Press Release No. 98/39

Press Release: IMF Approves Third Annual ESAF Loan for Burkina Faso

September 15, 1998

The International Monetary Fund (IMF) approved the third annual arrangement for Burkina Faso under the Enhanced Structural Adjustment Facility (ESAF),¹ in an amount equivalent to SDR 13.26 million (about US$18 million), to support the government’s economic program covering July 1998–June 1999. The loan is available in two equal semiannual installments, the first of which can be drawn on September 30, 1998.

Background

Burkina Faso has successfully implemented its economic and financial program over the past three years, and a year ago became eligible under the Initiative for Heavily Indebted Poor Countries (HIPC) to receive assistance in reducing its external debt by about 15 percent in April 2000, assuming continued strong policy implementation. Under the 1997–98 program, the main fiscal objectives were reached, in particular targets covering revenues and current expenditures.

In 1997, real GDP growth reached 5.5 percent, with the production of cotton, the main export crop, rising by 56 percent; inflation in the 12-months to end-1997 was close to zero (although some price pressures developed in the first few months of 1998, reflecting a shortfall in the 1997 cereal crop); the external current account deficit declined from 13.4 percent of GDP in 1996 to 12.6 percent of GDP in 1997; and the investment-to-GDP ratio rose to about 25 percent, reflecting higher public investment.

The 1998–99 Program

The economic program for 1998–99 focuses on the completion of the core reform agenda, defined in the context of Burkina Faso’s eligibility for the HIPC Initiative. This involves introducing the common external tariff of the West African Economic and Monetary Union, offsetting in part the related revenue losses by widening the tax base, expanding the privatization program, implementing civil service reform, liberalizing the agriculture sector, and improving key social indicators.

The key macroeconomic goals are designed to achieve real GDP growth of about 6 percent in 1998 and 1999, an average annual inflation rate of 2.5 percent over the two years, and a narrowing of the external current account deficit to 10.2 percent of GDP in 1999. To achieve these objectives, fiscal policy will aim at achieving a primary budget surplus of 0.8 in 1998 and 0.5 in 1999. The revenue-to-GDP ratio is targeted to reach 13 percent of GDP in 1998 and 12.5percent of GDP in 1999, despite revenue losses from the cut in customs duties estimated at 0.3 percent of GDP in 1998 and 1 percent of GDP in 1999. Expenditure policy will remain prudent, with a gradual increase in the share of expenditures allocated to the health and education sectors.

Structural Reforms

In the structural area, the program focuses on widening the program of public enterprise privatization, while completing the second phase of privatization, which includes, among others, the sale of sugar, fruit juice, and textile enterprises. Reforms in agriculture focus on strengthening farmers’ organizations, continuing the withdrawal of the public sector from rice marketing, reinforcing the role of farmers’ cooperatives in the cotton sector, and opening up new cotton regions to private operators. Civil service reform involves, among other things, creating a merit-based promotion system and appropriate human resources directorates in all main ministries, strengthening personnel training, streamlining organizational charts, and implementing measures to improve governance and the responsiveness of the civil service to the demands of the public. Improving the judicial system will be a key element for strengthening the environment in which the private sector operates.

Addressing Social Needs

In the education sector, the primary school enrollment ratio progress is expected to reach the target of 48 percent and 40 percent for girls in 1999/2000, representing a significant improvement, although still low by regional standards. In the health sector, objectives for 1997–2000 include increasing vaccination rates, the number of health centers meeting minimum operating standards, and providing a minimum package of activities and services.

The Challenge Ahead

Burkina Faso faces a major challenge in widening the tax base to offset, in part, the decline in customs revenue, and, over the medium term, provide a solid basis for revenue growth. There is a need to continue vigorous implementation of the civil service reform already under way, and to widen the privatization program to the public utilities sector. Further determined efforts will be essential if key social indicators, which remain low by regional standards, are to improve.

Burkina Faso joined the IMF on May 2, 1963, and its quota² is SDR 44.2 million (about US$60 million). Its outstanding use of IMF financing currently totals SDR 74.5 million (about US$102 million).