Ouagadougou, April 17, 2000

Mr. Stanley Fischer
Acting Managing Director
International Monetary Fund
Washington, D.C. 20431

Dear Mr. Fischer:

1. On behalf of the government of Burkina Faso and within the framework of the first review of the program supported by an arrangement under the Poverty Reduction and Growth Facility approved by the Executive Board of the International Monetary Fund on September 10, 1999, I am pleased to send you herewith the memorandum of economic and financial policies for 2000. The memorandum describes progress made in implementing the program for 1999—2000, the revised objectives for 2000, and the policies that will be pursued to achieve them. As stated in the memorandum, most of the performance criteria and structural benchmarks at end-December 1999 were met, except for the criteria related to net bank credit to the government and the completion of the privatization of the electricity company (SONABEL), for which waivers are requested. The government believes that the policies and measures described are appropriate to achieve its program objectives but will take any other measures that may prove necessary for this purpose.

2. With the completion of this review, and the pending preparation of the poverty reduction strategy paper (PRSP) currently under way, Burkina Faso wishes to be considered as having fulfilled the conditions for reaching the completion point under the original Initiative for Heavily Indebted Poor Countries (HIPC Initiative). The government hopes that the relevant HIPC Initiative document can be submitted to the Executive Board as soon as possible.

3. As described in the memorandum, the government is currently preparing, within a participatory framework that includes the public administration, the private sector, civil society, and its partners in development, a poverty reduction strategy paper (PRSP), presenting the current poverty situation, as well as the strategy and action programs designed for improving it. The government intends to complete the process of consultation with all of its partners, including the civil society, over the next few months and thus be able to forward the document to the Executive Boards of the International Monetary Fund and the World Bank. The government has already prepared an Interim PRSP which will be forwarded to you shortly.

4. The government would like to be able to reach the completion point under the original HIPC Initiative and the decision point under the enhanced HIPC Initiative at the time of the Interim PRSP discussion in the two Executive Boards.

Sincerely yours,

Attachment: Memorandum on Economic and Financial Policies for 2000

Memorandum of Economic and Financial Policies for 2000

1. Burkina Faso has made considerable progress in implementing the program for the period 1999—2000, presented in the memorandum of economic and financial policies and the policy framework paper (PFP) dated August 23, 1999. Most of the quantitative benchmarks, performance criteria, and structural benchmarks at end-December 1999 were observed, except for the performance criteria related to the change in net bank credit to the government between end-December 1998 and end-December 1999 and to the completion of the privatization of the electricity company (SONABEL).

2. The objectives for government revenue, current budgetary expenditure, and current primary surplus for 1999 were met. The overruns on the targets for net credit to the government at end-September and end-December 1999 (which constituted, respectively, a benchmark and a performance criterion) were the result of (i) payments of domestic arrears that exceeded program estimates, for the reasons indicated below; (ii) the decline in the treasury’s correspondent accounts; (iii) higher-than-expected external debt amortization; and (iv) the refund to military personnel of housing savings contributions. Given the exceptional nature of these factors, the government requests a waiver for noncompliance with the performance criterion related to net credit to the government at end-December 1999. As regards structural reforms, the government has carried out the program with determination, especially concerning the liberalization of the telecommunications sector and the liquidation and privatization of a number of public enterprises, as well as the reforms in the cotton sector and in the civil service.

3. Based on preliminary data, GDP growth in real terms reached 5.8 percent in 1999, compared with 6.2 percent in 1998. The slight slowdown in growth reflects, in particular, the stagnation of cereal production, which grew by only 1.6 percent following the exceptional level achieved in 1998, and the stabilization of cottonseed production at about 280,000 metric tons. Overall, primary sector growth is estimated at 3.1 percent. The secondary sector grew steadily because construction and public works experienced a strong upsurge, owing to the accelerated implementation of the public investment program in the infrastructure sector (in particular, the Ziga dam and the roads projects). Private investment increased considerably, reflecting, inter alia, the construction of the new cotton processing unit (involving spinning and the use of waste materials) and the expansion of production capacity in the cement and brewery sectors. Lastly, activity in the tertiary sector expanded by 6 percent as a result of sustained growth in private and government services.

4. Consumer prices for foodstuffs fell throughout the year because of the exceptional grain harvest in 1998, which reached the market in the fourth quarter of 1998, and the satisfactory 1999 harvest. These factors, together with the maintenance of prudent economic and financial policies, led to a decline in the consumer price index of 1.1 percent on average in 1999. According to provisional estimates, the GDP deflator fell by 1.3 percent in 1999, partly as a result of the decrease of 16 percent in the average annual cotton export price.

5. Exports contracted by 18 percent in value terms in 1999, owing to the sharp decline in cotton exports (30 percent) from the record 1998 level; this reflected a fall in export prices and also in export volumes, as production declined because of parasite attacks. Based on provisional data, imports were stable in 1999, after the 26 percent upturn recorded in 1998. Accordingly, the external current balance of payments deficit (excluding current grants), amounted to 16 percent of GDP in 1999, compared with 14.5 percent of GDP in 1998 and a program estimate of 15 percent. Including current grants, the current account deficit stood at 12.6 percent of GDP in 1999, or broadly in line with the program objective.

6. Fiscal developments in 1999 were broadly favorable, in particular concerning revenue, which reached CFAF 238 billion (15 percent of GDP), exceeding the objective by about 0.7 percent of GDP. Current primary expenditure was consistent with program objectives (CFAF 165.9 billion, or 10.4 percent of GDP), but the budgetary contribution to investment slightly exceeded the program’s projection. Overall, the current primary surplus and the primary surplus (the latter of which excludes externally financed capital expenditure) exceeded the objectives by 0.3 percent and 0.1 percent of GDP, respectively. The overrun of the revenue objective is the result of the good performances of the corporate income tax (BIC), the tax on property income, the value-added tax (VAT), and customs duties, which more than offset the introduction, in April 1999, of the common external tariff (CET). This favorable outturn is attributable to an increase in the taxable profits of enterprises in 1998 and, at the same time, to the strengthening of the tax and customs administrations. Specifically, the monitoring of large enterprises by the General Directorate of Taxes (DGI) was strengthened through an improvement in collection and management procedures (including the upgrading of software) and a more concerted staff training effort

7. The good results achieved at customs (the program’s objective was exceeded by 7 percent) were a consequence of (i) the strict application of the compensatory measures adopted to accompany the new classification of products under the CET; (ii) the computerization, from end-1998, of six additional customs offices; (iii) the elimination of the remaining exemptions on public contracts; and (iv) the enhanced monitoring of foreign-financed projects for which the indirect taxes are paid by the treasury. In particular, the introduction of the new classification of import products was accompanied by the elimination of special VAT payment procedures for importers of raw materials and for the enterprises registered under the Investment Code. Moreover, as of June 28, 1999, the procedures for tax payments on government procurement were strengthened, with the VAT applied on all public contracts. Accordingly, the government pays the VAT to contractors on a timely basis as public works are executed and interim payments are made; the VAT on goods and services used as an input in the public works are paid regularly, giving rise to a normal deduction entitlement. This mechanism replaces the previous procedure of pro forma invoices for purchases from local suppliers; it widens the scope of the VAT, which thus gains in transparency and effectiveness.

8. As regards expenditure in 1999, the overrun of CFAF 3.1 billion (0.2 percent of GDP) in wage expenditure was offset by savings on expenditure for goods and services and transfers. Thus, current primary expenditure was broadly in line with the projections. The wage bill increased from CFAF 72 billion in 1998 to CFAF 82.6 billion in 1999, as against a program objective of CFAF 79.5 billion. This overrun can be explained by (i) the cost of repositioning civil servants in the new salary scale that entered into effect on January 1, 1999 (CFAF 6.4 billion, based on provisional data), which was substantially higher than projected; and (ii) the impact of the new allowance package introduced in 1998, the cost of which (about CFAF 1.1 billion) also exceeded initial estimates. In addition, the shift of the civil servants’ positions to the new salary scale was accompanied by an update of their individual administrative status, resulting in the recording of substantial retroactive salary payments (CFAF 4.4 billion) as arrears payments. Unforeseen difficulties encountered in the introduction of the new computerized payroll management procedure, which was designed to interface with the civil service personnel file (SYGASPE), caused significant delays in implementing the shift of civil servants to the new salary scale. At end-December 1999, 91 percent of civil servants had their salary scale position updated in the civil service roster, but only 75 percent had their new status registered by the payroll office. Efforts are under way in this office to make up for the delays. The interconnection between the administrative roster of civil servants and the payroll files should be completed at end-June 2000; this will allow for the payroll to be updated immediately following changes in the administrative status of civil servants. To strengthen management discipline, starting with the year 2000, retroactive payments made during the year will be charged as expenditure to the current fiscal year.

9. In 1999, domestic arrears were reduced by CFAF 8.3 billion; this compares with a program projection of CFAF 6.3 billion, that took into account the offsetting of cross debts between the government and the water, electricity, and telephone companies effected in January 1999. The overrun is attributable primarily to the retroactive salary payments made on the occasion of the shift of civil servants to the new salary scales. Restructuring expenditure, related to the liquidation of a number of public enterprises, exceeded the estimates by CFAF 0.4 billion. In addition, during the third quarter the government had to refund to army personnel an amount of CFAF 3.4 billion for salary withholding that had been withheld to establish a housing savings fund. As regards external financing and debt service, disbursements of grants and adjustment loans exceeded the program estimate by CFAF 5.5 billion. At the same time, external debt amortization was above the program estimate by about CFAF 4.6 billion (excluding amounts not paid on debt under negotiation). This overrun is the result of payments made under new agreements concluded with foreign public works enterprises to settle disputes concerning past infrastructure investments. Reflecting the overrun on arrears payments, restructuring expenditure and debt amortization, the performance criterion on the change in net bank credit to government at December 1999 exceeded the objective by CFAF 6.2 billion (or 0.4 percent of GDP), even though external aid was higher-than-programmed by CFAF 5.5 billion .

10. External financing for the public investment program totaled CFAF 185 billion, significantly exceeding the program estimate of CFAF 151 billion. In particular, project grants amounted to CFAF 117 billion, compared with an initial estimate of CFAF 88 billion. This overrun is attributable to the acceleration in the implementation of large projects, such as the Ziga dam and some road infrastructure.

11. The data on budget execution in 1999 indicate that, on a commitments basis, the shares of the government budget (excluding debt service and foreign financed investment) allocated to the health and education sectors were 13.9 percent and 16.9 percent, respectively, or slightly above the program objectives.

12. As regards money and credit, credit to the economy grew by 4.3 percent in 1999 (i.e., significantly below the program estimate of 14 percent), as a result of the delay in putting in place the financing for the 1999/2000 cotton campaign. The repayment of the 1998/99 campaign credits was completed, after some delays, at end-December 1999. Credit other than crop credit increased by 8.7 percent, compared with a program projection of 12.1 percent. However, net credit to the government increased by CFAF 13.2 billion (3.5 percent of the beginning-of-period money stock), exceeding the program’s objectives. The net foreign assets of the banking system declined less than anticipated in the program. Burkina Faso's contribution to the net foreign assets of the West African Economic and Monetary Union (WAEMU) fell by CFAF 20.1 billion (5.3 percent of the beginning-of-period money stock), an amount close to the program’s projections. Reflecting these developments, the money supply grew throughout the year by 6.5 percent, close to nominal GDP growth.

13. The strengthening of the banking system continued in 1999. In particular, the solvency ratio improved during the year for five of the seven banks, and all the banks are observing, with large margins, the prudential ratio of 4 percent currently in force. Five banks are already observing the new ratio of 8 percent established by the Central Bank of the West African States (BCEAO) in mid-1999, which is to be observed by all the banks by end-2001. At end-December 1999, nonperforming loans represented 2.7 percent of total credit to the economy, the same ratio as at end-1998. The central bank’s lending interest rates remained stable throughout 1999 and in the first two months of 2000. Competition among banks increased as a result of the entry into the market of three new banks during the past two years; this led to a narrowing of the interest rate spread, as borrowing rates rose and lending rates fell. Microfinance institutions (such as the network of banques populaires and other local networks) continued to develop satisfactorily.

14. In the area of other structural reforms, much progress was made in the second half of 1999 and early in 2000, especially as regards the liberalization of the telecommunications sector. The studies planned on the regulatory framework (tariffs and interconnection system) were completed, and the basic regulations were adopted by the Council of Ministers in late February 2000. The regulatory authority established in November 1999 will be fully operational in April 2000. Following the call for bids issued in December 1999 for the granting of two mobile telephone licenses, bids were opened at end-February 2000, and the licenses were granted in March. As regards the privatization of the telephone company (ONATEL), an accounting and financial audit is expected to be completed by end-April. In the electricity sector, the government, in agreement with the World Bank, adopted in December 1999 a strategy to reform the energy sector, including the electricity company (SONABEL) and the petroleum import company (SONABHY), as indicated in paragraph 33.

15. Negotiations are under way with a strategic partner regarding the privatization of Air Burkina; this should bring in fresh capital to the company, while the government contribution will be mainly constituted by the single existing aircraft. In the hotel sector, calls for bids for the Société des Hôtels de La Gare were issued in December 1999. As regards the program to support the private sector, efforts are being focused on (i) strengthening the judicial system, with the support of donors and lenders; (ii) making the national legislation consistent with that of the Organization for the Harmonization of Business Law in Africa (OHADA); (iii) improving the effectiveness of the one-stop window (CGU) for investors; (iv) restructuring the Chamber of Commerce, the National Foreign Trade Office, and the Burkinabè Council of Shippers (CBC); and (v) setting up the Entrepreneurs’ Center with a view to helping new enterprises.

16. As regards the cotton sector reform, the sale of 30 percent of the capital of the cotton ginning and marketing company (SOFITEX) to the farmers’ association was finalized in early 1999, and the new shareholders are already taking an active part in management of the company. The role of the private sector in cotton transport was strengthened. Moreover, actions are under way to gradually transfer to the farmers’ association the financing of outreach activities and technical assistance that used to be carried out directly by the cotton company. Despite the steep fall in cotton prices in the second half of 1999, the company expects to break even and present an income statement in balance for the 1999/2000 crop year; this objective is expected to be reached as a result of the actions already taken to reduce operating costs, the successful commercial strategy adopted, and the good quality of Burkinabè cotton.

17. The civil service reform, which entered into effect in 1999, is expected to be completed in the course of 2000. It includes the implementation of the new system of merit-based promotion, which has already been introduced, and the recruitment of civil servants under the status of contractual employees with permanent contracts, except for those holding key policy positions. This new policy will allow for greater flexibility in personnel assignments. In order for the assessment of the performance of civil servants to become effective, supervisors will have to be trained, before the end of 2000, and detailed action plans will have to be formulated for all departments, on which individual staff work objectives will be based. The detailed action plans are being finalized for all ministries.

18. The introduction of the integrated government accounting system (CIE), designed to integrate all government accounting operations performed throughout the country and thus to facilitate the rapid production of treasury balances, is expected to be completed during the first half of 2000. This system will also make it possible gradually to decentralize certain payment operations.

II. Objectives and Policies for 2000

19. The economic outlook for 2000 is encouraging; in particular if the upturn in cotton prices observed in January and February 2000 is confirmed over the next few months, it will limit the decline originally expected in the value of exports. It is anticipated that agricultural production will grow by 6 percent. Public investment should remain high, close to the 1999 level, and value added in the secondary and tertiary sectors is expected to increase by about 7 percent. Overall, on the basis of prudent estimates, real GDP growth could reach 5.7 percent, in line with the original forecast. The favorable cereal harvest is expected to help maintain a moderate level of inflation moderate (1 ½  percent on average for the year).

20. As regards the balance of payments, export are expected to increase in value terms by 3 percent in 2000; the small fall in cotton exports in value terms resulting from the 6 percent reduction in the average export price should be offset by a rise in other exports. Gold exports should remain stable, as production is not expected to increase until the second half of the year, provided that the upturn in world prices is confirmed. Imports in value terms are projected to grow by about 3 percent, reflecting the sustained level of public investment. Thus, the external current account deficit, excluding grants, should narrow to 14.4 percent of GDP in 2000, compared with 16.0 percent in 1999 (10.2 percent of GDP, including current grants). In light of the expected external financing for investment projects, external budgetary support, and debt amortization, Burkina Faso’s contribution to the official reserves of the Union are projected to increase by about CFAF 3.6 billion (0.9 percent of beginning-of-period money stock), excluding the effect of debt relief under the Heavily Indebted Poor Countries (HIPC) Initiative. In the medium term, the external current account deficit is projected to narrow, owing to the expected rebound of cotton prices, the anticipated rise in gold production as a result of the start-up of operations in new areas of production, and prospects for the exports of fruit and vegetables.

21. On the monetary side, credit to the economy is projected to grow by 6.8 percent in 2000; net bank credit to the government is expected to increase by 2.2 percent of beginning-of-period money stock, reflecting the use of external assistance disbursed at end-1999 and deposited at the central bank. The money supply growth is projected at about 6.3 percent. At the regional level, the BCEAO monetary policy will continue to aim at strengthening foreign reserves of the union and maintaining the inflation rate close to that of the partner countries. The targets for net bank credit to the government at end-June, end-September, and end-December 2000 are shown in the attached Table 1. In addition, efforts to strengthen the banking system will be pursued, through an increase in the banks’ capital position. The settlement of the cross claims between the treasury and the postal agency (SONAPOST), which began in 1999, will be completed by end-June 2000.

22. Government finance. Based on the budget approved by the parliament on November 26, 1999, the key budgetary objectives for 2000 are to achieve (i) a revenue level equivalent to 14.4 percent of GDP, despite the entry into force of the last phase of the CET on January 1, 2000 ( involving a reduction of the maximum tariff rate from 25 percent to 20 percent and of the statistical tax from 4 percent to 1 percent); (ii) a current primary surplus of 4.3 percent of GDP; and (iii) a primary surplus, excluding foreign-financed projects, of 0.4 percent of GDP. It is anticipated that the financing requirement will be fully covered by already identified external assistance.

23. Burkina Faso is expected to reach the completion point under the original HIPC Initiative in April-May 2000 at the time of the completion of the first review under the PRGF; this would make available additional resources in the form of debt-service reduction, provisionally estimated at CFAF 11 billion, or 0.6 percent of GDP. The government intends to allocate these additional resources to the social sectors (see paragraph 45) by submitting to parliament a supplementary budget law. At the completion point under the enhanced Initiative, the additional resources would reach some CFAF 22 billion (1.3 percent of GDP), which compares with a debt-service burden before HIPC Initiative relief of CFAF 35 billion.

24. On the revenue side, the authorities aim at reaching in 2000 a revenue level of CFAF 246 billion, or 14.4 percent of GDP, compared with the 13.7 percent of GDP initially programmed. This objective takes account of (i) the revenue loss related to the reduction of customs duties, effective January 1, 2000; (ii) the full-year effect of the measures to strengthen the VAT, as described above, and of rigorous monitoring of public contracts for which the tax burden is assumed by the government; (iii) the enhanced monitoring of large enterprises, including improved procedures for tax recovery from defaulters; (iv) the impact of tax withholding at source on imports and on purchases from producers and wholesalers, creditable against the minimum corporate tax (impôt minimum forfaitaire—IMF) and the corporate income tax (impôt sur les bénéfices industriels and commerciaux—BIC). The 2000 Budget Law introduced—effective January 1, 2000, as anticipated in the program—a withholding tax at source of 2 percent on imports and purchases from wholesalers and producers, to be credited toward payments of the IMF and BIC taxes. This measure allows better taxation of informal sector activities. The Budget Law also introduced, effective January 1, 2000, a withholding tax at source on the payment for services performed by residents and nonresidents. In addition, the tax rate under the business profit tax was reduced from 40 percent to 35 percent within the framework of actions aimed at improving competitiveness.

25. Customs tariff revenue is projected in 2000 at CFAF 35 billion or 2 percent of GDP (excluding Treasury cheques and the community solidarity levy), which compares with CFAF 43 billion in 1999 (2.7 percent of GDP). This decline reflects the reduction, effective on January 1, 2000, of the maximum tariff rate from 25 percent to 20 percent, and of the statistical tax from 4 percent to 1 percent. The WAEMU Commission has accepted the request of Burkina Faso to apply to five products the temporary protection tax (TDP) of 15 percent, which will decline by five percentage points in each of the next three years. In addition, the Council of Ministers of the WAEMU adopted in November 1999 a regulation introducing a conjunctural import tax, and the list of products eligible for this additional protection. Burkina Faso has not yet made any request to the Commission for applying this tax to any of the eligible products.

26. Current primary expenditure is expected to contract slightly after the rise in 1999 (from 10.4 percent to 10.1 percent of GDP), with an increase in the wage bill of about 5 percent. As regards expenditure on goods and services, measures to achieve savings will be adopted, in particular to curb the consumption and the costs of electricity and telecommunications services. Procedures will be introduced to enable each ministry to monitor its consumption and implement savings measures. Hiring will continue to be concentrated primarily in the education and health sectors, with the recruitment of graduates of professional schools. To enhance teacher training, a fourth national primary education teacher training school will start operation by year’s end.

27. Total foreign-financed investment in 2000 is expected to be slightly lower than in 1999 (CFAF 178 billion, or 10.4 percent of GDP, including CFAF 110 billion covered by grants). The large water supply, rural development, and road infrastructure programs will continue to absorb a significant amount of resources.

28. Expenditures related to the restructuring of public enterprises are expected to total CFAF 2.2 billion, while privatization proceeds are estimated at CFAF 1 billion in 2000. In order to avoid unforeseen impacts on the treasury situation, debt-restructuring agreements concluded in the course of the year will be fully budgeted. Also, the statutory time limits for budgetary expenditure commitments and payment orders will be strictly observed. To avoid delays in budget implementation, the quarterly monitoring of expenditure commitments will be strengthened. Accordingly, the gap between expenditure commitments and actual payments is expected to narrow somewhat in 2000 from CFAF 27 billion at end-1999.

29. Total external program assistance already identified is expected to reach CFAF 37 billion, comprising about CFAF 20 billion from the European Union, provided the necessary conditions for disbursements are met, CFAF 10 billion from the World Bank, and CFAF 7 billion from bilateral donors. The increase in net bank credit to the government—including net credit from the central bank, the commercial banks, the postal checking system (CCP), and the national savings bank (CNE)—is projected at CFAF 6.9 billion (0.5 percent of GDP).

30. The adoption by the government of a multiyear resource allocation process (program budget), with priority given to local-level institutions (management committees of health and social promotion centers (CSPS) and parent-teacher associations for schools), will be strengthened by procedures facilitating the monitoring of expenditure execution by the various participants (users, administration, and civil society). To improve the preparation and monitoring of the program budgets, the government will adopt the procedure of program authorizations provided for by the current statutes and by the WAEMU directives, and the budget for 2001 will be presented with a schedule of estimated payment appropriations related to the program authorizations.

31. Debt management. The government is aware of the need to update rapidly, at the end of each year, the data on outstanding external debt and annual disbursements. To this end, the outstanding debt at end-1998 was reconciled with the data obtained from creditors in 1999; the reconciliation of end-1999 data is under way. Efforts have been made to complete the renegotiation of debt obtained on concessional terms with a number of bilateral donors and lenders (Algeria, China, Côte d’Ivoire, and Libya), and in this respect the support of the Bretton Woods institutions is being sought. Saudi Arabia and Kuwait have indicated their willingness to grant concessional rescheduling on terms comparable with those of the Paris Club.

32. Statistical data. The government is determined to improve the quality and consistency of the production of the national accounts and other economic statistics. The national accounts for 1994–97 and the preliminary accounts for 1998 will be established in 2000. The industrial production index will be revised in 2000 in the context of a harmonized effort within the WAEMU. This new index will take account of the results of the latest industrial and commercial survey, carried out in March 1998.

33. Structural reforms. The government is pursuing with determination its program to restructure the remaining public enterprises, mainly public utility companies. As indicated above, the telecommunications sector restructuring program is off to a good start, and the regulatory authority will be fully operational in April 2000. The recruitment of an investment bank to manage the bidding process for the privatization of ONATEL is under way and should be completed by end-May 2000. Moreover, the effort to expand the telephone network is being pursued, the objective being to link, in the short term, all district main cities and, over a seven-year period, all 8,000 villages in the country; this effort will be facilitated by the launching in two years’ time of a RASCOM (Regional African Satellite Communication Organization) satellite, which will link all locations equipped with appropriate terminals. The present telephone operator will continue to honor its public service obligations.

34. After the adoption in 1998 of the electricity law opening the electricity sector to private producers, the Government of Burkina Faso has been preparing, with the assistance of the World Bank, an institutional, legal, and regulatory study for the whole energy sector (electricity and hydrocarbon) that will give room for private sector participation. This framework will be completed by the Ministry of Energy and Mines by end-October 2000 and will subsequently be discussed with civil society at large during a series of workshops to help build consensus and ownership. By end-December 2000, the Council of Ministers will adopt the amended institutional framework that will include a specific scheme for the reform of the energy sector, including: (i) a scheme for the privatization of SONABEL, which will define, inter alia, the functions to be assumed by the private operators, and those that will remain under the public domain; and (ii) the opening up of the capital of the petroleum products company (SONABHY) to private operators. The adoption by the Council of Ministers by end-December 2000 of the regular tariff framework for the electricity sector, and of the privatization scheme for SONABEL will constitute a structural performance criteria.

35. The terms and conditions for opening up the new cotton-producing areas to private operators are being prepared, and should be finalized by end-June 2000. They will specify the obligations of new operators, in particular as regards research expenditure for seeds and insecticides and the maintenance of rural roads.

36. In the financial sector, efforts will be focused on increasing accessibility to credit for rural communities through expansion of the decentralized financial systems (DFS), especially in areas where their presence is still limited. Access by decentralized financial systems to refinancing from the national banking sector will be promoted. Moreover, decentralized financial systems should be strengthened, inter alia, through increased training efforts, the establishment of risk and overdue payments reporting and information centers, and the cofinancing of investment with long gestation periods. Significant support in this area is expected from Burkina Faso’s external donors.

III. Poverty Alleviation and the Social Sectors

37. The government is aware of the extreme poverty in which most of the population lives; based on the new poverty line, estimated at CFAF 72,690 in 1998, as against CFAF 41,099 in 1994, the proportion of poor people rose slightly from 44.5 percent to 45.3 percent over that period. The government recognizes also the inadequate provision of social services, as evidenced by the fact that the school enrollment ratio is one of the lowest in the subregion, and that morbidity and mortality rates, especially among infants and mothers, are among the highest. The government is therefore preparing a poverty reduction strategy paper (PRSP) with the participation of the administration, the private sector, civil society, and Burkina Faso’s external partners. This document falls within the participatory tradition in Burkina Faso, as evidenced by the two meetings on the national economy held in May 1990 and May 1994; the national conferences on education, employment, and health, held respectively in 1996, 1997, and 1999; the national conference on comprehensive civil service reforms in 1997; the national workshop on the sources of economic growth in May 1999; the formulation of the Country Assistance Strategy with the World Bank in August 1999; and the forum on justice in 1999. A ten-year national poverty reduction program (1995—2005) had already been presented in Geneva in October 1995, on the occasion of the third general roundtable of donors and lenders aimed at centering the development strategy on the concept of human security. The strategic elements of this poverty reduction policy were designed to accelerate economic growth and the develop human resources, good governance, and rational management of economic resources.

38. The initial draft PRSP presents the current social situation and the characteristics of poverty in Burkina Faso, based on the results of the last survey on the living conditions of households (Priority Survey II), carried out in 1998. This survey shows that poverty mainly affects large households, is most acute in rural areas, and has regional and gender dimensions. People in the north of the country are more affected by it than those in the southern and central regions; the most vulnerable segments of the population are children, women, and the unemployed. As regards socioeconomic groups, the incidence of poverty is highest among farmers growing food and cash crops and among the nonworking population.

39. The draft poverty reduction document presents the principal orientations and objectives, strategic approaches, and action programs. The overall strategy seeks to reconcile the need for structural reform and economic recovery with the objectives of increasing the income of the poor. This strategy requires an investment effort and growth policies aimed at improving the economic situation of the poor in the agriculture, livestock, crafts, commerce, and services sectors. The central role of agriculture and services in generating income requires the improvement of the quality of human capital. For this reason, emphasis will be placed on priority development of the sectors that produce services benefiting primarily the poor: basic education and health, drinking water, hygiene, sanitation, and housing conditions. The strategy is based on allocating resources freed up by debt relief to expenditure directed at reducing poverty and increasing human capital. The program approach will be given preference, and implementation will be carried out as much as possible by the beneficiaries, with support from nongovernmental organizations (NGOs), the private sector, and local governments. The PRSP requires a participatory, consensual framework, under which priorities will be established that should guide government action and external assistance will be directed at addressing the key factors that can contribute to poverty reduction.

40. The strategy to achieve the objectives contained in the strategy paper is structured around three subprograms—improvement of the economic situation of the poor, development of the social sectors, and strengthening of governance and assistance coordination—and seven strategic approaches: (i) implementation of vigorous economic growth policies; (ii) improvement of the economic, political, and legal climate for the benefit of poor people; (iii) promotion of income-generating and self-employment activities; (iv) control of population growth and stepping up of the campaign against AIDS; (v) improvement of access by the poor to basic essential services; (vi) introduction of better governance; and (vii) better coordination of poverty reduction initiatives.

41. Following discussions with the various partners, including foreign donors and lenders, on the poverty reduction strategy, the priority actions and quantitative benchmarks in the various sectors, already outlined for the medium term, will be defined for one- and three-year periods. In this regard, the experience with the indicators adopted under the new donor approach to conditionality and with the HIPC Initiative indicators will be extremely useful. The costs of the various initiatives (strengthening of the education and health infrastructures; water supply systems; the promotion of hygiene, sanitation, and housing; and strengthening of village and municipal structures) will be estimated and will serve as a basis for the medium-term budgetary framework.

42. Special attention will be paid to the respective roles of the central government, local governments, and households in the financing of health and education services. Sound fiscal management, in a context of transparency, will be essential. Within this framework, the participation of civil society in the preparation of the budget for the social sectors at the decentralized level will be further enhanced. Monitoring by civil society of the execution of these budgets at the most decentralized levels will be facilitated by better dissemination of information, which, in turn, will lead to increased participation and control by the beneficiaries.

43. Progress made in the area of poverty reduction will be monitored through priority surveys, which will be completed by means of more frequent and simplified analyses, including those carried out by external donors. The technique of participatory poverty assessment which, as tested in numerous countries, uses direct contacts with target groups at the individual and group level, will also be implemented. This will provide a more complete view of the poverty situation and of the concerns and priorities of the most vulnerable groups. In addition, methods used for assessing the impact of the various sectoral action plans on the poverty situation and on the poorest groups will be strengthened to ensure close monitoring of poverty reduction efforts and of the results obtained.

44. The updated matrix of HIPC Initiative indicators for 1996–2000 is shown in the attached Table 2. It indicates that the principal education and health indicators for the period 1996–99 improved, although the results sometimes fell short of the initial objectives (school enrollment ratios, number of new entrants in the first year of primary education, percentage of fully operational health and social promotion centers, and utilization rate of health centers). The data in the matrix show that substantial efforts are still needed in these areas, which are essential for the improvement of the people’s living conditions. They emphasize the need for a broad-based effort, mobilizing all the resources of the administration, the private sector, and civil society, with the assistance of the partners in development.

45. The government, in the context of PRSP preparation, will adopt a participatory approach to establishing the supplementary budget for 2000, which will allocate resources generated by debt relief under the HIPC Initiative to the social sectors, including essential rural and village infrastructures. Moreover, the government plans to take the opportunity of the preparation of the 2001 Budget Law to update program budgets for the principal ministries, so as to take account of the additional resources to be made available under the Initiative.