Press Release No. 15/126

Press Release: IMF Staff Concludes Review Mission to Burkina Faso

March 19, 2015

An International Monetary Fund (IMF) team, led by Ms. Laure Redifer, visited Ouagadougou from March 5-19, 2015 to carry out discussions with the Burkinabè authorities on the second and third reviews of their economic and financial program supported by the Extended Credit Facility (ECF).¹ The ECF arrangement for Burkina Faso was approved by the IMF Executive Board on December 27, 2013 (see Press Release No. 13/542).

Ms. Redifer issued the following statement at the end of the visit:

“The mission reached ad referendum agreement with the authorities on economic and financial policies that could support approval of the second and third reviews of Burkina Faso’s 3-year program under the ECF, which is planned to be considered by the IMF’s Executive Board in May.

“In spite of a difficult economic environment, the transition government is implementing sound macroeconomic policies and preparing the country for elections in October, 2015. Economic activity in Burkina Faso slowed markedly over the course of 2014, with real GDP growth estimated at 4 percent, compared with a five-year historical average of 6.5 percent. This was the result of multiple external shocks and internal sociopolitical developments. International prices for the country’s two main export commodities – gold and cotton – dropped, and tourism and services activities were significantly disrupted by the Ebola crisis elsewhere in the region. Economic activity was also affected by a climate of political uncertainty, which culminated in a socio-political crisis in late October that resulted in a change of government. Meanwhile, inflation declined due to food prices, partly as a result of government subsidy programs.

“These developments caused a large drop in fiscal revenues in 2014, which ended the year at just 80 percent of budget projections. This, plus increases in the public wage bill, obliged a sharp reduction in public investment spending, undermining implementation of the government’s Strategy for Accelerated Growth and Durable Development (SCADD).

“For 2015, these trends are expected to continue, with the compounded effect of exchange rate depreciation increasing import costs. Mining production is expected to decrease in 2015, with some mines ending operations, and delays in new investment. Mining production and revenues are expected to remain far below the boom years of 2012-2013. Similarly, cotton output is expected to drop in 2015, as a result of less cultivation following a fall in international prices in 2014. Important steps are being taken to increase productivity in the cotton sector, which is a main source of rural employment and income.

“Overall, real GDP growth in 2015 is expected to be around 5 percent, lower than previous projections of 7 percent. This will again lead to difficulties in mobilizing sufficient revenues to support investment spending needs. However, the authorities have sought extensive cost-cutting measures in current spending (for example travel and per diems for public servants) to finance an increase in spending for poverty reduction (0.4 percent of GDP), including for health, education, and job creation for women and youth. Moreover, they will continue to replenish food security stocks.

“In late 2014, lower international fuel prices began to reverse some of the long-accrued financial losses of the state-owned oil importing company, Société Nationale Burkinabè d'Hydrocarbures (SONABHY), resulting from fixed retail prices and an elevated cost structure. The transition government lowered retail fuel prices in January and in March. However, at current international fuel prices and with strong depreciation of the CFA in recent weeks, there is no room for further reductions of retail fuel prices without creating losses for SONABHY.

“Building on the success of recent reforms, the authorities committed to numerous immediate measures to boost revenues and combat fraud, in light of the need to boost revenues in the short term. Additionally, measures to improve treasury management, and enhance statistics on economic activity, and contain increases in the public wage bill were also agreed. Following audits of the public state-owned oil importer SONABHY and electricity company Société nationale d’électricité du Burkina (SONABEL), the transition agreed to include in the program medium term reforms that can reduce underlying costs of the two public entities and regularize their financial transactions with the central government. Lowering underlying costs will ultimately provide more scope for improving cost recovery through more flexible prices. These substantial reforms underscore the transition government’s commitment to successfully lead the country to the October elections while implementing sustainable macroeconomic policies.

“For 2016 and the medium term, GDP growth is projected to recover gradually to historical averages, and inflation should become positive but still subdued, at about 2 percent. The overall budget deficit should remain just below 3 percent of GDP, as a function of the spending containment by the transition government. Improvement of external balances will be dependent upon developments in gold and cotton prices and the exchange rate, as well as imports related to an expected gradual pick up in public investment.

“The team met with President Michel Kafando, Prime Minister Isaac Zida, Minister for Finance and Economy Jean-Gustave Sanon, Minister of Agriculture Francois Lompo, Minister of Industry, Commerce and Crafts Hypolite Dah, Minister for Mines and Energy Boubacar Ba, as well as various development partners and the media. The discussions were constructive and candid, and the IMF team thanks the authorities for their hospitality.”

¹ The Extended Credit Facility (ECF) is the IMF’s main tool for medium-term financial support to low-income countries. It provides for a higher level of access to financing, more concessional terms, enhanced flexibility in program design, and more focused, streamlined conditionality. Financing under ECF currently carries a zero interest rate, with a grace period of 5½ years, and a final maturity of 10 years.