina Faso was making good progress in a number of areas to increase the transparency and accountability of government. But additional efforts are needed to bring a number of improvements to the point of implementation, particularly with regard to expenditure tracking at the local level and external audit functions. Initial discussions indicated that the authorities broadly concurred with the mission assessment. On July 31, 2002, the authorities formally adopted an action plan based on the recommendations of the final ROSC.

An STA mission during May 8-21, 2003 assisted the authorities in preparing a data ROSC. The report was published in March 2004. The mission found that most of the methodologies used in the compilation of macroeconomic statistics are in broad conformity with internationally accepted guidelines. However, most datasets are affected by limited or impaired source data arising from irregularity in the conduct of surveys (national accounts), use of outdated weights (CPI), or low response rate to surveys (balance of payments). For CPI and government finance statistics, data dissemination meets the SDDS requirement, but for other macroeconomic datasets, timeliness falls short of GDDS recommendations. The authorities broadly concurred with the main findings of the mission as well as the recommendations made to address them.

The team, jointly with World Bank staff, also discussed a HIPC Initiative Assessment and Action Plan (AAP) with the authorities. The aim was to assess the capacity of the public expenditure management system to track poverty-reducing public expenditures under the HIPC Initiative and the need for technical assistance to enhance that capacity. The mission secured the officials’ approval of the jointly prepared preliminary assessment; identified the main needs for technical assistance on upgrading the capacity to track such expenditures; and drew up a draft outline action plan. This plan identifies the main needs for further technical assistance to improve tracking of poverty-reducing expenditures. The AAP has been endorsed by the authorities.

XIII. Technical Assistance:

Significant technical assistance has been provided since 1989, more recently especially in the fiscal area:

DepartmentType of AssistanceTime of DeliveryPurpose
AFRITACTax AdvisorFebruary 7-11, 2005Review the progress made on: (1) the setup of the Large Taxpayer Unit and the Medium Taxpayers Office; (2) the steps to strengthen the fiscal control; and (3) the corporate registry reform.
AFRITACCustoms AdvisorFebruary 14-18,

2005
Provide assistance to control transit merchandises in the country and travelers at Ouagadougou airport.
AFRITACCustoms, short-February 14-23,Implement customs valuation code
term Expert2005and establish a database for indicative import prices.
AFRITACMicrofinance AdvisorMarch 21-25, 2005Assess the TA need of the Cellule responsible of the supervision of microfinance institutions and prepare a capacity-building program.
AFRITACShort-term ExpertApril 18-29, 2005Training of auditors of the Tax administration.
AFRITACPEM AdvisorJune 27, July 1,

2005
Review of the public finance directives of WAEMU.
AFRITACSTA AdvisorJune 27-July 5,Assist in setting up database for the
and Short-term2005TOFE (first or two scheduled
Expertmissions) and expand further the scope of the TOFE (last of three scheduled missions).
AFRITACCustoms Advisor visitsJuly 10-16, 2005Advice on customs enforcement, and assessment of further TA needs.
AFRITACTax AdvisorAugust 8-12, 2005(1) Review the status of implementation of the 2003 FAD mission’s recommendations;

(2) update the tax directorate’s action plan; and (3) asses the DGI TA’s needs.
AFRITACSTA Short- term ExpertAugust 22-26, 2005Assist with putting in place the database of public finances.
AFRITACCustoms Advisor visitsAugust 28-September 1, 2005Advice on customs enforcement, and assessment of further TA needs.
AFRITACSTA Short- term ExpertAugust 29-September 2, 2005Assist and setting up database for the TOFE (last of the two scheduled missions).
AFRITACMicrofinance AdvisorSeptember 19-23,

2005
Strengthen operational systems for the surveillance of microfinance institutions.
AFRITACSTA Short- term ExpertSeptember 19-23,

2005
Assist and setting up database for the TOFE (additional mission).
AFRITACPEM AdvisorOctober 10-14,

2005
Review the status of implementation the January 2004 mission recommendations and asses the technical assistance needs.
AFRITACMicrofinance Advisor and short-term ExpertNovember 21-

December 16, 2005
Coaching in microfinance inspections.
AFRITACSTA AdvisorDecember 6-15,

2005
Review of the WAEMU directives on budgetary nomenclature.
AFRITACCustoms AdvisorJanuary 23-25,

2006
Strengthening the dialogue between the customs administration and the private sector (regional workshop).
AFRITACSTA AdvisorMarch 11-25, 2006Review of the directive on the TOFE.
AFRITACPEM AdvisorMarch 13-17, 2006Review of the directive on the TOFE.
AFRITACTax administration; short term expertMarch 14-28, 2006Assist in strengthening (1) operations of the LTU; and (2) tax auditing.
AFRITACCustoms AdvisorMarch 14-28, 2006Assist in defining an action plan to improve revenue mobilization.
FADRevenue administration missionMarch 14-28, 2006Advice on tax and customs administration reform strategy (including improvement of the large tax payer unit, and strengthening of the tax and customs organization and operations).

XIV. Resident Representative:

Mr. Mario Zejan took up the post of Resident Representative in March 2004.

Appendix III: Burkina Faso

Relations with the World Bank Group7

(As of August 1, 2006)

Partnership in Burkina Faso’s development strategy

1. Government’s development strategy. The government of Burkina Faso outlined its development strategy in a revised PRSP (PRSP-2) adopted by the Council of Ministers on October 27, 2004, along with a Priority Action Program (PAP). The PAP translates strategic direction into sequenced actions and strengthens results-based monitoring and evaluation of the PRSP. The revised PRSP and accompanying PAP were presented to World Bank and IMF Board on May 3, 2005. PRSP-2 reaffirms the four interrelated pillars as identified in the first PRSP, namely: (i) accelerating broad-based growth; (ii) promoting access to social services; (iii) increasing employment and income-generating activities for the poor; and (iv) promoting good governance.

2. Partnership with the Fund. The Fund has supported Burkina Faso under three arrangements under the Poverty Reduction and Growth Facility between 1993 and 2002, and the authorities are currently receiving support under a fourth PRGF arrangement covering 2003-06. The first review of the latter arrangement was completed in March 2004, and the fifth review was completed in March 2006.

3. The Fund takes the lead in the policy dialogue on macroeconomic policies and monitors macroeconomic performance through quantitative performance criteria. In addition, it has established structural performance criteria in the areas of tax policy, financial transparency and good governance, and trade policy. The Bank is supporting the implementation of the PRSP in the areas of public finance management, good governance, decentralization, health, education, and cotton reform through a series of poverty reduction support credits (PRSC), complemented with a portfolio of specific projects to address issues relating to HIV/AIDS, basic education, infrastructure investments in transport, water and urban areas, rural development, private sector development, and statistical capacity building.

The FY06-09 Country Assistance Strategy (CAS)

4. Lessons from past support to Burkina. The 2000 CAS Completion Report concludes that development outcomes in FY01-05 were satisfactory, as was Bank performance in supporting implementation of the strategy. Key lessons from the past CAS have shaped the strategy for FY06-09. First, strong country commitment and consistent policy reform have succeeded in creating an environment more conducive to growth. Second, a more aggressive approach to economic diversification and administrative decentralization will be required in order to accelerate growth and make it more inclusive. Third, the CAS needs to do more to support strengthening of national capacity and country systems, in order to get better results and sustain them. Finally, IDA and other external partners must use the next few years to translate principles of harmonization into reality, in order to reduce the burden of aid management for Burkina.

5. The FY06-09 CAS was discussed by the Bank’s Board on June 28, 2005. This CAS supports the pillars of the revised CSLP with analytic work, technical advice, on-going operations and new financing. It is built around a results framework that explicitly defines the assumed causal links between IDA-supported activities, direct outcomes of these activities and the country’s higher-level development outcomes. IDA will seek to contribute to the following outcomes:

  • Accelerated and shared growth. IDA will support enhanced regional integration, expanded and diversified export earnings, an improved investment climate, decentralized urban development to promote urban-rural linkages, and economic infrastructure needed to reduce factor costs and stimulate private sector investment and growth.
  • Improved access to basic social services. IDA will continue to support access to basic education and improved quality of teaching, expanded coverage of basic health care and HIV/AIDS prevention and treatment and increased access to clean water and sanitation, particularly in urban areas. IDA will also provide technical input for better targeting of social protection to the most vulnerable groups.
  • Increased employment and income opportunities for the poor. A two-pronged approach will focus, first, on the labor market and employment strategy for urban workers. Second, IDA will support efforts to reduce risk, increase revenues, upgrade economic and market infrastructure and enhance women’s opportunities in rural areas, along with promoting community-based land and natural resource management for sustainable development.
  • Better governance with greater decentralization. Governance affects the achievement of development outcomes across all strategic pillars and sectors. Efforts to enhance governance and accountability will be integral to all IDA-supported activities. Particular emphasis will be placed on supporting a more efficient judiciary, promoting public resource management and increased decentralization and strengthening local capacity and participation in public policy decisions.

6. The PRSP-2 provides the framework in which the FY06-09 CAS can contribute to Burkina Faso’s development objectives. Given the country context, recent progress and medium-term prospects, the main challenges for Burkina in the upcoming CAS period can be summarized as follows: (i) maintaining commitment to reform despite less favorable conditions for growth; (ii) overcoming long-standing obstacles to economic diversification; (iii) improving the efficiency of public spending for social services, water and sanitation; (iv) decentralizing development to enhance pro-poor growth; and (v) creating a public sector interface that inspires private sector confidence.

Assessment of country policies

7. In close collaboration with the Burkinabe authorities, IDA has undertaken substantial analytical work over the past five years to assess key social, structural, and sectoral development policies and to identify policy and institutional reform priorities for poverty reduction. IDA has relied on a combination of the PRSP and its annual progress reports, a second priority poverty survey and two poverty profiles, sectoral policy notes, and informal papers on specific issues, such as constraints in growth and competitiveness, or the dynamics of poverty and income inequality. IDA has also helped the Burkinabe authorities carry out analytical work in key sectors (education, health, rural development, energy, transport, and private sector development) and assisted with the preparation of a comprehensive economic study on long-term sources of growth and competitiveness in 2001. IDA completed a public expenditure review in June 2004 and a Poverty Assessment in July 2004; a Population Sector Work in April 2005 and a Country Procurement Assessment Report (CPAR) in June 2005. IDA will continue to support preparation and dissemination of participatory analytical work in the FY06-09 period linked to strategic priorities. Areas of particular emphasis in the next few years will include private sector development (Investment Climate Assessment, Financial Sector Review, Integrated Trade Framework and Labor Market Study), sequencing of decentralization, and understanding and addressing persistent malnutrition.

The Bank portfolio and proposed lending pipeline

8. The Bank’s cumulative commitments to Burkina Faso as of August 1, 2006 amount to US$1,775.235 million equivalent for 79 operations, comprising 73 IDA credits and 6 IDA grants.

9. The current portfolio amounts to IDA and GEF commitments of US$553.6 million, of which US$455.07 million is undisbursed. IDA’s portfolio in Burkina Faso is as follows:

  • The PRSC-6 approved on June 20, 2006 for US$60 million equivalent supports the implementation of PRSP-2 and its accompanying PAP. PRSC-6 is expected to be fully disbursed by August 2006. Under the growth and employment objectives, PRSC-6 supports reforms in the cotton, rural, telecommunication and energy sectors, as well as in the labor market, to lower factor costs, increase productivity and favor new investments. PRSC-6 also supports policies in the education, health, social protection, and water sectors with the objectives to improve access and improve service quality. Lastly, PRSC-6 supports measures to strengthen budget formulation, execution, procurement, and control, as well as public sector performance, decentralization, and environmental management.
  • In the agriculture sector, the community-based rural development program (US$66.7 million equivalent, FY01) aims at reducing poverty and promoting sustainable development in rural areas. Its first phase provides for building local capacity to plan and implement rural development projects, accelerating the pace of public transfers for decentralized rural development, and supporting implementation of the country’s decentralization framework.
  • To support human resource development, three operations are being implemented. In education, a basic education operation (US$32.6 million equivalent) was approved in January 2002. The project provides support for the government’s ten-year basic education program, which will be implemented in three phases, the first of which covers the period 2001-05. The main development objective of Phase I of the ten-year program is to lay the foundation for accelerating the development of basic education, while ensuring adequate quality and financial sustainability. The Bank also assists the country with the implementation of a new development learning center (US$2.3 million equivalent, FY03) for distance-learning activities that will give the Burkinabe access to the latest research worldwide. A HIV/AIDS disaster response project (US$22 million equivalent, FY02) underpins the implementation of the government’s 2001-04 medium-term HIV/AIDS/STIs strategic plan, which has been endorsed by the country’s technical and financial partners. A US$5 million supplemental grant has been approved on May 3, 2005 to complete the activities of the original operation. In addition, the multi-country HIV/AIDS Treatment Acceleration Program (TAP), approved in June 2004, includes US$18 million for Burkina, to scale up treatment through strengthening the response of associations of persons living with HIV/AIDS and the Ministry of Health.
  • A Health Sector Support and Multisectoral AIDS Project (US$47.7 million) was approved in April 2006 and aims at improving the quality and use of maternal and child health services; scaling up the malaria response and control by supporting malaria prevention and treatment activities; subsidizing procurement and distribution of insecticide-treated bed nets and malaria medicines, with a focus on children under five and women; and providing flexible support for rapidly responding to epidemics, including meningitis, cholera, and bird influenza; scaling up AIDS treatment, promoting HIV prevention and behavioral change, and mitigating the socio-economic consequences of the HIV/AIDS epidemic.
  • A Post Primary Education Project (US$22.9 million, FY06) was approved in June 2006 and aims at supporting the Government strategy to increase the number, and quality of students graduating from secondary school at reduced costs for parents, with increased equity of access by gender and by area (rural-urban).
  • An Agricultural Diversification and Market Development Project (US$66 million, FY06) aims at strengthening private operators’ capacities to respond to market opportunities and requirements; developing irrigation and marketing infrastructure for agricultural productivity increase, product quality improvement, and agricultural diversification, while strengthening producers’ linkages to markets; improving the business environment, regulatory framework, and provision of advisory services.
  • A water supply project (US$70 million equivalent, FY01) aims at increasing access to adequate and reliable potable water in Ouagadougou through expanded distribution and tertiary water networks and improved urban water sub-sector management.
  • A technical assistance credit for private sector development (Competitiveness and Enterprise Development Project, US$30.7 equivalent, FY03) provides support to implement the privatization program; improve the quality, access, and cost of telecommunications, and promote the development of a strong indigenous private sector in Burkina Faso through a streamlined business environment and well-targeted financial and nonfinancial services to small and medium-sized enterprises.
  • The Bank approved a transport sector project in April 2003 for US$92.1 million equivalent. The project concentrates on rural roads as the rural economy is the main source of income and employment for 80 percent of the population.
  • A statistical capacity building credit for US$10 million equivalent was approved in March 2004. The project aims at improving policy decision-making, based on timely and accurate quantitative and qualitative information, that help monitor progress towards national development goals, including the PRSP goals and the MDGs.
  • An administration capacity building grant for US$7.0 million equivalent was approved in March 2005. The project aims at improving administration structures and processes in light of the decentralization policy, in order to yield measurable impact on provision of services to the citizens of Burkina. This will improve human and financial management systems and entrench a culture of capacity building in the administration.
  • A power sector development project, US$63 million equivalent, was approved in November 2004, with the aim to increase power supply through domestic generation and investment in sub-regional inter-connectors for increased electricity imports.

10. The Bank’s proposed remaining lending program for the FY06-09 period will consist of: (i) one programmatic development lending operation per fiscal year; (ii) support to the agriculture sector through a follow up to the intensification and market diversification project, and the second phase of the community-based rural development program; (iii) an energy access project which will aim at increasing access to infrastructure services, especially for rural communities; (iv) a capacity building project to support the decentralization agenda. In addition, Burkina will participate in regional projects to improve infrastructure networks and increase agricultural productivity8.

Bank-Fund collaboration in specific areas

11. Cotton sector. The Bank and Fund staffs jointly follow developments in the cotton sector because of its importance for macroeconomic aggregates and rural incomes. The Fund staff focuses on the overall financial management of the cotton sector in order to limit spillover effects for government finances and the banking sector. The Bank staff is accompanying the government’s structural reform agenda in the sector under a series of PRSCs. These reforms aim at creating a more competitive environment. The reforms have contributed over the past decade to bought spun-off units from the former monopoly enterprise, prudent financial management and the increased involvement of producer organizations in decision-making processes, including the setting of producer prices.

12. Public finance management and good governance. The Bank and the Fund closely collaborate in supporting the government’s reforms in the area of public finance management and good governance. Important elements of the reform program are enshrined in the government’s own action plan for the improvement of budget management and incorporate the main recommendations of the HIPC Assessment and Action Plan prepared jointly by Bank and Fund staff and the Country Financial Accountability Assessment (CFAA). Recently, the Bank’s PRSCs supported the establishment of a functioning Auditor General Office, resumption of regular submissions of budget audit laws to the Auditor General Office and the National Assembly, and revisions of procurement laws and regulations. The Bank’s PRSC series is also supporting extensions of the computerized expenditure circuit to deconcentrate budget execution and, together with sector-specific projects, is assisting with the preparation for the political decentralization. The PRGF-supported program included measures to ensure the effectiveness of the Auditor General Office, and the Fund has given technical assistance in the area of tax and customs administration. Both the Bank and Fund staffs have followed jointly the government’s anticorruption policies, including the creation of the High Authority to Fight Corruption. The Fund is focusing its support under the PRGF on tax administration and tax reform issues while the Bank is supporting expenditure management and control reform under the PRSCs.

13. Promotion of private sector activity. Given the importance of private sector development for accelerating growth, the Bank and Fund staffs take a close common interest in policies that foster competition, as well as privatization. The Fund focuses on trade policies and monitors the financial performance of public enterprises. The Bank has taken the lead in assisting with the privatization of the energy and telecommunications sectors and removing administrative obstacles to the creation of enterprises and private investment. IFC and MIGA have intensified their support for private sector investment in Burkina in the past year.

Statement of IDA Credits/Grants

As of August 1, 2006

(In millions of U.S. dollars)

Credit/GrantFiscal
NumberYearSectorIDAUndisbursed
C34360-BF2001Community-Based Rural Dev.66.713.29
C34760-BF2001Ouagadougou Water Supply70.040.71
C35570-BF2002HIV/AIDS Disaster Response27.03.47
C35970-BF2002Basic Education32.619.72
C51242-BF2002Partnership for Nat. Eco/System7.52.26
C37070-BF2003Development Learning Center2.30.61
C37330/H02202003Competitiveness & Ent. Dev.30.727.16
C37450/H03202003Transport Sector92.182.60
C38780-BF2004Statistical Capacity Bldg10.07.79
C53855-BF2004Sahel Inter lowland4.53.72
G29867-BF2005Power Sector Dev.63.648.29
H15102005Administration Capacity Building7.06.05
C401902005WA Locust3.02.80
Credit2006PRSC-660.060.0
Credit2006Health Sector Support47.747.7
Credit2006Post-Primary Education22.922.9
Credit2006Ag. Diversification and Markets66.066.0
Total (number of credits/grants: 21)553.6455.07
Source: World Bank
Source: World Bank
1As a result, an unwinding of these expenditure authorizations in 2006 is not anticipated.
2A joint DSA with the World Bank is planned for later this year.
3The government has submitted to the Fund and World Bank the fifth PRSP Annual Progress Report, which has been circulated together with the related Joint Staff Advisory Note to Executive Directors for information in August 2006.
1Assistance committed under the original framework is expressed in net present value (NPV) terms at the completion point, and assistance committed under the enhanced framework is expressed in NPV terms at the decision point. Hence, these two amounts can not be added.
2Under the enhanced framework, an additional disbursement is made at the completion point corresponding to interest income earned on the amount committed at the decision point but not disbursed during the interim period.
3The Multilateral Debt Relief Initiative (MDRI) provides 100 percent debt relief to eligible member countries that are qualified for the assistance. The debt relief covers the full stock of debt owed to the Fund as of end-2004 which remains outstanding at the time the member qualifies for such debt relief. The MDRI is financed by bilateral contributions and the Fund’s own resources, as well as the resources already disbursed to the member under the HIPC Initiative (see Section VII above).
7This appendix has been prepared by the World Bank. Additional information can be obtained from Michelle Keane, Acting Country Program Coordinator, or Abdoulaye Seck, Senior Country Economist.
8A regional aviation project, a regional transit facilitation project, a West Africa power pool project and a West African agricultural productivity program.

Other Resources Citing This Publication