UNCLAS OUAGADOUGOU 000010


ACCRA FOR USAID WEST AFRICA
DAKAR FOR USAID FOOD FOR PEACE AND OFDA
DAKAR FOR FAS
DEPT PASS TO USAID FOR AFR/DP
STATE FOR AF/W

E.O. 12958: N/A
TAGS: EAID ECON SENV SOCI PGOV UV
SUBJECT: BURKINA FASO: 2008 MIDTERM REVIEW OF THE POVERTY REDUCTION
STRATEGY PAPER (PRSP)

Reftels: A) 08 Ouagadougou 020 B) 08 Ouagadougou 202; C) 08Ouagadougou 221;
D) 08 Ouagadougou 235; E) 08 Ouagadougou 396; F) 08 Ouagadougou 602; G)
08 Ouagadougou 835; H) 08 Ouagadougou 909; I) 08 Ouagadougou 1024

--------------
Summary
--------------


1. In October 2008, the Government of Burkina Faso (GOBF) met with
domestic stakeholders and international donors to conduct a mid-term
review to provide stakeholders with crucial updates on
macroeconomic, structural, and social policies related to the
country's Poverty Reduction Strategy Paper (PRSP). PRSPs are
prepared by International Monetary Fund (IMF) member countries and
are updated every three years with annual progress reports,
describing the macroeconomic, structural and social policies and
programs that reduce poverty.


2. According to the mid-term review of Burkina Faso's PRSP, despite
soaring prices and a difficult economic climate, the country could
experience relatively good economic performance in 2008. The report
also found, however, that strong economic performance could not
reduce the nation's incidence of poverty, which is forecast to grow
by more than two percentage points by the end of 2008. Donors
blamed this phenomenon on inequities in wealth distribution, the
Government of Burkina Faso's (GOBF) inability to meet donor
requirements, and anti-inflationary policies, which did nothing to
help the nation's neediest groups. End Summary.

--------------
PRSP DISBURSEMENTS BEHIND SCHEDULE
--------------


3. Burkina Faso's PRSP is based on four strategic objectives: i)
accelerated and shared growth; ii) improved access to basic social
services; iii) increased employment opportunities and income
generating activities; and iv) the promotion of good governance.
The midterm review of the PRSP evaluated the performance and
disbursement of budgetary support and assessed the implementation of
the Priority Action Program (PAP) during the first half of 2008.
The purpose of the PAP is to provide an operational framework for

the implementation of the PRSP, which translates guidelines into
concrete actions and quantifiable measurements. To date, three
triennial rolling programs have been designed and implemented:
2004-06, 2005-07 and 2006-08.


4. 2008 donor budget support for the PRSP was 119 billion CFA (USD
238 million). Seventy-seven percent of this budget (91 billion CFA
(USD 182 million)) came from donations and 23 percent were loans (28
billion CFA (USD 56 million)). By the end of September 2008, actual
budget disbursements were only 65 percent (77 billion CFA (USD 155
million)) of the forecasted expenditures for 2008. During the same
period in 2007, 99 percent (112 billion (USD 224 million)) of the
originally programmed amount had already been dispersed. This means
that in order to meet this year's goals, an additional USD 83
million needed to be disbursed during the fourth quarter of 2008.


5. According to the midterm report, this shortfall in expenditures
"is due both to the GOBF's failure to comply with certain conditions
required for disbursements as well as donors, such as the World Bank
and Germany, who have been slow to institute new programs." The
report pointed out that the government's failure to meet good
governance criteria, specifically the publication of the report of
the High Authority for the Coordination of the Fight against
Corruption (HALCL), has led to a major delay in donor
disbursements.


6. The government responded to this criticism by declaring that the
midterm implementation of the PAP was "satisfactory" and claiming
that the nation's poor now have better access to basic social
services than ever before. As further proof of its fight against
corruption, the GOBF pointed to the newly created Autorite de
Regulation des Marches Publics (ARMP), a regulatory oversight body
to watch over the tender process for government contracts. (ref G).
The ARMP is vested with the authority to impose sanctions, initiate
lawsuits, and publish the names of fraudulent or delinquent
businesses.

-------------- --------------
INEQUALITIES REMAIN DESPITE UPBEAT ECONOMIC FORECAST
-------------- --------------


7. Despite a fiscal climate plagued by soaring food and energy
prices, Burkina Faso's economic performance was relatively good.
The latest study conducted by the IMF in late September, found that
"there are signs that economic activity is recovering, and real GDP
growth for 2008 is projected to increase to 4.5 percent." The
report attributed this sound performance to several factors
including: favorable weather conditions, a marked increase in mining
activity (refs F and H), and the continued implementation of fiscal
and structural reforms. Additionally, the mission mentioned that a
favorable 2008 harvest was expected to reduce the average annual
inflation rate, from 14.1 percent in August to 9.5 percent by the
end of 2008 (ref I). The report also found that the budget deficit
would be reduced from 12.2 percent in 2007 to 11.4 percent in 2008.


8. Despite economic improvements, the Ministry of Economy and
Finance (MEF) admitted that the incidence of poverty could grow by
more than two percentage points from 42.6 percent in 2007 to 44.8
percent in 2008. The deterioration in the incidence of poverty
indicator was attributed to price increases of basic commodities
during the first quarter of 2008, which greatly impacted the
purchasing power of vulnerable households. This situation led the
GOBF to take steps to mitigate the impact of high food and oil
prices on vulnerable populations. These measures included the
suspension of customs duties and Value Added Tax (VAT) on rice,
milk, pasta, soap, oil and salt. (B) In October, the independent
newspaper, "Le Pays," quoted the Deputy Minister of Budget,
Marie-Therese Drabo Keita, who reported that as of October 17, the
national budget had lost nearly 4 billion CFA (USD 8 million) due to
the six-month tax suspension.


9. The International Monetary Fund (IMF) dismissed these tax
reductions as "ineffective" because they did not target the neediest
population segments. The report added that, "temporary suspension
of customs duties and VAT to mitigate the impact of price increases
on the population has far less impact than social programs.
Subsidies and transfers need to be better directed in order to more
effectively reach the neediest segments of the population." The IMF
report added that shortfalls in tax revenue caused by the tax
suspension were nominal, only 0.2 percent of Gross Domestic Product
(GDP) for the first quarter. In lieu of tax cuts, the IMF study
advocated measures which directly target vulnerable groups, such as
school feeding programs, reduced fees for basic health services, and
cash transfer systems. The report also proposed the full
pass-through of international fuel prices to help eliminate national
oil company losses which would ultimately have to be borne by the
government.

--------------
OTHER STAKEHOLDERS WEIGH IN
--------------


10. During the PRSP review, donors praised the GOBF for progress in
implementation of the Priority Action Program (PAP). However, they
claimed that an increased incidence of poverty, despite relatively
good economic performance, suggested an inequitable distribution of
wealth. Donors were also concerned by ineffective government
measures, such as the suspension of customs duties and VAT, which
did not benefit the poor. They also welcomed government initiatives
to provide access to free education, basic health care and cheaper
anti-retroviral medications (ARVs). Stakeholders promised to work
closely with the GOBF to prepare a next generation PRSP that would
more effectively target the issues surrounding vulnerable
populations.


11. Donors once again voiced concern that corruption continued to
threaten the fight against poverty in Burkina Faso and insisted upon
improvements in both public procurements and the judicial system.
They also mentioned that transparent procedures for awarding public
contracts were a central element of good governance on both national
and local levels. Donors agreed that improving government
accountability through the timely publication of the report of the
Public Account Court was essential, but expressed frustration that
the promised 2007 report had not yet been published.


12. Private sector spokesman, Issa Ouattara, expressed appreciation
that his delegation had been involved in the PRSP review process.
He also conveyed his satisfaction with the newly established
dialogue between the GOBF and the private sector. According to
Ouattara, this dialog has resolved many longstanding issues and
enabled Burkina Faso to be ranked in the World Bank's "2009 Doing
Business Report" as one of the top ten reformers for 2009. However,
Ouattara reminded the GOBF that recurring problems such as high
production costs, lack of access to financing, and fraud, continued
to inhibit private sector gains.


13. Representatives from Civil Society Organizations (CSO) debated
whether the review of the PRSP was truly an open exercise. While
acknowledging the benefits of their engagement in public PRSP
monitoring, the CSO raised concerns about limited access to official
information. They also argued that it was difficult for civil
society organizations to play a valuable role in PRSP monitoring
when their representatives received invitations and reports only one
or two days prior to meetings. CSOs claimed to have mentioned this
issue several times, but have yet to receive a response.


14. Comment: We concur with the analysis that poor households
receive less benefit from the suspension of customs duties and value
added tax (VAT) for basic products designed to alleviate the impact
of high world food and oil prices. To be effective, government
subsidies and donor programs need to institute targeted social
transfer programs that will reach the neediest population segments.
However, the issues raised in this report may not represent the most
difficult challenges facing Burkina Faso's economy over the coming
year. Both food and energy prices have come down, which should have
a positive impact on growth. The global economic crisis is
nonetheless likely to exact a significant cost due to lower
purchasing power in key markets and increased difficulty in access
to credit by international investors.

JACKSON