Press Release No. 08/04

Press Release: IMF Executive Board Completes First Review Under PRGF Arrangement with Burkina Faso, Approves US$5.5 Million Disbursement, and Increases Access Under the Arrangement

January 9, 2008

The Executive Board of the International Monetary Fund (IMF) today completed the first review of Burkina Faso's economic performance under the three-year, SDR 6.02 million (about US$9.5 million) Poverty Reduction and Growth Facility(PRGF) arrangement. The completion of the first review enables the release of an amount equivalent to SDR 3.51 million (about US$5.5 million) bringing total disbursements under the arrangement to SDR 4.01 million (about US$6.3 million).

The Executive Board also approved an SDR 9.03 million (about US$14.3 million) increase in access under the PRGF arrangement and granted waivers for the non- observance of two structural criteria pertaining to the adoption of the single customs document, and the notification of nonfilers by the tax administration on the basis of corrective actions taken.

The PRGF arrangement with Burkina Faso was approved on April 23, 2007 (see Press Release No. 07/77) to support the government's economic reform program for 2007-10.

The PRGF is the IMF's concessional facility for low-income countries. It is intended that PRGF-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners and articulated in a Poverty Reduction Strategy Paper (PRSP). This is intended to ensure that PRGF-supported programs are consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5½-year grace period on principal payments.

In commenting on the Executive Board's decision, Mr. Murilo Portugal, Deputy Managing Director and Acting Chair, stated:

"The Burkinabè authorities have maintained a strong policy performance in a difficult macroeconomic environment. The fall in international cotton prices, the appreciation of the euro, and rising oil prices posed severe challenges. The authorities addressed these challenges through appropriate adjustment measures, in particular by facilitating a pass through of international price movements. In this context, the new cotton producer price mechanism represents a major step toward putting cotton ginning companies on a sustainable footing. Resuming the automatic price adjustment mechanism for domestic petroleum prices will also be critical to facilitate economic adjustment to higher oil prices.

"In 2008, the expected decline in cotton exports and rise in oil imports will pose further external challenges. The Fund is helping Burkina Faso to meet the challenges by providing additional resources of SDR 9.03 million (about US$13.9 million) in balance-of-payment support. Temporary factors, in particular adverse weather conditions, contribute to the expected widening of the current account deficit. However, the international price shocks also have a permanent component, and the authorities need to strengthen competitiveness in order to improve the long-run balance-of-payments outlook.

"The planned fiscal stance for 2008 strikes an appropriate balance between adjusting to a deterioration in the debt sustainability outlook and protecting expenditures under adverse economic conditions. The authorities plan to focus in 2008 on further strengthening tax and customs administration, together with significant tax policy reforms. The availability of additional grants from the World Bank and the African Development Bank will make a significant contribution toward improving the debt sustainability outlook. This will need to be reinforced by policy measures, particularly a reduction in the fiscal deficit including grants over the medium term," Mr. Portugal said.