IMF Executive Board Approves a US$302 Million 48-month Arrangement Under the Extended Credit Facility for Burkina Faso

IMF Executive Board Approves a US$302 Million 48-month Arrangement Under the Extended Credit Facility for Burkina Faso

September 21, 2023

• The Executive Board of the International Monetary Fund (IMF) approved a 48-month arrangement under the Extended Credit Facility (ECF) for Burkina Faso. The arrangement will provide financing of SDR228.76 million (about US$302 million), with an immediate disbursement of SDR24.08 million (about US$31.8 million).
• Burkina Faso faces protracted balance of payments problems, reflecting large development needs and the impact of shocks such as the COVID-19 pandemic, adverse weather conditions, deteriorating domestic security, the food insecurity crisis, and spillovers from Russia’s war in Ukraine. These shocks have disrupted economic activity, affected livelihoods, and exacerbated macroeconomic imbalances.
• The ECF will help create fiscal space for priority spending, strengthen resilience to shocks while reducing poverty, and bolster fiscal discipline, transparency and governance. It will also help close financing gaps reflecting tight financial conditions, large fiscal deficits, debt vulnerabilities, food insecurity, and fragile security conditions.

Following the

Food Shock Window

disbursement in March, 2023, the new arrangement aims to address protracted
balance of payments problems, achieve macroeconomic stabilization, mitigate
the impact of current shocks on the most vulnerable, and reduce poverty.
This decision comes against the background of persistent, severe, and
overlapping exogenous shocks, including a volatile political environment;
fragile and deteriorating security conditions; the impact of Russia’s war
in Ukraine on energy prices and key agricultural imports and the resulting
food insecurity crisis; as well as the post-pandemic disruptions in
international supply-chains. All these shocks have disrupted economic
activity, affected livelihoods, and exacerbated macroeconomic imbalances. As
a result, external and fiscal buffers eroded substantially in 2022, as the
current account deficit reached 6.2 percent of GDP, the overall fiscal
balance widened to 10.6 percent of GDP, economic growth in 2022 decelerated
to 1.5 percent year-on-year, after 6.9 percent of GDP in 2021, while more
than 40 percent of the population remains below the poverty line.

In this context, the program builds on three pillars: (i) creating fiscal
space for priority spending, (ii) strengthening the resilience to shocks
while reducing poverty, and (iii) reinforcing fiscal discipline,
transparency, and governance. The program will help the authorities close
financing gaps in a policy environment characterized by tighter financial
condition on the regional bond market, larger deficits and debt
vulnerabilities, and weak donor support. It will help also mitigate risks of
sharp policy corrections in case financing shortfalls were to materialize.

At the conclusion of the Executive Board’s discussion, Mr. Kenji Okamura,
Deputy Managing Director, and Acting Chair, issued the following statement:

“Burkina Faso faces a challenging macroeconomic outlook amid large
development and security needs, compounded by acute food insecurity and
long-standing fragility. To address the country’s multiple challenges, the
authorities have requested a four-year arrangement under the Extended
Credit Facility. The arrangement would help address the country’s balance
of payment needs and create fiscal space for priority spending and reduce
public debt vulnerabilities. It would also contribute to strengthening
resilience to security and climate shocks while reducing poverty and
inequality, as well as to reinforcing fiscal discipline, transparency, and
governance. A resolute commitment to the policy and reform agenda under the
arrangement, as well as to the timeline of the political transition, will
be critical to safeguard fiscal and debt sustainability, anchor the
country’s macroeconomic outlook, and catalyze additional concessional
financing.

“The authorities are committed to a gradual fiscal consolidation to return
to the regional convergence criteria for the fiscal deficit. They plan to
step up efforts to increase domestic revenue mobilization and improve the
quality and transparency of public spending. On the revenue side, reforms
aim at broadening the tax base, including by closing tax loopholes in the
mining sector, and at strengthening tax and customs administration. On the
expenditure side, the authorities will focus on bringing the public sector
wage bill as a share of tax revenue to a sustainable level over the medium
term and on reforming the energy sector to reduce untargeted energy
subsidies. Strengthening fiscal governance and transparency is paramount to
restore donors’ trust and catalyze concessional financing.

“Given the large humanitarian and socio-economic development needs, the
program envisages a scaling up of social spending and the strengthening of
social protection, including consolidating existing social safety nets and
accelerating the establishment of the Single National Registry of
Beneficiaries.

“For the country’s long-term development process, it remains essential to
sustain structural reforms to foster economic growth and diversification as
well as to reduce poverty. In this context, further efforts to improve the
business environment, reinforce governance and anti-corruption efforts, and
address the security crisis are critical.”