Document of The World Bank FOR OFFICIAL USE ONLY Report No. 74656-BF INTERNATIONAL DEVELOPMENT ASSOCIATION PROGRAM DOCUMENT FOR A PROPOSED GRANT IN THE AMOUNT OF SDR 45.5 MILLION (US$70 MILLION EQUIVALENT) TO BURKINA FASO FOR SECOND GROWTH AND COMPETITIVENESS February 20, 2013 Poverty Reduction and Economic Management 4 Country Department AFCF2 Africa Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. BURKINA FASO - FISCAL YEAR January 1 - December 31 CURRENCY EQUIVALENTS (Exchange Rate as of January 1, 2013) Currency Unit = CFA franc (CFAF) US$1.00 = CFAF 496.7 WEIGHTS AND MEASURES Metric System ABBREVIATION AND ACRONYMS AAA Analytical and Advisory Activities ACBP Administrative Capacity Building Project ACDP Agricultural Competitiveness and Diversification Project ADMDP Agriculture Diversification & Market Development Project AFD French Development Agency (Agence Franqaise de Developpement) AfDB African Development Bank AICB Inter-professional Cotton Association of Burkina ASCE High Authority for State Oversight (Autorit Superieure de Contr6le de 1'Etat) BCEAO Central Bank of West African States (Banque Centrale des Etats de l'Ouest Africain) CAS Country Assistance Strategy CEDP Competitive and Enterprise Development Project CEFORE Business Registration Center (Centre de Formalits des Entreprises) CEM Country Economic Memorandum CFAA Country Financial Accountability Assessment CGAB General Budget Support Framework (Cadre General d'Organisation des Appuis Budgtaires) CGAC Country Governance and Anticorruption CGCT General Code for Local Government (Code General des Collectivites Territoriales) CID Computerized Expenditure Circuit COPEGOL Competition Towards Excellency in Governance Practice (Comptition Pour l'Excellence dans la Pratique de la Gouvernance) CPAR Country Procurement Assessment Report CPI Consumer Price Index CRW Crisis Response Window CSF Civil Society Fund CSLP Strategic Framework for the Fight against Poverty (Cadre strategique de lutte contre la pauvrete) CSMOD Strategy Framework for the Implementation of Decentralization (Cadre Strategique pour la Mise en (Euvre de la D¢ralisation) CST Sectoral and Thematic Commissions (Commissions Sectorielles et Thematiques) DCIM Joint Inter-Ministerial Expenditures (Depenses Communes Interministerielles) DCMP Central Directorate for Public Procurement (Direction Centrale des Marches Publics) 1 DeMPA Debt Management Performance Assessment DEP Directorate for Planning and Studies (Direction des Etudes et de la Planiflication) DGB Directorate General for the Budget DGCF General Directorate for Financial Control (Direction Gindrale du Contr6le Financier) DGE Investment Grant (Dotation Gindrale 6 l'Equipement) DGF Operation Grant (Dotation Gindrale au Fonctionnement) DGMP Directorate-General for Procurement Contracts (Direction Gindrale des Marchis Publics) DGTCP Directorate General of the Treasury and Public Accounts DP Development Partner Development Policy Operation DSA Debt Sustainability Analysis DTIS Diagnostic Trade Integration Study DUCB Decentralized Urban Capacity Building ECF Extended Credit Facility EITI Extractive Industries Transparency Initiative ESW Economic and Sector Work EU European Union FDI Foreign Direct Investment FPDCT Standing Fund for the Development of Local Authorities (Fonds permanent de d6veloppement des collectivits territoriales) GC Growth and Competitiveness GDP Gross Domestic Product GoBF Government of Burkina Faso GPC Cotton Producers' Cooperative (Groupement des Producteurs de Coton) HACLC High Authority for the Fight Against Corruption (Haute Autorit de Coordination de la Lutte contre la Corruption) HIPC Heavily Indebted Poor Countries HIV/AIDS Human immunodeficiency virus/ Acquired immune deficiency syndrome ICT Information and Communication Technologies IDA International Development Association IFRS International Financial Reporting Standards IGE General State Inspectorate (Inspection Gindrale de l'Etat) IGF General Finance Inspectorate (Inspection Gindrale des Finances) IMF International Monetary Fund IFPRI International Food Policy Research Institute JSDF Japan Social Development Fund LDP Letter of Development Policy M&E Monitoring and Evaluation MAHRF Ministry of Agriculture, Hydraulics, and Fish Resources MDGs Millennium Development Goals MEB Micro Enterprise Bank MEBA Ministry of Basic Education and Literacy MEBF National Business Association (Maison de l'Entreprise du Burkina Faso) MEF Ministry of Economy and Finance MESSRS Ministry of Secondary and Tertiary Education and Scientific Research MID Ministry of Infrastructure and "Disenclaving" MOE Ministry of Environment MoU Memorandum of Understanding MTEF Medium-Term Expenditure Framework NPV Net Present Value 11 ODA Official Development Assistance OHADA Organization for the Harmonization of Business Law in Africa (Organisation pour l'Harmonisation en Afrique du Droit des Affaires) PAF Performance Assessment Framework PAP Priority Action Plan PAST Three-Year Public Financial Management Rolling Action Plan (Plan d'Actions Sectoriel Triennal) PEFA Performance of public financial management PER Public Expenditure Review PFM Public Financial Management PPP Public-Private Partnerships PRGB Budget Management Reform Plan PRGF Poverty Reduction and Growth Facility PRSC Poverty Reduction Support Credit PRSG Poverty Reduction Support Grant PRSP Poverty Reduction Strategy Paper SBC-CSLP Soutien Budgtaire Conjoint au Cadre Strategique de Lutte contre la Pauvrete SCADD Strategy for Faster Growth and Sustainable Development (Strategie de Croissance Acceleree et de Developpement Durable) SME Small and Medium Enterprises SNAT National Land Planning Scheme (Etude du Schema National d'Aminagement du Territoire) SOCOMA Gourma Area Cotton Company (Societe Cotonnidre du Gourma) SOFITEX Burkina Fibers and Textile Company (Societe burkinabd des fibres textiles) SRFP Strategie de Renforcement des Finances Publiques TOFE Tableau de l'Operation Financidre de l'Etat UNDP United Nations Development Program UNICEF United Nations Children's Fund VAT Value Added Tax WAEMU West African Economic and Monetary Union WFP World Food Program Vice President: Makhtar Diop Country Director: Madani M. Tall Sector Director: Marcelo Giugale Sector Manager: Miria Pigato Task Team Leader: Ali Zafar iii BURKINA FASO SECOND GROWTH AND COMPETITIVENESS GRANT (GCG-2) TABLE OF CONTENTS GRANT AND PROGRAM SUMMARY......................................................................................vi 1. IN TR O D U C TIO N ........................................................................................................................ 1 2. COUNTRY CONTEXT ....................................................................................................... 3 A. RECENT ECONOMIC DEVELOPMENTS IN BURKINA FASO............................... 3 B. MACROECONOMIC OUTLOOK AND DEBT SUSTAINABILITY ............8............8 3. THE GOVERNMENT'S PROGRAM AND PARTICIPATORY PROCESSES........11 4. BANK SUPPORT TO THE GOVERNMENT'S PROGRAM...........................................12 A. LINK TO CAS ...................................................... 12 B. COLLABORATION WITH THE IMF AND OTHER DONORS .......................... 13 C. RELATIONSHIP TO OTHER BANK OPERATIONS .......................................14 D. LESSONS LEARNED.................. ................................. ......... 15 E. ANALYTICAL UNDERPINNINGS ............................................. ...... 15 5. THE PROPOSED BF-GCG 2 - DPO ................................................................................... 17 A. OPERATION DESCRIPTION ........................................................ 17 B. POLICY AREAS .................................................................. 18 6. OPERATION IMPLEMENTATION ................................................................................... 40 A. POVERTY AND SOCIAL IMPACTS..................................................40 B. ENVIRONMENTAL ASPECTS......................................................41 C. IMPLEMENTATION, MONITORING AND EVALUATION. .................................41 D. FIDUCIARY ASPECTS............................................................42 E. DISBURSEMENT AND AUDITING...................................................43 F. RISKS AND RISK MITIGATION.................................................... 43 List of Annexes: Annex 1: Policy Matrix and Results Framework ............................. ......45 Annex 2: Letter of Development Policy.................................. 50 Annex 3: IMF Relations Note ................................................ 57 Annex 4: Debt Sustainability Analysis........................................... 64 Annex 5: Burkina at a Glance ................ . ....................... ......75 Annex 6: Country Map......................................................77 iv List of Boxes: Box 4.1: Lessons from Donor Coordination/Harmonization ................... ............ 14 Box 5.1: Good Practice Principles on Conditionality ............................. 39 List of Tables: Table 2.1: Burkina: Selected Economic and Financial Indicators...............8........8 Table 2.2: Burkina: Medium Term Macroeconomic Outlook. ............ ................. 11 Table 5.1: Prior Actions for GCG -2................................................38 List of Figures: Figure 2.1: Real GDP Growth (%) (IMF) .............................................. 3 Figure 2.2: Burkina Gold Production (tons) ............................................ 4 The World Bank team working on the preparation of this operation is led by Ali Zafar (Senior Economist, AFTP4). Guidance was provided by Volker Treichel (Lead Economist and Sector Leader, AFTP4). The team consists of: Mariam Diop, Jean Gaspard Ayi, Valerie Nussenblatt, Celestin Bado, Kofi Nouv6, Aguiratou-Savadogo Tinto, Adja Dahourou, Setareh Razmara, Boubacar Bocoum, Serdar Yilmaz, Bronwyn Grieve, Adama Ouedrago, Ousmane Haidara, Andrew Dabalen, Y616 Batana, Aissatou Diallo, Elisee Ouedraogo, Corinne Ilgun, Djeneba Bambara, and Judite Fernandes. The peer reviewers are: Yutaka Yoshino (Senior Economist, AFTP5) and Emmanuel Pinto Moreira (Senior Economist, LSCPE). Overall guidance was provided by Miria Pigato (Sector Manager, AFTP4), Madani M. Tall (Country Director, AFCF2), Mercy M. Tenbom (Country Manager, AFCBF), Katrina Sharkey (Country Program Coordinator, AFCCI), and Ana Paula Fialho Lopes (Sr. Country Officer, AFCCI). The GCG team worked in collaboration with the other members of the multi-donor budget support group (CGAB) and in close coordination with the International Monetary Fund (IMF) and the African Development Bank (AfDB). V BURKINA FASO SECOND GROWTH AND COMPETITIVENSS GRANT (GCG-2) GRANT AND PROGRAM SUMMARY Borrower: Burkina Faso. Implementing The Ministry of Economy and Finance (MEF) will be responsible for overall Agencies: implementation of the proposed GCG-2, in close association with sectoral ministries. Financing Data: IDA Grant. Operation Type: This Development Policy Grant is the second in a series of four operations. It amounts to SDR 45.5 million (US$70 million equivalent). Main Policy Areas: Agricultural sector, investment climate, transit facilitation, mining sector, judicial sector, public financial management, decentralization, and food security. Key Results Indicator: Five key outcome indicators by December 2014: (i) increase in cotton exports to more than 400,000 tons from 340,000 tons in 2011; (ii) mining revenues increased from 1.8 percent of GDP in 2011 to 3.0 percent of GDP; (iii) food reserves increase to 30,000 tons from less than 15,000 tons in 2011; (iv) increase in share of budget transferred to local governments (from 3.7 percent in 2011 to 5 percent in 2014); (v) improvement in the user satisfaction of public services as measured by surveys in decentralized communities. Program Development Catalyze private sector growth and employment, improve governance and Objective(s): public resource management, and build resilience and reduce vulnerability. Policies and reforms supported by this operation are well aligned with the government's poverty reduction strategy - the SCADD - and the CAS framework. Risks and Risk Main Risks. There are three main risks to the programs outcomes: 1) Mitigation: macroeconomic risk; 2) political risk, and 3) climate change risks. Macroeconomic risk. Burkina Faso is exposed to economic risks from a recession in Europe both through changes in commodity prices and through potential volatility from its exchange rate peg to the Euro. Agriculture, cotton and mining remain vulnerable to adverse exogenous shocks. Since Burkina Faso is heavily dependent on revenues from gold and cotton exports, commodity price shocks affect export revenues. An increase in oil imports may also put pressure on the country's balance of payments position. Moreover, since the CFAF is pegged to the euro, a shock to the euro system can have negative effects on the CFAF economy. The recession in Europe increases the risks of a decline in bilateral aid, which may generate negative effects on public investment, growth, and debt vi sustainability. The GCG-2 is designed to mitigate many of these risks. This operation includes risk-mitigating actions in the cotton and transport sectors to improve competitiveness, as well as measures to increase investment promotion and credit access, to accelerate the development of the private sector, the key driver of the economy. Effective implementation of these growth-enhancing reforms and export diversification will mitigate these risks. Political economy risk. The regional crisis in Mali is having a strong effect on Burkina Faso, its southeastern neighbor. First, there have been about 37,000 refugees that have left Mali and are being harbored in Burkina Faso as of February 2013, aggravating existing problems with food security and putting strong pressure on scarce humanitarian resources. Also, the conflict in Mali can adversely impact Burkina via greater inflows of illegal arms into the country. The donor community has mobilized funds to provide the Burkina government the requisite financing to handle the fallout of the Malian conflict. An additional risk could emerge in the medium-term if the Constitution were to be revised to end presidential term limits as this could create political tensions. The operation is addressing remaining governance challenges through strong PFM measures. The donor community has mobilized funds to provide the Burkina government the requisite financing to handle the fallout of the Malian conflict. Climate change risk. Climate fluctuations have a marked effect on Burkinabe agriculture, particularly cotton, and therefore on rural livelihoods. As a landlocked country situated in the Sahel, Burkina Faso suffers from an extreme and variable climate with the possibility of both flooding and drought within a few months. Thus, weather-related shocks may affect the speed of implementation of the reforms. The 2012 food crisis due to Sahelian drought took its toll on the country. Sustainable management of the price smoothing fund and actions taken to improve food security will help to mitigate these risks. Operation ID: P132210 vii PROGRAM DOCUMENT BURKINA FASO SECOND GROWTH AND COMPETITIVENSS GRANT 1. INTRODUCTION 1.1. This document proposes the second operation of a programmatic series of Growth and Competitiveness DPO's to Burkina Faso covering the years 2012-14. The series includes three remaining Growth and Competitiveness (GC) operations and the proposed operation would amount to an IDA grant of US$70 million equivalent. The series supports government implementation of Burkina Faso's Poverty Reduction Strategy Paper (Stratigie pour la Croissance Accildrde et le Diveloppement Durable -SCADD), which was adopted on March 16, 2011, and is an important component of the World Bank Group's Country Assistance Strategy for FY12-16. This second operation is expected to account for a significant part of budget support provided to Burkina Faso by development partners (DPs) in 2013. 1.2. This second operation will deepen the policy program contained in the first operation, which was submitted to the Executive Board in June, 2012. The programmatic series supports poverty reduction through higher growth, stronger governance, and greater economic resilience. The series is structured in three pillars: 1) building private-sector growth and generating employment; 2) improving governance and public resource management; and 3) increasing resilience and reducing vulnerability. Under pillar 1 the series will support actions to promote private-sector led economic growth by improving the functioning of the agricultural input market, and improving trade facilitation through transit corridors. Under pillar 2, the series supports actions increasing transparency in the mining sector, improving the transparency, efficiency, and effectiveness of the judicial sector, and consolidating public finance reforms. Under pillar 3, the series supports reforms improving the resilience of the economy by strengthening food security and accelerating decentralized access to services by local collectivities. The second operation will continue to focus on measures for a more dynamic agricultural sector, an enhanced transit system, stronger public resource management, and greater attention to vulnerability in rural areas. The next two operations will further consolidate the reforms to further support the private sector. 1.3. The GC series is rooted in the World Bank's Africa Strategy. The design matches the themes of the Africa Strategy - employment, resilience, and governance. Despite relative political stability and solid macroeconomic management, Burkina has not enjoyed broad- based private sector growth and employment creation. The economy has also suffered from drought and climatic instability, volatility induced by commodity prices, and instability in neighboring countries. The policies supported by the series therefore focus on lifting obstacles to faster employment growth in Burkina's private sector while at the same time improving resilience in agriculture, the main existing source of employment. 1 1.4. The new series will align Bank support to the reform agenda under the government's newly-released Strategy for Accelerated Growth and Sustainable Development (SCADD), issued in the spring of 2011. The strategy was designed with an ambitious goal of 10 percent annual economic growth over the five upcoming years and a focus on addressing vulnerability through transformation and diversification of the economy and better sharing of the benefits of growth. The SCADD's increased focus on private sector development, the investment climate reform, and rural transformation is reflected in program design. 1.5. The second operation follows closely in the footsteps of the first operation GCG-1, approved by the Board in June, 2012. The first operation has helped strengthen competitiveness, improve governance, and build resilience in a number of ways. First, farmers have had access to higher producer prices than ever before, and an elaborate plan to strengthen food security through a combination of an early warning system and government sales/distribution of food to deficit areas has been put into place. Second, there have been improvements in governance with the staffing of the Courts of Accounts (Cours de Comptes) and strengthening of line ministries in budget execution. Third, there has been greater transparency in mining sector revenue, in mediation of disputes, and in justice sector statistics. Fourth, effective mechanisms to manage food security and foster decentralization have been developed. 1.6. In some areas, the GCG-2, like the GCG-1, will address some difficult challenges. First, while there have been broader investment climate reforms, there has been mixed success in terms of improving the overall competitiveness of the economy. Weak input markets, poor transit and customs facilities, high transport cost, a poor judicial environment for private sector investment, and weak governance have hindered private-sector growth. Second, the previous PRSC/G series has achieved limited results in support of decentralized social services. The GC series address these challenges by deepening reforms in relation to agricultural competitiveness, transit facilitation, judicial reform, stronger public financial management, and improved decentralization. The series is also tailored to reflect Burkina's experience, with greater focus on agriculture and on protection of vulnerable populations through greater food security and increased access to microfinance. The GCG-2 will also address gender issues by improving the climate for female entrepreneurship. 1.7. If successful, the reforms supported by the proposed series will create a Burkina Faso with a more dynamic and diversified private sector generating more widely shared employment and income. Implementation of the reforms is expected to foster pro-poor growth in agriculture due to a better functioning input market, greater access to credit, and a smoother transit corridor. Regulatory reform and improved governance can help the private sector prosper. All the main policy areas of the GC series - agriculture, mining, transport, public financial management, decentralization, and judicial sector reform - have strong links to private sector expansion. 1.8. The operation will also help the government respond to the Malian crisis. First, the operation will provide the requisite and stable financing for the authorities to deal with the economic and security issues and humanitarian fallout from the Malian crisis. Second, it will provide an important signal to the international community that the Bank is committed to strengthening state capacity in an important country located across the frontier from Mali. 2 2. COUNTRY CONTEXT 2.1. Burkina Faso is a low-income landlocked country facing significant economic vulnerability. A poor, landlocked country in West Africa, Burkina has maintained economic stability in the face of structural obstacles and economic shocks, including recurring droughts. Strong production of gold and a vibrant agricultural (cotton and food grains) sector have supported a respectable economic growth rate (Figure 2.1), despite vulnerability to terms of trade shocks. Due to both its difficult geography and its good performance, Burkina has also received significant aid flows in the last decade. Its CPIA score between 2010 and 2012 of 3.78 makes it one of the best performers in West Africa. Yet, partly because of a high population growth rate and a non-inclusive pattern of growth, poverty incidence has registered only a moderate decline since the 1990s and remains at 46.7 percent in 2009 (compared with 51 percent in 2003). 2.2. Burkina Faso has faced a difficult year in 2012, confronting food shocks and refugee crises. An inflow of Malian refugees in 2012 has put fiscal pressure on Burkina's budget. Government has responded by allocating close to US$10 million to pay for food and schools for the Malian refugees. Since October, 2012, there has been a slight increase of refugees. Latest estimates from February, 2013 suggest that there are now 37,000 Malian refugees who have crossed over into Burkina since the beginning of the Malian crisis. The UN continues to be in charge of the coordination of emergency humanitarian assistance. Multilateral and bilateral development agencies, together with non-governmental organizations, have mobilized more than US$100 million to address financing shortfalls. In relation to the food crisis, government has spent close to $130 million as of December 31, 2012 to help feed the vulnerable population. So far, close to 50,000 tons of food have been sold or distributed to the rural population by the two key agencies, SONAGESS and CONASUR, together with the international aid agencies like WFP. Major famine has been averted, although there have been execution bottlenecks. The government has facilitated access to strategic grain reserves, strengthened the early warning system to identify vulnerable segments of the population, and embarked on an ambitious program of subsidized sale of foods in food-deficit areas. A. RECENT ECONOMIC DEVELOPMENTS IN BURKINA FASO 2.3. Growth in 2012 has rebounded to a rate of 8 percent. A resurgence of agriculture due to favorable weather 40_- conditions as well as strong performance of the mining sector, have resulted in stronger growth in 2012. Prudent macroeconomic 20 management, combined with favorable commodity prices, has also been supportive. Burkina had an average real economic growth 0 2 2012 rate of more than 5 percent between 1995 and -1o 2010 and GNI per capita has risen from 20 US$360 in 2005 to US$570 in 2011 (in Atlas -ealGrowth -Agriculture terms). Continued macroeconomic and fiscal Manufacturing -Services stability have contributed to steady 3 improvements in many economic and social indicators. Inflation has been contained in low single digits, partly thanks to prudent monetary policy by the regional central bank. Credit continued to grow robustly, by an average of 13.6 percent in 2011. In 2010, real GDP growth reached 7.9 percent but decreased to 4.2 percent in 2011 before climbing again in 2012. 2.4. Mining, cereals, and cotton continue to be the major drivers of economic growth. Over the last two years, average mining exports have risen to US$1 billion, and now represent more than ten times the value of cotton exports. In 2012, gold mining continued to be strong, driven by high international gold prices and increased local production (Figure 2.2). Burkina is now considered one of the best mining jurisdictions in West Africa due to favorable investment laws, good geology, and political stability. Seven gold mines are currently in operation, and output has tripled in the last five years. An eighth mine will start producing in December. Cereal production benefited from good rains, and better seeds, and it will continue to be strong and help strengthen Figure 2.2: Burkina Gold Production (tons) agricultural output. Food grains represent a very important pillar of 3s Burkina's agricultural economy. The cotton sector, which is also a vital 30 pillar of the rural economy and 25 accounts for more than 2 million jobs, 20 has rebounded compared to 2011 and 15 is projected to increase production to more than 500,000 tons in 2012 up from 340,000 tons in 2011. New 5 institutional designs giving greater 0 power and profit share to producer 2008 2009 2010 2011 2012 associations and farmers and recapitalization of cotton ginneries have helped. The use of genetically modified (GM) cotton seeds has also increased productivity. 2.5. The government's fiscal situation has been stable, with a strong performance of revenue and lower than budgeted spending on account of slow execution of the investment budget. In 2012, domestic revenue exceeded IMF program targets by a significant margin due to better revenue administration. Total revenue increased by 3 percentage points of GDP over 2009-12, 80 percent from tax revenue, as a result of significant administrative reforms since 2009, and new tax policies adopted in early 2010. On the spending side, investment execution has been slow, but there have been increases in current transfers to finance the food security plan as well as elections in 2012. Over the medium term, the goal of the government's reform program is to redress the imbalance between current and capital expenditures and ensure that both the share of the capital budget and its efficacy continues to increase. The overall fiscal position of the government has remained within the parameters set under the IMF program, Fiscal sustainability has been further assured through significant inflows of budget support from overseas: grants are expected to remain close to 7 percent of GDP over the medium term. Commitments to pro- poor spending such as health and basic education (16.2% and 12.1% of total public expenditures respectively) have been maintained since the mid-2000s. 2.6. Challenges remain in relation to fiscal subsidies and the public investment program. In recent years, losses by the state-owned oil company, SONAHBY, have required 4 substantial subsidies in order to help keep fuel prices low. In 2012, the government has started to adjust by increasing the pump prices and plans to gradually eliminate the subsidy. Overall subsidies have been the main drivers of the increase in non-wage recurrent costs in Burkina. Second, in relation to capital investment, it has been difficult to have an effective and quality public investment program. First, the selection process for identifying good investment projects has been cumbersome and weak. Second, the procurement chain remains complex and hampered by inefficiencies. Third, payment delays slow down the investment process. Fourth, there is unevenness in the flows of investment spending over a year, with the first six months being quite slow, and the last six months having faster execution. 2.7. Monetary and exchange rate policy continues to be well-managed at the regional level. Partly due to prudent monetary policy at the BCEAO, the inflation rate (annual average) was around 3.7 percent in 2012, although there were strong regional variations. Although there was a suspension of collection of CPI data between February, 2012 and June, 2012, due to lack of budget for motorcycle fuel for the data collectors and a misunderstanding between the Ministry of Finance and the INSD statistical agency, the issue has been resolved and alternative data sources collected by the Central Bank have been used for the period. There was some increase in local grain prices in deficit regions by more than 5 percent, but the national trends remained low. Burkina's currency, the CFA franc, is pegged to the euro: monetary policy will continue to support the fixed exchange rate regime and exchange rate developments in Europe will continue to affect Burkinabe competitiveness over the medium term. The real effective exchange rate increased by 1.1 percent in 2011, after depreciating by 8.4 percent in 2010. 2.8. The current account deficit is vulnerable to fluctuation in cotton prices, gold prices, and changes in the value of oil imports. Burkina is likely to remain vulnerable to terms of trade shocks. The current account deficit (excluding grants) has reached double digits in recent years, partly due to a decrease in commodity prices in the wake of the international financial crisis. Due to good export performance, large aid inflows, transfers, and remittances, the current account deficit (including grants) has narrowed to less than 5 percent in 2011 and 2012, after the prices of gold and cotton increased and is projected to decline further. 2.9. The pattern of exports has shifted significantly with the development of gold and other mineral resources. There has been an increase in the share of gold and cotton exports, which reached 75 percent of exports by 2012. Gold has recently overtaken cotton as Burkina's main export, increasing more than tenfold between 2008 and 2012, reflecting both the rising world price and increased production. At current gold prices, mining companies are expected to sustain existing production and increase investment in new mines. Over time, the share of mining in total exports is projected to increase even further. Cotton exports have increased by 25 percent in the same time period. 2.10. Job creation has remained a challenge. While Burkina has seen favorable growth, a combination of low productivity agriculture, a weak manufacturing sector, population pressures and the capital-intensive nature of the mining industry have prevented expansion in formal-sector employment. The majority of the population, mostly rural, remains locked in low-earning, often precarious economic activities. Unemployment measures are misleading: official statistics show unemployment at 1.8 percent or only 120,000 people in the entire country. The rural labor force suffers from conspicuous underemployment, low wages, and poor agricultural technologies. There are close to three million people doing unpaid work for 5 farms or household enterprises. Public spending to address employment issues, especially through labor market programs such as microcredit financing, programs to stimulate employability, and wage subsidies are fragmented, with limited coverage, and there is as yet no evidence on their impact or cost-effectiveness. 1 2.11. Employment growth has been hampered by a poor investment climate and poor justice service delivery. Burkina's investment climate has been an important factor impeding its growth prospects. While some business environment reforms occurred and private-sector support institutions were consolidated during the last decade, impact has been limited. Doing Business 2012 ranked Burkina Faso 150th out of 183 countries, or up one rank from 2011 and four ranks from 2010. In 2011, Burkina was ranked 4th among the most consistent reformers globally for the past five years. The country has made visible progress in regard to three indicators: starting a business, dealing with construction permits, and registering property. Improvements have included a reduction of processing time and of the number of procedures for starting a business (from 40 days and 12 procedures in DB 2005 to 13 days and 3 procedures in DB 2012). The ranking in dealing with construction permits has improved dramatically, from 207 days and 29 procedures in DB 2005 to 98 days and 12 procedures in DB 2012. The country halved the number of days and the procedures required to register a property (189 days and 8 procedures in DB 2005 compared to 59 days and 4 procedures in DB 2012). These reforms were made possible by streamlining procedures and setting up a one-stop-shop to assist private sector with business creation, construction permits etc. Private investment has also been hindered by the financial sector, which remains controlled by a handful of commercial banks. Beyond DB reforms, justice service delivery for private sector is challenging for the country as delays are observable. However, the Centre d'Arbitrage des Litiges set up within the Maison de 'Entreprise seeks to fill this gap in the medium term. 2.12. In spite of robust growth performance, Burkina Faso continues to have limited diversification and a weak manufacturing sector. As a percentage of GDP, the share of manufacturing sector has declined over the last few years, falling to about 9 percent in 2011 from over 11.5 percent in 2006. This is due to the large gain in mining in relative terms. Compared to countries in the sub-region, Burkina Faso has one of the lowest contributions of manufacturing to combined GDP growth. The declining share of manufacturing has been somewhat compensated by the increase in the contribution of mining sector which rose more than tenfold over the same period to exceed 12.5 percent in 2011 from less than 1 percent in 2006. There are several factors which have constrained the development of Burkina manufacturing in the last two decades. First, across almost all factors of production, Burkina is the most expensive in the sub-region. The cost of water as 1040 (CFA/m3) is almost double that of Benin and Togo, and the cost of energy for industrial use at 117 (CFA/kwh) is significantly higher than all the other countries, including the second most expensive country Mali at 74 (CFA/kwh). Second, the disadvantages of being landlocked in Sahelian Africa lead to high transport costs and long delays and penalize both exporters and importers. Third, since 1994, there has been a cumulative appreciation of the REER to 2011 of more than 10 percent, with the major drivers the being the strength of the euro and the exacerbation of inflationary pressures due to exogenous shocks. This has had an adverse effect on competitiveness. 2.13. Unequal income distribution and high population growth have further limited the poverty gains from Burkina's relative stability and growth. Due to large income World Bank (2011), "Social Safety Nets Review," Report No. 54491-BF, Washington, DC. 6 inequality and strong population pressures, welfare indicators have not improved much. The 2011 Human Development Report of the UNDP ranks Burkina 181s out of 187 countries. Recent estimates from the government statistics agency (Institut National de la Statistique et de la Demographie - INSD) show a headcount poverty rate of 46.7 percent in 2009, down from 51.0 percent in 2003, although the pace of decline was higher in rural areas. This was mostly motivated by cotton and mining expansion. At this pace the poverty rate of 35 percent envisioned for MDG1 in 2015 is unlikely to be achieved. Adult literacy remained below 30 percent when last measured in 2007, and malnutrition has remained at close to 10 percent since the mid-2000s. 2.14. Burkina Faso's vulnerability to shocks, particularly weather-related, has continued to affect the welfare of its people. Burkina Faso faces continuing vulnerabilities linked to its geography and climate. About 20 percent of the population suffers from chronic poverty and food insecurity. The scope and coverage of the existing social safety net (SSN) is limited, and most interventions are small in scale, temporary, and financed by external and ad hoc resources. Excluding fuel subsidies, spending on social safety net programs was about 0.6 percent of GDP on average during 2005-09. Food transfers are the main form of support in Burkina Faso, accounting for 69 percent of total SSN spending and over 80 percent of all estimated SSN beneficiaries in 2009. External financing remains an important source of finance to protect vulnerable populations. 2.15. While Burkina Faso has had significant growth and macroeconomic stability, that growth has not been very inclusive. First, the severity of the exogenous shocks, especially the food and climactic shocks, have had major effects on the household vulnerability. Empirical analysis conducted by the poverty team using micro data shows that, out of the 46.7 percent of poor, about two thirds, which represent 31 percent of the total population, are likely to suffer from chronic poverty (Batana, 2012). Moreover, about 45 percent of the Burkina's population was vulnerable in 2009. In a study of macro-micro linkages, Grimm and Guenther (2005) find that poverty increased from 1994 to 1998 in spite of good macroeconomic performance due to drought and the profound deterioration in the purchasing power of the poor. Volatile cotton prices have also not allowed agricultural capital formation to rise. Secondly, fiscal policy has been more oriented towards current expenditure and less towards quality public investment. Coupled with low private savings, this has led to low levels of capital deepening, necessary for inclusive growth. Finally, most of the recent growth has been driven by factor accumulation and not total factor productivity growth. 2.16. The Malian crisis is also starting to impact Burkina's fiscal situation and growth prospects, although estimates remain very preliminary. First, a part of the cost of feeding and housing the refugees has been coming from the government budget and has impacted other programs. A very preliminary estimate for 2013 suggests that the overall costs of spending for the Malian refugees can reach close to 1 percent of GDP, which can be shared by the Government of Burkina and the international community. Secondly, there will be pressure for government to expand current transfers instead of capital investment, leading to under- implementation of the SCADD agenda. Finally, if the Malian crisis continues unabated in 2013, it could reduce Burkina growth estimates for 2013 by as much as 0.5 percent of GDP if there is an impact on the security situation and if there is increasing conflict between nomadic and sedentary communities in the north of Burkina. 7 Table 2.1: Selected Economic and Financial Indicators (increase in percent, unless otherwise indicated) 2009 2010 2011 2012 (% unless otherwise indicated) GDP Real GDP growth 3.2 7.9 4.2 8.0 GDP deflator 3.4 2.8 5.6 4.4 CPI AND MONEY Consumer prices (annual average) -0.3 -0.3 2.7 3.6 Credit to the economy 1.2 8.9 13.6 10.7 FISCAL Fiscal balance (including grants)/ GDP -4.8 -5.6 -2.5 -3.2 Revenues/ GDP 13.7 15.6 16.5 16.6 Tax revenues / GDP 12.6 13.0 14.5 15.0 Expenditures / GDP 24.4 25.7 24.3 27.2 Current expenditures/ GDP 12.7 12.2 13.1 14.5 TRADE Current account (incl transfers) / GDP -4.4 -3.6 -1.1 -4.7 Exports ( CFA fob)% 34.4 67.4 35.8 21.0 Imports (CFA fob) % -8.3 29.6 24.5 31.5 Terms of trade (%) 19.2 0.1 10.6 4.1 Gold price ($ per ounce) 973 1224.7 1426.8 1758.3 Cotton price ($ US cents per pound) 62.8 103.5 154.5 97.3 INVESTMENT Total investment / GDP 16.7 19.0 15.6 18.4 Government/ GDP 8.1 8.5 7.1 8.8 Private/ GDP 8.6 10.5 8.5 9.6 DEBT Debt (npv)/ GDP 13.2 16.4 14.3 15.0 GDP (CFA billions) 3938 4368.0 4807 5421 Source: IMF staff and Burkina authorities B. MACROECONOMIC OUTLOOK AND DEBT SUSTAINABILITY 2.17. Growth is expected to reach 7 percent in 2013, but will continue to be reliant on commodity prices and therefore subject to downside risk. Reasonable agricultural production and a mining sector boom will help boost growth in the medium-term. Through 2015, economic growth is projected to remain strong and average 7 percent, mostly driven by 8 cereal, cotton, mining, and services sectors, as well as higher public investment in infrastructure. Medium-term forecasts assume that agricultural production will benefit from continued implementation of measures supporting higher productivity and that the cotton sector, despite volatility in international prices, will continue to increase productivity, in part through the extended use of genetically modified seeds. Over the medium term, cotton exports are projected to increase in volume terms by more than 50 percent, while gold exports are projected to increase gradually from 31.4 (MT) in 2011 to 34.9 (MT) in 2015. Strong gold prices and increasing domestic gold production are also expected to contribute to growth, as is higher value added in the manganese sector. 2.18. The current account is projected to improve in the medium-term. The current account deficit (including grants) is forecast to decline to 3.4 percent of GDP in 2015 from 4.7 percent of GDP in 2012. It is expected to improve over the medium term due to decreased imports of food in 2013 and increase in gold production and exports after 2013 as a result of mining companies' plans to expand capacity. International oil prices, which averaged close to US$ 95 in 2012, will also continue to affect the current account in the medium-term since Burkina Faso imports more than 70 percent of its energy requirements. However, expected increases in transfers and remittances will further boost the current account, while FDI inflows will boost the capital account. In a global environment marked by uncertainty, the mobilization of concessional flows to finance Burkina's balance of payments deficits may be challenging. The impact of the euro crisis can continue to be felt in 2013-2015 via a possible reduction in bilateral aid flows. The lack of strong financial links to Europe will prevent financial contagion from the euro crisis. 2.19. Prudent fiscal policy is expected to contain the fiscal deficit to levels that can be financed by donor aid flows. Over the medium term and in accordance with the macroeconomic framework prepared with the Fund, current spending is envisaged to be linked to domestic revenues, and aid flows can be used to finance the increases in investments planned under the SCADD. Combining increased revenue, moderate spending, and efficient PFM measures are expected to allow a reorientation from current spending to investment and reduce the fiscal deficit from 3.2 percent in 2012 to 2.7 percent by 2015. Under the IMF- financed program, revenues are expected to increase from 16.6 percent of GDP in 2012 to 17.2 percent in 2015, supported by higher tax revenue consistent with economic growth, increased revenue from mining, and administrative efficiency improvement. Expenditures are forecast to marginally decline from 27.2 percent of GDP in 2012 to 26.3 percent in 2015, following measures to control current expenditure increases. Pro-poor expenditure will continue to be protected. While the wage bill is expected to be contained, an increase in capital expenditures is forecast under the SCADD to finance infrastructure and address needs of vulnerable populations, although the execution rate of investment projects will continue to be an issue. 2.20. Monetary and exchange rate policy will continue to be set by the BCEAO. The medium-term outlook projects an average inflation rate of less than 3 percent over the medium term. A combination of prudent monetary policy at the BCEAO, resilient agricultural production, limited credit expansion by the banking sector, and the maintenance of the fixed exchange rate are all expected to contribute to keep inflation consistent with the WAEMU regional convergence criterion of 3 percent. Exchange rate management is assumed to support the peg with the euro. 9 2.21. Burkina is currently at moderate risk of debt distress under the joint Bank- Fund Debt Sustainability Framework, although the debt service ratios still remain low. Results from the latest Debt Sustainability Analysis (DSA) indicate that under current policies, all the key ratios remain well below indicative thresholds. The DSA indicates a significant improvement in Burkina Faso's debt profile, based on updated gold export projections and new end-2011 debt data. While none of the external debt ratios under the baseline scenario or standardized stress tests breach their respective indicative debt distress thresholds, a country-specific stress test that better reflects the high dependency on projections for gold prices does result in a minor breach of the indicative debt distress threshold for the present value of debt-to-exports.2 However, the narrow export base of Burkina suggests a need to maintain a prudent borrowing policy, relying mostly on grants and highly concessional loans. The baseline scenario includes concessional lending from IDA, with external budget support assumed to average more than 3.5 percent of GDP during 2017- 2031. The risk of debt distress is thus mitigated by the use of grant financing by IDA and similar policies on the part of other multilateral lenders (e.g., African Development Bank). However, Burkina needs to improve its debt strategy by implementing a Medium term Strategy (MTDS) consistent with international standards and code. A recent IMF-Bank joint mission has provided technical assistance to improve Burkina's MTDS. 2.22. Significant social challenges will persist, with large parts of the population vulnerable to poverty. Poverty will remain significant in the medium- term given structural factors. The budget for poverty-reducing spending, which increased from 5.3 percent of GDP in 2006 to close to 7.0 percent in 2011, is projected to rise above 7.5 percent by 2015. The trend toward more rapidly declining poverty rates, if it reflects greater agricultural resilience, stronger diversification, and greater mining contribution to local communities, is likely to continue, if reforms towards sustainable growth continue to be implemented. Still, better social safety nets remain a key challenge in order to reduce poverty faster. 2.23. Although the Government of Burkina Faso has made recent strides in combating poverty, there remains much room for greater poverty reduction. Results from the poverty assessment, conducted jointly with the Government of Burkina Faso's national statistics institute (INSD), point to a moderate decline in overall poverty. The national poverty headcount was estimated to be 46.7% of the population in 2009, while a comparable 2003 estimate hovered around 51 percent. The analysis shows that employment sector, education level and population growth are significant correlates of poverty. In fact, when poverty mainly affects agricultural sector, the lack of education proves to be a factor in deepening poverty, while the size of household, particularly young dependency, increases the likelihood of being poor. Thereby, poverty incidence remains concentrated in rural areas, where rates have been more than double compared to those of urban areas (although the pace of poverty reduction is higher in rural areas). There are also regional disparities: the percent of population living below the poverty line is less than 30 percent in two regions, Centre (Ouagadougou) and Cascades, while two other regions (East and North) face poverty rates in excess of 60 percent. 2 In the next DSA, there will be a reclassification of Burkina Faso from medium performer to strong performer due to higher CPIA ratings over the last three years. This will lead to a revision of the debt sustainability thresholds, which will give the country more flexibility in borrowing. A strong performer (CPIA > 3.75) is considered to be able to sustain a net present value (NPV) of debt-to-exports of 200 percent, and a NPV of debt- to GDP ratio of 50 percent. As a result, the new DSA in late FY 2013 will most likely lead to Burkina Faso being reclassified from moderate risk to low risk of debt distress and having a "green" light status, associated with 100 percent credits and zero grants. 10 2.24. Overall long-term growth projections remain positive but dependent on commodity shocks and on public investment efficiency, while inclusive growth will depend on the economy's ability for structural transformation. A policy scenario assuming SCADD implementation would predict a growth rate of close to seven percent, somewhat above the recent mean growth of 6 percent. Moreover, the mining sector and its contribution to total GDP are growing and likely to continue to do so with all the projects currently under development. Cereals and cotton will continue to be strong but with periodic volatility. The inclusiveness of the growth agenda and transformation will depend on the improvements in the barriers to competitiveness, including the high cost of electricity and capital, the barriers to trade, and the overall policy environment for the private sector. 2.25. Overall, Burkina Faso's macroeconomic framework is judged to be appropriate. Burkina is expected to continue to generate economic stability through prudent fiscal policies, strong financial assistance from donors, and membership of the regional economic and monetary union. Burkina will nonetheless also continue to face growth and employment challenges coming from its landlocked location, small domestic market, and reliance on commodity exports. Furthermore, Burkina's limited employment and poverty achievements, even against a backdrop of reasonable economic growth, underline the need for improvements in the environment for private-sector led job creation (as well as the challenge of reducing population growth). The program supported by the series aims to help Burkina Faso address these challenges. Table 2.2: Medium Term Macroeconomic Outlook 2012 2013 2014 2015 Proj. GDP at constant prices (%) 8.0 7.0 7.0 7.0 Consumer prices (annual average) (%) 3.6 2.0 2.0 2.0 Fiscal balance (including grants) (% GDP) -3.2 -2.6 -2.8 -2.7 Revenues (% GDP) 16.6 16.9 17.0 17.2 Expenditures (% GDP) 27.2 26.0 26.2 26.3 Current account (incl transfers) (% GDP) -4.7 -3.9 -3.7 -3.4 Terms oftrade (%) 4.1 -0.4 2.0 1.3 Gold price ($ per ounce) 1758.3 1760.0 1790.0 1830.0 Cotton price ($ US cents per pound) 97.3 97.5 98.0 93.0 Oil price ($ US per barrel) 100.0 99.5 97.5 96.5 Debt (npv) (% GDP) 15.2 14.6 14.6 14.7 GDP (CFA billions) 5421.0 5919.0 6457.0 7045.0 Source: IMF staff and Burkina authorities 3. THE GOVERNMENT'S PROGRAM AND PARTICIPATORY PROCESSES 3.1. The government's program is summarized in its Poverty Reduction Strategy Paper, the Stratigie pour la Croissance Accildrie et le Diveloppement Durable (SCADD). The SCADD aims at achieving double-digit GDP growth through 2015, reducing poverty to 35 percent by that time, supporting increased public and private investment, and tackling the 11 high pace of demographic growth. While focusing on progress towards the MDGs and poverty reduction, the SCADD's main objective is sustained economic growth. The strategy rests on four pillars: (i) the promotion of growth poles and the reduction of economic vulnerability; (ii) the development of economic infrastructure; (iii) investment in human development; and (iv) promotion of sustainable development. 3.2. The SCADD focuses on employment creation as the central economic challenge of Burkina Faso. The strategy tackles employment through supporting economic diversification, increasing investment in infrastructure and the energy sector to support productivity gains in the private sector, and maintaining momentum in structural reforms. The SCADD also proposes promotion of growth poles, reforms in the investment climate, and improvement in electricity infrastructure. The strategy does not propose public works programs or any deep alteration to labor market regulations. 3.3. Beyond the business climate, the SCADD acknowledges deeper challenges of governance and openness. The SCADD identifies governance as strategically important for Burkina Faso's development and provides a candid assessment of the importance of strengthening the rule of law, fiscal decentralization, and accountability within the civil service. The importance of continuing to strengthen internal and external controls to curb corruption and ensure accountability of public institutions is also stressed, as is the role of an independent and responsive judiciary and access to information by the population. 3.4. The strategy was developed during a participatory consultation process involving civil society and international donors. The SCADD was prepared based on the outcome of an extensive consultation process and thematic studies. Consultations were carried out with civil society, public and private sector actors, and development partners at national and regional levels. A website was put in place to gather contributions from the public. Studies of socio-economic conditions and sources of growth also provided inputs. 3.5. A Joint Staff Assessment Note broadly endorsed the policy directions adopted under the government's poverty strategy, although its economic growth targets are viewed as optimistic. Achieving an economic growth rate averaging 10 percent during 2011- 15 as envisioned under the SCADD seems optimistic. The JSAN suggested that it will take time for growth-enhancing programs to come to fruition and address existing impediments to growth. The JSAN also recommended that the authorities be selective and define key priorities compatible with implementation capacity, private sector participation, and available financing. 4. BANK SUPPORT TO THE GOVERNMENT'S PROGRAM A. LINK TO CAS 4.1. A new Country Assistance Strategy is under discussion with the government and other stakeholders. The current CAS covers the period 2010-12. The new CAS for 2012-16 is planned for completion by April, 2013 with presentation to the World Bank's Executive Board shortly thereafter. The new CAS will be aligned with the government's Strategy for Accelerated Growth and Sustained Development (SCADD). The current CAS (FY10-12) is aligned with the government's own strategy for growth and sustainable development. It aims to assist Burkina Faso in beginning to transform its economy, supporting equitable and shared 12 growth and making progress on human development, while providing flexibility to address the impact of the global recession. The strategy supports the government's commitment to improved governance and enhanced public participation aimed at improving public service delivery. It also develops results-focused approaches to issues of environmental preservation and demography. The CAS is clearly linked to the government's reform agenda, and the DPO, which uses the CAS framework, will ensure this local ownership of the reform agenda. 4.2. The main policy areas supported by the proposed series are in line with the current CAS and will continue to be supported by the new CAS. The proposed GC series is included in the upcoming CAS. The series closely complements the IDA investment lending program by supporting policy reforms needed to create the enabling environment for effective implementation of major investment operations in agricultural diversification and social service delivery. The 2012-16 CAS will be based on three strategic pillars: (1) accelerated and sustained growth; (2) sharing the benefits of growth through employment and education; and (3) building resilience and improving vulnerability. Governance will be a cross-cutting theme. The principles of the strategy are adaptability to economic crises, improved coordination across sectors, and improving the efficacy of aid. B. COLLABORATION WITH THE IMF AND OTHER DONORS 4.3. The IMF Executive Board approved an ECF-supported program on December 21, 2011 and finalized the Fifth Review of the ECF in December 2012. A joint Bank-Fund mission was in Ouagadougou in October 2012. World Bank and IMF teams meet regularly and collaboration has been close. Macroeconomic forecasts used in the preparation of the proposed series are fully consistent with those of the IMF. IDA and IMF staffs have coordinated closely on the identification of the respective institutions' areas of focus. The IMF finalized the Fifth Review of the Three-Year Arrangement under the ECF in December 2012. IMF and IDA staff are assisting the authorities in the implementation of the country's SCADD, providing them with technical assistance on resource mobilization and budget management. Twenty-seven donors currently jointly support the implementation of the government's strategy through budget support, sector programs, investment projects, capacity building and technical assistance. Investment projects account for two-thirds of external aid. The AfDB and the Bank have initiated a joint Country Partner strategy to support the implementation of the SCADD and to work in harmonization to help the authorities. 4.4. Deeper coordination of budget support was initiated following the adoption of the first Poverty Reduction Strategy, which encouraged aid harmonization and the use of country systems. This GC series has thus been built on strong coordination efforts with government and development partners. A framework for coordination of general budget support that has been developed since 2005 brings together all nine donors that provide budget support, including IDA (Box 4.1). Together, these donors account for more than 80 percent of total development aid to Burkina. The framework has been updated over time to facilitate a more focused and flexible approach to budget support, and will continue to underpin donor coordination under the SCADD for 2011-2015. 13 Box 4.1: Lessons from Donor Coordination/Harmonization The first attempt to harmonize donor activities dates back to 2002 with the signature of a Memorandum of Understanding (SBC-CSLP) between the EU, Denmark, France, Germany, the Netherlands, Sweden and Switzerland, with government approval. IDA and the AfDB joined the initiative in 2005, while the IMF has observer status. In education, donor coordination started at the same time with the Netherlands, Canada and IDA jointly designing their contribution to the government's ten-year program. This design was extended to include other donors in a cadre partenarial of pooled funds of seven donors (including IDA). In February 2005, the government led the setting up of a more inclusive framework, bringing all budget support partners into the General Framework for Organization of Budget Support (Cadre Gindral d'Organisation des Appuis Budg&aires) or CGAB). It focused on: (i) ownership; (ii) alignment; (iii) predictability; and (iv) a result-based approach, the CGAB is built around a joint performance assessment framework (CGAB matrix) which is the principal tool for coordination and evaluation. In February 2012, the government renewed the CGAB with eight donors following the same principles but more closely aligned with the SCADD's priorities. Under the CGAB, government monitors and evaluates on an ongoing basis with a formal performance evaluation session held at the time of the annual review of the SCADD progress report. All sessions are chaired by the Minister of Economy and Finance, supported by a secretariat made up of a representative of the administration and two donor representatives. Joint missions reduce administrative transaction costs. The current donor harmonization framework requires further work to rationalize the unified joint policy matrix, which should become more focused on the government's own strategic milestones. Future work will help design the Performance Assessment Framework of the government's new medium-term development strategy (SCADD) 2011-15. There is also a need to further streamline the role of the various monitoring and evaluation frameworks at the sector level. To this end, the government has drafted a guide on the preparation of sectoral M&E policies. This new M&E framework needs to be strengthened and more reliable data made available to inform its indicators. C. RELATIONSHIP TO OTHER BANK OPERATIONS 4.5. DPOs and investment operations support growth generation and social-sector service delivery in Burkina Faso. The current IDA portfolio in Burkina Faso is composed of 17 national projects representing a commitment of US$1,020 million equivalent (including the last PRSG) and six regional projects representing US$140 million equivalent. The portfolio's overall implementation performance is satisfactory. Amongst these, an IDA grant of US$115 million equivalent for the Bagr6 Growth Pole Project was approved in FY11 and seeks to promote private-sector investment and improve the PPP framework. The Growth Pole Project attempts to harness economies of scale and synergies between sectors by developing a critical mass of investments in selected growth poles, for the development of spatially concentrated value chains in which Burkina Faso has a comparative advantage. A US$60 million equivalent grant for a Local Government Support Project, which seeks to support fiscal and administrative decentralization in six of the 13 regions of Burkina Faso, was approved by the Board on November 1, 2011. The third phase of an adaptable program loan (APL) of US$90 million equivalent to support implementation of communal development plans is currently under preparation. A US$20 million equivalent Urban Capacity-Development project to provide support for urban communes in Burkina is currently under implementation. An IDA grant of US$28.9 million equivalent for the Reproductive Health Project was presented to the Board in December 2011. Preparation of the joint WBG/AfDB CAS was launched on December 5, 2011. A Youth Employment Project is under preparation. The GC program particularly complements the objectives of the ongoing Agriculture Diversification & Market Development Project (ADMDP), which aims to develop selected agricultural and livestock value chains. The GC GCF program also complements the recently approved DPO in the education sector, which seeks to deepen policy reform and 14 build capacity in basic education. Also, the Mineral Development Support Project ($33 million) effective in March, 2012, supports key reforms and capacity building, geological surveys, and enhancing benefits from the sector to communities. Finally, a donor conference to pledge funds for the government's new development strategy (SCADD) was held in Paris in February 2012. D. LESSONS LEARNED 4.6. The main lesson from policy in Burkina Faso in recent years has been that in the absence of broad-based economic growth and job creation, macro stability and social programs will not on their own have sufficient impact on poverty indicators. For this reason, the government (through the SCADD) and the proposed operation have built in a deeper commitment to cross-cutting reforms targeting private-sector development (such as transport costs), build greater resilience to shocks in existing labor-intensive sectors (e.g., cotton), and ensure that the fiscal benefits of the exploitation of natural resource (e.g., mining) are well managed and widely shared. 4.7. A further lesson from earlier DPO series in Burkina Faso is the need to be selective and strategic in scope - narrowing the choice and number of policy reforms to support - but ambitious in depth of reforms and their significance for economic growth, employment, and poverty reduction. Based on this reasoning, the proposed series focuses on obstacles to private-sector job creation, such as financing for small and medium enterprises, managing the volatility of input costs in the labor-intensive cotton sector, as well as supporting ambitious reforms with far-reaching consequences for economic governance, for example through improved justice sector performance. 4.8. A final lesson from past lending is the negative effects of providing finance out of sync with the government's own budget cycle. Past operations have at times been subject to delay, with the result that financial resources could arrive late in the government fiscal year, hindering government planning and resource use. Responding to this concern, the proposed series is designed to deliver two operations in swift succession (subject to the pace of reforms being maintained) and allow the series to align its operations better with the beginning of the government's budget cycle. E. ANALYTICAL UNDERPINNINGS 4.9. The GC series relies on a solid body of analytical work. The World Bank completed an in-depth Country Economic Memorandum in 2010. The CEM identified microeconomic constraints to growth and competitiveness, including needed reforms to the investment climate, credit intermediation, and improved access to global markets through transport links and telecommunications. The report underlined the importance of the cotton sector for rural employment and growth, as well as the potential in mining and tourism if these are well-managed. Lastly, the report underlined the size of the challenge of poverty reduction in Burkina Faso unless educational and other measures are taken to reduce the country's high fertility rate. 4.10. The formulation of the prior actions was based on several key analytical pieces. The development of the input fund was based on a joint WB -AfD analytical study from June 2012 on the creation and operationalization of the fund. The formulation of the customs 15 trigger and the justice sector statistics were based on parallel ESW work on competitiveness. This competitiveness note analyzing the constraints to manufacturing - exchange rate, factor costs, financial sector obstacles, transport costs, poor business environment, and slow justice sector - is currently under preparation, with a first draft prepared in December 2012. The prior action on food security is based on several studies, including the IFPRI 2011 Global Food Policy Report, and the public finance actions are based on an ongoing Public Expenditure Review, scheduled from completion in October 2013. 4.11. In relation the prior actions around investment climate, several recent surveys have assessed constraints to private-sector investment and growth in Burkina Faso. The Doing Business Report 2010 provides a survey of microeconomic constraints to business. In 2009, FIAS concluded its Summary Review of Tax and the Investment Climate, which surveyed the fiscal and institutional landscape for foreign investors. The MEBF (La Maison de 'Entreprise du Burkina Faso) has also produced a profile of entrepreneurs and analyzed the drivers of firm survival.3 4.12. In the context of the prior actions for the mining sector in the series, the Bank has produced two regional studies on mineral tax administration and increasing local content by the mining industry respectively, and the IMF has done some work on the fiscal issues in the mining code. The first one highlights the need to put in place systems, capacities, and physical and financial controls to ensure that mining companies are paying what they owe according to their contracts, and the second highlights the potential for wider linkages between the mining sector and local firms.4 Similarly in Burkina, a AAA study on the mining sector and enterprise development was carried out in 2011, showing the potential for increased employment and benefits of linking local firms with mining companies. In preparation of the IDA-financed Mineral Development Support Project, a political economy study of the mining sector was also carried out, which focused on the need for increased transparency and accountability in the management and oversight of the mining sector. IMF work has focused on identifying fiscal parameters which are not only helpful in attracting investment but also ensuring government and local communities an appropriate share of the revenues from the sector. 4.13. Poverty analysis based on the latest household survey data is ongoing. A Poverty Assessment has been finalized by the Bank team in collaboration with the Burkina statistical agency (INSD). The study's main goal was to estimate the household poverty levels in Burkina in 2009 and then to compare this measure with comparable estimates from 2003 to assess the change (the poverty rates cited above in the document). The work will provide analytical support and policy direction for future IDA-financed DPOs. Etude sur le profil des crdateurs d'entreprises et d'dvaluation de la mortalitd des nouvelles entreprises, Preliminary Report, June 2010. 4 Improving Mining Tax Administration Collection and Frameworks (World Bank/Center for Exploration Targeting, 2012, forthcoming) and Increasing Local Procurement by the Mining Industry in West Africa (World Bank, 2012). Burkina Faso: The Mining Sector and Business Enterprise Development (World Bank, 2011). 16 5. THE PROPOSED OPERATION A. OPERATION DESCRIPTION 5.1. The proposed operation will be the second in a series of four programmatic DPOs from May 2012 to December 2014. The third and fourth operations are envisaged for December 2013, and 2014, respectively, to be synchronized with national annual budgets. The proposed operation will be financed under Burkina Faso's allocation under IDA 16. Policy actions have been defined in advance through an extensive consultative process under the joint donor framework.6 The overarching objective of the series is to promote private-sector led growth. While the series consolidates past reforms in the cotton sector, transit facilitation, public finance management, and mining sector transparency, it also introduces new areas, notably judicial reforms, decentralized services, and food security. The proposed operation will have 8 prior actions focusing on growth, resource management, and vulnerability. The eight actions will relate to cotton inputs, mining transparency, justice sector openness, anticorruption measures, public finance reform, and food security. An action related to the audit of customs will be shifted towards the GCG-3 in December (discussed in para 5.15), and an audit of the Court of Accounts will no longer be in the operation (discussed in para 5.41). 5.2. The proposed second operation will support the government's SCADD implementation. GCG-2 has been designed following established good practice principles of development policy lending (Box 5.1). The development objectives of GCG-2 are the following: * Catalyze private sector growth and employment with three intermediate results: (a) development of an input fund for cotton and improved competitiveness of cotton sector; (b) improvement in production of cash crops through easier access to fertilizer for the non-cotton sector; and (c) improved customs efficiency to reduce cost and waiting time for transit. * Improve governance and public resource management with three intermediate results: (a) greater transparency in the mining sector and compliance with EITI; (b) improved justice sector efficiency and transparency; and (c) greater efficiency and transparency of public resource use through increased delegation of authority to line ministries and institutional strengthening of the external audit agency. * Build resilience and reduce vulnerability with three intermediate results: (a) improved transfer of funds to decentralized communities; (b) stronger microfinance access, especially for women; and (c) a strengthened institutional framework for monitoring food security and greater food distribution to poor vulnerable areas. 6 The mix of grants and credits will be based on the risk of debt distress per the Joint Bank-Fund Debt Sustainability Framework for Low-Income Countries. IDA rules stipulate that countries at high risk of, or in, debt distress are eligible for grants, while countries at moderate risk of debt distress can obtain a 50-percent mix of grants and credits. 17 B. POLICY AREAS Pillar I. Catalyze Private-Sector Growth and Employment I (a) Increase resilience, productivity, and employment in the agriculture sector Challenges 5.3. The variability of input (particularly fertilizer) costs in recent years has posed a challenge. While the costs of other inputs, such as seeds and pesticides, have been fairly stable, fertilizer prices have fluctuated in recent years, quadrupling in 2008, falling briefly in 2009, and then increasing by more than 30 percent in 2011 and 2012. African cotton producers are highly sensitive to fertilizer prices: in Burkina, a 10 percent increase in fertilizer prices is estimated to reduce net margins by 18 percent. For the past 8 years, the Government and cotton companies have used subsidies to cushion cotton farmers against surge in input prices. The provision of fertilizer subsidies for the cotton sector comes with a high fiscal cost. In order to bring the 2012-13 input prices back to 2011-12 price levels, the Government provided US$20 million in public subsidy on top of the US$25 million subsidy provided by ginning companies, but international prices remain highly volatile. Thus, there is a need to define alternative agricultural input credit mechanisms for the cotton sector. 5.4. There are several deficiencies in the supply chain for inputs in Burkina. First, small-holder farmers, especially those growing staples, have not been able to get financing to purchase inputs because of high interest rates and stringent collateral requirements. Second, because of economies of scale in production and procurement of inputs, countries like Burkina that use small quantities of several products pay high prices for the product and for its shipment. Third, the small market size also limits opportunities to promote competition among suppliers in Burkina. The private sector is allowed to import fertilizer but it is not involved in its distribution, as the government does not solicit bids from the private sector. In the cotton sector, fertilizers are provided by the cotton ginning companies, but in the non- cotton cash crop sector, they are provided by the government in low volumes and with considerable delay. Landlocked countries like Burkina typically must absorb US$50-100 per ton in additional transport costs to have goods delivered from the nearest port to their own border, thus contributing to higher prices. 5.5. The GCG-2 proposes a new input fund to address some of these issues. The input fund will address cotton first as that is the dominant crop. A recent joint mission of the Bank and the AFD in July, 2012 found that an input fund could bring about savings in the order of 13% on the cost of acquiring imported inputs. The estimated financing needs for an input fund have been CFA 40 billion, on the assumption that it would directly fund the financing of input imports, and based on 100,000 tons of fertilizer imports, sufficient to meet demand for 500,000 ha of cotton. The legal and financial structure of the input fund has been put in place by December, 2012. The goal has also been to enable financing a part of the acquisition costs of inputs for the 2014/15 cotton season using the Fund. The tentative calendar established by the cotton inter-professional association - AICB - for establishing the Fund is: final report 7 The government has provided $6-7 million in fertilizer subsidies to the cotton sector each year since 2003, with the exception of 2007-09 when government provided $13-14 million per year. Between 2010-12, cotton companies were also called upon to provide additional subsidies ($2.5 million in 2010-11 and $12 million in 2011-12). 18 with draft regulatory documents (mid-June); adoption of statutes and creation of the Association for the Fund (end July); adoption of regulatory documents (August-September); recruitment of the commercial bank for fund management (October-November). The work has now been finalized as of December, 2012, including the preparation of draft manuals and the creation of the Association for the Cotton Input Fund. 5.6. The fund would help provide a system of revolving credit for input procurement for the cotton sector and would help ensure savings by allowing ginning companies to purchase fertilizers on the spot market at the right moment at discount prices. The input fund, which will be capitalized in a bank as a special guarantee fund, would provide a financing option to the ginning companies for their procurement, through competitive bidding, of fertilizer imports. Thus, the input fund will provide the companies the resources to buy cheaper fertilizer for cotton production.9 The input fund is not expected in the short run to generate a volume-induced price discount, because price discounts on fertilizers come mostly from purchasing fertilizers in the spot market at the right moment (taking advantage of windows in world fertilizer market when prices are lower on average). The input fund guarantees that resources will be available at the right moment to seize lower price swing opportunities in the world fertilizer markets. 5.7. The creation of the input fund responds to a significant market failure - the failure of financial markets. The rationale for government involvement is that the cotton ginning companies do not have sufficient access to financing to finance imports of fertilizer. The input fund can be used to guarantee the purchase of fertilizers on credit by cotton companies, thereby minimizing default risk and reducing the related high risk premiums that input dealers often charge cotton companies. Savings generated will be in terms of reduced bid prices (relative to the baseline scenario with no input fund), and these economies are expected to the transmitted to farmers through relatively lower fertilizer prices. In the longer run, the experience of the input can be extended to non-cotton input purchase, and the greater volume could potentially be leveraged into further economies on purchase prices. The cost savings of the cotton companies will then be passed on to the farmers.10 5.8. The GCG-2 supports the initial capitalization of a fund for 10 billion CFA and its governance structure. The initial capitalization will depend on resources available, and the chosen financial operation of the Fund. For 100,000 tons of imported fertilizer, the Fund capitalization will be an initial amount of 10 billion CFA for the guarantee fund. Stakeholders have agreed that the Fund should be governed by an Association comprised of the farmers' 8 Regular subsidies from the budget will continue per the government's program and based on the agricultural shocks facing farmers. Subsidies to farmers to finance their use of inputs until payment of these at the time they sell their cotton will continue. 9 Under the existing system, the ginning companies individually procure fertilizer imports, and based on delivery prices offered by suppliers, discuss within the AICB and with Government a pan-territorial price for the transfer of the fertilizer to farmers, on credit. 10 Farmers currently acquire the inputs through credit arrangements that are, and would remain, separate from the Input Fund mechanism. The credit is taken at the time of fertilizer delivery to the farmer, provided by the commercial bank(s) with which each ginning company works. The credit is paid when the farmer delivers cotton to the ginning companies, deducted by the company from the payment it makes to the farmer for the cotton, with the equivalent value paid by the company to close the farmer credit for the input. Regular subsidies from the budget will continue per the government's program and based on the agricultural shocks facing farmers. Subsidies to farmers to finance their use of inputs until payment of these at the time they sell their cotton will continue. 19 union (UNPCB) and ginners' organization (APROCOB), and supported by establishment of a technical team. A bank would be contracted to manage the Fund's transactions. Information would be provided for: regulatory documents (statuts, reglement interieur), operational manual describing the Fund functioning (reglement technique); bidding documents for selecting the bank for managing the fund; fund financing proposal. 5.9. For the non-cotton sector, the GCG-2 will support the fertilizer supply in so far as there are leakages from the cotton subsector. Leakages (use of inputs purchased from cotton ginning companies but used to produce non-cotton crops) from the cotton subsector represent at least one-third of total fertilizer demand from cotton, and have exceeded 50 percent in years of drastic decline in relative prices of cotton to cereals (e.g. 2006 and 2007, as shown in a recent study on agricultural inputs in Burkina Faso). Producers of the non- cotton/non-horticultural subsector are atomized and unorganized and therefore operate in an open channel (as opposed to the single, integrated, channel within which operates the cotton subsector). Demand is limited and the risk of fertilizer credit default is highest in this subsector, which explains why this market fails. The input fund will continue to finance the share of fertilizers that are leaked to this subsector, thereby contributing to increase productivity, maintain adequate soil nutrients level, and ensure greater food security. Reforms and Medium-Term Objectives 5.10. The proposed GCG-2 will tackle the cotton issues in a sequenced fashion. The proposed GCG-2 aims at consolidating and reorienting the cotton sector reforms initiated under the previous series. Past operations have supported structural reforms of the cotton sector to improve the efficiency of the vertically integrated supply chain, reduce the state's share in the sector, strengthen the producer associations, and enhance the competitiveness of the ginning companies. Under the reforms supported by the GCG-1, the new producer price formula to determine producer prices has been launched and the accompanying stabilization fund has been well-capitalized. Second, a measure was launched to increase private sector involvement in fertilizer distribution for the non-cotton sector. The government will continue to involve the private sector in the import and distribution of fertilizer destined for the non- cotton sector. 5.11. For the GCG-2 operation, an input fund for cotton will be capitalized with CFAF 10 billion. The fund is expected to be capitalized through a combination of government and donor resources, and it will be managed by a combination of the private farmers' association and the cotton ginning companies, with technical support from the banking sector and overseeing responsibilities for the State. The third and fourth operations will support efforts will continue to support the capitalization of the input fund. 5.12. For the GCG-3 and GCG-4 operations, there will be measures to improve the participation of the private sector for the provision of inputs for the non-cotton sector. Increasing greater private-sector involvement in the distribution of fertilizer for non-cotton is envisaged through greater effort by the government to involve them in the bidding and distribution process and measures to build private sector capacity. The eventual goal is to have the private sector distribute fertilizer for non-cotton crops so that there can be lower prices to farmers, more timely supply, greater variety in fertilizer formulations to meet local requirements, and production diversification. 20 Prior Actions and Triggers Prior actions for GCG-2: * Creation, operationalization and capitalization of the input fund based on the manual prepared by the producer association AICB and associated legal documents (capitalization of at least 10 billion CFA). Triggers for GCG/G-3: * Use of input fund to distribute inputs to farmers for agricultural season 2014-2015. I(b) Cut Transport Costs Challenges 5.13. As a landlocked country, Burkina faces high costs of transport, which discourage investment and increase the costs of inputs. Burkina's external transit corridors are among the costliest and slowest in the world, and transport infrastructure has failed to keep pace with growing demand. Domestic importers in Burkina are forced to pay a sizeable 28 percent of the FOB price for imports (compared to a world average of 6 percent and a sub- Saharan African average of 10 percent). The three main transit corridors to reach Burkina Faso from the coast via Tema (Ghana), Lome (Togo) and Abidjan (Cote d'Ivoire) suffer from delays, high costs, high profit markups and poor service quality along the entire corridors. 5.14. There are three factors mainly responsible for the high cost and slow pace of external transit. The first two center on the regulatory environment and policy regime for transport, common features in West and Central Africa. First, there are bilateral transit treaties, which establish quotas for freight allocation for the fleets of coastal and inland countries according to a two thirds/one third ratio (quota system). Second, at the principal ports of entry, there is currently a queuing system (tour de r6le)12 used to allocate cargo. This practice has increased wait times for trucks, limited competition, protected inefficient truckers, and reduced the number of trips per truck. This has in turn encouraged overloading and discouraged investment in new equipment. A proliferation of small truckers in the queue, who are not professional transport providers, is impeding the overall efficiency of the port. The ports of Tema, Lome, and Abidjan are major bottlenecks on the import side for Burkina Faso as almost half the standard time and more than half the additional delays occur during the port and customs clearance processes. Third, there is a multiplicity of 1 UNCTAD (2008) estimates that the direct economic costs of being landlocked for Burkina are close to $ 60 million, which amounts for about 5 percent of Burkina's export revenue. Radelet and Sachs (1998) find that transport costs in Africa are 50 percent higher for landlocked countries. 12 The "tour de role" system is a system in the ports of many Francophone Africa countries which establishes the parameters under which goods are cleared. Essentially, the system caps cargo loads and truckers' revenues, leading transport providers to try to maximize their revenues by bribing freight bureaus, customs officers, and police to allow overloaded vehicles. "In the previous DPO series, several reforms were conducted: (i) carrying out of a census of truckers and their freight transport business and equipment, (ii) carrying out of a study to evaluate the social and economic impact of eliminating regional freight transport quotas and the truck queuing system for allocation of cargo among truckers, and (iii) on the basis of such census and study, adoption of a time-bound action plan for the elimination of such quotas and truck queuing system, such plan to include consultations with the transport unions, as well as with representatives of neighboring coastal countries and landlocked countries on such matters. Discussions with neighboring countries on these issues have started, and a regional DPO is envisaged to address these issues. 21 checkpoints along Burkina's international transit corridors in each of the coastal countries that further increases the cost of travel. 5.15. The proposed GCG-2 operation has supported the process to start the audit of Ouaga Inter, an important measure to improve the business environment, but the trigger will be reformulated and moved to the third operation in order to obtain more substantive results. One factor that has hurt Burkina's business environment is the high costs and clearance times at the customs clearance yard in Ouagadougou. Waiting times for standard customs clearance make it hard for private sector importers to do business and lead to a proliferation of bribes. On top of the costs associated with the coastal countries' trade corridors and transit systems, a large part of the transit problem resides in Burkina itself at this point of entry. Recent estimates indicate that more than 50 percent of informal costs along the critical Tema-Ouagadougou transit corridor are incurred at the Ouaga Inter customs clearance yard in Ouagadougou.13 In February 2012, the Director General of the Customs Directorate was replaced due to allegations of misappropriation of resources. His successor was appointed in February, 2012 with a mandate to streamline customs procedures and improve efficiency for private business. After issuing of terms of reference, a procedure-based audit with a reputed agency has started to examine the customs clearance process. 5.16. The proposed audit has been delayed due to capacity constraints and elections at end of 2012, so the government is being given additional time to complete the activity. A preliminary report detailing the procedural and organizational customs barriers for the private sector is envisaged for late February 2013. This report, prepared by a consulting firm, will give the first set of empirical benchmarks contrasting the legal texts and procedures with the actual practice on the ground. The prior action for the customs audit is no longer included in the matrix for GCG-2, but the adoption of the key recommendations from the audit is envisaged as a prior action for BF GCG-3 in December, 2013. The goal of the reforms will be to have a customs clearance process that will help facilitate private business. Reforms and Medium-Term Objectives 5.17. A more dynamic and fair customs administration will be vital as Burkina improves its business environment and moves to improve its integration with the world economy. A shared vision is needed between the Burkinabe authorities and the private sector to tackle corruption and improve customs procedures. Central elements of the medium-term vision for customs processes include: the professionalization of the customs administration, the simplification of customs procedures and increased computerization of operations; streamlined customs procedures for certain companies; and wide availability of documents and international customs manuals. 5.18. A more stable and efficient transit corridor would reduce the costs of doing business and catalyze private investment, but that problem can be solved only at regional level. For the region as a whole, there is a need to coordinate the removal of the queuing system with landlocked countries, and establish a system to measure the progress in relation to freight liberalization. Furthermore, there is the need to eliminate regional trucking quotas, to be reached on the basis of consultations with coastal countries. On a regional level, it is important to support a functional internal market within the WAEMU space, so as to 13 USAID (2009). 22 remove border controls among the WAEMU countries and help reduce transport costs related to customs clearance and transit delays. 5.19. The GC series will support the government's reform agenda in relation to customs and provide a continuation of the reform momentum from the previous DPO series. The previous series provided the foundation for continued improvement in transport through various reforms to foster liberalization of the sector. As a follow-up, the government plans to conduct a formal audit of the customs clearance processes. It will compare the actual waiting times with the waiting times defined in the texts. The third operation GCG-3 will support the government to implement the short-term measures recommended by the audit. The goal is to improve the efficiency of customs for private business operators and to reduce corruption and effect greater adherence to procedure. The fourth operation will support deeper customs reform and the suppression of the queuing system. In parallel, a planned regional DPO aims to address interconnected transport problems in the region since there are some problems that cannot be handled at the national Burkina level. The team's overall perspective is that proposed regional actions can help improve outcomes related to waiting time and axle overloading and complement national efforts. Prior Actions and Triggers Trigger for GCG-3: * Adoption of recommendations ofprocedure-based audit of the customs clearance procedures in Ouagadougou to improve customs administration and business environment. * Support to renewal of trucking fleet through a guarantee scheme. Pillar II. Improve Governance and Public Resource Management H(a) Build transparency and accountability in the mining sector Challenges 5.20. Mineral resources have been the main export commodities in Burkina Faso since 2009. Government fiscal and legal reforms in the mining sector have attracted important foreign direct investments, notably in gold mining and exploration. According to the National Mining and Quarrying Directorate, gold production rose from 811,000 ounces (23 tons) in 2010 to 1.13 million ounces (32 tons) in 2011. The growth of the sector has continued with the opening of the largest mine so far, Essakane, with an output of 337,000 ounces/year in 2011. Further developments are expected on gold, manganese and zinc. The large-scale industrial mining sector generated close to 5,000 direct jobs in 2012. 5.21. One of the major challenges is to ensure that the rapidly growing mining sector contributes to the government's fiscal accounts and to the overall economic development of the country. The expansion since the mid-2000s has helped Burkina achieve an average real GDP growth of more than 5 percent since 2006. In 2011, Burkina Faso earned 127 billion CFA (US$247 million) from the mining sector. Between 2007 and 2011, it brought in 440 billion CFA, accounting for 64.7 percent of all exports and 8 percent of GDP. Mining has replaced cotton as the country's dominant foreign exchange earner, and Burkina's goal is to join the ranks of Africa's top producers, such as South Africa and Ghana (3 million ounces in 23 2010). It is the 3rd biggest site for gold exploration in Africa. Part of the reason for the relatively low contribution to GDP are the fiscal incentives and exemptions included in the 2003 mining code designed to attract investment in exploration, similar to what was done in neighboring countries such as Mali and Ghana a few decades ago. The royalty rate for gold was increased from 3 percent to 5 percent in 2011. Discussions are underway to improve the fiscal contribution of the sector through a streamlining of the code and potentially higher corporate income taxes (currently at 17%). The first operation GCG-1 helped improve the collaboration between the Ministries of Mines and the Ministry of Finance to ensure that revenue data was accurate and consistent. 5.22. The proposed operation GCG-2 will support the public dissemination of the EITI report for Burkina. Burkina Faso is currently a Candidate Country for the Extractive Industry Transparency Initiative (EITI), the foremost international voluntary initiative in relation to natural resource management. EITI is also an important space for tripartite dialogue on mining sector issues between government, companies, and civil society. The first reconciliation report covering revenues for 2008 and 2009 was published in March 2011, and the second more comprehensive report covering revenues paid and received in 2010 was published in June, 2012, and it is on the Burkina EITI website. The second report has been an improvement in terms of resolving discrepancies. Burkina underwent a validation process on the first report and was declared "near compliance" by the international EITI Secretariat. It was in compliance with 18 out of 21 criteria, but failed on three by not including all companies in production in the last few months of 2009 as well as stakeholder satisfaction with the process. The report released in 2012 rectifies these issues, and Burkina EITI continues to make progress on the recommendations from the validation report by disseminating the report in mining communities and through popular communication. An exemption was made in January, 2013 for Burkina to have a lighter form of validation for the three remaining minor criteria, with a new deadline of April 25, 2013. Reforms and Medium-Term Objectives 5.23. The objectives of the mining sector reforms are to ensure greater revenues, transparency and contribution to economic development. The goal of the reforms will be to ensure that the mining sector regime continues to attract world-class exploration and mining companies but at the same time ensure a fair contribution to government finance. A fiscal regime increases the sector's contribution to government revenue should be an important pillar of the revised Mining Code. Moreover, increased transparency on revenue and production will aid Burkina's EITI compliance. 5.24. The GC series will support the government's reforms in a phased manner. The first operation supported the government's move to strengthen systems for revenue collection, including financial controls, and collaboration between the Ministry of Finance and the Ministry of Mines. The second operation GCG-2 will support the disclosure of the EITI report. The third and fourth operations will focus on submitting a revised Mining Code to Parliament that addresses the government's fiscal considerations and environmental concerns as well as establishing a social development fund to increase the mining companies' contribution to local communities. The new mining code would rebalance the taxation regime to align it better with best international practice. Technical assistance will help the authorities in the revision of the code. 24 Prior Actions and Triggers Prior action for GCG 2: * Public dissemination of the second EITI report, that provides comprehensive statements on mining revenues collected in 2010 (licenses, royalties, income tax, etc.) from all operating mines Trigger for GCG/G-3: * Submission of revised Mining Code to Parliament adhering to international best practice for fiscal, environmental, and social standards. II. (B) Justice Sector and Governance Challenges 5.25. The justice sector has performed poorly. Despite reform efforts since 2000 and the Ministry of Justice's adoption of a National Justice Sector Policy (2010-19) and Triennial Action Plan, the justice sector is widely perceived to be in need of further reforms. First, the sector is considered burdened by clientelism and weak administrative capacity. Second, the perceived limited autonomy of judges, coupled with inadequate resources, also hinders efficiency in the courts. Third, there is a perceived lack of transparency in the system, which supports a culture of impunity and under-performance. Access to justice by vulnerable groups is constrained by a variety of factors, including distance, income, and a lack of trust in the system. Together, these factors hinder the efficiency and transparency of the sector, which in turn impacts upon the judiciary's role in (i) controlling executive action; (ii) sanctioning corruption; (iii) upholding the rule of law; and (iv)maintaining rule-based systems that promote private sector investment. 5.26. Private sector activity is particularly affected by the dysfunctions in the judiciary. The poor performance of the sector has consequences for development: many private investors are discouraged by the costs and delays in resolving commercial disputes, the challenges of enforcing contracts and what they continue to perceive as the poor quality of decisions. Whilst delays have reportedly decreased in the Commercial Court of Ouagadougou in the past year as a result of recent government efforts, financed by the Investment Climate Facility for Africa (ICF), to introduce information technology in the courts, delays are still relatively long and complaints from court users persist regarding the quality of the decisions and the challenges involved in enforcing judgments. 5.27. A central challenge to justice sector reform in the country is the limited availability and reliability of statistics on judicial service delivery. While the Ministry of Justice has attempted to publish statistics on the performance of the judiciary since 2007, the statistical reports have often been published late, the reliability of the data is frequently contested and the statistical information provided is not comprehensive and does not permit a thorough analysis of sectoral performance. Reliable and up to date statistics are essential for enabling the Ministry of Justice to accurately analyze the extent and source of inefficiencies in the courts in order to better target reforms and monitor reform implementation. 5.28. The first operation GCG-1 addressed the issue of the regularity of publications on statistical information in the sector. Delays in the publication of yearly statistical information limited the ability to contemporaneously analyze problems in the sector. Prior to 25 June of 2012, the most recent statistics available for the sector were from 2009. However, in line with the prior actions for the first budget support operation, the Ministry of Justice collected and published the official statistics covering 2010 and 2011 on the judicial sector's activities in June 2012. This has enabled a more up-to-date overview of the sector, including the extent of delays in certain courts, the extent of the (real) demand for judicial services and the allocation of human resources across the jurisdictions. The scope of the statistical data that has been collected is still limited, but it is growing. 5.29. The GCG-2 will target improvements in the scope of statistical information collected and the processes for collection by supporting a formalized Ministerial framework for data collection and reporting by the jurisdictions. At present, court clerks in each jurisdiction are responsible for annually collating and submitting specific information from the court registries to a statistical analysis unit in the Department of Planning of the Ministry of Justice. The extent of the information collected is limited and does not permit the collation of critical performance statistics such as the average delays to judgment for some jurisdictions and the workloads of jurisdictions. The process for data collection is also problematic - responsibilities for data reporting are often delegated within jurisdictions, reporting is frequently delayed, the information conveyed is sometimes inconsistent and the statisticians in the Ministry regularly need to duplicate the data collection at the level of the jurisdiction. There needs to be a clear institutional framework for the collection of statistics that designates who collects the data, how the data is collected and the frequency and that clearly sets out the data that is needed to develop statistics that are critical to measuring sectoral performance. 5.30. The proposed prior action will further consolidate and expand the existing framework. The action encourages the Ministry to formalize the process, provide the jurisdictions with more detailed guidance on collecting statistics (through the revised procedural manual) and expand the scope of data to allow the Ministry to develop a more comprehensive annual assessment of justice sector performance. The principal risks associated with this are the lack of capacity in the jurisdictions and weak budgetary provisions for statistical collection in the Ministry. The measure will be followed up by technical assistance from donors (including a 8 million euro project to provide assistance in this regard and an IDA operation on governance). 5.31. Corruption also represents a significant challenge to good governance and growth in Burkina Faso. Over the last five years, the country has ranked above or near the regional average with respect to several indicators on corruption,14 but with limited overall improvement in ranking. The recent parliamentary investigation into procurement processes, together with the annual reports of the Supreme Audit Institution (Cour des Comptes) and the internal auditor general authority (Autorit6 sup6rieure de contr6le d'Etat (ASCE)) demonstrate the persistence of corruption in the public administration. On 13 September 2012, Prime Minister Luc Adolphe Tiao reaffirmed the government's commitment to tackling corruption and announced eight targeted measures to monitor and accelerate investigation and judicial processes and re-animate national discourse on corruption and governance. 14 Tranparency International ranked Burkina 100 out of 182 in its Corruption Perceptions Index. 26 5.32. Over the last decade, the government of Burkina Faso's commitment to fighting corruption has yielded mixed results.15 In 2000, the government adopted a national policy on good governance, and later in 2006, ratified the United Nations Convention against Corruption (UNCAC) and adopted a National Anti-Corruption Policy (Politique National de Lutte Contre la Corruption). Since 2007 both the former Prime Minister Tertius Zongo and the current Prime Minister Luc Adolphe Tiao have expressed support for and commitment to the fight against corruption.17 With the support of donors, this commitment has primarily resulted in the strengthening of public financial management as well as the strengthening of institutional oversight mechanisms, including the strengthening of the capacity of the Court of Accounts and the creation of the Autorit supirieure de contr6le d'Etat (ASCE), an internal inspection agency. Established in 2007, the ASCE is a semi-autonomous agency under the Prime Minister's authority responsible for the implementation of the National Anti- Corruption Policy, and entrusted with the power to ensure compliance with laws and regulations governing administrative, financial and accounting practices in all public institutions, as well as the power to investigate economic crimes and corruption that are then referred to the courts. While the investigation of corruption has improved, with reports now published on an annual basis by both the Cour des Comptes and the ASCE, the sanctioning of corrupt practices remains limited. The courts, responsible for prosecuting and deciding upon cases of corruption, have to date been very slow moving. 5.33. There are some challenges to developing an anti-corruption tool. The main challenge is linked to the existing availability of relevant disaggregated sectoral data as the ASCE intends to work with the line ministries over time to encourage the collection of additional data related to corruption in the sectors. The Bank team's parallel work on measuring justice sector performance will help complement the government's efforts. 5.34. Burkina currently lacks an objective national monitoring and evaluation system with well-targeted indicators to measure and focus anti-corruption efforts. The dialogue between the government, the development community and other stakeholders is currently not anchored upon a regularized and comprehensive assessment of the prevalence and type of corruption in the country, nor the trends in corruption over time. This impedes a constructive reform-oriented public dialogue and limits the extent to which the government can target its anti-corruption strategy. While there are a range of existing sources of information on corruption in Burkina (including parliamentary investigations, the annual reports of the Cour des Comptes, the ASCE and reports or surveys produced by civil society (i.e. Riseau national de lutte anti- corruption (RENLAC)), media reports, as well as international sources such as Transparency International), many of these provide aggregated assessments of corruption globally and no attempts have been made to consolidate the different information. 1 According to a study done by Reseau national de lutte anti-corruption (REN-LAC), an organization dedicated to guaranteeing good governance in Burkina Faso, in 2010, 90% of those surveyed believed that corruption was on the rise in the country. Transparency International rated the country at 100 out of 183 countries. 16 For example, Burkina is a member of the United Nations Convention against Corruption (UNCAC) and the African Union Convention on Preventing and Combating Corruption. Burkina Faso ratified the UN Convention against Corruption on 23 June 2006. Burkina ratified the African Union Convention on 29 November 2005. 17 For example, Burkina recently conducted an assessment within the framework of the Africa's Self Assessment for Improved Good Governance (APRM). The APRM is an African self-monitoring and peer review mechanism. Launched in 2003 by the African Union, it is a mutually agreed instrument voluntarily acceded to by AU Member States. 27 5.35. The GCG-2 will support the ASCE in developing a national tool to better monitor corruption and evaluate anti-corruption efforts in the country. With the support of development partners and on the basis of other national experiences, the government is in the process of reflecting on the design of a national monitoring and corruption tool18 to collect primary data on corruption to create a detailed diagnostic on the prevalence and on the type of corruption in Burkina on a yearly basis. There are several challenges involved in the development of the tool, including limited available data and weak capacity. The government has indicated a preference for taking a gradual approach - starting with a simplified tool which will be developed and enhanced over time.19 Initially, the ASCE plans to focus on three sources of primary data: (1) the justice sector, which provides information on the number and type of corruption cases dealt with annually in the justice sector and their frequency and difficulties that arise in the management of these cases, (2) public finances that provide information on accounting irregularities, such as the diversion of funds, unjustified expenditures, and payment delays; and finally (3) household and private sector surveys that provide information on actual experiences and perceptions of corruption at all levels of government. The tool will also identify implementation arrangements (who will lead the process of collecting, analyzing and diffusing the data) and plans for expanding the scope of information collected and analyzed (priority sectors). 5.36. GCG-3 and GCG-4 will support further justice sector and governance reform. In addition to strengthening investigative and analytical capabilities, the adoption of more robust laws to enhance accountability among government officials in the use of public resources is important. While a law on the declaration of assets exists, no clear sanctions are enumerated in the law and the decision to investigate appears to be discretionary. If adopted, the draft anti-corruption law submitted to the Council of Ministers in September 2012 would not only strengthen the system of asset declaration but would also strengthen the legal framework for preventing and combating corruption by, for example, requiring increased transparency in government institutions, regulating the practice of gift giving to public officials and clearly defining penalties and sanctions for infractions under the law, including sanctions for the inability to reasonably justify one's lifestyle in terms of real or supposed income. The draft law giving special status to the ministerial inspectors would also help to strengthen anti- corruption efforts by increasing the capacity of the inspectors to monitor corruption in the respective ministries, while establishing them firmly within the civil service and with clear educational and skill requirements for the posts. A comprehensive UNCAC gap analysis, identifying the existing gaps between the UNCAC requirements and Burkina Faso's institutional, legal and procedural framework for combating corruption could shed light on the gap between policy and practice in the fight against corruption in the country and recommend corrective actions. The ASCE has led the initial efforts and a working group was established in July 2012. 18 The efforts have included a workshop with civil society and other stakeholders, as well as on various studies of international experiences and on the status of the current statistics and actors involved in the monitoring of corruption in Burkina. The ASCE also participated on a study tour to Uganda, where the government adopted a Data Tracking Mechanism in 2009. 19 The innovative Data Tracking Mechanism (DTM) adopted in Uganda has served as an inspiration for the Burkinabe government. The DTM adopted by Uganda in 2009 generates annual reports, monitors corruption statistics and provides a permanent and objective information source on corruption in the country. The system includes over 70 indicators (aggregated and disaggregated) that are collected by the University. The data from the DTM is widely disseminated and there is an open public debate on corruption. World Bank Discussion Note: Evaluation de la Politique de lutte contre la corruption et des initiatives de surveillance, October 2011. 28 Prior actions and triggers Prior actions for GCG-2: * Adoption of a ministerial order to formalize both the process for the collection and publication of statistics of the Recipient's courts and the procedural manual for collecting statistics, including statistics on average time required for a final disposition, backlog, average time for written judgments and average time for formal enforcement ofjudgments. * Adoption of a national framework to monitor corruption trends and evaluate anti-corruption reform efforts by the semi-autonomous agency ASCE through the annual collation and analysis of sectoral data, audit information (from the ASCE and the Cour des Comptes) and surveys produced by the state and civil society. Triggers for GCG/G-3: * Analysis of Burkina Faso's practice in addressing its obligations under the United Nations Convention Against Corruption. * Draft anti-corruption law designed to strengthen the system of asset declaration, expand the criminal provisions to bribe-givers, regulate the practice of gift-giving to public officials and define penalties and sanctions, by government officials submitted to Parliament. * Draft the law to establish a special statute for the ministerial inspectors in all key ministers in order to strengthen capacity to monitor corruption. H (c) Strengthen public financial management Challenges 5.37. Burkina has implemented several key reforms in public finance management (PFM), but there is a need for consolidation of government initiatives. On the one hand, Burkina has been a good reformer in the last decade as manifest in its high scores in international assessments of its PFM systems and has been improving over the last decade. The 2010 report ranks Burkina among the top performers in Francophone West Africa. First, the Burkina budget is now a credible budget, having benefited from significant reforms in execution, especially the strengthening of budget-Treasury linkages, as well as improvements in reporting and internal audit. As a result, there has been a decrease in arrears, which are now less than 2 percent of total government expenditures. Secondly, in terms of budget preparation, since 2000, the medium-term expenditure framework (MTEF) has been prepared with increasing involvement of line ministries, and now plays a major role in determining budget allocations. The MTEF has brought substantial changes in budget allocations by introducing effective rules-based criteria and promoting pro-poor spending. Under the MTEF, health and basic education sectors receive about 30 percent of additional resources. Third, the pace of reforms in public financial management has been sustained, particularly the strengthening of internal controls in the expenditure chain and the oversight of budget execution. 5.38. There has been an overall impact on outcomes, but challenges remain. First, there has been improved pro-poor spending in Burkina. The share of pro-poor spending in Burkina has increased from less than 5 percent of GDP in 2000 to more than 7 percent of GDP in 2010. Second, on average, excluding fuel subsidies, additional spending on social safety net programs was about 0.7 percent of Gross Domestic Product (GDP) from 2005 to 2010 - from 0.3 percent in 2005 to more than 1.0 percent in 2010. Finally, in the last decade, primary 29 enrollment rates have more than doubled in Burkina, while food security has increased in importance, accounting for more than 70 percent of social safety net transfers in 2012. Challenges remain in terms of greater efficiency of investment expenditure in the social sectors. 5.39. There are some challenges that remain for the PFM agenda. First, the efficiency of budget execution needs to be improved, particularly for the investment budget in order to achieve stronger development outcomes. Greater emphasis needs to be done to improve the imbalance between current and capital expenditures with greater focus on the latter. Secondly, transparency of public expenditures needs to be further strengthened so that there is greater ability to monitor flow of funds. Finally, procurement reforms are needed to reduce the length of the investment process. 5.40. The Government of Burkina is continuing to improve public financial management through the implementation of its PFM strategy. The government's PFM reform agenda - the SRFP (Stratigie de Renforcement des Finances Publiques),20 aims at addressing challenges highlighted in the 2010 Public Expenditure Review. These include: (i) improving budget programming; (ii) strengthening budget execution; (iii) publishing budget- related information; (iv) aligning expenditures on line items initially approved with the priorities identified in Burkina's SCADD; (v) increasing the share of expenditures on the priority sectors; (vi) strengthening the Court of Accounts; and (vi) strengthening the risk- based audit under the supervision of the Autorit Supirieure du Contr6le de l'Etat (ASCE). 5.41. The previous operation GCG-1 helped support efforts to put in place units to improve budget execution in line ministries. While the current budget is implemented effectively, as planned and actual expenditures deviate only slightly from planned levels,21 spending ministries complain about within-year appropriations rationing (regulation budgtaire). Moreover, insufficient accountability of budget managers and the limited capacity of the Prior Review Department (Contr6le Financier). The government is currently piloting in 5 key ministries, the concept of the Budget Verification Unit "Unit de Vrification des Mandats" which puts in place budget, financial control and accounting services in one unit located in each line ministry. Early outcomes show an improvement in budget execution. 5.42. The next operations will support improvements in the functioning of the Court of Accounts (Cours des Comptes). In the preceding GCG-1, the capacity of the Court has been deemed necessary to enable this key player in the external control of public finances and to play its role to settle permanently in the institutional arrangements control of public finances in Burkina Faso. The appointment of 12 new members of the Court of Accounts, which occurred in June 2012, will enable the Court to be in a position to better fulfill its role, including its ability to more regular audits of management within its competence. The exercise of real power to sanction by the Court against officers is expected. The current provisions resulting from the organic law are not satisfactory. 20 The strategy was elaborated in late 2007 based on PEFA outcomes and aims to pilot the reform agenda in a progressive manner. Action plans divided into 9 programs (reform monitoring, budget, revenues, internal control, accounting, external control, capacity building, procurement, etc.) with a joint evaluation conducted by the donors and the Government on an annual basis. 21 The deviations are 0.99 percent, -1.15 percent and 7 percent respectively in 2007, 2008 and 2009 (as per the 2010 PEFA). 30 5.43. The GCG-2 operation had foreseen an audit of the Court of Accounts but it has not been implemented yet as there were elections and turnover at the Ministry of Justice. The Superior Council of the Magistracy has asked the Government to proceed with the organizational and financial audit of the Cours de Comptes, but the change of Government has caused delays. This audit can enhance the status of the Court of Auditors if a new organic law which can build a Court of Budgetary and Financial Discipline is adopted, but in view of the delay and the stronger measure for December with the new organic law, the proposed audit has been dropped from the series. Through this reform, managers (officers and credit administrators) may be tried, convicted and punished by the Court of Auditors. The sequencing of reform measures now places key weight on the new law which would considerably strengthen the court. 5.44. The medium-term vision of the Court of Accounts is to have a quasi-judicial body that effectively regulates government spending and is charged with conducting financial and legislative audits of public and private institutions. As the country's eminent external audit institution, the Court should be conducting financial audits of accounts on a regular basis and also conduct good governance audits. Eventually, the Court should ensure the proper handling of public money in harmony with worldwide accounting and governance standards. It will also be an important source of information for the government on the overall financial practices of key institutions. 5.45. The adoption of the Code of Transparency expresses the will of the authorities of Burkina Faso to enhance the transparency of public financial management and fight against corruption. The first WAEMU directive about the Code of Transparency in Public Finance Management is not formally included in the Burkina Faso legal budgeting framework. The 2009 WAEMU directive on the transparency code is particularly important because it sets strict rules regarding the probity and integrity of senior government officials involved in the management of public funds, including: (i) a declaration of assets at the beginning and end of their functions or mandate; and (ii) compliance with a code of ethics. It also includes key provisions related to a much greater access by the public to key fiscal information. 5.46. The adoption of the code by Burkina Faso will improve significantly the fiscal transparency of public finances. The code is being reviewed by the Council of Ministers and will be submitted to Parliament in on Feb 6, 2013. The original objectives that guided the development of the fiscal transparency program remain valid and underpin the 2009 revisions of the Code. First, fiscal transparency requires comprehensive and reliable information about past, present, and future activities of government, and the availability of this information informs and improves the quality of economic policy decisions. Fiscal transparency also helps to highlight potential risks to the fiscal outlook, resulting in an earlier and smoother fiscal policy response to changing economic conditions, thereby reducing the incidence and severity of crises. Second, fiscal transparency benefits citizens by giving them the information they need to hold their government accountable for its policy choices. Third, more transparent governments also benefit from improved access to international capital markets. 5.47. The fiscal transparency principles and practices that concern the scope of government and the framework for fiscal management are also included. They are crucial as a basis for assigning accountability for the design and implementation of fiscal policy. Identification of all those entities that provide a public good or service provides the public 31 with an understanding of the true scope of government. A legal and administrative framework that clearly assigns the roles and responsibilities of government and government officials in the collection and use of public resources promotes accountability and good governance. Reforms and Medium-Term Objectives 5.48. The government plans to improve the efficiency and transparency of public resource management. Already, Burkina has a solid PFM system that helps manage and incorporate aid flows, and further reforms will consolidate earlier efforts to improve budget execution. The goal is to develop a PFM system that improves service delivery, poverty reduction and helps Burkina fulfill the ambitious goals of the SCADD. Over the medium- term, Burkina will need to comply with the regional commitments on the adoption of WAEMU directives. The third and fourth GCG operations will focus on improving procurement and on accelerating the execution rate of the investment budget. Prior Actions and Triggers Prior actions for GCG-2: * Submission to Parliament of a law relating to fiscal transparency to ensure that the legal frameworkfor public finance complies with UEMOA Directive on Code of Transparency. Triggers for GCG/G-3: * The legal framework for public finance complies with UEMOA Directives of June 2009, on public finance through (i) the adoption by Parliament of a finance law and (ii) the adoption by government, of regulations relating to the nomenclature of the State budget, the general rules of public accounting, the accounting ofstate and TOFE (tableau des operations financiers). * Adoption of a new organic law on the Court ofAccounts (Cours de Comptes) that includes (i) the observations of the Conseil Constitutionnel, (ii) the lifting of term limits for judges, (iii) the creation of the Chamber ofBudgetary and Financial Discipline. Pillar III. Build Resilience and Reduce Vulnerability 111(a) Increase access to decentralized basic services Challenges 5.49. Decentralization reform has been a challenge in Burkina Faso. Despite some policy reforms, results have not been commensurate. Due to a combination of shortcomings occurring in administrative systems, non-transparent intergovernmental fiscal flows, and limited mechanisms for citizen participation, decentralization has floundered. Less than 4 percent of the State's total financial resources were transferred to local governments in 2009- 10, while low administrative capacity continued to hamper decentralization. Among the 11 competencies mentioned for devolution to local governments in the Code G ndral des Collectivits Territoriales, only four have been transferred to urban municipalities. In rural municipalities, the transfer of responsibilities was planned to take place within three years after the 2006 elections, but due to capacity constraints, the process has been slower. The decentralization of health, water and sanitation services has also been less successful than envisaged, as indicated for example by the slow growth in access to drinking water in both rural and urban areas. Part of the problem is that the local governments have a weak institutional capacity to carry out the responsibilities assigned to them in previous legislation. 32 Reforms and Medium-Term Objectives 5.50. The overall goal of decentralization is to empower local collectivities to improve service delivery. This can be achieved by promoting government commitment to allocate sufficient resources for decentralized service delivery, including: (i) the allocation of national budget to local governments; (ii) a rationalization of fiscal transfer mechanisms; (iii) the elaboration of sector decentralization strategies; and (iv) public sector reforms with a view to increasing budget ownership and decision-making authority at the local levels. 5.51. In parallel, there is currently Bank work to strengthen local government capacity. A Local Government Support Project for Burkina Faso is helping to strengthen the central government's capacity for decentralization and the institutional capacities of municipalities ('communes') in six regions, and to improve accountability linkages between local policy makers and citizens in these municipalities. The four components of this work are establishing the foundations of robust administrative and fiscal intergovernmental institutions; strengthening capacity of municipalities to manage local development; improving accountability linkages between local level policy makers and citizens; and project management and evaluation. The goal is to ensure that local collectivities have the adequate institutional capacity to handle stronger mandates and increased responsibilities. 5.52. The GC series will support decentralization, using a combination of legal decrees and resource transfers. In parallel to the series, the Bank is providing support to the government's implementation of its decentralization through specific investment projects. The first operation of the GC series supported an improvement of the legal framework for administrative decentralization. The municipal governments will have both greater autonomy in relation to expenditures on wages and operations and maintenance expenditure and greater ability to mobilize municipal revenue. The proposed operation GCG-2 supported the increase of resource transfer to collectivities to about 4 percent of the total budget expenditure, as envisioned in the SCADD. The third operation will increase that amount and the fourth will support greater legal authority for development planning and cooperation at the departmental level. Prior Actions and Triggers Prior Action for GCG/G-2: * Increase resource transfers to local collectivities to 4% of national budget to ensure local governments have sufficient funds to fulfill mandates as established per the Code General des Collectivites Territoriales. Trigger for GCG -3: * Increase resource transfers to local collectivities to 5% of national budget to ensure local governments have sufficient funds to fulfill mandates as established per the Code General des Collectivites Territoriales. 111(b) Increase access to microfinance/promote gender equality Challenges 5.53. The microfinance sector in Burkina is growing but faces constraints. The sector displays remarkable heterogeneity. Burkina has more than 10 major networks, and this 33 number has been growing. However, existing microfinance institutions are small and handle less than 10 percent of overall financial capital; they are therefore able to provide only a fraction of credit demand for SMEs, especially in rural areas. Of more than six million households, only 10 percent have been reached by microfinance.22 Moreover, the recipients of loans are frequently asked for some form of security. Most of the MFIs in Burkina are very fragile and dependent on subsidies from donors, mostly from bilateral, to sustain artificially low interest rates. Burkina's small microfinance network is characterized by a weak institutional capacity, reflected in inadequate accounting and monitoring and a lack of management and information systems. In addition, in part due to these operational shortcomings, the sector has been accumulating non-performing loans, raising questions about sustainability given low capitalization rates. A further issue has been allegations of fraud and corruption. 5.54. One of the challenges in the microfinance sector has been the lack of funds that are of a sufficient scale to address gender inequalities in access to finance. The lack of scale and sustainability of the sector has translated into a lack of funds for female-owned businesses. Burkina lags behind the rest of the world, where about two thirds of microfinance clients are women. Preliminary evidence from Burkina suggests that women have higher repayment rates. The major problem women face with regard to access to credit in Burkina is tied to the question of credit guarantees. Women lack collateral for ordinary loans and are ignored by formal financial institutions. 5.55. The proposed operation GCG-2 will support the capitalization of FAARF to improve its coverage. One of the earliest funds, the Fonds d'Appui Aux Activites Remuneratrices des Femmes (FAARF), was created in 1990 and managed by the Ministry of Economy and Finance, but it was limited to fund small-scale revenue-generating activities. Like other funds for women, it was poorly conceived, insufficient and inadequate for the needs of female entrepreneurs. It has confined women to low income activities and then restricted them to inflexible methods of repayment. As a result, microfinance has not been able to serve poor women. The GCG-2 will support an additional capitalization of close to $1 million dollars to further expand the objectives and mission of FAARF. 5.56. FAARF has been a very dynamic organization over two decades. As of 2012, its staff size is 125 Ouagadougou-based employees. Its capitalization expanded from $ 660,000 in 1991 to $ 5, 695,000 in 2012, while its geographic coverage increased from 1 province, including 13 districts, in Ouaga to 43 provinces over the same time period, and from 17 villages to over 3,000 by the present. According to FAARF statistics, the number of beneficiaries has surged from 151 in 1991 to close to 75,000 by 2012, and the current loan portfolio is close to CFA 4 billion. The beneficiaries are multiple: women's groups (mostly in rural areas, also in urban areas); women working in the informal sector, including handicrafts, agro-processing (shea butter, nere seeds, soumbala, dolo), cattle-breeding, and trade; micro- enterprise founders and managers. 5.57. The fund has favorable conditions to lending collective credits to women's associations/groups to benefit a maximum of women, especially in the rural areas. It is interesting to note that the FAARF does not give any preference to a given sector nor activity. 22 The size of the sector increases if one includes the network of Burkina savings banks, part of the West African Confederation of Financial Institutions. The network encompasses 104 credit and savings cooperatives and is active in 43 of the country's 45 regions. 34 The conditions for access to credit vary according to the client's category - women must be a member of an association or a group due to the need for a collateral security and women must provide an ID; a copy of their groups'/association's certificate of agreement; and a hand- written request letter. The average loan amounts are about 100,000 CFA Francs ($ 200) for individuals vs. 1.3-1.5 million CFA Francs ($2,600-3,000) for groups, and the average annual interest rate is about 17 percent. Reimbursement schedules are between 6 and 12 months, with a loan recovery rate of 96.3 percent. The proposed operation will further increase the range of its interventions and increase the beneficiaries by more than 10,000 women. Reforms and Medium-Term Objectives 5.58. The most important goal of the microfinance reforms is to ensure that the sector is well-regulated, adequately capitalized, sustainable, and reaches a sufficient population, particularly poor women. The GCG-2 favors the expansion of FAARF to become better capitalized and more effective and scale up the female recipients of microfinance loans. The microfinance strategy provides a blueprint for supervising the sector. The strategy involves building a legal framework to facilitate microfinance activities, improving the capacity of policy makers and microfinance institutions (MFIs) to regulate the sector, improving the monitoring capacity of the government with regard to sustainability concerns, and raising public awareness of microfinance. 5.59. The GC series will support the government's reform efforts in all four operations. The prior action for the previous operation centered on the adoption of the National Microfinance strategy, while the trigger for the proposed GCG-2 supports the scaling up the FAARF to include assistance for female entrepreneurship activities. The third and fourth operations will help improve the regulatory environment for microfinance and address policy blockages to improve gender access to microfinance. Access to finance is the primary constraint to investment, growth and diversification. Prior actions and triggers Prior action for GCG-2: Support to female microfinance by scaling up the women'sfund (FAARF) to include financing of business creation and working capital. Trigger for GCG/G-3: Continued scaling up the women's fund (FAARF) to further increase access and to expand scope to female entrepreneurs. III(c) Strengthen food security Challenges 5.60. The food security situation in Burkina has improved, although challenges remain. In the wake of a food crisis due to poor rainfall in 2011, the country faced a potential crisis in 20102. However, thanks to strong government efforts, the crisis has been mitigated. The food insecure population, estimated at more than 10 percent of the population (more than a million people), has benefited from government help. The government has developed a strong institutional framework to address the food security issue, built an early warning system, and designed a four-phase program to address the crisis. Households have been 35 classified under four levels of need that intensify over time as resources are depleted. The third phase of the plan for food-insecure populations in vulnerable municipalities, the government arranged for the sale of 13,000 metric tons of cereal at subsidized prices (6,000 XOF per 50 kg sack and 12,000 XOF per 100 kg sack) in municipal shops in July and September, 2012. By the end of 2012, the system had been successful. 5.61. The government has spent close to 65 billion CFA ($130 million) to improve the food security situation. In 2012, the government purchased food from surplus areas and sold it to deficit areas at subsidized prices and also drew down on its reserves. As of December, 2012 there has been close to 55,000 tons of food sold at low prices to deficit households. Estimates suggest that more than 1,000,000 million people were the beneficiaries of food relief. Public local shops which provide food at below market prices have been important parts of the strategy. The government has also distributed close to 9,000 tons of food free to vulnerable populations. Based on international best practices, it targeted vulnerable households rather than relying on universal subsidy scheme. As a result of this, both of its stocks have been depleted, with an operation beginning in January, 2013 to replenish some of the reserves. Overall, there has been easier access to strategic grain reserves, a better early warning system to identify vulnerable population, and an effective program of subsidized sale/distribution of foods to the vulnerable in food-deficit areas. In-kind or cash payments in exchange for work have also been part of the government response. CONASUR (National Council for Emergency Aid and Rehabilitation) also distributed 3,200 MT of free food aid to recipients in different parts of the country. 5.62. The donor community has also contributed to better food security, spending another CFA 45 billion ($100 million) in 2012. The World Food Program has helped provide food from July through December, 2012 with 1,165,000 beneficiaries, providing 15,550 metric tons of food aid to 610,000 recipients and direct cash transfers ($8.4 million) to 555,000 recipients. The National Land Management Program (PNGT) program helped to allot 5,000 tons of cereals to mayors of 160 at-risk municipalities. In spite of the success, there is still an under-execution in relation to the overall plan. 5.63. The Government of Burkina is continuing to replenish its warehouses in the deficit regions and has identified vulnerable populations as recipients rather than relying on universal food subsidy. The government has been tapping into its strategic grain reserves to help improve the food distribution in the crisis-affected areas. The existing stocks of the National Food Security Reserve Management Company (SONAGESS) have been well used to combat the crisis. Like other countries. Burkina is in the process of trying to scale up stock levels.23 Under the current system, SONAGESS has two stocks of food reserves: a stock normale (maximum 35, 000 tons) and a stock d'intervention (current minimum 5,000 tons). Under the revised framework the government has greater flexibility in drawing down on the stock of food reserves to fight food insecurity. The stocks have been depleted in the current crisis, but they are currently being restocked to deal with future food emergencies. 23 In the wake of the 2008 food crisis, many countries responded by scaling up food reserves. Evidence from case studies of strategic food reserves in four countries - Ethiopia, Kenya, Malawi, and Mali - found that adequate institutional design, stock level, and integration with social safety net are the keys to success (IFPRI, 2012). Operational performance with strategic reserves varies widely across countries, with the costs of holding a metric ton of food varying from US$20 to US$46 in 2010 in these countries. 36 Reforms and Medium-Term Objectives 5.64. Government policy aims to integrate disaster reduction in the government's development strategy. The goal is a strong early warning system to detect food crises and a rapid response to handle them. A good institutional framework with appropriate mandates and responsibilities can help expand surplus production and release stocks in times of need. Over the longer term, greater investments in longer-term interventions to increase the institutional resilience of the food security system are needed. 5.65. The GC series is supporting the government's quest for greater food security. In the first operation, the focus was on strengthening the regulatory framework and institutional arrangements for food security goal to ensure adequate food reserves. In the second operation, GCG-2 supported the physical stocking of food in the food-deficit warehouses of the regions in order to fight famine and hunger. The third operation will support the goal of fully stocking the food security reserves and the departments in the country with adequate food, while the fourth operation will focus on increasing the private sector participation in the food distribution system. Prior Actions and Triggers Prior action for GCG-2: * Implementation of PNOCSUR plan approved by CM to adequately stock warehouses in food- deficit parts of the country and feed vulnerable populations to ensure effective response to food crisis. Trigger for GCG -3: * Implementation of PNOCSUR plan to fully stock the food reserves and all the warehouses in the country. 37 Table 5.1: Prior Actions for GCG -2 GCG -2 Prior Actions Implementation Status/Evidence Implemented by February 6, 1. Creation, operationalization and capitalization of the input fund based 2013 on the manual prepared by the producer association AICB and associated legal documents (capitalization of at least 10 billion CFA). Evidence: Manual; transfer of resources to comercial bank Moved to GCG 3 December, 2. Completion of procedure-based audit of the customs clearance 2013 (preliminary report due procedures m Ouagadougou to improve customs administration. end Feb, 2013) Evidence: Audit report 3. Public dissemination of the second EITI report, that provides Implemented by November 15, comprehensive statements on mining revenues collected in 2010 (licenses, 2012 royalties, income tax, etc.) from all operating mines. Evidence: EITI Report published 4. Adoption of a ministerial order to formalize both the process for the Implemented by December 15, collection and publication of statistics of the Recipient's courts and the 2012 procedural manual for collecting statistics, including statistics on average time required for a final disposition, backlog, average time for written Evidence: Decree (arte) judgments and average time for formal enforcement of judgments. approved by Ministry of Justice 5 Adoption of a national framework to monitor corruption trends and Implemented by Jan 5, 2013 evaluate anti-corruption reform efforts by the semi-autonomous agency ASCE through the annual collation and analysis of sectoral data, audit Decree (arte) validating anti- information (from the ASCE and the Cour des Comptes) and surveys corruption tool produced by the state and civil society. 6. Submission to Parliament of a law relating to fiscal transparency to Implemented by Feb 6, 2013 ensure that the legal framework for public finance complies with UEMOA Evidence: Law submitted to Directive on Code of Transparency. Parliament No longer included in operation 7. Completion of institutional and financial audit of the Recipient's court Evidence: Finalization of audit of accounts (Cour des Comptes) so as to enable its adequate functioning. report of Cours de Comptes by Ministry of Justice 8. Increase resource transfers to local collectivities to 4% of national Implemented by December, 2012 budget to ensure local governments have sufficient funds to fulfill Evidence: Budgetary line (loi de mandates as established per the Code General des Collectivites finance) allocating resources to Territoriales. local communities Implemented by December, 2012 9. Support to female microfinance by scaling up the women's fund Evidence: Capitalization of (FAARF) to include financing of business creation and working capital. FAARF by CFAF 500 million 10. Implementation of PNOCSUR plan approved by CM to adequately Implemented by December, 2012 stock warehouses in food-deficit parts of the country and feed vulnerable Evidence: Stockage of boutiques populations to ensure effective response to food crisis. in deficit areas 38 Box 5.1: Good Practice Principles on Conditionality Principle 1: Reinforce ownership The GCG-1 is completely aligned with the government's reform program. This program of reforms is described in the SCADD, which defines the government's poverty-reduction strategy for the next four years and whose preparation involved all development actors (private sector, non-governmental organizations, Parliament and development partners) and regions, thus ensuring that the SCADD articulates the country's own priorities to reduce poverty and promote sustainable growth. The SCADD framework underlies the policy dialogue with the Bank, the IMF, and the AfDB, which closely coordinate their programs of support to Burkina Faso. The unit responsible for the ERGC-1 program within the government is the Ministry of Economy and Finance, which has championed these reforms over the past years during the four previous ERGGs. In order to reinforce ownership at the sectoral level, the Ministry of Economy and Finance has coordinated the dialogue with working groups at each ministry. Principle 2: Agree up front with the government and other financial partners on a coordinated accountability framework The Government's reform program supported by the GC series is summarized in the policy matrix in Annex 1, including the relevant accountable government agencies. The program has been closely coordinated with and supported by other development partners and bilateral donors such as the IMF, AfDB, the EU and France (especially in the areas on which these organizations have focused, notably public financial management and cotton). Accountabilities for actions and monitoring of indicators are clearly laid out in the policy matrix. Principle 3: Customize the accountability framework and modalities ofBank support to country circumstances The core of the program builds on the findings of a detailed CEM, as well as lessons learned during previous PRSC/G operations, and on the analysis of preliminary results and weaknesses of ongoing reform efforts. The program was further strengthened during intensive policy dialogue with the authorities in 2011 and the accountability framework and modalities of Bank support are highly customized to Burkina's needs. The program's focus includes governance in the public and private sectors, improved transparency and accountability of public financial management, and efficiency in critical sectors of the economy (e.g., cotton, mining, finance). The policy matrix was customized to country circumstances to reflect the need to step up reforms and focus on real sectors. To reflect short-term as well as long-term objectives of the government's reform program, the accountability framework contains indicators that are directly related to actions support by the GCG-1, but also higher order indicators. Principle 4: Choose only actions critical for achieving results as conditions for disbursement The policy matrix uses a limited set of nine prior actions which have all been met as conditions of Board presentation. The measures were identified jointly with the government and in close consultation with other development partners. Conditionality is focused only on key actions which are critical to strengthening public financial management and reform in key sectors. Principle 5: Conduct transparent progress reviews conducive to predictable and performance-based financial support In monitoring the previous four PRSC/Gs, the Bank has worked in close coordination with the multilateral and bilateral donors in support of the government's reform program. The Bank will continue to coordinate closely with these institutions to monitor program implementation to contribute to predictable, performance-based financial support. 39 6. OPERATION IMPLEMENTATION A. POVERTY AND SOCIAL IMPACTS 6.1. The proposed series is expected to have a positive direct impact on poverty reduction. The impact will be through an expected strengthening of the government's policy making and institutional capabilities to ensure an enabling environment for the private sector (pillar 1), improved governance in the management of public resources (pillar 2), and reduced vulnerability of poor populations (pillar 3). The operational design of the program and wide range of sectoral coverage is such as to address issues of growth and resilience up front to maximize impact on poverty. 6.2. The operation will have a significant impact on poverty via three main channels: provision of cheaper agricultural inputs for farmers, stronger female access to microfinance, and improved access to food for vulnerable populations. The GCG/G-2 support actions that will positively impact certain groups - farmers, women entrepreneurs, and food insecure populations. First, the projected decrease of input prices for close to 100,000 cotton farmers may help them reduce their vulnerability as a result. Estimates suggest that the price declines could be as high as 10 percent. Second, the spending on food security has greatly helped more than a million vulnerable households. Third, the rise of microfinance to women with additional FAARF capitalization of close to 500 million CFA can benefit close to 10,000 more women who may have greater access to microfinance credits. Fourth, stronger flows of resources to decentralized communities will act as shields for the poor during times of vulnerability. Greater emphasis on judicial sector openness and on mining transparency will not have a direct impact on poverty. 6.3. Ongoing vulnerability analysis will track the changes in food security over next year and monitor the differences between the rural and urban populations. The existing vulnerability analysis in the country shows that, in 2009, the increase in prices was the main shock for about 40 percent of urban households. By contrast, in the rural areas the main issue was rather drought and insufficient rainfall. Empirical analysis conducted by the poverty team using micro data shows that, out of the 46.7 percent of poor, about two thirds, which represent 31 percent of the total population, are likely to suffer from chronic poverty. It is important to note that among the 53.3 percent of non-poor, a certain proportion representing 14 percent of the total population have a great probability to fall into poverty. This means that about 45 percent of the Burkina's population was vulnerable in 2009. Severe food insecurity, based on self-reporting, reached more than 20 percent in 2009. The series will continue to track vulnerability. 6.4. The GCG series will rely on poverty monitoring through the use of household surveys. The Ministry of Economy and Finance will monitor poverty through the collection and analysis of household, farm and enterprise level data supported by the World Bank and other partners. The findings from the forthcoming World Bank poverty assessment, based on the 2009 EICVM survey, will allow for a household-level benchmarking of progress under this programmatic series, particularly with regard to poverty reduction. Detailed work will be done using the 2009 survey to assess food security at the household level and compare the food insecurity by region in order to obtain a more precise metric of the divergence between the food deficit and the food surplus areas. Further surveys of sub-samples of households in 40 cotton and non-cotton sectors will be undertaken in order to assess the impact of the reforms on poverty and obtain qualitative information also. Econometric work analyzing household consumption in response to macro shocks will provide further empirical evidence on vulnerability. Another in-depth household survey, anticipated to take place before the final operation in this proposed series is disbursed, will collect a rich set of panel data with extensive modules on agricultural practices. These survey data will allow for a more nuanced measurement of indicators of direct relevance to activities under the first pillar, namely, input usage, farmer productivity, and household welfare. The collection of panel data will also offer the opportunity to track the household-level evolution of impacts over time. B. ENVIRONMENTAL ASPECTS 6.5. The activities supported by the proposed operation are not likely to have significant negative effects on the environment, forests, and other natural resources. Three prior actions, namely the plan for the creation of an input fund, transport sector reforms, and the institutional strengthening of the agency responsible for food security, are expected to have a favorable environmental impact. 6.6. In the cotton sector, the GCG-2 continues to support government's efforts to improve the sector's competitiveness. The action plan on the creation of the price stabilization fund and the input fund is not expected to have negative impacts on environment. The Government's broader strategy is anticipated to have a number of environmental effects which are being tracked. In particular, the Government has authorized the scaling up of GM cotton seeds; 66 percent of national plantings were realized during the 2010/11 cropping campaign. Expansion of this seed technology is resulting in a reduction in pesticide use, which is positive for the environment and for human health. Fertilizer use in aggregate and per hectare is anticipated to increase as a result of the GCG-2 supported actions, but this input provision will be conducted with better planning, so it is anticipated that actual fertilizer application will stay within technical norms. The development of cotton growing areas is expected to take into account the existing ecosystems, and continue the implementation of environmental-friendly techniques, including through the protection of water sources, land, soil fertility and sustainable land management. To this end, the IDA-financed West Africa Regional Biosafety Project is enhancing regulatory capacity to manage environmental aspects of this activity. 6.7. It is important to facilitate better enforcement of environmental rules, including through monitoring of policy impacts on environment. The new legal and institutional framework on environment protection, which was set up at national and regional level, provides reassurance that the implementation of the prior actions identified within the GCG-2 will observe the environment protection rules. IDA is providing technical assistance to the Burkinab& authorities on climate change in the context of the new country strategy, and the strategy is being mapped out. Should significant policy actions be identified by this work that could usefully alleviate some of the country's environmental constraints, the last two operations of the GCG series could focus on actions to promote sustainable growth, for which the preservation of the environment constitutes a key criterion. C. IMPLEMENTATION, MONITORING AND EVALUATION 6.8. The Ministry of Economy and Finance will be responsible for overall implementation of the proposed GCG-2. Day-to-day monitoring of the program will be the 41 responsibility of the General Unit in charge of cooperation Direction Generale de la cooperation (DGCOOP), an existing high-level team within the Ministry, headed by the General Director. This unit was designed under the institutional change earlier in 2012 within the Ministry of economy and Finance. It will be in charge of monitoring operations through a close involvement in the ongoing policy reform dialogue, including with the IMF and other development partners. The main technical responsibility for implementation of the public financial management reforms will stay with the Budget and Treasury Departments, whose representatives are part of the respective steering committees. The sector reforms will be implemented by the respective technical departments in the sector ministries, under the oversight of the Ministry of Agriculture (cotton sector), the Ministry of Mines and Energy (mining), the Ministry of Transport (transport sector), Ministry of Commerce (investment climate), and the overall coordination provided by the Ministry of Economy and Finance. A results matrix that tracks the four operations of the series will provide concrete indicators and empirical benchmarks for the end of program in 2014 to monitor progress. D. FIDUCIARY ASPECTS 6.9. Overall, the Bank has judged implementation performance of the PFM reform program to date and government's commitment to PFM improvements as exemplary. Fiduciary arrangements were reviewed by the Bank in the context of GCG-2 preparation. The GCG-2 builds on the achievements of the previous PRSC/Gs by supporting measures to enhance policy-based budgeting and budget transparency. The 2001 CFAA and CPAR, and the 2004 HIPC AAP, were key inputs in the preparation of the Government's budget management reform program (Programme de Reforme de la Gestion Budgtaire, PRGB). The Government has also used the findings of the 2005 CPAR and the 2007 PEFA assessment to update the PRGB and transform it into a PFM reform strategy (Stratigie de Renforcement des Finances Publiques or SRFP). The SRFP is supported by most donors providing budgetary support, and is a core element of donor coordination for budget support. Under PRSC-1 to PRSG- 11, most recommendations of the CFAA and CPAR have been successfully implemented, including the implementation of annual audit procedures recommended by the CFAA. Outcomes from the latest PEFA, completed in June 2010, have confirmed progress made so far by Burkina Faso in the PFM area. Improvements are noted on budget credibility (indicators 1-4). Confirmation of adequate arrangements has been highlighted for the remaining indicators (comprehensiveness and transparency, policy based budgeting and predictability and control in budget execution). To complement the national PEFA, a subnational PEFA for the Ouagadougou municipality was completed in June 2010 with major outcomes fairly similar to the national PEFA. Also, the Bank is working closely with the authorities on preparing a strong Medium Term Debt Strategy (MTDS) in order to manage debt well. 6.10. The government is in the process of finalizing several further PFM reforms. The MEF is working on a new sectoral strategy (Stratigie Sectorielle du Ministere de l'Economie et des Finances) that will merge both SRFP and PRGED (Programme de Renforcement de la Gestion de l'Economie et du Diveloppement) and include objectives to implement the WAEMU PFM Directives recently issued. The Central Bank of West African States (BCEAO), the common central bank of francophone West African countries, including Burkina Faso, continues to improve its governance structure. The updated safeguards assessment of BCEAO issued by the IMF in March 2010 revealed that the institution continues to have controls in place at operational level. However, the IMF noted that the 42 overall governance framework should nonetheless be strengthened by the addition of an audit committee to ensure that the Board of Directors exercises appropriate oversight over the control structure, including the audit mechanism and financial statement. The upcoming implementation of the institutional reform of the West African Monetary Union (WAMU) and the BCEAO should help correct that situation. In addition, efforts to fully implement International Financial Reporting Standards (IFRS) should be pursued as adopted internationally by other central banks. Bank financial management specialists reviewed the flow of funds arrangement between the Central Bank (BCEAO) and the Treasury (DGTCP), based on an audit funded by the multi-donor Budget Support Group. The team concluded that current arrangements are adequate, with fiduciary risks within acceptable risk tolerance levels. However, the team recommended that the information systems of these two institutions be linked, so as to minimize delays in flows reporting. The reconciliation issues between BCEAO and the Public Treasury highlighted in the 2009 audit report of funds flow have been addressed in 2010. The joint existing account used by all donors is already subject to an audit. In February, 2013 an audit of the financial flows of all the donors in 2010 and 2011 is currently being finalized to ensure transparency and efficiency in aid management. In this regard, BCEAO and Treasury accounts are being closely examined to ensure reconciliation. 6.11. The budget is published on an annual basis in Burkina Faso. As for budget transparency, most of the information in relation to annual budget, quarterly budget execution report, budget mid-term review, and annual settlement law are made available on the following website: www.dgb.Gov.bf. E. DISBURSEMENT AND AUDITING 6.12. The proposed operation would consist of a single tranche of SDR 45.5 million (US$70 million equivalent), on grant terms to be available upon effectiveness and disbursed against satisfactory implementation of the development policy program. The operation would follow IDA's disbursement procedures for development policy operations and would not be linked to specific expenditures. Once the Financing Agreement becomes effective and upon receipt of a withdrawal application, and provided the Association is satisfied with the program being carried out by the government and with the appropriateness of the country's macroeconomic policy framework, the proceeds of the grant will be deposited by IDA into an account designated by the Government of Burkina at the Central Bank (BCEAO) which forms part of the country's foreign exchange reserves. The government will credit the local currency equivalent in the budget management system using the prevailing exchange rate. As a due diligence measure, IDA will obtain confirmation from the government that the amount of the grant proceeds have been accounted for in the country's budget management system with an indication of the exchange rate applied and the date of transfer.. The confirmation will be expected within 30 days of disbursement. If, after being deposited in this account, the proceeds of the grant are used for excluded expenditures, as defined in the Financing Agreement, IDA will require the Recipient to refund directly to IDA, an amount equal to the amount of said payment, promptly upon notice from IDA. Amounts refunded to the Bank upon such request shall be cancelled. No dedicated account is required. The closing date of operation is December 31, 2013. F. RISKS AND RISK MITIGATION 6.13. Main Risks. There are three main risks to the programs outcomes: 1) macroeconomic risk, 2) political economy risk, and 3) climatic risks. 43 6.14. Macroeconomic risk. Burkina Faso is exposed to economic risks from a recession in Europe both through changes in commodity prices and through potential volatility from its exchange rate peg to the Euro. Agriculture, cotton and mining remain vulnerable to adverse exogenous shocks. Since Burkina is heavily dependent on revenues from gold and cotton exports, commodity price shocks affect export revenues. An increase in oil imports may also put pressure on the country's balance of payments position. Moreover, since the CFAF is pegged to the euro, a shock to the euro system can have ripple effects on the CFAF economies. Other potential risks include a decline in foreign aid and hence budget support that may generate negative effects on public investment, growth, and debt sustainability. The GCG-2 is designed to mitigate many of these risks. This operation includes risk-mitigating actions in the cotton sector to improve competitiveness, as well as measures to accelerate the development of the private sector, the key driver of the economy. Effective implementation of growth-enhancing reforms and export diversification will mitigate these risks. 6.15. Political economy risk. The regional crisis in Mali is having a strong effect on Burkina Faso, its southeastern neighbor. First, there have been about 37,000 refugees that have left Mali and are being harbored in Burkina Faso as of February 2013, aggravating existing problems with food security and putting strong pressure on scarce humanitarian resources. Also, the conflict in Mali can adversely impact Burkina via greater inflows of illegal arms into the country. The donor community has mobilized funds to provide the Burkina government the requisite financing to handle the fallout of the Malian conflict. An additional risk could emerge in the medium-term if the Constitution were to be revised to end presidential term limits as this could create political tensions. In parallel, Burkina held legislative and municipal elections during which biometric citizen enrollment was used for the first time on December 2, 2012. A new opposition party called UPC made some gains in parliament. The operation is addressing remaining governance challenges through strong PFM measures. 6.16. Climate change risk. Climate fluctuations have a marked effect on Burkinabe agriculture, particularly cotton, and therefore on rural livelihoods. As a landlocked country situated in the Sahel, Burkina Faso suffers from an extreme and variable climate with the possibility of both flooding and drought within a few months. Thus, weather-related shocks may affect the speed of implementation of the reforms. The 2012 food crisis due to Sahelian drought took its toll on the country. Sustainable management of the price smoothing fund and actions taken to improve food security will help to mitigate these risks. 44 Annex 1: Policy Matrix and Results Framework Policy Measures and Policy Measures and Policy Expected Medium-term Baseline Policy Measures and Actions for GGG3(0 Actions foresrsad Oto sRspnil Reform December Actions for GCG/G-3 (2013) Actions for Indicators Agency Objective 2011 GCG-1 (May, 2012) GCG/G20 (ebruary, GCG/G-4 (End2 ram (2014) Increase Capitalization of 1. Application, for the 1. Creation, 1. Piloting of Capitalization of Amount of capital resilience, the stabilization Cotton Seasons 2011- operationalization and 1. Use of input funds to several private- the stabilization in the productivity, fund is at least 5 2012 and 2012-2013, capitalization of the input distribute inputs to sector run open fund is at least 6 stabilization fund. and billion CFA. of a producer price fund based on the manual farmers for agricultural markets for the billion CFA. employment in formula, based on prepared by the producer season 2014-2015. sale of Amount of the agriculture Capitalization of international cotton association AICB and fertilizer and Capitalization of capitalization of sector input fund is 0. prices, designed to associated legal other inputs to the input fund is the input fund. ensure that cotton documents. farmers. at least 10 Private sector farmers are paid an (capitalization of at least billion CFA. Tons of fertilizer purchases and appropriate price; and 10 billion CFA). distributed by distributes 0 capitalization of the Improved private sector to tons of fertilizer Cotton Price fertilizer farmers for non- for non-cotton Stabilization Fund in distribution to cotton agricultural an amount of at least the private production. production. seven billion CFA sector increased Francs (CFAF by 30,000 tons. 7,000,000,000). Ministry of Finance 2. Continued involvement of the AICB private sector in the fertilizer distribution Ministry of process, by the Agriculture issuance of invitations to private suppliers to bid on at least 6,900 metric tons of fertilizer to be purchased by the Recipient for distribution to rice and maize producers. 45 Pterm M e a Policy Measures and Policy 11ediuni-terni Baseline Policy Measures and Actions or 11ios0orMasures and Otoe Responsible Actins fr Oucome Refori December Actions for G (Fbruary GCG/G-3 (2013) Actions for raIndicators Agency Obetv 01 GG1(a,21)2013) GCG/G-4204 (2014) Cut transport Customs 2. Adoption of costs. clearances times recommendations of 2. Official Waiting time for Waiting time for Ministry of in Ouaga take an procedure-based audit dismantling of customs customs Transport average of 4 of the customs the queuing clearance in clearance in days. clearance procedures in system (tour de Ouaga Inter Ouagadougou. Direction de la Ouagadougou to role). reduced by 2 Douane improve customs days. administration and Ministry of business environment. Finance 3. Support to renewal of trucking fleet through a guarantee scheme. Build Mining 3. Adoption by the 2. Public dissemination 4. Submission of 3. Develop Mining revenue/ Amount of transparency revenue/GDP is Recipient of a of the second EITI revised special fund/ % GDP is 4% revenue collected and 1.8 % mechanism of monthly report, that provides Mining Code to of mining at mines. accountability reporting of comprehensive Parliament adhering to revenues Physical Ministry of in the mining Number of consolidated data on statements on mining international best allocated to inspections of Baseline data Finance sector mining mining revenues revenues collected in practice for fiscal, regions and gold exports by (detailed EITI Treasury companies designed to ensure 2010 (licenses, royalties, environmental, and communities customs reports for all submitting better coordination income tax, etc.) from all social standards. where mining officials operating mines). Ministry of validated data between the operating mines. takes place. increases. Mines for EITI reports Recipient's Ministries is 0. responsible for finance Number of and for mining, so as mining to improve collection companies of public revenues submitting generated by mining validated data activities in the for EITI reports country; and issuance increased to 6. of said data for the last quarter of FY 2011. 46 .edi m Baseline Pand Policy Measures and Policy Measures and Policy Expected Responsible mDecember AcAtions for Actions for Measures and Outcomes Agency Obecti Ac2011 GCG/G-2 (February, GCG/G-3 (2013) Actions for (End Program bject GCG (ay 202) 2013) GCG/G-4 2014) (2014) Increased 4. Submission to 3. Adoption of a number of cases Parliament of a law ministerial order to 5. Analysis of Burkina 4. Adoption of 50 mediation Number of Ministry of at the CAMC-O. designed to establish a formalize both the Faso's practice in measures to cases at CAMC- mediation cases. Justice (28 mediation suitable regulatory and process for the collection addressing its strengthen the 0 in 2012 and cases in 2011). legal framework for and publication of obligations under the institutional 75 cases in Number of days the promotion of statistics of the United Nations functioning of 2013. for case Average time mediation as an Recipient's courts and Convention Against the Conseil processing. for case alternative dispute the procedural manual Corruption. Superieur de la A 20 percent processing is 2 resolution mechanism. for collecting statistics, Magistrature decrease in years. including statistics on 6. Draft anti-corruption (CSM). delays in Number of days 5. Publication of average time required for law designed to judgment times, to enforce Average time to statistics covering the a final disposition, strengthen the system of 5. Adoption of contract. enforce a period FY 2010 and backlog, average time for asset declaration, measures to A 20 percent contract is 466 FY 2011 on the written judgments and expand the criminal reduce reduction in Percent of days. activities of the average time for formal provisions to bribe- commercial contract judgments written Recipient's courts of enforcement of givers, regulate the case backlog enforcement down. Percent of first instance judgments. practice of gift-giving by supporting days. judgments (tribunaux de grande to public officials and operation of written down in instance), including 4. Adoption of a define penalties and commercial Percent of Enhance commercial average time required national framework to sanctions, by courts and judgments judicial courts is 111 out for a final disposition, monitor corruption trends government officials establishment written down efficiency and of 173, or 64%. rate of case and evaluate anti- submitted to of information increased to 85 openness disposition, annual corruption reform efforts Parliament. centers in the %. budget allocation, and by the semi-autonomous courts. percentage of agency ASCE through 7. Draft the law to judgments rendered in the annual collation and establish a special 6. Systematic writing. analysis of sectoral data, statute for the publication and audit information (from ministerial inspectors in distribution of the ASCE and the Cour all key ministers in laws in the des Comptes) and order to strength official joumal. surveys produced by the capacity to monitor state and civil society. corruption. 47 Baseline Policy Measures and Policy Measures and Policy Expected emrm December Poli as and Actions for Actions for Measures and Outcomes Responsible Obective 2011 c s ( 20 GCG/G-2 (February, GCG/G-3 (2013) Actions for (End Program Agency Objective GCG-1 (May, 2012) 2013) GCG/G-4 2014) (2014) Strengthen Average 6. Devolution, on a 5. Submission to 8. The legal framework 7. Adoption of Average Percent increase public financial execution rates pilot basis, of budget Parliament of a law for public finance guidelines by execution rate of in execution rates management by line and expenditure relating to fiscal complies with UEMOA planning the line by line ministries. ministries management to the transparency to ensure Directives of June 2009, agency for ministries average less Recipient's line that the legal framework on public finance sound investment Number of than 30 percent ministries, through the for public finance through: (i) the economic and budgets physical spot for the establishment and complies with UEMOA adoption by Parliament environmental increased to checks of investment operationalization of Directive on Code of of a finance law and (ii) analysis of more than 50 contracts. budget. budget oversight and Transparency. the adoption by public percent. Ministry of verification units in government, of investment Finance Number of the Recipient's regulations relating to proposals. physical spot ministries responsible the nomenclature of the Number of checks of for agriculture, health, State budget, the physical spot contracts subject infrastructure, general rules of public checks of to competitive secondary and higher accounting, the contracts subject bidding is 200. education, and justice. accounting of state and to competitive TOFE (tableau des bidding oprations financiers). increases to 300. Number of 7. Approval by the 9 Number of Number ofjudges judges that will Recipient's high organic law on the judges that will in the Court of remain for at judicial council or la ont remain for at Accounts. least a year is 4. (Conseil Suprieur de Cour of Counts least a year is la Magistrature) of the (Cours de Comptes) 12. nomnaio ofthat includes (i) the qualified and observations of the Ministry of experienced members Constitutional Court, Finance to the Recipient's (ii) the lifting of term coute ofccount's limits for judges, (iii) court of accounts the creation of the (Cour des Comptes) so Chamber of Budgetary as to enable the full cambe staffing of said court. Discipline. Increase access Transfer to 8. Adoption of a 6. Increase resource Transfer to Volume of budget Ministry of to decentralized regulatory framework transfers to local 10. Increase decentralized allocation to local Territorial decentralized resources is 3.7 for the organization of collectivities to 4% of government resource units is 5.0 collectivities. Administration, basic services percent of municipalities to national budget to ensure transfer to local percent of Percent of Decentralization budget further the local governments have collectivities (per budget. population and Security Increase in predictability of sufficient funds to fulfill budget law) to 5 At least 10 satisfied with (MATDS). satisfaction of intergovernmental mandates as established percent. percent of the public services. public services transfers and afford per the Code General des population is as measured in enhanced capacity of Collectivites satisfied with user surveys in local government. Territoriales. public services. June, 2012. 48 Microfinance/ Number of 9. Adoption of a 7. Support to female 8. Performance Number of Number of active Gender active borrowers national strategy for microfinance by scaling 11. Continued scaling of annual audit active borrowers borrowers. is 120,000 the period FY 2012 up the women's fund up the women's fund of MFIs and increases to through FY 2016, (FAARF) to include (FAARF) to further monthly 150,000 designed to promote financing of business increase access and to statement the economic and creation and working expand scope to female reported to the Number of Minisco financially sound capital. entrepreneurs. authorities to women-owned development of ensure full businesses to Ministry of microfinance knowledge of increase by 5 Women's throughout the sector. percent. Promotion Recipient's territory, targeted to groups underserved by financial intermediaries. Strengthen Minimum food 10. Adoption of a 8. Implementation of 12. Implementation of 9. Implement The food stocks Tons of food Ministry of food security stock in the regulatory framework PNOCSUR plan PNOCSUR plan to fully measures to in the country reserves Agriculture reserves is to strengthen and approved by CM to stock all the food ensure greater increase to at (including SONAGESS 35,000 and rationalize the adequately stock reserves and the involvement of least 50,000 tons intervention CONASUR minimum Recipient's warehouses in food- warehouses in the private traders for main stock stocks). intervention institutional deficit parts of the country. in food import and 10,000 for stock is 5,000. arrangements for food country and feed and emergency security so as to ensure vulnerable populations to distribution stock. Number of fully adequate food reserves ensure effective response systems. Number of replenished and an efficient and to food crisis. Stocking of food warehouses warehouses in effective response in in 50 of the providing food in food-deficit the event of food warehouses in food-deficit parts areas is 0. shortages. food-deficit of country. parts of the country. 49 Annex 2: Letter of Development Policy BURKINA FASO Unité - Progrès - Justice MINISTERE DE L'ECONOMIE ET DES FINANCES N°2013 %_/MEF/CAB/SG/DGCOOP Ouagadougou, le Le Ministre A Monsieur Jim Yong KIM. Président de la Banque Mondiale 1818, H Street, WASHINGTON DC, 20433 (USA) Objet: Lettre de politique de développement Monsieur le Président, La présente lettre de politique de développement (LPD) retrace l'évolution de la situation économique et sociale du Burkina Faso en 2012 et ses perspectives pour les prochaines années. Elle prend appui principalement sur la Stratégie de Croissance Accélérée et de Développement Durable (SCADD) et sa matrice de performances 2012-2015 validée conjointement par le Gouvernement et les partenaires techniques et financiers le 1"r juillet 2012. Les détails de la mise en œuvre du programme sont contenus dans le rapport de mise en œuvre 2012 qui sera issue de la prochaine revue de mise en oeuvre de la SCADD. La lettre met surtout l'accent sur l'exécution des réformes prioritaires du Gouvernement soutenues par le Crédit d'appui à la croissance et à la compétitivité (CCC1) de la Banque Mondiale. 1. ETAT DE MISE EN OEUVRE DE LA STRATEGIE DE CROISSANCE ACCELEREE ET DE DEVELOPPEMENT DURABLE L'état de mise en œuvre est présenté selon les quatre axes stratégiques que sont: i) Développement des piliers de la croissance accélérée; ii) Consolidation du capital humain et promotion de la protection sociale; iii) Renforcement de la gouvernance; iv) Prise en compte des priorités transversales dans les politiques et programmes de développement. L'activité économique s'est déroulée en 2012 dans un contexte national marqué par la poursuite de la crise alimentaire de 2011et l'afflux des réfugiés maliens dans le pays. Le taux de croissance du PIB réel est estimé à 8% en 2012 contre 4,2% en 2011. Cette évolution favorable a 50 été sous-tendue par les conditions climatiques favorables à la campagne agricole 2012/2013. Après une campagne agricole 2011/2012 difficile, la production du secteur agricole connaîtrait un taux de croissance estimé à 24%/o, qui est favorisée par la bonne pluviométrie et par les mesures prises par le gouvernement pour accompagner les producteurs. La politique budgétaire a consisté à soutenir la croissance avec une exécution accélérée des dépenses d'investissement, à faire face à la crise alimentaire et à l'afflux des réfugiés maliens. Ce qui a entrainé une révision des projections de ressources budgétaires pour l'année 2012 à la hausse, rendue possible par les bonnes performances observées au premier semestre. Toutefois, le budget révisé reste totalement aligné et conforme avec les niveaux des agrégats budgétaires (recettes, dépenses, déficit budgétaire) convenus lors de la deuxième revue du programme soutenu par la facilité élargie de crédit du FMI. De même, les procédures d'exécution des dépenses liées à ces mesures ont respecté la réglementation financière en vigueur. A. Axe 1: Développement des piliers de la croissance accélérée Le taux de croissance du PIB réel s'établirait à 8%/ en 2012 contre 4,2%/o en 2011. Cette performance de l'activité économique serait principalement imputable à la production céréalière et cotonnière qui progresserait respectivement de 33,6%/o et de 28,00o. Après une campagne agricole 2011/2012 déficitaire, la production céréalière de la campagne 2012/2013 a été favorisée par (i) la bonne pluviométrie, (ii) la mise à disposition des intrants agricoles et de semences améliorées (iii) l'encadrement des producteurs dans l'utilisation de la fumure organique (iv) la réhabilitation et la construction d'infrastructures hydrauliques (v) la mise à disposition des producteurs des équipements agricoles et (vi) la formation, l'organisation, et l'appui conseil aux ménages agricoles. En ce qui concerne le niveau de la production cotonnière, elle s'explique en partie par la poursuite des mesures d'incitation aux producteurs, et par une utilisation accrue des graines de coton génétiquement modifiées. Le maintien des prix d'achat aux producteurs a eu pour impact une augmentation de 3700 de la production, passant de 417 000 tonnes en 2011/2012 à 572 000 tonnes en 2012/2013. Cette performance a été soutenue par une subvention de l'Etat d'un montant de 10 milliards de FCFA. Cet appui du Gouvernement aux coton culteurs sera poursuivi en 2013, avec l'abondement du fonds intrants d'un montant de 10 milliards de francs CFA. Quant à la croissance de la production d'or, elle marque une pause; Elle passant de 32,405 tonnes pour 2012 à environ 30 tonnes en 2012. S'agissant de l'inflation le taux d'inflation annuel moyen à fin décembre 2012, est ressorti à 3,8% au-dessus de la norme communautaire de l'UEMOA (3,0%). Ce niveau d'inflation s'expliquerait par la mauvaise campagne agricole 2011/2012 qui a provoqué des tensions sur les marchés et induit une hausse significative et continue des prix des produits agricoles. De plus, l'augmentation des prix du carburant intervenu au mois avril 2012 a eu des répercussions inflationnistes. Cependant la bonne campagne agricole de la campagne 2012/2013 est susceptible de réduire ce taux d'inflation. Concernant l'encouragement des gains d'investissement et de productivité du secteur privé, le FAARF a reçu de la part du Ministère de l'économie et des finances 500 millions de FCFA, dans le cadre de l'appui à la micro finance des femmes. Ce qui a permis d'augmenter le nombre de 51 bénéficiaires et le montant de crédits accordé aux femmes. Cet appui permettra l'accroissement de l'accès aux services financiers pour le plus grand nombre de la population, particulièrement des femmes. La crise alimentaire qu'a connue le pays à la suite d'une mauvaise année pluviométrique a été accentuée par l'afflux des réfugiés maliens. Toute chose qui a eu pour conséquence d'impacter les finances publiques. En effet les mesures prises pour juguler la crise alimentaire liée au déficit pluviométrique de 2011, et l'aide apportée aux réfugiés accompagnés de leur bétail fuyant les conflits ont pesé sur le budget de l'Etat. Le Conseil National de Sécurité Alimentaire (CNSA) à travers son Secrétariat Exécutif (SE-CNSA), est la structure responsable de la planification et du suivi des actions ainsi que de la coordination globale du plan de réponse. Au cours de l'année 2011, la LFR avais retenu parmi les nouveaux besoins un montant de 4 750 000 000 FCFA pour faire face à la crise alimentaire et qui ont été totalement exécutés. Au cours de l'année 2012, le Gouvernement a signifié son engagement à poursuivre son soutien aux couches défavorisées en octroyant un crédit de 2 974 000 000 FCFA (loi de finances initiale) pour faire face à la crise alimentaire. Cependant, le budget 2012 de l'Etat est exécuté dans un environnement caractérisé par la persistance de la crise alimentaire et de la crise malienne avec son flux croissant de réfugiés. L'impact budgétaire de ces crises a nécessité une série de décrets d'avance à ratifier dans la LFR, portant ainsi le montant total de la prise en charge de la sécurité alimentaire à 15 000 000 000 FCFA. Cette mobilisation a été possible grâce au concours des partenaires techniques et financiers. B. Axe 2: Consolidation du capital humain et promotion de la protection sociale De par les objectifs poursuivis par ce deuxième pilier de la SCADD, à savoir le développement des ressources humaines pour soutenir durablement la croissance économique et la création d'emplois, le Gouvernement fait montre de sa volonté à consolider les acquis au niveau des secteurs sociaux de base, notamment l'éducation de base et la santé, la protection sociale (y compris les filets sociaux), l'eau potable et l'assainissement. L'ensemble des réformes sectorielles conduites dans ce cadre vise la prise en compte des couches défavorisées. B.1. Acces aux services d'education de base Dans le domaine de l'éducation, on a enregistré des résultats en progrès en 2012. Le taux brut de scolarisation passe de 78% en 2011 à 80% en 2012. Par ailleurs, le taux d'achèvement au primaire, qui se situait à 55,1% en 2011, fait un bond de 4 points pour se situer à 59,1% en 2012. Ces différentes performances montrent l'effort fourni par le Gouvernement pour améliorer et satisfaire l'offre et la qualité dans le secteur de l'éducation de base. B.2 Accès aux services de santé D'une manière globale, les performances du secteur de la santé sont satisfaisantes. Le Gouvernement a poursuivi tout comme en 2011, ces efforts d'accroître la couverture sanitaire. Ce qui a nécessité la construction et l'équipement des formations sanitaires, le recrutement et la formation du personnel de santé. Le pourcentage de CSPS respectant la norme en personnel, s'est situé à 89,02%. Le taux d'accouchement assisté par du personnel qualifié poursuit sa tendance haussière avec une réalisation de 79,3% en 2012. 52 B.3 Un Système Efficace de Protection Sociale Afin d'améliorer la performance du système national de protection sociale, et de développer une stratégie cohérente de filets sociaux efficace pour les populations vulnérables, le Gouvernement s'atèle avec l'appui de ses partenaires à la finalisation d'une stratégie en la matière qui renforcera les capacités pour la conception, la mise en œuvre, le suivi et l'évaluation des programmes. Le Gouvernement a officiellement lancé son Programme Spécial de Création d'Emplois pour les Jeunes et les Femmes (PSCE/JF) en mars 2012. Ce programme est articulé autour de 6 composantes et a pour objectif global de contribuer à réduire significativement le chômage et le sous-emploi des jeunes et des femmes. B.4 Rendre opérationnel et performant le dispositifnational de sécudté alimentaire Les résultats désastreux de la campagne agro-pastorale 2011-2012 ont sous tendu une situation alimentaire et nutritionnelle difficile dans certaines zones du Burkina Faso, aussi bien pour la population humaine que animale, et ce en raison des mauvaises performances en matière de productions céréalières, de remplissage des points d'eau mais également en termes de capacité d'accès au marché. C'est dans ce contexte qu'un plan national de réponse face à la crise alimentaire a été élaboré et adopté par le Gouvernement. Le Conseil National de Sécurité Alimentaire (CNSA) à travers son Secrétariat Exécutif (SE-CNSA), est la structure responsable de la planification et du suivi des actions ainsi que de la coordination globale du plan de réponse. Il faut rappeler que ce plan opérationnel de soutien aux populations vulnérables aux crises alimentaires a été élaboré par le Gouvernement en concertation avec ses partenaires dans le but de consolider et d'opérationnaliser des actions de riposte face à cette situation de crise alimentaire. Le Gouvernement a mené des actions précises, notamment la constitution des stocks de céréales, la production de maïs bondofa et des concertations avec les différents partenaires. Tous les stocks de sécurité et d'intervention ont été utilisés dans ce sens, si bien que l'assemblée générale a recommandé que le stock d'intervention de 10 000 tonnes et le stock de sécurité de 35 milles tonnes soient reconstitués. En effet, 81 419 tonnes de céréales ont été déployées au profit des zones bénéficiaires sous forme de vente à prix social par la SONAGESS, et 9 535 tonnes ont été distribués par le CONASUR, de même que des boutiques communales placées sous la responsabilité des maires dans les communes à risque ont été créées. Ce plan a également permis de rassembler, dans un même cadre, l'ensemble des éléments utiles à l'évaluation des besoins, à la coordination des acteurs et aux pilotages des activités entreprises. Cela permet ainsi à l'Etat et ses partenaires de disposer d'un plan opérationnel dont la mise en œuvre permettra de contenir les tensions occasionnées par la situation alimentaire et nutritionnelle difficile. S'agissant des perspectives, le Gouvernement, au regard de l'état actuel de mise en œuvre du plan opérationnel, a relevé la nécessité pour les actions à venir: (i) d'assurer le disponible céréalier et aliments de bétail pour les prochaines étapes du plan; (ii) d'avoir une meilleure coordination des interventions des acteurs; (iii) de prendre en charge des fonctions de suivi-évaluation et de contrôle des interventions; (iv) de relancer la production agricole par le renforcement de l'irrigation (appoint et contre saison) et la mise à disposition à temps des intrants agricoles. 53 C) Axe 3: Renforcement de la gouvernance La politique budgétaire a consisté à soutenir la croissance avec une exécution accélérée des dépenses d'investissement, à faire face à la crise alimentaire et à l'afflux des réfugiés maliens. Ce qui a entrainé une révision des projections de ressources budgétaires pour l'année à la hausse, rendue possible par les bonnes performances observées au premier semestre 2012. Ainsi, dans un contexte marqué par la crise alimentaire et l'afflux des réfugiés maliens, qui ont pesé sur les finances du pays, la poursuite de la responsabilisation et le suivi renforcé des unités de recouvrement ont permis un niveau de recouvrement des recettes assez satisfaisant. Le déficit budgétaire global (base engagements, hors dons) est estimé à 7,60%û du PIB en 2012. Il sera financé par les appuis budgétaires et les ressources de la dernière émission obligataire d'un montant de 30 milliards de F CFA sur le marché de l'UEMOA qui seront encaissées dans les comptes du gouvernement à la banque centrale pour être utilisée en 2013. Les performances en matière de recouvrement des recettes ont été davantage améliorées par rapport à 2011. Pour 2012, le recouvrement des recettes totales a atteint 1012 milliards de francs CFA contre 793,6 milliards de francs CFA en 2011 soit une hausse de 280% correspondant à 218,4 milliards de francs CFA. Les performances sont encore notables lorsqu'on compare le taux de progression entre 2011 et 2012 qui est de 27,500 contre un taux de progression entre 2010 et 2011 qui était de 16,5%. Cet accroissement s'explique en grande partie par les performances de l'activité économique et l'effet de la poursuite du renforcement du dispositif organisationnel des régies de recettes par l'approche « Unités de recouvrement ». Quant au taux de pression fiscale, il se situerait à 16,6%. Cette performance est imputable, entre autres, à l'augmentation des impôts sur les revenus et bénéfices et celle des taxes sur les biens et services. S'agissant des dépenses totales et prêts nets, ils sont estimés à 1417,8 milliards de Francs CFA, soit 26,2%/ du PIB, comparé à 24,30o en 2011. Quant aux dépenses courantes elles sont estimées 828,2 milliards de Francs CFA soit 15,3 O du PIB, et les dépenses de réduction de pauvreté connaissent une hausse, se situant à 368,6 milliards de Francs CFA soit 7,0%/o du PIB représentant 90%/o du montant de l'exécution budgétaire à fin 2012. La revue à mi-parcours de l'exécution du budget 2012 a permis de faire des recommandations tel le suivi rapproché au cas par cas des dossiers avec les ministères sectoriels et l'appui en aval pour faciliter leur exécution complète. Ces recommandations contribueront à l'amélioration du taux d'exécution des dépenses d'investissement. Pour renforcer l'efficacité et la transparence du système judiciaire, un mécanisme national pour surveiller et évaluer les tendances de la corruption et les efforts de réforme anti-corruption de 'ASCE par une agence semi-autonome à travers la collecte et l'analyse annuelle des données sectorielles, les informations d'audit(de l'ASCE et de la Cour des Comptes) et les enquêtes produites par l'Etat et la société civile a été validé au cours d'un atelier. Ce mécanisme sera soumis à l'adoption en Conseil des Ministres. L'avant projet du code de transparence de la gestion des finances publiques conforme aux directives de 'UEMOA a été soumis en Conseil des Ministres pour adoption avant la transmission du projet à l'Assemblée Nationale. 2. PERSPECTIVES POUR LA PERIODE 2013 Le gouvernement entend maintenir ses efforts de soutien à la croissance et à la réduction de la pauvreté tout en adoptant les mesures nécessaires à la stabilité du cadre macroéconomique. L'activité 54 économique sur la période 2013-2015 connaitrait une poursuite de sa croissance, avec un taux moyen qui ressortirait à au moins 7,1%, tiré principalement par le secteur tertiaire. Les objectifs macroéconomiques seront atteints grâce aux actions sur: (i) la poursuite de la consolidation des progrès réalisés en matière de finances publiques; (ii) la mise en œuvre des réformes structurelles; et (iii) l'exécution des programmes prévus dans le cadre de la SCADD. Les priorités du budget de l'Etat gestion 2013 ont été définies à partir des objectifs fixés dans la stratégie de croissance accélérée et de développement durable (SCADD). Ainsi pour l'année 2013, les priorités retenues s'articulent autour de quatre domaines: (i) le renforcement des piliers de la croissance avec une attention particulière aux secteurs de production (agriculture, élevage, pêche) et de soutien à la production (infrastructure de transport, énergie et promotion de PMI/PME), (ii) la consolidation des acquis sociaux notamment dans les secteurs de la santé, de l'éducation, de l'emploi et de la protection sociale, (iii) la gouvernance et la lutte contre la contre la corruption avec un accent particulier sur la renforcement des capacités de la justice et des corps de contrôle et (iv) le renforcement de la défense du territoire et de la sécurité intérieure. Pour les secteurs prioritaires retenus, les interventions s'orienteront vers des investissements structurants ayant de réels effets d'entrainement. A. Axe 1: Développement des piliers de la croissance accélérée Le gouvernement entend accélérer la mise en œuvre de son modèle de croissance basé sur les pôles de croissance, dont le pilote de Bagré-Pôle. Ce pôle se structure autour: (i) des bassins comprenant les ressources naturelles (foncier sécurisé et eau agricole facilement mobilisable, bien utilisée et bien gérée), qui permettent de développer des productions agro-sylvo-pastorales et halieutiques liées à des marchés de valeur réels/potentiels; (ii) des infrastructures de transport permettant la liaison en toute saison des bassins de production aux zones de regroupement et d'expédition des productions et même, aux zones d'utilisation/consommation des produits; ( iii) des infrastructures de fourniture d'énergie adaptée aux besoins des acteurs; (iv) des infrastructures et équipements notamment de stockage, de transformation, de commercialisation et de communication; (v) des services financiers et non financiers nécessaires au développement durable des chaînes de valeur. B. Axe 2: Consolidation du capital humain et promotion de la protection sociale Dans l'optique de poursuivre la consolidation des filets sociaux, la mise en œuvre du plan d'actions de la politique nationale de protection sociale mettra l'accent sur l'accès des populations vulnérables aux services sociaux de base à travers: (i) l'appui à la scolarisation et à la santé des enfants des ménages démunis; (ii) le soutien alimentaire conditionnel aux ménages démunis; (iii) l'appui à l'autonomisation des ménages démunis; (iv) le renforcement de l'accès aux soins pour les enfants de moins de 5 ans et les femmes enceintes; (v) l'amélioration de la prise en charge des urgences médicales et (vi) l'accélération des mécanismes de mise en œuvre de l'assurance maladie universelle dans les secteurs formels et non formels. C. Axe 3: Renforcement de la gouvernance Le programme économique et financier continuera à être soutenu par la poursuite de la mise en œuvre des réformes structurelles. Les priorités qui s'inscrivent dans les objectifs de la SCADD viseront une croissance économique soutenue et une politique de redistribution équitable et efficace des richesses créées. Les repères visent à renforcer la gestion des finances publiques, par l'amélioration de la collecte des recettes fiscales, la poursuite de la mise en œuvre des mesures déjà prises pour rendre plus efficaces les paiements des salaires du secteur public, pour une gestion prudente des dépenses publiques et à améliorer la capacité de gestion de la dette. 55 D. Axe 4: Prise en compte des priorités transversales dans les politiques et programmes de développement La prise en compte des questions transversales telles que le genre, la population, l'environnement et l'aménagement du territoire, est une condition de réussite de la mise en œuvre de la SCADD. Ces questions seront constamment présentes à tous les niveaux de dialogue de politiques et lors des processus de formulation des politiques et programmes sectoriels. Le Gouvernement envisage utiliser les ressources du CCC2 pour étendre l'espace budgétaire pour des investissements productifs conformément aux objectifs de la SCADD dans le cadre des ajustements qu'il apportera à la loi de finances 2013, à travers une loi de finances rectificative. Ladite loi prendra en compte la prise en charge des besoins induits par le nouveau découpage ministériel d'une part, et d'autre part le soutien aux cotonculteurs pour abonder le fond intrants et le soutien aux réfugiés. Le Gouvernement reste convaincu qu'avec le soutien de ses partenaires notamment la Banque Mondiale à travers le crédit d'appui à la croissance et à la compétitivité (CCC), la mise en œuvre satisfaisante des actions prioritaires de la SCADD contribuera à consolider le cadre macro- économique et à soutenir une croissance économique plus forte, saine et durable, nécessaire pour une réduction significative et durable de la pauvreté. Je vous prie de bien vouloir agréer, Monsieur le Président, l'assurance de ma considération distinguée. aIre Lucien Marie Noël BEMBAMBA Officier de l'Ordre National 56 Annex 3: Letter of Development Policy (English Translation) MINISTRY OF ECONOMY AND FINANCE Minister to Mr. Jim Kim President of the World Bank 1818, H Street, WASHINGTON DC, 20433 (USA) Mr. President, The present letter of development policy (LPD) traces the evolution of the economic and social situation in Burkina Faso in 2012 and its prospects for the next few years. It builds mainly on the strategy of accelerated growth and sustainable development (SCADD) and the performance 2012-2015 matrix validated jointly by the Government and technical and financial partners on July 1, 2012. The details of the implementation of the program are contained in the report of 2012 implementation that will stem from the next review of implementation of the SCADD. The letter puts emphasis on the implementation of the Government's priority reforms supported by the grant to support growth and competitiveness (GCG-2) of the World Bank. 1. STATE OF IMPLEMENTATION OF THE SCADD ((EUVRE DE LA STRATEGIE DE CROISSANCE A CCELEREE ET DE DE VELOPPEMENT DURABLE) The status of implementation is presented according to the four strategic thrusts: (i) development of the pillars of the accelerated growth; (ii) consolidation of human capital and promotion of social protection; (iii) strengthening governance; (iv) taking into account cross-cutting priorities in the policies and development programs. Economic activity took place in 2012 in a national context marked by the continuation of the food crisis of 2011 and the influx of Malian refugees in the country. The growth rate of real GDP is estimated at 8% in 2012 against 4.2% in 2011. This positive development was underpinned by the favorable climactic conditions for the agricultural season 2012/2013. After a difficult 2011/2012 season, the production of the agricultural sector will grow at 24%, favored by good rainfall and the various measures undertaken by the Government to assist producers. Fiscal policy has been used to support growth with accelerated investment spending, and respond to the food crisis and the influx of Malian refugees. This resulted in an upward revision of projections of budgetary resources for the year 2012, made possible by the good performance in the first half of the year. However, the revised budget is fully aligned and consistent with levels 57 of budgetary aggregates (revenue, expenditure, deficit) agreed at the Second Review of the Extended Credit Facility (ECF) of the IMF-supported program. Similarly, procedures for the implementation of the expenditure related to these measures have complied with the fiscal rules. A. Pillar 1: Development of pillars of accelerated growth The real GDP growth rate will be 8% in 2012 compared to 4.2% in 2011. This good performance is mostly due to grain and cotton production which respectively increased by 33.6% and 28.0%. After a 2011/2012 deficit in agricultural production, the year 2012/2013 is more positive as cereal production benefited from: (i) the good rainfall, (ii) the availability of agricultural inputs and improved seeds, (iii) the supervision of farmers in the use of organic manure, (iv) rehabilitation and the construction of hydraulic infrastructures, (v) provision of agricultural equipment producers, and (vi) training the farmer organizations and support for agricultural households. With regard to the level of cotton production, it can be explained in part by the improved incentives for producers, and by an increased use of genetically modified cotton seeds. The maintenance of the purchase price to producers has led to an increase of 37% of the production, from 417 000 tons in 2011/2012 to 572 000 tons in 2012/2013. This performance was supported by a subsidy from the government of an amount of 10 billion CFA FRANCS. Government support to the farmers will be pursued in 2013, with the creation of an input fund amounting to 10 billion CFA francs. In terms of gold production, there has been a slight reduction. Gold production has declined from 32,405 tons in 2012 to 30 tons in 2012. In relation to inflation, the average annual inflation rate at the end of December 2012, reached 3.8% above the regional standard of UEMOA (3.0%). This level of inflation can be explained by the poor agricultural season in 2011/2012, which has caused shortages in the markets and led to an increase in the price of agricultural products. In addition, the increase in the price of fuel in April, 2012 had inflationary implications. However, a good agricultural season in 2012/2013 is likely to reduce the inflation rate. Concerning the support of investment and private sector productivity gains, the FAARF received from the Ministry of Finance 500 million FCFA to support micro-finance for women. This will allow an increase in the number of beneficiaries and the amount of credits granted to women. This support will allow the expansion of access to financial services for a greater number of the population, particularly women. The food security crisis that followed in the aftermath of a bad year in terms of rainfall was exacerbated by the inflow of Malian refugees. The government has undertaken measures to avoid the food crisis linked to the rain shortages in 2011, and assistance to refugees along with their cattle fleeing the conflict have been supported by the government's budget. The National Council on Food Security (CNSA) through its Executive Secretariat (SE-CNSA), is the structure responsible for the planning and monitoring of the actions as well as the overall coordination of the crisis response plan. 58 During 2011, the budget law had retained the need for 4 750 000 000 FCFA to deal with the food crisis. That amount has been executed. In 2012, the Government indicated its commitment to continue its support to the disadvantaged populations, allocating a credit of 2 974 000 000 FCFA (initial Finance Law) to deal with the food crisis. However, the 2012 budget is being executed in a difficult environment characterized by the persistence of the food crisis and the Malian crisis with its increased refugee flows. The budgetary impact of these crises has necessitated a series of measures so the total amount of support for food safety to 15 000 000 000 FCFA. This mobilization has been possible with the support of technical and financial partners. B. Pillar 2: Consolidation of human capital and promotion of social protection Because of the objectives of the second pillar of the SCADD, namely the development of human resources to sustain economic growth and job creation, the Government shows its willingness to consolidate the achievements at the level of basic social sectors, especially basic education and health, social protection (including social nets), drinking water and sanitation. All of the sectoral reforms carried out within this framework aim at taking account of the underprivileged. B. 1. Access to primary education In relation to education, there has been some positive results and progress in 2012. The enrollment rate has increased from 78% in 2011 to 80% in 2012. Moreover, the primary completion rate, which was 55,10% in 2011, has increased by 4 points to reach 59.1 % in 2012. These different benchmarks and results show the efforts of the Government to improve the supply and quality in the primary education sector. B.2 Access to health services In a comprehensive manner, the performance of the health sector has been satisfactory. The Government has continued, as in 2011, these efforts to expand health coverage. This has necessitated the construction and equipment of health units, as well as the recruitment and training of health personnel. The percentage of CSPS compliant staff, is now at 89.02%. The rate of delivery assisted by qualified personnel continued its upward trend with a rate of 79.3% in 2012. B. 3 An effective system of social protection In order to improve the performance of the national system of social protection, the Government is counting on the support of the development partners in finalizing a strategy that will strengthen the capacity for the conception, implementation, and evaluation of programs. The Government has officially launched a Program for the Creation of Employment for Youth and Females (PSCE/JF) in Mach 2012. This program will be articulated around 6 elements and will focus on reducing unemployment of youth and of females. B.4 Operationalize the framework for food security The poor results of the 2011-2012 agricultural campaign led to a difficult food and nutrition situation in certain areas of Burkina Faso, including both human population as well as animal. This was due to a very poor performance of grain production, due to the poor rainfall and the 59 distance from markets. It is in this context that a national response to the food crisis plan was developed and adopted by the Government. The National Council of Food Security (CNSA) through its Executive Secretariat (SE-CNSA), is the structure responsible for the planning and monitoring of the actions as well as the overall coordination of the response plan. The operational plan to support the vulnerable to food crises was developed by the Government in conjunction with its partners to strengthen and operationalize measures of response to the food crisis. The Government has conducted specific actions, including the establishment of cereal stocks, the production of corn (bondofa) and consultations with various partners. All the food reserves (security and intervention stocks) were used, so that the General Assembly recommended that the reserves are fully replenished: 10,000 tons of an intervention stock and 35,000 tons of a national food security stock. In fact, 81 419 tons of cereals have been deployed for the benefit of the vulnerable areas and sold at low social prices by SONAGESS, and 9 535 tons have been distributed by the CONASUR. Communal shops under the responsibility of the mayors in municipalities at risk have been created. The plan has also brought together the key actors and operationalized their work. The State has an operational plan whose implementation will help mitigate the food insecurities. Regarding the medium-term outlook, the Government, with regard to the current state of implementation of the operational plan, noted the need for future actions: (i) to ensure the available grain and feed for the next steps in the plan. (ii)to have better coordination of the interventions of the key actors and stakeholders; (iii) to take charge of the functions of monitoring-evaluation and control of the interventions; (iv) to relaunch agricultural production through irrigation building (extra and season) and making available timely agricultural inputs. C) Pillar 3: Reinforcing governance Fiscal policy has been to support growth with accelerated investment spending, and to adjust to the food crisis and the influx of Malian refugees. This has led to a revision of projections of budgetary resources for the year, made possible by the good performance in the first half of 2012. Thus, in a context marked by the food crisis and the influx of Malian refugees, which have drained valuable public resources, the pursuit of accountability and strengthened monitoring of tax units has allowed a relatively satisfactory level of revenue collection. The global budget deficit (including allocations, excluding grants) is estimated at 7.6% of GDP in 2012. It will be financed by budget support as well as the bonds of 30 billion F CFA on the UEMOA market. These will be put into the accounts of the Central Bank to be used in 2013. Performance in revenue collection has improved compared to 2011. For 2012, the total revenue collection reached 1012 billion CFA francs against 793,6 billion CFA francs in 2011, an increase of 28 percent corresponding to 218.4 billion CFA francs. The performance is notable when comparing the rate of growth between 2011 and 2012, which is 27.5% compared to a rate of increase between 2010 and 2011 which was only 16.5 percent. This increase is explained largely by the performance of economic activity and the effect of the strengthening of the tax administration, particularly tax recovery units. The rate of tax revenue over GDP is about 16.6%. This performance is due, among other things, to the increase in taxes on incomes and profits and taxes on goods and services. 60 In relation to total expenditures and loans, they are estimated at 1417,8 billion CFA Francs or 26.2 per cent of GDP, compared to 24.3% in 2011. Current expenditure is estimated at 828.2 billion CFA francs or 15.3% of GDP, and spending on poverty reduction has increased, to 368.6 billion CFA Francs or 7.0 per cent of GDP. This represents 90% of the amount of budgetary execution in late 2012. The mid-term review of the implementation of the budget 2012 to more closely track sectoral expenditures has been underway. These recommendations will contribute to the improvement in the execution of investment spending. To strengthen the effectiveness and transparency of the judicial system, a national mechanism to monitor and assess trends in corruption and efforts to reform anti-corruption of the ASCE by a semi-autonomous agency through the collection and annual analysis of sectoral data, audit (l'ASCE et de la Cour deles de Comptes) information and surveys produced by the government and civil society have been validated in a workshop. This mechanism will be subject to the adoption by the Council of Ministers. A code of transparency in the management of public finances compliant with the UEMOA Directives was submitted by the Council of Ministers for adoption before the transmission of the draft to the National Assembly. 2. PERSPECTIVES FOR THE PERIOD: 2013- 2015 The government intends to maintain its efforts to support growth and poverty reduction and adopt all measures to ensure macroeconomic stability. Economic activity in 2013-2015 will be marked by a stable growth rate, projected at 7.1 annually, mostly driven by the tertiary sector. The macroeconomic objectives will be attained thanks to: (i) the continued progress in public finance reform; (ii) the implementation of structural reforms; and (iii) the execution of programs envisaged in the SCADD. The budget priorities have been defined based on the objectives set in the strategy of accelerated growth and sustainable development (SCADD). For the year 2013, the priorities revolve around four areas: (i) strengthening the pillars of growth with special attention to the sectors of production (agriculture, farming, fishing) and support for production (transportation infrastructure, energy and promotion of SME/SMI), (ii) the consolidation of the reforms in the areas of health, education, employment and social protection, (iii) governance and the fight against the corruption with particular emphasis on the strengthening of the capacity of justice and of the inspection bodies and (iv) the strengthening of territorial defense and homeland security. For the selected priority sectors, interventions will be guided towards structuring investments with real knock-on effects. A. Pillar 1: Development of pillars for accelerated growth The Government intends to accelerate the implementation of its growth model based on growth poles, including the pilot of Bagre Growth Pole. This pole is structured around: (i) basins including natural resources (secure land tenure and agricultural water readily available, well used and well managed), allowing the development of agro-pastoral and fisheries productions related to real/potential markets; (ii) transport infrastructure providing the link in any season of the production areas to areas of shipping production; (iii) infrastructure for the supply of energy suited to the needs of stakeholders; (iv) infrastructure and equipment including storage, processing, marketing and communication; (v) provide financial and non-financial sustainability of value chains. 61 B. Pillar 2: Consolidation of human capital and promotion of social protection. In order to continue the consolidation of the social safety nets, the implementation of the plan of action of the national social protection policy will focus on the access of vulnerable populations through: (i) support the education and health of children in poor households; (ii) conditional support to vulnerable households; (iii) support to the empowerment of destitute households; (iv) the strengthening of access to care for children under 5 years and pregnant women; (v) improving the management of medical emergencies; and (vi) the acceleration of the mechanisms for implementation of the universal health insurance in the formal and non-formal sectors. C. Pillar 3: Re-enforcement of governance The economic and financial program will continue to be supported by the continuation of the implementation of structural reforms. The priorities that are consistent with the objectives of the SCADD will focus on sustained economic growth and a policy of fair and effective wealth redistribution. Benchmarks are intended to strengthen the management of public finances by improving the collection of tax revenues, the continuation of the implementation of measures already taken to make more efficient payments of wages in the public sector, and for the prudent management of public expenditure and improving debt management capacity. D. Pillar 4: Taking into consideration transversal priorities of development policies The taking into account of cross-cutting themes such as gender, population, environment and development of the territory, is a condition of success for implementing the SCADD. These questions will be constantly present at all levels of policy and dialogue during the process of policy formulation and sectoral programming. The Government plans to use the resources of the GCG-2 to increase the fiscal space for productive investments in accordance with the objectives of the SCADD under amendments it will add to the Finance Law of 2013. The Act will take into account the needs of each department on the one hand, and on the other hand support the farmers to reinforce their inputs, as well as support for refugees. The Government remains convinced that with the support of its partners including the World Bank through the grant to support growth and competitiveness (GCG-2), the satisfactory implementation of priority actions of the SCADD will contribute to consolidate the macroeconomic framework and support strong and robust economic growth strong necessary for a significant and sustainable poverty reduction. Sincerely, Lucien Marie NoO1 BEMBAMBA Officier de l'Ordre National 62 Annex 4: IMF Relations Note IMF Board Completes Fifth Review Under Burkina Faso's Three-Year Arrangement Under the Extended Credit Facility and Approves US$ 28.4 Million Disbursement Press Release No. 12/496 December 19, 2012 The Executive Board of the International Monetary Fund (IMF) has completed the fifth review under a three-year arrangement under the Extended Credit Facility (ECF) for Burkina Fasol.The completion of the review enables the disbursement of an amount equivalent to SDR 18.49 (about US$ 28.4 million), which will bring the total disbursements under the arrangement to SDR 75.82 million (about US$116.5 million). The Executive Board's decision was taken on a lapse of time basis . The three-year SDR 46.15 million (about US$ 70.8 million) ECF arrangement with Burkina Faso was approved by the IMF's Executive Board on June 14, 2010 (see Press Release No. 10/241). The Executive Board subsequently approved augmentation of access under the ECF arrangement to SDR 82.27 (about US$ 126.4 million) on June 8, 2012 (see Press Release No. 12/214). In spite of multiple external shocks, Burkina Faso's macroeconomic performance has remained strong. 2011 real GDP growth has been weaker than anticipated as a result of political events in the region, short-lived social turmoil in Burkina Faso, and a drought in the Sahel that led to a strong contraction in grain production. In early 2012, the authorities moved decisively to implement a comprehensive program to meet food needs created by the drought, as well as work with the international community to manage an influx of refugees fleeing political upheaval in Mali. As a result of this shock-related spending, the overall fiscal and current account deficits will expand modestly in 2012. The government's food security program also helped to dampen food prices, which had spiked in the spring. Thanks to good rains and measures taken to boost agricultural productivity, this year's harvest is expected to lead to a rebound in real GDP growth to about 8%. Burkina Faso has made notable progress under the program. All targets and structural reforms under the program through end-July were respected. Domestic revenue collection has increased, as a result of tax policy and administrative reforms in recent years, as well as new revenues from fast-growing gold mining activities. Burkina Faso is well-poised to meet WAEMU revenue targets in the next year or so. Some of the higher-than-expected domestic revenues will be used to pay for retail fuel subsidies. For the remainder of the program through mid-2013, the policy agenda is aimed at ensuring increased resources directed toward implementation of the authorities' development program, the SCADD (Strategy for Accelerated Growth and Sustainable Development). The SCADD aims at building on innovative projects to promote inclusive growth; building up needed public infrastructure (including provision of energy); improving agricultural productivity, resilience, diversity and sustainable farming practices; and strengthening social safety nets, including through direct transfers, as well as expanded provision of school lunches and health services for pregnant mothers and young children. To help meet resource needs, the authorities will move gradually toward cost recovery for retail fuel, contain public wage costs through efforts to eliminate fraud, continue efforts to expand domestic revenues, and streamline approval processes to execute fully priority investment spending. 1 The Executive Board takes decisions under its lapse of time procedure when it is agreed by the Board that a proposal can be considered without convening formal discussions. 63 Annex 5: Debt Sustainability AnalysiS24 This joint World Bank/IMF DSA has been prepared in the context of authorities' request to augment access under their program supported by the IMF's Extended Credit Facility (ECF). It indicates a significant improvement in Burkina Faso's debt profile, based on updated gold export projections and new end-2011 debt data. 25 While none of the external debt ratios under the baseline scenario or standardized stress tests breach their respective indicative debt distress thresholds, a country-specific stress test that better reflects the high dependency on projections for gold prices does result in a minor breach of the indicative debt distress threshold for the NPV of debt-to-exports. As a result, Burkina Faso's risk rating for external debt distress shifts to moderate from high. BACKGROUND AND UNDERLYING DSA ASSUMPTIONS 1. Burkina Faso's nominal stock of debt as of end-2011 was 29.3 percent of GDP, equivalent to around US$700 million (Table 1). Roughly 83 percent of this was external debt and the remainder was domestic debt, comprised almost entirely of 10 year Table 1. Burkina Faso: Stock of Public Debt, 2008-2011 government bonds. 2008 2009 2010 2011 (CFAF billions) 2. Compared to the December 2011 Total Debt 883.5 1029.6 1185.2 1407.1 DSA, the main change in macroeconomic External 786.4 867.7 1045.7 1159.1 assumptions in this DSA is an increase in Multilaterals 604.7 688.5 853.1 961.0 gold production and associated exports Bilaterals 181.8 179.2 192.6 198.1 (Table 2). Export projections were Domestic 97.1 162.0 139.5 248.0 significantly increased based gold (percent of GDP) production development in the pipeline and Total Debt 23.6 26.1 27.1 29.3 a slightly higher 2011 outturn than forecast External 21.0 22.0 23.9 24.1 (gold production was 32.4 tons vs. 31.4 tons Multilaterals 16.2 17.5 19.5 20.0 projected in the December 2011 DSA). The Bilaterals 4.9 4.5 4.4 4.1 December 2011 DSA had assumed that Domestic 2.6 4.1 3.2 5.2 gold production would drop in 2012 and Source: Burkinabe authorities remain largely flat over the medium term. Recent information show that investments already underway in new mining capacity should bring about large increases in production over the next 2 years, and large ongoing discovery and development-over 50 additional projects are in the exploration or development phases-suggest that production should be at least 49 tons by 2015, if not much higher. Despite a marginal downward adjustment in WEO gold prices, these production volumes would lead to much larger export values. 3. Higher exports also lead to higher GDP growth and more revenues in the near term. Real GDP growth has been increased to 7.0 percent per year until 2015, and revenues are boosted by mining royalties and higher corporate income taxes. An associated reduction in the current account deficit is assumed, which is the main variable driving the accumulation of new 24 Prepared by Maine Astou Diouf, with contributions from Anita Anoevna Niangoran and David Corvino. 25 Based on the average CPIA score in 2008-10, Burkina Faso is ranked as a "medium performer." Burkina Faso's CPIA average for 2009-11 may move it into the category of "high performer." 64 external financing under the DS framework. Growth over the longer term, however, has been revised downward somewhat to account for the likelihood of future shocks. 4. This DSA is based on new end-2011 debt data. The authorities had revised the end- 2010 stock of debt upward slightly, and the outturn of the end-2011 debt stock was higher than projected (CFAF 1407 billion vs. CFAF 1246 billion projected), and higher still in GDP terms since the 2011 GDP outturn was lower than expected. 5. New external financing assumptions are somewhat more conservative. The proposed augmentation in access to the ECF-supported program (US$55.7 million) has been included in new external borrowing in 2012. The December 2011 assumption of a gradual move from grants to loans has been maintained, but with somewhat less concessional terms for new borrowing (from an average grant element of roughly 45 percent in 2012 to about 35 percent in 2032). Table 2. Changes in Assumptions: April 2012 DSA vs. the December 2011 DSA 2011 2012 2013 2014 2015 2022 2030 Gold production 2011 DSA 31.4 30.6 32.0 34.7 34.9 40.1 48.3 (tons) 2012 DSA 32.4 35.0 40.0 46.1 49.1 69.1 86.6 Exports of G& S 2011 DSA 24.1 24.6 24.4 24.5 23.2 18.4 13.6 (% of GDP) 2012 DSA 25.7 27.1 28.4 29.7 29.6 27.4 26.7 GDP growth (y/y) 2011 DSA 5.6 5.8 6.4 6.8 6.8 7.3 7.4 2012 DSA 4.2 7.0 7.0 7.0 7.0 6.4 6.0 Re\enue (% of 2011 DSA 15.8 16.2 16.3 16.6 17.0 18.5 19.2 GDP) 2012 DSA 16.5 16.1 16.3 17.0 17.5 18.5 19.2 IMF (US$ millions) 2011 DSA 20.4 19.9 10.0 0.0 0.0 0.0 0.0 2012 DSA 20.4 75.6 10.0 0.0 0.0 0.0 0.0 Sources: Burkinabe authorities and staff projections. 6. Other underlying assumptions remain the same as in the December DSA, summarized in Box 1. Box 1. Macroeconomic Assumptions Underlying the DSA Real GDP growth is projected at 7 percent per year until 2015, supported by projections of: (i) an increase in gold production and sustained global gold prices; (ii) improved agricultural production; and (iii) an ambitious public investment program. However, longer term real growth has been moderated to 6 percent to account for a deceleration in the rate of growth of gold production and to reflect a more conservative investment-longer term growth link, particularly in light of the frequency of weather and other shocks. Inflation is projected to remain below 3 percent over the whole projection period. This is consistent with past performance and WAEMU macroeconomic criteria. Current account deficit is expected to fall to 2.7 percent of GDP by 2015, in line with gold exports and somewhat higher near term imports. Over the longer term, the current account deficit is projected to increase gradually to 6 percent by 2032, as gold exports decelerate but imports remain relatively constant. The overall balance of payments remains relatively unaffected by these developments, however, since gold proceeds (after wage and supplier payments) are mainly held in offshore accounts in order to repay intra-company loans. Fiscal deficits (including grants) are projected to decrease very gradually, from 3.3 percent of GDP in 2013 to around 2.8 percent in 2032, despite a pronounced decrease in grants (from 6.4 percent of GDP to 2 percent of GDP) and a shift toward external borrowing. Domestic debt assumptions remain unchanged from the December 2011 DSA, that is, the nominal stock of domestic debt is held constant, resulting in a sharp decline in terms of percent of GDP. Absent a higher fiscal deficit, changing this assumption would result in a lower external financing requirement still. 65 EXTERNAL DEBT DSA RESULTS 7. The December 2011 DSA maintained a determination of a "high risk" of external debt distress. This was based on a single indicator, the NPV of debt-to-exports, Figure 1. PV of debt-to-exports ratio breaching its indicative threshold, both with a customized stress test under the stress tests and the baseline 300 scenario. None of the other stock variables or stress tests breached the 250 indicative thresholds and the flow customized stress test variables were far below the indicative 200 thresholds. Indeed, the December 2011 DSA noted that it was based on 150 - conservative export assumptions and the NPV of debt-to-exports breach under the baseline scenario was 10 years later (2026) than under the 2010 DSA. The baseline 2011 DSA concluded that further 0_1_1 improvements in gold exports would 2012 2017 2022 2027 2032 lead to a situation where there was no breach. 8. This DSA does not show a breach of the indicative debt distress threshold for NPV of debt-to-exports (Tables 4a and b and Figure 2). The baseline scenario shows a slight decrease in NPV of debt-to-exports, from 54.1 percent in 2012 to 49.3 percent in 2014 (during the years of rapid growth of gold exports), followed by a steady increase to a maximum of 97.6 percent in 2032. The other debt indicators continue to show no breach in their indicative debt distress thresholds. Similarly, the standardized stress tests show no breach in the indicative thresholds. 9. Given that the DSA results are highly dependent upon gold projections, the staffs felt that consideration of a customized stress test was merited. Gold prices are inherently difficult to predict, and production projections in the outlook would also be likely to be affected by a significant change in prices, as this would probably affect investment. Staffs therefore ran a customized scenario based on World Bank Commodities Group projections for gold prices, which are lower than WEO projections. The effect of this change on export values was approximated by extending the standardized export shock for three further years (20 13-17). World Bank baseline projections show cumulative price declines of around 40 percent over five years, with lower prices sustained over the remainder of the projection period. Even without altering production, under this scenario the debt distress threshold with respect to exports is breached. Adding any adverse impact on production would intensify this breach. 10. This DSA shows a large deviation between the historical and baseline scenarios (Table 3). This is mainly due to a significant reduction in the current account deficit in the baseline, and thus debt accumulation, relative to the historical average. This reduction is a function of stronger export projections, and is consistent with current account performance over the last three years those with significant gold exportspin which the current account deficit averaged just 2.5 percent of GDP. In the December 2011 analysis, it was assumed that the current account deficit returned to its pre-gold trend, hence the baseline and historical scenarios 66 were closer. The historical scenario in this new DSA shows an improvement in debt indicators in later years, since the underlying historical averages for GDP, export, and revenue growth are significantly higher than long run projections in the baseline. Table 3. Historical vs. Baseline: December 2011 DSA vs. April 2012 DSA GDP growth GDP deflator Export Growth CA Deficit Revnues (% (% of GDP) of GDP) Baseline 2011 5.6 7.2 50.5 3.3 15.8 April 2012 DSA Baseline 2012- 17 avg Baseline 2018 7.3 1.8 5.8 6.7 18.6 31 am Sorcs:BHkiseatorisand 5.6 staf projections.5 .. o hih 4.2 9.2 36.6 1.0 16.5 2011 11. This DSadsnot moiyteDeebr211asmto2-o h eouino Api 21 D A Baein 01- 7.0 1.0 10.1 3.1 17.3 17 avg Baelne208 6.3 2.0 7.8 4.6 18.8 32 a,. Sources: Burkinabe authorities and IMF staff projections. TOTAL PUBLIC DEBT DSA RESULTS 11. This DSA does not modify the December 2011 assumptions for the evolution of domestic debt (Box 1, Tables 5a and b, and Figure 3). Therefore, the results of the total public debt analysis mimic those of the external debt analysis, especially over the long term. However, the most extreme shock corresponds now to a shock to growth rather than the primary balance, which results in worse debt indicators under the shock than in the December DSA. The decision to leave domestic financing assumptions unchanged was taken to avoid, in the absence of a higher fiscal deficit, creating lower external financing requirements still and so that the impact of new export projections could be isolated. However, it would be reasonable to assume, in the next joint DSA, that domestic debt levels are maintained, in line with efforts to create a regional bond market and deepen financial markets. DEBT MANAGEMENT ISSUES 12. Burkina Faso has been classified at "low debt management capacity" by the World Bank/IMF for the purposes of setting programmatic external debt limits. The authorities have enhanced debt management capacity in recent years, as noted by technical experts from the World Bank and IMF. Remaining areas for improvement include: (i) exposition of a medium- term debt management strategy (MTDS); (ii) stronger auditing procedures; (iii) better risk accounting; and (iv) an improved debt database management. The authorities have requested technical assistance from the IMF and the World Bank for the preparation of a MTDS by end- 2012, and TA from the IMF to conduct a DSF workshop as a means to start preparing their own regular DSAs. 67 AUTHORITIES VIEWS 13. [The authorities concurred with the DSA results and reaffirmed their commitment to prudent borrowing policies. They noted that a move from a "high risk" rating would unlock new sources of concessional financing. They acknowledged that the rating change could result in an accelerated move away from grants toward concessional financing, and that this would require determined efforts to continue strengthening debt management capacity and increased diligence to ensure financing terms are the most generous possible. 14. The authorities stressed, however, that more flexibility is needed regarding the zero limit on nonconcessional borrowing under the ECF-supported program. The argued for consideration of some nonconcessional financing linked to specific, high return large infrastructure projects. They would like to explore this topic in more detail at the time of the next program review.] CONCLUSION 15. Based on the results of the new DSA, Burkina Faso's risk of debt distress shifts from high to moderate. This shift primarily reflects the rapid development of Burkina Faso's gold mining sector, combined with notable improvements in underlying macroeconomic fundamentals. However, the staffs caution that any adjustments in financing plans-both on the part of the authorities and development partners-should only be undertaken gradually, to ensure that debt management capacity is sufficient to handle evolving needs. 68 Table 4a. Burkina Faso: External Debt Sustainability Framework, Baseline Scenario, 2009-2032 1/ (In percent of GDP, unless otherwise indicated) Actual Hist. 6 Std. 6 Projections Average Deviation 2012-2017 2018-2032 2009 2010 2011 2012 2013 2014 2015 2016 2017 Averap 2022 2032 Averap External debt (nominal) 1/ 22.0 23.9 24.1 24.0 23.8 23.9 24.1 24.4 24.9 30.2 38.1 o/wpublic and publicly guaranteed (PPG) 22.0 23.9 24.1 24.0 23.8 23.9 24.1 24.4 24.9 30.2 38.1 Change in external debt 1.0 1.9 0.2 -0.1 -0.2 0.1 0.2 0.3 0.5 1.3 0.4 Identified net debt-creating flows 3.7 0.5 -2.0 2.5 1.0 0.8 0.8 1.2 1.8 1.9 2.5 Non-interest current account deficit 4.5 2.1 1.0 7.8 3.9 4.2 2.7 2.6 2.5 3.0 3.5 3.9 5.1 4.4 Deficit in balance of goods and services 10.6 7.6 6.8 9.2 7.1 6.7 6.4 6.6 7.2 7.2 7.0 Exports 12.6 21.4 25.7 27.1 28.4 29.7 29.6 29.3 28.8 27.4 26.6 Imports 23.3 29.0 32.5 36.3 35.5 36.4 36.0 35.9 36.1 34.6 33.6 Net current transfers (negative = inflow) -6.0 -5.3 -5.6 -4.9 0.8 -4.7 -4.1 -3.8 -3.6 -3.3 -3.4 -3.0 -1.9 -2.6 o/w official -4.4 -3.9 -4.2 -3.5 -2.9 -2.8 -2.6 -2.4 -2.5 -2.1 -1.1 Other current account flows (negative = net inflow) -0.2 -0.2 -0.2 -0.3 -0.3 -0.3 -0.4 -0.4 -0.4 -0.3 0.0 NetFDI(negative=inflow) -1.1 -0.4 -0.4 -1.1 1.4 -0.3 -0.4 -0.4 -0.4 -0.4 -0.4 -0.5 -0.9 -0.6 Endogenous debt dynamics 2/ 0.3 -1.2 -2.6 -1.4 -1.3 -1.3 -1.3 -1.3 -1.3 -1.5 -1.8 Contribution fromnominal interest rate 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.3 Contribution fromrcal GDP growth -0.6 -1.6 -0.9 -1.6 -1.5 -1.5 -1.5 -1.5 -1.5 -1.7 -2.1 Contribution fromprice and exchange rate changes 0.7 0.2 -2.0 .. .. .. .. Residual (3-4)3/ -2.7 1.4 2.2 -2.6 -1.2 -0.8 -0.6 -0.9 -1.2 -0.6 -2.1 o/w exceptional financing 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 PVofexternal debt4/ ... ... 14.6 14.5 14.4 14.5 14.6 14.8 15.2 19.3 26.4 In percent of exports ... ... 56.6 53.6 50.8 48.7 49.2 50.5 52.7 70.2 99.2 PV ofPPGexternal debt ... ... 14.6 14.5 14.4 14.5 14.6 14.8 15.2 19.3 26.4 In percent of exports ... ... 56.6 53.6 50.8 48.7 49.2 50.5 52.7 70.2 99.2 In percent ofgovernment revenues ... ... 88.2 90.2 88.4 84.8 83.3 80.9 833 104.4 137.0 Debt service-to-exports ratio (in percent) 4.6 2.7 2.6 2.8 2.5 2.4 2.6 2.6 2.5 2.5 4.7 PPGdebtservice-to-exports ratio (in percent) 4.6 2.7 2.6 2.8 2.5 2.4 2.6 2.6 2.5 2.5 4.7 PPG debt service-to-revenue ratio (in percent) 43 3.7 4.0 4.7 4.4 4.2 43 4.1 3.9 3.7 6.6 Total gross financing need (Billions ofU.S. dollars) 0.3 0.2 0.1 0.5 0.4 0.4 0.4 0.5 0.6 1.0 3.0 Non-interest current account deficit that stabilizes debt ratio 3.5 0.2 0.8 4.3 2.9 2.5 2.3 2.6 3.0 2.6 4.8 Key macroeconomic assumptions Real GDP growth (in percent) 3.0 7.9 4.2 5.6 1.9 7.0 7.0 7.0 7.0 6.9 6.8 7.0 6.4 6.0 6.3 GDP deflator in US dollar terms (change in percent) -3.2 -0.7 9.2 7.9 7.9 -2.1 2.1 1.6 1.5 1.5 1.4 1.0 2.0 2.0 2.0 Effective interest rate (percent) 5/ 1.1 1.1 1.2 0.9 0.3 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 Growth of exports ofG&S (US dollar terms, in percent) 27.4 81.8 36.6 29.2 25.4 10.6 14.2 13.7 8.3 7.5 6.6 10.1 7.6 8.0 7.8 Growth of imports of G&S (US dollar terms, in percent) -11.7 33.4 27.7 18.2 15.0 16.9 6.8 11.5 7.4 8.4 8.7 9.9 7.3 8.1 7.9 Grant elennt ofnewpublic sector borrowing (inpercent) ... ... ... ... ... 41.1 46.4 45.2 43.8 42.7 41.7 43.5 38.1 36.2 37.6 Government revenues (excluding grants, in percent ofGDP) 13.7 15.6 16.5 16.1 16.3 17.0 17.5 18.3 18.3 18.4 19.3 18.7 Aid flows (in Billions ofUS dollars) 7/ 0.8 0.7 0.8 0.9 1.0 1.1 1.1 1.2 1.3 1.9 3.0 o/w Grants 0.5 0.4 0.5 0.8 0.7 0.8 0.8 0.8 0.9 1.0 1.0 o/w Concessional loans 0.3 0.3 0.3 0.2 0.2 0.3 0.3 0.4 0.4 0.9 2.0 Grant-cquivalent financing (in percent ofGDP) 8/ ... ... ... 8.2 7.5 7.2 7.0 6.7 6.7 5.6 3.3 4.8 Grant-cquivalent financing (in percent of extemal financing) 8/ ... ... ... 83.5 85.7 84.2 82.5 80.8 79.6 69.3 55.9 65.1 Memorandum items Nominal GDP (Billions of US dollars) 8.4 9.0 10.2 10.7 11.7 12.7 13.8 15.0 16.2 24.5 54.3 Nominal dollar GDP growth -0.3 7.1 13.7 4.7 9.2 8.8 8.6 8.5 8.3 8.0 8.5 8.1 8.4 PVofPPGexternal debt (in Billions ofUS dollars) 1.4 1.6 1.7 1.8 2.0 2.2 2.5 4.7 14.3 (PVt-PVt-1)/GDPt-1 (in percent) 1.5 1.2 1.3 1.4 1.5 1.7 1.4 2.7 2.5 2.5 Gross workers'remittances (Billions ofUS dollars) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 PVofPPGexternal debt (in % ofGDP +remittances) ... ... 14.5 14.5 14.4 14.4 14.5 14.8 15.2 19.2 26.3 PV ofPPGexternal debt (in % of exports + remittances) ... ... 56.3 53.3 50.6 48.5 49.1 50.4 52.5 69.8 98.3 Debt service ofPPGextemal debt (in % of exports +remittances) ... ... 2.6 2.8 2.5 2.4 2.6 2.6 2.5 2.5 4.7 Sources: Country authorities; and staff estimates and projections. 1/ Includes both public and private sector external debt. 2/ Derived as [r - g - p(1+g)]/(1+g+p+gp) times previous period debt ratio, with r= nominal interest rate; g =real GDP growth rate, and p= growth rate ofGDP deflator in U.S. dollar terms. 3/ Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution fromprice and exchange rate changes. 4/ Assumes that PVofprivate sector debt is equivalent to its face value. 5/ Current-year interest payments divided by previous period debt stock. 6/ Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability. 7/ Defined as grants, concessional loans, and debt relief 8/ Grant-cquivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PVof new debt). 69 Table 4b. Burkina Faso: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2012-2032 (In percent) Projections 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 PV of debt-to GDP ratio Baseline 15 14 14 15 15 15 16 16 17 18 19 20 21 22 23 24 24 25 26 26 26 A. Alternatiw Scenarios Al. Key varables at theirhistorical averages in 2012-20321/ 15 17 19 21 22 24 25 26 27 29 30 31 31 32 32 33 33 33 32 32 32 A2. New pubhc sector loans on less favorable terms in 2012-20322 15 15 16 17 18 19 20 21 23 24 26 28 30 31 33 34 35 36 37 38 39 B. BoundTests BI.RealGDPgrowthathistorncalaverageminusonestandarddeviationin2013-2014 15 15 15 15 16 16 17 17 18 19 20 22 23 24 25 25 26 27 27 28 28 B2. Export value growth at historcal average nnus one standard deviation in 2013-2014 3/ 15 16 19 19 19 19 19 20 21 21 22 23 23 24 25 25 26 26 27 27 27 B3. US dollarGDP deflator at historcal average minus one standard deviation in 2013-2014 15 15 15 15 15 16 16 17 18 19 20 21 22 23 24 25 25 26 26 27 27 B4 Net non-debt creatingflows at historical average minus one standard deviation in 2013-2014 4/ 15 15 15 15 15 16 16 17 18 19 20 21 22 22 23 24 25 25 26 26 26 B5.Combination ofBl-B4using one-halfstandard deviation shocks 15 14 13 13 13 14 14 15 16 17 18 19 20 21 22 23 24 25 25 26 26 36. One-tin 30 percent nominnal depreciation relative to the basehne in 20135/ 15 20 20 21 21 21 22 23 24 26 27 29 30 31 33 34 35 35 36 37 37 PVof debt-to-exports ratio Baseline 54 51 49 49 51 53 55 57 61 66 70 75 79 83 86 89 92 94 96 98 99 A. Alternatiw Scenarios Al. Key variables attheirhistoricalaverages in 2012-20321/ 54 58 63 70 76 82 87 92 98 104 109 113 116 119 121 122 122 122 122 121 120 A2. New pubhc sector loans on less favorable terms in 2012-2032 2 54 53 53 56 60 65 69 74 81 88 96 102 109 115 121 127 131 135 139 143 146 B. BoundTests BI. Real GDP growth at historincal average mnus one standard deviation in 2013-2014 54 51 49 49 50 53 55 57 61 66 70 74 79 82 86 89 91 94 95 97 99 B2. Export value growth at historincal average munus one standard deviation in 2013-2014 3/ 54 62 77 77 78 80 82 84 88 92 96 100 104 108 111 114 116 118 120 121 123 B3.US dollarGDP deflatorat historincal average minnus one standard deviation in 2013-2014 54 51 49 49 50 53 55 57 61 66 70 74 79 82 86 89 91 94 95 97 99 B4 Net non-debt creatingflows at historical average minus one standard deviation in 2013-20144/ 54 52 51 51 52 54 56 59 63 67 71 75 80 83 87 90 92 94 96 98 99 B5. Combination ofBl-B4 using one-half standard deviation shocks 54 47 40 41 42 45 47 50 54 58 63 67 72 76 80 83 85 88 90 92 93 B6. One-tin 30 percent nominnal depreciation relative to the basehne in 20135/ 54 51 49 49 50 53 55 57 61 66 70 74 79 82 86 89 91 94 95 97 99 PVof debt-to-revenue ratio Baseline 90 88 85 83 81 83 86 90 95 100 104 109 113 118 122 126 129 131 133 135 137 A. Alternative Scenarios Al.Keyvarinablesattheirhistoricalaveragesin2012-20321/ 90 101 109 118 121 129 136 144 152 158 163 165 167 170 172 173 172 171 169 167 166 A2.Newpubhcsectorloans on less favorableterms in 2012-20322 90 93 93 95 96 102 109 117 125 134 142 149 157 164 172 179 184 189 193 197 201 B. BoundTests Bl. Real GDP growth at historincal average innus one standard deviation in 2013-2014 90 91 90 88 86 88 92 96 101 106 111 115 120 125 130 134 137 140 142 143 145 32. Export value growth at historincal average minnus one standard deviation in 2013-20143/ 90 98 112 108 104 105 107 110 113 116 119 122 124 128 131 134 136 138 139 140 141 B3. US dollar GDP deflator at historincal average mnus one standard deviation in 2013-2014 90 90 88 86 84 86 89 94 98 103 108 113 117 122 126 131 134 136 138 140 142 B4 Net non-debt creatingflows at historical average minus one standard deviation in 2013-2014 4/ 90 91 88 86 84 86 89 93 97 101 106 110 114 119 123 127 130 132 134 135 137 B5.Combination ofBl-B4 using one-halfstandard deviation shocks 90 85 74 73 72 74 78 82 87 93 98 103 108 113 118 123 126 129 131 133 135 36. One-tin 30percent nonnal depreciation relative to the basehne in 20135/ 90 125 120 118 114 118 122 128 134 141 147 154 159 166 172 178 182 186 188 191 194 70 Table 4b. Burkina Faso: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2012-2032 (continued) (In percent) Debt service-to-exports ratio Baseline 3 3 2 3 3 2 3 3 2 2 3 2 3 3 3 4 4 4 4 5 5 A. Alternatiw Scenarios Al. Key variables at their historical averages in 2012-20321/ 3 2 2 2 2 2 3 2 3 3 3 3 3 4 4 4 4 4 5 5 5 A2.Newpublic sector loans on less favorable terms in 2012-20322 3 3 2 3 3 3 3 3 3 3 4 4 5 5 6 6 7 7 8 8 9 B. Bound Tests Bl. Real GDP growth at historical average minus one standard deviation in 2013-2014 3 3 2 3 3 2 3 3 2 2 3 2 3 3 3 4 4 4 4 5 5 B2. Export value growth at historical average minus one standard deviation in 2013-20143/ 3 3 3 3 3 3 3 3 3 4 4 4 4 4 5 5 5 5 6 6 6 B3. US dollarGDP deflatorat historical average minus one standard deviation in 2013-2014 3 3 2 3 3 2 3 3 2 2 3 2 3 3 3 4 4 4 4 5 5 B4 Net non-debt creatingflows at historical average minus one standard deviation in 2013-20144/ 3 3 2 3 3 3 3 3 3 3 3 3 3 3 3 4 4 4 4 5 5 B5. Combination ofBl-B4 using one-halfstandard deviation shocks 3 2 2 2 2 2 3 2 2 2 2 2 2 3 3 3 4 4 4 4 4 B6. One-time 30 percent nominal depreciation relative to the baseline in 20135/ 3 3 2 3 3 2 3 3 2 2 3 2 3 3 3 4 4 4 4 5 5 Debt service-to-revenue ratio Baseline 5 4 4 4 4 4 4 4 4 4 4 4 4 4 5 5 5 6 6 6 7 A. Alternatiw Scenarios Al. Key variables at theirhistorical averages in 2012-20321/ 5 4 4 4 4 4 4 4 4 4 5 5 5 5 6 6 6 6 6 6 6 A2.Newpublicsectorloans on less favorableterms in2012-20322 5 4 4 5 5 5 5 5 5 5 6 6 7 7 8 9 9 10 11 11 12 B. Bound Tests Bl. RealGDPgrowth at historical average minus one standard deviation in 2013-2014 5 4 4 5 4 4 5 4 4 4 4 4 4 5 5 5 6 6 7 7 7 B2. Export value growth at historical average minus one standard deviation in 2013-20143/ 5 4 4 5 4 4 5 4 4 5 5 5 5 5 5 6 6 6 7 7 7 B3. US dollarGDP deflatorat historical average minus one standard deviation in 2013-2014 5 4 4 5 4 4 4 4 4 4 4 4 4 4 5 5 6 6 6 6 7 B4 Net non-debt creatingflows at historical average minus onestandard deviation in2013-20144/ 5 4 4 4 4 4 4 4 4 4 4 4 4 4 5 5 6 6 6 6 7 B5. Combination ofBI-B4 using one-halfstandard deviation shocks 5 4 4 4 4 4 4 4 4 3 3 3 4 4 4 5 5 6 6 6 6 B6. One-time 30 percent nominal depreciation relative to the baseline in 2013 5 5 6 6 6 6 6 6 6 5 5 5 5 5 6 7 7 8 8 9 9 9 Memorandum item Crant element assumed on residual financing (i.e., financing required above baseline) 6/ 38 38 38 38 38 38 38 38 38 38 38 38 38 38 38 38 38 38 38 38 38 Sources: Country authorities; and staffestimates and projections. 1/ Variables include real GDP growth, growth ofGDP deflator(in U.S. dollar terms), non-interest current account in percent ofGDP, and non-debt creating flows. 2 Assumes that the interest rate on new borrowing is by 2 percentage points higher than in the baseline., while grace and maturity periods are the same as in the baseline. 3/ Exports values are assumed to remain permanently at the lower level, but the current account as a share ofGDP is assumed to return to its baseline level after the shock (implicitly assuming an offsetting adjustment in import levels). 4/ Includes official and private transfers and FDI. 5/ Depreciation is defined as percentage decline in dollar/local currency rate, such that it never exceeds 100 percent. 6/ Applies to all stress scenarios except forA2 (less favorable financing) in which the terms on all new financing are as specified in footnote 2. 71 Figure 2. Burkina Faso: Indicators of Public and Publicly Guaranteed External Debt under Alternatives Scenarios, 2012-2032 1/ 10 a. Debt Accumulation 45 b.PV of debt-to GDP ratio 9 *045 40 - m mm mm 8 %7*40 6 30 30 525 25 4 20 20 3 15 2 10 1 10 2012 2017 2022 2027 20322 IEMSRate of Debt Accumulation 21 07 22 07 23 **Grant-equivalent financing (% ofGDP) Gra nt element of newborrowing (% right scale) 300 -4c.PV of debt-to-exports ratio 300 d.PV of debt-to-revenue ratio 250 250 200 200 150~~~~ao- m. m Zmmmmmm 5 150 150 * 100 50 0 ..1 0 2012 2017 2022 2027 2032 2012 2017 2022 2027 2032 0 e.PV debt -to-exports ratio 0 d ff. Debt service-to-revenue ratio 20 20 15 15 10 10 . 0 0 -- 2012 2017 2022 2027 2032 2012 2017 2022 2027 2032 Baseline - e istoricalscenario - Most extreme shock / - -rv hreshold Sources: Country authorities; and staff estimnates and projections. 1/The most extreme stress test is the test that yields the highest ratio in 2022. In figure b. it corresponds to a One-time depreciation shock; in c. to a Customized scenario (lowr prices for 5 years and LT production decrease) shock; in d. to a One- time depreciation shock; in e. to a Exports shock and in figure f. to a Terms shock 72 Table 5a.Burkina Faso: Total Public Sector Debt Sustainability Framework, Baseline Scenario, 2009-2032 (In percent of GDP, unless otherwise indicated) Actual Estimate Projections Average Std. 2012-17 2018-32 2009 2010 2011 Dev. 2012 2013 2014 2015 2016 2017 Average 2022 2032 Average Public sector debt 1/ 26.1 27.1 29.3 28.3 27.2 26.0 25.3 24.9 25.1 30.2 38.1 o/w foreign-currency denominated 22.0 23.9 24.1 24.0 23.8 23.9 24.1 24.4 24.9 30.2 38.1 Change in public sector debt 2.5 1.0 2.2 -1.0 -1.2 -1.1 -0.7 -0.4 0.2 1.3 0.4 Identified debt-creating flows 1.5 3.4 0.5 0.6 0.9 0.8 1.0 0.5 0.7 1.4 0.2 Primary deficit 4.3 4.1 2.0 1.8 6.7 3.0 2.8 2.6 2.8 2.3 2.4 2.6 3.5 2.7 3.1 Revenue and grants 19.6 20.1 21.8 23.2 22.7 23.2 23.3 23.8 23.7 22.5 21.1 ofwhich: grants 5.9 4.6 5.3 7.1 6.4 6.1 5.8 5.5 5.4 4.1 1.9 Primary (noninterest) expenditure 23.9 24.2 23.8 26.2 25.6 25.8 26.1 26.1 26.1 26.0 23.8 Automatic debt dynamics -2.1 -0.5 -1.5 -2.4 -1.9 -1.8 -1.8 -1.7 -1.7 -2.0 -2.5 Contribution frominterest rate/growth differential -0.8 -2.1 -2.0 -2.4 -2.0 -1.9 -1.9 -1.8 -1.8 -2.0 -2.5 ofwhich: contribution from average real interest rate -0.1 -0.2 -0.9 -0.5 -0.1 -0.1 -0.2 -0.2 -0.2 -0.3 -0.4 ofwhich: contribution from real GDP growth -0.7 -1.9 -1.1 -1.9 -1.9 -1.8 -1.7 -1.6 -1.6 -1.7 -2.1 Contribution fromreal exchange rate depreciation -1.3 1.7 0.5 0.0 0.0 0.1 0.1 0.1 0.1 Other identified debt-creating flows -0.8 -0.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Privatization receipts (negative) -0.8 -0.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Recognition of implicit or contingent liabilities 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Debt relief (HIPC and other) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Other (specify, e.g. bank recapitalization) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Residual, including asset changes 1.0 -2.4 1.6 -1.6 -2.1 -1.9 -1.7 -0.9 -0.5 -0.1 0.1 Other Sustainability ]Indicators PV of public sector debt .. 19.7 18.9 17.8 16.6 15.8 15.3 15.4 19.3 26.4 o/w foreign-currency denominated .. 14.6 14.5 14.4 14.5 14.6 14.8 15.2 19.3 26.4 o/w external ... ... 14.6 14.5 14.4 14.5 14.6 14.8 15.2 19.3 26.4 PVof contingent liabilities (not included in public sector debt) ... ... ... ... ... ... ... ... --- ... ... Gross financing need 2/ 5.4 5.4 3.4 4.6 4.4 4.4 4.3 3.7 3.4 4.2 4.0 PV ofpublic sector debt-to-revenue and grants ratio (in percent) ... ... 90.5 81.5 78.1 71.6 67.8 64.2 64.9 85.4 125.0 PV of public sector debt-to-revenue ratio (in percent) ... ... 119.4 117.2 108.8 97.3 90.4 83.5 84.2 104.4 137.0 o/w external 3/ ... ... 88.2 90.2 88.4 84.8 83.3 80.9 83.3 104.4 137.0 Debt service-to-revenue and grants ratio (in percent) 4/ 5.2 6.7 6.3 6.9 7.0 7.7 6.8 6.2 4.2 3.1 6.0 Debt service-to-revenue ratio (in percent) 4/ 7.4 8.6 8.3 9.9 9.7 10.5 9.1 8.1 5.5 3.7 6.6 Primary deficit that stabilizes the debt-to-GDP ratio 1.8 3.1 -0.1 3.9 4.0 3.8 3.5 2.7 2.2 2.2 2.4 Key macroeconomic and fiscal assumptions Real GDP growth (in percent) 3.0 7.9 4.2 5.6 1.9 7.0 7.0 7.0 7.0 6.9 6.8 7.0 6.4 6.0 6.3 Average nominal interest rate on forex debt (in percent) 1.1 1.1 1.2 0.9 0.3 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 Average real interest rate on domestic debt (in percent) 5.9 2.8 1.7 3.0 3.4 2.3 3.6 3.6 3.4 3.2 2.3 3.0 1.0 1.0 1.0 Real exchange rate depreciation (in percent, + indicates depreciation) -6.7 8.3 2.3 -3.3 10.2 0.1 ... ... ... ... ... ... Inflation rate (GDP deflator, in percent) 2.3 2.8 5.6 3.0 2.8 3.5 2.0 2.0 2.0 2.0 2.0 2.3 2.0 2.0 2.0 Growth ofreal primary spending(deflated by GDP deflator, in percent) 0.2 0.1 0.0 0.1 0.1 0.2 0.0 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 Grant element of new external borrowing (in percent) ... ... 41.1 46.4 45.2 43.8 42.7 41.7 43.5 38.1 36.2 Sources: Country authorities; and staff estimates and projections. 1/ Medium term and long term general government gross debt 2/ Gross financing need is defined as the primary deficit plus debt service plus the stock ofshort-term debt at the end ofthe last period. 3/ Revenues excluding grants. 4/ Debt service is defined as the sum of interest and amortization of medium and long-term debt. 5/ Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability. 73 Table 5b.Burkina Faso: Sensitivity Analysis for Key Indicators ofPublic Debt 2012-2032 Projections 2012 2013 2014 2015 2016 2017 2022 2032 PV of Debt-to-GDP Ratio Baseline 19 18 17 16 15 15 19 26 A. Alternatiw scenarios Al. Real GDP growth and primary balance are at historical averages 19 17 16 15 14 14 15 18 A2. Primary balance is unchanged from 2012 19 18 17 16 16 17 20 26 A3. Permanently lower GDP growth 1/ 19 18 17 16 16 16 22 36 B. Bound tests 131. Real GDP growth is at historical average minus one standard deviations in 2013-2014 19 19 19 18 19 19 26 37 132. Primary balance is at historical average minus one standard deviations in 2013-2014 19 21 23 22 21 21 24 29 133. Combination ofBl-132 using one halfstandard deviation shocks 19 20 20 20 19 20 25 35 134. One-time 30 percent real depreciation in 2013 19 23 21 20 19 18 19 23 135. 10 percent ofGDP increase in other debt-creating flows in 2013 19 24 22 21 20 20 23 28 PV of Debt-to-Rewnue Ratio 2/ Baseline 81 78 72 68 64 65 85 125 A. Alternatiw scenarios Al. Real GDP growth and primary balance are at historical averages 81 76 68 62 58 58 65 85 A2. Primary balance is unchanged from 2012 81 79 73 70 68 70 88 123 A3. Permanently lower GDP growth 1/ 81 78 73 69 67 68 98 170 B. Bound tests 131. RealGDP growth is at historical average minus one standard deviations in 2013-2014 81 81 79 78 77 80 114 175 132. Primary balance is at historical average minus one standard deviations in 2013-2014 81 93 101 96 90 90 105 136 133. Combination ofBl-B2 using one halfstandard deviation shocks 81 85 86 83 81 83 111 163 134. One-time 30percent real depreciation in 2013 81 102 92 85 78 76 85 111 135. 10 percent ofGDP increase in other debt-creating flows in 2013 81 105 96 91 86 86 102 134 Debt Service-to-Rewnue Ratio 2/ Baseline 7 7 8 7 6 4 3 6 A. Alternatiw scenarios Al. Real GDP growth and primary balance are at historical averages 7 7 8 7 6 4 3 5 A2. Primary balance is unchanged from 2012 7 7 8 7 6 4 3 6 A3. Permanently lower GDP growth 1/ 7 7 8 7 6 4 3 7 B. Bound tests B1. Real GDP growth is at historical average minus one standard deviations in 2013-2014 7 7 8 7 7 5 4 8 132. Primary balance is at historical average minus one standard deviations in 2013-2014 7 7 8 7 7 5 4 7 133. Combination ofBl-132 using one halfstandard deviation shocks 7 7 8 7 7 5 4 8 134. One-time 30 percent real depreciation in 2013 7 8 9 8 8 6 5 9 135. 10 percent ofGDP increase in other debt-creating flows in 2013 7 7 8 8 6 4 4 7 Sources: Country authorities; and staff estimates and projections. 1/ Assumes that real GDP growth is at baseline minus one standard deviation divided by the square root ofthe length ofthe projection period. 2/ Revenues are defined inclusive of grants. 74 Annex 6: Burkina at a Glance Burkina Faso at a glance 10/18/12 Sub- POVERTY and SOCIAL Burkina Saharan Low- Faso Africa income Developmentdiamond* 'r011 Population, mid-year (millions) 17.0 875 817 GNI per capita (Atlas method, US$) 570 1,255 567 Life expectancy GNI (Atlas method, US$ billions) 9.7 1,098 463 Average annual growth, 2005-11 Population (%) 3.0 2.5 2.1 Labor force (%) 3.2 2.8 2.6 GNI Gross per |- primary Most recent estimate (latest year available, 2005-11) capita enrollment Poverty (% of population below national poverty line) 47 Urban population (% of total population) 27 37 28 Life expectancy at birth (years) 55 54 59 I Infant mortality (per 1,000 live births) 82 69 63 Child malnutrition (% of children under 5) 26 21 23 Access to improved water source Access to an improved water source (% of population) 79 61 65 Literacy (% of population age 15+) 29 63 63 Gross primary enrollment (% of school-age population) 79 100 105 Btrkra Faso Male 82 103 108 - Low-income goup Female 76 96 102 KEY ECONOMIC RATIOS and LONG-TERM TRENDS ' 1991 2001 2010 ' 2011 Economicratios' GDP (US$ billions) 3.1 2.8 8.8 10.2 Gross capital formation/GDP 21.2 13.8 Exports of goods and services/GDP 10.4 9.2 .. .. Trade Gross domestic savings/GDP 8.3 -0.1 Gross national savings/GDP .. .. . Current account balance/GDP -6.0 -11.2 -11.4 Domestic | Capital Interest payments/GDP 0.7 0.5 0.2 0.2 savings formation Total debt/GDP 30.8 53.5 24.7 23.8 Total debt servicelexports 9.8 11.9 4.6 Present value of debt/GDP .. Present value of debt/exports .. Indebtedness 1991-01 2001-11 2010 r 2011 2011-15 (average annual growth) GDP 5.7 5.8 7.9 4.2 .. Burkha Faso GDP per capita 2.8 2.7 4.7 1.1 .. - Low-income group Exports of goods and services 4.0 .. _ __._ _.. STRUCTURE of the ECONOMY ' 1991 2001 2010 ' 2011 Growth of capital and GDP(%) (% of GDP) 10 Agriculture 30.9 36.6 .. .. Industry 20.0 19.3 .. .. 6 Manufacturing 13.9 13.0 .. .. 4 Services 49.2 44.1 .. 2 Household final consumption expenditure 70.0 78.4 .. 06 07 08 09 10 11 General gov't final consumption expenditure 21.7 21.7 Imports of goods and services 23.3 23.1 GCF - GDP 1991-01 2001-11 2010 ' 2011 Growth ofexports and imports (%) (average annual growth) Agriculture 5.4 .. 2 - Industry 6.4 Manufacturing 6.0 .. .. .. 1 Services 4.6 Household final consumption expenditure 6.4 .. .. .. General gov't final consumption expenditure 3.3 06 07 08 09 10 11 Gross capital formation 2.0 .. .. .. Exports Irmports Imports of goods and services 2.3 Note: 2011 data are preliminary estimates. Group data are through 2010. The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete. 75 Burkina at a Glance (continued) Burkina Faso PRICES and GOVERNMENT FINANCE D 1991 2001 2010 ' 2011 Inflation (%) Domestic prices (% change) 10 Consumer prices 2.5 4.7 .. .. 5 Implicit GDP deflator -4.0 4.0 2.8 5.6 Government finance 06 7 08 09 0 11 (% of GDP, includes current grants) - Current revenue 12.8 12.4 16.6 Current budget balance 2.1 1.8 5.0 .o Overall surplus/deficit -6.3 -9.8 -6.8 coP denator CPI TRADE (US$ millions) 1991 2001 2010 ' 2011 Export and import levels (US$ mi.) Total exports (fob) 269 224 824 .. 1,5o Cotton 104 131 377 Livestock products 29 42 100 1,mo Manufactures .. ._ Total imports (cif) 490 435 1,264 Food 104 98 151 .. I F F Fuel and energy 80 93 357 Capital goods 111 158 489 .. 0 s5 ss 07 so 09 10 11 Export pnce index (2000=100) 99 114 105 Import price index (2000-100) 85 101 91 .. DExports glmports Termsof trade (2000=100) 117 113 115 BALANCE of PAYMENTS (US$ millions) F 1991 2001 2010 F 2011 Current account balancetoGDP(%) Exports of goods and services 337 260 982 .. 5 I I I I I 11 Imports of goods and services 743 693 2,208 .. -2 0 Resource balance -406 -433 -1,226 .. - Net income -9 -6 -19 .- Net current transfers 226 124 237 .. -8 Current account balance -188 -315 -1,008 -10 -12 - Financing items (net) 231 310 1,065 -14 Changes in net reserves -43 5 -57 Memo: Reserves including gold (US$ millions) .. Conversion rate (DEC, local/US$) 282.1 733.0 495.3 471.9 EXTERNAL DEBT and RESOURCE FLOWS (US$ millions) P 1991 2001 2010 ' 2011 Composition of 2011 debt (US$ mill.) Total debt outstanding and disbursed 965 1,505 2,179 2,420 IBRD .. 0 0 0 F:15 G:131 IDA 326 636 776 837 E: 301 Total debt service 46 38 50 71 IBRD .. 0 0 0 B:837 IDA 4 5 6 9 Composition of net resource flows Official grants 214 200 Official creditors 119 123 250 123 Private creditors .. 0 -2 -3 Foreign direct investment (net inflows) 1 9 ..D:903 C: 233 Portfolio equity (net inflows) 0 1 World Bank program Commitments .. 204 0 0 Disbursements .. 71 67 68 A - IBRD E - Bilateral Principal repayments .. 2 0 3 B - IDA D - Other roultilateral F - Private Net flows .. 69 67 64 C - IMF G - Short-term Interest payments .. 2 5 6 Net transfers .. 67 61 58 Development Economics 10/18/12 76 2°W 0° - -- -- 2°E This map w produd by ihe map Do,,gn unoit d The -. world Bork Th. booodori,,ý colors denominations ond ony' olber info~mton sho~n on hin ..op do -ot iml,o OUDALAN thepart of The Wod Bnk MALIGroup ony n on or any endorsement or BURKINA FASO SOUMum Dan M Djibo BoiN IGE R 1 4'N TitaT OuhguaBM SANMATE EGA .Sebba Kongoussi YAGHA O KQUITNG .ipg 1%2. . . SBn . ¯SOUR0 Gourcy ZONOMACGNAGNA KOSSI Tougan. Kaya sbø PATSSORTKOUaE BogandéIB AA oua .' NAYA LATm ou,, U RITE Gé Gaiyéri i, Boulsa . Ddougou OUAGDU9 BANA OUHOUIN Ré• uouURO . olnz •BULlEDE ADoorgo- 1ýKýpéla Fad u O U Kombissi K R.N'Gourma •Diapaga 12 -- SANGUiE 6 BZG URMA TAPOA \12°N Boromýo. , go BALÉ ZEOMn BO UL GU (gu ELOGO IKENEDOUGOU >ond Ouagay KMPNG HOUET ,UI r.~ TUl NAOURl .Pama.u Bobo- , ao SSIl.Léo - ô v-f B E Nl N Oródara Dioulasso' ,lBA.r- égou To2| o7 Téna Kouroý S duBUORaADogumoæ PON BURKINA FASO KOMOý Gaouamaekd e PROVINCE CAPITALS 10°N 'I(DIMBEL G H - NATIONAL CAPITAL To TGO RIVERS Boe 2 0 0 0ý00Kloetr MAIN ROADS C6ÔT E D 'I V O I RE°°' RAILROADS 0 20 40 6 80 ilesPROVINCE BOUNDARIES mBoaké - - - INTERNATIONAL BOUNDARIES 4°W 2,W 0