Ouagadougou, August 2, 1999

Mr. Michel Camdessus
Managing Director
International Monetary Fund
Washington, D.C. 20431

Dear Mr. Camdessus:

1.  Since June 1996, the government of Burkina Faso has implemented a second three-year program of macroeconomic adjustment and structural reform supported by a three-year arrangement under the Enhanced Structural Adjustment Facility (ESAF). The results of this program have been satisfactory, and the main objectives have been reached. To consolidate the results achieved and respond to the major challenges that face the economy of Burkina Faso, including regional integration, the diversification of production and exports, the reduction of factor costs, the fight against poverty, and the improvement of social indicators, the government has decided to strengthen the economic and financial reforms in the context of a new structural adjustment program for the period 1999-2002 (July-June). The objectives and the policies of this program are described in the policy framework paper (PFP) prepared by the government in collaboration with the staffs of the IMF and the World Bank and which is being sent to you under separate cover.

2.  The attached memorandum on Burkina Faso's economic and financial policies is based on the above-mentioned PFP and describes the objectives and economic and financial policies that the government intends to pursue for the three-year period July 1999-June 2002, and, more specifically, the objectives and specific measures for the first year of the program, covering July 1, 1999 to June 30, 2000. In support of these objectives and policies, the government of Burkina Faso hereby requests a new three-year arrangement under the ESAF in an amount equivalent to SDR 39.12 million (65 percent of the new quota or 88.5 percent of the old quota). The first two disbursements, each equivalent to SDR 5.58 million (9.3 percent of the quota), will become available respectively upon approval of the arrangement by the Fund Executive Board and upon the conclusion at the Board of the first review under the arrangement. The third disbursement will take place upon conclusion of the second review and the finalization of a second annual program covering the period July 2000-June 2001.

3.  The government of Burkina Faso will provide the IMF with any information it may request regarding the progress achieved by Burkina Faso in implementing its economic and financial policies and in achieving the objectives of the program. To ensure a wide distribution of the program, the government authorizes the Fund to place the memorandum of economic and financial policies on its website.

4.  The government of Burkina Faso believes that the policies and measures set forth in the attached memorandum are adequate to achieve the objectives of its program but will take any further measures that may become appropriate for this purpose. During the period of the three-year arrangement, the government will consult with the Managing Director on the adoption of any measures that may be appropriate, at the initiative of the government or whenever the Managing Director requests such a consultation. Moreover, after the period covered by the arrangement, and while Burkina Faso has outstanding financial obligations to the Fund arising from loans under the arrangement, the government will consult with the Fund from time to time, at the initiative of the government or whenever the Managing Director requests consultation on Burkina Faso's economic and financial policies.

5.  The Fund will conduct with the government of Burkina Faso a first review under the ESAF arrangement, which will have to be completed before end-March 2000. The second review under the arrangement, which will take place before end-September 2000, will coincide with the finalization of the second annual program for the period July 2000-June 2001.

Attachment: Memorandum of Economic and Financial Policies for 1999-2000

1.  The program covering the period 1996-99, which was supported by a three-year arrangement under the Enhanced Structural Adjustment Facility (ESAF) approved on June 14, 1996, aimed at implementing economic and financial policies that would reduce the financial imbalances and promote sustainable growth through the increased involvement of the private sector. Another key objective was to increase the resources allocated to the social sectors in order to improve the social indicators.

2.  The program focused mainly on improving government finance, increasing the efficiency of the government, restructuring and/or privatizing a number of public enterprises, and further liberalizing trade. Burkina Faso's program received support from donors and lenders, including in the form of a debt-reduction operation from the Paris Club in 1996. Furthermore, in September-October 1997, the IMF and the World Bank decided that Burkina Faso had qualified for assistance under the Initiative for Heavily Indebted Poor Countries (HIPC) Initiative. The completion point for this operation was set at April 2000.

3.  Performance under the 1996-99 program was satisfactory. Real GDP grew by 6 percent in 1996, the highest level since 1991, mainly as a result of a good agricultural harvest and a significant recovery in investment. This trend continued in 1997 and 1998, despite unfavorable weather conditions in 1997, mainly because of the strong growth of cotton production and of public investment. The inflation rate declined to a year-on-year rate of 1 percent in 1998, compared with 6.9 percent in 1996. The reduction in inflation was related to the prudent wage policy and low international inflation. The economic recovery and upturn in investment were accompanied by a rise in imports in 1996-98. Exports, constituted mainly by cotton fiber, also increased by 52 percent in value as a result of the increase in cottonseed production. The external current account deficit, excluding current official transfers, declined from 14.7 percent of GDP in 1996 to 13.8 percent in 1998. The rise of external financing for investment projects, the continued high level of balance of payments assistance, and the increase in private investment flows contributed to an increase in the external reserves of the banking system.

4.  Fiscal performance was generally in line with the program targets. In 1997 and 1998, revenue reached 13.1 percent of GDP, somewhat higher than programmed. In 1998, this result reflected the good performance in value-added tax (VAT) collection. In 1999, revenue, including the tax component of the investment budget, is projected at 14.3 percent of GDP (12.8 percent excluding that component), notwithstanding the loss of customs revenue.¹

5.  A key factor affecting government finance in 1996-99 was the effort to expand the tax base and improve the efficiency of the customs and tax administrations. This was necessary to prepare for the phased introduction of the West African Economic and Monetary Union (WAEMU) common external tariff (CET), beginning in July 1998. Customs duty rates for the four categories of products in the CET are 0 percent, 5 percent, 10 percent, and 20 percent, in addition to a 1 percent statistical tax; these rates will take effect on January 1, 2000. As an intermediate step, in July 1998 the government reduced the maximum fiscal duty from 26 percent to 20 percent and eliminated the 2 percent special intervention tax, thus reducing the maximum overall tariff from 37 percent to 29 percent. In April 1999, the CET product classification was implemented, with tariff rates of 0 percent, 5 percent, 10 percent and 25 percent, in addition to a statistical tax of 4 percent. The cumulative fiscal revenue losses associated with this customs reform are substantial, as import duties and taxes are anticipated to decline from 3.6 percent of GDP in 1997 to 2.3 percent in 1999 and 1.9 percent in 2000.

6.  Current expenditure, excluding interest, remained stable as a percentage of GDP during the program period, as targeted; the wage bill declined from 5.7 percent of GDP in 1995 to 5.0 percent in 1996, and to 4.8 percent of GDP in 1998. Foreign-financed investment expenditure increased from 8.3 percent of GDP in 1995 to 9.6 percent in 1996; it stood at 9.2 percent of GDP in 1998. Overall, the current primary surplus stood at 3.6 percent of GDP in 1998 (3 percent in 1996); the primary surplus (excluding foreign-financed investment) reached 0.5 percent of GDP (compared with a programmed 0.8 percent of GDP). In the first half of 1999, revenue and expenditure were in line with program targets. However, an acceleration in payment executions and a shortfall in the disbursement of external assistance in relation to the program resulted in a larger-than-programmed increase in net bank credit to the government by end-June 1999.

7.  Monitoring of budgetary expenditure improved significantly with the computerization of the commitment, verification, and payment order stages for current expenditure, excluding the wage bill. This automated system is being gradually extended to cover the payroll and foreign-financed investment expenditure. A public expenditure review program is being carried out that encompasses the year 1998, as well as expenditures planned over the medium term with assistance from the World Bank, the European Union, and other donors. In addition, the main customs bureaus were gradually computerized; exemption control procedures were stepped up; and a new mechanism was introduced in 1998 concerning the treasury check procedures for foreign-financed projects with the establishment of a special service (régie d'avance) to issue and manage these checks in favor of public works contractors. The existing regulations for the mining code narrow the scope of tax exemptions on the import of equipment and material strictly for operating purposes.

8.  The first phase of the public enterprise privatization program, which involved twenty-two enterprises, began in 1991. With the exception of two enterprises that are being privatized (CNEA and SOCOGIB), fifteen enterprises were sold to the private sector, two were liquidated, two were handed over to the Ministry of Higher Education and Scientific Research to foster local research, and one was returned to its original owner.

9.  The second phase of privatization involved nineteen enterprises. By June 1999, six companies were privatized (including Burkina-Shell and SOSUCO), two were liquidated, seven were in the process of being liquidated, and one was being dissolved; for one company, the sale contract was close to being concluded, and the remaining two were being sold. During the first quarter of 1999, the authorities stepped up their efforts to finalize the sale of the latter two enterprises, including FASOFANI (textiles). The strategy to be followed for the remaining companies in the government's portfolio is currently being prepared. The enterprises concerned are essentially utility companies, and some hotels. In this context, the law liberalizing the telecommunications sector was passed in December 1998. It calls for the establishment of the regulatory framework, the opening of the sector to private investment, and the sale of the government's majority holding in the telecommunication company (ONATEL). The government also adopted in December 1998 a law opening electricity production to private operators.

10.  The reform of the civil service was widely discussed during a national conference held in December 1997, and the related laws were passed by the National Assembly in April 1998. These laws establish a flexible civil service, in which permanent civil servants hold the strategic or decision-making positions while other positions are filled by long-term contractual employees. A decentralized recruitment system was implemented, along with a decentralization of posts. The statutes for government employees were revised to introduce a system of merit-based promotions. A new wage scale was implemented in January 1999.

11.  To assist private sector initiative, the government has endeavored to strengthen the judicial system, with assistance from the World Bank, particularly by improving the functioning of the courts and by training judges and auxiliary personnel. The business law was amended with the entry into force of the Treaty for the Harmonization of Business Law in Africa (OHADA). The Chamber of Commerce and Industry has also been strengthened, and a one-stop shop for investment operations has been established.

12.  As regards the reform of the cotton sector, the government adopted a decree in June 1998 authorizing the sale of 30 percent of the capital of SOFITEX to the producers' association; the sale of shares was carried out in April 1999. An interprofessional agreement with the producers association came into effect in February 1999; it regulates, inter alia, the formula for setting the producer price and sharing crop profits between SOFITEX and the producers.

13.  The financial sector was strengthened in 1997 and 1998 mainly through the following measures:

• the starting of the activity of two banks (ECOBANK and BOA) and of three financial institutions (Burkinabail, SOBFI, and SBIF), the latter three specializing in transactions on the regional financial market;
• the privatization of the BFCI, henceforth called "Société Générale de Banque du Burkina" (SGBB);
• the recapitalization of the BCB (Banque Commerciale du Burkina); and
• the completion of the liquidation of the former BND-B.

In all, seven banks and six financial institutions were in activity in mid-1999, as opposed to five banks and three financial institutions in 1996. The increase in the number of credit institutions has sharpened competition in the financial sector and brought about a narrowing of the interest spread. Moreover, the banking system strengthened gradually; in 1990, all credit institutions were abiding to the minimum capital/asset ratio set by the BCEAO.

14.  With the aim of ensuring the continuity and smooth operation of microfinancing units, an autonomous body was set up in August 1997 within the Ministry of Economy and Finance in charge of monitoring and following up on the regulations related to savings and loans mutual institutions.

At the WAMU level, two significant developments took place:

• the start of the regional stock exchange in September 1998, jointly operated by eight WAMU member states, each of them running a local subsidiary; and
• establishment of a database on loan defaults in July 1999, which will help enhance the confidence of the public in bank deposits.

15.  The government had set specific quantitative targets for the education and health sectors for 1997-2000, in connection with the social component of the HIPC Initiative. The main targets for the education sector concern the increase in the primary enrollment rate (which was to rise from 40 percent in 1996 to 48 percent in 2000), an increase in the enrollment rate for girls (from 30 percent to 40 percent), a reduction of the repetition rate, the increase in the books-to-students ratio, and the strengthening of the teacher recruitment program. The share of the basic education budget in the overall budget is to increase each year. For the health sector, the targets for the period 1997-2000 concern the vaccination rate (which was to reach 75-85 percent, according to diseases, in 2000), the share of health centers fully stocked with essential drugs and fully staffed, so as to provide the minimum package of services. Periodic monitoring of these objectives and the rapid adoption of measures to correct for shortfalls are key elements of the action programs in these sectors.

16.  Despite the aforementioned progress in the structural adjustment process, the improvement in the growth rate of the economy, and the containment of financial imbalances, Burkina Faso will continue to face a number of major challenges. Poverty levels remain high, social needs are pressing, private investment has not reached satisfactory levels, and the economy remains very vulnerable to external shocks. Addressing these challenges requires the implementation of additional reform measure and policies, so as to reduce the cost of public utility services, promote private investment, and diversify production and exports. In addition, the progress made in the area of government finance and in the financial sector must be consolidated, and the social indicators must be improved considerably.

17.  The vulnerability of the economy has been evidenced by the impact of the drop in world cotton prices since 1998, which is leading to a deterioration of the external current account in 1999 and to a decline in the profitability of the sector, with a negative impact on tax revenue in 2000. Current projections for world prices are based on a depressed cotton market. Although Burkina Faso enjoys a significant potential for expansion of cotton cultivation, it is essential that it diversify its production and exports, so as to reduce its vulnerability. To this end, it is important that nontraditional agricultural exports, livestock products, and exports of gold and other mining products gain importance. Furthermore, the value added of the cotton sector could be increased through private investment in textile manufacturing.

18.  An essential condition for the diversification of production and exports is the reduction of production costs, especially electricity and transport. Electricity rates should decline as production and distribution are opened up to private operators, SONABEL is privatized, and electricity is imported from coastal countries through the development of grid interconnections. Moreover, to create the potential for growth, it is crucial to improve the performance of the educational system, both quantitatively--by increasing enrollment rates--and qualitatively--by making improvements at the primary and secondary school levels.

19.  Cost reduction measures will also strengthen the competitiveness of Burkinabè companies in the domestic market in the face of increased competition resulting from the integration of the national markets within the WAEMU.

20.  In the area of government finance, the customs revenue losses resulting from the introduction of the CET, which will be fully implemented in January 2000, will have to be offset rapidly by higher yields from domestic taxes stemming from the broadening of the tax base and the curtailment of exemptions. In this context, further progress is needed both in taxing businesses in the informal sector and in monitoring the collection of profit taxes and the VAT for the largest taxpayers. In addition, the monitoring of taxes due on imports and local surcharges related to foreign-financed public projects should be strengthened. Moreover, as the CET provides for the taxation of imports of intermediate and capital goods at a rate of 5 percent, no further customs duty exemptions will be granted to enterprises registered under the investment code.

21.  Given the increasing importance of mutual savings and loan institutions in collecting savings and granting small-scale credit, the strengthening of this sector is a priority objective. For their part, commercial banks will continue to increase their own capital and reserves and diversify their risks, in the context of regional banking supervision.

22.  The 1999-2002 program presented in the PFP envisages an average GDP growth rate exceeding 6 percent per annum and an average inflation rate below the WAEMU-wide target of 3 percent. The growth rate could reach 7 percent per annum on average if the weather remains favorable and structural measures aimed at lowering factor costs and at promoting private sector activity are put in place rapidly. The external current account deficit (excluding grants) is to be reduced from 15 percent of GDP in 1999 to 10.8 percent in 2002. The domestic saving rate is projected to rise from 10 percent in 1999 to about 13.5 percent in 2002. The investment rate is projected to remain stable at about 27 percent, but its efficiency has to be significantly improved. Budgetary revenue is projected to decline to 13.7 percent in 2000 from 14.3 percent of GDP in 1999, owing to the decrease in customs tariffs, but it is targeted to rebound to 14.2 percent in 2002, on account of the gradual rise in the profits of the cotton sector and the improvement in the effectiveness of tax and customs administrations. Moreover, the program calls for current expenditure to remain stable at about 10.5 percent of GDP, particularly through the containment of the wage bill. The current primary surplus is projected to increase from 4.1 percent in 1999 to 4.8 percent in 2002, while the primary balance would increase from 0.2 percent of GDP in 1999 to 0.8 percent in 2002; net bank credit to the government would decline from 2001 onward.

23.  Real GDP is projected to grow by 5.1 percent in 1999 and 5.8 percent in 2000, slightly below the growth rate recorded in 1998 (6.2 percent), owing to the decline in the growth of cotton production. The gross investment rate is projected to remain steady at about 27 percent of GDP. The saving rate is expected to decline by 2 percentage points of GDP in 1999 to about 10 percent, owing to the decline in cotton sales; before returning to the 1998 level of 12 percent by 2000. The external current account deficit, excluding grants, is projected to decline from 15 percent of GDP in 1999 to 12.8 percent in 2000, because of a resumption in the export growth.

24.  The 1999 budget calls for an increase in revenue as a percentage of GDP (14.3 percent)² and a primary surplus of 0.2 percent of GDP. On the expenditure side, the wage increases following the implementation of the new wage scale in the civil service and the increase in budget appropriations in the social sectors will result in a rise in expenditure in proportion to GDP (11.1 percent, compared with 10.4 percent in 1998). The domestic contribution to investment expenditure will increase from 3.1 percent in 1998 to 3.9 percent in 1999 on account of the inclusion of the tax component of such expenditures.

25.  During 2000, revenue will decline temporarily to 13.7 percent of GDP, owing to the reduction of the maximum customs duty rate with the application of the CET and the decline in SOFITEX profits because of continued depressed cotton prices. At the same time, current expenditure, in particular the wage bill, would decline somewhat in proportion to GDP.

26.  A medium-term expenditure framework is being prepared with assistance from the World Bank. The three-year budgetary framework for six key ministries will be annexed to the 2000 budget law, and this approach will be extended to all ministries starting in 2001. The composition of expenditure will continue to favor the priority social sectors, particularly education and health.

27.  To improve the contribution of the informal sector to the tax effort, the government has decided to introduce a withholding tax at customs and on sales at the level of wholesalers and producers. This tax is to enter into force at the beginning of the year 2000, and will be included in the budget law for 2000. In the area of tax administration, the reorganization of taxpayer-monitoring procedures and the computerization of the key tax offices will make it possible to strengthen the monitoring of the largest taxpayers. Moreover, a withholding tax will be introduced effective in 2000 on services payments to non residents, and the tax base of the profit tax for personal businesses will be better monitored. A gradual reduction of the rate on the corporate profit tax (presently at 40 percent), starting in the year 2000, is presently under consideration. A study is ongoing with respect to VAT harmonization in line with WAEMU directives.

28.  The government will reinforce the procedures for the collection of taxes on goods and services purchased in the context of foreign-financed public projects, which are settled by way of checks issued by the treasury. It will therefore implement the following measures: (i) local purchases will no longer be made on the basis of prior approval of pro forma invoices, but rather will be made on an all-taxes-included basis; and (ii) treasury checks will no longer be issued when a contract is registered, but will be issued as operations are carried out.

29.  Owing to the reduction in the statistical tax (from 4 percent to 1 percent) planned for 2000, which would significantly reduce the tax liabilities for enterprises registered under the investment code, the government will in 1999 adopt provisions to ensure that imports of capital goods by registered enterprises are subject to the lowest customs duty rate of 5 percent, with no exceptions. The procedure for VAT refunds will be accelerated, in order not to penalize businesses that will accumulate tax credit.

30.  The monetary policy conducted by the BCEAO at the regional level will continue to aim at strengthening the foreign reserves of the WAMU and containing inflation by means of a prudent credit policy. In 1999, the money supply in Burkina Faso is projected to grow by 4.0 percent, domestic credit is projected to increase to 14 percent, and net external assets of the banking system are projected to decline by 3.5 percent. The quarterly ceilings on bank credit to the government for end-September and end-December 1999, and end-March and end-June 2000, are presented in the annexed table; they will be adjusted upward (not to exceed CFAF 12 billion) if disbursements of external assistance are smaller than programmed. Any disbursements of external assistance over and above the amounts programmed will be used to reduce the domestic debt.

31.  In the financial sector, the authorities will strengthen banking supervision. They will endeavor to increase competition in the banking sector in order to improve its efficiency and, in this context, will favor the establishment of new institutions and the development of mutual savings and loan institutions. The postal checking system (CCP/CNE) will be given greater autonomy, which will require, inter alia, clearing the cross debts between the postal agency (SONAPOST) and the government before end-June 2000.

32.  The government will pursue with determination the privatization policy, which involves the public utility companies. In the telecommunications sector, the government has decided to establish a new regulatory framework, opening the sector to private operations and selling the majority of the capital of ONATEL to private partners in order to foster the entry of new resources and technologies. In particular, the government intends to grant two cellular telephone operating licenses by end-1999. The preparation of the new regulatory framework will be stepped up in order not to delay the privatization process. The recruitment of an investment bank to organize the launching of the call for bids will take place as soon as possible, so as to allow for the launching of the call for bids before end-June 2000. A call for bids will be launched by end-December 1999 for the hotel company (SHG); the call for bids for Air Burkina will be launched before end-March 2000.

33.  The reforms planned for 1999-2000 in the cotton sector involve (i) the reduction of SOFITEX costs, inter alia through the takeover by the private sector of some functions hitherto carried out exclusively by SOFITEX, such as transport; (ii) the activation of the producer price-setting mechanisms incorporated in the agreement with the producers' association; and (iii) the opening of new cotton zones to private operators on the basis of program contracts defining their responsibility in the area of extension services, credit, input distribution, and road maintenance.

34.  The increased involvement of the private sector requires the continued improvement of the legal and judicial system. In this context, the government will (i) continue to promote the professional training of judges and other personnel, especially in connection with the adoption of the OHADA (Organization for the Harmonization of Business Law in Africa) legal texts; and (ii) increase the operational efficiency of the courts. It will continue to support the restructuring of the Chamber of Commerce, the National Trade Office (ONAC), and the Transporter's Association (CBC), and to simplify the administrative procedures required for the creation of new companies. The authorities will also improve the mechanisms of consultation between the government and the private sector, as indicated in the PFP. With a view to enhancing investors' confidence and following the national forum on justice, increased resources will be devoted to the judiciary, with the assistance of donors.

35.  The government gives high priority to improving social indicators, which is one of the key objectives under the HIPC Initiative. The objectives and measures for these sectors are detailed in the PFP and annexed matrix. In the health sector, the strategy relies on the full provisioning of all health and social promotion centers (CSPS) with adequate medicine and staff, an increase in the vaccination rate for target groups, development of family planning services, and the establishment of a minimum of health services in all villages, based on a mobilization of local communities. In the education sector, the strategy calls for an increase in the enrollment and literacy ratios, increased enrollment of girls, and a decline in the repetition rate. This strategy relies on an increased role for local communities, the creation of auxiliary schools with community participation, the provisioning of schools with essential services (school kitchen, housing for teachers, and water supply) and the rehabilitation of existing schools. The government envisages the preparation of a supplementary budget for the fiscal year 2000 to take into account the additional resources that will be freed by the enlargement of the HIPC Initiative decided at the Cologne summit in favor of the social sectors.

36.  The government is determined to make important efforts to improve the statistical system. In the area of national accounts, the accounts for 1994-97 will be finalized by end-1999, and those for 1998 during 2000. A new updated index of industrial production is being prepared that will become operational before end-2000. To improve staff efficiency, the Statistics Directorate will be transformed into an autonomous agency before end-June 2000. The reliability and updating of external debt data will be improved with the implementation of a computerized debt-management program, provided by UNCTAD, which will be integrated with expenditure data.

37.  A decrease in the value of exports is expected in 1999, owing to a decline in cotton export volumes and of cotton export prices from CFAF 870 per kilogram in 1998 to a projected CFAF 770 per kilogram in 1999. However, as of 2000, the projected gradual recovery of cotton prices, the continued increase in export volumes, the development of other exports--such as fruit and vegetables, karité, and gold--and the entry into operation of new industrial units in the textile and agricultural sector, are projected to lead to an upturn in the value of exports. As for imports, after the increase of about 19 percent in value in 1998, reflecting the fast growth of investment and services, a slowdown in growth is expected in 1999 and 2000. The external current account deficit, excluding grants, after rising to about 15 percent of GDP in 1999, is expected to decline to 12.8 percent in 2000 and to 10.8 percent in 2002. Burkina Faso's contribution to the external reserves of the WAMU should be negative in 1999, but it is projected to return to positive in 2000. The level of reserves should nonetheless remain comfortable, at about eight months of imports.

38.  Regarding the data on the external debt, the authorities are reconciling the data for 1998 with those of the creditors, so that reliable and up-to-date data will be available for the implementation of the HIPC Initiative in April 2000.

39.  The financing gap for 1999 is estimated at CFAF 34 billion. Identified external aid, comprising essentially European Union assistance, structural adjustment credits from the World Bank, and contributions from bilateral donors, is expected to cover this amount. The financing gap is projected to attain about CFAF 37 billion in 2000 according to preliminary data. The external debt reduction in 2000 under the HIPC Initiative will allow the budgets of the social sectors to be strengthened so that the priority action program under preparation can be carried out.

40.  The program will be monitored through quarterly quantitative benchmarks, indicators, and structural benchmarks for the period September 1999 to June 2000, and through a midterm review. The quantitative benchmarks for end-September 1999 and end-March 2000 represent indicators for the purposes of program monitoring; those for end-December 1999 and end-June 2000 constitute performance criteria. The quantitative benchmarks and performance criteria listed in the attached table include (i) a ceiling on net bank credit to the government; (ii) no recourse to new external loans contracted or guaranteed by the government with a grant element of under 35 percent; (iii) a reduction in domestic arrears; and (iv) no accumulation of external payments arrears. Benchmarks (ii) and (iv) must be respected throughout the program period. The following constitute quarterly indicators: (v) budgetary revenue; (vi) current primary expenditure; and (viii) the wage bill. The nonobservance of these indicators will trigger consultations with Fund staff for the purpose of identifying the necessary corrective measures. In addition, during the program period, the government of Burkina Faso will not introduce or intensify payments or transfers for international current transactions, will not introduce multiple currency practices, will not conclude bilateral payment agreements that are contrary to Article VIII, and will not introduce or increase import restrictions for balance of payments reasons.

41.  Program monitoring will include the following structural benchmarks, presented in the attached table: (i) implementation of the new tax withholding system on imports and purchases from wholesalers by January 1, 2000; (ii) the introduction of a withholding tax on payments of services to nonresidents; (iii) issuance of the call for bids for Air Burkina by end-March 2000; (iv) selection of an investment bank to bring ONATEL to the point of sale by end-May 2000; (v) finalization of a plan for the privatization of SONABEL by end-December 1999; and (vi) finalization of the settlement of the cross debts of SONAPOST and the government by end-June 2000. Benchmarks (i), (ii), (iv), and (v) constitute program performance criteria.

42.  The government of Burkina Faso will conduct a first review of the program with the Fund by end-March 2000. This review will cover economic and financial developments in 1999 and the outlook for 2000, with particular attention paid to fiscal developments and the budget for 2000. The conclusion of the review, together with the observance of the performance criteria for end-December 1999, will be a requirement for the disbursement of the second loan under the three-year arrangement. A second review will be conducted with the Fund by end-September 2000. This review will cover the economic and financial developments in the first half of 2000; it will coincide with the discussion of the second annual program for the period July 2000-June 2001.