Washington, DC: The Executive Board of the International Monetary Fund (IMF) approved today a 48-month arrangement under the Extended Credit Facility of US$302.5 million (SDR228.76 million), with an immediate disbursement of SDR24 million (about US$31.8 million).
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."