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

Ouagadougou, December 20, 2004

Mr. Rodrigo Rato
Managing Director
International Monetary Fund
700 19th Street NW
Washington DC 20431
USA

Dear Mr. de Rato:

1. The government of Burkina Faso is implementing a program of macroeconomic and structural reforms for the period 2003-06 with the support of the International Monetary Fund (IMF). A three-year arrangement under the Poverty Reduction and Growth Facility (PRGF), for an amount equivalent to SDR 24.08 million (40 percent of quota), was approved by the IMF Board on June 11, 2003. We are making satisfactory progress under this arrangement, despite a recent substantial deterioration of Burkina Faso's external environment. Specifically, the economy is coping with record low cotton prices, a sharp increase in oil prices, a drought in the north of the country, the locust infestation in the Sahel, the situation in Côte d'Ivoire, and the recent strong appreciation of the euro. Despite these adverse developments, we observed all quantitative performance criteria for the second and third PRGF reviews. We are requesting completion of the second and third program reviews and the disbursement of the third and fourth loans in the amounts of SDR 3.44 million each. In this regard, we are asking for waivers of two structural performance criteria, based on recent progress and corrective measures as described in the attached Memorandum of Economic and Financial Policies (MEFP) for the period October 2004-December 2005.

2. We believe our program appropriately addresses the challenges that we face in 2005. Despite the deterioration in our external environment, we have proposed a government budget that allows us to continue implementing our poverty reduction strategy, consistent with a reduction in the government debt burden. It also makes adequate provisions for the presidential and municipal elections scheduled for 2005 which are fundamental to maintaining social cohesion and strengthening our democratic institutions. The government believes that the policies set forth in the attached MEFP are adequate to achieve the objectives of its program, and it will take any additional measures that may prove necessary for this purpose. During the implementation period of the three-year arrangement, the authorities will consult with the Managing Director of the IMF, either at their own initiative or whenever the Managing Director of the IMF requests such consultation, regarding the adoption of any additional measures that may be appropriate. Moreover, after the implementation period of the arrangement and while Burkina Faso has outstanding financial obligations to the IMF arising from loans under the arrangement, the government will consult with the IMF, at its initiative or whenever the Managing Director requests such consultations, regarding its economic and financial policies.

3. To ensure that there is sufficient time to complete the sixth review under the three-year arrangement, which will be based on performance at end-March 2006, we request that the arrangement be extended until August 15, 2006.

4. The government intends to make the contents of this letter and those of the attached MEFP, technical memorandum of understanding, and the staff report on the second and third reviews available to the public. In this regard, it authorizes the IMF to publish them on its website.

Sincerely yours,

Memorandum of Economic and Financial Policies

I. Program Implementation and Prospects for 2004

1. Real GDP growth is projected to slow from 8.0 percent in 2003 to 4.8 percent in 2004, somewhat lower than envisaged under the program, as agricultural output falls from the record levels realized in 2003. Food prices have been falling due to the exceptional cereal harvest of 2003/04, and, as a result, overall consumer prices fell by 0.7 percent during the 12 months ending September 2004. The exchange rate peg, along with the appreciation of the euro, has helped contain inflationary pressures, albeit with some consequences for export competitiveness in the period ahead. Against this background, we expect inflation to remain subdued for the remainder of the year. Strong foreign exchange inflows from buoyant cotton export proceeds in the first half of 2004, along with a more rapid disbursement of donor project funds than expected, facilitated a substantial buildup in Burkina Faso's contribution to the international reserves of the BCEAO through September. While we expect some reduction in reserves in the fourth quarter, we project that the end-2004 targeted reserve coverage of 3.3 months of imports of goods and services will be exceeded by a comfortable margin.

2. Fiscal discipline has been a major factor behind these favorable developments. The basic fiscal deficit (revenue less domestically-financed expenditures) was slightly smaller than programmed for the first nine months of the year (Table 1). We observed all quantitative performance criteria for end-March and end-September, and all quantitative indicative targets except for two at end-September pertaining to the wage bill and the stock of expenditures authorized but not executed (dépenses engagées non mandatées- DENMs). The wage bill exceeded the program target by CFAF 1.2 billion (less than 0.1 percent of GDP) because of a more rapid execution of payments linked to staff promotions, which had been programmed for payment in the fourth quarter. This will in no way prevent us from observing the programmed indicative target on the wage bill for the year as a whole. The stock of DENMs increased primarily because authorizations to spend on priority capital projects linked to the use of HIPC debt relief exceeded the pace of project execution.

3. We continued to make progress on fiscal reforms during the year, albeit with some delays or interruptions (Table 2). The structural indicative targets on the submission to the Auditor General Office of the 2001 and 2002 balance sheets of the Central Accountant of the Treasury, the General Spending Accountant and the General Revenue Accountant were observed. In addition, we observed the end-September structural performance criterion pertaining to the establishment of the large taxpayer unit. The structural performance criterion on the implementation of the customs computerization system SYDONIA++ in the 10 customs offices was not observed, owing to insufficient telecommunications equipment. We developed an alternative communications strategy and made the SYDONIA system operational in seven offices by end-September 2004. Measures to strengthen customs valuation and post-clearance control procedures are behind schedule because of the delayed implementation of the new pre-inspection program. This situation has been resolved and we are moving ahead with the reforms agreed in 2003. In the area of fiscal transparency and governance, the structural performance criterion on the submission to the National Assembly of the 2002 draft annual audited budget act by end-March was missed by about six weeks, as the office of the Auditor General needed additional time to finalize its report. The National Assembly approved a new Labor Code in September 2004, which enhances labor market flexibility.

4. Regarding governance, the High Authority for the Coordination of the Fight Against Corruption presented its first annual report to the Prime Minister in January 2004. Of the 10 instances of alleged corruption covered in the report, one case is already the subject of legal proceedings. The other nine cases have been transmitted to Burkina Faso's General Prosecutor who, after careful consideration, will send them to the district attorneys for follow up action. In addition, more than 20 cases of embezzlement of public funds have been investigated and tried in Ouagadougou, Fada, Tenkodogo, and Bobo-Dioulasso so far in 2004.

5. Progress has been made in implementing structural reforms to support private sector development. SOFITEX sold ginning facilities, other assets, and regional concessions to two private cotton companies in September 2004. This has resulted in the establishment of the first wholly privately-owned cotton ginning and marketing companies in Burkina Faso. Equally important, we increased electricity tariffs by 10 percent on October 1, 2004. This will mitigate the impact of the recent increase in world oil prices on the financial operations of SONABEL (the government-owned electricity utility). It will also help unlock additional donor-funded investment in the sector in the context of a sector strategy developed in collaboration with our development partners. We temporarily suspended the monthly domestic petroleum price adjustment mechanism in October in order to take stock of the potential impact of what would have been an unusually sharp increase in prices. While this resulted in the nonobservance of the related continuous structural indicative target under the program, we considered it was necessary in light of the convergence of a number of adverse shocks on the economy. We resumed the automatic adjustment in November and will allow it to function uninterrupted in the future. The audits of the 2002 and 2003 financial accounts of SONABEL and SONABHY are running behind schedule because of delays in selecting companies to carry out the audits, but we are taking measures to get this aspect of our reform program back on track. In the case of SONABEL, the auditor will be appointed in January 2005 and begin work in February 2005.

II. Economic Policies in the Period Ahead

6. The main policy challenge in the period ahead is to ensure an orderly adjustment to the sharp deterioration in our external environment. Since the end of 2003, world cotton prices have fallen by 35 percent (measured in CFA francs) and world oil prices have increased by 50 percent, with most of the change occurring since the middle of the year. Cotton accounts for nearly 70 percent of our merchandise exports, and oil for some 20 percent of imports. If these price developments persist, they will have substantial adverse effects on real economic growth, fiscal revenues, and the external current account balance. In addition, our supply lines through Côte d'Ivoire, which had been reopened in 2003, have been interrupted again in the wake of the recent intensification of the crisis. Finally, drought in the north of the country and the locust infestation have adversely affected agricultural production. We have succeeded in obtaining additional financial support from our development partners, relative to what was envisaged under the program, which will help ease the adjustment process in the period ahead. Our policies in 2005 will be based on five pillars:

• The government will pursue ongoing reforms in the cotton sector and continue to support the implementation of the existing price adjustment mechanism.
  
  
• The automatic adjustment mechanism for domestic petroleum prices to reflect changes in world prices will be allowed to function without interruption;
  
  
• The fiscal deficit will be financed in a manner fully consistent with a decline in the government's debt burden;
  
  
• Increases in fiscal expenditures to cushion the adjustment process and ensure a smooth transition to the changed external environment will be well targeted, and ;
  
  
• Structural reforms will be accelerated to help support private sector economic development and diversification.

A. Macroeconomic Framework for 2005

7. We have revised the macroeconomic framework for 2005 in response to the changed external environment. We are basing the 2005 budget on a projected growth of real GDP on the order of 3 ½ percent. We believe that growth could be higher, but a cautious outlook is justified given the risks we face. The exchange rate peg is expected to help contain inflation to about 2 percent. The external current account deficit is projected to widen to about 12½ percent of GDP. Net capital and financial flows, including from our development partners, while larger than programmed, are not expected to be sufficient to cover the wider current account deficit. As a result, Burkina Faso's contribution to the reserves of the WAMU in 2005 will be lower than programmed. However, because of the balance of payments surpluses of the past two years, the contribution since the beginning of the PRGF arrangement will remain higher than programmed.

B. Pricing Policy in the Cotton Sector

8. The cotton sector in Burkina Faso is mostly privately owned and the government will continue to promote competition in the industry. The government is a minority shareholder in the largest of the three cotton ginning and export companies. Cotton farmers and private companies hold the remaining shares. Budgetary subsidies to the sector have been small and confined to mitigating the impact of rising input prices arising from the disruption of supply lines through Côte d'Ivoire. The current agreement between shareholders has served Burkina Faso well during the past five years, and while we recognize that the system has never faced such low world prices for cotton, the government believes that the system should be allowed to function as designed. Shareholders have negotiated reasonable contracts under difficult situations in the past, and government intervention in the process, other than as a minority shareholder, would undermine credibility of the system, which has already succeeded in attracting substantial private-sector participation.

9. Under the current arrangement, shareholders negotiate the producer price, currently at CFAF 175 per kilo of cotton, prior to planting (April/May). In addition, a bonus (ristourne) is paid to farmers if the companies earn profits on the operations of the previous year. As this was the case for the 2003/04 crop, farmers are being paid CFAF 210 per kilo for seed cotton, including a ristourne of CFAF 35 per kilo, on the current crop (2004/05), for which ginning operations have already begun. Even if world prices fail to rebound from current levels (about CFAF 535 per kilo), the companies will be able to finance their losses on the current crop through their own resources. However, on this basis, a ristourne would not be paid for the 2005/06 crop, resulting in, at least, a 17 percent decline in the price received by farmers. The floor price for the next crop (2005/06) will be determined in the context of negotiations between shareholders, including farmers, which will be concluded in April/May. We recognize that if world prices do not rebound, these negotiations could result in a producer price that might have severe poverty implications for farmers or result in unsustainable financial losses for the companies. If this scenario were to materialize, we would expect farmers and companies to absorb a major part of the required adjustment, but we would also consult immediately with our development partners to find a way forward.

C. Fiscal Policy

10. Fiscal policy in 2005 will be oriented toward supporting the implementation of our poverty reduction strategy as set forth in the revised poverty reduction strategy paper (PRSP), consistent with the objective of reducing the overall government debt burden. We are revising our medium-term expenditure framework for 2006-07 in light of the recent deterioration in the external environment. We have already revised downward our revenue projection for 2005 to CFAF 378 billion based on lower economic growth than envisaged under the PRGF arrangement. However, we will continue to improve tax and customs administration, thereby enhancing tax yields, and are targeting an increase in the revenue/GDP ratio by ½ percentage point to 13.3 percent.

11. Total expenditure and net lending in 2005, excluding foreign financed investment projects, will be lower than programmed at CFAF 463 billion, reflecting a thorough review and prioritization of the domestic public investment program. Recurrent outlays, excluding external interest, will be contained to CFAF 327 billion, as programmed. The government is currently negotiating with labor representatives the first increase in public sector wages since 1997. It is committed to ensuring that the wage agreement is consistent with the programmed ceiling on recurrent outlays. The 2005 wage bill will also provide for the hiring of new teachers and health workers, as well as financial incentives for teachers and health workers to relocate to rural areas, where poverty is most pronounced. The subsidy to the energy sector will be increased by CFAF 5.5 billion to help offset the impact of higher world oil prices, consistent with the sector strategy being supported by our development partners. In the event that world oil prices are higher than currently projected, measures will be taken, including by SONABEL, to ensure that the budgeted subsidy is not exceeded. The budget also provides CFAF 3.5 billion for the purchase of a replacement presidential aircraft, as the existing aircraft is almost 40 years old. These previously unforeseen expenditures will in no way affect spending on priority social programs, which excluding wages, are budgeted to rise to CFAF 61 billion. The budget contains no subsidy to the cotton companies to cover financial losses that may arise from the current cotton campaign, but it does include an additional CFAF 3 billion to offset increase in the costs of inputs to farmers arising from the disruption of supply lines in the region.

12. The overall fiscal deficit (excluding grants) is programmed at 9.3 percent of GDP. This will be entirely financed by net official flows. External financing will be limited to grants and highly concessional loans and would be consistent with a continued decline in the external debt burden as measured by the ratios of the NPV of debt to exports and fiscal revenues.

D. Fiscal Reforms

13. In 2005, we intend to make further progress in the area of fiscal transparency and to strengthen revenue performance. The measures that we will implement are as follows:

• proceed with the transfer of the collection of the RSI (régime simplifié d'imposition) tax to the Tax Directorate before end-March 2005;
  
  
• submit by end-September 2005 to the Auditor General Office the general balance sheets for 2004 of the Central Accountant of the Treasury, the General Spending Accountant, and the General Revenue Accountant, and;
  
  
• submit by end-September 2005 to the Auditor General Office the 2004 draft annual audited budget act.
  
  
• select 10 revenue management indicators by January 15, 2005, produce a first progress report by end-March 2005, and on a monthly basis thereafter. The 10 selected indicators will focus on the tax base, tax collection, and tax controls;
  
  
• introduce by end-March 2005 a new taxpayer identification system based on the use of a revised single tax identification number (TIN);
  
  
• accelerate the control activities of the recently created DGE (Large Taxpayer Division). In particular, the DGE will carry out VAT audits of at least 60 companies under its authority by end-September 2005, and;
  
  
• following the adoption of the new TIN, a methodology for a new census of taxpayers will be adopted by end-June 2005, a comprehensive census of taxpayers in Ouagadougou and Bobo-Dioulasso will be launched, and a report on the status of implementation of the census will be published by end-December 2005.
  
  
• issue by end-June 2005 instructions for customs valuation and transmit to the pre-inspection company customs data to allow for the reconciliation of the pre-inspection and declared values of imports, and;
  
  
• establish by end-September 2005 a special unit to monitor the final destination of imports benefiting from customs and tax exemptions linked to the public investment program.

In addition, the Tax Directorate and the Customs Directorate will sign by end-June 2005 a protocol for sharing of information between the two directorates. The protocol will detail the information to be shared as well as its periodicity. Moreover, we plan to establish by end-December 2005 a Joint Brigade of the two directorates that will aim at improving tax compliance and revenue collection.

E. Monetary Developments and Financial-Sector Policies

14. Monetary policy continues to be coordinated at the regional level by the BCEAO. Its goals are to maintain price stability and to target a general increase in international reserves. Broad money in Burkina Faso is projected to grow in line with nominal GDP during 2005 and credit to the economy somewhat faster.

15. The banking system remains basically sound and is well positioned to sustain the recent external shocks. All banks are in compliance with minimum capital adequacy requirements. Compliance with the other prudential ratios is generally satisfactory, with the exception of single-borrower loan concentration limits. The government will continue to promote microfinance in order to increase access to financial services in rural areas and to small enterprises. We had intended to finalize our strategy for the sector in October 2004, but experienced delays in obtaining the necessary technical assistance. Following discussions with our development partners, we have resolved this problem and revised the schedule accordingly. The cabinet will approve the strategy by end-March 2005 that will be validated, by end-June 2005, through consultations with and the participation of civil society and other stakeholders. To promote financial sector intermediation and reducing the spread between deposit and lending rates, we will continue to pursue judicial reform to enhance procedures for foreclosure on collateral and improve loan collection. In this regard, we are allocating resources to clear the backlog of existing foreclosure decisions and have issued instructions to the courts to publish foreclosure decisions immediately after the relevant court hearings.

F. External Debt

16. The government has continued negotiations with its creditors to secure their participation in the HIPC Initiative, including the provision of topping-up. With regard to the latter, the government obtained assurances from all multilateral and Paris Club creditors. However, we have had no success, despite repeated efforts, in obtaining the participation of our non-Paris Club bilateral creditors on terms comparable to those offered by our Paris Club creditors. The government remains firmly committed to ensuring that its poverty reduction strategy is fully consistent with external debt sustainability. It will continue to seek grant financing of its strategy to the maximum extent possible and to refrain from contracting or guaranteeing external loans with a grant element of less than 35 percent. We have been, and will remain, current on all external debt obligations, except for those under negotiation in the context of the HIPC Initiative.

G. Structural Reforms, Competitiveness and Governance

17. The government's structural reform agenda is directed at improving the economy's competitiveness and supporting private-sector-led diversification and growth. We have developed a strategy to privatize ONATEL (the national telecommunications company) in 2005, offering 34 percent of shares to a strategic partner and another 20 percent to the public. We are implementing a major restructuring of the power sector with the support of our development partners. The cabinet will approve by January 2005 and submit to the National Assembly by end-March 2005 a new regulatory framework for this sector. This will open generation to private competition and establish the basis for timely adjustments of electricity tariffs to ensure full cost recovery. This, in turn, will facilitate the elimination of budgetary support for SONABEL in the medium term. We also intend to sell a minority of our shares in SONABHY, the national petroleum importing company. To prepare for private-sector participation in these sectors, we will finalize the audits for 2002, 2003 and 2004 of SONABEL and SONABHY during the course of the year. We will also push ahead with privatizing the remaining government-owned hotels, insurance companies, and banks.

18. Improved governance and the implementation of the rule of law are also fundamental to the promotion of private sector economic development. In this regard, the Ministry of Justice is moving ahead with investigations of cases identified in the first report of the High Authority to Coordinate the Fight Against Corruption. In addition, to strengthen the government's action in this area and broaden participation, the High Authority will prepare a national policy to fight corruption that will be adopted in 2005 following a wide-ranging consultation.

H. The Poverty Reduction Strategy Paper

19. We have finalized the PRSP for 2004-06, and recently presented the 2003 progress report to our development partners. In light of the recent external shocks to the economy, and their budgetary implications, we will revise the medium-term expenditure framework for 2006-07 by end-May 2005. While we expect that real GDP growth will return to a trend rate of 6-7 percent in the medium term, we will base the medium-term macroeconomic framework on a more conservative growth outlook through 2006. Against this background, fiscal revenue in the near term will likely be lower than envisaged earlier, and additional budget support from our development partners would be required if we are to make satisfactory progress toward the Millennium Development Goals.

I. Monitoring of Program Implementation

20. To monitor progress in implementing our program, the government has established quantitative performance criteria for March 2005 and September 2005 and indicative targets for the end of each quarter (Table 3). The program also incorporates structural performance criteria for March 2005 and September 2005, as well as benchmarks for the end of each quarter (Table 4). The program includes an adjuster on domestic financing for deviations in external debt service relative to program projections. In addition, domestic financing will be adjusted upward for a shortfall in budget support, up to a maximum of CFAF 50 billion. The program allows the government to spend budget support in excess of projected amounts on priority social programs, up to a maximum of CFAF 25 billion.

21. The government will, by end-August 2005, conduct the fourth half-yearly review of the program with the Fund, to evaluate the progress made as at end-March 2005. The fifth half-yearly review of the program is also expected to be carried out by end-March 2006, on the basis of the results at end-September 2005.

Use the free Adobe Acrobat Reader to view the Tables 1 and 3 (15kb PDF file)

Technical Memorandum of Understanding

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

I. Definitions

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

• As specified in point 9 of the Guidelines on Performance Criteria with Respect to Foreign Debt adopted by the Executive Board of the IMF on August 24, 2000,¹ debt will be understood to mean a current, that is, not contingent, liability, created under a contractual arrangement through the provision of value in the form of assets (including currency) or services, and which requires the obligor to make one or more payments in the form of assets (including currency) or services, at some future point(s) in time; these payments will discharge the principal and/or interest liabilities incurred under the contract. Debts can take a number of forms, the primary ones being as follows: (i) loans, that is, advances of money to obligor by the lender made on the basis of an undertaking that the obligor will repay the funds in the future (including deposits, bonds, obligations, commercial loans, and buyers' credits) and temporary exchanges of assets that are equivalent to fully collateralized loans under which the obligor is required to repay the funds, and usually pay interest, by repurchasing the collateral from the buyer in the future (such as repurchase agreements and official swap arrangements); (ii) suppliers' credits, that is, contracts where the supplier permits the obligor to defer payments until some time after the date on which the goods have been delivered or the services provided; and (iii) leases, that is, arrangements under which property is provided that the lessee has the right to use for one or more specified periods of time, which are usually shorter than the total expected life of the property, while the lessor retains the title to the property. For the purpose of this guideline, the debt is the present value (at the inception of the lease) of all lease payments expected to be made during the period of the agreement, excluding those payments that cover the operation, repair, or maintenance of the property. Treasury bills and bonds issued in CFA francs on the WAEMU (West African Economic and Monetary Union) regional market, are included in domestic debt for the purposes of this memorandum.
  
  
• Government is defined as the central government of Burkina Faso and does not include any political subdivision, government-owned entity, or central bank having a separate legal personality.
  
  
• External payments arrears are external payments due but unpaid. Domestic payments arrears under the 2004-05 program are domestic payments due (following the expiration of a 90-day grace period, except where the obligation provides for a specific grace period, in which case that grace period will apply) but unpaid.
  
  
• Government obligation is any financial obligation of the government accepted as such by the government (including any government debt).
  

II. Quantitative Performance Criteria

A. Cumulative Change in Net Domestic Financing to the Government

Definition

3. Under the 2004-05 program, net domestic financing of the government is defined as the sum of (i) net bank credit to the government, including both the net bank credit to the treasury as defined below, and other government claims and debts vis-à-vis national banking institutions; and (ii) the unredeemed stock of government bills and bonds held outside national commercial banks.

4. Net bank credit to the treasury is defined as the balance of the treasury's claims and debts vis-à-vis national banking institutions. Treasury claims include the cash holdings of the Burkinabè Treasury, deposits with the central bank, deposits with the commercial banks, secured obligations, and government deposits with the postal system (CCP). Treasury debt to the banking system includes funding from the central bank (including statutory advances, consolidated advances, IMF financing, and refinancing of secured obligations), government securities held by the central bank, funding from commercial banks (including government securities held by commercial banks), and CNE (Caisse Nationale d'Épargne Postale)/CCP securitized deposits.

5. Net bank credit to the government is calculated by the Central Bank of West African States (BCEAO), whose figures are deemed valid within the context of the program. The stock of treasury bills and other government debt is calculated by the Ministry of Finance.

6. At end-September 2004, net domestic financing of the government was CFAF -29.1 billion, made up of CFAF -30.3 billion in changes in net bank credit to the government and CFAF .1.1 billion in nonbank financing.

Quantitative performance criterion/indicative targets

7. The ceiling on the cumulative change (from October 1, 2004 onward) in net domestic financing of the government is set at CFAF 19.7 billion at December 31, 2004, and (from January 1, 2005 onward) CFAF 20.8 billion at March 31, 2005. These ceilings represent an indicative target at end-December 2004 and a performance criterion at end-March 2005 . The ceiling is projected at CFAF 25.3 billion at June 30, 2005 and at CFAF 4.2 billion at September 30, 2005. These figures will be re-examined and set as an indicative target at end-June 2005 and a performance criterion at end-September 2005 during the fourth program review.

Adjustment

8. The ceilings on the cumulative change in net domestic financing to the government will be subject to adjustment when actual disbursements differ from program forecasts of external budgetary assistance. When disbursements exceed forecasts, the ceilings will be adjusted downward by the amount of excess disbursements, with the exception of up to a maximum of CFAF 25 billion in expenditure for priority social programs. In contrast, when disbursements fall short of forecasts, the ceilings will be adjusted upward by the amount of the shortfall. However, upward adjustments of ceilings are limited to a maximum of CFAF 50 billion at end-December 2004 and CFAF 50 billion at end-December 2005. In addition, the ceiling will be adjusted for deviations in external debt service relative to program projections.

Reporting deadlines

9. Data on net bank credit to the government will be forwarded monthly to the IMF by BCEAO staff, and those on the stock of government bills and other government debt by the Ministry of Finance within six weeks following the end of each month.

B. Nonaccumulation of Domestic Payments Arrears

Definition

10. The government undertakes not to accumulate any new domestic payments arrears on government obligations. The treasury keeps records of domestic payments arrears on government obligations and records pertinent repayments.

Performance criterion

11. The government will not accumulate any domestic payments arrears on government obligations in 2003 and 2004. Said nonaccumulation of domestic payments arrears is a performance criterion, to be observed continuously.

Reporting deadlines

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

C. Nonaccumulation of External Payments Arrears

Performance criterion

13. The government's external debt is the stock of debt owed or guaranteed by the government. External payments arrears are external payments due but unpaid on the due date. Under the program, the government undertakes not to accumulate external payments arrears on its debt, with the exception of external payments arrears arising from government debt being renegotiated with external creditors, including non-Paris Club bilateral creditors and multilateral creditors participating under the enhanced HIPC Initiative. Nonaccumulation of external payments arrears is a performance criterion, to be observed continuously.

Reporting deadlines

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

D. Nonconcessional External Debt Contracted or Guaranteed by the Government of Burkina Faso

Performance criterion

15. The government undertakes not to contract or guarantee any external debt maturing in one year or more with a grant element of less than 35 percent (calculated using the interest reference rate for borrowed foreign currencies provided by the IMF). This performance criterion applies not only to debt as defined in point 9 of the Guidelines on Performance Criteria with Respect to Foreign Debt, adopted by the IMF's Executive Board on August 24, 2000,² but also to all commitments contracted or guaranteed for which value has not been received. However, this performance criterion does not apply to treasury bills and bonds issued in CFA francs on the WAEMU regional market. This commitment is a performance criterion, to be observed continuously.

Reporting deadlines

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

E. Government Short-Term External Debt

17. The government undertakes not to accumulate or guarantee any new external debt with a contractual maturity of less than one year. This performance criterion applies not only to debt as defined in point 9 of the Guidelines on Performance Criteria with Respect to Foreign Debt, adopted by the IMF's Executive Board on August 24, 2000, but also to commitments contracted or guaranteed for which value has not been received. Excluded from this performance criterion are import- and export-related loans and treasury bills and bonds issued in CFA francs on the WAEMU regional market and normal short term suppliers' credits of one year or less. This obligation is a performance criterion to be observed continuously. As of September 30, 2004, the government of Burkina Faso had no short-term external debt.

III. Other Quantitative Indicative Targets

18. The program also includes indicative targets on the basic balance of the government budget, total government revenue, current expenditure, the government's wage bill, and expenditure committed but not authorized.

Definitions

19. The basic balance of government financial operations is defined as the difference between total government revenue (excluding grants and the proceeds of privatization) and total government expenditure and net lending, excluding foreign-financed investment and net lending. It is valued according to the statement of government budgetary execution, which is established monthly in the central government's financial operations table prepared by the Permanent Secretariat for the Monitoring of Financial Policies and Programs (SP-PPF), in collaboration with the other directorates of the Ministry of Finance and Budget.

20. Total government revenue is valued on a cash basis. It includes all tax and nontax revenue collected by the Directorate General of Taxation, the Directorate General of Customs, the Burkinabè Treasury and the revenue collection units at ministries and institutions, and it includes revenue from treasury checks.

21. Expenditure is valued on a commitment basis, including expenditure financed from HIPC Initiative funds. It includes current expenditure and capital expenditure financed by the Treasury.

22. Current expenditure is defined as the difference between total expenditure (including expenditure financed from HIPC Initiative resources) and capital expenditure and net lending. It is made up of the wage bill, expenditure on goods and services, interest on the debt (domestic and external), transfers, subsidies, and other current expenditure.

23. The wage bill is defined as the entire government payroll (on a commitment basis), including wages and benefits for all permanent and temporary civilian and military personnel, and the wage bill paid out of HIPC Initiative funds.

24. Expenditure committed for which a payment orders have not been issued (DENMs) is defined as all expenditure proposed for commitment that has been certified by the financial comptroller (including HIPC Initiative expenditure) but for which the payment authorization (mandat) has not been issued and forwarded to the treasury. Its stock is valued according to the statement of government budgetary execution, which is established monthly in the central government's financial operations table prepared by the SP-PPF, in collaboration with the other directorates of the Ministry of Finance and Budget.

25. At end-September 2004, the basic deficit was valued at CFAF 55.3 billion, made up of CFAF 253.0 billion in government revenue and CFAF 308.3 billion in expenditure, excluding foreign-financed investments. Total revenue was made up of the following:

• tax revenue (customs, Directorate General of Taxation): CFAF 234.3 billion; and
  
  
• nontax revenue, including capital revenue: CFAF 18.7 billion.

Expenditure, excluding foreign-financed investment, was made up of the following:

26. The stock of DENMs was valued at CFAF 47.3 billion at end-September 2004.

Other quantitative indicative targets

27. The ceiling for the cumulative basic deficit (from January 1, 2004 onward) of government financial operations is established at CFAF 77.1 billion at December 31, 2004 and (from January 1, 2005) at CFAF 23.2 billion at March 31, 2005. These ceilings are indicative targets at end-December 2004 and end-March 2005. The ceiling is projected at CFAF 38.8 billion at June 30, 2005 and at CFAF 56.4 billion at September 30, 2005. These figures will be reexamined and established as indicative targets during the fourth program review.

28. The floor for total government revenue (cumulative from January 1, 2004 onward) is set at CFAF 345.6 billion at December 31, 2004 and (cumulative from January 1, 2005) at CFAF 77.3 billion at March 31, 2005. These floors are end-December 2004 and end-March 2005 indicative targets. The floor is projected at CFAF 177.6 billion at June 30, 2005 and CFAF 272.1 billion at September 30, 2005. These figures will be reexamined and established as indicative targets during the fourth program review.

29. The respective ceilings for current expenditure and the wage bill (cumulative from January 1, 2004 onward) are established at CFAF 300.7 billion and CFAF 118.1 billion, respectively, at December 31, 2004, and (cumulative from January 1, 2005) at CFAF 81.0 billion and CFAF 33.8 billion, respectively, at March 31, 2005. These ceilings are end-December 2004 and end-March 2005 indicative targets. They are projected, respectively, at CFAF 167.1 billion and CFAF 69.7 billion at June 30, 2005, and at CFAF 253.2 billion and CFAF 105.6 billion at September 30, 2005. These figures will be reexamined and established as indicative targets during the fourth program review.

30. The floor for the cumulative reduction (from January 1, 2004 onward) in the stock of DENMs is set at CFAF 15.0 billion at December 31, 2004. This floor is an indicative target. The ceiling for the cumulative increase (from January 1, 2005 onward) in the stock of DENMs is set at CFAF 0.0 billion at March 31, 2005. This ceiling is an indicative target. The ceiling for the cumulative increase is projected at CFAF 1.0 billion at June 30, 2005 and CFAF 6.0 billion at end-September 2005. These figures will be reexamined and established as indicative targets during the fourth program review.

Reporting deadlines

31. Details on the basic balance of the government budget, total revenue, current expenditure, the wage bill, and the DENMs will be sent monthly to IMF staff by the SP-PPF of the Ministry of Finance and Budget within six weeks following the end of each month.

IV. Additional Information for Program-Monitoring Purposes

A. Public Finance

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

• a monthly government flow-of-funds table (TOFE) and the 13 customary appendix tables, to be forwarded monthly within six weeks following the end of each month; if the data on actual investment financed by external grants and loans are not available in time, a linear implementation estimate based on the annual projections will be adopted;
  
  
• complete monthly data on domestic budgetary financing (net bank credit to the government and stock of unredeemed treasury bonds and bills), to be provided monthly within six weeks following the end of each month;
  
  
• quarterly data on implementation of the public investment program, including details on financing sources. These data will be sent quarterly within six weeks following the end of each quarter;
  
  
• monthly data on external debt stock and service, to be sent within four weeks following the end of each month;
  
  
• monthly data on prices and the taxation of petroleum products, including (i) the price structure prevailing during the month; (ii) the detailed calculation of the price structure, from the f.o.b.-MED price to the retail price; (iii) the volumes purchased and made available for consumption by the petroleum distributor (SONABHY); and (iv) the breakdown of receipts from the taxation of petroleum products—customs duties, tax on petroleum products (TPP), and value-added tax (VAT)—and of subsidies, to be provided within four weeks following the end of each month; and
  
  
• the status of accounts with the treasury, classified by major category (administrative services, state enterprises, mixed enterprises, public administrative enterprises, international organizations, private depositors, and others), and to be provided monthly within four weeks following the end of each month.

B. Monetary Sector

33. The government will provide monthly the following information within six weeks following the end of each month:

• the consolidated balance sheet of monetary institutions;
  
  
• the monetary survey, within six weeks following the end of each month for provisional data, and ten weeks following the end of each month for final data;
  
  
• borrowing and lending interest rates; and
  
  
• customary banking supervision indicators for bank and nonbank financial institutions, if necessary.

C. Balance of Payments

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

• any revision of balance of payments data (including services, private transfers, official transfers, and capital transactions), whenever they occur;
  
  
• foreign trade statistics compiled by the National Statistics Institute, within three months following the end of the month concerned; and
  
  
• preliminary annual balance of payments data, within nine months following the end of the year concerned.

D. Real Sector

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

• disaggregated monthly consumer price indices, within two weeks following the end of each month;
  
  
• provisional national accounts, within six months after the end of the year; and
  
  
• any revision of the national accounts.

E. Structural Reforms and Other Data

36. The government will report the following information:

• any study or official report on Burkina Faso's economy, within two weeks following its publication; and
  
  
• any decision, order, law, decree, ordinance, or circular with economic or financial implications, upon its publication or, at the latest, when it enters into force.

F. HIPC Initiative

37. The government will report monthly, within three weeks following the end of each month, monthly data on resources, uses, and balances in the special account established at the BCEAO for the use of resources generated by a reduced debt burden under the HIPC Initiative

Summary of Data Requirements