60357 DebtManagementPerf o ma r nceAssessment (DeMP A) BurkinaFaso 2008 TheD eMPAi s a me thodologyfora ssessingp ublicd ebtma nage men tp erf orma nce h t o r ughac omp rehensives etofindc iatorss panningth eful l a r ngeo fgov ernme ntdebt ma nageme ntfu ncti ons.I ti sad aptedf rom th eP ub i lcE xpen di turea ndF inancial Accountabl it iy( PEFA)f rame work.TheD eMPAt ool presentsthe1 5d ebt perf orma nce n id c iatorsalong with as cori ng me h t odoo l gy.TheD eMP Atoo lisco mp e lme ntedb ya guide thatp o r vd ies s upp e lme ntalinforma to in f ort he u se o ft he indicators. Forad di to inali nformati o no ntheWo r ldBanksD ’ ebtMa nagementTechnc ial Asss itanceProgram, n icluding moreontheD eMPAT ool , pe lasevisto i urwe bst iea: t htp t / :/www wo . l rdbank.org/debt May 2008 GOVERNMENT DEBT MANAGEMENT PERFORMANCE REPORT – BURKINA FASO 1. EXECUTIVE S UMMARY During May 6 - 16, 2008 a team composed of Mirela Catuneanu (WB-PRMED), Farah Dib (WB-BDM), Gervais Doungoupou (Pôle-Dette), Frederico Gil Sander (WB-PRMED) and Antonio Velandia-Rubiano (WB-BDM) traveled to Ouagadougou, Burkina Faso, to undertake an assessment of the government’s debt management capacity and institutions using the Debt Management Performance Assessment (DeMPA) Tool. 1 The DeMPA is a methodology for assessing government debt management (DeM) performance through a comprehensive set of indicators spanning the full range of DeM functions. The team met with a number of officials from the Ministry of the Economy and Finance (MEF), specifically from the Treasury (DGTCP), Budget (DGB), Planning (DGEP) and Cooperation (DGCOOP) departments, the Permanent Secretariat for the Monitoring of Policies and Financial Programs (SP-PPF), and two internal control and audit departments (DGCF and IGF). Within DGTCP, the team worked closely with the Public Debt Unit (DDP) and its subdivisions. Meetings were also held with officials from the Central Bank (the local branch of the Central Bank of West African States - BCEAO), the supreme audit institution (Cour des Comptes) and members of the local financial sector and international donor community (see Annex 1 for a list of individuals met). At the invitation of the Burkinabè authorities, the team also attended a section of the National Public Debt Committee (CNDP). The assessment reveals that Burkina Faso’s DeM institutions’ performance meets minimum requirements in six out of the fifteen debt performance indicators. All external loans that are contracted by the government respect a 35 percent minimum concessionality condition and are analyzed and approved by a debt committee; formal evaluation reports are produced for each project considered. Finally, Burkina has a fairly well-managed front office that concentrates relations with all donors and is thus better able to maximize the volume of concessional financing and avoid non-concessional borrowing. Accordingly, Burkina Faso meets or exceeds the minimum requirements set out in the DeMPA framework in the fields of the legal framework, managerial structure, 1 The Debt Management Performance Assessment Tool as well as the accompanying Guide, which provides supplemental information and detailed descriptions of individual indicators can be downloaded from: http://go.worldbank.org/WU75GZA040. coordination with macroeconomic policies, domestic borrowing, and loan guarantees and on-lending. However, substantial progress remains to be made to arrive at international sound practices. In particular, significant weaknesses remain in the areas of DeM strategy, DeM operations, audit, external borrowing, cash flow forecasting and cash balance management, operational risk management, and debt records and reporting. For some dimensions where Burkina Faso does not meet the minimum requirements, work is underway that would lead to meeting the requirements (e.g., DeM strategy, procedures manual, transfer of disbursement management to the DDP) or only small improvements would be required in order to meet those requirements (e.g., publication of a statistical bulletin within a reasonable lag from the reporting period). Areas that require more substantial improvements include the audit of DeM operations and budget execution. 2 2. BACKGROUND 2.1 Country Background Following the promulgation of a new constitution in 1991, the government of Burkina Faso began adopting market-oriented policies and embarked on a program of structural reforms sponsored by the International Monetary Fund (IMF) and the World Bank. Although performance under this program was satisfactory, Burkina’s narrow and volatile export base – overwhelmingly comprised of cotton – led to high levels of debt by the late 1990s. As of end- 1999, the ratio of the NPV of external debt to exports reached 279 percent, while the NPV of external debt to GDP ratio stood at 33 percent. In 1997 Burkina Faso qualified for debt relief under the original Heavily Indebted Poor Country (HIPC) Initiative, reaching the decision point under the enhanced HIPC Initiative in June 2000. Reflecting quick implementation of further reforms, completion point was reached 21 months later – well below the 46-month average for all post-completion point HIPCs. In 2006, Burkina Faso benefited from additional debt relief under the Multilateral Debt Relief Initiative (MDRI) and by the end of 2007, the NPV of external debt was reduced to US$813 million, 12 percent of GDP (112 percent of exports), while domestic debt was estimated at US$235 million, 3.5 percent of GDP. The latest Debt Sustainability Analysis (DSA) conducted jointly by the IMF and the World Bank, indicates a moderate risk of a return to a situation of debt distress due to a narrow export base and weak fiscal indicators (especially revenues). External borrowing by the central government is restricted by an IMF program to loans with a grant element of at least 35 percent, which limits sources of financing to official creditors (bilateral and multilateral), which lend primarily for project finance. Domestic Treasury-Bills play a complementary, albeit marginal, role to help fill cash management needs, and the government has access to the regional market for longer-term local-currency debt, although high costs and low liquidity have led to only sporadic use of these instruments. This situation of limited financing options is starting to change as new lenders emerge, especially for state-owned enterprises (SOEs) and sub-national entities, which are not covered by the IMF’s concessionality requirement, widening the funding options and forcing more complex decisions on which loans to take. Burkina Faso has received technical and financial assistance from Pôle Dette, United Nations Conference on Trade and Development (UNCTAD), Debt Relief International (DRI), the Arab Bank for Economic Development in Africa (BADEA), and the Swiss Government. Pôle Dette, with support from DRI, has provided training to staff and members of the national debt committee on DSA and assisted the country in updating its DSA and preparing a debt strategy. UNCTAD has provided training on the use of the Debt Management and Financial Analysis (DMFAS) system, while BADEA has financed the acquisition of new equipment for DDP. The IMF’s African Technical Assistance Center (AFRITAC), with support from the African Development Bank (AfDB), has also provided training in loan negotiation and administration. The Swiss Cooperation supported 3 the installation of DMFAS and the audit of domestic debt. It has stated its intention to finance follow-up actions under that audit. 2.2 Public Expenditure and Financial Accountability (PEFA) Assessment – 2007 A PEFA report for Burkina Faso was prepared in April 2007. The PEFA assessed public finance management systems and processes for the 2005 budget cycle, including accounting and audit information on past year expenditures produced during 2006. The PEFA assessment goes well beyond DeM operations, which is the focus of DeMPA, but a certain overlap exists. On the issues covered by both the PEFA and the DeMPA, the PEFA gave high (A or B) ratings for cash flow forecasting, the frequency of debt sustainability analysis, the procedures for borrowing and guarantee issuing, and the quality of debt records. Both PEFA and DeMPA gave low scores for the internal and external audits. DeMPA scores tend to be lower than those in similar areas of the PEFA since some requirements are stricter in the DeMPA. For example, under PEFA, Burkina Faso scored a “B” on borrowing and guarantee-issuing procedures based on the fact that all financing must be approved by a single entity. In Debt Performance Indicator (DPI)-2, the DeMPA rated the managerial structure for debt management as a “C+” based on the fact that borrowings are not undertaken based on a debt strategy or without undue political influence (the requirement for a B). Regarding debt recording, the PEFA recognizes problems in obtaining timely information on disbursements, as well as with the non-contractual domestic debt, but considers these to be minor problems; moreover, accuracy within 3-months (a minimum requirement in the DeMPA) translates into a “B” rating in the PEFA. DeMPA generally agrees with the PEFA’s favorable assessment of the coordination with fiscal policies, notably the availability of yearly DSAs. A Strategy for the Strengthening of Public Finances (Stratégie de Renforcement des Finances Publiques) has been prepared based on the PEFA assessment done in 2007. This strategy, which is supported by a large group of donors, does not currently include a DeM component, but donors have expressed their openness to amending the strategy in the future to include debt management. 4 2.3 ASSESSMENT AND SCORING METHODOLOGY The DeMPA comprises a set of 15 DPIs which aim to cover the full spectrum of DeM operations as well as the overall environment in which these operations are conducted. While the DeMPA does not specify recommendations on reforms and/or capacity and institution building needs, the performance indicators do stipulate a minimum level that should be met for effective debt management operations. Consequently, indicators for which the minimum requirements are not met, indicate areas in which reform and/or capacity building would be most beneficial. The scope of the DeMPA is central government DeM activities and closely related functions such as issuance of loan guarantees, on-lending, cash flow forecasting and cash balance management. Thus, the DeMPA does not assess the ability to manage the wider public debt, including implicit contingent liabilities (such as liabilities of the pension system, losses of SOEs, etc.), as well as debt of SOEs if these are not guaranteed by the central government. Each DPI breaks down into one or several related dimensions. Each of these dimensions is assessed separately. Each dimension assessment subsequently feeds into the aggregate score for the respective indicator. Thus, for a DPI with two or more dimensions, an aggregate score is determined by averaging the scores for its individual dimensions. Under this scoring methodology, the assessment criteria for each dimension are explicitly laid out and, based on these criteria, a score of either A, B or C is assigned. A score of C indicates that the minimum requirement for that dimension has been met. A minimum requirement is the necessary condition for effective performance under the particular dimension being measured. If the minimum requirements set out in C are not met, then a score of D is assigned. An “N/R” (not rated or not assessed) is assigned to any dimension that does not apply to a particular country. The A score reflects sound practice for that particular dimension of the indicator. The B score is an in-between score lying between the minimum requirements and sound practice. 5 3. PERFORMANCE ASSESSMENT Summary of Performance Indicator Assessment Performance Indicators Score Governance and Strategy Development DPI-1 Legal framework C DPI-2 Managerial structure C+ DPI -3 Debt management strategy D DPI -4 Evaluation of debt management operations D DPI -5 Audit D Coordination with Macroeconomic Policies DPI -6 Coordination with fiscal policy B DPI -7 Coordination with monetary policy B Borrowing and Related Financing Activities DPI -8 Domestic borrowing B+ DPI -9 External borrowing D+ DPI -10 Loan guarantees, on-lending and derivatives B Cash Flow Forecasting and Cash Balance Management DPI -11 Cash flow forecasting and cash balance D+ management Operational Risk Management DPI -12 Debt administration and data security D DPI -13 Segregation of duties, staff capacity and D+ business continuity Debt Records and Reporting DPI -14 Debt records D+ DPI -15 Debt reporting D 6 3.1 Governance and Strategy Development DPI-1 Legal Framework Dimension Score 1. The existence, coverage and content of the legal framework C The legal framework for external borrowings is well defined. The 1991 Constitution attributes to the President the power to negotiate, sign and ratify all international agreements, including loans. 2 Moreover, if the agreement involves a financial commitment, it must be approved by the National Assembly before it becomes effective. Since the National Assembly only meets twice a year, it passes a yearly “Habilitation Law” so that loans can become effective upon ratification by the President. The President delegates the authority to negotiate and sign loans to the Minister of the Economy and Finance.3 Moreover, the yearly Budget Law (Loi de Finances) also contains an authorization to the Minister of the Economy and Finance to negotiate external financing. Within the MEF, secondary legislation provides specific attributions in the process of loan negotiation to three structures: DGCOOP, CNDP, and DGTCP. The decree establishing the internal organization of the MEF delegates the negotiation of new loans to DGCOOP and other aspects of debt management to DGTCP.4 Secondary legislation, in the form of ordinances, provides more detail on the role of DGCOOP in leading the negotiation of new financing5, delegates to DDP tasks related to direct borrowing, guarantees and on-lending 6 and regulates the functioning of CNDP.7 Procedures for the negotiation and signature of new loans are also specified in secondary legislation, 8 which requires an opinion by CNDP prior to approval of any borrowing or guarantee transaction. The legal framework for domestic debt issuance does not clearly delegate the authority to borrow in the domestic market to a single entity within the MEF. However, in practice, each structure - and especially the DDP, DAMOF and ACCT – knows its role and plays it accordingly. The Budget Law authorizes the government to negotiate domestic financing, and the Minister of the Economy and Finance to make advances to cover cash shortfalls. Moreover, a decree 2 Articles 148 and 149. 3 Decree 2007-424/PRES/PM, pertaining to the attributions of the members of government. 4 Decree 2008-154/PRES/PM/MEF. 5 Arrêté 2003-0200/MFB/SG/DG-COOP, pertaining to the organization of DGCOOP. 6 Arrêté 2003-00199/MFB/SG/DGTCP, pertaining to the organization of the DGTCP. 7 Arrêté 98-296/MEF/SG/DGTCP/DDP. 8 Decree 98-221/PRES/PM/MEF. 7 clearly delegates the management of both external and domestic debt to the MEF.9 Secondary legislation pertaining to attributions within the MEF10 is less clear, stating that DDP is responsible for the issuance of T-bills and bonds, while the Unit for Monetary and Fiscal Affairs (DAMOF) manages “questions of domestic savings mobilization in coordination with the Central Bank,” which is interpreted as a mandate to manage the T-bill issuances. The issuance of guarantees is regulated by a detailed decree11 which specifies, among other things, that guarantees must be approved by the Council of Ministers on the recommendation of the MEF. The Budget Law establishes a ceiling on the overall stock of guaranteed debt and emphasizes that guarantees must be granted in accordance to the terms of the above-mentioned decree. The on-lending of funds borrowed by the Government is regulated by a decree12, which explicitly delegates to the MEF decisions regarding on-lending arrangements. On-lending is not mentioned in the Budget Law. Another decree also states that the Minister of the Economy and Finance is responsible for mobilizing financing for the purpose of “development”. 13 The decree on public debt policy has not been signed yet and the public debt policy does not contain specific development objectives per se. Such objectives are outlined in the annual debt strategy for 2009 which is in the process of being adopted. The Constitution contains a general reporting requirement from the Government to the Parliament, stating that the Government must report on its activities related to budget implementation.14 The only other internal statutory reporting requirement pertains to the provision of debt data to SP-PPF for the preparation of the Table of Financial Operations of the State (TOFE). The new debt policy requires an annual report from CNDP to the Council of Ministers on the application of the Debt Policy and DeM operations. Burkina Faso, as a member of the Western African Economic and Monetary Union (UEMOA) has agreed to implement regulation 09/2007/CM/UEMOA. This regulation requires, among others: the preparation of a DeM strategy, which must be part of the Budget Law (Article 4); clear delegation of responsibilities in the borrowing process (Articles 5 and 11); publication of an annual report including debt data information (Article 6); coordination with macroeconomic policies through a committee (Articles 8, 9 and 10); and imposition of conditions for the issuance of guarantees (Article 12). 9 Decree 2007-424/PRES/PM. 10 Arrêté 2003-00199/MFB/SG/DGTCP. 11 Kiti (decree) AN VIII-083/FP/MF. 12 Decree 93-317/PRES/MFPL. 13 Decree 2007-424/PRES/PM/MFB. 14 Article 113. 8 In sum, despite the lack of clarity regarding the roles of DDP and DAMOF in the issuance of the Government’s T-bills, the legal framework does provide a clear authorization to the Minister of the Economy and Finance to contract new loans on behalf of the government and to issue guarantees. Secondary legislation provides clear authorizations to the implementing entities. Therefore, the minimum requirements for this dimension are met. However, the objectives for debt management are not clearly defined, annual reporting of debt information is currently only required indirectly in the context of overall budget execution; moreover, debt performance-, policy-, or operations- audits are not yet required although the new national policy on debt , recently ratified (strategic axis no. 3), as well as the UEMOA regulations (articles 15 and 16) formalize the audit requirements. Therefore, a higher rating than C cannot be given. DPI-2 Managerial Structure Dimension Score 1. The managerial structure for central government borrowings and C debt-related transactions 2. The managerial structure for preparation and issuance of central B government loan guarantees Overall Score C+ The DeM managerial structure comprises a number of departments, mainly in the MEF, which participate in seeking, disbursing and servicing both external and domestic loans (see Figure 1 below). Most of Burkina Faso’s debt is linked to projects initiated by line ministries, which also formulate the related funding requests.15 DGEP assesses the feasibility of each project and its compliance with the objectives of the country’s Poverty Reduction Strategy (CSLP). If these conditions are met, DGEP issues a favorable opinion (avis de conformité) and the project is recorded in the Project Bank (BIP). Project proposals are also submitted to DGCOOP, which identifies financing sources and makes initial contacts with creditors16. Once a source of financing has been identified and the project has received its favorable opinion from DGEP, the project is presented to the consideration of CNDP. Loan negotiations usually start after CNDP issues a favorable opinion and are led by DGCOOP with the participation of DDP and the relevant line ministry. Following conclusion of negotiations and signature by the Minister of the Economy and Finance, 15 The World Bank and AfDB also provide budget support credits. 16 In practice, projects submitted to DGEP already have identified financing sources. 9 DGCOOP ensures appropriate legal opinions and ratifications are obtained and processes disbursement requests from the line ministries. Accordingly, DGCOOP acts as a front office to mobilize all external financing, both loans and grants 17; however, the functions related to disbursements are expected to be transferred to DDP in 2008. Figure 1: Abbreviated Organizational Chart of the MEF Ministère de l’Economie et des Finances Secrétariat Permanent pour le Inspection Secrétariat suivi des Politiques et Générale des Général (SG) Programmes Financiers (SP -PPF) Finances (IGF) Direction Générale du Direction Générale Direction Générale Direction Générale de Direction Trésor et de la du Contrôle de la Coopération l’Economie et de la Générale du Comptabilité Publique (DGCP) Financier (DGCF) (DGCOOP) Planification (DGEP) Budget (DGB) (DGTCP) Paierie Générale (PG) Direction de la Coopération Bilatérale Agence Comptable Centrale Direction de la Coopération Multilatérale du Trésor (ACCT) CNDP Direction de la Coopération Technique Direction des Affaires Monétaires et Financi ères (DAMOF) Direction du Suivi des ONG Direction de la Dette Publique (DDP) BCEAO, Primature, Présidence Service des Service de la Service des Service des Service de la Créances Mobilisation Opérations Etudes et de Gestion des Bases (SC) Financière (SMF) Financières (SOF) l’Analyse (SEA) des Données (SGBD) As soon as a loan is signed, the DDP ensures the recording of the respective convention using the software DMFAS. At the maturity date, the DDP prepares and signs the payment requests – and forwards them to the attention of the PG. The PG, assisted by the Central Bank, performs the reconciliation for all external creditors. (see Box 1 below). Finally, the Payment and Accounting units of the Treasury (PG and ACCT) are responsible for funding the payments in local currency, instructing BCEAO to make such payments to the creditors and booking the transactions. 17 DGCOOP also produces statistics on disbursements and new financings, which it publishes annually. 10 From this description, it is clear that the analytical (middle office) functions are limited. These are performed by the Studies and Analysis sub-unit (SEA) of DDP, often in its capacity as a secretariat for CNDP18 and its Technical Cell. These structures are in charge of preparing the DSAs and the analysis of new loans. More recently, CNDP has been charged with preparing a debt policy and a strategy for managing the government debt 19 . The CNDP meets every two months to review proposals for new borrowings by the central government and public enterprises. Box 1: Debt Management Unit in the MEF DDP acts as a middle- and back-office, managing the external debt and the medium- and long-term domestic debt. It also serves as the secretariat to the CNDP. DDP is composed of five sub-units: (i) Credits (SC), which prepares loan guarantees and on-lending arrangements, and collects revenues related to the DeM process (primarily the debt service of on-lending contracts and interest subsidies); (ii) Financial Mobilization (SMF), which follows disbursements from the DDP side and enters the information on the debt database; (iii) Financial Operations (SOF), which initiates and records debt service payments; (iv) Studies and Analysis (SEA), which is responsible for compliance and analysis, including debt sustainability; and (v) Database Management (SGBD), which records loan agreements and is responsible for the integrity of the debt database. The issuance of medium- and long-term domestic debt (“T-bonds”) is the responsibility of DDP, which works with BCEAO on the technical and operational aspects of the issue, as well as line ministries if the proceeds of the issuance will be targeted to specific projects, as was the case in the 2007 issuance of bonds in the regional markets. T-bond issuances are discussed by CNDP. Domestic T-Bills are issued by the Treasury through DAMOF following a yearly borrowing plan. T- Bills are not discussed within CNDP, but DAMOF closely coordinates with ACCT and BCEAO in this process. The currently outstanding guarantee has as a beneficiary one SOE; this guarantee is managed by the Credits sub-unit (SC) at DDP. Guarantees are to be issued in conformity with an annually established ceiling incorporated in the Budget Law and signed by the Minister of the Economy and Finance. 18 The CNDP is composed of the heads of different departments of the MEF as well as representatives from BCEAO and the President and Prime-Minister’s offices. 19 See DPI-3 for the distinction between the debt management strategy and the debt policy. 11 Thus, borrowings and debt-related transactions are undertaken by entities that regularly exchange information and coordinate their activities through CNDP, satisfying the minimum requirements for the first dimension of this indicator. The institutional arrangements and the role of CNDP represent a clear improvement over uncoordinated borrowing from different ministries and elevated levels of political influence in the borrowing process. A higher rating is not possible because DeM operations are not yet steered by a formalized DeM strategy. Burkina Faso has issued one guarantee in the past two years. Guarantees are prepared and issued by a single government entity (DDP) that closely coordinates its activities with other DeM entities through CNDP. Thus, a rating of B can be given for this indicator. A rating of “A” is not possible given the multiplicity of DeM entities. DPI-3 Debt Management Strategy Dimension Score 1. The quality of the debt management strategy document D 2. The decision-making process, updating and publication of the N/R debt management strategy Overall Score D At present, Burkina Faso does not have a formal DeM strategy that is operational20; however, preparation by CNDP of a new DeM strategy is in its final stages21. The document will be annexed to the 2009 Budget Law in accordance to the UEMOA regulation on DeM practices (see DPI-1). The current draft of the DeM strategy addresses the current situation of Burkina Faso’s debt, imposes a ceiling on new borrowing, and discusses the structure of the new financing portfolio, indicative terms of the new loans, and the sustainability of public debt in the next 15 years. A distinction is made between the country’s DeM strategy, which is expected to be an operational document, and the debt policy that has been approved by the Council of Ministers on February 6, 2008. The debt policy gives long-term orientations in this field, points to DeM elements that need reform, and gives 20 The new national policy on debt and debt management replaces the strategy adopted in 1995 which was not fully applied. The old strategy contained objectives and expressed guidelines for the preferred direction of specific indicators such as currency composition, concessionality floor, interest rate and maturity. 21 The strategy is being prepared in consultation with other members of the Technical Cell of CNDP, as well as Pôle Dette, the World Bank and the IMF. Its eventual approval by CNDP would ensure broad consultation, including with the Central Bank. 12 broad guidance to external borrowing by requiring that loans meet the minimum 35 percent concessionality requirement. The informal strategy currently followed consists of borrowing on concessional terms as much as possible. Given the limited availability of concessional resources, much of the focus lies on the actual projects rather than the characteristics of their financing. Multilateral and bilateral sources are tapped almost in full. T-Bills are issued to partially address cash management needs, in amounts that are marginal compared to external borrowing. From an operational point of view, the decree that describes the borrowing process (see footnote 8 above), provides some guidance to the borrowing process, including the requirement that new loans be analyzed by CNDP. Notwithstanding the elements of a strategy, there are no clear targets for debt ratios, mix between domestic and external debt, or any other quantitative guidelines other than the minimum grant element. Thus, at this time the Government does not meet the minimum requirements for the first dimension. However, the new national policy on debt and the debt-incurring strategy for 2009 will strongly reinforce the analytical function. Although the preparation of the DeM strategy is being undertaken jointly by Burkina’s DeM entities and the view of the Central Bank is expected to be formally obtained, the second dimension cannot be meaningfully rated until the DeM strategy is operational and publicly available. DPI-4 Evaluation of Debt Management Operations Dimension Score 1. Level of disclosure—in an annual report or its equivalent—of D government DeM activities, central government debt, evaluation of outcomes against stated objectives, and compliance with the government’s debt management strategy The DDP prepares activity reports for DGTCP (quarterly and annually). The latter incorporates them into its own activity report to the MEF. The report contains details about activities carried out during the year and evaluates those activities against a work plan agreed upon with DGTCP at the beginning of the year. A matrix in the appendix allows the monitoring of whether targets are reached. This report is strictly operational, and does not contain any statistical information about debt or guarantees. In 2008, CNDP produced a report for the activities undertaken in 2007, which was presented to the Council of Ministers. In the report, CNDP describes its activities, analyzes the results obtained, and describes the difficulties faced as well as prospects for the coming year. CNDP’s report contains debt stock information, as well as details on new financing activities approved during the year and projected debt ratios in the context of a DSA. Short-term domestic borrowing is included in the report that DAMOF submits to the Minister of the Economy and Finance. Because the report by the CNDP is not published annually, the minimum requirements for this dimension are not met. 13 DPI-5 Audit Dimension Score 1. Frequency of internal and external audit of central government D debt management activities, policies and operations, as well as publication of external audit reports 2. Degree of commitment to address the outcomes from internal N/R and external audits Overall Score D Burkina Faso has a fragmented network of audit institutions composed by (i) the Cour des Comptes (CC), an auditor external to both the MEF and the Executive, (ii) the Superior Control Authority of the State, an auditor external to the MEF but internal to the Executive branch, and (iii) the MEF’s Internal Auditor (IGF). Neither the Superior Control Authority of the State nor IGF has conducted any audit of DeM operations22. The CC is the supreme audit institution in Burkina Faso. It was created in 2002 and only recently became Burkina’s representative in the International Organization of Supreme Audit Institutions (INTOSAI). It is part of the judiciary branch of government and hence not subordinate to the legislative or executive branches. However, the CC’s audit report is submitted to the National Assembly. The main duty of the CC is to audit the execution of the budget (through the Loi de Règlement); although it has auditors trained in performance auditing, it has focused primarily on the audit of the government’s accounts. Notwithstanding the fact that the CC has not conducted a specific audit of DeM operations, its latest public report notes that the execution of expenditures coming from external resources is not accounted for in the budget. The MEF’s responses are published with the audit report. In its response, the MEF notes the plan to develop software that would allow the proper accounting of the execution of expenses 22 The Superior Control Authority of the State is under the authority of the Prime Minister and is charged with ensuring regulatory compliance, financial probity, and the quality of operations of all government institutions; it was Burkina’s supreme audit institution prior to the creation of the CC. The IGF considers DeM operations lower risk compared to customs or the financial control of sub-national treasuries. The IGF develops a yearly plan of activities with input from donors (who request audits of specific projects), as well as line ministries. In addition, there is an internal auditor of the Treasury, who is subordinate to the IGF. 14 financed by disbursements of foreign loans.23 The audit report also contains a table listing the status of implementation of recommendations from previous reports; for example, the recommendation of better exchange of information related to disbursements between DGCOOP and DGTCP was reported as not having been executed. In June 2007, an audit of Burkina Faso’s domestic debt was completed by a team composed of an independent consultant and three staff from DGTCP. The government’s audit institutions were not involved in the process and not aware of its outcome. The audit is divided into two parts: an inventory of liabilities to suppliers arising from purchases of goods and services that were not properly entered into the expenditure chain (known as “non-contractual” domestic debt) and an analysis of domestic DeM operations. Both parts contain recommendations. Regarding the audit of domestic DeM activities, the report focused primarily on budget execution operations that led to the accumulation of the non-contractual debt. The report also considers the management of domestic debt overall and makes detailed operational recommendations, for example, regarding what structures should be involved in domestic debt management. Finally, the report proposes a strategy for the elimination of the existing non-contractual debt through the creation of a domestic debt fund, the rescheduling and securitization of the debt, and the shift of some of the liabilities back to the budget. The government has produced a matrix of follow-up actions to the domestic debt audit, but no activities have yet been put in place. While there are elements of an audit of DeM operations in the report of the CC and the audit of the domestic debt, these are insufficient to meet the minimum requirements for the first dimension, which require an external audit of overall DeM operations, policies and activities. Moreover, since the team that performed the domestic debt audit included staff from DGTCP, it cannot be considered external. Because a proper audit has not been carried out, the second dimension cannot be rated. However, one can note that the government is taking concrete steps to address the recommendations from the CC report (namely, the development of CIFE, the software mentioned in footnote 23 above, and the transfer of disbursement functions to DDP), even if these are not yet implemented. Moreover, DDP has drafted a plan to follow the recommendations of the domestic debt audit. Given the timing of these audit reports, substantial delays in the execution of audit recommendations are observed. 23 Thegovernment is developing a software that will allow the tracking of disbursements on external financing and the execution of expenditures financed by them. This software, the CIFE (Circuit Integré des Financements Extérieurs) is expected to be operational by end-2008. 15 3.2 Coordination with macroeconomic policies DPI-6 Coordination with Fiscal Policy Dimension Score 1. Coordination with fiscal policy through the provision of accurate C and timely forecasts on total debt and debt service under different scenarios 2. Availability of key fiscal variables and/or an analysis of debt A sustainability, and the frequency with which debt sustainability analysis is undertaken Overall Score B The CNDP is in charge of coordinating debt management with fiscal and macroeconomic policies. The committee debates debt and fiscal policies, as it did in the context of the elaboration of the country’s debt policy and the (planned) yearly debt strategy. The CNDP’s Technical Cell, formed by the technical staff of the committee’s members, ensures the exchange of information on debt and fiscal variables. It is the Technical Cell that performs DSAs which are then presented to CNDP in the context of the elaboration of the country’s debt policy and DeM strategy. In general, DSAs are prepared at least annually, usually in the context of workshops sponsored by Pôle Dette.24 Most recently, Burkina prepared DSAs in December 2007 and March 2008. They were used as input to the draft DeM strategy. Information exchanges take place regularly thanks to the presence of all structures involved in both fiscal and debt policies in the CNDP. In addition, DDP prepares and submits forecasts on debt service to SP-PPF as part of the yearly preparation of the rolling three-year medium term fiscal framework, as well as the monthly preparation of the TOFE. Finally, debt service projections are provided to DGB for the yearly budget preparation. Thus, forecasts of relevant debt variables are provided as part of the yearly budget preparation and the minimum requirements for the first dimension are met. However, the projections provided by the DDP at this time do not include any sensitivity analysis for the debt service payments, and therefore a higher rating cannot be given for the first dimension. Since DSAs include domestic debt, are undertaken every year and used in the elaboration of debt policies (albeit not in a formalized fashion at this point), a rating of A is given for the second dimension. 24 The DSAs are prepared by government staff with assistance from Pôle Dette. 16 DPI-7 Coordination with Monetary Policy Dimension Score 1. Coordination with monetary policy implementation through C information sharing on debt transactions and government’s current and future cash flows 2. Extent of a limit to direct access of resources from the Central A Bank Overall Score B As a member of UEMOA, Burkina Faso shares a common currency (the CFA franc) and a Central Bank (the BCEAO). The CFA franc has been pegged to the Euro since this was created in 1999 and the parity has remained unchanged25. Although the exchange rate is fixed, capital controls allow the implementation of a somewhat independent monetary policy which targets a regional reserve money program. Sterilization operations are clearly distinguished from the issuance of government T-Bills as explained below. The BCEAO advises and guides the government on accessing the T-bill market and issuing the T-bills on behalf of the Treasury. These issuances are kept strictly separate from monetary policy operations, which do not rely on Burkinabè T-bills. At the time of T-bill issuance, BCEAO informs the market regarding the borrower, purposes and terms of the issuance. Information sharing of government cash flows is done on an ad hoc basis, and therefore Burkina scores a ‘ C’ in the first dimension. Although information exchanges with the BCEAO take place at the level of the CNDP, this does not include cash flow forecasts, and there is no information exchange on advances from public entities that are used to cover treasury shortfalls. Access to Central Bank advances has been eliminated since 2002. Prior to 2002, the BCEAO provided cash advances to the Government in an amount up to 20 percent of the previous year’s revenues. There were no limits on the tenor of the advances, since they were issued as a revolving credit facility (i.e., the Government could always have as much as the 20 percent ceiling in outstanding advances). The BCEAO’s statutes still allow such advances, but in 2001 the Regional Council of Ministers took a decision to stop using them. All Central Bank advances outstanding at that time were re-scheduled over a 10- year period, and since then no more advances have been made. There are 25 Themonetary union has been beneficial to the region in that it has brought monetary discipline and price stability providing a solid anchor to the region’s macroeconomic policy. 17 new regulations currently under study, but it is not known whether they will formally prohibit the use of advances. Nevertheless, given the de jure agreement at the regional level not to access advances from the BCEAO and de facto implementation of this agreement, the government at present has no access to Central Bank advances, Burkina Faso receives an ‘A’ in this dimension. 3.3 Borrowing and Related Financing Activities DPI-8 Domestic Borrowing Dimension Score 1. The extent to which market-based mechanisms are used to issue B debt, the publication of a borrowing plan for T-Bills and T-bonds, and the preparation of an annual plan for aggregate amount of local currency borrowing in the domestic market, divided between the wholesale and retail markets. 2. The availability and quality of documented procedures for local A currency borrowing in the domestic market Overall Score B+ Burkina Faso’s domestic debt can be divided into two categories: short-term debt used to meet treasury shortfalls (e.g. T-bills), and medium-term contractual debt (e.g. T-bonds)26. Short-term debt is currently the only actively managed portion of the domestic debt. DAMOF prepares a yearly borrowing plan for T-bills, including amounts, maturities and approximate issuance dates, based on projections of treasury shortfalls. The plan is published and communicated to BCEAO, which acts as a financial advisor to the government and issues the securities in the inter-bank market. The authorities 27 stated that T-Bills represent more than 90 percent of short-term borrowing needs. For the first dimension a note of B is given. Terms and conditions for the securities are prepared by DAMOF and are available to market participants. Criteria for accessing the T-bill market are 26 Inaddition, there is a substantial stock of non-contractual debt constituted by payments due to suppliers that did not go through the expenditure chain. The DeMPA does not consider such debt. 27 This issue has been discussed in one of the meetings that the team had with Mr. Rémy Malgoubri. 18 publicly available from BCEAO’s website 28 in electronic form, and thus the second dimension is rated as an “A”. It may be noted that access to the T-bill market is relatively inflexible, and the government also makes frequent use of short-term advances from liquid government institutions such as the Social Security Administration (CNSS) or the Post Office to meet its treasury needs. These advances are managed by ACCT. Medium- and long-term contractual debt includes T-bonds, the rescheduling of Central Bank advances mentioned in DPI-7, debts arising from banking sector restructuring and guarantees that have been called. The government has issued T-bonds twice, once in 2003 and once in 2007. In 2003, Burkina Faso issued four- year T-bonds through a private financial intermediary. The securities were listed in the Abidjan regional exchange, and proceeds were on-lent to the state’s electricity company SONABEL and a real estate development project. In 2007, Burkina Faso joined a regional T-bond issuance managed by the BCEAO, issuing CFA41.3 billion in ten-year 5.5% T-bonds. The government does not have immediate plans to issue additional T-bonds given their relatively elevated cost. DPI-9 External Borrowing Dimension Score 1. Degree of assessment of the most beneficial/cost-effective D borrowing terms and conditions (lender or source of funds, currency, interest rate and maturity) 2. Availability and quality of documented procedures for borrowing D in foreign markets 3. Availability and degree of involvement of legal advisors B Overall Score D+ As the entity in charge of mobilizing external resources, DGCOOP consolidates information about creditors’ areas of activity and financing terms, ensuring that public borrowing meets the objective of cost minimization/resource maximization within the IMF constraint of a minimum concessional element of 35 percent. Figure 2 below illustrates the process for external borrowing. Multilateral and bilateral creditors are tapped almost in full reflecting limited funding options. Within those limited options, especially with the bi-laterals, no 28Règlement 06/2001/CM/UEMOA portant sur les bons et obligations du trésor émis par voie d'adjudication par les états membres de l’Union économique et monétaire ouest africaine (UEMOA) 19 evaluation of the cost and risk of the loans is made other than that of the concessional element. This analysis will be more important in the future as new funding sources emerge. In practice, DGCOOP guides the line ministry towards the source that is more likely to support the project. The financing terms of the different funding sources are well known and the corresponding financing terms are stable over time. Notwithstanding the former, the SEA at DDP prepares a terms sheet for each new proposed loan in the context of their review by the CNDP. These terms rarely change during the loan negotiations and there seems to be no need for a separate terms sheet. Information on financial terms is recorded in DMFAS by SGBD based on the loan agreements. Figure 2: The External Borrowing Process Project initiation and feasibility study: Line Ministries Project entered in the Banque Financing request sent to the Intégrée des Projets: DGEP creditor(s): DGCOOP Opinion of the Comité National de la Dette Project evaluation and feasibility Publique (CNDP) study by the creditor: Creditor Loan Negotiations: DGCCOP, DGTCP, Line Ministry Loan signing (MEF) and effectiveness (National Assembly authorizes the ratification, Government ratifies, names the project leaders, etc.) Loan Disbursement: DGCOOP et DGTCP Debt management: DGTCP/DDP The borrowing process ensures that loan agreements comply with the legal framework. Legal advisors from DDP or from the Constitutional Council (Conseil Constitutionnel) are called by DGCOOP when negotiations with new donors or creditors are undertaken. In addition, all loan agreements are verified by the Treasury’s legal agency and signed by the Minister of the Economy and Finance. Finally, loan contracts are ratified by the President as well as by the Assemblée Nationale, after the Cour Constitutionelle finds the contract in agreement with the national laws. The Constitutional Council issues a legal note that attests to the fact that the loan agreement conforms with the national laws, and, in particular, with the Constitution. In the current process, DGCOOP is also in charge of managing disbursement requests. DGCOOP receives both the disbursement requests from projects and 20 creditors’ advices, while the SMF at DDP is responsible for recording disbursements in DMFAS. This division of labor slows down the recording of disbursements, which is particularly difficult when creditors do not provide timely information to DDP. To improve the process, the government will transfer the responsibility of receiving and communicating disbursement requests to SMF. Once these functions are transferred from DGCOOP to DDP, the process will be documented in a procedures manual; the transfer is scheduled to occur sometime this year. At present, borrowing procedures are described in several legal documents, mainly in Decree number 98-221/PRÉS/PM/MEF on borrowing procedures. This document describes the nine stages of the debt-undertaking process, illustrated in the diagram above, and defines the role of each of the entities involved in the process (among others, the line ministries, the Ministry of Finance, and the CNDP). Finally, the decree distinguishes between investment- project financing and debt for budget- or balance-of-payment-support, and provides for each of the two accordingly. Burkina does not meet the minimum requirements in the first dimension. Although financing options are limited, there is no evaluation of the financial conditions of the available loans other than their concessional element. For example, the Government could consider the impact of a new loan on its amortization profile, or the impact on the currency composition of its debt portfolio of different currency denominations when that choice is available. Even if one were to interpret this dimension as an analysis of how to maximize access to limited concessional resources (for example, how to maximize allocations from certain creditors) - that, too, is not undertaken in any formalized manner. Moreover, separate terms sheets are not prepared after three weeks from the loan negotiation date. Thus, the minimum requirement for procedures on borrowing in foreign markets is not met and a score of “D” is attributed to the second dimension Legal advisors are involved at the end of the negotiating process. When new creditors are involved, legal advisors also participate in the negotiations. Based on this, a score of “B” is assigned to the third dimension. DPI-10 Loan Guarantees, On-lending and Debt-related Transactions Dimension Score 1. Availability and quality of documented policies and procedures B for approval and issuance of central government loan guarantees 2. Availability and quality of documented policies and procedures B for on-lending of borrowed funds 3. Availability of a debt management system with functionalities for N/R handling derivatives, as well as availability and quality of documented procedures for the use of derivatives Overall Score B 21 At present, there is one outstanding guarantee for a domestic loan and none for external loans; on-lending is the preferred channel to provide access to cheap funding to entities in the public sector. The government can provide guarantees and on-lend to SOEs, sub-national entities and semi-public companies for the purpose of financing investment. These activities are recorded and monitored by the SC and SGBD at DDP, respectively. The decree that governs guarantees establishes guidelines for issuance, procedures for request and approval of guarantees – including guidelines for risk assessment - and procedures to be followed when a guarantee is called. Every year, DDP proposes to the Minister of the Economy and Finance a ceiling for the stock of outstanding guarantees, which is incorporated in the Budget Law approved by Parliament. Within DDP, SC is in charge of preparing guarantees. Credit risk is assessed using financial statements of the last three years, and is mitigated by the use of counter-guarantees and by the Fund of Guarantees “Account 30 134” 29 . Currently, a service commission of 0.5% is charged and, in the case of late payments, a penalty charge of 2.5% to 5% is imposed. The SC is responsible for collecting these fees, as well as payments from the beneficiary in case a guarantee is called by a creditor. No separate contract with the beneficiary is entered into. In terms of monitoring, SGBD inputs the disbursements and debt service transactions of guaranteed loans in Excel, and in the DMFAS software. As of today, the only outstanding guaranteed domestic loan is that of SOFITEX and there are no guaranteed external loans. The decree that governs on-lending activities defines the beneficiaries and accepted use of these funds, procedures for request, guidelines for risk assessment, the financial conditions as well as the penalties for late payment. The government assumes both the credit and currency risks, as it borrows from external creditors in foreign currencies and on-lends only in CFA francs. To cover these risks, the government charges a spread not exceeding five percentage points over its cost of borrowing and a service commission of 0.1%. Refinancing risk is covered by reducing the maturity of the on-lent loan by two to three years compared to the original loan received by the government. Finally, in the case of late payment, a penalty of 2.5% to 5% is charged. A separate contract signed between the government and the beneficiary is prepared by SC and signed by the Minister of the Economy and Finance and a representative of the beneficiary entity. In terms of monitoring, SC inputs disbursements and debt service data in DMFAS and maintains an Excel 29 Counter guarantees can be provided by commercial banks, insurance companies, pledges on real estate or collateral in the form of equipment. The Fund of Guarantees is fed with budgetary resources, fees related to the guarantees and funds recovered from beneficiaries. 22 database of on-lending data, which it uses to generate weekly and monthly statistical reports transmitted to the head of DGTCP. The first dimension is rated as a “B” given the detailed procedures for guarantee issuance (including the requirement for credit risk analysis) contained in the decree that also regulates their issuance. The second dimension is rated with a “B” since on-lending is an ongoing activity that is regulated by several decrees, including a requirement for assessing credit risk and guidelines for how the assessment should be undertaken. A higher score is not possible because there is no requirement for monitoring risks during the life of the guarantees/contracts. Burkina Faso has not used derivatives, and therefore the third dimension is not assessed. 3.4 Cash Flow Forecasting and Cash Balance Management DPI-11 Cash Flow Forecasting and Cash Balance Management Dimension Score 1. Effectiveness of forecasting the aggregate level of cash balances D in government bank accounts 2. Effectiveness of managing the aggregate cash balance in C government bank account(s), including the integration with the domestic debt borrowing program 3. Where the Principal DeM Entity (or the DeM entities) operate its N/R (their) own bank accounts, the frequency of reconciliation of these bank accounts Overall Score D+ Cash management is done by ACCT based mainly on weekly cash flow projections, but taking also into account monthly and annual forecasts. Weekly projections are based on information received from the Treasury offices in the main regions and the three main central accounting offices: PG, the Revenues unit (Receveur Général), and ACCT. The latter synthesizes the forecasts for the Treasury Committee, chaired by the director general of the Treasury and attended by the heads of the three accounting offices. The output of these meetings is a treasury plan which indicates the revenues and expenses planned for the following week. Revenue projections, done in collaboration with the Departments of Taxes and of Customs (Direction Générale des Impôts and Direction Générale des Douanes), are relatively accurate. Expenses consisting of salaries and debt service are easily forecasted; payments to suppliers of goods and services to the government are programmed based on deadlines for verification and execution. The evolution of cash balances is monitored monthly by the Committee for Budget and Treasury Monitoring (Comité de Suivi du Budget et de la Trésorerie - CSBT), chaired by the Minister of the Economy and Finance and attended by 23 DGB, DGTCP and BCEAO, among others. In this case, the information analyzed comes from the sub-units in charge of revenues and expenses: the Circuit Intégré des Dépenses (CID) allows capturing the latter but the former rely on the Régie des Recettes as the Circuit Intégré des Recettes (CIR) is not yet fully operational. Issuance of T-Bills is decided in the monthly meeting of the CSBT and is not adjusted in the weekly meetings. Cash shortfalls are covered by channeling cash surpluses of public sector entities such as the CNSS, or, by regulating the intervals at which expense-execution takes place. The latter mechanism has been accompanied by the periodic recognition of obligations related to expenditures that escaped regular budget controls, which has generated liabilities in excess of the stock of T-Bills and show serious budget execution problems. No monetary financing is available to the government since 2002. The PG is charged with the execution of all payments through their own account at BCEAO. Instructions for debt service payments are sent two weeks in advance and BCEAO executes them on the value date according to a payment program set up by the Treasury Committee during its weekly meetings. The Treasury has multiple accounts, mainly at BCEAO, but also at commercial banks for tax collection. Commercial banks transfer balances daily to BCEAO. The three main State-accounting offices (ACCT, PG, RG) each have a current account at BCEAO which they use to make payments and receive revenues. However, all transactions have to pass through the ACCT’s account. BCEAO pays interest on excess balances at market rates but does not otherwise manage the funds. Forecasts of daily cash balances are not very reliable as evidenced by the recurrent manipulation of the timing of expenditure execution; this translates into a D for the first dimension. The Central Bank pays market interest to the government in case of cash surpluses, which satisfies the minimum requirement for the second dimension. A higher score is not possible because there are no transactions undertaken on a regular basis. DDP does not operate its own bank accounts; therefore the third dimension is not scored. 24 3.5 Operational Risk Management DPI-12 Debt Administration and Data Security Dimension Score 1. Availability and quality of documented procedures for the D processing of debt service 2. Availability and quality of documented procedures for debt data D recording and validation, as well as storing of agreements and debt administration records 3. Availability and quality of documented procedures for controlling D access to the central government debt recording/management system and payment system 4. Frequency and off-site, secure storage of debt D recording/management system back-ups Overall Score D While standard procedures are followed for payments, debt recording and access to the debt system, DDP has no procedures manual for these tasks. The terms of reference for a consultant to develop the manual are ready and this task should be completed this year. The processing of debt service payments is performed by SOF at DDP. Payments are initiated by SOF upon receipt of the creditors’ invoice, which is checked against DMFAS records and with the SMF and DGCOOP if necessary to confirm the disbursed amounts. Under the regular process, SOF would send the payment instructions to DGCF for verification and then PG issues payment instructions to BCEAO. However, to avoid paying after the due date, SOF can send payment instructions directly to PG; in this case, once confirmation of the amount paid (in CFA francs) is received from the BCEAO, the payment documents are sent to DGCF for ex-post verification (regularization). Domestic debt service follows regular expenditure procedures, which require that DGCF verify the payment before its execution by PG. The current procedure has three problems: (i) if disbursement information available at SMF is incomplete, SOF needs to check the information with DGCOOP; (ii) regardless of the accuracy of the disbursement data, SGBD does not initiate the payment until they have received the creditors invoice ; and (iii) ex-post verification and regularization are poor mechanisms of control. Recording of debt contracts is done by SGBD, while disbursements and debt service are recorded by SMF – using creditors’ statements - and SOF, respectively. Contract information entered in DMFAS is not independently verified, but SGBD verifies transaction records entered by SMF and SOF. 25 Responsibilities for data input and verification are allocated to SGBD in the disbursements of loans that benefit from government guarantees. Similarly, on- lending operations are input by SC and not validated elsewhere. Debt data is stored in DMFAS, which works in a local network comprising a server and eight connected terminals. Users’ access for system administration, data input, and consulting information requires a password which is the same for everyone at DDP as user profile differentiation is not yet implemented. Access to the server room is restricted. Backups of electronic data on CDs are conducted on an ad-hoc basis by the Treasury’s IT sub-unit, and back up CDs are kept within the Ministry in a contiguous building. Also, UNCTAD keeps a copy of Burkina’s DMFAS database although this process is done on an ad-hoc basis. Yet, the risk of a catastrophe leading to a total loss of the data is limited. Moving DMFAS to the MoF’s server is currently not an option, due to the problems of password sharing and unique user profiles listed above. Until these problems are solved, other users within the Ministry cannot have access to DMFAS. Copies of the loan agreements are filed by SGBD in a secured area with restricted access. Storage is not fireproof; however, in the event of a fire, the information could be easily recovered as DGCOOP keeps the original and the project sub-unit has an additional copy. Because DDP does not yet have a procedures manual, the minimum requirements for the first three dimensions are not satisfied. However there are legal texts on the treatment of debt service30 as well as on CID. Similarly, even though backups of DMFAS are done on CDs and a copy of the database is kept with UNCTAD, these processes are done on an ad-hoc basis so the minimum requirement for the last dimension is not met. 30 Arrêté 98-188/MEF/SG/DGTCP/DELF du 10 août 1998 portant nomenclature des pièces justificatives des opérations financières de l’Etat and Arrêté 2003-0267/MFB/SG/DGTCP/DDP du 30 juin 2003 portant autorisation de règlement du service de la dette publique avec ordonnancement unique 26 DPI-13 Segregation of Duties, Staff Capacity and Business Continuity Dimension Score 1. Segregation of duties for some key functions, as well as the C presence of a risk-monitoring and compliance function 2. Staff capacity and human resource management C 3. Presence of an operational risk management plan, including D business continuity and disaster-recovery arrangements Overall Score D+ There is segregation of duties between negotiation, payment and recording of debt transactions. Loan negotiations are led by DGCOOP, with participation of staff from DDP. Recording of the payment transactions is done within DDP by SOF. Payments are executed by PG upon instructions from SOF signed off by the Director of DDP. However, the segregation of duties between data entry and verification is unsatisfactory. For loan contracts (entered by SGBD), on-lending (entered by SC) and disbursements on guaranteed loans (entered by SGBD), the same staff enter and verify data entries. Given this situation and the fact that the DeMPA clearly states that "The staff entering data and checking data entries in the debt recording system [should be] different", Burkina Faso may not meet the minimum requirement for the first dimension. However, there are two parts to the first dimension. First is the segregation of those instructing, executing and accounting for the payments. This part is fully complied with and is the most important in terms of fraud prevention. Second, while it is true that the same staff enters and checks the data, there are several checks in the processing of a debt service payment that substantially reduce the probability of a mistake or fraud in a payment stemming from erroneous entries. For these reasons, the team deemed that Burkina Faso is closer to a C than to a D. The SEA performs a risk monitoring and compliance function, but this is limited to ensuring that projects comply with legal and procedural requirements and that contracted loans meet the minimum concessional threshold (35 percent). Financial risk indicators are neither computed nor monitored. DDP’s organizational chart shows seven vacant positions out of 39. These vacancies are partly the result of the Ministry staff rotation program. In addition, new job positions are being created with the transfer to DDP of some front office functions currently performed by DGCOOP. These vacancies, however, are not perceived to increase operational risk. All civil servants about to join the MEF undergo a general initial training in three main areas: fiscal management, finance, and accounting. Technical assistance providers such as Pôle Dette or AFRITAC, offer training programs, but these do not always fit DDP’s needs. On-the-job training is particularly needed for staff to 27 export data from DMFAS. Shortcomings in this area – coupled with the technical- capacity shortcomings of the DMFAS - lead to the use of parallel spreadsheets and duplication of data entry, increasing the operational burden and the error margin. Performance evaluations, called Système de Notation de la Fonction Publique , are done for all staff in DDP on an annual basis, based on objectives contracts that incorporate business as well as career development objectives. Promotion depends on the score achieved in the performance evaluations. The minimum requirement for segregation of duties is met, but a higher score is not possible because several operations related to data entry and verification can be further segregated and also because the risk compliance and monitoring functions are limited. The minimum requirements for the second dimension are met since DDP is adequately staffed, the personnel have some training and results agreements are updated annually. However, DGTCP does not yet have a code of conduct for all staff (one is currently being elaborated), thus only meeting the requirements for a ‘C’ rating. In addition to finalizing the code of conduct, an “A” rating in the future would also require individual training and development plans. The minimum requirement for the third dimension is not met since DDP lacks business continuity and disaster recovery plans. 28 3.6 Debt Records and Reporting DPI-14 Debt Records Dimension Score 1. Completeness and timeliness of central government debt records D 2. Complete and up-to-date records of all holders of government C securities in a secure registry system Overall Score D+ All outstanding external loans, including past debt relief, as well as the domestic contractual debt are recorded in DMFAS.31 While DDP analyzes external loans made out to SOEs, it does not have complete records of SOE debt, nor does it enter it in DMFAS. In general, debt service payments are timely recorded. Disbursements are recorded based on the creditor’s notice received by SMF; in some cases, most notably for disbursements not made through BCEAO, the notice could be received months after the actual disbursement takes place. As a result, disbursement information in DMFAS is sometimes recorded with a lag that could be as long as six months. Once CIFE starts working, recording the exact date of the disbursements will take effect. The quality of the database is maintained by periodic reconciliation of outstanding balances with the creditors. A recent exercise including both external and domestic debt was concluded in March 2008 and showed minor inconsistencies. As the DeM system has no links with the budget, accounting and payment systems, multiple entries of debt data are required. The MEF is developing the External Financing Integrated Circuit (CIFE) which will link the public financial management systems, though only for external debt. The Central Bank keeps a registry of the holders of government domestic securities, both for the T-bills and bonds. All holders in BCEAO’s registry are institutional investors, which are in turn required to maintain separate records for securities held in their own name and securities held for their clients. There is a regional securities clearing house, the Bourse Régionale in Abidjan, where the 2004 T-bond issuance and most private issuances in the regional market are registered. However, as links with the regional branches of the BCEAO are not complete, only securities held in custody of the Central Bank could be used as collateral for local banks to get liquid funds from BCEAO. Therefore, the latest 31 Domestic non-contractual debt, on the other hand, is neither recorded nor managed by DDP. 29 issuance of T-bonds was registered with BCEAO. Although BCEAO is the subject of annual audits, its specific role as a securities registrar is not. Central government debt records do not satisfy the minimum requirement for this DPI since disbursements data is sometimes recorded six months after actual disbursements. The registry system for holders of government securities is complete and up-to-date but is not subject to periodic audit, which translates into a C for the second dimension. DPI-15 Debt Reporting Dimension Score 1. Meeting statutory and contractual reporting requirements of D central government debt to all domestic and external entities 2. Meeting statutory and contractual reporting requirements for total N/R nonfinancial public sector debt and loan guarantees to all domestic and external entities 3. Quality and timeliness of the publication of a debt statistical D bulletin (or its equivalent) covering central government debt Overall Score D The DDP must report debt data to SP-PPF for the preparation of the TOFE, which is submitted periodically to the IMF. This requirement is stated in a formal circular from the Minister of the Economy and Finance, and is thus considered a statutory requirement. Contractual reporting requirements are those to the World Bank’s Debtor Reporting System and to the IMF in the context of its program with the country. Information submitted for the TOFE includes outstanding balances and debt service payments on external and domestic debt. On the debt service, SP-PPF compares the budget plan with its execution. The reporting is done monthly, and is due seven days after the month end. In practice, DDP submits this report with a delay of about two weeks. The reports to the World Bank and IMF are submitted on time by BCEAO, using data recorded by DDP, and are of a reasonable quality. 32 Burkina Faso scores 2+ in the World Bank’s Debtor Recording System, which means it reports data with only minor problems. In addition to the statutory reporting requirements, DDP also provides multiple reports to various government entities. 32 DDP does not yet have the capacity to fill out Forms 1 and 2 of the World Bank’s DRS, so they delegate this task to BCEAO. 30 DDP does not yet produce a statistical bulletin, but the Debt Policy published in January 2008 states plans to start publishing one in 2009. In the meantime, the BCEAO publishes a Rapport sur la Dette Extérieure des Etats de l’Union, a statistical bulletin comprising debt data of all UEMOA member countries. This publication includes debt stocks and flows and key ratios. Data is available on both domestic and external debt, with breakdowns by creditor, currency and maturity. Although the information in the bulletin is comprehensive, it is not timely: the issue with end-2006 data was only published in December 2007. Because DDP submits its debt data to SP-PPF with a delay, it fails to meet the statutory requirement for the TOFE and hence fails to meet the minimum requirement for the first dimension of this DPI. Dimension two was not assessed as there are no requirements for reporting nonfinancial public sector debt or guarantees. 33 Although BCEAO publishes an annual statistical bulletin, it does so with a one year time lag, thus the minimum requirement for the third dimension is not met. 4. CONCLUSIONS AND NEXT STEPS Burkina Faso meets or exceeds the minimum requirements set out in the DeMPA in six out of fifteen indicators. Nevertheless, Burkina Faso does not meet the minimum requirements in a total of fourteen dimensions across nine DPIs, and it only exceeds the minimum requirements in four indicators, underlining the critical importance of maintaining and strengthening the reform momentum. Although this assessment does not contain recommendations or specific reform proposals, the DeMPA methodology suggests focusing on those areas where minimum requirements are not met. The authorities are already working on the preparation of a DeM strategy and have already commissioned a procedures manual for debt administration. Debt reporting on the other hand could be significantly and rapidly improved by expanding work undertaken by DDP. The first priority is the completion of a DeM strategy: such a document should provide guidelines on the financial characteristics of future government borrowing. These guidelines will become more important as access to new funding sources open up and also will help the authorities improve their negotiating capacity with donors and creditors. For this purpose DDP analytical capacity needs to be strengthened beyond DSA and computing the concessional element of the loans. The strategy design usually includes cost-risk considerations, elements of a well organized primary market and macroeconomic constraints. A second front where authorities are already making progress is operational risk. In addition to completing the procedures manual, substantial reduction of 33 SOE debt is not accurately recorded, as mentioned earlier, nor is it reported. 31 operational risk can be achieved by improving segregation of duties between data entry and verification, allocating different user profiles and appropriate passwords to DMFAS users, and formalizing back ups and disaster recovery mechanisms. Another area where the authorities could make visible significant progress in a short time is that of debt reporting. Indeed, DDP could quickly improve debt reporting and publication, considering that it already produces all the required data. Periodic reports on debt stocks and cash flows could include: projections on payments of interest and amortization; stocks decomposed by creditor type and source of borrowing; ratios of short-to-long-term debt; ratio of foreign to domestic currency debt; currency composition of the foreign currency debt; and other indicators such as the maturity profile and average maturity. This information – nearly all of which is already provided to BCEAO for its annual publication on the debt situation in the region - could be published independently by DDP on the internet within six months of the reporting period. There are other areas where progress will take more time including: strengthening accountability mechanisms, improving budget execution and improving the separation of technical and policy decisions on debt management. Improving accountability through external audits is an important medium-term objective. Once the DeM strategy is finalized, the evaluation of DeM operations should specifically discuss how DeM operations complied with the strategy. This evaluation would be complemented by the external audit of operations, which would also require reinforcing the capacity of the CC by ensuring that it has sufficient and well-trained staff to perform the audit of government accounts as well as audit of operations. Another important work front relates to the deficiencies in budget execution permitting certain expenditures to escape budgetary controls. These expenditures are not settled through the regular mechanisms and thus they accumulate and must eventually be transformed into contractual debt. It would be important to put in place follow-up actions recommended in the domestic debt audit to tackle the creation of new non-contractual debt. Addressing the budget execution issues will facilitate Treasury meeting cash shortfalls with T-bills instead of arrears or delays in expenditure execution. Finally, a long-term objective should be to separate the policy and technical aspects of debt management. At present, CNDP is involved in both: on the policy side, it approves the debt policy and debt strategy; on the technical side, it discusses each loan (and the associated project), verifying that projects are well designed and the underlying financing arrangement is appropriate (for example, by meeting the minimum concessionality requirement). Consideration could be given to delegating these technical tasks to DGEP and DDP, respectively, while retaining the oversight of these tasks as well as its key policy and information sharing roles. 32 ANNEX 1 – LIST OF MEETINGS Moumounou Gnankambary, Directeur Général du Trésor et la Comptabilité Publique, MEF Léné Sebgo, Directeur Général de la Coopération, MEF Daniel Bambara, Directeur Général de l’Economie et du Plan, MEF Noumoutlé Herbert Traoré, Directeur Général du Contrôle Financier Dramane Koné , Directeur Général du Budget, MEF Pierre D. Ouédraogo , Inspecteur Général des Finances, MEF François M. D. Zoundi, Secrétaire Permanent pour le suivi des Politiques et Programmes Financiers, MEF Rémy Léopold Malgoubri , Directeur de la Dette Publique, DGTCP, MEF Mamadou Guira, Directeur des Affaires Contentieuses et du Recouvrement, Agence Juridique du Trésor, DGTCP, MEF Seydou Barro, Fondé de pouvoir, Agence Central Comptable du Trésor, DGTCP, MEF Lassane Kaboré, Directeur des Affaires Monétaires et Financiers, DGTCP, MEF Mme. Boro, Payeur Général, DGTCP, MEF Michel Kafando , Chef du Service des Etudes et de l’Analyse, DDP, DGTCP, MEF A. Rose S. Yra, Chef du Service des Créances, DDP, DGTCP, MEF Lassane Compaoré, Chef du Service de Gestion de la Base des Données, DDP, DGTCP, MEF Léocadie Ouédraogo , Chef du Service de Mobilisation des Financements, DDP, DGTCP, MEF Lin Hien, Chef du Service des Operations Financières, DDP, DGTCP, MEF Dovi Coco Anthony , Responsable du Projet CIFE Ilboundo Poko , Secrétaire Permanent, Inspection Générale de l’Etat Boureima Pierre Nebie, Premier Président, Cour des Comptes Bolo Sanou, Directeur National pour le Burkina Faso de la Banque Centrale des Etats de l’Afrique de l’Ouest (UEMOA) Jean Marie Vianney Dabire and Hélia Mateus, European Union Moïse Ouédraogo, Swiss Cooperation Mariam Diop and Ulla Næsby , Danish Embassy Patrice Tranchant, Directeur, Agence Française de Développement 33 ACRONYMS ACCT Agence Comptable du Trésor Treasury’s Accounting Unit AfDB African Development Bank AFRITAC The IMF’s technical assistance arm in Africa AJT Agence Juridique du Trésor Treasury’s Legal Agency BADEA Banque Arabe pour le Développement Economique en Afrique Arab Bank for Economic Development in Africa BCEAO Banque Centrale des Etats de l’Afrique de l’Ouest Central Bank of West African States BIP Banque Intégrée des Projets Project Bank CC Cour des Comptes National Audit Office CID Circuit Intégré des Dépenses Expenses Integrated Circuit CIFE Circuit Intégré des Financements Extérieurs External Financing Integrated Circuit CIR Circuit Intégré des Recettes Revenues Integrated Circuit CNDP Comité National de la Dette Publique National Committee for Public Debt CNSS Caisse Nationale de Sécurité Sociale Social Security Administration CSBT Comité de Suivi du Budget et de la Trésorerie Committee for Budget and Treasury Monitoring CSLP Cadre Stratégique de la Lutte contre la Pauvreté Strategic Framework for the Fight Against Poverty DAMOF Direction des Affaires Monétaires et Financières Unit for Monetary and Fiscal Affairs DDP Direction de la Dette Publique Public Debt Unit DeM Government Debt Management DeMPA Debt Management Performance Assessment DGB Direction Générale du Budget Budget Department DGCF Direction Générale du Contrôle Financier Financial Control Department DGCOOP Direction Générale de la Coopération Department for Cooperation DGEP Direction Générale de l’Economie et de la Planification Department for Economic Planning DGTCP Direction Générale du Trésor et de la Comptabilité Publique Treasury and Public Accounting Department DMFAS Debt Management Financial Analysis System 34 DPI Debt Management Performance Indicator DRI Debt Relief International DSA Debt Sustainability Analysis HIPC Highly Indebted Poor Country IGF Inspecteur Général des Finances General Inspector of Finances IMF International Monetary Fund INTOSAI International Organization of Supreme Audit Institutions MDRI Multilateral Debt Relief Initiative MEF Ministère de l’Economie et des Finances Ministry of the Economy and Finance PEFA Public Expenditure and Financial Accountability PG Paierie Générale Payment Unit (DGTCP) SC Service des Créances Credit Sub-Unit (DDP) SEA Service des Etudes et de l’Analyse Studies and Analyses Sub-Unit (DDP) SGBD Service de la Gestion des Bases des Données Database Management Sub-Unit (DDP) SMF Service de la Mobilisation Financière Financing Mobilization Sub-Unit (DDP) SOE State-Owned Enterprise SOF Service des Operations Financières Financial Operations Sub-Unit (DDP) SP-PPF Sécrétariat Permanent pour le Suivi des Politiques et Programmes Financiers Permanent Secretariat for Financial Policies and Programs TOFE Tableau des Opérations Financières de l’Etat Table of Financial Operations of the State UEMOA Union Economique et Monétaire Ouest Africaine West African Economic and Monetary Union UNCTAD United Nations Conference on Trade and Development 35