Document of The World Bank FOR OFFICIAL USE ONLY Report No.: P7169 BUR REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON ASSISTANCE TO THE REPUBLIC OF BURKINA FASO UNDER TH HIPC DEBT INITIATIVE AUGUST 13, 1997 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 ABBREVIATIONS AND ACRONYMS AGSAC Agricultural Sector Adjustment Credit AIDS Acquired Immune Deficiency Syndrome CAMEG State Purchasing Agency for Essential Generic Drugs CAS Country Assistance Strategy DSA Debt Sustainability Analysis HIPC Heavily Indebted Poor Countries IBRD International Bank for Reconstruction and Development IDA International Development Association IMF International Monetary Fund NGO Non-Governmental Organization NPV Net Present Value Vice President Jean-Louis Sarbib Director Hasan A. Tuluy Division Chief/Manager Charles Humphreys Staff Member Michele Guerard/Axel van Trotsenburg FOR OFFICIAL USE ONLY ASSISTANCE TO BURKINA FASO UNDER THE HEAVILY INDEBTED POOR COUNTRIES DEBT INITIATIVE Table of Contents Page Proposed Debt Relief .........................................................1 Completion Point Measures ..............................................2 Impact of Completion Point Measures ......................................... 2 IDA Assistance Strategy .........................................................4 The Proposed Structural and Social Development Performance Criteria ............. 5 Objective of the Proposed Assistance ........................................... 5 Proposed Monitoring Criteria ..............................................5 Recommendation .........................................................7 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 MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON ASSISTANCE TO BURKINA FASO UNDER THE HIPC INITIATIVE 1. I submit for your approval the following report and recommendation on the assistance to be provided to Burkina Faso under the Heavily Indebted Poor Countries (HIPC) Debt Initiative in respect of debt owed by it to the International Development Association (IDA). This report and recommendation address: (i) the relief that is proposed to be provided in respect of debt owed to IDA at the completion point; and (ii) the structural and social development performance criteria that Burkina Faso would need to have satisfied at the completion point in order for the assistance under the HIPC Debt Initiative to be provided at that time. 2. This document complements the paper entitled "Burkina Faso: Final Document on the Initiative for Heavily Indebted Poor Countries (HIPC)" which is being circulated in parallel to the Board. The final HIPC document reports on consultations with creditors, provides an update on the status of the debt reconciliation process, and includes the debt sustainability analysis that was jointly prepared by the Burkinabe authorities and Bank and Fund staff. It also contains recommendations on: (i) Burkina Faso's eligibility for assistance under the HIPC Debt Initiative; (ii) the timing of the decision point and the completion point; (iii) the targets for the net present value (NPV) debt-to-export ratio and the debt-service ratio at the completion point; (iv) envisaged debt relief from bilateral creditors; (v) proposed actions by multilateral creditors to achieve the target NPV debt-to- export ratio at the completion point; and (vi) key performance criteria for Burkina Faso under the Initiative. It should be noted that the final HIPC document builds on the Preliminary document (IDAlSecM97-95, 3/25/97) and should be read in conjunction with this document. PROPOSED DEBT RELIEF 3. As set forth in the final HIPC document, to bring Burkina Faso's debt to the target of a 210 percent of NPV debt-to-export ratio by the proposed completion date of September 1999, the multilateral creditors' share of debt relief for Burkina Faso would amnount to US$87 million in NPV terms, of which US$40 million would be provided on debts owed to IDA. It is proposed that the Executive Directors approve, in principle, the provision of relief in an amount having a net present value of US$40 million in respect of debts owed by Burkina Faso to IDA, subject to confirmation of other multilateral creditors that they will provide proportional relief on their claims. Relief on debts owed 2 to IDA would be provided through actions at the completion point, as described in the following paragraphs. Completion Point Measures 4. The HIPC Trust Fund will be utilized to provide the required relief on debt owed to IDA--equivalent to US$40 million in NPV terms. The I-IIPC Trust Fund will set aside, at the decision point, an amount equal to the NPV reduction required on IDA debt from resources transferred from IBRD to the World Bank component of the HIPC Trust Fund. With these resources, the Trust Fund is expected, at the completion point, to purchase IDA credits with a nominal value of approximately US$77 million. The nominal amount of the credits to be purchased will be determined on the basis of the principles agreed upon for calculating the NPV of debt in DSAs' and by selecting for purchase the oldest IDA credits. The HIPC Trust Fund will then promptly cancel these IDA credits and infonn the debtor that the debt is no longer due. The HIPC Trust Fund will enter into an agreement to this effect with IDA as soon as possible following the decision point. Impact of Completion Point Measures 5. As indicated above, the relief to be provided with respect to IDA credits will amount to the equivalent of approximately US$40 million in NPV terms, all of which will be made available through the operation of the HIPC Trust Fund. The extent of relief on the principal of IDA debt is illustrated in Chart 1. 6. Total savings in debt service on these credits would amount to about US$85 million in nominal terms over their remaining life, of which US$77 million would be a reduction of principal repayments and US$8 million would be reduced service charges. For illustrative purposes, Chart 2 shows the impact of the debt relief on Burkina Faso's debt service obligations to IDA between 1999 and 2010. During that period, the reduction of Burkina Faso's debt service to IDA would average about US$3.6 million per year or about 18 percent of debt service due to IDA. £ The principles for the calculation were described in detail in SecM96-927 entitled "The HEPC Debt Initiative-Elaboration of Key Features and Possible Procedural Steps", page 11. 3 Chart 1. IDA Debt Relief (Estimate in millions of NPV and nominal US$) 100 90 - NOMINAL 1 80 - $77 million 70 60 -F 30 -l i l i _ 20 - 1 1|;1 Purchase of IDA creditsl/ Purchase of IDA creditsll 1/ Assumes that the HIPC Trust Fund would purchase the oldest IDA credits. Source: Staff estimates Chart 2. lrnplications for IDA Debt Service through 2010 (Expressed as percentage reduction of debt service due) 3~00 0.0 _ m6o 20co 2B 2006 Z2007 2008 209 SD Source: Staff estimates 4 IDA ASSISTANCE STRATEGY 7. Burkina Faso has established an extended adjustment track record under successive programs supported by IDA and the IMF since 1991. Under these programs, the Government of Burkina Faso has implemented a broad range of reforms which have largely succeeded in their basic objective of redirecting the economy from a centralized to a market-oriented mode, while restoring growth and a viable macro-economic position. The stage is now set for a major effort to improve social conditions over the next decade. Accordingly, the focus of the IDA country assistance strategy for Burkina Faso has evolved over the years. Initially, the main objective was economic liberalization, along with fiscal stabilization and, later-on managing the post-devaluation adjustment. In the most recent CAS paper for Burkina Faso, which was discussed by the Board in 1996, the focus shifted more towards social development. 8. The main objective of the current IDA assistance strategy in Burkina Faso is to support the Government in its goal to achieve sustainable development and poverty reduction through faster economic growth and increased emphasis on human resource development. Achieving this objective will involve actions along two fronts: (i) continuing to increase income opportunities and productive capacity, including through strengthening the role of the private sector; and (ii) accelerating social development through increased allocations of public resources to the social sectors and more efficient use of these resources; The 1996 CAS continues to place emphasis on the need for Burkina Faso to open up to new opportunities, domestically, regionally and globally, and to encourage private initiative to explore growth prospects in agriculture, mining and services. But a crucial aim of the current strategy is to support a much more ambitious stance in the social sectors. 9. The IDA programn over the coming years will reflect this emphasis. It will support more aggressive programs to increase the quality and accessibility of basic public services, particularly in the poorest areas of the country. In collaboration with other donors and NGOs, it will help the Government develop innovative approaches, and new ways to deliver social services, including through decentralization and increased reliance on local communities. Rural areas, in this process, will become the focal point of public service delivery. The FY97-99 program for both lending and non-lending services proposed in the CAS focuses almost entirely on health, education, agriculture, water and rural infrastructure. 10. Burkina Faso has been classified as a heavily indebted country. At the end of 1996, it had a total external debt of US$1.3 billion, with an NPV of debt service-to-export ratio of 240 percent. The debt service ratio exceeded 20 percent until 1995, although it has fallen since then as a result of the bilateral debt relief obtained in recent years. Most of the external debt (about 85 percent) is owed to multilateral creditors. In developing this prograun, the Government committed itself to ensuring that the funds released as a result of the proposed debt relief would be used to strengthen its social development 5 programs. This theme has been sustained in the discussion of the HIPC Initiative and provides the context for the social development indicators to be monitored under that Initiative. THE PROPOSED STRUCTURAL AND SOCIAL DEVELOPMENT PERFORMANCE CRITERIA Objective of the -Proposed Assistance 11. With the proposed assistance, IDA would support the implementation of the government's economic and social program as spelled out in the Policy Framework Paper and provide, in conjunction with other creditors, special assistance that would allow Burkina Faso to reach a sustainable debt position by the completion point. Proposed Monitoring Criteria 12. The delivery of debt relief at the completion point would be contingent on the monitorable actions specified in the final HIPC document and on the additional actions specified below. Before reaching the completion point, the Govemment would need to make satisfactory progress in the implementation of the following: (i) structural policy actions to be monitored under IDA and IMF-supported programs, including: * actions to be included in the proposed Second Agricultural Sector Adjustment Credit (AGSAC II), notably completing the liberalization of rice imports, the restructuring of agricultural services and the reorganization of the cotton sector; * adoption and initial implementation of civil service reform; * adoption of a comprehensive strategy for extending privatization to remaining enterprises in the public sector, and initial application of this strategy to some of the public utilities, notably telecommunications; (ii) social programs that will be monitored in parallel by ongoing and planned IDA projects. Specific actions to be undertaken by 1999 are described in more detail in the final HIPC document along with the targeted outcomes (see in particular Table 6, Social Development Performance Indicators). They will 6 be supported and monitored under the ongoing Health and Nutrition Project and the Basic Education Project, currently under preparation. These actions include: - in the health sector, * increase public spending for health care, from 10 percent of budgetary outlays (including foreign financed expenditure) in 1996 to at least 11 percent in 1998 and 12 percent in 1999; allocate budgets to the decentralized health districts and establish a minimum package of basic health services; * prepare and pilot test plans for the direct hiring of health personnel at the district level; * adopt new governing statutes and reorganize the public drug purchasing agency (CAMEG); progressively increase the availability of essential drugs to local health facilities and the number of these facilities meeting minimum staffing norms (3 agents), with a view to increasing their current low utilization rates; - accelerate immunization programs to meet targets for increased vaccination coverage; - in the education sector, * increase public spending on basic education from 9 percent of budgetary expenditure (including foreign financed expenditure) in 1996 to at least 11.5 percent in 1998 and 13 percent in 1999; * start implementing the 10-year plan for the development of basic education, with particular emphasis on increasing access to primary education in the provinces with the lowest enrollment rates, with a view to meeting the plan's targets for increased overall primary school enrollments and for a reduced spread in enrollment rates between the provinces with the best and worst enrollment rates; * prepare and test pilot a plan for the direct hiring of primary school teachers at the local community level; * implement girls' education programs to increase girls' primary school enrollment from 30 percent in 1996 to the target of 38 percent by 1999. These criteria would be set out in more detail and agreed by Burkina Faso in the legal agreement referred to in paragraph 13 below. 7 RECOMMENDATION 13. Once Burkina Faso's other creditors have confirmed their agreement to provide the debt relief envisioned in the final HIPC document, the Executive Directors will be so informed and confirmation from the Executive Directors will be sought, on a no- objection basis, of the actions approved by them in principle at this time. Following such confirmation, IDA would enter into a legal agreement with Burkina Faso for the provision of the agreed relief on debts owed to IDA, subject to satisfaction by Burkina Faso of the conditions approved by the Executive Directors. 14. I recommend that the Executive Directors approve, in principle, the recommendation contained in the final HIPC document concerning the eligibility of Burkina Faso for assistance under the HIPC Debt Initiative, the decision and completion points for Burkina Faso, the NPV debt-to-export ratio and debt-service ratio to be achieved at the completion point, the proposed actions by multilateral creditors to achieve these targets and the performance criteria to be met by Burkina Faso. 15. I further recommend that the Executive Directors approve, in principle, the recommendations contained in this paper on the amount and manner of debt relief to be provided in respect of debts owed by Burkina Faso, specifically the NPV debt reduction on IDA debt through the HIPC Trust Fund, and the structural and social development performance criteria that Burkina Faso would be required to satisfy at the completion point in order to receive debt relief under the HIPC Debt Initiative. James D. Wolfensohn President By: Gautam Kaji Washington, D. C. August 13, 1997 CONFIDENTIAL THE INTERNATIONAL MONETARY FUND AND THE INTERNATIONAL DEVELOPMENT ASSOCIATION BURKINA FASO Final Document on the Initiative for Heavily Indebted Poor Countries (HIIPC) Prepared by the Staffs of the Fund and the IDA' August 13, 1997 Contents T. Introduction ...................................... 3 II. Summary of Debt Sustainability Analysis . ................................ 4 mH. Burkina Faso's Track Record: Adherence to Bank- and Fund-Supported Programs ...................................... 6 IV. Policy Reform and Conditionality ...................................... 8 A. Macroeconomic and Structural Reform Policies ......... ................ 8 B. SocialPolicies ........... 11 V. Debt Reconciliation and Debt Management Capacity ......... .............. 16 VI. Consultations With Creditors .................................... 16 A. Multilateral Creditors . .................................... 16 B. Bilateral Creditors .............. ...................... 17 VII. Debt Sustainability Targets and Debt Relief . ............................. 17 VIII. Issues for Discussion .19 Text Boxes 1. Assumptions Used in the Debt Sustainability Analysis (DSA). 5 2. Health and Basic Education Expenditures .12 'Approved by Paul A. Acquah and Saleh M. Nsouli (IMF), and Masood Ahmed and Hasan Tuluy (IDA). -2 - Tables 1. Long-Term Balance of Payments, 1993-2019 ............................ 21 2. Main Structural Reforms Under IDA and Fund SAF and ESAF-Supported Programs, 1991-96 ................ ................. 24 3. Reforms Supported by IDA Adjustment Credits and Waivers ...... ........... 26 4. SAF and ESAF Programs-Waivers and Status of Midterm Review and Program Interruptions . ............................................ 27 5. Key Structural Reforms Under IDA- and Fund-Supported Programs, 1997-99 .... 28 6. Social Development Performance Indicators .............................. 29 7. Nominal and Net Present Value (NPV) of Debt Outstanding, End-December 1996 30 8. Assistance, Net Present Value (NPV) of Debt/Exports Targets and Burden Sharing .31 - 3 - L INTRODUCTION 1. This paper presents an assessment of Burkina Faso's eligibility for assistance under the Heavily Indebted Poor Countries (HIPC) Initiative. It summarizes the debt sustainability analysis (DSA) discussed earlier by the Fund and IDA Boards, describes the policy reforms to be pursued by Burkina Faso and monitored under Fund and IDA arrangements, and reports on consultations with creditors and the status of the debt reconciliation process. The paper proposes that the Boards of the Fund and the IDA take decisions regarding Burkina Faso's qualification for assistance, its "decision" and "completion points," debt sustainability targets, and the level of assistance to be provided by the Fund and the IDA to Burkina Faso, subject to the commitments of bilateral and other multilateral creditors. 2. During the Fund and IDA Boards discussions on the preliminary HIPC Initiative documents,2 most Executive Directors agreed that Burkina Faso be considered eligible for assistance under the HIPC Initiative. Their views were based on Burkina Faso's high level of indebtedness and external vulnerability, its strong track record over an extended period of time, its receipt of Paris Club debt relief in a stock-of-debt operation, and its status as an ESAF-eligible and IDA-only country. Regarding the timing of the "decision point," Executive Directors of the IDA and the Fund were in agreement that it could take place at the time of approval of the second annual ESAF arrangement for Burkina Faso, expected in mid-1997. Most Directors supported the staff recommendation of a target for the NPV of debt/export ratio in the range of 205-225 percent, with a number of Directors favoring a target toward the lower part of that range because of the considerable downside risk in the base case scenario. 3. Regarding the possible "completion point," Directors emphasized the importance of continued strong policy performance supported by the IDA and the Fund. Many Directors supported a shortening of the interval between the "decision" and "completion" points to mid-1999, conditioned on clear progress in structural reform, in particular completion of key reforms in the area of civil service, public enterprise restructuring and privatization, and liberalization of the agricultural sector. Some Directors did not see the case for an exceptional shortening of the "completion point," and thought the "completion point" at mid-2000 was appropriate, given Burkina Faso' s track record and the time needed to complete critical structural and social reforms. Directors also stressed that the performance in improving social indicators should be carefully monitored with World Bank assistance. 4. The rest of this paper is organized as follows. Section II presents a brief summary of the DSA highlighting the major assumptions and conclusions. Section III reviews Burkina Faso's track record under Fund- and IDA-supported programs since 1991. Section IV outlines the major structural reforms to be implemented under Fund- and IDA-supported programs in 1997-99. Section V reports on the debt reconciliation and debt management capacity. Section VI reviews consultations with Burkina Faso's creditors regarding their 2The preliminary document was issued in the Fund as EBS/97/5 1, 3/26/97, and in the IDA as IDA/Sec M97-95, 3/25/97. Executive Board discussions on Burkina Faso's case were held in the IDA on April 15, 1997, and in the Fund on April 17, 1997. -4 - commitments to deliver on the intended assistance by the "completion point." Section VII presents the contributions of multilateral and bilateral creditors at an NPV of debt/export target in the range of 200-220 percent, and with "completion points" in September 1999 and September 2000. Section VIII presents staff recommendations and issues for discussion. IL SUIMMARY OF DEBT SUSTAINABILITY ANALYSIS 5. The long-term balance of payments prospects for Burkina Faso are described in detail in the preliminary HIPC Initiative document for Burkina Faso (EBS/97/51, 3/26/97, and IDA/Sec M97-95, 3/25/97). The main revisions are presented in the document requesting a second annual arrangement under the ESAF (EBS/97/---, 8/--197). This section presents a summary of the key assumptions and conclusions of the DSA. 6. The baseline scenario for the DSA jointly prepared with the Burkina Faso authorities assumes the continuation of adjustment policies, and a relatively favorable external environ- ment. The main assumptions of the 20-year baseline scenario are shown in Box 1, and the results in Table 1. The medium-term balance of payments projections presented in EBS/97/51 have been updated on the basis of the most recent information and the latest projections in the World Economic Outlook (WEO). The changes reflect mainly (i) higher cotton exports in CFA francs in the period 1997-99, on the basis of results for 1997 and higher acreage under cultivation; (ii) some adjustments in the estimate of workers' remittances and private transfers; (iii) higher external assistance for project financing now expected for 1997 and 1998, with related upward revisions of imports for capital equipment and intermediary products; and (iv) downward revisions for other exports for 1997-98 (gold, livestock products). As a result, total exports in CFA franc terms have been revised upwards by 9 percent on average for the 1997-99 period, and by 4 percent in 2000; export projections beyond 2000 are broadly unchanged. These changes have resulted in a higher projected current account deficit, excluding official transfers (by about 0.8 percent of GDP on average in 1999-2000); however, because of larger-than-expected project-related grants, the overall balance of payments in the period 1998-2000 is now expected to be close to balance, compared with a deficit previously projected. -5- Box 1. Assumptions Used in the Debt Sustainability Analysis (DSA) * An annual average real GDP growth rate of 5.5 percent to the year 2000 and 5.7 percent thereafter. Nominal per capita GDP rises from US$220 in 1996 to US$605 in 2019. * Export volume growth rate of 10-11 percent a year through 2000 and about 8 percent a year thereafter through 2019. * Strong cotton export volume growth through 2000 (13 percent a year, on average), related to more favorable incentives for producers, and improved extension services; thereafter cotton export volume should grow at a slower pace (9 percent a year, on average). * Strong gold exports (10 percent a year, on average, in volume terms), in light of renewed interest by foreign mining firms. * Growth of imports of goods and nonfactor services at about 6 percent a year, on average, over the long term; the income elasticity of imports is assumed to rise gradually and approach 1.1 in the long term. * Private transfers, including workers' remnittances, will continue to be a significant factor in the current account balance, and are expected to grow in line with GDP. * Continued inflow of project loans through 2019, although recourse to foreign borrowing on concessional terms is assumed to decline gradually from current levels; the share of the investment program externally financed is assumed to decline from the equivalent of 10 percent of GDP in 1996 to 7 percent in 2005 and 5 percent in 2019, with the share of grants declining from 59 percent in 1996 to 50 percent in 2005. Government investment will remain broadly stable at about 10 percent of GDP up to 2005, and decline thereafter to about 8 percent a year through 2019. Balance of payments support is assumed to be eliminated by 1999; all new borrowing is assumed to remain on highly concessional terms. * The majority of new borrowing (about 80 percent) is assumed to be on IDA terms, while the remaining borrowing is assumed at 2 percent interest and 20 years maturity. * Following the stock-of-debt operation with the Paris Club in June 1996, the debt service projections assume that non-Paris club bilateral creditors restructure all eligible debt on terms comparable to Naples terms. 7. The main conclusion of the DSA is that the overall balance of paymnents would record small deficits in the period 2000-2004, and surpluses thereafter; imputed gross international reserves would decline as a ratio to imports through the year 2006, when they would amount to 3 months of imports, but they would increase thereafter gradually to 4.8 months of imports by 2019. The economy would become more diversified over time, but cotton would remain the main export crop. As regards debt indicators, the NPV of debt/export ratio (with exports calculated as a three-year average) would rise from 241 percent in 1996 and 237 percent in 1997 to 243 percent in 1998, and decline thereafter to 238 percent in 1999; it will not fall below 200 percent until 2005. These ratios for 1996-99 are moderately lower than those - 6 - estimated in EBS/97/5 1. The revisions are due to the assessment of the staff and the authori- ties, during the June 1997 joint Bank-Fund mission, that the stock of debt at end-1996 is lower than previously estimated; this is based on data reconciled with creditors and reflects more accurate figures of disbursements on loans already committed. The ratio is also affected by some revisions of export data. The debt service ratio (after rescheduling) would decline from 22.9 percent in 1995 to 14.5 percent in 1998, and 14.1 percent in 1999. As a share of fiscal revenue, the debt-service ratio would decline from 25.2 percent in 1995 to 15 percent in 1999. 8. The vulnerability analysis undertaken in the preliminary HIPC document for Burkina Faso remains valid. In summary, the analysis concluded that there was considerable downside risk to the baseline scenario; in particular there was above average vulnerability to external shocks on the export side, notably because of the difficult climatic conditions. On the other hand, Burkina Faso fared somewhat better than a group of reference countries with respect to the fiscal burden of debt and the NPV of debt-to-GDP ratio. The existence of workers' remittances also provides some comfort against shocks. It should be noted, however, that Burkina Faso is among the poorest countries in the reference group.3 HI, BURKiNA FASO'S TRACK EcORD: ADHERENCE TO BANK- AND FuND-SUPPORTED PROGRAmS 9. Burkina Faso has established an extended adjustment track record under successive programs supported by the Bank and the Fund since 1991. These programs were supported by the first annual arrangement under the Fund's Structural Adjustment Facility (SAF) during 1991-92, a three-year arrangement under the Enhanced Structural Adjustment Facility (ESAF) approved on March 31, 1993 for an amount equivalent to 110 percent of quota, and an additional three-year arrangement under the ESAF approved on June 14, 1996, for an amount equivalent to 90 percent of quota. Under these arrangements (including disbursements under the first annual arrangement under the current ESAF arrangement), resources totaling SDR 62.5 million (US$90 million) have been disbursed by the Fund. A request for a second annual arrangement under the current ESAF arrangement will be considered by the Fund shortly. Over the same period, the IDA has approved, in addition to project support, a Structural Adjustment Credit, an Economic Recovery Credit, an Agricultural Sector Adjust- ment Credit, and a Transport Sector Adjustment Credit. A Second Agricultural Sector Adjustment Credit will be negotiated shortly. Disbursements from the adjustment operations have totaled US$155 million. Since 1991, the IDA has committed an additional US$280 million for 14 investment operations, of which US$112 million has been disbursed. 10. Under these programs, the Government of Burkina Faso implemented a broad range of reforms which have largely succeeded in their basic objective of redirecting the economy from a centralized to a market-oriented mode, and of restoring a viable macroeconomic position 3For a discussion, see EBS/97/5 1, paras 19-28. - 7 - and laying the basis for a major effort to improve social conditions over the coming years (Table 2). Key elements of the reform program have been the strengthening of the fiscal position and the wide-ranging liberalization and deregulation of production and trade in most sectors, including, in particular, agriculture. A program to privatize public enterprises, launched in 1991, encountered substantial delays but is now gathering momentum. Banking sector reforms have essentially succeeded in disentangling the close links between state-owned banks and state enterprises which had been undermining fiscal balance and economic effi- ciency. Substantial progress was made in the management of public expenditure, with increasing amounts allocated to the improvement of basic health and education services. Civil service reform remains on the agenda, along with a more determined effort to streamline the regulatory environment for unfettered private sector development. 11. Despite firm government commitment to the reforms at the start of the program, internal politics intervened during a transition period to a representative democratic regime, throwing the program off track in early 1992. The adjustment program resumed in earnest in 1993, and was further strengthened following the 1994 CFA franc devaluation. Implementa- tion of IDA's Structural Adjustment Credit suffered significant delays in the early 1990s, as a result of the unsettled political climate. The credit was fully drawn but closed nearly two years behind schedule; no waivers were required, however, as all conditions were eventually fully met. A waiver was required in 1995 in the case of the Agricultural Sector Adjustment Credit, because of protracted delays in the implementation of the agreed privatization of the state rice mill and the liquidation of the already defunct agricultural price stabilization fund. A technical waiver was granted in 1996 for the release of the second tranche of the Transport Sector Adjustment Credit, as the government substituted actions different from, but going well beyond, the objectives of the original conditionality (privatization instead of merely restructur- ing of the state railways). Third tranche release of this credit has been delayed by uncertainties beyond the control of the government in resolving regional market issues affecting the agreed privatization of Air Burkina (see Table 3). 12. During the five years of SAF/ESAF arrangements, Burkina Faso required one waiver and experienced one program interruption-defined as a gap of six months or more between the end of an annual arrangement and Board approval of the subsequent arrangement-{see Table 4). The interruption was between the completion of the first SAF-supported program (March 1992) and the first program supported by the ESAF arrangements (March 1993), and was due to the political democratization process, which diverted attention from structural reforms. Under the first annual ESAF arrangement for 1993, the midterm review could not be completed because of slippages in the fiscal front. Under the following three annual ESAF arrangements for 1994, 1995, and 1996-97, the reviews were completed and the loans under each of the arrangements were fully disbursed. The performance criterion on net credit to government and on the reduction in external arrears at end-June 1994 were not met because of revenue shortfall in the first half of the year, accompanied by delays in external adjustment assistance. As the authorities took appropriate corrective actions, waivers were granted by the Executive Board; for 1994 as a whole, the corrective actions were adequate, with the result that the fiscal deficit was contained to below the revised program target. However, a shortfall of nearly one third in external assistance persisted during the year, with the result that not all nonreschedulable arrears were cleared. - 8 - IV. POLICY REFORM AND CONDITIONALITY 13. The current three-year ESAF arrangement was approved in June 1996 in support of a program of policy reforms covering the years 1996-99, and the request for the second annual arrangement thereunder is scheduled to be discussed by the IMF Executive Board on September 8, 1997. In addition, a second Agricultural Sector Adjustment Credit (AGSAC II) is scheduled to be negotiated with the IDA in the fall of 1997. For a "completion point" in September 1999, Burkina Faso would need to (i) successfully cornplete the midterm review under the third annual arrangement under the new three-year ESAF arrangement and make satisfactory progress on key structural reforms supported by the proposed AGSAC II; and (ii) observe the social development targets as envisaged under the ongoing WDA-supported operations in health and education, and the proposed Basic Education Project . In the event the "completion point" were to be set for September 2000, conditionality would also include the successful completion of a possible additional annual arrangement under the ESAF. 14. The following paragraphs highlight selected structural and social sector reforms, particularly monitorable actions between the "decision" and "completion" points. Burkina Faso's ongoing reform strategy aims to raise the income level of the population and to foster the development of human resources and productive potential. The major objectives of this strategy from now to the year 2005 are to increase per capita GDP by at least 3 percent a year, and to improve substantially the education and health standards, as specified below in paras. 22-34. In order to achieve the long-term GDP growth objective, a sustained effort will have to be made in the near term to raise investment and domestic savings, particularly public savings. To that effect, financial policies will be implemented and structural reforms in the following areas will be accelerated and substantially completed during the period of the current three-year ESAF arrangement: tax and budgetary management, civil service, privatiza- tion and restructuring of public enterprises, financial sector, agriculture, and health and education. Tables 5 and 6 provide a summary of these reforms and their timing to be moni- tored under the current three-year ESAF arrangement and the ongoing and proposed IDA credits for the period 1997-99. A. Macroeconomic and Structural Reformi Policies 15. In relation to fiscal reform, appreciable results were achieved in recent years in simplifying the tax regime, streamlining expenditure management and improving tax adminis- tration. The budget law for 1997 reduced the rate of the corporate income tax from 45 percent to 40 percent (see Table 1 and EBS/96/85); the rate of value-added tax (VAT) was raised from 15 percent to 18 percent effective October 1996; and the current expenditure cycle (from commitment to actual spending), except for wages, was computerized in 1996, thereby reducing considerably the possibility of involuntary accumulation of domestic arrears. The major tax reform to be implemented during the remaining period of the current ESAF will -9 - be the adoption of the common external tariff of the WAEMU, on January 1, 1998. The expected reduction in tariff rates is likely to lead, at least in the short run, to substantial revenue losses. To offset some of these losses, the authorities are determined to accelerate the implementation of structural measures aimed to broaden the tax base and further strengthen tax administration. To that effect, the computerization of tax revenue collection will be completed before the end of 1998, while tax and customs duty exemptions will be further curtailed, in accordance with the policy being prepared by the WAEMU, in particular in relation to the envisaged regional harmonization of the investment code. The computerization of the expenditure procedures will be completed by end-1997 with efforts concentrated on wage expenditure and public investment. Comprehensive reviews of the public investment program will be resumed and conducted on an annual basis, the first one being scheduled for October 1997, as part of the broader public expenditure review process. 16. Progress on civil service reform has been slower than anticipated in the face of strong opposition from unions and parliament. Government proposals, introduced in 1996, which entailed the replacement of the current system of automatic advancement by a system based on merit was rejected by parliament, which requested that the proposal be recast and included in a more comprehensive reform package. The work on a new proposal is now complete and the authorities intend, following a national conference in September 1997, to present it to parliament before the end of 1997. The reform will include a revision of the statutes concern- ing permanent and contractual employees, and a merit-based promotion system. More reliance will be placed on hiring contractual employees so as to improve flexibility in personnel allocation, including regional distribution. This reform should help contain the wage bill to under 5 percent of GDP, despite significant recruitment in the social sectors, while increasing incentives to civil servants. The authorities have already retrenched in early 1997 some 800 civil service staff by closing the Regional Agricultural Promotion Centers (CRPPAs), whose functions are being transferred to private operators. This retrenchment partly offsets new recruitment in the priority sectors of health and education, which are necessary to achieve the planned increases in social standards. The civil service reform will also lead to a review of the size and functions of the central government, in light of the decentralization program. Public enterprises and privatization 17. The implementation of the privatization program, which has been lagging behind schedule, should be brought back on track over the next few months. A strengthening of the existing institutional framework for privatization operations and a streamlining of the decision making process for carrying out the program are now under way, which will make it possible to move quickly on a large number of pending operations. A first phase of privatization or liquidation started in 1991 and involved 22 enterprises out of 76 in the government portfolio. 16 enterprises were privatized, 4 were being liquidated, and for two the feasibility studies on the strategy to be pursued (sale or liquidation) are under way. A second phase of privatization 4 The structure of tariff rates is still in discussion at the level of the WAEMU. In this connection, the Burkinabe authorities have sought the technical assistance of the Fund to help them implement the new tariff structure that will be decided at the level of the Union. - 10 - started in July 1994, and involves 19 enterprises, of which 3 have been privatized, 6 are under liquidation, and 10 will be brought to the point of sale before end-March 1998.5 Among the latter, a number of major enterprises, including the state rice (SONACOR), sugar (SOSUCO), and textile (FASO FANI) companies, will be offered for sale by end-December 1997. Following the two privatization phases, the government now needs to take stock of the residual equity holdings in its portfolio, and will develop, with the assistance of the World Bank, by June 1998 a comprehensive strategy for dealing with the remaining enterprises, in the framework of its overall objective of fostering private sector development. Privatization would subsequently be broadened to some of the public utilities, possibly starting with the telecommunications sector. Business environment for the private sector 18. To accelerate economic growth, it is essential that more be done to foster the development of private sector activity, in particular by improving the business environment. The authorities intend to tackle this challenge at various levels. Above all, the government is committed to be attentive to the views of the private sector and, as a first step, will hold a national workshop in October 1997 to seek the sector's views on the assistance needed to promote its activities and the improvements to be made in the business environment. At the same time, the government will improve the effectiveness of the Center for Business Promo- tion (one-stop window for investors and business promoters), and will begin to implement the recommendations of this Center for streamlining administrative and regulatory procedures by October 1997. The authorities will also improve the legal environment, both through the adoption of the new business code and the regulations designed by the OHADA (organization for harmonizing business law in Africa), and by strengthening the judicial system through the training and hiring of additional magistrates and other personnel, and a more intensive use of computers in the tribunals. Also, the system of bank guarantees will be made more rigorous, thereby providing a safer environment for increased banking activity. Financial sector 19. Considerable progress was achieved in recent years in bringing the financial sector to a more sound financial footing. Recent developments include the liquidation of the BND-B in January 1997 and the privatization of the BFCI in early 1997, following negotiations with an international private group that took up 51 percent of the capital. Moreover, a new private bank began operation in early 1997 and another is expected to do so later this year. The major tasks ahead in the area of financial reform, which the authorities intend to undertake during the period of the current three-year ESAF arrangement, will be to strengthen the network of private savings and loans cooperatives and to restructure the postal checking and savings system (CCP-CNE). In view of the difficulties experienced by some private cooperatives, 5The enterprises that are being offered for sale and for which no buyer can be found will be liquidated. It should be noted that some of the enterprises that are being put up for sale are in a difficult financial situation or have stopped operations altogether, and are thus unlikely to find a buyer. - 11 - which play an essential role in small project finance, the government has decided to move forward with a comprehensive financial audit of these institutions. With respect to the CCP- CNE, it will complete a restructuring study by the end of 1997 and an action plan will be adopted and implemented in 1998. Agricultural policy reform 20. Progress in implementing the agricultural policy agenda set in the early 1990s is nearing completion. The liberalization of trade and prices in agricultural markets is now virtually complete. Regulation of the rice and sugar markets, maintained for several years after the rest of the agricultural sector had been liberalized, was eliminated in 1996, along with the state import monopolies for these two commodities. The state-owned rice and sugar mills are being privatized, and the state rice import company, shorn of its monopoly privileges, is rapidly losing market share to more competitive private operators. The restructuring of the cotton sector is still under way, though improved producer incentives and more efficient extension services have already led to a strong supply response. Further benefits are expected from plans to continue improving the performance of the cotton marketing and ginning company, strengthen the influence of farmers' cooperatives on its management and policies, and ensure that producer prices remain closely linked to world market prices for cotton fiber. Along with the deregulation of product markets and the divestiture of key public enterprises in the agricultural sector, the government is also reorganizing its own services in the sector. It has initiated a set of reforms involving the withdrawal of the state from a series of economic activities in production, input supply, veterinary services, etc., which are better left to the private sector, in order to strengthen its research and extension services in support of farmers. It will also focus on a rationalization of the public investment program in agriculture, in the context of a broad growth strategy framework to be developed in 1998. B. Social Policies 21. Poverty remains widespread in Burkina Faso, with 45 percent of the population estimated to be under the poverty threshold. Debt relief obtained under the HIPC Initiative could support the government's poverty reduction objectives by releasing budgetary funds used for debt service for higher public spending in priority areas. The government's top priority is the improvement of basic services in health and education, where coverage and quality remain very modest, notwithstanding efforts in recent years to raise budgetary expenditure for health and primary education (including foreign financed spending) (see Table 2). In per capita terms, this expenditure currently amounts to roughly $5 annually in each sector or about the same amount as external debt service per capita. Thus every dollar saved on external debt service per capita could mean a 20 percent increase in per capita expenditure on either health or primary schooling. - 12 - Box 2. Health and Basic Education Expenditures 1993 1994 1995 1996 1997 (Est.) (Proj.) (In percent of total budgetary expenditure) Health 7.9 9.0 7.3 10.3 10.5 Of which: current expenditure (4.8) (4.5) (5.1) (4.9) (5.1) Basic education 8.4 9.2 8.7 8.8 10.1 Ofwhich: current expenditure (5.9) (5.4) (6.2) (6.2) (6.2) (In percent of GDP) Health 1.8 2.0 1.5 2.2 2.2 Basic education 1.9 2.0 1.8 1.9 2.1 (Per capita expenditure in US$) Health 5.2 3.6 3.4 5.0 5.0 Basic education 5.5 3.7 4.1 4.4 4.9 Source: Ministry of Economy and Finance. Note: Includes foreign-financed expenditure. Health 22. Health indicators in Burkina Faso are poor, even by sub-Saharan standards, and the low health status of the population remains a major constraint to economic and social development. To reverse this situation, the government is reorganizing basic health services on a decentralized model, with some 700 local primary care centers (CSPS) grouped into 53 health districts. The task of decentralizing Burkina Faso's previously highly centralized health system has not been easy and much remains to be done to improve the operation of the health districts. The levels of utilization of peripheral health facilities, although they are improving, remain very low, particularly in rural areas and in the poorest provinces, reflecting perceptions of poor service quality, including insufficient availability of personnel and supplies. - 13 - 23. Overcoming these problems will require far-reaching and complex reforms in the way public health services operate, as well as increased financial resources. The government has already increased the share of expenditure on health in total budgetary outlays (including foreign-financed expenditures) from 7 percent in 1995 to more than 10 percent since 1996. The need is now to revise intrasectoral allocations and ensure that a larger share of the public sector health budget goes to the decentralized health care facilities to make them more effective. Full autonomy at the local level is a long-term objective. As a first step, health budgets will be established at the district level, beginning in 1998, within the framework of a minimum package of health care services, which will be defined in 1998. Financial manage- ment capacity will be strengthened in parallel, to ensure that health districts can exercise effective control over their budgetary allotments. 24. The overall shortage of health personnel and large regional disparities in staff availabil- ities can only be addressed over time. Redeployment of existing staff is taking place, to the extent possible, and a steady pace of recruitments (400 a year) will ensure that minimum staffing norms are met in all CSPS by the year 2000. In addition, the government is preparing a plan to recruit health personnel directly at the district level, which is the only way decentral- ized health services will be able to keep abreast of the needs of a rapidly growing population. Similarly, training and supervision programs will be expanded to support the decentralization process. 25. The government has already made substantial progress in promoting the use of essential generic drugs. These drugs were almost nonexistent in Burkina Faso a few years ago, but now account for more than 50 percent of total drug imports in volume terms. Much remains to be done, however, to improve procurement and distribution of drugs throughout the country. To that effect, the authorities will reorganize the public drug purchasing agency (CAMEG) by the end of 1997, so as to enhance its ability to provide adequate and reliable supplies to the CSPS. The private sector will also be encouraged to participate more actively in the marketing of generic drugs. 26. Child vaccination coverage is another area where Burkina Faso has been lagging behind. Under its Expanded Program of Immunization, the government's objective is to achieve, the following vaccination coverages for infants (0-11 months) by 1999: 85 percent for BCG, 75 percent for DTC/polio, and 80 percent for measles and yellow fever. To achieve these results, the government will improve the vaccine supply, infrastructure and logistics of the CSPS, strengthen their outreach programs, and step up public information and community relations efforts. Immunization services will be increasingly integrated into routine primary care in order to ensure their sustainability over the long term. Education 27. Considerable progress has been made in recent years to raise school enrollments, but educational levels in Burkina Faso are still very low, and the illiteracy rate remains one of the highest in sub-Saharan Africa. Universal primary education is still a distant goal. The gross primary school enrollment rate was only about 40 percent in 1996 (30 percent for girls). Access to primary school remains limited and unequal between the regions (primary enroll- - 14 - ment rates are below 25 percent in ten of the poorest provinces). The quality of primary education is also low, for a number of reasons, including large classes (as many as 100 to 120 pupils per class in some urban schools), poor teacher qualifications (only about one-third of primary school teachers are certified), lack of teaching materials and inappropriate curricula. Not surprisingly, therefore, repetition rates are high and it takes about 12 student- years, on average, to produce a primary school graduate. 28. For all its deficiencies, the present situation reflects the continuing efforts of the government in recent years to work off an enormous backlog of unmet needs in primary education, while trying to keep up with a school age population growing by over 3 percent a year. Thanks in part to the assistance provided by donors, many classrooms were built or renovated. At the same time, teacher recruitment and training was accelerated, and new pedagogical practices introduced, such as double shifts and multigrade classes, to increase the educational leverage of existing infrastructure and staff resources. The share of expenditure on basic education in total budgetary allocations (including foreign financed spending) was increased from 8.7 percent in 1995 to 10.1 percent in 1997. Also, basic education (primary education and adult literacy programs) will be allotted a larger share of the total education budget than in the past, in accordance with the government's intrasectoral priorities. 29. In view of the magnitude of the task ahead, the government is formulating a more radical strategy for accelerating the development of basic education, and getting ready to implement an ambitious 10-year plan which aims to address the issues of coverage, equity and quality of primary education in an integrated fashion. A key objective of the 10-year plan is to raise the gross primary school enrollment rate from 40 percent in 1996 to 70 percent by 2007-08, while nearly closing the gap in girls' enrollments and greatly reducing regional disparities. A new program of school construction is under preparation, with particular emphasis on the provinces with the lowest enrollment rates. 30. To staff all these schools under the present civil service rules, which also apply to school teachers, would be prohibitively expensive and largely inefficient. The government plans instead to put in place a more flexible system which will allow local communities to hire new teachers directly on a contractual basis. Implementation of this plan is expected to begin, on a pilot basis, in October 1998. It would be generalized in the broader context of adminis- trative decentralization, under which it is expected that local co:mmunities will obtain a greater share of autonomy in the management and financing of primary schools. 31. The 1 0-year plan also aims to increase the quality and efficiency of primary education, along with its relevance. This will be achieved through measures designed to increase the availability of books and other teaching materials, strengthen teacher training and supervision, cut down on class size and revise school curricula. Reduced repetition rates and increased productivity, the generalization of double shifts and multigrade classes and the redeployment of excess administrative personnel into teaching positions, shou]ld also contribute to additional increases in the capacity of primary schools to receive new entrants (over and above the substantial capacity increase from the new school construction program). Private schools and the NGO community will also be encouraged to contribute on a greater scale to the expansion of primary education rolls. Finally, efforts to increase adult literacy will be stepped up, - 15 - particularly with respect to women and in the poorest provinces, which would also help raise girls' school enrollment rates, as well as overall enrollment rates in the areas where they are currently the lowest. 32. While a number of these measures will take time to translate into measurable out- comes, particularly with respect to quality improvement and girls' education, the accelerated expansion in the capacity of the primary school system will immediately be reflected in higher gross enrollment ratios, which should rise by about 2.5 percentage points annually over the next few years. Perhaps the most telling measure of the potential impact of the 10-year plan on the spread of primary education in Burkina Faso is that, because of it, 40,000 more children each year will be able to start on their first year of primary school and move towards a life of literacy. 33. Table 6 summarizes the social development performance indicators to be monitored in the context of the HIPC Initiative. Social sector performance will be monitored by ongoing and new IDA projects. In the health sector, performance will be monitored in particular under the ongoing Health and Nutrition Project. This project will be restructured to provide more effective support to the decentralization process after a workshop to be held in the fall of 1997 in collaboration with the government and the main donors active in the development of the health sector. In the education sector, progress will be monitored under the on-going Education IV and Post-Primary Education Projects, and particularly under the Basic Educa- tion Project currently under preparation, which will support the implementation of the government's 10-year plan. 34. In the context of the HIPC Initiative, specific actions to be undertaken by 1999 include: - increase public spending for primary health care and basic education; * allocate budgets to the health districts in amounts sufficient to implement a minimum package of basic health services; * prepare a plan to recruit health personnel directly at the level of the district; * reorganize CAMEG and ensure adequate supplies of essential generic drugs to local health facilities; * accelerate implementation of the Expanded Program of Immunization; * implement the school construction program of the 10-year plan for the development of basic education, and pilot test a plan for the direct hiring of primary school teachers by local communities; * step up programs to promote girls' education and adult literacy campaigns for women. - 16 - V. DEBT RECONCILIATION AND DEBT MANAGEMENT CAPACITY 35. Burkina Faso has formally contacted its creditors regarding the reconciliation of its external debt and has now reconciled with them close to 95 percent of the total debt stock outstanding as at end-December 1996. The reconciliation of debt with the IMF, IDA, and other multilateral creditors, as well as Paris Club creditors, has been completed. Reconciliation is also complete for some of the non-Paris Club creditors (Saudi Arabia, Kuwait, and Libya). Debt with China, C6te d'Ivoire, Russia, and Algeria remains to be reconciled. Given that most of Burkina Faso's debt has been fully reconciled ahead of the proposed "decision point," it is recommended that the Executive Boards of the IDA and the Fund approve in principle their commitment at the decision point of September 1997, subject to satisfactory assurances of actions by other creditors. Other multilateral creditors would be expected to reduce the NPV of their outstanding claims by the common percentage recommended for all multilaterals by the Boards; this percentage reduction would be applied to fully reconciled debt. The exercise of debt reconciliation is expected to be completed by mid-1998. 36. Burkina Faso's debt monitoring system provides a comprehensive accounting of external loans on a loan by loan basis. However, the system suffers from a lack of accurate information on disbursements. The computerization of public investment expenditures, including foreign-financed expenditures, which is expected to be in place by December 1997, should greatly facilitate the maintenance of an up-to-date data base for monitoring purposes. The government has also established in 1996 a Public Debt Committee to coordinate debt management at the operational and policy level. The authorities are currently assessing their needs for capacity building in this area with a view to requesting technical assistance in implementing a fully computerized system and timely recording all transactions related to external indebtedness. VI. CONSULTATION WITH CREDITORS 37. Fund and IDA staff have initiated consultations with Burkina Faso's multilateral creditors and with the Paris Club regarding action they would take under the HIPC Initiative for Burkina Faso. The IDA organized a meeting attended by Fund staff on March 24-25, 1997 with multilateral development banks to go over the methodology, data, and recommen- dations for the first group of country DSAs, including Burkina Faso. A. Multilateral Creditors 38. In general, multilateral creditors were very supportive of assistance to Burkina Faso under the Initiative, and endorsed Burkina Faso' s eligibility under the Initiative, a low debt target, a "decision point" in mid-1997, and an early "completion point." Their main comment on the preliminary HIPC document was that in the future such documents should pay more attention to poverty reduction and that the social indicators should be designed clearly and should target improvement over the adjustment period. While indicating willingness to commit - 17 - in principle by the mid-1997 "decision point" date, some of them (for example, the European Union) indicated that their procedures would imply that formal commitment of their assistance was expected shortly after mid-1997. B. Bilateral Creditors 39. At their meeting in May 1997, Paris Club creditors agreed in principle to reopen at the "completion point" Burkina Faso's June 1996 stock-of-debt operation, and apply an additional NPV reduction in the debt covered, with the exact treatment determined in the light of fair burden sharing. 40. The authorities are in the process of resolving issues with non-Paris Club creditors, and obtaining debt relief on terms comparable to Naples terms. The debt involved amounts to US$140 million (11 percent of total nominal debt as of end-December 1996). VII. DEBT SUSTAINABILITY TARGETS AND DEBT RELIEF 41. Burkina Faso's NPV of debt stood at US$683 million at end-December 1996, of which 80.5 percent constituted multilateral debt (Table 7). The NPV of debt is projected to rise to US$721 million by end-1997 and to US$775 million by end-1998, with a modest increase in the share of multilateral debt. Table 7 also shows a detailed breakdown within each creditor group of the claims of Burkina Faso's individual multilateral creditors in the estimated NPV of debt at the "decision point," as this would determine the breakdown of multilateral assistance at the "completion point." As noted earlier, some of these totals are provisional, subject to the finalization of the debt reconciliation exercise. 42. During the IDA and Fund Board discussions on the preliminary HIPC Initiative document, there was considerable support for the staff recommendations of a target for the NPV of debt to export ratios in the range of 205-225; many Directors considered that given Burkina Faso's above average vulnerability to shocks, and given the need to ensure a convincing exit from debt relief, the NPV of debt/export target should be set in the lower end of the range, but some Directors favored the higher part of the range, taking into account the role of workers' remittances as a factor of strength. Given the need to ensure a convincingly sustainable debt situation and Burkina Faso's strong track record of adjustment, staff and management recommend an NPV of debt/exports target of 210 percent. 43. Regarding the possible "completion point," Directors stressed the importance of continued strong performance under the Fund's ESAF-supported program and the IDA- supported structural adjustment programs. Many Directors supported a shortening of the interim period to the "completion point" to two years after the "decision point," conditional on clear progress in implementing structural reforms, in particular in the areas of civil service reform, public enterprise privatization, and agricultural sector liberalization. As these reforms are to be completed by end- 1998, the staff see merits in advancing the "completion point" to September 1999, provided that a satisfactory track record is maintained. - 18 - 44. As indicated in Table 8, for a "completion point" in September-1999, and an NPV of debt/exports target of 210 percent, the total debt relief is estimated to be US$106 million in NPV terms, of which multilateral contributions would be US$87 million and that by bilateral creditors would be US$19 million, on the basis of the fully proportional burden-sharing model. This would involve assistance by multilaterals as a group equivalent to 13.7 percent of their claims at the "completion point," with the same NPV reduction by bilaterals as a group; this implies that the NPV of debt reduction on eligible debt to the Paris Club creditors will remain below 80 percent.6 A detailed breakdown of the contributions by each multilateral creditor would be based on their shares in the NPV of multilateral debt at the "decision point." This implies that each multilateral creditor would comrnmit, at the "decision point," to reduce their claims in NPV terms by 15.8 percent. On this basis, the IDA, share of the debt relief would be US$40.3 million, and the Fund share would be US$9.6 million. 45. For a "completion point" in mid-2000 and a target of 210 percent, the total debt relief would be US$98 million, with multilateral institutions contributing US$80 million, and bilateral creditors contributing US$18 million; the common factor of reduction of claims in NPV terms by multilateral creditors would be 14.5 percent; the IDA share would be US$36.9 million, and the Fund share would be US$8.8 million. 46. It is proposed that the Fund disburse its assistance, in the forn of a grant, into an escrow account at the "completion point" to be used to meet debt service to the Fund on a schedule to be agreed with the Burkina Faso authorities. The objectives of this schedule will be to help bring the debt-service burden down to the agreed target and to smooth the debt- service profile, including any humps, to the Fund and/or generally. Since Burkina Faso's debt service both to the Fund and overall is relatively smooth, it is proposed that in this case and in other comparable cases where there are no pronounced debt-service humps, the schedule of drawdown of the Fund assistance should be slightly frontloaded and spread over the life of the country's current obligations to the Fund. A graduated schedule for the drawdown of this assistance for Burkina Faso, which meets these objectives, will be agreed with the Burkina Faso authorities and proposed for approval by the Fund Board in due course, on a lapse-of- time basis. 47. The HIPC Trust Fund will be utilized to provide the required relief on debt owed to IDA-equivalent to US$40 million in NPV terms. The HIPC Trust Fund will set aside, at the "decision point," an amount equal to the NPV reduction required on IDA debt from resources transferred from IBRD to the World Bank component of the HIPC Trust Fund. With these resources the HIPC Trust Fund is expected, at the "completion point," to purchase IDA credits with a nominal value of approximately US$75 million. The nominal amount of the credits to be purchased will be determined on the basis of the principles agreed upon for calculating the NPV of debt in DSAs7 and by selecting for purchase the oldest IDA credits. 6On the basis of staff estimates, the reduction would reach 76 percent. 7The principles for the calculation were described in detail in SecM96-927 entitled "The HIPC Debt Initiative-Elaboration of Key Features and Possible Procedural Steps, " page I 1. - 19 - The HIPC Trust Fund will then promptly cancel these IDA credits and inform the debtor that the debt is no longer due. The HIPC Trust Fund will enter into an agreement to this effect with IDA as soon as possible following the "decision point." Total savings in debt service on these credits would amount to US$85 million over their remaining life (up to 30 years for some of the more recent ones), when relief on both principal and charges is included. VIII. ISSUES FOR DISCUSSION 48. Executive Directors may wish to focus on the following issues and questions: 49. Qualification for assistance: On the basis of the staff analysis, the deliberations of the IDA and Fund Boards, and staff consultations with multilateral creditors and the Paris Club, there is a strong case for Burkina Faso' s qualification for assistance under the HIPC Initiative. The staff and management recommend that Executive Directors make a positive final determination on this matter. 50. Decision point in principle: Since a critical mass of debt reconciliation has been achieved, the staff and management recommend approval in principle of a "decision point" in September 1997. Executive Directors are recommended to approve Burkina Faso's qualifica- tion for assistance, the "completion point," and debt sustainability targets, subject to satisfac- tory assurances of action by other creditors. If Executive Directors agree, these decisions could be finalized, possibly on a lapse-of-time basis, by the Boards once these assurances have been received. 51. "Completion point": In light of Burkina Faso's past record and planned substantive additional structural reforms in the immediate period ahead, the staff and management recommend a "completion point" of September 1999. Executive Directors' consideration of this recommendation is requested. 52. Debt target: In light of Burkina Faso's vulnerability, and with a view to ensuring a credible exit from debt rescheduling, the staff and management recommend that Executive Directors endorse a target of 210 percent for the NPV of debt/exports ratio for a "completion point" in September 1999. Burkina Faso's debt-service ratio is expected to be below 20 percent in 1998 prior to action under the Initiative and hence is not expected to be binding. In the light of this, Director's comments on the proposed time profile of IDA and Fund assistance under the Initiative are requested. 53. Proposed decision: Executive Directors may wish to consider a decision on Burkina Faso's qualification for assistance under the Initiative, the "completion point," the debt target, and the specifics of each institution's commitment for assistance to Burkina Faso under the Initiative. A draft decision will be issued as a supplement to this paper. -20- 54. Next steps: The foliowing steps are envisaged: (i) this document will be made available to Burkina Faso's bilateral and multilateral creditors at the same time as it is circulated to Executive Directors; (ii) the staff will inform Directors of any major new developments regarding debt reconciliation or commitments by creditors by way of a supplement or oral statement at the time of the discussion of'this document; (iii) the second annual ESAF arrangement is being brought to the Fund Board on September 8, 1997; and (v) the AGSAC II is expected to be brought to the IDA Board in early 1998. - 21 - Table 1. Burkina Faso: Long-Term Balance of Payments, 1993-2019 (In billions ofCFA fita) 1993 1994 1995 1996 1997 1998 1999 2000 2001 Estimates Pijectim Exports, fob. 74.5 104.4 118.2 113.6 145.9 169.4 184.3 199.0 213.3 Of which: cotton 22.2 31.7 51.2 49.6 77.2 94.4 102.8 110.5 119.6 gold 8.1 12.2 11.7 9.3 9.8 11.3 12.7 14.1 15.6 Imports, fo.b. -153.0 -193.9 -242.2 -277.0 -300.4 -322.0 -344.9 -367.9 -397.5 Of which: capita goods -32.2 .44.2 -75.4 -95.4 -103.7 .109.9 -118.1 -122.7 -127.6 Trade balance -78.6 49.6 -14.l -1633 -154.6 -152.6 -160.6 -169.0 -184., Services (net) -42.8 -53.3 -61.6 -74.3 -71.5 -75.6 .79.5 -83.5 -100.6 Noanfctor services -39.0 -45.6 -56.0 -68.9 -67.9 -72.0 -75.9 -79.9 -97.0 Factor services --3.8 -7.8 -5.7 -5.4 -3.6 -3.6 -3.6 -3.5 -3.5 Of which: interest payments -8.3 -12.5 -10.6 -10.7 -9.1 -9.5 -9.8 -10.1 -10.4 Transfers (net) 106.8 163A 170A 192.0 173.3 180.1 185.3 194.8 203.1 Private 43.9 53.6 52.9 55.9 60.9 64.1 68.3 73.9 81.3 Of which: workes' renittances 33.2 54.6 55.0 55.9 58.0 62.0 64.8 67.0 73.0 Official 62.9 109.8 117.5 136.1 112.4 116.0 117.0 120.9 121.8 Of which: budgetary 43.2 75.4 88.0 108.9 85.0 88.0 88.0 88.0 88.9 Of which: projectgants 28.0 35.4 51.2 81.6 S5.0 88.0 88.0 88.0 88.9 provamganls 15.2 40.0 36.8 27.3 0.0 0.0 0.0 0.0 0.0 Current account ( dedicit -) -14.6 20.5 -15.3 -45.6 -52.8 48.1 -54.8 -57.7 -81.6 Excluding official transfers -77.5 -89.3 -132.8 -181.8 -165.2 -164.1 -171.8 -178.6 -203.4 Official capital 24.8 36.9 41.0 31.9 32.2 40.2 44.6 41.5 39.8 Disbusemezts 36.9 57.8 69.6 47.8 53.0 63.3 68.4 67.4 70.1 Ofwhich: budget 35.3 57.8 69.6 47.8 53.0 63.3 68.4 67.4 70.1 Of which: project loans 27.6 29.0 46.4 43.3 48.5 52.3 63.1 67.4 70.1 programloans 7.7 28.8 23.3 4.4 4.4 11.0 5.3 0.0 0.0 Amortization -12.1 -20.9 -24.4 -15.9 -20.7 -21.3 -22.5 -25.9 -30.3 Of which: budget -9.8 -20.9 -24.4 -15.9 -20.7 -21.3 -22.5 -25.9 -30.3 Capital Transfers 0.0 0.0 -4.2 0.0 0.0 -1.8 -1.3 0.0 0.0 Private capital 1/ 2.7 13.5 9.9 11.0 14.2 13.6 11.7 14.8 19.8 Emroreandomissions .6.4 -10.2 32.1 1.1 0.0 0.0 0.0 0.0 0.0 Overall balance 6.4 60.6 67.7 -1.7 -64A 5.7 1.5 -1.4 -22.1 Financing -6.4 -60.6 -67.7 1.7 6.4 -5.7 -1.5 IA 22.1 Netforeignassets -17.3 -51.0 -71.0 0.6 -7.1 -25.4 -15.0 1.4 22.1 Net official reserves -15.6 7.3 -38.3 -2.5 -7.1 -25.4 -15.0 1.A 22.1 Gross official reserves -19.0 .6.6 -51.9 -7.0 -16.7 -34.3 -17.2 7.4 30.2 IMF (net) 3.4 13.9 13.5 4.5 9.5 8.9 2.2 -6.0 4.2 Net foreign assets commei banks 2 -1.7 -58.2 -32.6 3.1 0.0 0.0 0.0 0.0 0.0 Of which: Post office -0.5 4.0 0.9 0.0 0.0 0.0 0.0 0.0 0.3 Chnge in (reduction-) 7.6 -17.3 -1A 0.0 -7.0 0.0 0.0 0.0 0.0 Debt relief 3.3 7.7 4.6 1.1 0.0 0.0 0.0 0.0 0.0 Debt under discussion 3.3 0.0 0.0 0.0 9.8 2.8 2.8 0.0 0.0 Financinggap (after IF purchases) 0.0 0.0 0.0 0.0 10.7 17.0 10.7 0.0 0.0 Memorandum items: (In percent of GDP unless othetwise indicated) Current account ( deficit= -) Including official trarser -1.S 2.0 -1.3 -3.5 .3.7 -3.1 -3.2 -3.2 -4.1 Excluding official trnsfers -9.7 -8.7 -11.3 -14.0 -11.6 -10.5 -10.2 -9.8 -10.2 Debtsetviceratio 3/ 22.1 24.7 22.9 17.7 15.9 14.5 14.1 14.7 15.5 NPV of public extmal debt (in miions of U.S. dors) ... ... 933.1 683.5 721.3 775.0 833.1 883.0 933.7 NPV debt/exports ratio (including IMF) 41 ... ... ... 240.7 237.3 243.3 237.9 231.1 227.9 Gross official reserves InbillionsofCFAfrancs 97.7 162.5 247.0 250.9 267.5 301.9 319.0 311.6 281.4 Inmonthsofimportedgoods,c.i.f 6.5 8.7 10.5 9.2 9.2 9.6 9.5 8.7 7.1 GDPatcurrentpnces(inbiDioasofCCFAf Aes) 796.1 1,029.4 1,172.0 1,298.3 1,425.0 1,557.6 1,688.2 I.S28.0 1,987.8 Sources: Data provided by the Cental Bank ofWest Afican States (BCEAO); and staff estima. I/ Includes portfolio investment and Iem direct inesenL 2/ Including net foeg assets Post Office 1994 date rdlect holdinp of WAEMU gvamet tideL 3/ In perent of expr of goods and D lte svices. 4/ In percent of exports of gpods and nnilotor services (three-year moving averap. - 22 - Table 1. Burkina Faso: Long-Tenm Balance of Payments, 1993-2019 (In billions of CFA fic) 2002 2003 2004 2005 2006 2007 2008 2009 2010 Proiecuorm Expotts, £ob. 237.6 263.1 291.1 321.7 355.6 393.2 434.7 479.3 528.6 Of which. cotton 137.5 155.9 176.5 198.7 223.6 251.4 282.7 316.3 353.8 gold 17.6 20.0 22.5 25.7 29.1 32.9 36.8 41.1 45.7 Imposl £fo.b. 427.5 460.0 -495.2 -533.6 -574.5 -616.5 -662.5 -714.0 -773.0 Of which: capital goods -135.6 -143.6 -152.1 -161.2 -169.0 -177.0 -185.1 -195.3 -205.7 Trade balance -189.8 .196.9 -204.1 -211.9 -218.9 -223.3 -227.8 -234.S -244.5 Services (net) -105.0 -110.1 -115.5 -121.8 -128.2 -134.7 -141.9 -150.1 -159.6 Nonfactorsavices -101.5 .106.7 -112.2 -118.3 -124.6 -130.9 -137.8 -145.7 -155.0 Factor sevices t-3.4 -3.4 -3.3 -3.4 -3.6 -3.9 -4.1 -4.4 -4.6 tfwhich: intereslpaymn -10.7 -11.1 -11.4 -12.0 -12.6 -13.3 -14.1 -14.9 -15.7 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Transfer (net) 212.1 222.0 232.7 244.3 257.8 272.5 288.4 305.6 324.3 Private 89.5 98.4 108.2 118.9 131.5 145.2 160.2 176.5 194.2 Ofwhich: worlkeremittances 79.5 86.6 94.3 102.7 111.9 121.9 132.8 144.7 157.6 Official 122.7 123.6 124.5 125.4 126.3 127.2 128.2 129.1 130.1 Ofwhich: budgetary 89.8 90.7 91.6 92.5 93.4 94.3 95.3 96.2 97.2 Ofwhich: project a 89.8 90.7 91.6 92.5 93.4 94.3 95.3 96.2 97.2 Prowan pants 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Curent ount ( deficit= -) -2.7 -85.0 -87.0 -89.4 -89.3 -85.6 -81.3 -79.3 -79.7 Exduding officialt afens -205.3 -208.6 -211.4 -214.8 -215.6 -212.8 -209.5 -208.4 -209.8 Official capital 39.9 41.6 46.9 56.9 62.6 68.8 68.8 71.2 74.8 Disbursements 78.0 86.1 94.5 103.2 109.3 115.5 121.4 130.0 138.5 Ofwhich: budget 78.0 86.1 94.5 103.2 109.3 115.5 121.4 130.0 138.5 Ofjwhich: projectloar 78.0 86.1 94.5 103.2 109.3 115.5 121.4 130.0 138.5 progran loas 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Amorization -38.1 -44.6 -47.6 46.3 -46.7 -46.7 -52.6 -58.7 -63.7 Ofwhich: budget -38.1 -44.6 -47.6 46.3 46.7 -46.7 -52.6 -58.7 -63.7 Capital Transfen 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Private capital 1/ 23.2 24.6 26.1 27.7 29.4 31.3 33.4 35.7 38.2 Errors and omissions 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Overal balance -19.5 -18.9 -14.0 -4.8 2.7 14.6 20.9 27.6 33.3 Financing 19.5 18.9 14.0 4.8 -2.7 -14.6 -20.9 -27.6 -33.3 Net fipn assets 19.5 1I.9 14.0 4.8 -2.7 -14.6 -20.9 -27.6 -33.3 Net offiEl reserves 19.5 18.9 14.0 4.8 -2.7 -14.6 -20.9 -27.6 -33.3 Grs official resewves 28.7 30.1 25.4 13.4 3.1 -10.4 -19.3 -27.6 -33.3 IAF (net) -9.3 -11.2 -11.4 -8.5 -5.9 -4.3 -1.6 0.0 0.0 Net foejign .sset commerial banks 71 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Of which: Post office 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Change in arrears (reduction' -) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Debt relief 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Debtlunderdiscussion 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Financing gp (aftr RAP purchaes) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Memorandun itms: (In percent of GDP unless othawise indicated) Curaet account ( deficit -) Including off ical trnsfem -3.8 -3.6 -3A -3.2 -2.9 -2.6 -2.3 -2.0 -1.9 Erteudingofficial tr_as -9.5 -8.8 -8.2 -7.7 -7.1 -6.4 -5.8 -5.3 -4.9 Debt serce ratio 3/ 16.8 17.4 16.8 15.1 14.0 12.9 13.0 13.1 12.9 NPVofpublic eaelnldebt(inmiios ofU.S. dollars) 983.8 1,035.2 1,088.6 1,152.9 1,228.8 1316.5 1,410.2 1,512.1 496.1 NPVdebtlexportsratio(includingRAF)41 221.8 213.7 204.0 196.6 190.8 186.0 181.3 177.0 52.9 Gross official resaves InibillioasofCFAhincs 252.7 26 197.2 183.8 1807 191.0 210.4 23S.0 21.3 Inmofindtof ineted ods,ecf 5.9 4.8 4.0 3.4 3.1 3.1 3.2 3.3 3.5 GDP atcwre pnces(inbilLibo.ofCFAfimes) 2,164.9 2,357.1 2,566.7 2,794.9 3,043.9 3,315.5 3,611.7 3,933.8 4,285.2 Sources: Daa provided by the CwAral Bak of Weot Ahinm States (BCEAO) and saff estinAm. 1/ Incude portfolio in at mdfeig di i 2/ Inclnnet e PstOe 1994das r hold& ofWAMtiekL 3/ npeofexp of oadnries 4/ Inperentofe of std nonbeter (tbar mog ers) - 23 - Table 1. Burkina Faso: Long-Term Balance of Payments, 1993-2019 (In billions ofCFA fraxs) 2011 2012 2013 2014 2015 2016 2017 2018 2019 Projections Exports, f.o.b. 581.7 639.8 703.1 770.9 845.5 927.4 1,017.5 1,116.6 1,225.6 Ofwhich: cotton 394.6 439A 488.4 541.0 599.3 663.7 735.0 813.8 901.0 gold 50.4 55.6 61.2 67.3 74.0 81.2 89.1 *07.7 107.2 Imparts, fo.b. 438.3 -909.6 -987.2 .1,081.4 -.1,85.1 -1,299.2 -1,424.7 -1,562.9 -1,715.0 Of which: capital goods -224.1 -235.9 -248.0 -270.2 -294.4 -320.7 -349.5 -380.9 -415.2 Trade balance -256.6 -269.8 -284.1 -310.5 -339.7 -371.8 .407.2 -446.2 489.4 Services (net) -170.2 -181.9 -194.7 -210.9 -229.0 -248.5 -270.2 -293.3 -318.9 Nonfactor services -165.4 -176.9 -189.4 -205.4 -222.9 -241.6 -262.3 -284.2 -308.2 Factor services -4.8 -5.0 -5.2 -5.6 46.1 -6.9 -7.9 -9.2 -10.7 Ofwhich: inWter payments -16.5 -17.3 -18.I -19.2 -20.5 -22.0 -23.7 -25.9 -28.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Transfers (net) 344.6 366.7 390.6 416.6 444.8 475.5 508.8 545.1 584.6 Private 213.6 234.6 257.6 282.5 309.7 339.4 371.7 407.0 445.4 Ofwhich: workers remittances 171.7 187.1 203.8 222.0 241.9 263.6 287.2 3129 340.9 Official 131.1 132.1 133.1 134.1 135.1 136.1 137.1 138.2 139.2 Ofwhich: budgetary 98.2 99.2 100.2 101.2 102.2 103.2 104.2 105.3 106.3 Ofjwhich project pants 98.2 99.2 100.2 101.2 102.2 103.2 104.2 105.3 106.3 proQa grants 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Current account ( deficit= -) -82.1 -85.0 -.8.1 -104.9 -123.9 -144.8 -168.5 -194.4 -223.7 Excluding official transfas -213.2 -217.1 -221.2 -238.9 -259.0 -280.9 -305.7 -332.6 -362.9 Official capital 87.5 90.8 93.8 109.9 131.0 150.3 173.9 202.0 225.5 DisburseMents 158.5 167.8 176.8 200.5 226.4 254.8 285.9 319.8 357.0 Ofjwhich: budget 158.5 167.8 176.8 200.5 226.4 254.8 285.9 319.8 357.0 Of which: project loans 158.5 167.8 176.8 200.5 226.4 254.8 285.9 319.8 357.0 program loans 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 A.mortization -71.0 -77.0 -83.0 -90.6 -95.4 -104.5 -112.0 -117.9 -131.5 Ofrwhich: budget -71.0 -77.0 -83.0 -90.6 -95.4 -104.5 -112.0 -117.9 -131.5 Capital Transfers 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Private capital 1/ 40.8 43.8 47.0 50.5 54.2 58.4 62.9 67.8 73.2 Errors and omissions 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Overall balance 46.2 49.5 52.6 55.5 61.3 63.9 68.2 75.3 74.9 Financing -46.2 49.5 -52.6 -55.5 -61.3 -63.9 468.2 -75.3 -74.9 Net foreign assets -46.2 -49.5 -52.6 -55.5 .61.3 -63.9 -6.2 -75.3 -74.9 Net official reserves -46.2 -49.5 -52.6 -55.5 -61.3 463.9 -68.2 -75.3 -74.9 Gross official reserves -46.2 .49.5 -526 -55.5 .61.3 -63.9 -68.2 -75.3 -74.9 IMF (net) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Net foreign assets, commercial banks 21 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Of which: Post office 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Chnge in arears (reduction=-) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Debt relief 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Debt under discussion 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Finncinggap(afterMAFpurchases) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Memorandm iteas: (In percent of GDP unless otherwise indicated) Current account ( deficit= -) Including official transfers -1.85 -1.7 -1.6 .1.7 -1.9 -2.0 -2.2 -2.3 -2.4 Excluding offiealtnsfers -4.6 4.3 -4.0 .4.0 -3.9 -3.9 -3.9 -3.9 -3.9 Debtserviceratio 31 13.0 12.8 12.5 12.5 12.1 12.0 11.8 IIA 11.6 NPVofpublicextemaldebt(inmillionsofU.S. dollrs) 1,724.0 1,835.0 1,950.3 2,081.4 2,231.7 2,406.4 2,607.0 2,837.8 3,101.9 NPVdeWeqprortsatio (mcludingISFA)4/ 167.8 163.0 158.3 154.6 151.8 149.9 148.6 148.0 147.8 Gross official reserves InbillionsofCFAftancs 317.5 367.0 419.7 475.2 536.5 600.4 668.7 744.0 818.9 In months of imeoted gods, c.if 3.8 4.0 4.3 4.4 4.5 4.6 4.7 4.8 4.8 GDP at ourent pncs (i bhillios ofCFA fancs) 4,667.8 5,084.6 5,538.8 6,033.0 6,5721 7,160.2 7,801.8 8,501.8 9,265.6 Sources: Data provided by the Ceral Bank of West Afican States (BCEAO); and staffestimes 1/Incudes postfolio in ad fn diect in 2/ Including net Ibrein at post Offi;e; 1994 dat rlects holdings of WABMUoS°ttides. 3/In percent of ets cfgood and ar servi 4/In pe of exports of goods and nracr services (tbreer moving averge). - 24 - Table 2. Burkina Faso: Main Structural Reforms Under IDA and Fund SAF and ESAF-Supported Programs, 1991-96 Reforms Timing Comments 1. Fiscal Reform Tax reform Introduction of value-added tax (VAT) on large enterprises and imports. 1993 Revision of system of taXation for petroleum products, with introduction of 1993 VAT. Increase in the rate of VAT from 15 to 18 percent. 1996 Implernentation of a single system of taxation of the informal sector and of small and medium-size enterprises. 1993 Establishment of tax unit for large taxpayers. 1994 Introduction of single tax identifying number. 1995 Tightening of customs exemptions. 1991-96 Foreign-financed projects evaluated including taxes, with tax payments by the Treasury. 1994 Reduction in the rate of the corporate income tax from 45 to 40 percent. 1996 Budgetary reform Strict enforcement of prior commitment authorization by Ministry of Finance. 1995 Closure of expenditure commitments by November 20 of each year. 1995 Preparation of a monthly status of expenditure by budget heading at the commitment, settlement and payment order stage. 1995 Revision of budget nomeclature, with unified current and capital budget. 1995 Reduction of domestic arrears Repayment of debt of the postal saving system. 1995-96 2. Public enterprise privatisation (Initial 76 enterprises) First phase ofprivatisation concerning 22 enterprises: 18 enterprises privatized, 1991-96 2 under liquidation; 2 remaining to be privatized. Secondphase ofprivatisation concerning 19 enterprises: 3 enterprises 1994-96 privatized, 6 under liquidation, and 10 to be privatized. 3. Banking sector reform Liquidation of BND-B Early 1997 Effected with Privatisation of BFCI Early 1997 delay Privatisation of BIB 1994 Repayment of bank debt and of debt of postal checking system 1995-96 4. Trade liberalization Elimination of all price controls 1991-94 Elimination of export duties. 1993 Elimination of import authorisation and requirements. 1993-95 Trade and price liberalization, including elimination of public marketing and stabilization schemes on traditional cerals, oil seeds, livestock 1993 - 25 - Reforms Timing Comments Elimination of CGP (public enterprise) monopoly for rice imports 1996 Elimination of SOSUCO monopoly for sugar imports 1996 Reduction in the number of products whose imports are subject to quality 1996 controls Removal of export restictions on hides and skins 1996 5. Liberalisation of Labor Code 1993-94 - 26 - Table 3. Burkina Faso: Reforms Supported by IDA Adjustment Credits and Waivers Credit/approval Date Reforms Supported Waivers of Conditionality Structural Adjustment Credit * Improve management of public None. (Cr. 2281-BUR/1991) expenditure, public investment, civil service. * Increase budget for social sectors. * Public enterprise reforn/priva- tization. * Price/trade liberalization. * Regulatory/institutional reform. Transport Sector Adjust- * Improve road maintenance Technical waiver for second ment/Investment Project * Privatize parastatals in rail, tranche in 1996; third tranche (Cr. 2332-BUR/1992) urban transport and civil release expected by end- 1997. aviation. i Modernize/streamline sector administration. Agricultural Sector Adjustment * Free trade and prices of Waiver of privatization Credit (Cr. 2381-BUR/1992) traditional cereals, oil seeds, deadline for two agricultural fruits and vegetables; abolish parastatals in 1995. state marketing boards; privatize parastatals. - Free trade and prices of local paddy rice. * Reorganize cotton sector. * Restructure agricultural services. Economic Recovery Credit * Support adjustment program None. (Cr. 2590-BUR/1994) following CFA franc devaluation. * Inrease producer price of cotton by 40 percent. * Lirmit wage increases; control budget deficit. * Priority action plan for health and primary education. * Attenuate irnpact of devaluation on the poor. - 27 - Table 4. Burkina Faso: SAF and ESAF Programs-Waivers and Status of Midterm Review and Program Interruptions Date Granted Program Reason A. Waivers and Status of Midterm Review March 1993 1993 lst-year ESAF Midterm review not completed because revenue shortfall caused nonobservance of end-June 1993 performance criteria on: (i) ceiling on nonconcessional borrowing by the government; and (ii) target on reduction of external domestic arrears. In view of the size of the slippage (1 percent of GDP for domestic arrears), corrective measures were not able to bring the program back on track. March 1994 1993 2nd-year ESAF Waiver for nonobservance of performance criteria because revenue shortfall caused nonobservance of end-June 1994 performance criteria on: (i) net bank credit to government targeted; and (ii) reduction in external arrears. Authorization measures to bring program. B. Program Interruptions Length Main factors 12 months, March Negotiations were delayed because democratization process filled all 1992-March 1993 political agenda in 1992. -28- Table 5. Burkina Faso: Key Structural Reforms Under IDA and Fund-Supported Programs, 1997-99 Timing Fiscal Reform Introduce WAEMU's common external tariff with lowering of maximum tariff rate from 37 to 25 percent January 1998 Revise tax benefits under investment code 1998 Computerization of wage and public investment expenditure December 1997 Complete computerization of tax revenue collection 1997-99 Conduct review of Public Investment December 1991 Harmonize the budgetary System within the WAEMU framework December 1997 Civil Service Reform Presentation to parliament of a new civil service reform including a merit-based advancement system December 1997 Adoption of a master plan for institutional development which addresses: December 1997 * the modernization of public administration * civil service reform * the decentralization and deconcentration effort Introduction of a single personnel file, encompassing those of the Ministries of Finance, and the Civil Service December 1997 Introduction of new organic structures for all ministries March 1998 Financial Sector Reform Adopt and implement a plan for the restructuring of the CCP-CNE December 1998 Strengthen the network of saving and loans cooperatives 1997-98 On the basis of new OHADA acts and the regulations of the Banking Commission, strengthen rules applying to bank collateral, bank reserves, and effective capital 1997-99 Business Environment, Legal and Regulatory Framework Simplify business law in context of OHADA 1997-99 Increase recruitment of magistrates and computerize courts and tribunals 1997-99 Strengthen one-stop window (CPE) for private enterprises and streamline regulations October 1997 Public Enterprises and Privatization Strengthen institutional framework for privatization, so as to speed up process October 1997 Complete ongoing privatization program of 41 enterprises Already completed 21 enterprises Put up for sale or liquidate 8 enterprises December 1997 Put remainder for sale 12 enterprises March 1998 Strategic review of remaining enterprises in govermment portfolio June 1998 Agricultural Policy Phase out activities of state rice import company 1997-99 Adopt new agreement on producer prices and profit sharing mechanism. for cotton March 1998 Adopt plan to open up the capital of SOFITEX to cotton produicers and others June 1998 Complete reorganization of agricultural services of Ministry of Agriculture December 1998 - 29 - Table 6. Burldna Faso: Social Development Performance Indicators Objectives and Policies Indicators Targets HEALTH hIprove primary health care quality 1996 1997 1998 1999 and coverage Est. Projections I. Increase public expenditure on * Share of budget expenditure health onhealth " 10.3 10.5 11.0 12.0 2. Reallocate budgetary spending to * Health budgets established at health districts district level By 1998 3. Provide adequate staffing of local * Share of CSPS meeting health centers (CSPS) minimal staffing norms (3 100 percent by 2000 agents) 4. Provide regular supplies of essential * Share of CSPS with essential drugs to CSPS drugs " 60 70 80 100 5. Increase utilization rates in CSPS 0 New cases/inhabitants/year: = Urban 0.2 0.4 0.5 0.6 = Rural 0.1 0.2 0.3 0.4 6. Strengthen child vaccination * Share of infants (0-II months) programs vaccinated " -BCG 67 70 80 85 - DCT/polio 50 60 70 75 - Measleslyellow fever 57 70 75 80 EDUCATION Improve coverage, equity and quality 1996 1997 1998 1999 of basic education Est. Projections 1. Increase public spending on basic 0 Share of budget expenditure education on basic education " 8.8 10.1 11.5 13.0 2. Expand capacity of primary school * Gross enrollment ratio 40 42 45 47 system 0 New admissions in first grade (in thousands) 149 189 229 270 3. Recruit primary school teachers 0 Local recruitment plan ready By June 1998 locally * Pilot implementation started October 1998 4. Promote girls' education * Girls' primary school gross enrollment ratio u 30 33 35 38 5. Reduce regional disparities in access * Spread in provincial primary to primary education school enrollment ratios 75 73 71 69 6. Improve quality and efficiency of * Repetition rate" 18 17 16 14 primary education Book/pupil ratio (French and At least one book for two pupils by 1999 Math) I/ In percent. - 30 - Table 7. Burldna Faso: Nominal and NPV of Debt Outstanding, End-December 1996 Nominal debt NPV Debt-After Naples Tenns USS Percent of total Percent of USS Percent of total Percent of millions debt multilateral millions debt multilateral debt debt Total 1,287.6 100.0 683.5 100.0 Total multiateral debt 1,099.3 85.4 100.0 550.3 80.5 100.0 Of which: IDA 636.8.. 49.5 57.9 254.4 37.2 46.2 AtDF 212.3 16.5 19.3 92.2 13.5 16.8 IMF 63.6 4.9 5.8 60.8 8.9 11.0 IDB 35.7 2.8 3.3 26.1 3.8 4.7 EIB 35.8 2.8 3.3 22.3 3.3 4.0 IFAD 22.4 1.7 2.0 10.4 1.5 1.9 BADEA 30.1 2.3 2.7 24.7 3.6 4.5 OPEC Fund 15.2 1.2 1.4 11.6 1.7 2.1 AfDB 19.1 1.5 1.7 21.6 3.2 3.9 Other 28.2 2.2 2.6 26.2 3.8 4.8 Bilateral creditors 188.3 14.6 133.2 19.5 Paris Club 49.2 3.8 33.8 4.9 Paris Club I 29.4 2.3 24.5 3.6 Paris Club 11 19.8 1.5 9.3 1.4 Non-Paris Club 139.1 10.8 99.4 14.5 Rescheduled 60.2 4.7 50.4 7.4 Not prviously rescheduled 78.9 6.1 49.1 7.2 Sources: Data provided by the Budkinab6 authorities; and staff estimates. Table 8. Burkina Faso: Assistance, Net Present Value (NPV) of Debt/Exports Targets and Burden Sharing 1/ (In millions of U.S. dollars, unless otherwise indicated) NPV of debt! September 1999 September 2000 export target completion point conmpletion point (in percent) Total Asidance 225 58.4 45.2 220 74.3 62.7 215 90.2 80.2 210 106.2 97.7 205 122.1 115.2 Memorandum items: Assistance at Effective Action 2/ 3/ Assistanc.at Effective Action 2/ 3/ completion point (In percent) eompeition Point (In percent) Muliater Assistance 225 48.0 7.5 36.9 5.4 220 61.1 9.6 51.2 7.5 215 74.1 11.6 65.6 9.6 210 87.2 13.7 79.9 11.7 205 100.3 15.8 94.2 13.8 Bilatral Assistance 225 10.4 7.5 8.3 5.4 220 13.3 9.6 11.4 7.5 215 16.1 11.6 14.6 9.6 210 18.9 13.7 17.8 11.7 205 21.8 15.8 21.0 13.8 Proected NPV Ddet to Export Ratio (in percent) 243.3 237.9 Prqjeced NPV after Naples terms 4/ 775.0 833.1 Multilateral 636.7 681.0 Bilateral 138.3 152.1 Prjeded Exports 5/ 318.5 350.2 1/ Assumes proponal burden sharing 2/ Assidance as a percentage ofthe NPV of debt at the completion point after Naples tms applied by all bilataal creditors. 3/ Staffestinmtes that the implied NPV reduction of eligible debt to Paris Club creditors ranges from 72 percent for 225 percent target to 77.6 percent for 205 percent target in 1999. The respective figues are 70.6 percent and 76.2 percent in 2000. 4/ Assumes that non-Paris Club crditors have provided relief on conparable terms to the Paris Club. 5/ Three-year moving *verage. I IMAGING Report No.: P 7169 BUR Type: PR