Document of The World Bank Report No. 38008-BF INTERNATIONALDEVELOPMENT ASSOCIATION PROGRAM DOCUMENT FOR A PROPOSEDCREDIT IN THE AMOUNT OF SDR 14.7 MILLION (US$22.4 MILLION EQUIVALENT) AND A PROPOSEDGRANT IN THE AMOUNT OF SDR 44.3 MILLION (US$67.5 MILLION EQUIVALENT) BURKINA FASO FOR A SEVENTHPOVERTYREDUCTION SUPPORTCREDIT (PRSC 7) June 27,2007 Poverty Reduction and Economic Management4 Country Department 10 Africa Regon This documenthas a restricted distribution and may be used by recipientsonly in the performance of their official duties. Its contentsmay not otherwise be disclosed without World Bank authorization. BURKINA FASO SEVENTH POVERTY REDUCTION SUPPORTCREDIT AND GRANT CREDIT AND GRANT PROGRAM SUMMARY Recipient: Burkina Faso ImplementingAgencies: The Ministry of Finance and Budget (MFB) will be responsible for overall implementationof the proposed PRSC 7, in close association with several line Ministries. Amount: SDR59.1million (US$90million equivalent). Terms: SDR 44.35 million on mant terms and SDR 14.75million on IDA terms with a fortv year maturitv including a graceperiod of ten years. Schedule of disbursement: Single tranche of SDR59.1million (US$90 million equivalent) to be available upon effectiveness. Description: The proposed PRSC-7 is the first of a third series of PRSCs in support of Burkina Faso's Poverty Reduction Strategy (PRS), adopted in 2000 and updated in 2004. The PRS and its latest Annual Progress Report cover the period 2006 to 2008. This new series of PRSCs (7, 8 and 9) will support the acceleration of real growth and the reduction of poverty incidence in Burkina Faso by: (i) improving the investment climate and promoting exports; (ii) improving access to basic social services through deepened decentralization and strengthened institutional capacity; and (iii) promoting efficiency, transparency and accountability in the use of public resources through enhancedpublic financialmanagement. Benefits: The measures supported by the proposed PRSC-7 are expected to have a significant positive impact on poverty reduction. Specifically, the improvement in the investment climate and the promotion of exports supportedby the proposed operation would accelerate economic growth. The reforms in public service provision through decentralization and institutional strengthening would improve access of the poor to health, education, water and sanitation services, support their greater participation in the growth process and sustain progress towards the MDGs. The strengthening of public financial management would enhance efficiency, transparency and accountability in public resource use. Such measures would also increase the country's absorption capacity for externalresources. Risks: Several risks could jeopardize the expected outcomes and benefits of this operation, but the authorities are implementing reforms to mitigate them. First, Burluna Faso is vulnerable to commodityprice (cotton and oil) and real exchange rate fluctuations. High oil prices drain international reserves and increase petrochemical, electricity and transportation costs with adverse impact on the overall economy. Lower cotton prices on international markets hurt the country's economic and fiscal performance, and negatively affect about two and a half million persons in rural areas, where most of the poor BURKINA FASOFISCAL- YEAR January 1-December 31 CURRENCYEQUIVALENTS (Exchange Rate as of April 1,2007) Currency Unit = CFA franc (CFAF) US$1.00 = CFAF 535.75 Weights andMeasures Metric System ABBREVIATIONAND ACRONYMS AFD FrenchDevelopment Agency AfDB African Development Bank ARTEL TelecommunicationRegulatoryAgency BCEAO Central Bank of West Afncan States CAS Country Assistance Strategy CAS-PR Country Assistance Strategy Progress Report C E M Country Economic Memorandum CFAA Country FinancialAccountability Assessment CFAF Franc o fthe A h c a n Financial Community CID Computerized ExpenditureCircuit CIE Government IntegratedAccounting Software COGES Health Management Committee CONAGESE National Council for EnvironmentalManagement CPAR Country Procurement Assessment Report CSPS Community Health Centers CRA Regional Agriculture Chambers DAAF Directorate o fAdministrative and Financial Affairs DCMP Central Directorate for Public Procurement DEP Directorate for Planning and Studies DGB Directorate General for the Budget DGE Directorate General for the Environment DGCCOP Directorate General for InternationalCooperation DGTCP Directorate General o fthe Treasury and Public Accounts DHS Demography and Health Survey DSA Debt Sustainability Analysis EMP Environmental Management Plan ENEP Teachers Training Colleges EU European Union FASOCOTON Private Cotton Company GDP Gross Domestic Product GNP Gross National Product GTZ German Cooperationfor Technical Cooperation HIPC Heavily IndebtedPoor Countries HIPC-AAP HIPC Accountability Assessment andAction Plan I C A Investment Climate Assessment 11 FOROFFICIAL USE ONLY ICR Implementation Completion Report ICT Information, Communication and Telecommunications IDA InternationalDevelopment Association IFC InternationalFinance Corporation IGE General State Inspectorate IGF General Finance Inspectorate IMF InternationalMonetary Fund INSD National Institute o f Statistics and Demography JSAN Joint Staff Advisory Note LDP Letter of Development Policy MDGs MillenniumDevelopment Goals MEBA MinistryofBasicEducation MEDEV MinistryofEconomyandDevelopment MFB MinistryofFinanceandBudget MOH MinistryofHealth MTEF Medium-TermExpenditureFramework ONAPAD National Poverty and Development Observatory ONATEL National TelecommunicationCompany OPA Producer Organization PAMS Poverty Analysis Macroeconomic Simulator PAP Priority Action Plan PDDEB Ten-year Basic EducationDevelopment Plan PER Public Expenditure Review PNDS NationalHealthCare Development Plan PNDSA National Programfor the Development of Agricultural Services PNGT National Program for the Management of Territory PRGB BudgetManagement ReformPlan PRGF Poverty Reduction and Growth Facility PRSC Poverty Reduction Support Credit PRSP Poverty ReductionStrategy Paper PRSP-APR Poverty Reduction Strategy PaperAnnual ProgressReport ROSC Report on the Observanceof Standards and Codes SDR Special Drawing Rights SIGASPE Budget PayrollManagement System SOCOMA Private Cotton Company SOFITEX Largest Private Cotton Company SONABEL National Electricity Company SONABHY National PetroleumProduct Distribution Company SP-PPF Permanent Secretariat for the Supervision o f Financial Policies and Programs STC-PDES Technical Secretariat for the Coordinationo f Social and Economic Development TOD DecentralizationLaws TOFE Government Financial Operation Table UNDP UnitedNations DevelopmentProgram WAEMU West Afkican Economic and Monetary Union WHO World Health Organization Vice President: ObiageliK.Ezekwesili CountryDirector: Mats Karlsson Sector Manager: Antonella Bassani Task Team Leader: Siaka Coulibalv has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization. BURKINA FASO SEVENTHPOVERTYREDUCTIONSUPPORTCREDIT . TABLE OFCONTENTS PageNo I INTRODUCTION 1 I1 COUNTRYCONTEXT ..................................................................................................................................... 2 I11 ... ............................................................................................................................................. RECENTECONOMIC DEVELOPMENTS .............................................................................................. 3 GROWTH AND PRICES ................................................................................................................................................ 3 FISCALDEVELOPMENTS ............................................................................................................................................ 4 EXTERNAL DEVELOPMENTS ...................................................................................................................................... 5 IV. MACROECONOMICOUTLOOKANDDEBTSUSTAINABILITY .................................................... 9 GROWTH AND FISCALSTRATEGY FOR2007-2009 ..................................................................................................... 9 DEBTSUSTA~ABILITY ............................................................................................................................................ 11 V. ASSESSMENT INPRSIMPLEMENTATION AND PROGRESSMADE UNDERPRSC4-6 ..............11 IMPROVING THE INVESTMENT CLIMATEAND PROMOTING EXPORTS ....................................................................... 12 IMPROVING ACCESS BASICSOCIAL SERVICES TO .................................................................................................... 13 IMPROVING ...................................................................................................... 16 PUBLIC FINANCIALMANAGEMENT LESSONS LEARNED .................................................................................................................................................. 17 VI BURKINAFASO'S POVERTYREDUCTIONSTRATEGY ................................................................ 18 VI1 .. BANKGROUP'S SUPPORT TO THE GOVERNMENT'SPROGRAM ............................................. 23 LINKTOTHECAS ................................................................................................................................................... 23 COMPLEMENTARITY WITH OTHERBANKACTIVITIES .............................................................................................. 23 COMPLEMENTARITY WITH OTHERDEVELOPMENT PARTNERPROGRAMS ................................................................ 25 ANALYTICALUNDERPINNINGS ................................................................................................................................ 27 VI11. THE PROPOSEDPRSC7 ......................................................................................................................... 27 THEOVERALLFRAMEWORK THENEW OF SERIES OF PRSCS7, 8 AND 9 ................................................................. 27 Development Objectives Resultframework ............................................................................................................................. ...... ............................................ ........................ 28 POLICYAREAS......................................................................... Improving the Investment Climate and Promoting Exports Improving access to basic social services through deepeneddecentralization and strengthened institutional capacity ..... ..................34 Promoting eficiency, transparency and accountability in the use ofpublic resources through enhancedpublic financial management........................................................................................................................................ 37 PRIOR ACTIONSFORTHE PROPOSEDPRSC-7 .......................................................................................................... 39 PROPOSED TRIGGERS PRSC-8.......................................................................................................................... 42 FOR IX. PRSC-7IMPLEMENTATION .................................................................................................................. 44 PARTICIPATIONPROCESS ......................................................................................................................................... 44 POVERTY AND SOCIAL IMPACTS .............................................................................................................................. 44 SUPERVISION, MONITORINGEVALUATION.......................................................................................................... & 45 FIDUCIARY ASPECTS ............................................................................................................................................... 46 DISBURSEMENT AUDITING.............................................................................................................................. AND 47 ENVIRONMENTAL AND NATURAL RESOURCESASPECTS ......................................................................................... 47 RISKSAND RISKSMITIGATION ................................................................................................................................ 49 iv ANNEXES ANNEX1:PRSC-7 .LETTERDEVELOPMENT .............................................................................................. OF POLICY 52 ANNEX2: PRSC-7 .GOVERNMENT POLICY AND OVERALLDEVELOPMENT PROGRAM ............................................... 67 ANNEX3: PRSC-7 .GENERALORGANIZATIONFRAMEWORK BUDGETARY OF SUPPORTSINFAVOR THEPOVERTY OF REDUCTION STRATEGIC PAPERIMPLEMENTATION (CGAB-CSLP) PERFORMANCEANDDISBURSEMENT CRITERIA MATRIX: 2007-2009 ..................................................................................................................................................... 77 ANNEX4: PRSC-7 -PERFORMANCEANDMONITORING INDICATORS FORPRSCS 7-9 ................................................. 86 ANNEX5: PRSC-7 - THECOTTONSECTORRJBURKMA FASO ..................................................................................... 90 ANNEX6: PRSC-7 -THE IMPACTONPOVERTYOFALTERNATIVECOTTONPRODUCERPRICES................................... 99 ANNEX7: PRSC-7 - PRSPPRIORITIESAS SUPPORTEDBY THECASAND THEPRSCS............................................... 101 ANNEX8: PRSC7 PRSC4-6 POLICYMATRIX - ......................................................................................................... 102 ANNEX9:PRSC7-FUNDRELATIONSNOTE 111 ANNEX10:PRSC7 BUR~CINA - .............................................................................................................. FASOJOINT FUND-WORLDBANKDEBTSUSTAINABILITY ANALYSIS ........................ 112 ANNEX11:PRSC-7 - ECONOMICINDICATORS ........................................................................................................... 127 ANNEX12: PRSC-7 SOCIAL INDICATORS ................................................................................................................ 128 ANNEX13: PRSC-7 COUNTRYAT A GLANCE.......................................................................................................... -- 129 ANNEX14:PRSC7 - MAPIBRDNUMBER ...................................................................................................... 33379 132 BOXES BOX 1: COTTONSECTOR. SITUATIONAND PROSPECTS CURRENT ................................................................................. 6 Box2: DONOR C~~RDRJATI~N/HARM~NIZATION ....................................................................................................... 26 BOX 3 GOODPRACTICEPRINCIPLESON CONDITIONALITY . .......................................................................................... 43 TABLES TABLE1:SELECTED ECONOMICINDICATORS ................................................................................................................. 3 TABLE2: GOVERNMENT FINANCIAL OPERATIONSIN2005-09 ....................................................................................... 5 TABLE3: ASSESSMENTPRSC-7 ORIGINAL TRIGGERS OF AND PROPOSEDPRIORACTIONS ......................................... 40 TABLE4: PROPOSED TRIGGERSFORPRSC-8 ............................................................................................................... 42 The PRSC-7 was prepared by an IDA team consisting of: Siaka Coulibaly. Wilfried Engelke. Gilles Alfandari. Abdoulaye Tourt. Abdoulaye Kane. Aguiratou Savadogo.Tinto. Alain Catalan. Alain Traore. Andrt Ryba. Andrew Asibey. Baly Ouattara. Belout Ido. Bintou Sogododo. Boubacar Bocoum. Boubker Abisourour. Boule1 Toure. CClestin Bado. Christian Eghoff. Christophe CrCpin. Christophe Prevost. Christophe Ravry. Corinne Ilgun. Ellen Goldstein. Emmanuel Diana. Emmanuel Nikitma. Faye Harbottle. Francois G. Le Gall. Francois Nankobogo. Frederico Gil Sander. Genevieve Compaore. Gilles Yameogo. Glaucia Ferreira. Guillemette Sidonie Jaffrin. Gwladys Kinda. Htlkne Bertaud. HCIhe Grandvoinnet. Ibrahim NCbiC. Jacques Morisset. Jean-ChristopheCaret. JeffreyRamin. KadiatouToure. Koffi Ekouevi. Kofi Nouve. Kwawu Mensan Gaba. MamadouYaro. Mark Thomas. Matar Fall. Michelle Keane. Moukim Temourov. MuthukumaraMani. NadegeLeboucq. Nicole Kekeh. NyanebaNkrumah. Olivier Durand. Ousseynou Diop. PatrickLabaste. Per Ryden. Pierre Kamano. RobertBlake. Shiya Subayi. Sidi Boubacar. Song Li. Suzane Rayaisse. Sylvie Debomy. Timothy Johnston. Virginie Vaselopulos. William Dakpo. Wolfgang Chadab. Yolande Bougouma. Peer reviewersare: Celestin Monga (DECVP) and Zeljko Bogetic (AFTP4). The PRSC team worked closely with the budget support group (CGAB) for Burkina Faso. and with an IMF team headed by Martin Petri . V SEVENTH POVERTYREDUCTIONSUPPORT CREDIT CREDIT AND PROGRAMSUMMARY Recipient: Burluna Faso ImplementingAgencies: The Ministry of Finance and Budget (MFB) will be responsible for overall implementationo fthe proposed PRSC 7, inclose association with several line Ministries. Amount: SDR59.1 million (US$90 million equivalent). Terms: IDA terms with a forty-year maturity, including a grace periodo ften years. Scheduleof disbursement: Single tranche o f SDR59.1 million (US$90 million equivalent) to be available upon effectiveness. Description: The proposed PRSC-7 i s the first o f a third series o f PRSCs in support o f Burkina Faso's Poverty Reduction Strategy (PRS), adopted in 2000 and updated in 2004. The PRS and its latest Annual Progress Report cover the period 2006 to 2008. This new series o f PRSCs (7, 8 and 9) will support the acceleration o f real growth and the reduction o f poverty incidence in Burkina Faso by: (i) improving the investment climate and promoting exports; (ii) improving access to basic social services through deepened decentralization and strengthened institutional capacity; and (iii)promoting efficiency, transparency and accountability in the use o f public resources through enhanced public financial management. Benefits: The measures supported by the proposed PRSC-7 are expected to have a significant positive impact on poverty reduction. Specifically, the improvement in the investment climate and the promotion o f exports supported by the proposed operation would accelerate economic growth. The reforms in public service provision through decentralization and institutional strengthening would improve access o f the poor to health, education, water and sanitation services, support their greater participation in the growth process and sustainprogress towards the MDGs. The strengthening o f public financial management would enhance efficiency, transparency and accountability inpublic resource use. Such measures would also increase the country's absorption capacity for external resources. Risks: Several risks could jeopardize the expected outcomes and benefits o f this operation, but the authorities are implementing reforms to mitigate them. First,Burluna Faso is vulnerable to commodity price (cotton and oil) and real exchange rate fluctuations. High oil prices drain international reserves and increase petrochemical, electricity and transportation costs with adverse impact on the overall economy. Lower cotton prices on international markets hurt the country's economic and fiscal performance, and negatively affect about two and a half million persons in rural areas, where most o f the poor live. The Government i s implementing a three-pronged approach to address its vulnerability to external shocks, including: (i) lowering energy costs by vi connecting with lower-cost regionalproducers and opening the electricity and petroleum sectors to private management and investment; (ii)revising the cotton producer price-setting mechanism to ensure adequate pass-through o f world prices and better risk sharing between producers and ginning companies, as well as enhancing productivity and competitiveness o f the cotton sector; and (iii)supporting economic diversification through reform of the investment climate and promotion o f mining and irrigated agriculture. The Government is accompanied in these reform efforts by the series o f PRSCs, other IDA operations, the recently approved IMF PRGF and support from a range o f other development partners. Second, lack o f private sector interest could undermine ongoing reforms to restore the financial viability and improve the competitiveness o f the cotton sector. The Government considers its current increased involvement in the sector as transitory and necessary in the face o f the current crisis, and is committed to maintain a majority private participation in the sector to enhance its growth potential and competitiveness. The measures currently under implementation (the recapitalization o f the cotton companies and the revision o f the cotton price mechanism) as well as the planned independent financial and operational audit o f SOFITEX for 2004-07, the reduction in SOFITEX's operating costs and other ongoing and planned measures to enhance the productivity and competitiveness o f cotton producers and companies (see Annex 5), would improve the sector's growth potential and its attractiveness for private investment. Third, the implementation o f the decentralization strategy poses significant challenges. Officials working at the center may resist the transfer o f responsibilities to local Governments, while local Governments may not have sufficient resources and capacity to carry out their new responsibilities. To address these challenges, the Government has adopted a participatory and gradual decentralization approach that should ensure stakeholder consensus on major issues and fiscal sustainability over time. Several donors support decentralization in Burkina, including IDA through several operations, most notably the Public Administration Capacity BuildingProject, the Community- based Rural Development Project, and the planned Decentralized Urban Capacity BuildingProject. Fourth, risks stemming fiom regional political instabilityremain. Since 1999, the political and security context inneighboring C8te d'Ivoire has negatively affected trade and transport routes, worker remittances, and Government revenues in Burkina Faso. However, the economy has adjusted to this shock by opening new trade routes to Benin, Togo and Ghana. Also, Burkma Faso's mediating role in the conflict contributed to the recent peace agreement among opposing parties inC8te d'Ivoire. OperationIDNumber: PO99010 vii I. INTRODUCTION 1. This program document proposes a new series o f three Poverty Reduction Support Credits (PRSCs 7, 8 and 9) in support o f policy reforms aimed at accelerating real growth and reducing the incidence o f poverty in Burkina Faso. The first series o f PRSCs for Burkina Faso focused on improving public financial management (notably fiduciary aspects) and access to social services (health and basic education). The second series focused on reforms to further liberalize the economy (cotton sector) and privatize the management o f key utilities (telecommunication, electricity and petroleum) to increase growth. The proposed third series will continue focusing on reducing factor costs (electricity and transport), help improve the competitiveness o fthe cotton sector, and support the Government's efforts to enhance the overall business climate and diversify exports. This series will also continue to support Government's measures to further improve access to social services through greater decentralization and institutional strengthening and enhance the efficiency and accountability o f public financial management (PFM). 2. The reform policies supported by this new series are embedded in and aligned with Burkina's Poverty Reduction Strategy (PRS). The underlying PRSP covering the period 2004- 2006 and the accompanying Joint Staff Advisory Note (JSAN) were considered by the Executive Board on M a y 3, 2005. The most recent (sixth) Annual Progress Report (APR) and related JSAN, which was circulated to the Board for information on May 24, 2007, reconfirms the Government's successful implementationof the PRS and, incombination with the Government's new medium term economic framework (MTEF), extends the Government's strategy from 2006 to 2008. An Implementation Completion Report (ICR) for the PRSC 4-6 series will be completed during the second half o f 2007, but preliminary lessons learned from PRSCs 4-6 are taken into account inthe design o fthe PRSCs 7-9 series, andmore particularly o f PRSC-7. 3. The design o f the series and especially the design o f PRSC-7 benefited from extensive consultations with various stakeholders under the Government's leadership, and included close coordination with a group o f donors which provides budget support to Burkina inthe context o f PRSP implementation. This consultative and harmonized approach minimizes the burden on scarce Government capacity and ensures Government ownership o fthe supported reforms. 4. The proposed size o f PRSC-7 - US$90 million equivalent - is larger than initially envisaged for this operation in the CAS (US$70 million). This increase responds to Burkina's exceptional budgetary financing needs in 2007 resulting from the cotton sector crisis. The 2005 CAS identifies the need for a permanent adjustment to lower cotton prices (due to the evolution o f world market prices for cotton and o f the dollar exchange rate) as the single most intractable risk to future growth prospects. It explicitly foresees that PRSCs be used to provide predictable but flexible support to Burkina's cotton sector, when faster and deeper reform than foreseen under Burkina's cotton strategy prove necessary'. The size of the proposed PRSC-7 is justified by the Government's excellent policy track record and ambitious reform program to restore the medium-term financial viability o f the cotton sector as well as other reforms, including a far reachingdecentralization program andreforms to improve the investment climate. Country Assistance Strategy for BurkinaFaso, May 12,2005, p 31, para.85. 11. COUNTRYCONTEXT 5. Burkina Faso i s a small, landlocked Sahelian country o f about 13.4 million inhabitants. President Blaise CompaorC won a third term o f five years on November 13, 2005 with over 80 percent o f the vote. The elections were deemed fair and transparent by international observers. For the first time, municipal elections took place on April 23, 2006, in 302 newly established rural municipalities. While the political situation in neighboring CGte d'Ivoire has negatively impacted Burkina's economic environment, in terms o f security and transport costs for imports and exports, the country has adjusted to this shock and the President's mediating role in the conflict contributed to the recent peace agreement among the opposingparties inCGte d'Ivoire. 6. Roughly 80 percent of the population lives from agriculture which contributes around 22 percent to GDP. Cotton exports provide about 60 percent o f export revenues. Dependence on cotton exports and widely varying rainfalls from the south to the north leave the country's economy vulnerable to external shocks such as commodity price fluctuations and rainfall deficits. Burkinai s knownto have gold resources, but no other mineralor natural resources. 7. BurkinaFaso was among the first inSub Saharan Africa to present a full PRSPin2000, and one o fthe few to have submitteda filly revised second generation PRSP in2004. Progress inPRSP implementation has been steady as laid out inthe six APRs to date. Indeed, against a background o f unfavorable natural conditions, Burkina Faso has demonstrated great resilience through sound policy implementation. The country has achieved macroeconomic stability, aided by fiscal discipline and significant inflows o f external support (about 8 to 9 percent o f GDP for the last 10 years). Four successive programs under the IMF's Poverty Reduction and Growth Facility (PRGF) were implemented, with the last one completed in September 2006. A fifth PRGFarrangement is beingconsideredbythe IMFBoardonApril 23,2007. 8. Burkina has also been able to achieve relatively robust growth andpoverty reductionover the last decade. Real GDP growth rates have averaged 6.0 percent annually since 1995, among the highest growth rates in sub-Saharan Afiica. Real per capita income has increased by 20 percent since 1994 and stood at US$430 in 2005. Poverty has been substantially reduced, from an estimated 54 percent in 1998 to 46 percent in 2003 and an expected 41 percent in 2006. Growth was mainly driven by the agricultural sector, which explains its impact on poverty reduction given that most o fthe population depends on agriculture. 9. Despite its good macroeconomic track record, Burkina Faso remains one o f the poorest countries inthe world. At US$430, per capita income remains significantly lower than the low income countries average o f US$590. The country's social indicators also rank below Sub- Saharan averages: in 2005, literacy rates were 30 percent and life expectancy at birth was 43 years, compared to 35 percent and 46 years for Sub-Saharan Africa. Burkina Faso ranked 174th out of 177 countries in the 2006 Human Development Index (HDI), published by the United Nations DevelopmentProgram (UNDP). 10. The country faces important challenges. Future growth in agriculture will need to rely more on productivity gains than on the extension o f cultivated areas, as was the case inthe past. Also, after high levels o f public investment, sustaining growth will require increased private investment. For this to happen, the investment climate would need to improve. Enhanced factor - 2 - productivity will also require a broadening and acceleration o f human development and improvement in public service delivery through enhanced governance. If current trends continue, Burkina is positioned to reach the overall povertyheadcount MDGby 2015, with good chances of also meetingthe water and sanitation target. 111. RECENTECONOMICDEVELOPMENTS 11. Burkina Faso has had a good macroeconomic track record over the recent years. However, it remains vulnerable to commodity prices (cotton and oil) and real exchange rate fluctuations. Burkina's weak fiscal revenue performance also poses a potential risk to macroeconomic stability. GROWTH PRICES AND 12. Economic growth continues to be robust. Real GDP is estimated to have grown in 2006 by 6.4 percent (see Table l), lower than in2005 (7.1 percent). Lower growth rates in somewhat 2006 are mainly due to slowed agricultural production following a significant expansion in2005. Incontrast, the industry and transport sectors benefited from continuous robust demand spurred by record income received by food and cotton producers. Average inflation slowed to 2.4 percent in2006 (down fiom 6.4 percent in2005), mainly because o f the decline infood and, to a lesser extend, petroleum prices. Cumulative appreciation o f the real effective exchange rate o f about 15 percent since 2001 undermined the competitiveness o f Burkina's exports. The terms o f trade, guided by cotton and oil prices, have improved in2006 by about 3 percent, following a 22 percent deterioration in2005. Table 1:Selected Economic Indicators (inpercent, unless otherwise indicated) 2007 to 2001 2002 2003 2004 2005 2006 2009 projected est. average GDP Growth 6.7 5.2 8.0 4.6 7.1 6.4 6.3 Inflation 4.7 2.3 2.0 -0.4 6.4 2.4 2.0 Public investment in% o f GDP 8.2 7.0 6.3 7.7 7.6 8.0 8.4 Privateinvestmentin% of GDP 14.6 14.7 14.8 14.8 14.7 14.7 14.9 I/Estimated,andonacumulativebasisfortheyears2007to2009. Source:BurkinabCauthorities, IMF, andstaffestimates. - 3 - FISCALDEVELOPMENTS 13. In2006, Burkina Faso continued its prudent fiscal policypath, consistent with fiscal and debt sustainability and low inflation. Despite sound execution o f the 2006 budget, expenditure pressures emergeddue to: (i) highenergyprices, whichraisedfuel subsidies for SONABEL, the electricity utility, by 0.07 percent o f GDP; (ii) salary raise for the civil service, a widening o f a the public sector work force inhealth and education, and the regularization o f past promotions increased expenditures by 0.3 percent o f GDP; and (iii) increases in other expenditure items, such as the Government's utility bill and the reimbursement o f VAT arrears, claiming another 0.5 percent o f GDP. As a result, the overall fiscal deficit, excluding grants and MDRI debt forgiveness, widened by 0.9 percent of GDP, to reach nearly 10.1 percent in 2006 (Table 2). This deficit was more than fully fundedby external assistanceand byresources freed-up through MDRI. 14. Burkina remains at the lower end o f the WAEMU countries in terms of tax revenue mobilization. Revenues in 2006 have reached 12.4 percent o f GDP, a gain o f 0.1 percentage point from 2005, but a disappointment when compared to the Government's initial objectives. Lukewarmperformance in resource mobilization came in part from lower than expected VAT revenues, a direct result o f the financial crisis in the cotton companies (see Box l), also o f but continued inefficiencies in the tax administration. Domestic revenue would have to increase to ensure medium and long-term fiscal and debt sustainability and create the fiscal space required for poverty reduction. Domestic revenue mobilization is also a structural challenge in a country like Burkina Faso where growth i s driven first by the agricultural sector, traditionally less easily taxable. In the medium term, part o f the solution to this problem would come from efficient taxation o f mining exports (particularly from gold), expected to become a significant source o f external revenuefor the country as o f 2009-2010. 15. Poverty reducing expenditures have increased by 21 percent, from CFAF 162 billion in 2005 to about CFAF 173 billion in2006, o f which education represented roughly 42 percent. In some sectors, a slow pace o f project execution and weak absorption o f external aid more than offset the increase in spending. The rising subsidy to SONABEL continued to undermine the equity o f public spending. However, in September 2006, the Government increased electricity tariffs by 12.5 percent, following an increase o f 10 percent in November 2004. Beginning in 2009, electricity costs will be cut in Ouagadougou as the power transmission line from Bobo- Dioulasso i s completed, bringing to the capital city electricity imported from C8te d'Ivoire at a lower cost. This will establish the conditions for a progressive elimination o f the subsidies to SONABEL and enable subsidies to be more targeted at the poor and isolated regions o f the country. - 4 - 2005 2006 2007 2008 2009 Estimated Projected Projected Projected Total revenueand grants 496.7 1 570.1 I 628.4 I 683.3 1 775.0 Revenue 365.2 I 392.4 I 450.4 I 508.4 I 591.9 I/Excludes MDRIrelief. Source: BurkinabC authorities, IMF, and staff estimates. EXTERNAL DEVELOPMENTS 16. Cotton represents about 60 percent o f total exports, exposing the country to cotton price volatility risk. Important cotton sector reforms implemented during 1999-2005 contributed to a significant increase in cotton production and exports in the last decade (see Box 1 and Annex 5 for a detailed discussion). However, these reforms took place against increasingly difficult international market conditions for cotton from Burkina, triggered by a sharp decline o f international cotton prices in 2002 and a cumulative appreciation o f the Franc CFA vis vis the US dollar of about 15 percent since 2001. This resulted in a decline of the export price for 1 - 5 - kilogram o f ginned cotton from Franc CFA 847 in 2001 to Franc CFA 637 in 2006 (see Table 1 and Figure 1). At the same time, the price setting mechanism was not flexible enough to more closely align the producer price with the international cotton price. All these factors together caused substantial financial difficulties for the cotton companies in Burkina and put the sector under financial stress. As a result, Burkina's three cotton companies assumed most o f the adjustment costs and accumulated deficits over the years 2004 to 2006 amounting to about U S 9 3 million. 17. Inlate 2006, the bankingsector, which typically pre-finances the cotton season, refused to finance the 2006-2007 campaign unless the sector was put back on a better financial footing. Three sets o f actions are currently beingimplementedby sector operators to restore the financial viability o f the sector and improve its competitiveness: (1) all three cotton companies have announced their recapitalization plans; (2) the domestic producer price setting mechanism i s being reformed to more closely align the producer price with the international cotton price, and to broker a better commercial risk sharing between producers and cotton companies; and (3) efforts continue to improve the productivity o f cotton production. The Government currently maintains a 35 percent stake in SOFITEX's equity, but the company's foreseen recapitalization (required to cover losses accumulated in 2004-06) would result in a carrying over by the Government o f a majority stake (58 percent), until private investors are identified. The Government considers this increased involvement in the sector as transitory and necessary to stabilize it in the face o f the current crisis. Government is committed to maintain a minority involvement in the sector and to transfer shares back to the private sector as soon as private investors can be found. The revision of the producer price setting mechanism is particularly critical to ensure better risk sharingbetween producers and ginning companies in the future and minimize the financial liabilities on the Government budget o f further international cotton price changes. Over the medium-term,ongoing and plannedmeasures to enhance the productivity and competitiveness o f cotton producers and cotton companies are critical to improve the sector's sustainability and its attractiveness for private investment. A detailed discussion o f these measures i s contained inBox 1andh e x 5. Box 1: Cotton Sector - Current Situation andProspects Over the past decade, cotton production has increased by an average o f 17 percent p.a. making Burluna the largest producer o f cotton insub-SaharanAfrica with a total production o f 730,000 tons o f seed cotton in2005l2006. There are about 250,000 households and 2.5 millionpeople who depend, either directly or indirectly, on cotton production for their livelihood. This performance was the result o f important sector reforms aimed at improving competitiveness, notably: (i) the privatization in 1999 o f the state owned cotton monopoly SOFITEX which reduced the state holding in the company to 35 percent; (ii) abolition in 2004 o f the exclusive rights (monopoly) for the SOFITEX to service the sector, thus allowing the entry o f 2 new cotton companies (SOCOMA and FASO COTON hold 15 percent o f the market); and (iii) creation in2005 o f an institutional set-up for self-governance o f the sector by its stakeholders (producers andginning companies) without participationofthe state. At the end o fthis reformprocess, the role ofthe state inthe cotton sector was reduced to a minority shareholding in SOFITEX, compared to the period prior to 1999 when SOFITEX was a state owned monopoly. However, these reforms took place against increasingly difficult international market conditions for cotton, triggered by a sharp decline o f international cotton prices in2002 and compounded by a cumulative appreciation o f the Franc CFA vis-a- vis the U S dollar of about 15 percent since 2001. This resultedina decline of the export price for 1 k g of ginned cotton from Franc FCFA847 in 2001 to Franc FCFA637 in 2006. These factors together with the absence o f an adequate price setting mechanism to more closely align the producer price with the international cotton price caused - 6 - substantial financial difficulties for the cotton companies and put the sector under financial stress. As a result, the three ginning companies assumed most o f the adjustment costs and accumulated deficits over 2004 to 2006, amounting to about US$93 million. In a privatized and liberalized sector, the state took a principled stance against Government price supports, expecting private stakeholders to make necessary adjustments in the sector. The Government's stance on k s question underscores its commitment to the sector's privatization strategy and its overall objective to minimize state intervention inthe sector. Inlate 2006, the banlung sector, which typically pre-fmances the cotton season, refused to finance the 2007-2008 campaign unless the sector was put back on a better financial footing. Three sets o f actions are currently being implementedby sector operators to restore the financial viability o f the sector: (1) all three cotton companies have announced their recapitalizationplans; (2) the domestic producer price setting mechanism is being reformed to more closely align the producer price with the international cotton price, and to broker a better commercial risk sharing between producers and cotton companies; and (3) efforts continue to improve the productivity o f cottonproduction. To avoid a collapse o f the sector over the short-term, the Government decided to provide a guarantee o f US$lOO million to the commercial banks to facilitate adequate financing o f the 2007 season and allow for time to settle the recapitalization negotiations. Moral hazard from the contingent liability thus incurred by the state is limited since SOFITEX's production stocks and sales contracts are collaterized at the request o f the banking pool and hlly dedicated to reimburse the campaign's credit within a year o f its disbursement. Moreover, the banlung pool i s granted preferential creditor status, with SOFITEX's legal obligation to repay its loan before any other financial obligation; and by contractual obligation, SOFITEX's budget is provisioned each year for the principal and interests due to the bankingpool. Also, the largest cotton company, the ex-parastatal SOFITEX, launched its recapitalization effort in late 2006. In early 2007, its largest private investor DAGRIS decided not to participate in the recapitalization, the main reason being that DAGRIS, a company held by the French State, inthe process o f being privatized and could therefore not commit at this stage to avoid prejudicing its potential buyer. The Government agreed to refinance SOFITEX by covering its shares (35 percent) and an additional 26 percent to make up for the non-subscription o f DAGRIS, in order to meet the 75 percent o f minimumcapital subscription mandatedby the OHADA law.' The direct costs to the Government amount to a maximum o f US$46 million (or 0.7 percent o f GDP), o f which US$ 24 million have already been advanced by the Government in early 2007. After the recapitalization, the Government share in SOFITEX would amount to 58 percent. The evolving status o f DAGRIS, has not allowed for an adequate entrepreneurial response to the sector's fmancial problems, forcing the Government to step in on a transitory basis. Increased Government ownership o f SOFITEX, following its recapitalization, does not affect the vision the Government has for the sector, nor does it imply a reversal o f the sectoral reforms implemented since 1999. The take-over became necessary to stabilize the sector in the face o f the current financial crisis, while the sector's long term financial viability i s restored through a revision o f the cotton price setting mechanism to align the producer price more closely with the international cottonprice and productivity gains incotton companies. Such a mechanism should allow better risk sharing between producers and ginning companies and reduce the fmancial liabilities on the Government budget o f further international cotton price changes. The Government o f Burkina Faso continues to be convinced that private sector participation inthe sector i s best to enhance the sector's growth potential and competitiveness. Thus, the Government has confirmed his commitment to maintain a minority involvement in the sector and to transfer shares back to the private sector as soon as private investors can be found. The price mechanism is envisaged to be complemented by a stabilization fund, whose prime objective is to balance out volatility ininternational cotton prices for the benefit o f cotton growing farmers. The Government expects the national stabilization fimd will be a farmer-ginner operated instrument without recourse to Government finance (including through concessional borrowing), so as not to increase Government's contingent liabilities. Onepercent ofthe shares is owned by aprivate domestic investor and will be maintained. - 7 - 18. Burkina Faso i s boundto remain dependent on raw cotton exports for years to come, even though the Government strives to promote export diversification through reforms in the investment climate and the startup o f production for several important gold mines. Burkina Faso's balance o f payments deficit i s financed by external financial assistance and, for a growing part, by private flows and transfers. Gross international reserves have stabilized at roughly 4 months of imports, after a decline in2005. Figure1:BurkinaExportRevenuesof 1ton of GinnedCotton (Three Years Moving Average) Export Revenuesper ton of ginned cotton 1,600 1,200 -A- Euro per ton 800 +in 1000FCFA per ton 400 0 1999 2000 2001 2002 2003 2004 2005 2006 Source: Staff calculations. 19. Prudent monetary policy from the regional Central Bank (BCEAO), consistent with a fixed exchange rate to the Euro, has resulted in low inflation. Money supply increased by 7 percent in 2006. The expansion o f credit to the private sector, whose rise caused inflationary pressures in2005, was contained in 2006. Credit to the Government has been sharplyreduced in 2007 due to the successful privatization o f ONATEL, the telecom company. - 8 - IV. MACROECONOMICOUTLOOKAND DEBT SUSTAINABILITY GROWTH FISCALAND STRATEGY FOR2007-2009 20. The Government's macroeconomic framework for FY2007-09 seeks to keep medium- term GDP growth at 6 percent, maintain inflation at around 2 percent and stabilize the external current account deficit (excluding grants) at close to 13 percent o f GDP (see Table 1). Monetary policies will support credit to the economy at around 9 to 10 percent annually. The authorities' macroeconomic program has been defined in the context o f a three-year IMF supported low access PRGF arrangement for SDR 6 million, approved by the IMF Board on April 23, 2007. The agreed uponmacroeconomic framework supports the keyPRSP objectives. 21. The projected 6 percent growth rate is deemed sufficient to reach the medium (PRSP) and long-term (MDG) poverty reduction objectives (down to 30 percent by 2015). Achieving this growth will require an improvement in total factor productivity, including through structural measuresto improve the operating conditions and competitiveness o fthe private sector. 22. At the sectoral level, growth is projectedto come from a moderate expansion (4-6 percent p.a.) of cotton and agriculture and through an above average growth o f the industry and service sectors (above 8 percent p.a.). Such a performance is predicated on improvements in the financial viability o f Burkina's three cotton marketing companies (see Box 1) and normal rainfall. Growth will be further driven by a significant expansion o f extractive industries (with new mines in Youga, Taparka and Kalsaka expected to reach exploitation phase by 2009-lo), construction for transport infrastructure and energy (with the new Samandeni Dam and the expected link to the C8te d'Ivoire grid). Growth inthe service sector i s expected to come from telecommunications, trade and transport. 23. The authorities target a gradual reduction inthe deficit including grants over the medium- term and compatible with a low inflation policy3. Revenues are expected to increase by 2.1 percentage points by 2009 as a result o f reforms to improve revenue administration and tax policies, including through a revision of tax exemptions and a wider application o f the VAT. Expenditures will be allowed to increase in2007 to an overall 24.4 percent o f GDP (a scaling-up by 1.2 percentage point o f GDP) and will be equally divided between current expenditure and investmentspending. This split hasbeenroughly constant since 2000. 24. The expenditure program covers the costs o f SOFITEX recapitalization (US$46 million in 2007, or 0.7 percent of GDP), US$24 million of which was incurred in early 2007 and the remainder expected to be incurred in June 2007. The recapitalization would be partly financed from the proceeds o f the successful sale o f 51 percent o f ONATEL, the telecommunication company. The remainderwill be covered by a higher than expected inflow o f foreign aid. 25. The Governments' investment program (Programme d'Investissement Public - PIP) is fully embedded in the country's Poverty Reduction Strategy and supports the four strategic pillars: (i)accelerating equitable growth; (ii)ensuring that the poor have access to basic social The recent Debt Sustainabilty Analysis suggests that a higher share o f grants should be aimed at to finance this deficit level (Annex 10). - 9 - services; (iii)expanding opportunities for employment and income-generating activities for the poor; and (iv) promoting good governance. The program's cost is estimated at 1,350 billion FCFA for the years 2007 to 2009, o f which about 42 percent i s projected to be funded by external resources. Roughly 50 to 55 percent o f annual ODA requirements are planned to be provided throughbudget support. 26. In 2007, the overall investment program is projected to amount to FCFA 414 billion. Foreign budget support i s estimated to provide a total o f FCFA 120.5 billion in 2007, o f which the proposed PRSC 7 represents 38 percent. The remainder is covered by the other members o f the budget support donor group (Cadre Gknkral d 'Organisation des Appuis Budgktaires - CGAB), including the African Development Bank, Denmark, France, Germany, the Netherlands, Sweden and the European Commission. The monitoring matrix o f the CGAB for 2007-2009 i s presented in annex 3 o f this document. Another FCFA 121 billion is expected to be financed throughproject aid. 27. Monetary policies will support a low inflation environment, projected at 2 percent annually. Growth of credit to the economy i s in line with economic growth, with annual increases of 9-10 percent. By buildingreserves from the proceeds derived from the privatization o f ONATEL, the Government aims to reduce its net credit position significantly (21 percent in 2007), providing space for credit demand from the private sector. 28. Based on a gradual recovery o f international cotton prices (Figure 2), the projected expansion o f cotton export volumes and a continuous stabilization of international oil prices, the trade deficit i s projected to narrow from 9.5 percent of GDP in 2006 to about 8 percent in2009. The balance o f services and income i s estimated to remain broadly steady at its 2006 level. The current account deficit in 2007 is projected to be financed by a mix of official external aid (60 percent) and private capital inflows (40 percent). Gross international reserves are projected to progressivelyincrease in2007 andremain at about 5 months o f imports. Figure2: InternationalCottonPrices2005-09 133 131 129 4K 127 *E 125 123 121 119 Jan- Jul- Jan- Jul- Jan- Jul- Jan- Jul- Jan- 05 05 06 06 07 07 08 08 09 Source: World Bank, middling 1-3/32 inch, average of cheapest 5 of 15 styles traded inNorthernEurope,c.i.f. - 10- DEBTSUSTAINABILITY 29. Burkina Faso has a good track record o f servicing its debt on time without incumng arrears. Combined with Burkina's long lasting commitment to macroeconomic stability and satisfactory implementation o f reforms, the country i s expected to discharge its fiture obligations in a timely manner. InApril 2002, Burkina Faso reached the Completion Point under the Enhanced HIPC Initiative. On March 28, 2006, the country was made eligible for the Multilateral Debt Relief Initiative (MDRI), which provided debt reliefin 2006 inthe rangeo f 17 percent o f GDP (calculated as a stock o f debt relief). The authorities established in 1997 a national public debt committee (CNDP), chaired by the Minister o f Finance and Budget, to monitor the external debt situation. The technical and managerial capacity o f the committee i s beingstrengthened through technical assistance. 30. Burkina Faso's risk o f debt distress remains at a moderate rating (Annex 10). The recent Debt Sustainability Analysis (DSA) prepared by Fund and IDA staffs concludes that Burkina Faso's debt is sustainable, with debt ratios comfortably below their policy-dependent thresholds under abaseline scenario. However, the latter depends critically on the assumption that domestic revenues continue to increase and lead to declining deficits after grants, thus reducing new borrowing requirements. The risk embodied in domestic revenue performance i s compounded by Burkina's vulnerable export performance, which is essentially based on one product, cotton. MDRIrelief has reduced the risk of debt distress, but risks pertaining to revenue and export performance remain. The DSA underscores the need for the authorities to continue implementing sound macroeconomic policies, revenue-raising measures, and accelerating reforms aimed at export growth and diversification. Given the rapid projected rise o f Burkina's debt stock over the next years, consideration should also be givenby donors to provide more aid inthe formofgrants. V. ASSESSMENT INPRSIMPLEMENTATIONAND PROGRESS MADEUNDERPRSC4-6 31. The assessment o f the implementation o f the PRS can be found in the Annual Progress Reports produced by the authorities, together with the joint IMF/BankJSANs. The most recent one (dated April 2007) provides a summary o f recent achievements and recommendations. Major achievements include rising primary school enrollment (60.2 percent), especially for girls (55 percent), improved primary school completion (up 4 percent since 2003), and progress in health and water and sanitation, although a ruravurban divide remains. If current trends continue, Burkina i s positionedto reach the overall poverty headcount MDGby 2015, with good chances o f also meeting the water and sanitation target. It was noted, however, that the authorities needto accelerate the reforms inthe investment climate and in strategic sectors such as electricity and cotton. 32. A comprehensive assessment o fachievements underthe first series o fPRSCs (PRSC-1 to PRSC-3) was presented inthe Implementation Completion Report o f PRSC-34and the outcome o f PRSC-4 was discussed inits ICR issued in20055 The performance under the PRSC 4-6 series BurkinaFaso.ImplementationCompletionReportofPRSC-3.ReportNo. 30330-BUR.December29,2004. BurkinaFaso:ImplementationCompletionReportofPRSC-4.ReportNo. 34447-BUR.December28,2005 - 11- will be analyzed indetail through an ICR dedicatedto the series duringthe second half of 2007. Lessons learned will feed into the preparation and design o f PRSC 8 and 9. This section provides a preliminary assessment of progress made by the Government with the support of the second series of PRSCs (PRSC-4 to PRSC-6). Annex 8 includes the Government's monitoring and performance indicators o f the Priority Action Plans (PAP) for 2004-06, which is an integral partofthe assessment detailed below. IMPROVINGTHE INVESTMENT CLIMATEAND PROMOTINGEXPORTS 33. Burkina's macroeconomic situation has improvedover the years and i s considered stable. Ownership o f policy implementation has been strong and, as indicated above, the authorities have pursued prudent fiscal policies with the fiscal deficit largely covered by foreign assistance. However, the level of fiscal revenues has not improved significantly over the years and requires strengthening. Real GDP growth averaged 6.3 percent per year during 2001-2006, and was driven by the agriculture sector, where most o f the poor are employed. The broad-based growth strategy has contributed to the estimated decline in the incidence o f poverty as described in section 11. However, because o f the country's unfavorable investment climate, the vulnerability o f agriculture to rainfall fluctuations, the weak infrastructure and high factor costs, enhancing productivity and sustaining growth present a challenge. 34. Growth in Burkina was supported by a massive expansion in cotton production, from 252,000 tons in 2001 to about 730,000 tons in2006. Burkina i s now the largest cotton producer insub-SaharanAfrica. The impressive increase incottonproduction was the result ofimportant sector reforms implemented by the Government during 1999-2005 aimed at improving sector competitiveness (see Box 1 and Annex 5). However, as discussed above and in Annex 5 the cotton sector has recently been under stress as a result o f a decline o f the export price for ginned cotton and the absence o f an adequate producer price setting mechanism to more closely align the producer price with the international cottonprice. 35. With respect to other agricultural products, the production o f cereals, sorghum, mil, corn andmaize has increased by between 30 and 36 percent since 2001. To promote shared growth, the Government has enhanced land tenure security and access to land, thereby improving production conditions for small holders. Measures carried out included the enactment o f a Law on seeds and the building o f 95 rural roads (335 km in length) to facilitate the raising o f and trade incattle. 36. The telecommunication sector was liberalized and cell phone companies were allowed to enter the market in 2000. Subscribers increased to about 1.1million in2006 and unit costs were reduced. The telecommunication sector i s regulated by an independent regulatory agency ensuring interconnection with the state-owned fixed lines under fair conditions. The rural telephone service was liberalized at end-2005 and the Government has requested expression o f interests for private participation in this segment. Furthermore, ONATEL, the state owned monopoly intelecommunications, was privatized at the endo f 2006. 37. Despite the robust growth and poverty reduction achieved over the last decade, the principal challenge for Burkina in the agriculture sector remains the improvement o f productivity. Indeed, the vast majority o f the rural poor continue to depend on agricultural - 12- production characterized by low mechanization and sensitivity to rainfall variation. Government efforts have had little impact so far in changing yield levels o f cereal and cotton production and most o fthe growth has taken place due to extension of the cultivation area. 38. Burkina's industrial development potential is still constrained by high factor costs, in particular for energy and transport. The ongoing project to link Burkina's electricity grid to the gridinCote d'Ivoire would allow for lower generation costs after 2008. While the privatization o f state assets has made progress recently (ONATEL privatization), private participation in the electricity sector and privatization o f Burkina's oil import monopoly (SONABHY) have been delayed. 39. The Government has limited leverage on exchange rate and monetary policy. Apart from fiscal measures, most o f its growth-inducing policies thus have to rely on microeconomic/sector policies to enhance efficiency and productivity. Although the authorities have taken some significant positive steps over the past two years to improve the investment climate (notably the creation o f the CEFORE, Centre de FormuZitks des Enterprises to accelerate business registration), the country still compares poorly with most countries in the region. The 2007 Doing Business Report indicates that, on average, entrepreneurs inBurkina Faso face highcosts and a significant number o f procedures, and incur excessive delays for creating a company, obtaining a building license and transferring property. The labor market is rigid and human resources are not qualified enough. Lastly, in spite o f the progress recorded recently on human development, Burkina Faso's social indicators continue to lagbehindthe sub-Saharan average. IMPROVINGACCESS BASICSOCIAL SERVICES TO 40. An array o f measures laid the ground to achieve a significant increase in the supply o f education services through the national budget. The Government expanded teacher training by ending the automatic hiringo f graduates o f teacher training colleges into the civil service. It also continued the subsidization of school supplies in the 20 provinces with the lowest schooling levels. It expanded the number o f schools equippedwith runningwater and sanitation facilities. Gross primary enrollment rates increased from 41.7 percent in 1999-2000 to 60.2 percent in 2005-2006. Access to secondary and higher education has also increased. At the same time, gender and regional disparities have started to decrease. Inparticular, public education benefited from a faster increase in services in under-supplied provinces. But more needs to be done to school girls, whose Gross Enrollment Rate (GER) inprimary education reached only 55 percent. 41. While increasing student enrollment has been successful, the quality o f education lags behind. The completion rate improved in primary education (from 19 percent in 2001 to 40 percent in 2006) as well as the ratios impacting the quality o f education (books/pupil and pupils/teacher ratios). The transition rate from primary to secondary education increased from 27 in 1994 to 40 percent in2002, surpassing the Government's initial objectives. The number o f students at the secondary level increased by 60 percent; and inparticular, the proportion o f girls enrolled at secondary level reached the target o f 40 percent. But in 2006, education quality dropped as measuredby the rate o f success inobtaining the Certificate o fPrimary Study (CEP). 42. Despite its low ranking in human development indexes, Burkina has seen some o f its health indicators improve inthe past five years, including wider vaccination coverage, improved - 1 3 - prenatal care, and lower child mortality (from 219 to 184 per 1,000 between 1999 and 2003). With support from debt relief and poverty reduction credits, child vaccination became free in 2002, as did prenatal care in2003. Between 1999 and2005, vaccination rates increased from 60 to 111.7 percent for BCG, from 42 to 96 percent for DTCP1, from 53 to 84 percent for measles, and from 50 to 84 percent for yellow fever. Prices of essential generic drugs were reduced through a cut inthe profit margins o f the National DrugProcurement and Distribution Company (CAMEG) in 2002. Tracking surveys conducted as part of the PRSP process indicate that the measure resulted ina 15-30 percent decline inthe costs o f standard medical interventions. 43. To increase the level o f financial resources available at the health district level, the Government introduced the delegation o f budget credits to district managers, and 66 petty cash accounts (re'gies d hvance) were created in 2003. Also, the significantly increased health budget since 2001 made it possible to extend the coverage o f infrastructure Health Centers (Centre de sante' et depromotion sociale), Dispensaries, Maternity Hospitals, MEG(Me'dicaments essentiels ge'ne'riques) stores, and Medical Centers with facilities for surgery (Centres Me'dicaux avec antennes chirurgicales). The distribution system i s well coordinated under the MEG hnctions thanks to a better demand forecast by the CAMEG (Centrale d'achat des me'dicaments essentiels ge'nkriques) and an improved inventory management by the medical centers. The Government also took measures to enhance the financial coverage for accessing health services (support for the risks-sharingmechanisms, subsidy for urgent obstetrical care, exemption from payment o f preventive care for pregnant women and children o f less than 5 inpublic medical centers). As a result, the infantmortality rate reached 83 deaths per 1,000 live births in2003, down from 105 in 1999. 44. Efforts to reduce the spread o f HIV/AIDS resulted in a relatively low prevalence rate o f 2.3 percent in2005, against 4.2 percent in2002. HIV rates inurbanareas have begunto decline, from a peak o f over 6 percent in 1999 to about 4 percent today. Other trends are also encouraging: the percentage o f men using condoms during their most recent high-risk sexual contact increased from 59 to 69 percent from 1999 to 2003, and the HIV prevalence rate among young women (aged 15-24) attending urbanantenatal clinics has declined. 45. Inthe health sector, nutrition issues andcombating malaria remain a major concern and need to be tackled within a multi-sectoral framework. There also remains the issue o f human resources as evidenced by the difficulty to post education and health workers inrural andremote areas. Financial incentives introduced in 2005 to address this challenge have not had an impact yet. The reform requiredproviding for a more adequatehumanresource management system and incentive structure i s part o f this new PRSC series 7 to 9, to be implementedinthe context o f the ongoing decentralization reform. 46. In water and sanitation, the Government prepared in 2006 a strategy to reform the management and the maintenance of facilities and infrastructures in 13 provinces, with the objective to improve the hnctionality and sustainability o f 48,000 water points and 472 water piped systems (AEPS). At about the same time, the Government completed its sanitation plans for Ouagadougou, Bobo-Dioulasso and 4 secondary cities (Fada N'Gourma, Ouahigouya, Banfora and Koudougou), while strategic planning was continuing inthe remaining 6 cities, with some delays due to capacity constraints and inadequate finding. Since then, the Government has adopted standards, criteria and indicators for drinking water supply and sanitation (AEPA) to - 14- improve the technical design and sustainability o f its equipment plans, and has developed monitoringand evaluation systems, including through regular audits. Inparticular, M&E o f the sector builds on the inventory o f the water infrastructure and sanitation system conducted in 2005, and on the baseline established then for reaching the Water and Sanitation National Program MDGs. 47. Against this backdrop, enhanced decentralization can be an appropriate approach to improve basic service delivery insofar as there i s empowerment o f local actors who are accountable to local populations, and better alignment o f expenditures with local priorities. While deconcentration o f service delivery i s making progress, the transfer o f humanresources andthe managerial framework for it is lagging behind. The adoption o f the decentralization law and the selection of governors at end-2004 was an important achievement directly supported by the PRSCs and the project portfolio. The law is fulfilling its role by requiring the central Government to begin to decentralize financial and physical resources to regions and local levels. To complement the decentralization strategy at the political level, local elections took place on April 23, 2006 that have established 302 rural municipalities and have set up their respective assemblies. 48. Despite this progress, efforts at decentralization remain constrained by: (i)the centralization o f strategic decisions on resource allocations and lack o f budget autonomy for local governments; (ii)insufficient budgets, with delays in budget transfers; (iii)a marked imbalance and inequality in personnel allocation by region and weak and over-centralized personnel management; (iv) the lack o f clear definition o f roles and responsibilitieswhich means that the relationship between units within the centre, and among the centre, the regions and the front-line service delivery units remains unclear; and (v) the lack o f clearly defined public oversight responsibility or general involvement inlocal service delivery. 49. With the 2006 municipal elections, Burkina Faso has entered a new phase in the implementation o f its decentralization strategy. The challenge for the Government i s to succeed in the transfer of responsibilities and resources to the local Governments. After more than a decade o f intense debate on which form decentralization shouldtake, the "Code des CollectivitCs Territoriales" adopted in 2004 represents a turning point in this process, engaging Burkina Faso infar-reaching reforms. The Code foresees the establishment of two tiers of local Governments (regions, communities) and three tiers o f territorial administration (regions, provinces, departments). The Code also brings about the full "communalization" o f the territory, including for rural areas, each o f which i s run by a local commune council. The Code highlights six priority responsibilities to be transferred to urban communities: pre-school, primary education, primary health care, culture, youth, sports and leisure. It also includes the principle that responsibilities must be transferred commensurately with resources. Yet, the Code gives little guidance on the actual implementationo fthese transfers, and implementationdecrees that should provide clarification on these issues have not yet been issued. What is clearer is that the effective transfer o f resources to rural communes will only be considered once transfers to urban local collectivities are actually implemented. 50. Despite its importance, fiscal decentralization represents the weakest link in the decentralization framework so far. The fiscal basis o f the communities i s generally low because their revenues depend on a limited number o f taxes and user fees. Existing transfers to local - 1 5 - authorities are discretionary and currently based on a simple measure o f population. Thus, the transfer base tends to give a disproportionate advantage to the bigger andrichest cities (the four- five main taxes represent 75 percent o f budgets in the big cities versus 50 percent in smaller urbancommunities). Capacityto mobilize revenues at the local level depends on two factors: the size o f the city and the presence o f local agents o f the tax administration. The result is that the larger local agglomerations have considerably more resources irrespective o f their needs. An inter-ministerial working group i s studying various modalities for establishing an adequate inter- governmental transfer system, possibly through a two-tiered block grants system (dedicated to recurrent andinvestment expenditures). IMPROVINGMANAGEMENT PUBLICFINANCIAL 51. Burkina Faso has been implementing an ambitious reform-agenda since its adoption in 2002 o f a consolidated action plan to improve the budget management system (Plan d'Action pour le Renforcement de la Gestion Budge'taire, PRGB). Achievements to date include: (i) stronger budget legislationwhich reflects most o fthe WAEMU legislationon public finance; (ii) improved alignment o f budget allocation with PRSP priorities with the introduction o f a global MTEF; (iii)enhanced budget execution with the operation o f a computerized expenditure management system that captures all domestically financed expenditures; and (iv) improved budgetreportingand auditingwith the introduction o f an independent Audit Court. 52. The draft report o f the ongoing Public Expenditure and Financial Accountability Assessment presents the following conclusions: (i) the credibility o fthe budget is good except for domestic revenues; (ii)the budget coverage and transparency is good but access to budget information is limited; (iii)the budget reflects adopted policies; (iv) domestic revenue collection andbudgetcontrols are weak; and (v) predictability andthe use o fcountry systems bydonors are weak. 53. While the budget i s exhaustive and transparent, there are weaknesses inbudget statistics, notably: (i)foreign-financed investments are not fully integrated in the Government budget information system; and (ii) monitoring o f poverty-spending remains difficult and the functional classificationneeds to be operationalized. Also, the link between the budget and the PRSP needs to be further strengthened with the generalization o f the MTEF and program budgets across all ministries. In fact, while Burkina Faso has made significant progress in the preparation o f a global MTEF, the elaboration o f sectoral MTEFs needs further development: as o f end 2005, only the Ministry o f Basic Education and the Ministry o f Health had sectoral MTEF, and additional efforts are needed to make them more operational. 54. Budget reporting and the application of good governance standards have been strengthened, allowing for an improved efficiency in spending and in fighting corruption. The Government has developed a statistical directory for public finance, and customized a functional and social classification in the CID (public expenditure management Software) to track poverty reducing expenditures. The Budget execution reports are now prepared within twelve months after the closing o fthe fiscal year but they are not always supported by accounting statements. 55. An Independent Supreme Audit Court was created and the Government met its legal obligation to submit budget execution reports and accounting statements. The Government also - 1 6 - established and staffed a High Authority for the Coordination o f the Fight against Cormption. The PRGB, adopted in July 2002, integrating the recommendations o f the CFAA, i s being implemented with donor support. The Audit Court has also elaborated an Action Plan for the reinforcement o f its capacity with assistance from the European Commission and support from the Government. A good governance plan was preparedand disseminatedto all provincial authorities. 56. With respect to public procurement, after the 2000 Country Procurement Assessment Report (CPAR), the Government launched a vast reform and capacity buildingprogram. It started to prepare annual public procurement plans. It also adopted a new decree on public procurement in line with international best practice. The new decree establishes clear and comprehensive rules promoting transparency in competition, describes explicitly the responsibilities o f the bodies involved, particularly those o f the Central Directorate for Public Procurement (DCMP), and outlines a conflict resolution system. The adoption o f a manual o f procedures and new standard bidding documents, and the creation o f a procurement reform committee comprising stakeholders from the public sector as well as civil society, have strengthened transparency and scrutiny in the administration o f public procurement. Internal and external public-procurement audits have been conducted with a view to greater transparency. External audits were also carried out for the years 2001, 2002 and 2004, with financing from the EuropeanCommission. 57. With respect to fiscal decentralization, the elections in 302 municipalities in April 2006 brought about many new actors to the decentralization process in the country, who are not very familiar with budget management tools. An efficient, effective and transparent management o f decentralizedresources constitutes a challenge for Burkina Faso because o f the weak capacity o f the newly electedlocal Governments. 58. Civil service reform has advanced with the development o f the computerized civil service payroll and personnel management system (SIGASPE). The Government instituted a new personnel management system based on mission letters and performance reviews. However, there are still missing modules in the SIGASPE (notably in career management and statistical module) and dissemination has been limited. Also, the implementation o f a merit-based promotion system i s not yet effective. LESSONSLEARNED 59. Key lessons from PRSCs 1-6, as expressed inthe Implementation Completion Reports o f PRSC-3 Burkina Faso (Report No. 30330-BUR, December 29,2004) and PRSC-4 (Report No. 34447-BUR, December 28,2005) have beenreflected inthe design o fthis new PRSC series. 60. Country ownership. Lessons drawn from the implementation o f the previous CAS (FY00-FY05) include the recognition that sustained Government commitment to sound policies creates the basis for accelerated growth. These lessons are taken into account in the 2005 CAS. They are also reflected inthe choice o f the PRSC instrument as a key financing instrument o f the CAS, and inthe scope and content of this third PRSC series. The use of the PRSC instrument to support implementation o f the poverty reduction strategy has been a major benefit for the client, includingby strengthening country ownership. 61. Primacy of the cotton question. Recent developments in the cotton sector show the importance o f continued IDA involvement in this sector. The focus o f this proposed operation - 17- and future PRSCs on reforms in the cotton sector acknowledge that PRSCs are excellent instrumentsto promote structural reforms required for macroeconomic stabilityandgrowth. 62. Harmonize budget support among donors and increase focus on evidence-based policymaking. As indicated inbox 2, the PRSC M&Emechanismhas been further harmonized with the adoption o f the Unified Framework for Budget Support (CGAB) and the use of ajoint performance matrix as the basis for joint assessments (Annex 3). The CGAB matrix i s based on the annually revised three-year Priority Action Program (PAP), which provides a link between policy objectives andmonitoring indicators. Donors that provide budget support have organized joint missions around the CGAB annual meetings (February, April and September) to monitor the implementation o f CGAB Agreements and assess performance. The frequency o f review mechanisms and the overall transaction cost for the Government has been considerably reduced. To further improve donor harmonization, the Government and IDA plan to further align the calendar o f PRSCs preparation with the budget cycle and CGAB annual reviews. This would result in PRSC 8 being presented to the Board in less than 12 months from PRSC-7 approval. With respect to strengthening the M&E o f PRSCs, the formulation o f some of the prior actions for PRSC-7 (Table 3) was adjusted at pre-appraisal to improve their measurability. Also, the proposed triggers for PRSC-8 were formulated so as to avoid any ambiguity in monitoring and evaluation. VI. BURKINA FASO'S POVERTYREDUCTIONSTRATEGY 63. The Government prepared a second full PRSP (PRSP-2) in 2004 which covers, through the latest Annual Progress Report, the period 2006-2008. It improves on the first PRSP by introducing a regional dimension, elaborating a results-based framework and establishing a Monitoring and Evaluation (M&E) system. The PRSP-2 retains the main thrust o f the original PRSP and supports four main pillars: (i) improving the competitiveness o f the economy (private sector development), (ii)improving public service delivery and access, (iii)enhancing employment and income opportunities, especially for the poor, and (iv) accelerating decentralization and strengthening the efficiency o f the public financial management system (Annex 7). It also expands the number o fpriority sectors from three (health, education, and rural development) to twelve. Additions are food security, access to potable water, HIV/AIDS, social inclusion, gender, environment, employment and informal sector, development o f SMEs and SMIs (including small-scale mining), security, rural electrification and Information and Communication Technology (ICT). The expanded list of priority sectors was the result o f broadened consultations. The Priority Action Plan for PRSP-2 is a description o f policies and programs to be implemented during 2007-2009. The Government annually updates the framework inlight o f actual outcomes. 64. - The prime objectives o f the poverty reduction strategy are to: (i) per capita gross increase domestic product by at least 4 percent per year, which requires an annual growth rate o f above 6 percent; (ii)reduce the incidence o f poverty from 46.4 percent in 2003 to under 35 percent by 2015; and (iii)increase life expectancy to at least 60 years by 2015, in line with the MDGs. The draft budget for 2007 was adopted in line with the MTEF 2007-2009 and the PRSP priorities. The MTEF was prepared and discussed in April 2006 at the launch o f the budget cycle preparation. Within the overall ceiling set under the MTEF, the authorities significantly - 18- increasedthe allocation for non-wagerecurrent expenditures inpriority sectors, including health, social action and national solidarity, basic education, secondary and higher education and rural development. Given the low level o f social indicators in Burkina, this sustained effort to increase budget for social sectors withinthe overall ceiling i s appropriate. 65. The next paragraphs present an overview o f the Government's reform agenda inthe three areas supported by the proposed PRSC series, namely to (i) improve the investment climate and promote exports; (ii) improve access to basic social services through deepened decentralization and strengthened institutional capacity; and (iii)promote efficiency, transparency and accountability inthe use o fpublic resources through enhancedpublic financial management. 66. Improving the investment climate and promoting exports. The Government envisions to adopt and start implementation o f an export promotion strategy in 2007, and to adopt a law on norms and standards. The Government has managed to address the short-term needs o f the cotton sector, including the financing o f the current production campaign. But medium and long-term solutions to the crisis are beingimplemented and comprise inparticular a mechanism to align the producer price more closely with world cotton prices (see Box 1). The Government is considering how to ensure the long-term financial viability of the sector, including the adoption o f Bt cotton. The sector's viability will depend on the successful implementation o fthese reforms. 67. Mining is poised to become Burkina's second biggest export sector after cotton, increasing total export earnings by around 25 percent. The expansion o f the mining sector is expected to have a positive impact on growth and equity, increasing poor people's access to basic services and employment and expanding the Government's tax revenue. A revised legal and regulatory framework encouraged private mining exploration and investment in gold, manganese, phosphates, and zinc. With the adoption o f a revised mining code in 2003 and higher gold prices, Burkina stands well poised to benefit from the dynamism of the mining sector. Today, the construction o f three gold mines is proceeding with foreign direct investors and four other firms have completedencouraging feasibility studies. 68. Since the Government embraced market-oriented policies in 1991, it has implemented significant reforms in the areas o f macroeconomic management; trade, markets and price liberalization; tax reform; privatization; banking sector restructuring; regulatory reform; implementation o f the WAEMU-wide competition policy; and adoption of new business laws under the OHADA treaty. Inthe early 2000s, the Government launched a second generation o f reforms including large-scale legal reforms and the privatization o f public utility companies (electricity and hydrocarbons, telecommunications), supported by the IDA-financed Competitiveness and Private Sector Development project (PACDE). The Government reform program in the coming years includes further liberalization o f the economy, including: (i) the leasing o f SONABEL, the state owned electricity company; (ii) the opening-up o f SONABHY's equity to private sector, the state owned oil importing company; (iii) furtherreductionofthe state share in ONATEL, the former state-owned telephone company; (iv) the privatization o f the Socie`te`d'Exploitation HoteliBre (or Silmande Hotel). Inthe energy sector, the Government will continue to implement its electrical grid interconnexion projects with C6te d'Ivoire and Ghana, revise the regulatory law on electricity generation, transmission and distribution and conduct a tariff study to improve electricity provision in the long-term at a lower cost. In the - 19- telecommunication sector, the Government intends to continue to improve the regulatory framework by adopting implementationtexts. 69. The Government is committed to implement far reaching reforms to improve governance and accountability in the transport sector. A new law (Zoi dbrientation du secteur des transports) will be adopted by June 2007 to: (i) improve traffic and transit; and (ii) implement a national road fund. Rather than being directly financed from a fuel levy as i s the case in several other countries, the proposedBurkinabC road fund will have a dedicated account provisioned by the Treasury, in compliance with a credit agreement determined annually inthe finance law, and set to insure satisfactory road maintenance and provide for the clearance over time o f arrears accumulated by the government toward contractors. The road hnd will be managed by an executive board, representative o f the sector, and a light secretariat. 70. The Government will improve the business environment through the institutionalization of an ombudsman to arbitrate business disputes (Chambre d'Arbitrage et de Me'diation de Ouagadougou,CAMCO); the implementationo f a Registre du Commerceet du Cre'ditMobiZier , RCCM; the establishment of accounting service providers (Centres de Gestion Agrkes, CGA); the creation of an observatory for investment climate; the adoption o f a new tax code (Code Ge'ne'raldes ImpGts),a new Investment Code anda new labor code. 71. Decentralization and service delivery. With the new Decentralization Code (Code Ge'ne'raldes ColZectivite'sTerritoriales),the Government will transfer power to the communities. This involves at least three steps: (i) evaluation o f resources to be transferred; (ii) actual an the transfers (humanand financial); and (iii) recruitment o fnew (communaVloca1)personnel. the 72. With respect to the transfer o f assets, the Government has transferred responsibility to 49 communities since June 30, 2006 in six priority areas: (i) pre-school; (ii) primary school; (iii) health; (iv) culture; (v) youth; and (vi) sports and leisure. The individuallist o f assets for which responsibility will be transferred i s being finalized. The decree which transfers these responsibilities clarifies them across the six transferred areas. Ingeneral, the responsibilities o f the State relate to the definition o f the national policy orientations, the norms and standard for infrastructure and equipment, and the supervision and control o f the activities o f the transferred educational, medical and cultural facilities. Responsibilities o f the municipalities relate to the procurement, the construction and the management o f the transferred facilities. In 2007, the Government will pursue the transfer o fresponsibilitiesby adopting the texts specifying the list of individual assets to be transferred to the urbanmunicipalities and other texts, which will define the allocation and amount o f the recurring budget. The Government will also pursue the implementation o f the construction o f local Government offices and train the newly appointed local Government members. 73. With respect to the transfer o fhumanresources (staffing), the Government has decided to create a local civil service. National civil servants working in the areas transferred to the municipalities will remain national civil servants untilretirement and will simply be placed at the disposal o f the local Governments. The municipalities will start recruiting their own staff as o f 2007 when the texts envisaged for this purpose are applicable. As o f now, only the law on the local civil service has been approved. In 2007, the Government will adopt the texts to transfer - 20 - staff to the local Government. In addition, the software for personnel management (SIGASPE) will be extended to the 13 regionsto improve management o f stafftransferred to regions. 74. Withrespect to transfer o f financial resources, the Government will provide two types o f subsidies to local Governments, one for their operating budget, called dotation globale de fonctionnement-DGF (unconditional subsidy for operating budget), and another called dotation globale d'bquipernent-DGE (unconditional subsidy for investment). The amounts o f DGF and DGEinthe 2007 budget are respectively CFAF 1.2 billion and CFAF 5.1 billion. The financial architecture comprises two other financing mechanisms. The first is municipality-raised taxes and the second i s a new fund for local Government development. The fund will finance investments o f municipalities inthe form o f subsidies and contribute to capacity development o f local Governments in the area o f design and implementation o f investment programs. The fund will be financed mainly through the budget and external aid. Efficient, effective and transparent management o f these resources constitutes a challenge for Burkina Faso because o f the current weak capacities o f newly elected local Governments. The Ministryo f Finance and Budget will continue its effort to establish branch offices in the regions in order to assist the municipalities with budget, financial management and accounting functions, and have them report to the independent audit institution (Cour des Comptes). 75. To support efforts to provide access to basic health services, the Government is working inclose collaborationwith the development partners to improve harmonizationandcoordination o f financing around the Plan National de Dbveloppement Sanitaire which focuses on achieving the MDGs, particularly MDG numbers 4 and 5. The decentralization process will further facilitate access to health services at the district level. 76. With respect to the development of water and sanitation inrural areas, the Government has continued in2006 to make significant progress inthe reform o fthe legal and institutional framework. First, a General Directorate in charge of rural water supply, sanitation as well as water resources management was created. Second, a Water and Sanitation National Program based on the MDGs was prepared. Third, a memorandum of understanding was signed between the ministry in charge o f water and the main donors, including the World Bank, to strengthen coordination through a sector wide approach, with harmonization and alignment of donors around country systems. Finally, a basket funds approach, as well as a procedure manual, are being established to complete the move from projects to programmatic approachesusingcountry capacity andprocedures. 77. Enhancing Public Financial Management. The Government has recently adopted a strategy to further strengthen public financial management. The strategy builds on lessons learnt from the PRGB implementation. The overarching objective o f the strategy i s to help the country meet international standards in the area o f public financial management. It has eight strategic objectives: (i) improve strategic budget allocation; (ii) increase domestic revenue and foreign aid; (iii) improve budget execution and budget transparency; (iv) enhance the quality, coverage and availability o f budget data; (v) promote accountability inbudget management; (vi) improve budget control; (vii) contribute to an enabling business environment; and (viii) improve capacity o f institutions involved in budget management. The strategy will be implemented through an Action Plan that will be updated every year and funded by the national budget. The monitoring and evaluation system for the implementation o f the strategy i s composed o f a steering committee supported by a secretariat and technical groups. The strategy will be a key element o f - 21 - the Performance Assessment Framework o f the MOU for the multi-donor budget support group. For instance, with respect to tax revenue, the Government will benefit from the support o f the IMFwhose new PRGFtogetherwith technical assistance from Afi-itac will focus onthis issue. 78. As part ofthis strategy, the Government has recently developedguidelines and check lists for budget execution staff and has implemented a training program to disseminate recently adopted budget implementation texts. It has also successfully introduced inthe CID a functional codification with markers to better track poverty spending. It has made progress in the development o f specific software for tracking foreign aid which will be completed and made operational by the end o f 2007. Inaddition, the Government is preparing a methodological note on global and sectoral MTEFs in view o f assisting six line Ministries to adopt a MTEF. InJuly 2005, the Government also organized a workshop on program budget experiences, and proposed to re-launchthe program. 79. Because the budget-program and MTEF initiatives are a long-term reform, the Government has started to adapt administrative texts to establish a unit within the General Directorate for Budgetwhich will beresponsible for program budget andMTEFimplementation. The African Development Bank and the GTZ have been supporting this initiative. The Government has also benefited from an IDA Institutional Development Fund, to improve the capacity o f institutions incharge o fbudget control. 80. According to the Decentralization Law the municipalities' financial accounts must be audited by the Independent Audit Court. However, in practice, the assessment and approval o f some accounts could be carried out by the public accountants (apurement administratifpar les comptables principaux). The Action Plan for strengthening the independent audit institution included this action as a priority to be carried out in2007 (adoption o f a decree to determine the threshold for the category of statements to be approved bythe public accountants). 81. The Government plans to: (i) the scope o f public procurement to administrative extend contracts for the delegation and the concession o f public services; (ii)create an independent appeal mechanism for contract awards by setting up o f the "Comite` Permanent de R2glement Amiable des Litiges" (CRAL); and (iii) establish a mechanism for effective application o f sanctions applicable to civil servants and the private sector (bidders and suppliers/consultants and contractors). InDecember 2004, a decree established the CNCS (a national committee for the monitoring o f procurement reforms) that comprises stakeholders from the public sector as well as from the civil society, including private sector representatives and an NGO active inanti- corruption work. The creation o f the CNCS provides a formal and effective institutional framework to coordinate and follow-up the implementation o f the procurement reforms. The person responsible o fthe technical secretariat incharge o f the preparationo f the CNCS meetings was appointed inDecember 2006. 82. In addition, the Government has recently adopted a national plan for improving governance (2004), an anticorruption strategy (May 2006) and a sector strategy for the Ministry o fFinances (2007), each with their respective actionplans. The institutional framework was also strengthened with the creation o fthe anti-corruption highauthority. - 22 - VII. BANKGROUP'S SUPPORTTO THE GOVERNMENT'S PROGRAM LINKTOTHECAS 83. The June 2005 Country Assistance Strategy sets out the Bank Group's support to the Government's PRS for the years FY06-FY09. It foresees the use o f three types o f instruments: development policy lending (PRSCs), investment credits, and analytical and advisory activities (AAA). The PRSCs would provide financing for the budget and support the implementationo f policy reforms to: (i)improve the investment climate andpromote exports; (ii)improve access to basic social services; and (iii) promote efficiency, transparency and accountability in the use o f public resources. Moreover, the CAS introduces an innovative approach to maximize synergies between PRSCs and project implementation at the local level, by establishing a sustainable mechanismfor the financing o f community level infrastructure. COMPLEMENTARITY WITH OTHER BANKACTIVITIES 84. The CAS recognizes the PRSCs as the main instrument for providing program support. Three other operations are direct complements to the PRSCs 7-9 series and provide financial and technical assistance in these areas: (i) Administration Capacity Building project (US$ 7 the million, FY05) which aims to buildcapacity inpublic administration for policy formulation and implementation, streamlining public administration, modernizing personnel management, and enhancing the poverty focus o f expenditure; (ii) Statistical Capacity Buildingproject (US$ 10 the million, FY04) which addresses shortcomings in the M&E system by strengthening data collection and reporting; and (iii)the Decentralized Urban Capacity Buildingproject (US$ 10 million, FY07) which aims to support decentralization inurbanareas. 85. IDA is also supporting a far-reaching decentralization policy through its second Community Based Rural Development (CBRD) Project (US$ 74 million, FY07) that builds rural communities' governing and management capacities. The first IDA-supported Community- based Rural Development Project (US$67 million, FYO1) has reached thousands o f rural communities, helping finance projects ranging from literacy centers to improved water management. The program has been instrumental in developing the legal and regulatory framework for decentralization and local Government. Village bodies were entrusted with the legal mandate o f local development. The CBRD covers nearly 40 percent o f the country's 8000 villages. 86. To improve the effectiveness o f aid, IDA and other donors have helped establish sector wide approaches in basic education, health, HIV/AIDS and water supply. In health, a pooled funding mechanismchannels resources directly to health districts and hospitals on the basis o f indicators that can be tracked over time. The HIV/AIDS Disaster Response Project (FY02) and the Health Sector Support and AIDS Project (FY06) have contributed a total o f US$ 75 million to the sector. IDA, together with development partners, i s adopting a sectoral approach in support o f decentralization to assist the Government in addressing the human resource deployment issue as part o f a more comprehensive approach to providing access to basic health services for the poor. In the education sector, IDA has contributed with its Basic Education Sector Loan (US$ 33 million, FY02) and its Post Primary Education Loan (US$ 23 million, - 23 - FY06) to expanding children's access to basic education. At the primary education level, IDA support targeted girls and the poor inthe provinces with the least coverage. 87. Responding to rising potable water demand in Ouagadougou, the country's fast-growing capital, IDA was part o f a coordinated 13-donor effort to support the Government`s medium term investment plan. Central to that plan was the construction o f the Ziga dam and the treatment and transport facilities necessary for bringingenough water to the 1million Ouagalais. IDA's contribution through its Ouaga Water Supply Project (US$70 million, FYO1) finances the secondary and tertiary water network in the city, which will double the number o f household water connections and more than triple the population served through neighborhood standpipes. IDA has also invested in drainage and sanitation infrastructure in Ouagadougou and Bobo- Dioulasso, with positive measurable effects on disease prevention and economic activity in surrounding areas. 88. Inagriculture, IDA'sAgricultural DiversificationandMarketDevelopmentProject(US$ 66 million, FY06) i s supporting increased productivity in the critical cotton sector and has financed expanded irrigation and measures to diversify farm outputs. IDA has emphasized private-sector led irrigation to allow dry-season production o f high-value export crops such as tomatoes and onions. IDA supports the manufacture and maintenance o f small scale irrigation equipment, as well as institutional and financial support. Beneficiaries, including women's groups in the project zone, have been able to double the surface o f irrigated land and increase their household income by an estimated 30 percent. IDA's agricultural intensification and marketing program is now scaling up earlier investments in export infrastructure, such as cold storage rooms at airport. 89. Through its Competitiveness and Enterprise Development Project (US$ 31 million, FY03), IDA has provided technical and financial support over the past 10 years to eliminate the state monopoly on mining, opening it to competition. A miningcapacity-building and technical assistanceproject is improving the productivity and safety o f small-scale, artisanal mining. 90. Inthe energy sector, IDAhas a two-pronged approach to support the provision oflow- cost energy. First, IDA and other donors have financed urgently-needed power generation capacity in Burkina, as well as investing in regional electricity interconnections with C8te d'Ivoire and Ghana. The goal has been to halve the cost o f electricity. Second, IDA's Power Sector Development (US$ 64 million, FY05) i s providing technical and financial support to increase rural access to modem energy sources, through expansion o f the electrification gridand investment inalternative technologies. 91. Inthe transport sector, IDA is part of a consortium of donors that is assisting the Government inrehabilitating and maintaining essential transport infrastructure. The support also involves strengthening existing institutions and adopting sound policy and regulatory measures. IDA financing through its Transport Sector Project (US$ 92 million, FY03) has rehabilitated more than 800 kilometers o frural roads, connecting agricultural production zones to markets. - 24 - COMPLEMENTARITY WITH OTHER DEVELOPMENT PARTNER PROGRAMS 92. The proposed PRSC series and PRSC 7 complements or leverages the support o f other development partners. The specific areas for IDA support have been identified in close coordination with other development partners, in aiming for synergy with their respective interventions, and buildingon IDA's comparative advantage in these areas. These donors will continue to collaborate closely duringimplementation o f the program supported by the proposed operation, especially through the General Budget Support Framework (CGAB) process. 93. IMF and IDA staffs have coordinated closely on the identification o f the respective institutions' areas o f focus. On September 8, 2006, the IMF Board concluded the final and 6th review o f Burkina's most recent arrangement under the Poverty Reduction and Growth Facility (PRGF). A new low access PRGFfor 2007-09 is expected to be discussed bythe IMFBoard on April 23,2007. IMFand IDA staffs have collaborated closely inthe past to assist the authorities in the implementation of the country's PRS, coordinating their advice on sector economic questions (e.g., on cotton and electricity), and in identifying solutions for the Government. The IMF relies on IDA to get information on issues such as private sector development and sector strategies. 94. Twenty seven donors currently support the implementation o f the Government's PRS through various modes of assistance: general Donor %ODA AfDB II16.7 budgetary support, sector programs, investments projects, capacity buildingprojects and technical assistance. Total aid commitments in 2007 for Burkina Faso are estimated at FCFA 331 billion (or U S $630 million). I IDB 7.2 France 6.5 95. Investment projects account for 2/3 o f external aid, while Denmark 2.7 budget support accounts for approximately 1/3 o f total foreign Netherlands 2.6 Germany 1.2 support. Provision o f budget support in a coordinated and cohesive Belgium 1.2 way, in line with the Government's overall development strategy, is Canada 0.7 evolving in an encouraging way (see box 2). Deeper coordination o f budget support was initiated following the adoption o f the first Poverty Reduction Strategy which encourages harmonization o f aid and the use o f country systems. Currently, nine donors (European Commission, IDA, the African Development Bank, France, Netherlands, Denmark, Switzerland, Sweden, and Germany) use the joint CGAB on the basis o f a Memorandum o f Understanding (MoU) signed in 2005. Donors are progressively moving to a joint monitoring and evaluation matrix, evaluating whether disbursement criteria are met. The synchronization o f each institution's project cycle around the Government's budget cycle remains a challenge, however, makingit difficult to completelyharmonizeprogram triggers andthejoint monitoringmatrix. 96. IDA has aligned more o f its PRSC 7 missions with the calendar o f the CGAB. This effort o f alignment was appreciated by the Government as well as by the other donors but needs to be further strengthened. Several CGAB members have actively participated in the technical negotiations o f the proposed program. Further aligning IDA's calendar with the country's budget cycle and CGAB's biannual reviews will be further pursued under PRSCs 8 and 9. IDA also collaborates with several other partners in the context o f sectoral program, in particular through pooled finding mechanisms such as in education, which are integrated in the national - 25 - budget mechanism. Lastly, with regard to investments projects and capacity reinforcement projects, coordination remains weak among donors, but co-financing is expected to play a positive coordination role inan increasing number o fprojects. Box 2: Donor Coordination/Harmonization Burkina Faso was a pilot country for the initiative on the Test o f N e w Forms o f Conditionality, implemented from 1997 to 2000, under the stewardship o f the European Commission. Incontrast with old practices where conditionality was driven by donors, the new initiative tried to strengthen recipient country ownership and responsibility for policies (design, implementation and monitoring-evaluation). A major lesson from this initiative was that budget support provided through this new form contributed more to improving ownership, accountability and the use o f country systems and result-based management principles. Owing to low administrative capacity and divergent and multiple practices on the side o f the donors, transaction costs related to the management o f budget support appeared excessive for the Government. The need for coordination and harmonization was quickly felt. Donors initially coordinated under the leadership o f the Delegation o f the European Commission. The first attempt to harmonize donor activities dates back to 2002 with the signature o f an agreement (SBC-CSLP) between the EuropeanUnion, Belgium, Denmark, France, the Netherlands, Sweden and Switzerland with Government approval. IDA and the AfDB became active members o f the initiative ina later phase. InFebruary 2004, the Government proposed a revised and more inclusive version, bringing all budget support partners into the Cadre Gine'ral d'Organisationdes Appuis Budgitaires (CGAB, an organizational framework for coordinated budget support). Focused on (i) ownership; (ii) alignment; (iii) predictability; (iv) and result-based approach, the CGAB i s built around a joint performance matrix which is the principal tool for coordination and evaluation. The CGAB monitors and evaluates permanently but has three mandatory sessions per annum, with a formal performance session held at the time o f the annual review o f the PRSP progress report. All these sessions are chaired by the Minister o f Finance and Budget, supported by a secretariat made up o f a representative o f the administration and two representatives o f the donors. Joint missions are planned to reduce administrative transaction costs (identification, pre-evaluation and evaluation). On the basis o f two years experience, the preliminary conclusion i s that the CGAB functions well6 in improving the predictability o f budget support for Burkma and promoting dialogue between the Government and the donors, while minimizingtransaction costs. Future work will, among other, focus o n improving the PRSP monitoring and evaluation system and aligning the CGAB and PRS processes. In particular, the operation o f the sectoral and thematic Commissions (CST), which i s the anchor o f the monitoring-evaluation system o f the PRSP implementation, needs to be strengthened and reliable data made available to better inform the monitoring and performance indicators. A second area where further work needs to be done i s the rationalization o f the CGAB matrix, w h c h should become more focused on strategic milestones o f the government's policy. A s regards donor performance, the principal challenge is still related to the predictability o f budgetary support. The preliminary PEFA report, carried out inJanuary 2007, offers a C+ mark for this category o fdonor performance. Inconclusion, Burkina Faso experience inbudget support coordination andharmonizationhas considerably improved with the introduction o f the CGAB, but some significant challenges that go beyond the framework o fbudget support remain to be solved to further strengthenthe system. 6The CGAl3 could hold all its sessions. - 26 - ANALYTICALUNDERPINNINGS 97. The current series o f PRSCs continue to benefit from several analytical reports recently completed. In FY04, these include a Public Expenditure Review, a Risk and Vulnerability Assessment, an Investment Climate study by FIAS and a Gender Assessment. InFY05, IDA completed a Poverty Assessment and a new Country Procurement Assessment Report (CPAR). Inaddition, the Bankworkedjointly with the IMFto update the Accountability Assessment and Action Plan (AAP) on the tracking o f poverty expenditure under the Heavily Indebted Poor Country (HPC) Initiative. These assessments have been used to inform the reform program o f PRSC-6 andthe new series (PRSC-7,8 and 9). 98. Another set o f studies were completed inFY06 to assist inidentifying priority reform for . spurring growth, diversification and employment. These studies included a labor market study and an investment climate assessment (ICA). The preliminary drafts o f a Diagnostic Trade Integration Study, a Financial Sector Review and an ESW on Decentralization have been made available recently for the Bank's CAS Mid-Term Review. These final assessments will be delivered inFY07 to inform the design o f next operations o f the current PRSC series inBurkina 'Faso. 99. The design of the series also benefited from many other sources including a recent report on the diagnosis of the Independent Audit Institution (Cour des Comptes) and its Action Plan (European Commission, October 2006), and a report on the sources o f growth and the vulnerability o f Burkina Faso's Economy to exogenous shocks (Government - MEDEV, December 2005). 100. .Inadditiontothe analyticalwork describedabove, itisexpectedthat the designofPRSC 8 and 9 will be underpinned by an upcoming Country Economic Memorandum (CEM, FY08) which will focus on growth, competitiveness and diversification issues. In particular, it will explore long-term prospects for Burkina Faso's cotton sector. A Financial Accountability Assessment, usingthe PEFA framework, is to be completed inFY07. It is expected that some o f the PRSC-9 triggers will be defined to address remaining weaknesses identified in Burkina Faso's public financial management systems. VIII. THE PROPOSEDPRSC7 101. The proposed operation i s the first in a series o f three annual PRSCs (PRSCs 7, 8 and 9) which will support the Government's PRS implementation along with other IDA instruments, including investment credits. This section outlines the overall framework o f the new series and describes the proposed PRSC'7. THEOVERALLFRAMEWORKTHENEWSERIESOFPRSCS7,s AND9 OF 102. The new PRSC series will support implementation o f Burkina Faso's Poverty Reduction Strategy adopted in 2000 and updated in 2004. The first series o f PRSCs for Burkina Faso focused on improving public financial management (notably fiduciary aspects) and access to social services (health and basic education). The second series added to these areas the issue o f growth, by focusing on reforms to fbrther liberalize the economy (cotton sector) andprivatize the - 27 - management o f key utilities (telecommunication, electricity and petroleum). The proposed third series will not only continue focusing on reducing factor costs (electricity and transport) and improving the competitiveness of the cotton sector, but also will support the Government's efforts to enhance the overall business climate and exports diversification. This series will also continue to support Government's measures to fbrther improve access to social services through greater decentralization and institutional strengthening and enhance the efficiency and accountability o f PFM. This will respond to requests from the BurkinabC public for improved quality o f public services and more transparency in the use o f public resources, as well as from donors inneed o f fiduciary standards to unblock untiedbudget support. DevelopmentObjectives 103. The development objectives o f the new PRSC series are to support the acceleration o f real growth andthe reductiono f the incidence o fpoverty inBurkina Faso by: (9 improvingthe investment climate and promotingexports through measures to improve infrastructures provision at a lower costs (electricity and transports), to restore the financial viability and enhance the competitiveness o f the cotton sector, to improve the business climate (simplify and reduce the cost o f investment procedures and regulations, enhance the security o f land tenure, adopt and implementanexport promotion strategy). (ii) improving access to basic social services by deepening decentralization and strengtheninginstitutional capacity; and (iii) promoting efficiency, transparency and accountability in the use of public resourcesby strengthening the link between resource allocation and the objectives o f growth and poverty reduction, pursuingprocurement reforms and strengthening the capacity o f audit institutions for public financial management. Resultframework 104. The Government development objectives to which the operation will contribute and the outcome indicators that will be used to assess progress are presented in Annex 4. Outcome indicators to the extent possible are directlytaken from the CGAB matrix (Annex 3) or from the latest three-year Priority Action Program. Discrepancies between the two matrices indicate inconsistencies between the preparation calendar o f this operation and the multi-donor review process (see lessons learned), a problem which i s expected to be increasingly addressed infbture operations. 105. The proposed PRSC-7 would provide the incentive to implement key economic, social and institutionalreforms aimed at strengthening the overall performance o f the economy, address key economic vulnerabilities, and contribute to poverty reduction. Over the period 2007-2009 and through this series o f three annual PRSCs, the reform program is expected to help the Government achieve its objective o f a visible reduction in poverty incidence by improving the investment climate and implementing an export-led growth strategy. It would also support progress towards the MDGs, namely, increase school enrollment and literacy rates, reduce child - 28 - and maternal mortality, increase access to safe water, and strengthen the sustainability o f development efforts through greater decentralization. POLICYAREAS 106. This section discusses the rationale for the selection o f prior actions for PRSC-7 and programtriggers for the subsequent operationinthis third series (PRSC-8). Triggers for PRSC-9 will be defined duringthe preparationo fPRSC-8. Improvingthe InvestmentClimateand PromotingExports 107. The PRSP targets an average growth rate o f 6 percent in the medium term in order to significantly reduce poverty. Achieving this growth level in the medium term will require measures to strengthen the country's competitiveness, diversify its economic base and expand market penetration. Efforts to improve the contribution o f total factor productivity to Burkina's economic growth, including through measures to shift the country's growth pattern from extensive agricultural production to intensive will be particularly critical to ensure a more sustainable growth path. This new PRSC series will continue to support critical actions in this area, notably to improve the investment climate andpromote exports. 108. The finding o f the Investment Climate Assessment (ICA, 2006) and o f the World Bank Doing Business ranking (Report, 2007) conclude that the business climate is generally not favorable to private sector development in Burkina, whatever the sub-sector. The most significant issues highlighted in the report are: (i) insufficient provision and high infiastructure costs (electricity and transport) - given that Burkina Faso i s a land-locked country, the reduction of transport costs and increased mobility o f people and goods through a well-maintained road network and strengthened sector institutional capacity is o f critical importance for growth and development; (ii) regulatory barriers (tax rate, judicial system, regulatory burden which on average consumes 10 percent o fthe time o f enterprise owners), (iii) dysfunctional factor markets (formal labor market, security o f land tenure); and (iv) corruption (formal firms must allocate 6 to 10percent o ftheir annual income to informal payments). 109. With respect to infrastructure constraints, energy costs have been identified as a long standingkeyproblem for economic diversification andcompetitiveness improvement inBurkina. The problem was recently highlighted by the Investment Climate Assessment where manufacturing firm reported losing almost 5 percent o f their annual income owing to electricity supply problems. The country faces three main challenges in the energy sector: (i) addressing production capacity constraints to meet increasing demand for electricity; (ii)improving the efficiency and equity o f electricity operations by reforming tariff and subsidy policy ina context o f high supply costs; and (iii)expanding access to energy for rural and semi-urban populations. Through the on-going Power Sector Development Project (PSDP) the Government is demonstrating its commitment to least-cost options, mainly the interconnection with neighboring countries with the scheduled construction o f the Bobo-Dioulasso-Ouagadougoutransmission lines. Also, the Government implemented through the PSDP two step tariff adjustments, with a first step 10percent increase inthe average electricity tariff inNovember 2004 and a second step with a 12.5 percent increase in September 2006. The current tariff and fuel subsidy policies are still not equitable and sustainable as they benefit the wealthiest consumers and their costs - 29 - increase in proportion to the growth in electricity consumption. The full interconnection of the electricity grid with CBte d'Ivoire by 2008 will lead to considerable cost savings that are expected to eliminate gradually subsidies. 110. Beyond excessive factor costs, Burkina Faso ranks poorly in the Doing Business indicators with regard to regulatory barriers (168 and 164 out o f 175 countries, respectively, in dealing with licenses and registeringproperty). It takes almost a year and it i s very costly to get a construction permit in Burkina (1,247% o f the per-capita income). The high employment index (153) also highlightsthe difficulty faced by private firms inhiringworkers, a finding also confirmed by the ICA. The I C A also identified as unfavorable factors uncertainty in the regulatory environment, a weak judicial system, corruption, and relatively hightax rates coupled withpoor accessto credit. 111. The Governmenthas been implementinga wide range o f reforms that will contribute to address these issues, including the implementation o f a judicial sector reform program, the preparation o f an anticorruption strategy and the adoption o f a new tax regulation code. Also, since July 2006 the Government has started implementing a Switzerland-fundedprogram entitled "Doing Business Better in Burkina". This program covers 5 out o f the 10 Doing business core indicators including: (i)business registration; (ii)labor market regulation; (iii)contracts enforcement; (iv) dealing with licenses; and (v) closing a business. Recent progress in the implementation o f this program includes an ongoing initiative aimed at establishing one-stop shops for the issuance o f buildingpermits and for property transfers. In addition, following a February 2005 workshop organized with the support o f IDA, the Government created the one- stop shop for enterprise creation (CEFORE, Centre de Formalitk des Entreprises), which i s contributing to improve business registration. 2,582 new enterprises were created in 2006 following the facilitation o fbusiness registration. 112. At the annual consultation with the private sector held in July 2006 entrepreneurs expressed concerns about landtitling and its impact on access to credit. Improvinglandtenure in Burkina is also critical for reducing poverty since most of the poor live in rural areas and are occupied with agricultural activities. Incertafn agricultural areas, access to landand control o f its resources are often a source o f conflicts between users (in particular between stockbreeders and farmers). In addition, the absence o f land tenure security in the agricultural sector prevents agricultural investments. IDA has been supporting the preparation o f a national strategy for securing land tenure in rural areas in Burkina. A first draft of the document was completed in 2004 with the assistance o f an international law firm. An extensive consultation process o f the draft i s in progress. The revised document that will come out o f the consultative process i s expected to be adopted by the Government by July 2007 and the related law shouldbe approved by the end o f the year. Burkina has already initiated pilot rural land tenure reforms in the framework o f a program financed by IDA (PNGT) and other programs. 113. Another area o f focus for the proposed PRSC series andthe PRSC 7 is export promotion, specifically the needto increase and diversify Burkina's exports revenues for andbeyond cotton. The cotton share in total exports revenues increased from 48 percent to 60 percent over the last decade. As a result, Burkina Faso's exports are little diversified and stagnated at 9 percent o f the GDP over the last ten years. Factors that led to such a poor performance include: (i) poor infrastructure and high cost o f public services and utilities (transportation, energy, - 30 - telecommunication and water) which have been discussed above; (ii) inadequate policy and an institutional framework for export promotion (trade policy, export promotion institutions); (iii) poor services for supporting production and trade (market information, advisory services, finance); and (iv) weak producer/professional associations. The prospects for improving exports in Burkina Faso will also depend on: (i)sustaining ongoing reforms in the cotton sector to improve the financial viability o f the cotton companies as well as improve on-farm productivity, ginning efficiency and product quality; (ii) encouraging diversification to other agricultural crops; and(iii) increasing foreign direct investment inmining(gold production). 114. Export promotion policies followed by the Government to date focused mainly on the organization o f trade events inside and outside o f Burkina Faso (Salon International de 1'Artisanat de Ouagadougou (SIAO), National Week o f Culture and International Fairs, Days o f Burkina, etc). The results o f these governmental policies have been modest so far. Recently, attention was paid to infrastructure investments like the Bobo Fruits Terminal and initiatives were launched for the development o f norms and standards for several products (French bean, mango, dried mango, shea almonds, shea butter, cashew nut, cashew nut almonds, sesame, and cowpea). But the standardization efforts are still at an early stage. 115. Withrespect to the cotton sector, as indicated inBox 1andAnnex 5, three sets o f actions are currently being implemented by sector operators: (1) all three cotton companies have announced their recapitalization plans; (2) the domestic producer price setting mechanism is being reformed to more closely align the producer price with the international cotton price; and (3) efforts continue to improve the productivity o f cotton production. On the latter issue, yields have remained stable at about 1 ton o f seed cotton per hectare. While technical analyses show that Burkina Faso continues to benefit from a significant competitive advantage in the cotton sub-sector, production costs, excluding the purchase price from farmers, remain high compared to those in other countries inthe sub-region (for example, variable costs inBurkina Faso are 40 percent higher than in C8te d'lvoire, in part reflecting higher electricity costs). InMarch 2007, the Government launched a study on the long term sustainability o f the cotton sector including considerations on the adoption o f transgenic (Bt) cotton. The findings and recommendations o f the study will help the Government and donors involved inthe sector design relevant policies to address the long term sustainability o f cotton production in Burkina. It should be noted in this respect that Burkina i s the only country in West and Central Africa that has been testing and developing local varieties o f Bt cotton. Initial results point to a productivity gain o f 19 to 30 percent and a reduction inpesticide use, from an average o f six applications to two. Nationwide introduction o f transgenic cotton is envisaged by 2011/2012. The Government is also playing a leading role within the sub region in developing an appropriate biosecurity regulatory framework. 116. Mining is an important source o f export diversification for Burkina Faso. Indeed, with the support of IDA'SMining Sector Capacity Buildingand Environmental Management Project (1998-2004), Burkina Faso i s about to move from a one-commodity economy (cotton) to a two- commodity economy inthe near future with gold exports becoming the second source o f export earnings. However, three challenges are facing the Government with the proliferation o f mining sites. First, the Ministry o f Mining does not have the capacity to monitor the industrial mining companies. Second, there i s a need to equip local artisanal miningsites with modern production equipment in order to improve the recuperationrate from 30-40 percent to 75-90 percent. More - 31 - critically, the minerals extracted will have to be traced and taxed effectively to benefit the state budgetwithout discouraging privateinvestors. 117. More broadly, and in order to establish an adequate policy and institutional framework for export promotion, the Government has started the elaboration o f an export promotion strategy. A DTIS report i s currently beingprepared by IDA to identify critical elements o f such strategy. The Government plans to adopt an action plan for the implementation o f such framework based on the recommendations o fthe DTIS (expected to be finalized by June 2007). 118. Focus of the proposed PRSC and follow-on operations. The proposed PRSC-7 supports improvements in the investment climate through a prior action to simplify land registrationprocedures and reduce the cost o f transferring land. PRSC-7 also includes as a prior action continuation o f the pilot land tenure security program in targeted provinces as evidenced by the registration o f at least 3500 land properties in 2006 and by promoting broad regional consultations on the strategy for land tenure in rural areas. While the PRSC-7 was expected to support the adoption and implementation o f an export promotion strategy, its adoption was delayed because o f the late delivery of the DTIS (which isjust being finalized). The strategy i s now expected to be adopted bythe Government at the endof 2007. PRSP 7 however includes as a prior action one o f the key recommendations of the DTIS, namely the adoption o f a transitory mechanism to reimburse VAT arrears to exporting enterprises. The accumulation o f such arrears was identifiedby the DTIS as an important impedimentto the financial viability and growth o f surveyed exporting companies. A more perennial mechanism i s expected to be adopted together with the export promotion strategy. Macroeconomic stability is considered a pre-requisite for growth and poverty reduction and the adequacy o f the macroeconomic framework is a pre- requisite for PRSC 7 as well as the other PRSCsinthe new series. 119. With respect to PRSC 8, it will continue to support improvements in the investment climate and export diversification through measures to improve the financial viability and competitiveness o fthe cotton sector, improve infrastructure provision (electricity) and streamline business regulations. On cotton, PRSC 8 includes two triggers: (i)the producer pricing mechanism i s hrther revised to be better aligned with the international market price and SOFITEX has started to reduce its operating costs in2007, has adopted and startedimplementing a restructuring plan aimed at hrther reducing its operating costs by no less than 10 percent in 2008; and (ii) independent financial and operational audits o f SOFITEX for 2004-2007 have been launched and the Government has adopted a strategy and calendar for enhanced private sector participation in SOFITEX's equity. 120. The first measure will ensure better alignment o f the producer price mechanism with world price changes and help all cotton companies break even, thus reducing Government's contingent liabilities from the sector. With the implementation o f SOFITEX's plan to reduce operating costs, the sector's competitiveness andlikelihood to break even, even duringperiods o f low world prices, will be strengthened. The second trigger represents an important milestone in the process o f enhancing SOFITEX's medium-term productivity and attracting private sector participation in the sector. Thus, the independent financial and operational audit o f SOFITEX will help build-up a more solid accounting base for 2007 (with fewer audit qualifications) and inform the Government's strategy to bringinprivate investors. The preparation and adoption o f a strategy to restore Government's minority involvement inthe sector and to transfer shares back - 32 - to the private sector as soon as private investors can be found is expected to be undertaken before the next PRSC. While cotton-related triggers for PRSC-9 would be defined during preparation o f PRSC-8, it i s anticipated that they would support the completion o f audits with fewer audit qualifications on the accounts covering more recent activities and would support the implementation o f the Government strategy to reduce its stake in SOFITEX and enhance private sector participation in the sector. Sound and arms-length management o f the cotton company will help its corporate performanceover time. 121. On mining, PRSC-8 and 9 will support progress inthe management o f natural resources through the EITI process, including the completion o f the initiation phase before the next operation is disbursed. The initiation phase o f EITI seeks to reach a broad-based consensus with stakeholders (industrials and civil society) on the objectives, organization and planning o f the process for implementation o f the Initiative. The Government will put inplace the coordinating administrative structures, but key decisions and costs are not going to be engaged at this stage. Over time, accrued transparency in the use o f miningproceeds and enhanced confidence on the part o f foreign investors will contribute to more sustainable growth in the sector and provide enhanced fiscal returns from miningactivities. 122. On electricity, PRSC-8 and 9 will support the strengthening o f the legal and regulatory framework to provide clarity on the roles and responsibilities o f sector institutions and set a transparent electricity tariff setting mechanism. Specifically, PRSC-8 will support the first step o f this process by including as trigger the submission to Parliament o f an electricity bill to revise the regulatory law on electricity generation, transmission and distribution. PRSC9 could support the establishment o f a Regulatory Authority for electricity. With respect to business regulations, PRSC 8 will also include as triggers the adoption o f a perennial legislation for land titling issuance and the establishment o f one-stop shop for land titling and a one-stop shop for construction permits, as well as the adoption o f implementation texts for the labor code to enhance the flexibility in the hours and schedules worked and to remove the limitation in the renewal o f term contracts in some sectors, including mining. PRSC9 could support a revision o f the labor code itself to hrther enhance labor market flexibility and encourage a shift o f employment from the informal toward the formal sector. 123. The above measures will be complemented by support provided by IDA under the recently approved (May 2006) Agricultural Diversification and Market Development project to support diversification inthe agriculture sector. The project will'focus on :(i) supportingprivate sector organizations and commodity associations by strengthening their ability to plan and implement a sound strategy for development o f market-driven agricultural supply chains; (ii) developing productive and marketinginfrastructure to improve productivity, agricultural product quality and linkages with markets; and (iii) improving the provision and efficiency o f core support services, including the promotion o f a more conducive institutional, regulatory and financial environment for private investment. The project, together with an AFD (Agence Franpise de Developpement) hnded project, will also support productivity improvements for cotton production. - 33 - Improving access to basic social services through deepened decentralization and strengthened institutional capacity 124. Human development contributes to sustainable growth. Increasing popularparticipation to the growth process, based on strengthening the development o f human resources, will in turn enhance the said growth process. Literacy, health and environmental protection are key to participation in civil life through economic and social activities. Similarly, a more intensive growth process fueled by factor productivity and sector competitiveness requires building a strong human resource base, which is gender-neutral. The emphasis in Burkina Faso is put on service delivery to communities (through decentralization) in primary and secondary education and on vocational training, through a more efficient use o f facilities and teachers. Concerning health, Government policies that encourage broader geographical coverage and increased financing for primary health care also contribute to growth. Efforts to prevent death from diarrhea or to reduce the burden o f diseases such as ascaris, dracunculiasis, hookworm, schistosomiasis and trachoma, will be unsuccessful unless people have access to safe drinking water andbasic sanitation. 125. The choice o f decentralization as a pillar of reforms to be supported in this new series reflects recent developments. The first o f these is that the former decentralization strategy which was based on decentralizing service delivery while retaining centralized management o f budgetary choices (deconcentration), has clearly reached its limits'. Inaddition, Burkina Faso recently took a significant step in the implementation of decentralization following the local elections held in April 2006. The challenge for the Government is to ensure a successful transition inthe transfer o f responsibilities and resources to the newly created communities with elected leadership. The new PRSC series addressesthis challenge by supporting the Government inthe implementationofthe decentralization strategy. 126. InBurkina Faso, although many ministries have decentralized services that contribute to the implementation o f public policies, resource allocation remains strongly centralized. The majority o f decentralized services lack effective self management. Untilnow, the budget as well as personnel management functions were always elaborated and executed at the central level and local Governments had little discretionary budgetary resources. 127. Currently, branch offices of the line ministries have no budget autonomy, with the exception of regional directorates of a few Ministries, such as health and education, both o f which only control a very small number o f poorly-funded expenditure categories. The survey carried out in 2002 on the share of budget expenditures received by regional services revealed that they were not very aware o ftheir entitlement since they receivedonly resources inkind. 128. Personnel management i s weak and over-centralized. Hiring, career development and retirements are controlled by the Ministry o f Civil Service. Appointment to management positions and posting are decided by the line ministry's central administration. Promotions are still based on seniority; performance and advancement based on merit have not been implementedyet. HumanResources Directorates inthe line ministriesconstitute little more than a mail drop betweenthe central technical directorates andthe sub-national levels. 'The ESW issued inDec. 2002, Improving service delivery at the local level, highlights the shortcomings and the poor performance o f the centralized management system and proposes a decentralized approach. - 34 - 129. This system has failed to provide basic services to the vast majority o f the population. Social indicators in all the sectors, while improving, are still among the lowest in the world as evidenced by low level o f school attainments and poor quality o f the education system, ineffective health system with high infant and maternal mortality rates, limited coverage o f safe drinkingwater and sanitation, etc. 130. Against this backdrop, achievements under the Community-Based Rural Development project suggest that when empowered, the communities are able to manage successfblly their own affairs. The living conditions have dramatically improved in the regions which benefited from this project. Interestingly, the decentralizationstrategy builds on this experience. 131. With the 2006 municipal elections, Burkina Faso has entered a new phase in the implementation o f its decentralization strategy. Now, the challenge for the Government is to succeed in the transfer o f responsibilities and resources to local Governments. The Decentralization Law (Code Gknkral des Collectivitks Territoriales au Burkina Faso) highlights six priorityresponsibilitiesto be transferred to urbancommunes bythe end o f 2005 including: (i) pre-school; (ii) education; (iii) health care; (iv) culture; (v) youth; and (vi) sport primary primary and leisure. It also includes the principle that responsibilities must be transferred commensurately with resources. Yet, the "Code" gives little guidance on the actual implementation o f these transfers, and 'implementation decrees" that should provide clarifications on these issues have not all been issued yet. 132. Progress made in2006 confirmed the commitment of the BurkinabC authorities to pursue decentralization. The adoption o f a strategy for accelerating decentralization includes four strategic objectives: (i) improving ownership o f decentralization implementation by actors; (ii) transferring responsibilities and resources to local Government; (iii) developing capacities o f local Governments; and (iv) improving coordination o f the process. It has been very helpful for assisting the installation o f newly appointed local Governments and starting the transfer o f responsibilities andresources. However, some acceleration o f the process seems now necessary inorder to hlly empower the newly appointed local Governments. The most urgentmeasure to take would be to transfer the assets corresponding to the six areas o f responsibilities transferred at the local level, by adopting the remaining texts related to individual asset transfers to municipalities. In the medium term, the ongoing ESW on decentralization will help update the priority action planfor implementationo fthe decentralization law adopted inJune 2006. 133. The institutional environment inwater and sanitation requires some reforms and capacity development to enable a productive scale-up o f investment programs. The Direction Gknnkrale des Ressources en Eau (DGRE), which i s responsible for rural water supply, would need to improve its budget planning, execution and reporting, to leverage donors' coordination and accelerate investments and rehabilitation program. The DGREmust also take action to prevent current and fbture infrastructure to fall into disrepair, as a result o f poor management and insufficient cost-recovery: currently 34 percent o f the 400 small water supply systems are broken down due to poor management in the absence o f a cost recovery policy. As per sanitation, the challenge i s even bigger than for water supply. The capacity o f the sector would have to be multiplied by 6 to reach the relevant MDG, i.e. providing 61 percent o f the population with improved sanitation facilities by 2015. - 35 - 134. Focus of the proposed PRSC and follow-on operations. PRSC-7 supports the effective transfer o f responsibilities and resources to municipalities and regions. City Contracts will also be preparedwith 6 maincities, including the two largest cities inthe country, Ouagadougou and Bobo Dioulasso, and four other provincial cities that lack basic infrastructure. This operation also supports the effective implementation o f the activities from the roadmap established by the Government to reach the water and sanitation MDGs, including adequate funding for the General Directorate o f Water and Sanitation (DGEAP) and for the expansion o f the urban water public utility's (ONEA) hygiene and sanitation promotion program to four new towns. ONEA, the national water supply and sanitation utility, i s considered as one o f the best performers in Sub- Saharan Africa and benefits from strong programmatic donor support. 135. Future PRSCs will continue to support the implementation o f the updated action plan for decentralization. Triggers for the proposed PRSC-8 support the continued transfer o f responsibilities and resources to the 49 urban municipalities with a focus on schools, teachers, health facilities and human resource planning, training and management functions. The PRSC series will also support in coordination with other donors the implementation o f the Water and Sanitation National Program and will strengthen the Sector Wide Approach designed by the Government in 2005 to provide more equitable and sustainable access to potable water and sanitation services, especially for the poor. More specifically, PRSC-8 will support reforms aiming at: i)improving the sustainability o f water points, inparticular by managing small town water supply systems through the development o f contracts between 25 rural communes and professional operator; and ii)continuing support to the implementation o f ONEA's hygiene and sanitation promotion campaign in four secondary cities (Fada N'Gourma, Ouahigouya, Banfora andKoudougou) as developed inthe sanitation strategic plan. 136. With respect to budget decentralization, PRSC-8 will support the deconcentration o f the main directorates o f the Ministry o f Finance and Budget involved in the decentralization, namely, the head office for budget (Direction Gknkrale du Budget-DGB), the head office for ex ante control (Direction Centrale Du ContrGle Financier-DCCF), the head office o f public accounting (Direction Gknkrale du Trksor et de la Comptabilitk Publique-DGTCP) and the tax head office (Direction Gknkrale des ImpGts). All have started implementing an action plan for their branch offices to help the municipalities prepare and execute their budgets. Altogether, these services need about 1,200 additional staff and FCFA 16 billionininvestments to be able to provide adequate assistance to the communities. The activities inthe action plans are planned to be implemented till 2012, but the bulk o f the actions i s expected to be carried out by the end o f 2008. The budget required for these two years i s about FCFA13.5 billion out of the total FCFAl6 billion. Finally, PRSC-8 will support the introduction in22 urban municipalities o f the accounting module o f CICL (Comptabilitk Intkgrke des Collectivitks Locales) Software specifically designed to facilitate the production o f financial accounts by municipalities, which the Treasury (DGTCP) has been implementingsince 2003, with the support o f Switzerland. The Government will also adopt a calendar for the development and the deployment o f CICL's administrative management module. - 36 - Promotingefficiency,transparencyand accountabilityinthe use of publicresources throughenhancedpublicfinancialmanagement 137. The continued focus on public financial management will contribute to further improving transparency, accountability and efficiency in budget processes by consolidating the ongoing procurement reform, strengthening audit institutions, enabling decentralized structures to generate resources commensurate with their mandate and enhance medium-tern planning visibility for sectoral program budgets. 138. Burkina Faso's Public Financial Management system has considerably improved over the past ten years: (i)successful implementation o f budget management Software (CID, CIE, SIGASPE, SIGADE); (ii)a solid budget legislation complying with the WAEMU recommendations (Directives); (iii) successful implementationo f budgetplanning anddiagnostic tools (MTEF, PER); (iv) increasing decentralization o f budget execution; (v) improvement in budget classificationwith the successful implementationo f functional classification with poverty markers. However, despite these commendable efforts, recurrent and very sensitive issues undermine the overall credibility o fthe system. Most important weaknesses or issues include: (i) the low level o f tax revenue that has been a long standing concern and constitutes today a challenge for a sustainable development o f Burkina; (ii) insufficient transparency o f the public financial management system andweaknesses inthe control o fpublic financial management (the 2005 CPAR concluded that the multiplicity o f public finance control institutions in Burkina led to a lack o f clarity in their respective role and a fragmentation o f their budget, equipment and staff); (iii) lack o f a national anticomption strategy; (iv) increased fiduciary risks as the the decentralization reform amplifies the institutional weakness o fpublic finance control institutions. The preliminaryfindings o f the PEFA8exercise confirmed this diagnosis. 139. Decentralizedfinancial management inparticular i s plaguedby: (i) limitedline ministry responsibility for budget decision, since wages are controlled and paid by the Ministry o f Finance andBudget, andmost sub-national expenditures are financed by external aid; (ii) limited responsibility given to branch offices even for those items which the ministry does control; and (iii) planningandmonitoring, inspite ofattemptsto create program-budgets. The limited central financial control system (the only one in operation) is limited and not always efficient. Burkina Faso has a tradition o f ex ante control, based on budget legislation. Internal auditing bodies are used on an ad-hoc basis, usually when there i s suspicion o f malfeasance (sometimes triggered by specific accusations), and the outcomes o f such audits are kept at the level o f their reporting authority. Reports are not made public, making it difficult to ascertain what impact they may have. 140. The setting up o f the independent Audit Court (Cour des Comptes) established the conditions for an independent evaluation o f budget execution, but the annual budget o f the Audit Court remains low for its mandate. In addition, the ability of the Audit Court to issue a certificate o f conformity rests on the possibility to compare the accounts held by the budget administrator (budget execution report or comptes administratif) with those held by the public accountants (accounting statements or comptes de gestion). While there has been progress inthe * Cf. BurkinaFaso :Mesure de la performance de la gestion des finances publiques au Burkina Faso selon la mkthodologie PEFA, Version provisoire. Mars 2007. - 37 - production o f the accounting statements o f the three principal public accountants, more remains to be done, specifically for noncommercial public entities. There are also weaknesses in the filing system that do not facilitate the work o f oversight institutions. With the ongoing decentralization, the Cour des Comptes needs to build its own capacity to assess local governments' accounts. 141. Inthe areaofpublic procurement, progress hasbeenmadethat shouldbepursued. The 2005 CPAR assessed the performance o f the national procurement system against the 12 benchmark indicators proposed by the working group composed o f OECD/DAC and the World Bank at a score o f 31 percent in 2000, prior to the implementation o f the first series of PRSCs, and again at 55 percent in 2005. While encouraging, this score remains far below the international standards and norms of at least 75 percent. Should all the recommendations o f the 2005 CPAR be implemented, it i s expected that the score o f the procurement system inBurkina Faso would reach 76 percent by 2010. 142. One o f the most important weaknesses highlighted by the 2005 CPAR was the lack o f a high authority for procurement regulation and the lack of a training strategy for procurement specialists. In2006, a draft decree was preparedto further strengthen the institutional framework for procurement, proposing the creation o f an Authority o f Public Procurement Regulation (ARMP) and o f a General Directorate of Public Procurement (DGMP), a process which was supported byPRSC-6. 143. Among the weaknessesidentified by the 2005 CPAR that remainto be addressedare: a. with respect to the legal and regulatory framework: (i) lack o f specific regulations for subcontracting (Muitrise d 'ouvruge ddkguk); (ii) non-conformity o f the national regulatory and institutional framework with the WAEMU directives; and (iii) unsystematic use o f procurement standarddocuments by contract agencies. b. with respect to the institutional framework and capacity development: (i)non inclusion o f procurement as an integral part o f the budget preparation process; (ii)incompatible role o f DCMP as regulator o f the procurement system and execution agency; and (iii) lack of a training strategy on procurement issues. C. with respect to the integrity o f the procurement system: (i) o f a code o f ethics both for lack the public andthe private sectors; (ii) o f transparency assessmentand publications absence o f frauds and sanctions; and (iii) absence of a specific and a clear judicial regime for sanctions. 144. Focus of the proposed PRSC and follow-on operations. PRSC-7 supports the implementation o f a functional budget classification with a marker for poverty-spending to facilitate tracking o f such spending. Since 2000, priority expenditures are identified by adding the expenditure based on the administrative nomenclature o f the budget and the expenditure carried out in the framework o f the special HIPC account (virtual fbnd for poverty reduction). Data on this expenditure are readily available. In2006, the Government successfully customized functional andsocial classifications inthe budget management software (CID) to track fbnctional expenditures andpoverty spending. - 38 - 145. PRSC-7 also supports the adoption o f a decree which creates a regulatory agency for public procurement (ARMP) and the revision of the attribution, composition and functioning o f the General Directorate for Public Procurement (DGMP) to further improve the procurement regulatory framework. ARMP would be operational by 2008 and would manage the monitoring and evaluation systems. A list o f performance indicators will be prepared by the Government and CNCS with the support o f the African DevelopmentBank and the World Bank during the mid-termreview o f the implementation o f the CPAR Action Plan, currently scheduled for June 2008. The objective o f the procurement reform i s to improve governance, efficiency inspending and growth. 146. Strengthening the Cour des Comptes is a key PRSC-7 measure. There are several additional initiatives that support the capacity development o f audit institutions inBurkina Faso including an AfDB project (Support to public expenditure programming and control institutions, July 2006) and a World Bank IDF (Strengthening the professional accounting staff o f the public sector control institutions). The Government has adopted a national strategy for combating corruption and a sector strategy for strengthening public finance. Both strategies include relevant measuresthat will help improve budget control inBurkina Faso. 147. Key PFM reforms to be implemented in future series o f PRSCs would include: (i) continuing to support the strategic allocation o f resources by settingup administrative structures in charge of developing program- budgets in two pilot ministries (Infrastructure and Environment) to improve predictability in budget allocation (including for road maintenance), enhance effectiveness inpublic spending and strengthen the ministries' institutional capacity; (ii) further strengthening external controls by securing the independence o f the Independent Audit Court, allowing the review o f small communes' records and accounts by a Regional Accountant (Trksorier) and the execution o f its budget through related arrangements similar to those o f the FASO Ombudsman or the High Council for Communication; and (iii) progressing further with the procurement reform through improved monitoring and evaluation o f procurement systems, andthe effective deployment o fprocurement units inat least 2 pilot ministries andin2 regions. PRIORACTIONS FOR THE PROPOSEDPRSC-7 148. PRSC-7 would support selected reforms in the Government's program described in Section VI and inits Letter o fDevelopment Policy (LDP) (Annex 1) that are deemed essential to its successful implementation. The rationale for their selection has been discussed in the previous section. This list is consistent with the triggers defined at the end o f the preparation o f PRSC-6 and is aligned with the Government's overall Priority Actions Plan (PAP) and included in the joint performance matrix o f the budget support group (Annex 3 - the so-called CGAB performance matrix). Compliance with these prior actions as defined in the English version o f the Financial Agreement forms the basis for IDA to proceed with the proposed operation. 149. The prior actions for PRSC-7 are derived from triggers that were identified during the preparation o f PRSC-6. There have been only a few limited adjustments to take into account exogenous factors not under the control o f the Government. The implementation o f the action plan drawn from DTIS was not feasible as this trade study just got released at the time the proposed operation was being finalized. A couple o fprior actions were missing a baseline inthe PRSC-6 document and needed to be better qualified to become monitorable. This is the case for - 39 - the implementationo fthe pilot landtenure (to which a component on consultations was added to better reflect the reality o f the process). This is also the case for the transfer o f responsibilities and resources to local Governments, or for the implementation o f the CPAR action plan, or for the capacity development o f audit institutions. With the exception o f the trigger on the DTIS action plan, none o fthe below triggers was substantially modified. Table3: Assessment of PRSC-7OriginalTriggers andProposedPrior Actions 1.Adopt and implement the action plandrawn fromthe Establishmentof a new transitory VAT arrears Trade Diagnostic Study, including assessing and reimbursement mechanismfor exporting addressing the issue o f VAT refunds for exporters enterprises. within the existing regulatory framework. 2. Improve the business climate by implementing the Improve the businessclimate by adoptinga Government's ActionPlanbased on the 10 macro Transitory LandTitlingIssuanceLaw to implement indicators o f the "Doing Business Report". landtitling actions inthe Government's Action Plan basedon the "DoingBusinessReport". 3. Pursue implementation o f the pilot land tenure Pursue implementation o f the pilot land tenure security security program intargeted provinces; approve the program inthe 26 targetedprovinces as evidencedby strategy for land tenure security inrural areas as a increasedlandtitling records(at least3500) inthese critical step toward the adoption o f the framework law provinces;and by consultationson the draft strategy onrural land tenure (Loi d 'orientationsur lefoncier en for land tenure security inrural areas, conducted as a milieu rural). critical step toward the adoption o f the framework law on rural land tenure (Loi d 'orientation sur lefoncier en II.Improvingaccesstobasicsocialservices throughgreater decentralizationand strengthened institutionalcapacity 4. Effective implementation of the activities o f the Unchanged formulation roadmap established by the Government to reachthe MDGtargets for water and sanitation, including adequate funding for the programbudget o f the General Directorate o f Water and Sanitation (DGEAP) and for the expansion o fthe hygiene and sanitation promotion programo f the urbanwater public utility(ONEA) to four new towns. - 40 - 5. Effective transfer o f responsibilities andresources to Effective transfer ofresponsibilities and resourcesto municipalities and regions. municipalities and regions, as evidenced by: (i) allocationofresourcestoregionsand the communities; (ii) settingupofinstitutionalmechanismsforthe the transfer o f financial resources to urban communities, including: the establishment o fthe Investment Fundfor Local Governments; 0 clarification o fthe transfers o f mandates and responsibilities to regions and urbanmunicipalities; and adoption o f a legal framework for the transfer o f human resources. 6. City Contracts are prepared with the 6 main cities. Unchangedformulation. III. Promotingefficiency, transparencyand accountabilityinthe useofpublicresources 7. Adopt the draft budget for 2007 on the basis o f Unchangedformulation. sectoral ceilings o f the 2007-2009 MTEFand inline with the PRSP priorities. 8. Implementthe Action Plan drawn from the 2005 Satisfactory implementation o f the Action Plan drawn CPAR. from the 2005 CPAR as evidencedby: the adoptionof a decreecreating a RegulatoryAgency for Public Procurement(ARMP); and revisionofthe attribution, composition and functioningof the GeneralDirectoratefor Public Procurement (DGMP). 9. Implementthe functional budget classification with a Unchangedformulation. marker for poverty-spending to allow for tracking of such spending. 10. Strengthen the capacity o f audit institutions for Unchangedformulation. public financial management. -41 - PROPOSEDTRIGGERS FORPRSC-8 150. The new series will continue to support the Government's PRS strategic objectives described in section VI. As per any DPL, an adequate macroeconomic framework will have to be maintained during the program period. Table 4 below sets out the proposed triggers for PRSC-8. Triggers for PRSC-9will be definedduringthe preparationo fPRSC-8. Table4: ProposedTriggers for PRSC-8 1. The producer pricing mechanismis fiuther revisedto better align it with the international market price. SOFITEX has started to reduce its operating costs in2007, has adopted and started implementing a restructuring plan aimed at fiuther reducing its operating costs by no less than 10percent in2008. 2. Independent financial and operational audits o f SOFITEX for 2004-2007 have been launched and the Government has adopted a strategy and calendar for enhanced private sector participation inSOFITEX's equity. 3. The initiationphase o fthe Extractive Industries Transparency Initiative (EITI) i s completed. 4. Adopt perennial legislation for land titling issuance and execute the new dispositions through the establishment o f a one-stop shop for land titling and a one-stop shop for construction permits. 5. The Government has adopted implementation texts to: (i) the flexibility inthe hours and schedules enhance worked and (ii) remove the limitation inthe renewal o f term contracts insome sectors, including mining. 6. Submission to Parliament o f an electricity bill to revise the regulatory law on electricity generation, transmission and distribution. adoption o f "ArrEtts de Dtvolutionet de Mise A disposition" and Budget funds for schools (Fonds Ecoles) are transferred to 22 Provinces and their urbanmunicipalities as evidenced by the corresponding "Decision de dtblocage". 8. Responsibility for health facilities i s transferred to the 49 Municipalities as evidenced by the adoption o f "Arrbtts de devolution et de Mise A disposition" and human resource planning, training and management fbnctions have been strengthened inthe Ministry o f Health as evidenced by the adopted HumanResources Hiring Plan and Health Personnel Training Plan and the operationalization o f the HR software system. 9. The strategy to maintainnew water points i s implemented by DGRE and contracts have been signed between 25 rural communes and professional operators to manage water piped systems. The ONEA hygiene and sanitation promotion programi s continued in4 secondary cities according to the agreed program. 10. Deconcentratedbudget management has been strengthened as demonstrated by: (i) the introductiono f the accounting module o f the CICL software inat least 22 urban municipalities and the adoption o f a calendar for the development and deployment o f CICL's administrative management module; and (ii) the establishment o f several branch offices o f the Ministryo f Finance and Budget (at least 3 for DGB, 10 for DGTCP, 7 for DGI, and 2 for infrastructure and environment and baseline data are collected to improve predictability inbudget allocation (including for road maintenance), enhance effectiveness inpublic spending and strengthen the ministries' institutional capacities. 12. Procurement reformprogresses as evidenced by:(i) productiono fbaseline data for the monitoring and the evaluation o f procurement systems; and (ii) the establishment o fprocurement units inat least 2 line ministries and 2 regions. 13. The independent audit institutionis strengthened as evidenced by the adoption o f decrees on: (i) review o f the small communes' records and accounts by a Regional Accountant (Trtsorier); and (ii) the execution o f the Cour des Comptes budget through related arrangements similar to those o f the FASO Ombudsman or the HighCouncil for Communication. - 42 - Box 3. Good PracticePrincipleson Conditionality Principle 1:Reinforce Ownership This PRSC is embedded in the General Framework for Budget Support (Cadre General d'organisation des Appuis Budgetaires CGAB), an organizational framework for coordinating andharmonizing budget support and - its process between the Government o f Burkina Faso and donors engaged in providing budget support. The CGAB in its current form has been established in February 2005. It focuses on (i) ownership of the reform process; (ii)alignment with the country's PRSP; (iii) predictability o f budget support; (iv) and a result-based approach which i s coordinated and agreedupon with the Government andthe donors o f budgetsupport. Principle 2: Agree upfront with the Governmentand otherfinancialpartnerson a coordinatedaccountability framework The group o f donors organized in the CGAB support reforms as outlined in Burkina's PRSP and which are updated and M e r specified in the annually revised Priority Action Plan (PAP). The PAP combines planned policy objectives and actions with a medium resource planning framework (MTEF) and a monitoring framework. Following the PAP'Sobjectives and monitoring framework, the CGAB donors develop ajoint performance matrix which i s the principal tool for coordination and evaluation o f budget support. This procedure allows for accountability along shared objectives and performance indicators. The close coordination and harmonization among donors and with the Government's reform policy program permits also improved predictability o f budget resources. Principle3: Customizethe accountabilityframework and modalities of Bank supportto country circumstances IDA'Ssupport through PRSCs is since 2005 part ofthe CGAB framework inresponseto Government demands to align donor support inorder to lower transaction cost for the Government and to harmonize the policy dialogue along with the other donors around the PRSP and its priorities, as well as the accountability framework for budget support. Identification, pre-appraisal and appraisal i s completely aligned with the CGAB calendar whch offers 3 principal sessions with the Government to assess policy outcomes (endo f April, jointly with an assessmento f the Annual Progress Report o f the Country's PRSP implementation), to identify policy measures and possible conditions for budget support (September) and to conduct a midterm review (February). Only reforms truly owned by the Government, however sensitive, have been retained inthe program. Principle4: Chooseonly actions criticalfor achieving results as conditionsfor disbursement The Bank's policy matrix uses a limited set of conditions (10 intotal for PRSC 7), which function as triggers (prior actions) for disbursement. The chosenpolicy measureswere identifiedjointly with the Government as well as the other CGAB donors to ensure a critical contribution to the Government's reformprogramand to coordinate with conditions emphasized by other CGAB donors. Conditionality is focused only on critical operational steps which would move the Government's reform agenda further. 13 triggers have been identified for PRSC-8 in partnership with the Government. The CGAB matrix (Annex 3) provides further program benchmarks, some o f which can be used as conditionality by other donors. The conditionality i s also typically coordinated with the programthe Government discusseswith the IMF. Principle 5: Conduct transparentprogress reviews conducive topredictable andperformance-based financial support The CGAB monitors and evaluates permanently progress made with regard to policy implementation and conducts the above described three mandatory annual review sessions. These three sessions are chaired by the Minister o f Finance, supported by a secretariat made up o f a representative o f the administration and two representatives o f the donors. The three sessions are open to interested parties, and the principal results as well as a summary of the discussions are documented and publicly available. The Government incorporates feedback from such CGAB meetings into its own reporting, including for the Annual PRSP Progress Report. -43 - IX. PRSC-7IMPLEMENTATION PARTICIPATION PROCESS 150. The design o f this new PRSC series and more particularly o f the first one o f this three proposed operation (PRSC-7) benefited from a broad stakeholders consultations. The Government led several meetings in which experts from central and line Ministries and top officials, including Ministers, consulted local Governments officials, private sector representatives, and civil society organizations. Among those meetings, one can note: the annual meeting on the PRSP Annual Progress Report, which represents the last stage o f a consultation process involving Government experts, private sector and civil society representatives, working together in the six established sector and thematic commissions (Commissions Sectorielles et The`matiques- CST); the annual World Bank Group's strategy week in Burkina, the more recent having concluded on March 2, 2007. This event allowed further dissemination o f the CAS and o f recently completed ESW, and candid discussions o f the challenges that Burkina Faso faces, including for the investment climate, the implementation o f decentralization andthe future o f cottonproduction; intensive dissemination o f ESW (whether IDA- or partner- led) to improve appropriation of analytic findings by all actors involved. Several workshops took place, including on IDA'Slabor market and investment climate studies, on an EC diagnosis o f the independent audit institution (Cour des comptes), and on the Canada-led assessment o f monitoring and evaluation systems for the PRSP (PARSEP program); and a field visit to the local Government o f Koudougou (Center-West) with a focus on decentralization (implementation aspects, local actors' perspectives, progress to date, andremainingchallenges). 151. The design o f the PRSCs 7-9 series in Burkina also benefited from several annual meetings in which the Government consulted private sector representatives (Rencontre annuelle Etat-Secteur prive? or civil society (Forum national de la socikte' civile) and farmers organizations (Journe`es nationales dupaysan). POVERTY AND SOCIAL IMPACTS 152. The proposed PRSC-7 is expected to have a significant positive impact on poverty reduction. First, the improvement in the investment climate and the promotion of exports supported by the proposed operation would accelerate growth. This includes improving access to and security o f land titles in rural areas where most o f the poor live and thus i s expected to have a substantial positive impact on access to credit. Second, the strengthening o f public financial management i s expected to enhance efficiency, transparency and accountability in public resource use. Such measures would also increase the country's absorption capacity for external resources. Third, the reforms in public service provision through decentralization and - 44 - institutional strengthening would improve access o f the poor to health, education, water and sanitation services, support their greater participation in the growth process and sustain progress towards the MDGs. However, as discussed below there is a risk that ifnot accompanied by the provision o f sufficient resources and strengthened capacity for local Governments to carry out their new responsibilities, the devolution ofbasic service deliverymayresult inreduced quality and access to these services. To mitigate this, several donors support decentralizationefforts inBurkina, includingthe ongoing IDA-financed Administration Capacity Buildingproject and the Community Driven Development project, and the planned Urban Capacity Building project. In addition, ongoing IDA analytical work on decentralization ESW will also help the Government fine tune the decentralization program, particularly with regard to service delivery for the poor. 153. On cotton, aligning producer prices more closely with fluctuations in world prices (in CFA terms) will likely affect poor households relying on this cash crop as a dominant source o f earnings. A preliminary estimate o f the impact o f different cotton producer prices on poverty among cotton producers in Burkina Faso is detailed in Annex 6. This shows that a 20 CFA franckg reduction inthe producer price from FCFA 160per kg to FCFA 140 per kg would lead to an increase in poverty o f about 3.5 percentage points among cotton producers. To help mitigate the potential impact of reforms on small producers, by reducing risks and increasing revenue for rural households, IDA i s implementingan agricultural project (PAFASP) to promote diversification beyond cotton. PRSCs-8 and 9 are also supporting productivity gains in the sector. The hture adoption o f Bt (genetically modified) cotton should allow a reduction ininput factors (reduced use o f fertilizers by farmers), which would be partly offset by royalties paid to the biogenic companyproducing Bt seeds. While a more detailed analysis o f the overall poverty impact o f cotton reforms will be done in the context o f the upcoming CEM, it should be noted that not reforming the sector would likely hamper its medium-term growth potential as a sustainable cash crop for many poor households. SUPERVISION, MONITORINGEVALUATION & 154. The Ministry o f Finance and Budget (MFB) will be responsible for overall implementation o f the proposed PRSC-7. The Secretary o f the Permanent Secretariat for the Monitoring o f Financial Programs and Policies (SP-PPF) inthe MFBwill leadthe Government's technical team with representatives o f the Ministries o f Finance and Budget; Economy and Development; Health; Labor and Employment, Social Protection, Basic Education and Literacy; Secondary Education, Higher Education and Scientific Research; Environment and Living Conditions; Agriculture, Water and Fisheries; Commerce, Enterprise Development, and Artisanship; Energy and Mines; Decentralization; Public Administration and representatives o f public enterprises. 155. IDA'S supervision effort will be aligned with the Government-led monitoring and evaluation system underpinning the PRSP-2, the Priority Action Plan, and the General Framework for Budget Support (CGAB). The specific benchmarks and outcomes to be monitored underPRSC-7 (see Annex 4) are extracted from the Government overall development program (Annex 3), thus providing significant benefits in reducing transaction costs for the Government.They are included inthejoint performancematrix under the CGAB. IDA staff has been working with the authorities and the other donors under the CGAB to ensure that coordination o f the supervision efforts will increase predictability and aid alignment with the - 45 - budget cycle. Inassessing the implementation of the PRSP-2, the CGAB will take into account factors outside Government's control that may alter the underlyingassumptions for a successful PRSP implementation. Such factors include declining terms o f trade, weather-related shocks, and shortfalls inexternal assistanceand regional instability. FIDUCIARYASPECTS 156. The 2001 CFAA andCPAR, andthe 2004 HIPC AAP, were key inputsinthe preparation o fthe Government's budget management reformprogram (Programme de Rkforme de la Gestion Budgktuire, PRGB). The Government i s also using the findings o f the recently completed 2005 CPAR to update the PRGB. The PRGB is supported by most donors providing budgetary support, and i s a core element o f the MOU for budget support. Under PRSC-1 to PRSC-6, most recommendations o f the CFAA and CPAR have been successfully implemented, including the implementationof annual audit procedures recommended by the CFAA. PRSC-7 builds on the achievements under the first PRSCs by supporting the further strengthening of internal and external controls, and by including additional measures to enhance policy-based budgeting provision of sizeable and diverse financial information and supporting the creation of a regulatory agency for public procurementand strengthening o f the General Directorate for Public Procurement (DGMP). In the context o f PRSC-7 preparation, the Bank has reviewed fiduciary arrangements. Overall, the Bank has judged implementationperformance o f the PFM reform program to date and Government'scommitmentto PFMimprovementsas satisfactory. 157. The Central Bank o f the West African States (BCEAO) i s the common central bank o f the West African countries, including Burkina Faso. In2005, IMF staff carried out an on-site safeguards assessment o f the BCEAO and found that progress had been made in strengthening the BCEAO's safeguard framework since 2002 when the last safeguard assessment was undertaken. The BCEAO now publishes a fill set of audited financial statements, and improvements have been made to move financial reporting closer to International Financial Reporting Standards (IFRS). IMF staff noted that the BCEAO has improved the explanatory notes to the financial statements and further changes are scheduledfor the next fiscal year, with a view toward a graduate alignment with International Accounting Standard (IAS), as adopted internationally by other central banks. Furthermore, an internal audit charter has been put in place, mechanisms have been established to improve risk management and risk prevention, and follow-up on internal and external audit recommendations has been strengthened. The external auditor has apprised the Board o f Directors o f the BCEAO of the quality o f internal controls in June 2003. IMF staff identified a number o f areas where firther steps would help solidify the progress made in recent years. The main recommendations relate to: (i) improving the external audit process by adopting a formal rotation policy and further enhancing the transparency o f the financial statements by adopting IFRS in full; and (ii) enhancing the effectiveness of the internal audit function by further strengthening the reportingto management o fthe BCEAO. 158. Bank financial management specialists reviewed the flow o f funds arrangement between the Central Bank (BCEAO) and the Treasury (DGTCP), taking into account the findings o f an annual audit o f the flow o f budgetary finds between the Central Bank and the Treasury funded by the multi-donor Budget Support Group. The team concluded that current arrangements are adequate, with fiduciary risks within acceptable risk tolerance levels. However, the team recommended that the information systems o f these two institutions be linked, so as to minimize - 46 - delays and discrepancies in flows reporting, thus eliminating cumbersome reconciliations. The last audit report on the flows of funds, which was produced in 2005 and assessed the Central Bank's foreign exchange environment, revealed no major weakness in the system. DISBURSEMENT AUDITING AND 159. The operation would consist of a single tranche of US$90 million equivalent to be available upon effectiveness and disbursed on the basis of a withdrawal applicationdf the US$90 milllion, US$67.54 million will be provided on a want basis and the remainder, US$22.46 million, on a credit basis on standard IDA terms. The proposed operation will follow IDA'S disbursement procedures for development policy credits. Once the credit becomes effective, the proceeds will be deposited by IDA into a Government account at the Central Bank which forms part of the country's foreign exchange reserves; as a due diligence measure, IDA will obtain confirmation from the Government that the amount of the credit has been accounted for in the country's budget management system (within 30 days of disbursement). Disbursement would not be linked to specific purchases. The proceeds of the Grant would not be used to finance expenditures excluded under the Agreement. If, after being deposited in this account, the proceeds of the credit are used for ineligible purposes as defined in the Financing Agreement, IDA will require the Recipient to either: (a) apply the corresponding amount to eligible purposes, or (b) refund the amount directly to IDA. No dedicated account is required. ENVIRONMENTALNATURALRESOURCESASPECTS AND 160. IDA has determined that the specific actions supported under the proposed PRSC- 7 are not expected to have a significant effect on Burkina's environment and natural resources. The potential environmental effects stem from measures to revitalize the cotton sector, transfer of responsibilities to municipalities and regions, implementation of pilot land tenurial arrangements, as well as the measures to improve the investment climate. The analysis reveals that these should not be extensive, nor will they be irreversible. However, a more careful monitoring of the effects may be necessary in some areas prior to the preparation of PRSC-8. 161. Cotton Sector: The expansion of cotton at the proposed 4-6 percent p.a. could have serious implications for cotton production, unless it comes about from increases in yields instead of from increases in land area. Cotton expansion has been an important source of deforestation in the country and the loss of some non-timber forest products, notable honey production. Because of the nature of the land, cotton production exhausts the soil after some years and so the land has to be left fallow to recover. Thus, the area needed for a given level of production is higher than the land actually under cultivation. There are also a number of negative impacts from the application of pesticides. To put it in perspective, the land area under cotton in 2005 was 570,000 ha. If it were increased by, say 5 percent a year over the next 10 years, it would add another 360,000 ha. The current area under forest in Burkina Faso is about 7.1 million ha. If the whole of the development o f send varieties that are more resistant to pests and to drought conditions. The TerrAfrica program on "Sustainable LandManagement" and the GEF Regional Biosafetyproject for West Africa seek to contribute to these solutions through a participative approach. 163. Land TenurialArrangements: Improving security o f tenure will generally have a positive impact on the environment and natural resources. Bestowing property rights will provide incentives for rural land owners to invest in agricultural land and adopt more sustainable and environment-friendly agricultural practices (andwean them away from forests). However, there are still inherent conflicts in the country between traditional and modem rights. While under new land policy a piece o f land may belong to the Government, at the local level chiefs still have considerable say in how it i s used andby whom. The law on property rights is not favorable to smallholders and this has implications for sustainable land use (and forest encroachment). A gradual progress in this area is laudable, but consultations with a range o f stakeholders at this stage could play a constructive role in averting future land use conflicts and for promoting sustainable landmanagement. 164. The PRSC environmental team assessed the readiness o f the recipient to deal with environmental issues. The assessment found that Burkina Faso has the necessary regulations pertaining to environmental assessment but that compliance with such regulations is weak. Like many other IDA countries, Burkina Faso prepared a National Environment Action Plan (NEAP) at the beginning o f the 1990s. Unlike the other countries, however, the NEAP o f Burkina Faso was not reflected in a coherent investment program, which could have included capacity- building components. The result was delays in creating the regulatory framework, a lack o f experience and limited capacity in certain areas o f environmental management, particularly environmental assessment. The current regulatory framework for the country's environmental management i s the result o f a slow but steady development o f environmental law, land law, forest law andmininglaw. 165. The team also focused on the institutional and technical capacity o f the Government agencies involved in supervising compliance with environmental regulations. The Ministryo f Environment i s aware o f its increased responsibilities inthe context o f the country's wider goals o f poverty reduction and there is a lot o f evidence that it i s doing its best to meet these responsibilities. However, the Ministry i s severely understaffed which constraints its responsibility for evaluating EIAs and preparing mitigation plans where necessary. Further, the Ministry inspectors who are responsible for checking for compliance with environmental regulations are not adequately trained. This has implications for both the cotton and mining sectors where the environmental implications are high. 166. The effectiveness o fthe system o f environmental andnatural resource management inthe country is further challenged by some new developments. The Ministry o f Environment has difficulties inmeeting the targets for faster processing o f new projects and o f settingup o f new businessesthat are a key part o fthe Government growth andpoverty reduction strategy under the One Stop Shop. This i s especially so when the areas o f proposed activity involve significant potential environmental impacts. This could be resolved by increasing the number o f staff available for the evaluation, but it may also require the Government to change the target times for clearance o f more complex projects with significant environmental impacts. There are similar concerns about the environmental implications o f the decentralization policy. There are - 4 8 - significant problems o f limited capacity for environmental regulation and land use planning in the communes which could compromise sustainable natural resource management. Rapid exploitation o f natural resources can only be prevented through helping in parallel develop environmental capacity at the local levels. 167. On the basis o f this assessment' the PRSC team agreed that the Ministry o f Environment prepare a program budget to reflect its capacity needs as a trigger for PRSC-8. Further, it would be appropriate for the Bank to initiate Strategic Environment Institutional Assessment (SEA) of the mining, energy and cotton sectors to support hture operations (PRSC 8 and 9) inthe country. RISKS RISKS AND MITIGATION 168. Several risks couldjeopardize the expected outcomes and benefits of this series, notably: (i)weakcapacitytoimplementthedecentralizationstrategy;(ii) a vulnerability to cotton and oil prices and real exchange rate fluctuations; (iii)vested interests obstructing reforms in the cotton sector; and(iv) regional political instability. 169. Burkina Faso i s very vulnerable to commodity price (cotton and oil) and real exchange rate fluctuations (notably o f the Euro, to which the CFAF i s pegged at a fixed rate, against the US$). High oil prices drain international reserves, and increase petrochemical, electricity and transportation costs with adverse impact on the overall economy. With cotton as its main export, low internationalprices hurt Burkina Faso's economy and negatively affect about two and a half million persons in rural areas, where most of the poor live. The potential fiscal impact o f continuous low cotton prices i s also significant. The Government i s implementing a three- pronged approach to address its vulnerability to external shocks, including: (i) lowering energy costs through connecting with lower-cost regional producers and opening the electricity and petroleum sectors to private management and investment; (ii) revising the cotton producer price setting mechanism to ensure adequate pass-through o f world prices and better risk sharing between producers and ginning companies, as well as enhancing productivity and competitiveness o f the cotton sector; and (iii)supporting economic diversification through reforms o f the investment climate and promotion o f mining and irrigated agriculture. The Government i s accompanied in its reform efforts by IDA'S series of PRSCs, the recently approved IMF supported PRGF arrangement and support from a range o f other development partners. 170. Ongoing reforms to restore the financial viability and improve the competitiveness o f the cotton sector could be undermined by a lack o f private sector interest. The Government considers its current increased involvement inthe sector as transitory andnecessary inthe face o f the current crisis, and i s committed to maintain a majority private participation in the sector to enhance its growth potential and competitiveness. The measures currently under implementation (the recapitalizationo f the cotton companies and the revision o f the cotton price mechanism) as well as the planned independent financial and operational audit o f SOFITEX for 2004-07, the reduction inSOFITEX's operating costs andother ongoing and planned measures to enhance the productivity and competitiveness o f cotton producers and companies (see Annex 5)' would improve the sector's growth potential and its attractiveness for private investment. - 49 - 171. The implementation of decentralization poses three major challenges to the Government. First, officials working at the center may resist the transfer of responsibilities to local Governments and the commensurate reduction o f their control over staff and resources. Second, capacity o f local Governmentsmay be insufficient to carry out their new responsibilities and the financial resources transfer mechanismmay not function well. Third, the Government may have difficulty in sustaining the cost o f decentralization. The financial needs o f new local Governments (buildings, equipment and operating budgets) cannot be met under the Government's current budget. To address these risks, the Government has adopted basic principles for decentralization: a participatory and gradual approach and the fungible resource principle. The participatory approach should ensure stakeholder consensus on major issues and the gradual approach should ensurethe sustainability of financial transfers to municipalities. The fungible resource principle promotes equity in the allocation of resources among the municipalities. Several donors support decentralization in Burkina, including the IDA-financed Administration Capacity Buildingproject, the Community Driven Development project, and the plannedUrban Capacity Buildingproject. 172. Lastly, risks stemming from regional political instability remain but are considered as moderate. Since 1999, the political and security context in neighboring CGte d'Ivoire has negatively affected trade and transport routes, worker remittances, and Government revenues in Burkina Faso. However, the economy has already adjusted to this shock by opening new trade routes to Benin, Togo and Ghana. Also, Burkina Faso's mediating role in the conflict contributed to the recent peace agreement among the opposing parties in CBte d'Ivoire. The remaining risk i s that prospects for economic gains from renewed exchanges with CBte d'Ivoire may take longer than hoped for. - 50 - ANNEXES - 5 1 - Annex 1: PRSC-7 Letter of DevelopmentPolicy - (Translated fromthe FrenchOriginal) MINISTRYOF FINANCE AND THEBUDGET No 2007 / MFB/CAB/SP-PPF To: Mr PaulD.WOLFOWITZ Presidentofthe World Bank 1818, HStreet, Washington, DC, 20433 (USA) Mr.President, Re: LetterofDevelopmentPolicy 1. The objective o f this Letter of Development Policy (LDP) is to present the current trend o f Burkina Faso's socio-economic situation and its prospects over the next two years. It is based mainly on the revised Poverty Reduction Strategy Paper (PRSP) and on its 2006-2008 Priority Actions Program (PAP). Program implementation details have been spelt out in the 2006 implementation report. The letter has mainly highlighted the implementation o f The Government's core reforms backed up by the World Bank's Poverty Reduction Support Credit (PRSC). 1. DEGREE OF IMPLEMENTATION OF THE POVERTY REDUCTION STRATEGYPAPER 2. Despite the persistence o f the difficult economic environment in which Burkina Faso finds herself, the country's economy continued to register a sound growth with a real GDP growth rate o f 6.4 % and an inflation rate of 2.4 % in 2006 as against 7.1% and 6.4 % respectively in 2005. These results stem fkom the increase in cereal and cotton production -52 - spurred by the good rainy conditions during the 2006-2007 crop year. Budget and foreign account deficits were entirely funded by highly concessional grants or loans thanks to the multilateral debt Relief Initiative (MDRI) from which Burkina Faso benefited in 2006. The implementation mission o f the new IMF PRGF program which took place from the 10th to the 24th of January, 2007 and whose report was approved by the Fund's Executive Board in April 2007 noted the enormous efforts made in terms o f macroeconomic management in 2006. A description o f the results o f the major reforms backed up by PRSC-7 has been outlined in the four PRSP pillars. 1.1STEPUPEQUITYORIENTEDECONOMICGROWTH 3. The State budget remains the framework for implementing PRSP priorities. Accordingly, the 2007-2009 Short-Term Expenditure Framework (CDMT) which served as basis for drawing up the 2007 finance law laid down as objective the reduction o fpoverty, and thereby pavingthe way for reaching the MillenniumDevelopment Goals (MDGs). This led to the adoption by the National Assembly o f the 2007 finance law inkeeping with the following CDMT thresholds and priorities: (i)enhancement o f the fight against poverty; (ii)revamping o f the economy's production sectors; (iii)development o f jobs; (iv) fight against fraud and corruption; (v) reinforcement o f security and promotion o f human rights; (vi) pursuance o f State reform and lastly (vii) implementationo f the total communalization o f the territory. 4. As part o fthe drive to render the economy andthe business sector more competitive, the ONATEL privatization process was finally completed inlate 2006 with the transfer o f 51percent o f the government's shares to Telecom Morocco. A national export promotion strategy geared towards boosting economic growth was initiated in late 2006 and is expected to be pursued during2007. 5. The Government continued its efforts to curb the administrative obstacles hampering private investment. A short and medium term plan o f action for the 10 (ten) ways o f Doing Business was thus drawn up and adopted during a meeting in April 2006 by the various ministries involved inthe process. A special operation for issuing landtitles was also organized from 15 December 2006 to 31January 2007 inthe cities of Ouagadougou and Bobo Dioulasso. 6. The implementation o f structural reforms and the improvement o f the regulatory framework for boosting economic growth spearheadedby the private sector made it possible to reduce the employment rigidity index from 84% in 2005 to 64% in 2006. Concerning the reimbursement o f VAT credit, efforts were made to reduce reimbursement deadline to less than 90 days at the maximum. Inthis wise, provision has beenmade inthe 2007 financial law for the reimbursemento f70% o fthe credit amount uponreceipt o fthe claim file andthe payment o fthe overhang once file verification has been completed. 7 The Centre de Formalitk des Entreprises (CEFORE) o f Bobo Dioulasso has been operational since 19 February 2007, and the activities o f that o f Ouagadougou created inJanuary 2006 have been expanded to include not only the creation o f enterprises but also such other aspects as how firms can change their status or terminate their activities. PRSC 8 will continue to support improvements in the investment climate and export diversification through measures - 53 - to improve the financial viability and competitiveness o f the cotton sector, improve infrastructure provision (electricity androads) and streamline business regulations. 1.2 ENSURE ACCESS TO BASIC SOCIAL SERVICES AND SOCIAL PROTECTION FOR THE POOR 8. The development o f human resources geared towards sustaining economic growth and creating jobs, has made this aspect the second pillar o f the PRSP by virtue of the fact that it highlights basic social sectors, notably those of basic education, health, social protection, drinking water and sanitation. The aim o f all the sectoral reforms is to cater for those o f the lowest social strata. 9. An examination o fthe Finance law appropriations shows that the resources earmarked for basic social sectors (such as basic education, literacy education and health) remained substantial during2006 with appropriationceilings representing 27% ofthe total budget excludingdebts, tax exemptions and foreign finded projects, as against 25.3% in 2005. The amounts allocated to health and basic education and for literacy education have increasedrespectively from 11% and 14.3 % in2005 to 12.3% and 15.03 % in2006. 1.2.1 ACCESS TOBASICEDUCATION 10. Inthe quest to attainthemillenniumdevelopmentobjectives as enunciated inthe tenyear basic education development plan (PDDEB), a working committee was set up by Decree No 2006-0008/MEBA/CAB on 21 July 2006. The committee drew up a balance sheet report on phase Iand a framework note for preparing phase I1that will permit the taking into account o f the guidelines for the accelerated education for all initiatives. These documents were approved during the Council o f Ministers' meeting o f 12 January 2007. On the basis o f the data obtained following the rapid survey in December by the Ministry of Basic Education and Literacy Education( MEBA) the gross school attendance rate increased in 2005-2006 from 60.2% to 60.72% for boys and from 54.50% to 66..11% for girls. 11. As part o f the drive to attain PDDEB objectives, efforts are being made by the Government for the taking over, within the framework of the design o f phase I1o f the PDDEB project, o f the overhaul o f the education system in a bid to extend basic education to cycle 1 o f secondary schools. The CDMLT sectoral education program for 2007-2009 involves the Ministryo fBasic Education(MEBA), and those of Secondary andHigher Education, as well as that o f Scientific Research, will make it possible for the Government to have an overall view o f the education system. This will enable it to better chart things and at the same time be in a position to provide more room to bridge the two levels o f education. 1.2.2 ACCESS TOHEALTHSERVICES 12. As regards the health sector, the Government is strongly committed to promoting the access o f the poor to health services. This commitment can be seen through the Government's endeavour to limit the impact on poor households o f the amount paid for treatment. This has - 54 - been going on since 2006 notably through the implementation o f the national strategy to subsidize emergency obstetrical care and assisted deliveries and the free o f charge treatment o f the indigentwhile at the same time improving the quality o fthe treatment they receive. 13. With this same goal in mind, a study to evaluate the fimctioning o f the delegation o f credits and imprested finds was carried out. An action plan was, thus, designed following evaluation and its implementation will make it possible for the performance rate o f credits delegated to healthdistricts to increase. 14. The government, with the assistance o f its partners, continued the vaccination program and the distribution o f vitamin A to 0 to 5 year old children. Thus, provisionalreports show that vaccination rates for the DCP3, yellow fever ( V U ) and chicken pox (VAR) stand respectively at 95%, 103%, 88% and 88%. 1.2.3 ACCESS TODRINKING WATERAND SANITATION 15. Access to drinking water, which remains a major cause for concern within the poverty reduction context, made the Government in 2006 to carry out actions in the water, health and sanitation sectors aimed at achieving the millennium development objectives. 16. Indeed, the efforts made to carry out the activities defined in the road map o f the Government in a bid to achieve the MDGs for water and sanitation made it possible for the National Water and Sanitation Authority (ONEA) to extend its health and sanitation promotion program to four newtowns. 1.3 EXPAND OPPORTUNITIESFOREQUITABLE EMPLOYMENT AND INCOME GENERATINGACTIVITIES FORTHE POOR 17. This third component o f the PRSP and o f its core reforms program concerns the enhancement o f the income generating capacity o f the poor through the promotion o f their participationinthe production process. 18. Inorder to have aclear view ofthe procedure for acquiring land, a important issue inthe rural area, the Government has began drawing up a national landtenure policy for the rural areas. The policy is expected to lead to the adoption of a law laying down the guidelines on land inthe rural areas. 19. With regard to the cotton sector, still markedby a decline of prices on the world market, the 2006 highyield made producers to be able to earn approximately 130billion CFA francs. 20. The Government has also has continued the implementation o f measures geared towards the development o f income generating activities for the most vulnerable through the organization o f a micro finance promotion week inOctober 2006. - 55 - 1.4 PROMOTIONOF GOODGOVERNANCE 21. Significant progress has been made in terms o f governance. The improvement of public finance management facilities and o f the decentralization process continued to be the Government's main preoccupation throughout 2006. The Government continued to consolidate achievements inthese areas. 22. The priority action plan o f the Plan o f Actions for the Enhancement o f Budget Management (PAP-PRGB) remains the reference framework for carrying out reforms in this field. After four years o f implementation o f the public management enhancement plan, we must admit that the commitment o f the various actors of the public service at various echelons o f responsibilityand o f the country's technical and financial partners has made it possible to make praiseworthy strides despite the persistence o f some shortcomings inthe management system. In order to consolidate achievements and in light o f the need to attain the millennium development objectives (MDO), the Ministry o f Finance and o f the Budget decided to implement its reform planswithin the framework of a short and long term sectoral approach through the finalization o f the elaboration o f a Public Finance Enhancement Strategy. The strategy was adopted on 2 February2007 andhas thus become the new reference paper inthe field. 23. The implementation o f the general organizational framework for budgetary support as back-up by the PSRP (CGAB-PSRP), whose letter o f understanding was signed on 11 January 2005, was continued. The various echelons o f the framework thus continued to function in accordance with the provisions o f the rules and regulations and the letter o f understanding. The second quarter session for 2006 was held on 28 September 2006 coupled with a field trip on 29 September to Koudougou. The trip afforded an opportunity for discussions on poverty reduction with officers in charge o f the decentralized services o f the Ministries o f Health and Education and those o f the town council and o f the governor's office. Draft reports on activities carried out in2006 and the program of activities for 2007 within the framework of the CGAB-PSW were drawn up and adopted at the quarterly session o f 16 February2007. 24. Ina bidto monitor social expenditure and ensure a follow-up ofthe activities carried out as part o f the poverty reduction drive, a functional classification and a codification o f social expenditures were also conducted inthe CID. 25. As regards public contracts, the action plan that evolved from the second analytical review o f the procurement system (CPAR) adopted in 2006 is in the process o f being implemented following finalization o f the draft decree setting up the ARMP and the revision of the duties, composition and functioning o f the DGMP. The draft decree will be adopted by the Council o f Ministers during the first semester o f 2007. The implementation o f this plano f action will be monitored by a national committee charged with the coordination and follow-up o f reforms inthe public contracts sector (CNCS) set up to coordinate CPAR activities. 26. Improvement o f the quality o f public finance management remained a permanent preoccupation in 2006. A lot o f efforts were made in this regard to back up the various control structures by providing them with adequate resources and by enhancing their capacities so as to enable them to play their role efficiently. Indeed, the General State Inspectorate, the General - 56 - Inspectorate o f Finance and the State Audit Office not only received some training within the frameworko fPRGBactivities but also receivedequipmentin2006. 27. As regards the decentralization process, a lot of progress has been made with the adoption o f sundry instruments. These, among others, are the decrees laying down the standard rules and regulations governing the country's council o f local administrative units and endowing urban councils with duties and resources in the preschool, primary education, health, cultural, youth and sports and leisure fields adopted by the Council o f Ministers at its meetingo f 15 May 2006. 2. PROSPECTSFORTHE PERIOD2007-2008 28. The Government will continue to focus its efforts to operationalize the poverty reduction strategy framework, while strengthening dialogue with partners involved inthe process. 2.1. IMPROVETHE INVESTMENTCLIMATEAND PROMOTEEXPORTS 29. The Government, at the macroeconomic level, plans to continue its reform program by putting in place a new poverty reduction and growth facility program (PRGF) and thus strengthen the basis for the country's economic growth. 30. Emphasis will, thus, be laid on the promotion o f the private sector and the improvement of the competiveness o f the economy through the design o f an export-oriented national strategy and the implementation o f the trade diagnostic study's action plans. The reforms will also be implemented within the framework o f improving the investment climate as well as facilitating business. 31. More specifically, in the cotton sector, PRSC-8 will support two major series o f initiatives inthe future: (i)further adjusting the producer price setting mechanism to better link producer prices to the international market and reduce the transaction costs o f SOFITEX by at least 10 percent; and (ii)launching an independent financial and organizational audit for the period 2004-2007, and the adoption by the Council o f Ministers a strategy and a planwith the view to increasing the private sector participationinSOFITEX's equity. The first series o f action will improve the capacity o f SOFITEX to restore its financial stability by adequately reducing potential government intervention inthe sector. While supporting ongoing initiatives inorder to lessen the impact o f the volatility o f international price o f cotton (revision o f the price-setting mechanism, stabilization fund, etc.), the Government believes that the management o f such a fund as well as the financial risks associated with it should be the sole responsibility o f the private sector and the sector's professional, without incurring consequences on the state's budget. The second series o f action presents an important step in the process o f increasing private sector participation in the cotton sector, including through better understanding o f productivity gains which SOFITEX could achieve in the medium term. The preparation and the adoption o f a strategy to ensure greater private participation inthe sector are expected by the end 2007. For the next PRSC, actions in the cotton sector will support the finalization o f audits conducted and the realization o f the government's strategy to reduce its holdings in SOFITEX andthus increase the private sector holdings. - 5 7 - 32. Inorder to support the development ofthe miningsector within two or three years inone of the two major focus o f the country's exports, the Government will adhere to the Extraction Industries Transparency Initiative (EITI) process, which will promote confidence in foreign private investment in the sector, and thus guarantee a better tax revenue mobilization from the sector. The objective o f PRSC-8 i s to close the initiation phase of EITI. This will require the adoption o f a precise plan o f activities with the consent o f all stakeholders (administration, industrial, and the civil society) inthe miningsector. 33. The special operation for the issuance o f landtitles will also be undertaken in the course o f 2007. The legal framework for rural landwill be made permanent with the adoption o f its orientation law i s this respect; and the government will put in place two offices, one for acquisition formalities and property transfer andthe other for buildingpermits. 34. The Government will also contribute to improving the business climate by pursuing reforms to increase the flexibility o f the labor market. Inparticular the provisions of the labor code will be usedto strengthen, on one hand the flexibility of duration and hours o f work, and cancel on the other hand the limitation for renewal o f fixed contracts in some sectors such as mining. 35. Within the framework o f pursuingthe reforms under way inthe electricity sector, whose unit cost is very high, the government will submit to Parliament a proposalto revise the general regulatory law for electricity inBurkina Faso. 2.2. IMPROVE ACCESS TO BASIC SOCIAL SERVICES BY STRENGTHENING DECENTRALIZATIONAND INSTITUTIONAL CAPACITIES. 36. In order to achieve its poverty reduction objective, the Government will continue to pursue actions in favor of the least privilegedby providing the social sectors with the necessary resources. 37. With respect to the education sector, the government, with the support o fits partners, will begin the implementation o f Phase I1 o f the PDDEB. It will also finalize the 2007-2009 education sector CDMT in order to provide a coherent framework for programming basic education interventions. The school subventionpolicy inthe 20 less educated provinces will also be pursued. The Government will use the devolution laws and availability o f civil servants in order to effectively transfer schools and their personnel to 49 urban communes. Moreover, the school fund experience will be extended to 22 newprovinces andtheir urbancommunes. 38. Inthe health sector, quality and utilization ofhealth service resources will be improved by updating the 2007-2010 CDMT. The Government will also undertake its free vaccination program for pregnant women and children under five years. It will also use the devolution law to transfer basic health training to the 49 urban communes. Recruitment and personnel training plan adopted by the Ministry o f Health and the implementation o f human resource management s o h a r e will strengthen planning, training andmanagement fimctions o finthe sector. - 58 - 39. In the water and sanitation sector, the Directorate of water resources (DGRE) will implement the maintenance strategy for water points in at least 25 rural communities, within the framework o f contracts between the municipalities and the professional operators o f water management systems. Inparallel, the ONEA hygiene program will continue inthe four selected towns for this program. 40. Actions aimed at strengtheningbudget management o f the communes will be undertaken bydeployingthe local governments integrated compatible software to 22 urbancommunes. Also, a development and deployment plan for administrative management module o f CICL will be adopted. The Ministry o f Finance and Budget will pursue its de-concentration by extending its de-concentrated services network of general directorates o f Budget, Treasury, Public Accounts, andTax andFinancialControl. 2.3. IMPROVE THE EFFICIENCY, TRANSPARENCY, AND ACCOUNTING FOR THE USEOFPUBLICFUNDS 41. As regards local level governance, the Government is committed to effective implementation o f decentralization. It intends to strengthen the process, notably by abiding by the deadlines fixed for the transfer o fduties and estate to the communes. 42. With respect to budgeting reforms, the work involved will be the Implementation o f the activities o f the 2007 three-year sectoral plan o f actions for the public finance strengthening strategy (SRFP) while capitalizing on the coordination o f budgetary assistance through a sound management o fthe (CGAB-PRSP). 43. Concerning the CGAB-PRSP, a policy package for 2007 has already been adopted and i s aimed at consolidating dialogue between the Government and member partners in the implementation o f the poverty reduction strategy and the promotion of the best budget support practices. Budget support estimates for 2007 have been fixed at 112.622 billion CFA francs as against 100.952 billions in2006. 44. The budget formulation process will also continue to be refined so as to ensure a closer link between the PRSP procedure and the budget. Government actions inthis regard will focus on the appropriation o f budget programming tools (for the overall and sectoral CDMT and program budget) by sector ministries through the finalization and implementation o f a strategy for sector CDMTs. Priority will be given to the establishment o f program budget and collection o f database in the two Ministries, with those o f infrastructure and environment. Budgetary allocation estimates will also need to be strengthened, notably for the maintenance o f the roads network, increase efficiency o f public finance and strengthen institutional capacities o f these ministries. 45. As regards government contracts, the next major steps o fthe reform are the establishment o f a regulatory authority and implementation of a general directorate o f public procurements, recently established by regulation. Nominations for the organization o fDGMP will be composed o f at least two ministries and two representatives to ensure better monitoring o f public procurements. Moreover, a software for Public Procurement Information System (SIMP) is beingdeveloped to facilitate the production o f a database in order to establish a reference point - 5 9 - for the new monitoring and evaluation system. All these actions are expected to improve markedly the public procurement system. 46. Finally, to strengthen the independence and efficiency o f the Cours des comptes, the government will adopt administrative auditing laws and facilitate budget execution o f Cours des Comptes byputtinginplace an unlocking system like the Mediator o f Faso and Superior Council o f Communication. 3. CONCLUSION 47. The implementation o f the relevant programs and measures described above and which fall in line with the core program o f activities o f the PRSP i s aimed at achieving the country's poverty reduction objectives. Consequently, the Government remains convinced that, with World Bank assistance through the next poverty reduction support credits (PRSCs), their implementation will contribute to the consolidation o f the macroeconomic framework and lend support for a stronger, healthier and sustainable economic growth necessary for a significant reduction o fpoverty. Yours Sincerely, Jean-BaptisteM.P. COMPAORE Officer o f the National Order - 6 0 - BURKINA FASO Unlto PmgrPs d.~siwe - - MINISTEREDESFINANCES ETDU BUDGET Ouagadougou, 10 3 1 MA1 Mn? /MFB/ChfJ/SP-TPF L c Ministre des Fiiiancrs ct du Budget A Monsieur PaulD.WOLPOWITZ P r b i d e n t de la Danque Mondialc 1818, HStreet, m C T O NDC, 20433 (USA) a:Lcttrcdepolitique de dkvelopptmcnt Moribieur le Pr&ident, 1, Ea prcscnte lettrc de politique dc dheloppcment (LPD)it pour objrt de prfsenterl'holudonrecente de 10 situation iconoiiuyue ct socialc du Bwldna Faro et SCY perspectives Ics deux prochaines annies Ellc s'appuie prkicipalemcntsur le Cadre stlathgique de luttc contxe la pauvrctS (CSLP) riviui et son Programme d'acuons piioritaircs (PAP) 2006-2008. Les detail6 dc l a mise cii (ruvrc du programmc sont conrenus dans IC rapport de mise en auvre 2006. L a leare met surtout I'acccnt SUI I'cxCcution des rSformcs prioiitices du Gouverncnienr soutcnue~pnr le &dit d'appui d la sceatigic de kducdon de la pauvrett (CASRP) de la Banqoc Mondialc. 1.WATDEMISEEN(EIJVREDU- TEGIQDEDE VRE (CASRP) 2. En dkpit de la persistance I'environntmenc Cconomiquc difficile dam lcquel tvolue le Burkina Faso, . l'iconomie B u r h a b e a mninccnu m e bonne croissmcc avec un tnux dc croisaance du PIB riel de 6,al.Y~et un taux d'inflation de 2'4% cii 2006 come rcspectivcnient 7,1% et 44% cn 2005. Ces rCsultats sont liCs unc augmentation dcs producdons ceriAili2res et cotonnikres consicutivc h la bonnc plu`iiomitric ,de la campagne agricolc 20015-2007.Z,cs dificits budgftdxes et du compte extidieur ont i t 6 cixibrcmenr financis pnr des dons ou dcs pdtr hauterncnr:cohcefisioniiels et surrout p i c e a l'lnidativc d'Aunulation de la Dettc Multilatdrnle (IADM) donr a binCGci6 le Burluna CII 2006. L a mission dc misc en place du nouvcnu programme FWC du FMIqui s'est dhroulie du 10 nu 24 jnnvier 2007 et donr l'examen du rapport y rclatif cn Conseil d'Administtadon du Fonds se fera en avd 2007 A constate lcs eFfo1-h remarquablcs aw nivesu de l a gesion macrokonomiqueen 2006. L a description dcs risultats des pdncipdes rtformcs soutcnues par le GSSRPVI1est remcie i wavers les qume piliersdu CSLP. 1.1AccelGxer IscroissanceCcanorlaiQneetlafondcr . ' B- 9 3, L c budget de 1'Etar xcstc le cadre dc misc en ceuvrc des pdodtfs du CS1.P. A cet cffet, le Cadre des Depenses iMoycn Terne (CDMT) 2007-2009 qui encadr6 l'ilaboration de la loi de Gnances 2007 avair L commc objectif la riducdon de la pauvrcti et permettre dnsi & d e r vas la rCalisnuon des Objeciifs de Dhxlopperncnr du Milltndte. Ccci R conduit 1 l'adopdon de la loi. dc finances 2007 par 1'Assemblie Nationole en dicembre 2006 s u t le6 piofondr CDMT et Ics prioritis d aprZs : (1) l'approfondissernent de l a lutte come In pauvrethr (ii)relance des scctews de production de l'iconomie; (Si) l a promodonde l'emploi; la (iv) la lutte c o m e la h u d c et la coaoption; (v) le rcnforccrnent de la sicuritd et dc la pmmotion dcs droits hurnains; (vi) l a poursukc de l a rCforme dc 1'Etat et cnGn (vii) l o i d s e cn ceuwe dc l a communalisadon inrkgtale du tcrritoire. 4. Deas IC cndrc de I'arnCUoration dc la cornyCtitivitC de I'tconomic et du c h a t des nffAiics, IC proccssus dc privatisacion de YONATEL I nboud en fin d'annie 200B avec la cession dcs 51% des parts par le gouverricment b la societl Maroc Ttlkcom. 11 a 6th entnmi cn fin 2006, en m e dc I'accildration de la croisvnnce hmomique, 1'6laboration d'unc stratigc nation& de promotion des cxportndons qui se poursdvra PU COU~Sdc l`annkc 2007. 5. L e G.ouvernernent x continu6 scs efforcs pour In reduelion des obstaclcs admillistrdfs i! l'invcstissetncnt prive. Rinsi, un plan d'actioiis A court et iaoyen tetme pour les &K (IO) indicatcurs du Dokig Business a bri &bok et adopt6 p a ICs diffr$tel~tsministiresimpliquis dam ICproccssus lors d'um rencontre en a v d 2006. Aussi, uiic operation spidale de dilivrince de titrev foncicl-s a i t 6 rkaliske du 15 d2ccmbre 2006 au 31 jaiivicr 2007 dans ICs d e s de Ouagndougou et de Bobo Diodauso. - 6. Ln mise cn euvre des rifomes scructarcllcs ct I'acnCliorndoll du cadre riglernentirc &ant 5 soutedr 12 croissance kconomique tirke pat IC priv6 ont permis de fake passer i'indicc dc ligidtide I'emploi dc scctcur 84% en 2005 L 64% cn 2006. Pour le volet remboursemmt dc crddit -rVn,les effoora ont kt6 consends en w e de rarnener le dClh dc rcmboutsemcnr imoins 95) jours nu maximum. A cet cffct, dans la Loi de finPnccv 2007, ilest prkvu le remboursemcnt dc 70% du moncanc du cr5dit dks rCcepdon du dossier de rkclamndon et le reliquat ila fin dc la proctdure de virificadon de dossicr, 7. .Le Centtc dc Formalitis des Entreprises (CEFOm) de Bobo-Dioulnsso est o p i d o n n c l dcpds l e 19 ffrvricr 2007 et celui de Ouegadougou crib cn janviu 2006 a connu une extension dc ces octivit66, qui prend en coinpre non seulemenr l a criation d'enttcprises mais aussi le volet sur la modification et la cessation dcs ncrivirBs des enttcpriscs. L e 8bme CASRP continucra isoutcnir 1'nmClioradon du h a t des investissernents et la divcrrification dcs exportations au moycn de incsues desdnies 21 am&horcr la viabiliri finanuirc ct In cornpiritivitEdu secreur coconniee, idivdoppcr l'offre d'infrastructures (6lcctricitO et routes) et isimplifier la rCglcincutndon des afkiifes. 1.2 GaratxfM` l'acc&e dcb Dativres aux eociaux dc base et h la p&&& on uociale I 8.. Lc diveloppmcnt des ressourccs humaimspour soutenh durabltment la croissance Cconomiquc.ct la crLation d'emplois, a fait de cc volcr IC deuxiimepilier du CSLP met en avint leg sectcurs sociaw de base, n o t a m e n t I'iducatioa de bore e t la sand, lo protection sociale, l'eau potable ct l'assaiiisscment. L'cnssmblc dcs rCformcs sectonelies conduites vise la plise en compte des couchcs difavonsQes. 9. Sux 1.d basc dcs dotations de la Loi dc hances, les ressourccsallouies aux secteurs sociaux (education dc bast c t alphobitisation er smtb) dc base sont demeurdcs soutcnues au cours dc l'innie 2006, avcc des ciivcloppes representant 27,3% du budget totd hors dcttc, exonkrncions fivcalcs ct projets sur hnanccinencs extiricurs, contra 25,3?4 en 2005. L c s paits de la sani et de I`Cducation de bise ct elphabidsation sont psssCes respecuvement dc 11,% et 14,3% en 2005 i153%et 15,03% en 2006. 1.2.I. Acc& m u aercices d'dducstion de base 10. Dnns la qu&c dc I'nttclite des objectifs de dweloppement du millkndre uels qu'fnoncis dam IC cadre du Plan dicennal de ddveloppemenc de I'tducntion de base (PDDEU), un conit6 de travail a &ti.mis en place par dicret n"2006-0008 /MIIBA /CAB le 21 jdller 2006 qui a Babori unrapport bilan'dcla phase Iet la note dc cadrage de preparation de la Phase 11, pcrmcttant de prendrc cn compte les oiientacions de. I'initintivo acc6lkrCe de l'ducation pour tous. Ccs docuinents ont i t 6 npprouvis lors dc In sCnnce du Conscil des Minishes du 12janvier 2007. Sur IA des donaics dc Penquite rapidc rtalisee en dkccmbre 2006 par base le Ministhc de I'Enseignemcnt de Base et dc 1'Alphabidsauon (MEBA), le taux brut de scolaxisation qui passe de 2005 i2006 dc 60,2% A G0,72% et celui des UCS54,50% it 66,11%. dc 11. Dons IC de la poursuite dc I'atreinte dcs objccdfs du PDDEB, des efforts sone diployfrs ypr IC cadrc gouverncmcat pour 1~pisc c n charge, dans ICcadre de la form~dodonde la phase 11du PDDEB, de l a reFontt du sysrtme Cducatif en vue d'ttcndre l'iducntion dc base au prcillier cycle dc l'enseignemcnt secondairc. Le CDMT scctonel education 2007-2009 intigrnnt le Minisdrc de 1'Enscignement de Bise W B A ) et leMiniut2rc des Enseigncmem Secondirc, Supirieuret dc la Rechetchc Scieiidfiqut (MBSSRS) dont lcs trwnux d`actualisation se poursuivent pecmet d'avoir unevision plusglobaledusysdme iducatifen vuc de mieux cannliser les actions, tour cn assuranc unc pnsserelle cutre les diffirents ~ ~ V C Q U X d'enseigmmcnt 1.2.2. Acc& aux eervicesdcsand 12. Au time du scctcw de la santd, le gouverncmenr s'est engag6 fermerncnt B promowoir l'accca dcs pauvrcs aux seMccs de sinti. Cct engagerncnt se situe dans Ir poursuite dc la limicatioll de l'impact du pdcnient des soins sur le revcnu des minap dimuliis, B travcrs notamcnt la misc en oeuvre dc la saatigie nationdc de subvcntion des soins obstitricaux d'urgence (SOU) et des iccouchcinents assistis depuiv 2006 et la piisc c n charge des indigent6 tout en metiorantla quafit6 dcs soins y rclntifs. - 62 - 13. l'>nnscePre meme opdquc, une Erwdc pour ~,oahe.rIt foiicuonncmcnt de In dc%garion de cr6dits ~f dcs ligics d'avance 2616 cunciuitc. Li~ipliri d'action a doric et6 &labox&a I`issue de ccttc dvs!uation et dont l a mise cn ccuvre permcme de relnrcr le taux d'cxicudon dcs cridics ddldpCs nu nivcau des disuicts sadtakcs. 14. L e gouvernament a poursuivi avcc I'appui dc ses partenaircs les programmesde vaccination gatuire et de disrdbution de vitaminc A ilux enfants de 0 :d 5 ans en 2006. Ami,SUI la base du bilanF K O V ~ O ~leu Ct a w ~ rfl, vaccinari,on p i r I:, DCP3, ICFCC,, lrr fiavic j~lune(T'AA) et lz IOU.~,CO~~ ( \ T A R ) solit s i i i l i respecdvernciit & de %%, 103U/o;88% et 8 S L h 1,2.3 Acc& BPenupotsrble et dPassainissement 25, L'accBs A I'eau potable, qui reste unc preoccupation miicurc dms un contexte dc reduction de la pauvrctd, A conduit l e gouvcmcment k mcncr en 2006 des actions dans le sccteur de l ' c w er de la promotion de I'hygiinc ct l'assainhscrnent, visant iatceindrc les objecdfs de developpenlent du ndlinnirc. 16. En cffct, leg eEfoits dip1oyi.s pour l a mise en euvrc des acti&ts de Is feuillc de mutc itablic par le Gouvcrnemenc pour ntteindrc ICs ODM rdatifs A I'eau ct I'issainiuscmenr, ont pert& b 1'Office national de 1'Eeu et dc 1'A~s;linisscment (ONM) d'itendre son programme dc promotion de I'liygiiine et de l'assainissemenc a quatre nouvcllcsvilles. 1.3. & n & & e o m & ~ e n s t i 5 r e d-gloi et d'gctivit48 &n&ratrices dc r c v m u t ! ~ J a ~ ~ ~ ~ &I'&q&L r H n r 17. Ceuce troisiime composante du CSLP.et de son programme dc rifotmcs prioritaircs poitc sur le renforcement des capncitis des pauvres a gQCrer deu rcvenus par In promotion de lcur participation au proccssus de production. 18. En vue d'assurer unc &ibi[itC au niveau dc I'nccis A la &e q i dernewrc un wjet t G s impoimnc en milieu rwal, le gouvcmetnent a cntnmi un processus d'kleloration d'unc politiquenationalc de sicurisation ' en milicu run.1qui devra nboutir B I'adoption de la lo1d'orientstion sur ICkncier rural. 19. Concernant le secteur coton, qui reae toujours confront& il a bnisse dcu cows sur l e m.arclif: rnondial, La fons pr;oduction en 2006 a perms IUX producteurs dc tecevok cnviron 130inilliards de k a n g CFA. 20, Autsi, ICgouverncinent a poursuh4 la mise en cuvre d'actions p m c t t i n t le dtvcloppciiient d'srctivids g&&ai:dccs de revcnus pour Ics plus vuln6rables itrnvers l'organisation d'une scmaine dc promotion de la micro finance en octobre 2006. 1.4 nomouvoir la borne Qouvetnancp 21. Des progQs .importants ont &i dans le domaine dc la gouvcmpncc. L'amiliozatiorl des nods micanismcs de pstion dcu finances publiqucs et du processus de la dicenimlisadon sone dcmeurks au centre der prCoccupalions des pouvoirs publics tout au long do 1'annEc 2006. L a consolidation des acquis a et6 poursuiviepar le puvememcnt pour cct axe. 22. Lc plan d`actions piiontaircs du Plan d'nchons pour le Renforcement de la Gesdon B u d p h i r e (PAP- PRGB) est rest6 le cadre de rhf6rencc pour la conduitc des riformes ;cct Cgard.Apds qunvrc ailnicv de mist cn oeuv~c,du plan de renforcement des finnnces publiqucs, forcc cst dc rcconnaltre quc l'engagemcnt des diffircnts ~CI`CUIS de I'ndrninirmion publiquc i plusicurs nivcaux de tesponsabilite et des partenaircs techniques ct finnncicrs a perink d'cmegiistrcr des pcrfomances notnbles indgrC la persistancc de quclques insuffisanccs drns le s y s t h e de gtsuon, Dans un souci de consolidation des acquis et au r e w d de la nCcessie6 d'rttcindre Ics OMD, le %st& der Finances et du Budget a dCcidC d`insclire ses plans de rCfoimes dans une d h a r c h c seccoiiclle B moyen et longtrrrnes en findisant Pilaboration d'unc Stratdgie de Rcnfocrcemenc des Rnanccs Publiques (SIUT) qui a kc adopci IC2 fimicr 2007 et dcvient &.si le nouvcau cadrc de rCfCrcnce du doin&c. 23, L`opkationndsation du Cadrc gCn6ral d'organisalion des ap'ppuiu budgit&es cn souticn h la mise en ccuvre du CSLP (CGAB-CSLP) dont IC: protocole !A CtE sign6 le 11 janvicr 2005 a et6 poutsuivi. &si, leg diffirentcs instances du cadrc ont fonctionnh conforinkmenr aux dispositions du r&glemcnt inthiieur ct du protocole. L a d e u x i h e session semcsticllc de l'annCe 2006 s'est tenuc le 28 septembre 2006 avcc une sorde terrain en marge dc lo session le 23 scptcmbre dans la ville de Koudougou, sortic qui a pcrmia des CIchangcs avcc les rtuponsablcs des stLuctvrcs diccntraLs6cs de l a sanii, de I'iducation, de la inairie et du gouvcrnorat autour dcs questions de riductioii de la pauvied. Enoutre, des projers de bila11des activitis menies en 2006 - 63 - et du progra~nme' d'acuvitis pour l'amike 2007 dins le cadre du CGAB-CSLPont it6 dlnbocis ct ndogt66 li la s c s s i o n semcsrrielle du 16 f&du 2007. 24,. En vue d'nssurer un meilleur suivi defi dfpcnses de lutte contrc In pnuvtctd, une dassifmw.on fonctionnelle dcs dipenscs assorde d'unc codification spicifiquc pour lcs dipeiises socialefi B i t 6 inaoduiec dans lo CID. 25. h u IiivcaIl des rnucli6s publics, Ic,plon d'actions issu dc In deuzdhic z c w c eaalydquc du systim de pasrsdon des march& publics (CPAR), adopt6 en 2006 est en cows de mise cn auvrc avcc la finalisation du projct de dCact por1:snt crCation de l`AKMP et dc In revision des attributions et du fonctionnement de la DGMP. Ce projet de dicret sea adopt6 par IC Conseil dcs MniswcsILUcows du pxernicr semestrc 2007. La m i s e en auvre de cc plan d'actious est supuviske pax ICcomitf narional de coordination ct de suivi des rkformes dans IC sccteur dcs rnazchCsptiblics (CNCS), instimi pour coordonncr la conduite du CPAR. 26. L'ain&ioration de la qualice dc h gestion des finances publiques est res& une prioccupauon pcrmanentc c n 2006. A cer igard, beeucoup d'efforts ont 6tS fdts pour soucenb Ics diffknts corps de contrslc c n les dotaat de ressources suffisantes et cn renforgnt leurs capadcis en vue de lcur permcme de j0u.r cfficacerncnt leur r6la En effct dans le cadre des activites du PRGB, I'Inspection GCniralc'd'Etae, 1'Inspeccion G,Cniralc dcs Finances et la C o w des Comptes ont pu benCGaer non sculcmenc de hmations, mah 6c sontvu$dotis en Cquipeinentau COWSde 1'niinCe 2006, 27. Coiicemant IC ~ ~ O C C S S U S dtccnualis;ition, de des avnncies ont ~ c CewegjsrtCc5 nvec I'adopdon de diffktencs tcxtes, 11s'adt encie autres des ddcrecs poitnnt dgl.cment intiiicur type du conscil de collcctivitC terrinyriale ct portant transkt dc compitcnces et dcs xessouccs BUX cominunes urbnines, dans ICs domaincs du pdscolaire, de l'cnsdgnemcnt primahe, de la santk dc In CU~~WC,de 11 jcunesse, des sports et loisirs, adoptis par le Coiisdl dcs Minisrrcs cn sa siance du 25 mni 2006. 2. PEHSP&'AV LS POURL A m I ODE2QD7 20Q3 - 28, L e Gouvernemcnt conlinucra d'insciire ses cfforrs pour l'opecationnalisatioa du cadre snatkgique dc Iurteconuc la pauvtct61tout cnrenforpntle dialogue avcc les partcnakcs impliquisdnns ct:processus. 2.1hrnefiotef IC cliinot des inveetissementset ~ ~ O ~ O U V O ~ ~ C S exuortatiom 27. pluniveau macro-tconomiquc, le Gouwrnemcnt cntend pounuivrele programme de rXonnes avcc la mise cn place dunouveau progunme FRPCet enforcer ainsiles bases de la cxoissince iconomique. 30. A cet Cgard, l'acccnt sera d s sur la promotion du sectcur priv6 et I'amdlioration de la compktitiviri dc I'iconomie, 1 wavers I'daloration d'unc stratigie nationde de promotion des exportations ct la misc en oeuvre du plan d'actions tL&de l'itude Jingriovriquc su1 les Cchsngcs commerciiux. Des rdformcs seront Cplcment miscs en (ruvre drns l e cadre de l'mmtlioration du dimat des hvesuuuclacnts et de 13 facilitt des nffnires 31. Plus pnrdculitrcment dms le domminc du coton, le 62mc CASRP soutiendm dew shries d'inidahvcs rnajeurcs pour l'avcnk : (i) l'affincrnem du mecanisme dc fixreion des pliv aux productcurs pour m i c w la aligner avec Ics prix du match6 iiiternaaonal et la reduction d'au moins 10 pour cents des colits dc revient de la SOFITEX; et (fl) le laiicement d'un audit financier et organisationnd indtpcnddnt de la S O F I W pour la pCriode 2004-2007 c t I'adopdon par le Conseil dcu Mirimes d'une scrntegie et d'un cdendricr en yllc d'nccroftre la participation du s m e w privi au capital de In SOFITEX L e prcmikrc S&C d'actions d'amUorera la capacith de l a SOFITEX irCtablt: son Qquilibre financier, r6duisantd'nutant les interventions potcnaeUcs du gouvcxnemenc sur le sectcut. Tout en cncourageant Ics ktiatives en cours dans le sens d'attCnuct I'impact des chocs cxterneu s u le secteur coton (forrnulc de &urntion des prLc lux productcurs, fonds de lieuage, ecc.), le gouvememcnt considere que de tcla rnicanismcs et les risques y affirenrs dcvraient rcstcr sous la responsabilit6 chccte de6 professionnelu de la filiDre, c t leur gesaon assuie dt sorte qu'ils n'entrzincnt pas d'incidcnce sur le budget de 4'Etat. L e deuxiime diclenchcur rcprisente unc Ccapc importiliite dans le processus de prisc de participation.du secteur privk dnns le secteur cotonlrief, y complis h trivets uno meillcure comprehension dcs gains de produccivit&quc la SOFI'TEX crt en mcsurc d'nitcindre dans le moyen tenne. L a priparation et I'adoption ~'UIIS: sttatCgiC pour: rcstnuer L partiupationm a j o r i c ~ c du Pllv6 dans IC sont attendues d'id la fin 2007. Pour Ics prochains CASU), la scions dan8 le sectcur sectcur cotoii, dciidtont souccnir l a binlisation des audits lane$ et la r&&ation de la snad,jo du gouvernemenc pour redvire sa participation dans la SOFITEX et accroPcrc dnsicclle du sectcur pivt. - 64 - 32. Pour soutenk ICdCvcloppement liamonicvx du gectcur n$,m.icr nppd.6 d'icj deux 011 trois fins i consdtuer i'cm tics deux piilcs ydircipauri d'wcposcltiouC;upays, le Gouvernerncnt adii6xc~uau processuS dc I'l'nitiative pour la Transpstencc dons les hdusrxics Exrxactivcs (ITIE) qui, A tame, favorisera l'insrawztion d'un climat de conEance pour I'hvrstisscmenr pivivf.ewngcr dons ICscctcur ct yenncttea de micux g a r d r les restjources fiscalcs du scctcur. Dans IC cadrc du huitiirnc CASRP, I'objectif cst la cl6cre de l a phase dc dkmarogc de PITIE, qui impliquel'adoption d'un calendricr prkk dcs acdvitfs h conduhe de concexr avcc m b l e dec ac,tc,urs dlr S( ic,'iuii.i.c:r(a(3!).hist P~{~OJitldusv.ids, sotiCti clvikj. I , 33. L'opCration spicialc de delivrance de ritrcs foonciczs seri igalcinent poursuivie au cours dc I'annCe 2007. L e cadre juiidique SUI IC foncicr cn rnilicu iura1sera p&enUisi avec I'adopuon d`une loi d'orientndoci en la mnlierc, ct le Gouvernemcnt m e m i cii placc deux guichets uniques, I'un pour I'acconiplissement des formalitis d'atocibulion ct de transfert de propriiti, I'autre pour In dilivrancc du pcriis dc consrruirc. 34. L e Gowetnemcnt contribuera igalcinear 1amaorer ICh a t dcs offaires cii poursuivant k s riformes c pour accroftre la flexililitk le march6 du travail. En palticulier, dcs textcs d'application du code du travail scront pris d'unc part pour renforccr la flcxibilid dc la duee ct de8 horaires de trovad, ct d'nuae parr pour supprimer la limitition Ju rcnouvellerncmdes contrats a durCe dircriiinCe dam certains sectcurs, dont les mines. 35. D a m le cadrc de !a poursuite dcs riformcs en coos3 dons le ~ c c t e wd,c l'blectcidt& dorit le coat uilitake cst CIICO~C r1-01~klevi, ICgouvcrnciiieikr souniettra au parlerri~nt111). projec (ICloi rtvisonc la loi poxcailt riglemcntationghtrale de l'a'p~~~~io~ineiuent du13urhria Faso en Cnergic 6lcccriquc. 2.2@Cliotet I'accb aux s e wcs sociaux en redorcamladhc'emelientim ` et les camcitbe inetitutioxmclles 36. Eiiwe'd'attcindrc son objcctif de riduction dc la pauvrcG, le gouveraemcnt conbiucta dc inener des actions en favcur des couches ICs plus d&nunies cn dotant ICs sectcws sourux de 1essourct3 consiqucntes. 37. Au iitrc du fiectcu de I'cducacion, IC gouvcmement, avcc I'appd de YCS pnrtennles, dZmrilrcra I n misc en, muvrc de Is phase I1du PDDEB. I1procidem rigdement a la finalisation du CDm sectoricl education 2007-2009 pour off& 1.111 cadrc de propaintnation coherent des intcrvenuolis nu profit dc l'riducation de base. La poliuque de subvcnuon scoldre dans le6 20 provinces ler moine ~colerivEesSera par &curs poursuivic. L e Gouverncmenr prcndig les arrkris dc dbolutioii et dc mise idispositiondcs foncdonnakcs pour ttansfirer dc mnni?reeffective dux 4%9communes urbaines lcs Ccolcr et leur personnel. Par ~Ucuxs, I'exptricuce dcu fonds h o l e sera ttendue H 22 nouvelles provinces ct B lews cominunes urbdnes. 38. Dam le scctcw dc In senti, ils'rgka d'amtliorer la qudt6 ct I'ucilisation des ressources des services de santt avec I'actualisation du CDMT 2007-2010. L e gowerncmentpousuivrakgaleme~ic&onprograinme de vaccination gratuitc pow Icr femmcs enccintes et: Ics enfrnts de 0 5 an$.I1prendrn Pgaleinent ICs arret& de divolution pour issurer le transfert cffeclif aux 49 communes urbaines lcs formations sniitaircs de base. L'ndopuon par le Ministhre dc la santC du, plan dc recrutcment ct de fomatiou du personnel ct l`opimtionndisadon du logicid de gestion de ~`cssourccshumaines prrinetaontde rciiforccr les foncdons de plsnificadon, formation et gcstiondans ce domaine. 39, Dans IC de I'eau et de I'nssainissement, la Dirccuon g6nCralc des rcssourccs en secceur CDU (DG,U) mcttrn en muvre la stractgic de maintenance des points d'eau dam BU moins 25 communes ~zudes,danv IC cadre de conrratv entre Ics rnunicipaliets et des opiratcurs professionnels pour 11gcscion de scs sysdmes d'eau. Pardhlcmenc, IC progrnmrne d'hygikne de I'ONEA se poursuivra dans les 4, ~ C secondnices S retcnucs conforinimciit nuprogramme en cours. 4,O. Des actions virnnr IC tenforcement de la gwdon budghiue dcs cormnunes scront entrcpdscs h travcrs le dtploiemciit dans 22 communcs ubaiiies du volct comptnble du CICL, IClogicid de comptobiliti int6grie dcs coltecdvires teriiioriales, et l`mdoption d`un cnlendrier pour le divelcrppemcnr et le dtplb;-aent du modulc de gcstion administrarivc du CICL. Le Ministire dcs Finances ct du budgct pomsd~L son processus de diconccntradon par I'extension de 6on rkseau de sclviccs diconcentris dcs duccdons glnirales du Budget, duTiisor et de la Comptabilicelhbliquc, du Conrrdlc Financier ct des Impdtr. - 65 - 2.3dam6l'utilieaiion ~des r ~ l i ~ ~ ~ ~ c . k t . C b ~ . a ~ ~ ~ n ~ ~ remourcee rmbliuua 41. En matiire de gouvcmance locale, ICGouvemcment est attache :A la mise en muvre effcctive de la d&enttahntion. I1cntend renforcer le processus, notamment cn respectailt les ichQlices arcetdcs pour IC uansfezt des compitences et du pattimoineaux communes. 42. Au plan des rkfomies d a m Ic domahie de'h p60nbodgitnire,d s'ilgkd de inctlrc ea auvre les acuvicks du pland'actions sectorid triennal pour 2007 de la srratdgie de renforcementdes hnonccs publiqucs (SRFP), tout en assuisntla capitalisatiomi de la coordination dcs ides budgitaires a travers unbon fonctionnement du CGAB-CSLP. 43. En cffet, conccmanl: le CGAB - CSD, un progammc d'activit& pour 1'annCc 2007 a dijh ice adopt&, visalit l a conyolidnuon du dialogue cntre le gouvcrnement ct les partcnaires membres drns le cadrc dc la misc en auvrc de la strategie de rtduction dc la pauvrctk er lo proinorion dcs meiUcures pratiques en matike d'nppui budgitairc. Le8 prtvisions d'appuifi budgitakes 2007, contrc 100,952 xdiards mobilirCsen 2006. . gc chiffrent A 112,622 milliards dc france CFA en 44. Leprocessus de formulation du budgct conrinucra igalemcnt d'btre afhn4 en we d'sssurer wn lien plus ttroit enu?le processus CSLP et le budget. Lcs,actions du gouvcrnement cn l a matitre viseront icette hi , I'appropriatioa des outils de p ~ , o g r a ~ ~ budgkraiaire (CDMT pJobal et sectorid et budgct ptogramne) ~ d o n par I C srilinisterer scctoriels, A ttavers la finalisation ct la nlise cn muvre d'une stracigic d'irnplantation des CDMT scctoriels. LAprioiitC sera accordie dans ce cadrc, dons un prcmier temps, 1la inise en placc des budgets programme et de la COUCCRdes donnies dc base dam drux minirthres, en l'occusrencc ceux dcs Infrilsttucrures ct de I ' e n v i r o ~ u n e n tI1 s'agira de renforccr In prividbiliti des nllocadons budgitaires, notaminent pour la malitaiance du reseau routier, d'accrokre I'cfficncicC de In dipense pubhquc et de renforcer lcs capacittv instirudonndes de cw ministires. I:* 45. Au titrc des narchks publics, ICs prochaines Ctapcs rnajeurcs.dc l a rSfoime sont 11 mise cn place de l'autoritd de riplation et. I'op6ra~onnalisationdc la Direction ginckalc des march& publics, cr& rtccmlnenc par voie riglcnicntake. L'orgnnisstion de l a DGMP pxtvoit la nomination dans nu rnoins 2 nlinistkcs c t 2 regions de repriscntnnts potu assurer un meillem suivi des matchis publics. Par d e u s , un logiciel c11 cous dc devdoppcinenc (Systlme d'infonnation des marchi publics ou SIMP) faacilitera la production de donndes de base seiont produiccs pour Ctablir une situationde rifkrcocc du nouvcausysimc dc suivi-ivaluation. La mise en euvre de I'cnsemMc de ces actions cont$buera :Iarnklioru de m a i t r e sensible le systl.rne dc pnssauondes march& publics. 46. Enfin, pow renforcer I'indCpendancc et l'efficacitk de la Cour des Compees, IC Gouvcmement adopteta les dCrcts SUT l'apmement administratif et facilitera I'uctcution du budget de la Cow de3 Comptee cn mcttant en placc le 6ysthe de dtblocage, 1I'inscar du Midiatcus du Favo et du Cons& Supizieur de la Communicadon, 3. GONCLUSIONS 47. L a rmsc en ccuv~edes programmcs et mcsurcs pertinence dicdts d-dessus, qui s'inscrivent dam le: programme d'actions pioritxiritesdu CSLP, vise I'attcinte de I'objecdf dc riduction de l a pauvrctk. Aussi, le gouverncment 'reste convaincu qu'avdc IC soutien de la Banque mondiale itLaveVets ICs prochdns crCdits d'appui :A l a strategic de riductionde la pRuvrctQ (CASW), leur mise en m u m rcra de nature iconribucr 1 coneolidcr le cadrc macio-lconornique et soutenir une croissaiice 6conomiquc plus forte, saiae et durable, nicessaire pour une riduction signiticadvc de la pawreti. 48. Je vous piic de bien voulok agfier, Monsieur le Prdeident, les asswances dc mo parfaite consideration. - 6 6 - c, e, 9 n .-v1 .-v1 * 9 a 0 d yi M 0 .-c 00 W I P C I L .-OD + I I I N I I m r- 8 3 8 3 I \o r. I i i ke z N w Yz U 22 E E 48E v) E: s mapk uogesnpa11r I 0 09 I Q - N N m N 74 PI Ici I I 3 09 I 3m 00 N I 0 m E 4 4 E 8E 8 r 8 8 3 N r? m w w 3 I I 883 I m 00 I N m m E m z r-- g 0 m c c - A x m u N N - am w u w r m r - 6 6 m ? w rr b 0 N W c? r- m m m 2m N V 0 w r m P m 'D 2E 2E 00 0 0 v i m 0 vi r.-- 0N A V U Y Y t- 2Re, 0 0 N Y c 2Re, I 2 I 00 v, I 8 - m N d N m 3 t- N W E eE L 0 m t- 0 C 6 .-a3a c) E g 0 6 0 t o c? ? Y m Y d m H M a .I L 0 .I Y 5a9 a Q) 0 E e 2 L a"L p h .. d 4 8a f '0i f - ~ N N .2. .n m 0 a 3 - Im .3 ca .n c z8 2 a n 04 8L m UB3 .n Um .n N Im cL 88 U L Q) c m ti 5 0a 9 L M 'fP u 30% .I V P I c 0 m M u m .-M E + U c; I I t--- I 00 00 L 8 I V a c a h 0 0 v N m I % I Annex 5: PRSC-7- The Cotton Sector inBurkinaFaso Background 1. Cotton plays a crucial role in the economic development o f Burkina Faso. Approximately 250,000 households and 2.5 million people depend, either directly or indirectly, on cotton production for their livelihood, and nearly one person out o f six in the country earns cash income from cotton cultivation. The sector represents 50-65 percent o f the country's export earnings. Over the past decade, cotton production has increased by an average o f 17 percent per annum making Burkina the largest producer o f cotton in sub-Saharan Africa with a total production o f 730,000 tons o f seed cotton in 2005/2006. The focus on cotton production has also allowed an increase in cereal production - maize in particular - that is cultivated in rotation with cotton and benefits from the residual effects o f fertilizers used for cotton. Since 1999 cereal production has increased by 60 percent. As a result, the proportion o f cotton producing households under the poverty threshold dropped from 62 to 47 percent between 1994 and 20049, and i s estimated to have dropped by another 6 percent since 2004. The national poverty trend reflects that o f cotton-producing households, underscoring the sector's economic dominance. EarlierReformEfforts 2. From 1960 to 1999 the cotton sector was vertically integrated and managed by CFDT (now DAGRIS), then SOFITEX, a parastatal, was established in 1979. Since 1999 Burkina began to reform its cotton sector to improve competitiveness. These reforms aimed at reducing the role o f the state and increase the role o f the private sector and farmers' organizations in the sector management. Specifically, the Government reform program had a three pronged approach: (i) the privatization in 1999 o f the state owned cotton monopoly SOFITEX; (ii) liberalization in 2004 o f the cotton sector by abolishing the exclusive rights for SOFITEX to service the sector; and (iii) creation in 2005 o f an institutional set-up which allows for self-governance o f the sector by its stakeholders (producers and ginning companies) without participation o f the state. 3. In a first step, in 1999 the Government reduced its direct involvement in the sector by selling a substantial part o f its 65 percent shareholdings in SOFITEX, then the only cotton ginning company inthe country, to a foreign investor, DAGRIS (a long time business partner o f SOFITEX), which now holds 34 percent o f SOFITEX and to the cottonproducer association (UNPCB), which holds 30 percent. The Government reduced its stake in SOFITEX thereby to 35 percent, with one percent o f the stocks retained by national investors (two commercial banks). Given the dominant impact o f the sector on macroeconomic stability and social welfare, Government decided that a privatization strategy aimed at transferring ownership o f most commercial and manufacturing entities inthe 1990swas too risky, opting insteadfor a more gradual andorderly transition inthe Operationalising Pro-Poor Growth-A Country Case Study on Burkina Faso. MichelGrimmand Isabel Gunther, October 2004. - 90 - cotton sector. This was meant to allow for a gradual increase o f private participation in the provision o f services in the sector as well as for development o f a market for assets formerly wholly-offered and internally-tradedby SOFITEX, until 1999. 4. A price support fund was an integral part of this monopoly, with an implicit Government floor price guarantee. The fund was financed from SOFITEX reserves built from profits accumulated duringprevious years. Inaddition to ensuring a minimumprice for cotton producers, the payment o f a premium to producers o f up to 50 percent o f the profits was agreed. The 50 percent overall profit share for the producers was also meant to refinance the support fund in prosperous years, however, no objective criteria were established which determined the amount to be transferred to the h d . Furthermore, while the minimumprice was paid inyear t, the premiumwas paid inyear t+l. This had serious consequences in 2004/2005 when producers received the highest price just as cotton export prices hit their lowest level ever, sendingthe wrong signal about the actual state o fthe sector to producers. 5. In a second reform step, in 2001-2004, the Government abolished the exclusive rights o f SOFITEX to service the country's cotton sector (i.e., provision o f credit and fertilizer to producers, purchase o f cotton grain, transformation and sale o f fiber) and authorized the establishment o f two new cotton operators by dividingthe country into 3 zones. Rights in one zone, in the traditional cotton growing western area covering 20 provinces, were left with SOFITEX. Rights in the central zone, covering 11 provinces, were sold to FASO COTON (a private company) and those inthe third zone, inthe east andwhich covers 6 provinces, were sold to SOCOMA (also a private company). FASO COTON and SOCOMA started to operate inSeptember 2004.'' With liberalization o fthe sector in late 2004, the legal status o f the SOFITEX support fund was not resolved and the bankrupt fund ceased to intervene in the market in the 2005/2006 and 2006/2007 seasons. 6. To strengthen the operation o f the sector and share risks and opportunities among stakeholders, an agreement was signed on September 3, 2004, between the state, the producers and the three companies, which stated that: (i) the integrated chain fiZiBre) approach would be maintained; (ii)minimumproducer price would be adopted (in line a with earlier informal producer price arrangements) on the eve o f the new season (April); (iii) company wouldhave exclusive rights andresponsibilities inits respective each concession for eight years under the provision, that, among others, purchase o f cotton in their respective zones would be at no lower than the agreed minimum price for the producers; and (iv) the establishment o f a price stabilization fund. The Government's expectation was that the fund will be self-financing. The agreement also fixed the loThe ownership of FASO COTON is as follows: Rheinart (a Swiss company) holds 3 1 percent of the shares; the IPS group (Aga KhanFoundation) 29 percent, Sociktk Burro et Frires (a local company) owns 20 percent; AMFERT (a regional private company which specializes in agricultural input supply) owns 10 percent, and UNPCB (the cotton producer association)has a stake of 10percent. SOCOMA, the second new company has as shareholdersDAGRIS (5 1 percent), UNPCB(20 percent), SOBA (20 percent), SYA PARTICIPATION (4 percent) and others(5 percent). Despite the openingof the market, SOFITEX continues to play a majorrole inthe cotton sector with 85 percent of the market, comparedto 10percentfor SOCOMA and5 percentfor FASOCOTON. - 91 - minimumprice for the first three years at Franc CFA 175 per kilogram o f seed cotton, on the basis o f international projections that would ultimately prove overly-optimistic. This arrangement left the ultimate commercial risk to a large degree on the three cotton ginningcompanies. 7. Ina thirdreform step inFebruary2006, to enhance self governance ofthe sector and reduce the state's regulatory influence, the Government promoted the establishment o f the Inter-Professional Cotton Association o f Burkina Faso (1'Association Interprofessionnelle du Coton du Burkina, AICB), formed by the three cotton companies and UNCPB, the cotton producer organization. The AICB's mandate i s to: (i) ensure the management o f the above mentioned agreement, in particular determination o f the minimumpurchase price for seed cotton; (ii) manage common activities, including the newly-established stabilization find; (iii) arbitrate inthe event o f conflicts; and (iv) steer andmonitor the sector. Recent Sector Crisis and OngoingReforms 8. Byend-2005, the role o fthe state inthe cotton sector was significantly reduced to a minority shareholder in SOFITEX, compared to the period prior to 1999 when SOFITEX was a state-owned monopoly. However, these reforms took place against increasingly difficult international market conditions for cotton, triggered by a sharp decline o f international cotton prices in 2002 and compounded by a cumulative appreciation o f the Franc CFA vis A vis the U S dollar o f about 15 percent since 2001. This resulted in a decline o f the export price for 1kilogram o f ginned cotton from Franc CFA 847 in 2001 to Franc CFA 637 in 2006. The absence o f an adequate price setting mechanism to align the producer price more closely with the international cotton price caused substantial financial difficulties for the cotton companies in Burkina and put the sector under financial stress. The adherence to the minimum price set in 2004 for the years 2005 and 2006 resulted in farm gate prices over the last 3 years that were higher than the international market price for cotton. The requirement to announce a producer price prior to the season left the risk and the responsibility for adjustment on the cotton companies. Measures to lower costs were too limited in their saving potential and the companies did not use hedginginstrumentsto mitigate the impact o fprice shocks. 9. As a result, the three cotton companies assumed most o fthe adjustment costs and accumulated deficits over the years 2004 to 2006, amounting to USD 93 million". In a privatized and liberalized sector, the state took a principled stance against Government support, expecting private stakeholders to make necessary adjustments in the sector. Ultimately, the ginning companies had no refinancing option for their accumulating losses. The Government stance on this question in the last three years underscored its commitment to the privatization strategy o f the sector and its overall policy objective to minimize state interventioninthe sector. 10. Inlate2006, the bankingsector, which typically pre-finances the cotton season, refused to finance the 2007-2008 campaign unless the sector were put back on a better I'Assumingan average exchangerate of FCFASOOperUSD. - 92 - financial footing. Three sets o f actions are currently being implemented by sector operators to restore the financial viability of the sector and improve its competitiveness: (1) SOFITEX and Faso Coton (altogether representing 90 percent o f the sector) have already announced their recapitalization plans; (2) the domestic producer price setting mechanism is being reformed to more closely align the producer price with the international cotton price, and to broker a better commercial risk sharing between producers and cotton companies; a Stabilization Fund has also been established to balance out volatility in the international cotton prices for the benefit o f cotton growing farmers; and (3) efforts continue to improve the productivity o f cotton production, includingthrough experimenting with nationally developedpest-resistant seed varieties. 11. To avoid a collapse o f the sector due to the refusal o fthe Banksto pre-financethe 2007/2008 season and mitigate the severe consequences o f the crisis for growth and poverty reduction, the Government decided to provide a guarantee equivalent to around USD 100million to the commercial banking pool to facilitate adequate financing of the 2007/2008 season and allow for time to settle recapitalization negotiations. The Government also ordered a financial assessment o f the sector based on end 2005 data (thenthe most recent data available) so that its financial situation can be better assessed and appropriate measures can be taken in the short and medium-term to restore the viability o f the sector and continue the policy o f enhancing private ownership in the sector. 12. Recapitalization o f the cotton ginning companies. On the basis o f the above mentioned assessment and in compliance with the applicable commercial law and regulations (OHADA rules), the recapitalizationneed for SOFITEX i s estimated at USD 76 million, for SOCOMA at USD 14 million, and for FASO COTON at USD 3 million. All three companies are in the recapitalization process. Given its size and role in the sector, SOFITEX took the lead in this process. The general assembly o f SOFITEX approved in November 2006 an increase in capital o f USD 69 million, which with the existing equity o f USD 9 million would have resulted in a total o f USD76 million subscribed capital for the company. Half o f the USD 69 million required for this recapitalization would have been paid in before January 31, 2007, and the other half before the end o f June 2007, according to OHADA rules. To that end, the Government provided USD 24 million for the recapitalization scheme in early 2007, which would have covered its initial share. However, SOFITEX's shareholder DAGRIS (34 percent) retreated from its decision o f November 2006 and officially announced in January 2007 that it would not underwrite its shares. The mainreason is that DAGRIS, a company held by the French state, is itself in the process o f beingprivatized and could not commit at this stage in order to avoid prejudicing the potential buyer. This new situation compromised the recapitalization plan o f November 2006. A final decision on SOFITEX's recapitalization will be taken in June 2007, during the company's' Board meeting, whichwill also deliberate over the 2006 audits. 13. The new recapitalization decision that i s expected from SOFITEX's Board meeting in June would amount to USD 76 million, taking into account UNPCB's - 93 - estimated contribution o f about USD 10 million12(or 13 percent o f the recapitalization), an amount that would reduce the producers' relative shares in SOFITEX from 30 percent to about 15 percent (table A5, below). In the absence o f alternative investors beyond a small participation by commercial banks, the Government would be called to subscribe the remainder o f the producers' share. According to the OHADA rules, at least 75 percent o f the additional capital (equivalent to USD 57 million) needs to be ~ubscribed.'~ This would imply that, in the absence o f DAGRIS or another investor being able to subscribe, the Government would have to cover its shares (35 percent) and an additional 26 percent o f the shares to make up inpart for the non-subscription o f DAGRIS and for the reduced shareholdings o f UNPCB, in order to meet the required 75 percent o f minimum capital sub~cription.'~ The direct costs to the Government for this recapitalization amount to a maximum o fUSD46 million, o fwhich USD 24 million have already been advanced by the Government in early 2007. As shown by Table A5.1, the Government share inSOFITEX after the recapitalizationwould amount to 58 percent. Table A5.1: SOFITEX Recapitalization Paidin Recapitalization New Capital Structure USD mn Percent USDmn Percent USDmn Percent Government 3.08 35 46.2 60.8 49.3 58.1 DAGRIS 3.00 34 0.0 0.0 3.0 3.5 UNPCB 2.64 30 10.0 13.2 12.6 14.9 Comm. Bank 0.08 1 0.8 1.1 0.9 1.o Shares for a Potential New Investor 19.0 25.0 19.0 22.4 Total 8.80 100 76.0 100.0 84.8 100.0 14. The evolving status o f the main investor inthe sector that is not controlled by the state, DAGRIS, has not allowed for an adequate entrepreneurial response to the sector's financial problems, forcing the Government to step inon a transitory basis. The increased Government ownership o f SOFITEX, following its recapitalization, does not affect Government's long-term vision for the sector, nor implya reversal o f the sectoral reforms implemented since 1999. Rather, the increased Government holdings became necessary to stabilize the sector in light o f the current crisis and to safeguard the sector's assets, while the sector's long term financial viability is restored through a revision o fthe cotton price setting mechanism and other measures to enhance competitiveness. The Government o f Burkina Faso continues to be convinced that private sector participation inthe sector is best to enhance the sector's growthpotential and competitiveness. Thus, Government has confirmed its commitment to a minority involvement inthe sector and to transfer shares back to the private sector as soon as private investors can be found. Inthe meanwhile, the Government intendsto reduce SOFITEX operative costs by 10percent in 2008. ''Refinancedby aEUR6 million grant fromthe EuropeanCommission. l3Forthe remaining25 percentaperiodof 3 years applies to find a share subscriber,accordingto the OHADA rules. l4One percentofthe shares i s ownedby a privatedomestic investor andwill bemaintained. - 94 - 15. FASOCOTON, accordingto its management, intendsto take a definitive decision concerning its recapitalization on the basis of certified 2006 accounts at the next Board meetingof the company, to be held inMay 2007. The decision for SOCOMA is linked to the finalization of DAGRIS' privatization and a decision will be taken no later than June 2007, after the Board meeting of SOCOMA. The Governmenti s not a shareholder ofthese companies, hence does not incur contingent fiscal liabilities inbothcases. 16. The Producer Pricing Mechanism and the accompanying stabilization fund. As discussed above, the price setting mechanism plays an important role for the financial viability o f the cotton sector. With the privatization of SOFITEX in 1999, the management o f the cotton producer minimum pricing was transferred to a tri-partite committee that included representatives from producers, SOFITEX, and the Government. The committee was replaced in 2006 by the AICB, a self-governing sectoral body which allowed for the exit o f the Government. The minimum producer price was to be announced prior to sowing and a producer price stabilization fund was established in March 2006 to mitigate fluctuations in export prices not commensurable with paying the minimum producer price. The AICB also began to discuss a new price mechanism. However, while an automatic price calculation formula was still under discussion, a new floor price o f Franc CFA 165 per kilogram of seed cotton was announced for the 2006/2007 seasonon April 8,2006. 17. Additional work was subsequently undertaken, supported by external development partners, and a revised pricing mechanism was adopted inNovember 2006 by the AICB. The revised mechanism is characterized as follows: (i) producer price the will be derived from the calculated trend price and in accordance with a fixed profit sharing formula between producers and ginners (60 percent for the producers and 40 percent for the cotton companie~);'~ the minimumproducer price (floor price) will be (ii) announced in April at the beginning o f the season and the payment o f a premium (ristourne) after the season, incase sufficient profits are made, is maintained; and (iii) the floor price i s calculated using a centered seven-year moving average o f Index A and a price tunnel [-5.1% + 1.3% 3 that will allow the payment o f 95 percent .of the average market price as a floor price to farmers (with the remaining 5 percent paid only if the ex post marketprice is inline with the ex ante price). 18. This represents a significant step to restore the financial viability of the cotton sector. Indeed, the revised pricing mechanism, had it been adopted before April 2006, would have given a price for the last season of around FCFA 150 per kg (rather than 165). The new mechanism will be applied as o f April 2007, to determine the producer price for the 2007/2008 campaign, likely to be 145 CFAFkg. Projections indicate that such a price would lead to a modest operating surplus for SOFITEX next year. IDA has advised the Government and the AICB to fine-tune the price mechanism in order to strengthen its alignment with the international trend by shortening the seven-year reference period andpaying out 90 percent o f the agreed floor price. This would provide l5Cotton companies having voiced concerns that, in case of "excessively" low prices, they may want a change to a more favorable breakdown (58-42%). It remains to be decided what level of prices would be deemed "excessively" low. - 95 - a higher margin to ensure against price risks. If profits are made, the second payment towards farmers, in line with the overall 60/40 percent profits sharing objective, could thenbeaccordinglyhigher. 19. The price mechanism is envisaged to be complemented by a stabilization fund (SF), whose prime objective is to balance out volatility inthe international cotton prices for the benefit o f cotton growing farmers. Based on the assumption that periods with decreasing prices follow periods with increasing prices, a pay out o f the fund to farmers would be triggeredinthe first case, ifthe export price fetched does not cover the payment o f the producer minimumprice, and a pay into the fund in the latter case. The national stabilization fund could be sustainable if the producer price mechanism established in November 2006 i s further revisedas discussed inparagraph 18. 20. ImprovingProductivity. While the sector's financial viability would be restored in the short term with the recapitalization o f the cotton companies and the revision o f the cotton price mechanism, the sector's export performance, attractiveness for private investment and incomes for farm households would be enhanced through productivity gains by cotton producers and ginning companies. The Government is already engaged ininitiatives to improveproductivity inthecotton sector: 0 Strengthening infrastructure. As cultivated areas have quadrupled in the last ten years, the Government i s expanding feeder roads and allocating budget resources to maintain existing ones, particularly inthe eastern zone. Better roads and easier access will lower the cost o f providing cotton inputs. Additional storage facilities for inputs are also being built. 0 Improving farm equipment. In Burkina Faso, farms well-equipped with animal traction (two oxen, a plow and a cart) yield two tons o f seed cotton per hectare, about twice the national average. The Government i s working on scaling-up this practice. 0 Improving seed cotton productivity: An efficient management o f soil fertility through the dissemination o f manure and cover crops should increase seed cotton yields. UNPCB has designed an action plan aimed at increasing cotton productivity by 15 percent inthe next five years. 0 Introducing pest-resistant cotton varieties. Biotechnology has opened new opportunities to the sector in Burkina Faso. The country i s the only one in Western and Central Africa that has been testing and developing local varieties of transgenic (Bt) cotton. Initial results point to a productivity gain o f 19 to 30 percent and a reduction in pesticide use, from an average o f six applications to two. The additional revenue resulting from the use o f transgenic cotton is estimated at Franc CFA 36,000 per hectare. Nationwide introduction is envisaged by 2011/2012. The Government i s also playing a leading role within the subregion indeveloping an appropriate biosecurity regulatory framework. - 96 - 0 Combining cotton cultivation with other ventures. Rotating the cultivation of cotton with that of cereals (hybrid maize in particular) has been very successful, and research on optimal rotation plans will be intensified. Other plant combinations are also conceivable to further reduce the need for imported fertilizers. In the low lands, cotton cultivation would be associated with that o f h i t s (mangoes, citrus, and bananas), vegetables (tomatoes, onions, green beans) and leguminous (cowpeas). 21. The Burkinabb Government has also played an important leadership role among African cotton-producing countries within the Doha Round o f international trade discussions, advocating for the elimination o f agricultural subsidies in the developed world that undermineincentives for African producers. IDAAssistance to the Sector 22. IDAhas providedcontinuous support to the cotton sector through the PRSC series 1to 6, andproposes to continue its assistanceto the sector through the new set ofPRSCs (7-9), as well as through investment projects. 23. PRSC-1 and 2 supported studies and an action plan for the opening o f the cotton sector to private investors. PRSC 3 and 4 supported the implementation o f the action plan that ledto the setting up of two new private ginning companies in 2004- FASO COTON inthe central region and SOCOMA inthe easternregion. PRSC 5 and 6 also supported increased agricultural productivity and diversification, including through the land tenure reform. 24. This new PRSC series (7 to 9) will continue to address medium and long term challenges for the cotton sector. During the preparation o f PRSC-7, the Government has adopted a new price settingmechanism, which will be used to determine producer prices for the 2007/2008 campaign. PRSC 8 will include two cotton-related triggers as indicatedinTable 4: 0 The producer pricing mechanism is further revised to better align it with the international market price. SOFITEX has started to reduce its operating costs in 2007, has adopted and started implementinga restructuringplan aimed at further reducing its operating costs byno less than 10percent in2008.. 0 Independent financial and operational audits o f SOFITEX for 2004-2007 have been launched and the Council of Ministers has adopted a strategy and calendar for enhancedprivate sector participationinSOFITEX's equity. 25. The first measure will ensure better alignment o f the producer price mechanism with world price changes and will thus reduce Government's contingent liabilities from the sector. The second trigger represents an important milestone in the process o f enhancing private sector participation inthe sector. Infact, the independent financial and operational audits o f SOFITEX will inform the Government's strategy to bringinprivate investors. While cotton-related triggers for PRSC-9 would be defined duringpreparation - 97 - o f PRSC-8, it i s anticipated that they would support the completion o f the audits, providing a clean audit opinion for 2007, and the implementation o f the Government strategy to reduce its stake in SOFITEX and enhance private sector participation in the sector. 26. IDA'Sinvestment projects in this sector include the Agricultural Diversification and Market Development Project which is targeting an increase inthe competitiveness of selected valuehpply chains for national and sub-regional markets, thereby contributing to broad-based agricultural growth inBurkina Faso. The cotton component o fthe project addresses the above objectives regarding investment in farm equipment and storage facilities, improvement in seed cotton productivity through manure, cover crops and cropping system, implementation o f a biosecurity program for cotton producers, and promotion o f alternative supply chains. This project i s complemented by a recently- negotiated Regional Biosafety Project inwhich Burkina's national biosecurity laboratory will play a leading role. IDA is also financing the second National Transport Sector Program which addresses in particular the improvement o f feeder roads to cotton production areas. - 98 - Annex 6: PRSC-7-The Impacton PovertyofAlternativeCotton ProducerPrices. 1. This annex provides preliminary estimates o f the impact o f different cotton producer prices on poverty among cotton producers in Burkina Faso. The focus i s on answering the questions: 0 how has poverty among cotton producers evolved over time; and . what i s the impact onpoverty among cotton producers, ifprices decrease ? 2. In addition, the synergies in production or positive externalities derived from cotton production for a typical cotton producer are briefly discussed to shed light on the witnessed high price elasticity for producing cotton. 3. The estimates are based on two surveys collecting information on the household's consumption in Burkina Faso: the 1998-99 Priority survey and the 2003 Core Welfare Questionnaire Indicator survey (CWIQ). The two surveys provide detailed and comparable data on the consumption levels o f households as well as data on farming patterns and cotton production. Table A6.1 provides estimates o f poverty in the population as a whole as well as in urban and rural areas, including for cotton producers. Table A6.1 shows that between 1997/98and 2003, the share o f cotton producers in poverty has decreased from 53.9 percent to 47.2 percent. The poverty level for cotton producers and the poverty dynamics was similar to the overall poverty level and dynamics observed in the country in both years. However, there was a slightly steeper reduction in poverty for the overall population than for cotton producers. Poverty reduction among cotton farmers i s primarily linked to an increase in production, and the positive synergies farmers derive for other cultivated crops (cereal, etc.) from the fertilizer input package they receive from the cotton ginning companies. The producer price varied only marginally duringthe same period, with 180 Franc CFA franckg in 1997-98 and 175 Franc CFA k g in2002-2003. National Urban Rural Cotton producers Share inpoverty (%) 1997198 54.6 22.4 61.1 53.9 Share inpoverty (%) 2003 46.4 19.2 52.4 47.2 4. The impact on poverty among cotton producers. The analysis measures the changes in income obtained from cotton production at different producer prices by using the income data from the before mentioned households surveys. It is assumed that this difference inincome translates into an equivalent difference in consumption per capita, and that no further adjustment to the new price signal i s made by the cotton producers, that is, neither does the farmer substitute cotton production for another crop, nor does he increase cotton production. The new consumption aggregate i s then used to measure poverty. The resultingestimation o f the income effect provides for a "first round partial equilibrium" poverty effect from lower producer prices. The results from the estimations for various cotton price scenarios are provided intable A6.2. The 1997/98survey data are used for these simulations rather than the 2003 CWIQ survey, because the 2003 survey did not measure very well the quantities of cotton sold by households. Although the level ofpoverty observed inthe 1997-98 survey i s significantly higher than in the 2003 survey, the order o f magnitude o f the change in poverty due to changes in producer prices i s likely to remain similar today to what it was then. In - 99 - 1997-1998, the price paid to top producers was Franc CFA 180kg. This i s also the modal price observed inthe survey. Table A.6.2 suggests that a 20 CFA franckg reduction inthe producer price o f Franc CFA 160 per kilogram to Franc CFA 140 per kilogram would lead to an increase inpoverty o f about 3.5 percentage points among cotton producers. For poorer producers, who may be less diversified, the negative impact could be larger. A more informed analysis o f the actual poverty impact o f reduced cotton producer prices would need, however, to capture more precisely the synergy effects achieved with cotton production, and the value the typical cotton farmer derives from the fertilizer and credit package offered by the cotton companies (see below). Supporting the loss in income with producer prices above market rates i s not sustainable for a longer period, neither for the ginningcompanies, nor for the Government. However, the loss in income could be compensated by an increase in production, which seems to have been the case, among others, for the typical cotton farmer inBurkina, judgedby the increasing overall cotton production o f 17 percent annually over the last decade, and i s similar to the experience made in other countries (Mali). The increase in production has been realized in the past through extension o f cultivation. Another way to increase production and support the farmers' income would be to improve productivity. This can be done though additional fertilizers, or a more optimized production cycle, includingthrough training, using cotton seeds better adjusted to the various applicable natural conditions, or simply through use o f higher yieldingcotton seeds. Cotton price (FCFAKg) 200 190 180 170 160 150 140 130 120 110 100 1997-98 householdsurvey Headcount 50.7 52.2 53.9 55.8 57.4 59.3 60.9 62.7 64.9 66.3 67.8 Poverty gap 16.0 17.1 18.2 19.9 21.3 22.8 24.3 25.9 27.5 29.2 30.9 Squaredpoverty gap I 6.8 7.4 8.1 9.4 10.4 11.5 12.8 14.1 15.6 17.2 18.8 180FCFA/Kg is the modalpricein 1997-98 and i s the priceat which cottonproductionhas beenevaluatedfor all producers.When simulatingadecreaseinprice,consumptionthat becomesnegativehas beenchangedinto zero. 5. Why do producers continue to produce cotton despite lower prices? The reasons identified in Mali apply most likely to Burkina Faso and to other West African cotton producing countries. First, cotton production gives producers the certitude they will receive a monetary income at a predetermined moment. This monetary income helps to cover costs for a variety o f expected and unexpected expenses (health, education, social events). Second, cotton production facilitates access to credit. Producers need this credit not only to get access to inputs but also to improve their productive material or for consumption purposes. The banking system and the micro-finance institutions often do not deliver credits to farmers who do not produce cotton or a marketable fruit. Third, cotton production offers farmers access to farm inputs (fertilizers). Producers often use those inputsnot only for cotton productionbutalso for cereals production. Fourth, cotton production offers producers access to some training and education concerning new varieties, and technical improvements. Finally, cotton production in any given year has positive "afterwards effects" on cereals yields inthe next year as the use o f chemical and/or natural inputsneeded by the cotton crop improves ground fertility at crop rotation time. Overall, to pertain to the "cotton club" brings many advantages to peasants, which may explain why most o f them continue to produce cotton when prices go down, at least for some time. - 100- T U k 0 a a s f v1 I t \ f I t tt: * - - - . e - I I 1 'I J ic -"-+--- I I ji" /rc !- f I iii PRSG7- Annex 10: PRSC7- BurkinaFaso Joint Fund-WorldBankDebt SustainabilityAnalysis This joint DSA was prepared using the Fund-World Bank debt sustainability framework for low-incomecountries. The data were updatedjointly by the Fund and the World Bank with information provided by the authorities. The medium-termframework was discussed with the authorities in the context o f the new PRGF arrangement (Box I. which l), i s beingconsidered by the FundBoard at the same time as this DSA. BurkinaFaso'srisk of debt distressis moderate. EXTERNALDEBTSUSTAINABILITY ANALYSIS All debt indicators are well below their policy-dependent thresholds in the baseline scenarios (Text Table A1O.l). This is a substantial improvement over the results o f the previous joint DSA completed in August 2005, when the NPV o f debt-to-exports ratio was projectedto breach its threshold for a numbero f years (Box 1.2).16After the MDRIdebt relief in 2006, debt ratios increase again over the medium term and stabilize over the long term. The driver o f these debt dynamics i s the fiscal stance; over the medium term, fiscal deficits are relatively large and the borrowing requirements lead to increasing debt ratios, but in the long run deficits fall enough to allow debt ratios to stabilize, mainly because o f projected revenue increases. TableAlO.l: Policy-BasedExternalDebtBurdenIndicator 2006 Burkina Faso's ratios Threshold 11 2007-25 21 Peak NPV of externaldebt in percent of: Exports 200 85.8 152.5 164.5 GDP 50 10.6 19.3 21.4 Revenues 300 85.4 113.6 120.5 Externaldebt service in percent of: Exports 25 5.5 6.7 8.8 Revenues 35 5.5 4.9 6.2 I I1Policy-dependentthresholds as used in thejoint IMF-WorldBank LIC DSA frameworkfor a strong policy performance. Burkina Faso receiveda ratingof 3.76 in the World Bank's 2005 Country Policy and Institutional Assessment, which qualifes it as a strong performer. The staffs decidedagainst usingthe three-yearmoving average CPlA scoreto avoid unduevolatility in the applicablethresholds. 2/ Simple average. l6See EBS/05/130, August 24,2005. - 112 - BoxA1O.l: BurkinaF a s e MacroeconomicAssumptions Fiscal Developments,2001-2025 (In percent of GDP) Real GDP growth i s projected to average 26 6percent through 2025, in line with the 2r historical average o f the past ten years. This i s 2( consistent with annual per capita GDP growth I t o f 3.6 percent, which would lead to a doubling 1; o frealper capita GDP over this period. 8 Inflation is projected at 2 percent-in line with 4 the IO-year historical average and WAEMU 0 0 convergence criteria. -4 -4 The overall fiscal deficit, with and without -6 -8 grants, i s projected to shrink over time as P revenue increases. Strengthening tax and 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 Source Burkinabeauthorities and staff estimates customs administration and reforming the tax system is at the center o f the proposed new PRGF program; over the long run, revenue CurrentAccount, Exports. and imports2001-25 projections are consistent with the authorities' (In percentof GDP) commitment to reach the WAEMU tax revenue target o f 17percent of GDP. Expenditures are programmed to expand considerably in 2007 relative to GDP and stay at the higher level throughout the projection period. External financing requirements are to be met equally by grants and loans, inline with recent experience. The decline in the overall deficit including grants translates into a broadly equal reduction in external new borrowing, because domestic financing i s assumed to be zero for most years because its costs are high. 0 - *0 $ 0 0 " 2 E Z The current account deficit i s expected to W R R E R Z E R Z narrow moderately through 2025 as the tighter Source: Burkinabeauthorities and staffestimates. fiscal stance dampens import demand. The recent increase in the import-to-GDP ratio Fiscaland CurrentAccount Balances2001-25 caused by higher oil prices is likely to be (in percentof GDP) partially reversed because prices are expected 0 to be lower, and the connection o f the -2 transmission grid with CGte d'Ivoire should -4 reduce the consumption o f oil for electricity generation. The exports-to-GDP ratio i s -6 projected to increase slightly over the -8 projection period. The recent increase was brought about by strong cotton exports; fiture 10 export growth would come from other sources. 12 14 I6 - 113 - Box A10.2: BurkinaFaso-ChangesFromthe 2005 JointDSA MDFUrelief-in the first figure, MDRIrelief has been simulated for the 2005 joint DSA, yielding the dotted line, which tracks the current baseline. M o r e favorable macroeconomic performance and outlook-this i s the difference between the current baseline and the 2005 DSA with MDRI over the medium term: unexpectedly good export performance in recent years (second figure), particularly in 2006, creates the basis for a more favorable macroeconomic outlook. Larger new borrowing requirements in nominal terms-this tends to offset the more favorable export path inthe baseline, and the debt ratios o f the two DSAs converge (see third figure below). As apercent of GDP, projections for the fiscal stance-as measured by the overall balance excluding grants-have changed relatively little since 2005, except for 2007-09, when the current baseline has larger deficits. InUS.dollar terms, borrowing requirements inthe current baseline are somewhat larger in most years, because nominal GDP is larger. While the differences inindividual years tend to be small, they accumulate over time, and the NPV o f new debt diverges (fourth figure). 300 Net present value of debt/Exports 4500 ixport (in mln.US%) - Current DSA and 2005 DSA / 4000 250 2005DSA 3500 Threshold I / 200 3000 150 2500 2000 // W' 100 rrdn US$, 1500 Current Baseline current SA E q m t s rn rrdn USS, so 1000 2035 DSA 2005 DSA with /-- I MDRI 500 0 0 2005 2010 2015 2020 2025 2005 2010 2015 2020 2025 8% 7000 6% Loandisbursements and NPVofnewdebt, 6000 in millionsofUS dollars 4% NPVofnewdebt, 5000 2005 DSA I 0% 4000 -2% .P -4% 3000 -6% 2000 I -8% Loandisbursements, 1000 -10% 12% 0 2005 2010 2015 2020 2025 The NPV of debt-to-exportsratiois the mostbindingindicatorfor BurkinaFaso. Sensitivity tests show that the ratio breaches its threshold ina number of scenarios, but other - 114- debt indicatorsremainbelow their thresholds for all standardized stress tests and alternative scenarios (Text Table 1.2 and Figure 1.1): 0 The stress test on export growth causes the NPV o f debt-to-exports ratio to breach its threshold by a wide margin because exports are volatile: they are heavily dependent on cotton andthere are largefluctuations causedbyweather-related shocks and changes ininternationalcottonprices." 0 Public borrowing on less favorable terms would probably be unsustainable. Inthe alternative scenario, the average grant element i s lowered to about 20percent from over 40 percent inthe baseline (which increases the interest rate on new borrowing by 2 percent), resulting in a steadily increasing NPV o f debt-to-exports ratio, which breaches the threshold inabout 2015. Inthe alternative historicalscenario, theNPV ofdebt-to-exports ratio also breaches its threshold. Inthis scenario, the growth rates for key macroeconomic variables are set at their historical 10-year average. Debt dynamics in Burkina Faso are mostly driven by fiscal policies-the country can draw on the regional reserves o f the WAEMUto meet external balance-of-payment needs-and past policies appear to be unsustainable. In contrast, the baseline assumes a significant reduction in the fiscal deficit over the mediumterm, which is critical for debt sustainability. A country-specific scenario that retains the fiscal policy stance of the last year of the PRGFindefinitelywould also be unsustainable. Inthis scenario, the revenue-to-GDP ratio i s fixed at its projected level for 2009 (14.5 percent o f GDP), but baseline assumptions for expenditures excluding interest are broadly unchanged (Figure 1.2).l8 The overall deficit including grants would then average about 4xpercent o f GDP for 2010-25, about 1?4percentage points higher than the baseline. The additional new borrowing requirements would lead to a continuous increase inthe NPV o f debt-to-exports ratio, eventually breaching the threshold in about 2018. This underlines the importance o f reducing the deficit over the long run for safeguarding debt sustainability. In the baseline, the increase in domestic revenues reduces the deficit while keepingexpenditures high. l7 The combination stress test also leads to a breach of the threshold for the NFV o f debt-to-exports ratio, again on account o fthe largeexport volatility. Expenditures increase relative to the baselinebecause o fthe larger interest payments; real GDP growth is also higher in the alternative scenario, because growth inthe baseline is dampenedby the stronger revenue effort. - 115 - Figure A1O.l: Burkina Faso: Indicators of Public External Debt Under Alternative Scenarios, 2005-25 (Inpercent) Figure I. Burkina Faso: Indicators o fPublic External Debt 1. Under Alternative Scenarios, 2005-25 (Inpercent) 60 N P V o f debt-to-GDP ratio 50 - Baseline 40 30 20 10 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 350 N P V o f debt-to-exports ratio 300 - - 250 200 150 100 50 - - Baseline ---Historical scenario - - - - - .Mostextreme stress test -Threshold 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 30 Debt service-to-exports ratio 25 - Baseline 20 --- _.....MostHistorical scenario extreme stress test 15 -Threshold _ . . _ _ _ _ _ _ _ _ _ * . - - - - - 10 _---- _._-----------....____. * - e - _ _ _ e - - /------ _-e- 5 . 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Source: IMF staff projections and simulations. - 116- Figure A10.2: Country Specific Scenario Less Long Term Fiscal Consolidation Fiscal Developments,2001-2025 (Inpercentof GDP) Debt SustainabilityScenarios2004-25 28 28 NPV of debt-twxports ratio 24 250 20 / 1:: 200 16 Total expendituresand net lending 12 150 8 I AlternativeW scenario . Total revenue, 4 excluding grants - 4 100 0 , o -4 50 -8 -12 0 2004 2009 2014 2019 2024 Source: Mstaff estimates. A second country-specific scenario with a more pessimistic export outlook results in a marginal breach of the threshold. Cotton exports have risen sharply inrecent years, mostly because the area under cultivation i s larger. The baseline assumes a slowdown in cotton export growth as the sector matures, with most output gains coming from productivity improvements. The alternative scenario assumes no productivity gains and a constant area under cultivation, so the volume o f cotton exports stays at the 2007 level. As a consequence, the exports-to-GDP ratio would decline substantially relative to the baseline (Figure 1.3). This would lead the NPV of debt-to-exports ratio to breach its threshold, but only marginally. Of course, that scenario would likely require additional external adjustment, which has not beenconsidered inthis analysis. - 117 - FigureA10.3: Country-SpecificScenarieWeaker ExportGrowth Export-bGDP ratio 2004-25 Debt Sustainability Scenarios 2004-25 (In percent of GDP) NPV of debt-toexportsratio 14 Baseline 250 c 12 200 10 8 150 6 IO0 4 2 50 0 0 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2004 2009 2014 2019 2024 Source:IMstaff estimates. jource: IMstaff estimates. A country-specificscaling-up of aid scenario makes it clear that additional aid should beinthe formof grants.Itis assumedthat aid is scaled upbetween 2010 and 2015 andthen scaled down to converge with the baseline by 2020. Three scenarios are considered: (i)a small scaling-up with aid inflows increasing by 2 percent o f GDP by 2015, equivalent to an aid increase o f about 20 percent relative to the average aid-to-GDP ratio in 2007-09; (ii) a moderate scaling-up with aid inflows of 5 percent o f GDP, an increase o f about 50 percent; and (iii) a large scaling-up with aid o f 10 percent of GDP, Le., a doubling o f aid (Figure 1.4). The impact on growth is modeled on cross-country empirical evidence, taking into account the declining marginal returns o f aid.lg As in the baseline, a 50:50 split between loans and grants i s assumed. In spite o f the high grant share and borrowing on highly concessional terms, the NPV o f debt-to-exports ratio increases noticeably in all three scenarios and breaches its threshold in the moderate and large scenario. This suggests that a scaling up o f aid should rely mostly on grants to safeguard debt sustainability. See Michael Clemens, Steven Radelet, and RikhilBhavani (2004), "Counting Chickens When They Hatch: The Short Term Effect o f Aid on Growth. Center for Global Development," Working Paper No. 44. The authors distinguish between different types o f aid and focus intheir growth regressions on "so-called short-impact" aid, which i s most likely to have a growth impact over the mediumterm. Simulations are based on the authors' preferred conservative specification, which is that short-impact aid equivalent to 1percent o f GDP has an impact on growth o f about 0.5 percent ifthe country receives no aid. Given the already large aid inflows underthe baseline, a 1percent o f GDP increase in aid would raise growth about 0.2 percent, declining further to about 0.1 percent under the large scaling-up scenario. - 118 - FigureA10.4: Country-SpecificScenario-Scaling-Up Aid 20 i a Totalexpenditures andnet lending(in percent ofGDP) 35 -++- /(/,...... ..,A 16 Scaling up: 10%o f G D P n 14 30 t /----- --+- -- 12 ,.< 25 ....-... ..--.,- 10 20 1tCurrent baseline Scaling up:2% ofGDP a 6 Currentbaseline Scaling up: 5% ofGDP l5 4 2 I: , , , , , , , , , , , , , , , , , , , , , 0 2004 2006 zoo8 2010 2012 2014 2016 z o i a2020 2022 2024 0 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 350 Red GDP growh Scaling up: IOO/O o f W P NPVof debt-to-exports ratio A- 300 Scalingup: 10% ofCTDP 250 Current baseline caling up:5% ofGDP _----- .- . -. r -.-_ I Scaling up:2% ofGDP Threshold 200 / _,__..-.....-......__..._. Scaling up:5% ofGDP 150 Current baseline 100 50 0 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 0 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 The domestic debt stock in Burkina Faso is low. As o f September 2006 domestic debt totaled less than 3 percent o f GDP. Following the large inflow o f privatization receipts in January 2007, the Government i s practically free o f domestic debt. The fiscal framework envisions zero domestic financing for most o f the projection period, keeping domestic debt very low. Thus, public debt dynamics are similar to those o f external debt. The public debt "no reform" alternativescenario confirmsthat presentdeficits are too highto stabilize debt ratios. The `no reform' scenario (Table 1.4 and Figure 1.5) freezes the primary deficit at its 2006 value-about 4%percent o f GDP-and simulates the resulting debt dynamics. This yields continuously increasing debt ratios-this i s not surprisingbecause the 2006 primary deficit i s higher than that necessary to stabilize the nominal debt-to-GDP ratio at its post-MDRI level (Box 1.3). - 119- B. Conclusions Burkina Faso's risk of debt distress has moderated. While all baseline scenarios are comfortably below their policy-dependent thresholds, they depend critically on the assumption that domestic revenues continue to increase and lead to declining deficits after grants, thus reducing new borrowing requirements. The risk embodied in domestic revenue performance i s compounded by Burkina's vulnerable export performance, which i s essentially based on one product, cotton. MDRIrelief has reduced the risk o f debt distress, but risks pertaining to revenue and export performance remain. Thus, it is essential to implement the revenue reform program forcefully and to work on broadening the export base. - 120- FigureA10.5: BurkinaFaso: Indicatorsof PublicDebt Under AlternativeScenarios, 2005-25 1/ (In percent) 40 NPVof debt-to-GDP ratio - ---Baseline No Reform -Most extreme stress test o ~ " " " " " " " " " " 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 200 I80 NPV of Debt-to-Revenue Ratio 2/ 160 140 120 100 80 60 -Baseline 40 ---No Reform 20 -Most extremestress test 0 2005 2006 2007 2008 2009 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 - ---NoReform Basclinc Mostextremestress test 0 ~ " " " " " " ' " " " ' 2W5 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Source: Staffprojections and simulations. 1/Mostextreme stress test is test that yields highestratio in2015. 2/ Revenueincluding grants. - 121- Box A10.3: BurkinaFaso StandardDebt Dynamics- The link between the fiscal stance and debt dynamics in Burkina Faso can be considered in a standard model where the evolution o f the public debt-to-GDP ratio (d ( t )) i s a fhction o f the growth rate o f real GDP (g ), the real interest rate on Govemment debt (r ), and the primary balance on the Govemment budget (pb ): (1) d (t 1) = d (t)[(1+ r )/ (1 g)] -pb . + + The primarysurplus needed to keep the debt ratio stable (pb' ) is: (2) Pb` = [ ( r - g ) / ( l + g ) ] d ( t ) . Baseline projections for Burkina Faso assume an average real GDP growth rate o f about g = 6.1% ,and the average real interest rate i s approximately r = -0.6%, reflecting a very high share o f external debt with very low nominal interest rates, which implies a negative real interest rate overall. The model allows for calculating the Box Table 1: Debt-stabilizingprimarybalance primary balance that is consistent with stabilizing either the pre- or Debt-to-GDP ratio Debt-stabilizingprimary balance post-MDRI debt-to-GDP ratio (Box Table 1). The baseline scenario assumes an average primary deficit o f Pre-MDRI level: l / about 1.8 percent o f GDP, which is 43% -2.8% close to the debt-stabilizing primary deficit for the post-MDRI level. Post-MDN level: 2/ Hence, debt dynamics are relatively 20% -1.3% stable in the baseline. However, the debt-stabilizing deficits for pre- or I/Average ofpublic debt-to-GDP ratio for 2003-05. !/ End2006. post-MDRI debt ratios are much Box Table 2: Debt-to-GDPratios for alternativeprimary balances smaller than what has been observed historically-the average for 2001-06 was 3.8 percent o f GDP-so Primarybalance Simulatedpath for debt-to-GDP ratio 1/ alternative historical or "no reform" 2006 2025 2050 scenarios show increasing debt ratios Average 2001-06: throughout the projection horizon, -3.8% 20% 49% 58% because it takes considerable time for these scenarios, starting from low Average2007-09: 2/ post-MDRI debt levels in 2006, to -5.1% 20% 63% 71% converge to their equilibrium with Averagebaseline: 31 much higher debt levels (Box -1.8% 20% 26% 28% Table 2). / Maintainsindicatedprimary balancethroughout theprojectionhorizon, leginningin2007. /Projection for programperiod. / Projectionfor 2007-25. - 122 - I m 2 I Table A10.3: BurkinaFaso: SensitivityAnalysis for KeyIndicatorsof PublicDebt, 2005-25 (in percent) Est. Projections 2005 2006 2007 2008 2009 2010 2015 2025 NPV of debt-toCDP ratlo Baseline 19.0 10.6 12.2 14.3 16.2 17.3 20.4 21.4 A Alternative Scemrlor A l . Key variables at their historicalaveragesin 2007-25 ' 19.0 10.6 14.4 15.3 17.0 18.7 26.9 39.5 A2. New publicsector loans on less favorableterms in 2007-25 ' 19.0 10.6 14.7 18.2 21.2 23.3 30.0 34.2 8. Bound Tests 81. Real GDP growth at histoncaiaverage minus one standarddeviation in 2007-08 19.0 10.6 12.5 14.9 16.8 18.0 21.2 22.3 82. Export value growthat histoncalaverageminus one standarddewationin 2007-08 ' 19.0 10.6 13.7 15.7 17.5 18.5 21.3 21.7 83. US dollar GDP deflator at historicalaverage minus one standarddeviation in 2007-08 19.0 10.6 14.0 18.3 20.6 22.0 26.0 27.2 84. Net non-debt creating flows at histoncaiaverage minus one standarddeviation in 200748 ' 19.0 10.6 15.1 16.8 18.5 19.5 22.0 22.0 85.Combination of 61-84 usingone-haifstandarddeviation shocks 19.0 10.6 13.4 15.6 17.7 19.0 22.6 24.0 86.One-time30 percent nominaldepreaation relativeto the baselinein 2007 ' 19.0 10.6 17.1 20.0 22.5 24.1 28.4 29.8 NPV of debt-to+xports ratio Baseline 182.5 85.8 101.0 116.6 132.8 141.2 160.6 163.2 A Alternatlve Scenarios A i . Keyvariablesat their historicalaveragesin 2007-25 ' 182.5 85.8 118.7 124.1 139.8 152.6 211.6 301.0 A2. New publicsector loans on lessfavorablet e r n in 2007-25 ' 182.5 85.8 121.7 148.0 174.5 190.6 236.3 260.4 B. Bound Tesb B1. Real GDP growth at historicalaverage minusone standard deviation in 2007-08 182.5 85.8 101.0 116.6 132.8 141.2 160.6 163.2 82. Export value growth at historicalaverageminus one standarddeviation in 2007-08 182.5 85.8 141.2 199.9 224.6 237.0 262.6 259.4 83. USdollar GDP deflator at histoncalaverage minus one standarddeviation in 2007-08 182.5 85.8 101.0 116.6 132.8 141.2 160.6 163.2 B4. Net non-debt creatingflowsat historicalaverage minusone standarddeviation in 200748 ' 182.5 85.8 124.5 136.5 152.0 159.4 173.2 167.5 65.Combination of 81-84 usingone-halfstandarddeviation shocks 182.5 85.8 114.3 140.3 160.6 171.3 196.5 201.7 86.One-time 30 percent nominaldepreaation relativeto the baselinein 2007 182.5 85.8 101.0 116.6 132.8 141.2 160.6 163.2 Debt sewlce-to-exports ratlo Baseline 7.6 5.5 3.7 3.9 4.2 4.4 6.9 8.8 A. Alternatlve Scenarios A I . Keyvariables at their historicalaverages in 2007-25' 7.6 5.5 3.8 4.3 4.3 4.5 7.5 13.1 A2. Newpublicsector loans on lessfavorableterms in 2007-25 ' 7.6 5.5 3.8 4.8 5.9 6.4 10.6 15.2 8. Bound Tests 81. Real GDP growth at historicalaverage minusone standard deviation in2007-08 7.6 5.5 3.7 3.9 4.2 4.4 6.9 8.8 82. Exportvalue growth at historicalaverageminus one standarddeviation in 2007-08 7.6 5.5 4.6 6.5 7.0 7.3 11.6 14.2 83. US dollarGDP deflator at histoncalaverage minus one standarddeviation in2007-08 7.6 5.5 3.7 3.9 4.2 4.4 6.9 8.8 84. Net non-debtcreatingROWS at historicalaverage minusone standard deviation in 2007-08 ' 7.6 5.5 3.7 4.4 4.6 4.8 7.8 9.2 85. Combinationof 61-84 usingone-halfstandarddeviationshocks 7.6 5.5 4.1 4.9 5.1 5.4 8.3 10.9 86.One-time30 percent nominaldepreciationrelativeto the baselinein 2007 ' 7.6 5.5 3.7 3.9 4.2 4.4 6.9 8.8 Memorandumifem: Grant element assumedon residualfinancing(Le.,finanang requiredabovebaseline) 41.7 41.7 41.7 41.7 41.7 41.7 41.7 41.7 Source: IMFstaff estimatesand projections. ''Assumes Vanables indude real GDP growth, growth of GDP deflator(in U.S.dollar terms). non-interest current account in percentof GDP, and nondebtcreatingflows. that the interest rateon new borrowingis 2 percentagepointshigher than in the baseline., while graceand maturityperiodsare the same. Export values are assumedto remain permanently at the lower level, butthe current account as a share of GDP is assumed to return to its baselinelevelafler h e shock (impliatiy assuming ''Depreciation an offsettingadjustmentin importlevels). includesofficial and private transfersand FDI. isdefined as percentagedecline in doiiarnocalcurrencyrate, such that it never exceeds 100 percent. Appliesto ail stress scenariosexcept for A2 (less favorablefinancing)in whichthe terms on all newfinanang are as specifiedinfootnote2. - 124 - M 2 x.. Table A10.5: Burkina Faso: SensitivityAnalysisfor Key Indicatorsof PublicDebt, 2005-25 (In percent) Projections 2005 2006 2007 2008 2009 2010 2015 2025 NPV of Debt-to-GDP Ratio Baseline 22 14 14 16 17 18 21 22 A. Alternative scenarios AI. Real GDP growth and primary balance at historical averages 22 14 13 13 14 14 17 24 A2. Primary balance unchangedfrom 2006 22 14 14 15 17 18 25 37 A3. Permanently lower GDP growthl 22 14 14 16 18 19 24 31 B. Bound tests 81. RealGDP growth at historical average minus one standard deviationsin 2007-08 22 14 15 17 19 20 25 28 82. Primary balance at historical average minus one standard deviation in 2007-08 22 14 13 14 16 16 20 21 83. Combination of 81-82 usingone-half standard deviation shocks 22 14 13 14 15 16 19 20 84. One-time30 percent real depreciation in 2007 22 14 18 18 18 18 19 19 85. 10percentof GDP increase in other debt-creating flows in 2007 22 14 24 25 26 26 26 24 NPV of Debt-to-Revenue Ratio* Baseline 134 76 79 88 92 94 101 100 A. Alternative scenarios AI. Real GDP growth and primary balance at historical averages 134 76 70 72 73 74 83 110 A2. Primary balance unchangedfrom 2006 134 76 75 83 88 94 122 172 A3. Permanently lower GDP growth 11 134 76 79 89 94 98 113 140 B. Bound tests 81. RealGDPgrowth at historical average minus one standard deviationin2007-08 134 76 81 93 99 103 117 127 82. Primary balance at historical average minus one standard deviation in 2007-08 134 76 72 77 82 85 94 96 83. Combination of 81-82 using one-half standard deviation shocks 134 76 71 75 80 83 91 93 84. One-time30 percent real depreciation in 2007 134 76 97 99 97 95 91 89 85. 10 percent of GDP increase in other debt-creating flows in 2007 134 76 134 138 136 135 126 110 Debt Service-to-RevenueRatio* Baseline 8.2 6.2 4.9 4.9 4.7 4.4 4.4 5.4 A. Alternative scenarios AI. RealGDP growth and primary balance at historical averages 8.2 6.2 4.9 3.9 3.7 3.6 3.4 5.5 A2. Primary balance unchangedfrom 2006 A3. Permanently lower GDP growth 8.2 6.2 4.9 4.5 4.4 4.4 5.0 8.8 6.2 4.9 4.9 4.8 4.6 4.8 7.3 B. Bound tests 81. Real GDP growth at historicalaverage minus one standard deviationsin 2007-08 8.2 6.2 5.0 5.1 5.0 4.8 5.0 6.8 82. Primary balance at historical average minus one standard deviationsin 2007-08 8.2 6.2 4.9 4.2 4.0 4.2 3.9 5.1 83. Combination of 81-82 usingone-half standard deviation shocks 8.2 6.2 4.9 4.1 3.9 4.1 3.7 4.9 84. One-time 30 percent real depreciation in 2007 8.2 6.2 5.1 5.4 5.4 5.2 5.3 6.6 85. 10 percent of GDP increase in other debt-creating flows in 2007 0.2 6.2 4.9 4.9 4.7 4.4 4.4 5.4 Sources: Country authorities: and IMFstaff estimates and projections. 'Assumes that real GDP growth is at baseline minus one standard deviation divided by the square root of 20 (Le., the length of the projection period). Revenues are defined inclusiveof grants. - 126 - 2611 7815 3301 4279 5114 5624 Et055 6x44 1411 8141 .27x 0 '3.8 i 1 7 I 4 7 144 34 fi 27. I 4 v -5 5 -6.0 -22.1 1 0 L". i r 19, -133% t ctuld hc added h E it - 127 - Annex 12: PRSC-7 SocialIndicators - Burkina Faso Social Indicators Latest single year Same regionlincome group Sub- Saharan Low- 1980-85 1990-95 1999-2005 Africa Income POPULATION Total population, mid-year (millions) 7.4 9.8 13.2 741.4 2,353.0 Growth rate (% annual average for period) 2.3 2.8 3.1 2.3 1.9 Urban population (% of population) 12.3 15.1 18.3 35.2 30.0 Total fertility rate (births per woman) 7.5 7.0 6.5 5.5 3.7 POVERTY (% of population) National headcount index 46.4 Urban headcount index 19.2 Rural headcount index 52.4 INCOME GNI per capita (US$) 220 240 400 745 580 Consumer price index (2000=100) 67 89 116 127 128 Food price index (2000=100) 79 86 109 INCOMElCONSUMPTlONDISTRIBUTION Gini index 50.7 39.6 Lowest quintile (% of income or consumption) 6.9 Highest quintile (% of income or consumption) 47.2 SOCIAL INDICATORS Public expenditure Health (% of GDP) 2.6 2.4 1.3 Education (TOof GDP) 2.6 3.4 3.1 Net primary school enrollment rate (% of age group) Total 29 40 80 Male 35 46 83 Female 23 35 77 Access to an improved water source (% of population) Total 38 61 56 75 Urban 61 94 80 88 Rural 34 54 43 70 lmmunizatlon rate (% of children ages 12-23 months) Measles 38 43 78 64 63 DPT 9 34 88 64 67 Child malnutrition (% under 5 years) 33 38 29 39 Life expectancy at birth (Years) Total 48 46 48 47 58 Male 47 45 48 47 58 Female 50 47 49 48 59 Mortality Infant (per 1,000 live births) 123 107 97 100 80 Under 5 (per 1,000) 220 204 192 168 122 Adult (15-59) Male (per 1,000 population) 467 429 427 489 298 Female (per 1,000 population) 362 338 400 467 244 Maternal (modeled, per 100,000 live births) 1,000 921 684 Births attended by skilled health staff (%) 42 38 42 41 ~~ ~ Note: 0 or 0.0 means zero or less than half the unit shown. Net enrollment rate: break in series between 1997 and 1998 due to change from ISCED76 to ISCED97. Immunization: refers to children ages 12-23 months who received vaccinations before one year of age or at any time before the survey. World Development Indicators database, World Bank - 25September 2006. - 128 - Annex 13: PRSC-7- Countryat a Glance Burkina Faso at a glance Sub- Key Development Indicators Burkina Saharan LOW Faso Africa income Age dlstrlbutlon,2005 (ZOOS) Male Female Population. mid-year (miilions) 13.2 741 2,353 70-74 Surface area (thousand sq. km) 274 24,265 29,265 60.64 Population growth (%) 3.1 2.1 1.8 Urban population (% of total population) 16 35 30 50.51 4 w GNI (Atlas method, US$ billions) 5.2 552 1.364 30% GNI per capita (Atlas method, US$) 400 745 560 20-24 GNI per capita (PPP, international $) 1,220 1,981 2,466 GDP growth (%) 7.1 5.3 7.5 20 10 0 10 20 GDP per capita growth (%) 3.6 3.1 5.6 percent (most recentestimate,ZOOO-ZOOS) Poverty headcount ratio at $1a day (PPP. %) 29 44 Poverty headcount ratio at $2 a day (PPP, %) 71 75 Under-5mortality rate (per 1.000) Life expectancy at birth (years) 48 46 59 Infant mortality (per 1,000 live births) 96 100 60 1 Child malnutrition (% of children under 5) 38 29 39 250 2UO Adult literacy, male (Ohof ages 15and older) 29 73 150 Adult literacy, female (% of ages 15 and older) 15 50 Gross primary enrollment, male (Oh of age group) 64 99 110 100 Gross primary enrollment, female (% of age group) 51 67 99 50 Access to an improved water source (% of population) 61 56 75 D Access to improved sanitation facilities (Ohof population) 13 37 36 1990 19% 20W 2005 OBurkina Faso O(Sub-Saharan Africa Net Aid Flows 1980 1990 2000 2005 I (US$ millions) Net ODA and official aid 210 327 335 660 Srowth of GDP and GDP percapita (X) Top 3 donors (in 2005): France 56 85 82 80 Netherlands 16 35 16 54 Denmark 3 10 24 49 Aid (% of GNI) 10.9 10.5 12.9 12.8 Aid per capita (US$) 32 38 30 50 Long-Term Economic Trends 90 95 W Consumer prices (annual % change) 3.9 1.6 -0.3 5.7 GDP implicit deflator (annual % change) 8.7 1.4 5.3 2.1 &GDP - GDP per capita Exchange rate (annual average, local per US$) 211.3 272.3 712.0 526.6 Terms of trade index (2000 = 100) 113 100 82 1980-90 1990-2000 2000-05 (average annual growth %) Population, mid-year (millions) 6.6 8.5 11.3 13.2 2.6 2.8 3.2 GDP (US$ millions) 1,929 3,120 2.611 5,624 3.6 4.0 5.1 (% of GDP) Agriculture 28.4 27.8 37.5 39.0 3.1 4.2 5.8 Industry 19.8 20.2 18.6 20.4 3.8 2.3 2.7 Manufacturing 14.7 14.7 10.8 13.5 2.0 1.6 2.2 Services 51.7 52.0 43.9 40.6 3.6 4.5 12.0 Household final consumption expenditure 98.0 81.6 60.9 83.4 2.6 3.7 6.8 General gov't final consumption expenditure 9.2 13.2 12.6 11.0 6.2 -0.5 2.6 Gross capital formation 15.1 18.2 22.7 22.4 8.6 7.0 8.2 Exports of goods and services 9.0 11.3 9.1 10.1 -0.4 0.0 6.6 Imports of goods and services 31.3 24.3 25.3 25.1 2.6 1.4 11.3 Gross savings 13.4 6.6 7.4 Note: Figures in italics are for years other than those specified. 2005 data are preliminary estimates. .. indicates data are not available. Development Economics, Development Data Group (DECDG). - 129 - Burkina Faso Balance of Paymentsand Trade 2000 2005 IGovernance indicators, 2000 and 2005 (US$ millions) Total merchandiseexports (fob) 206 466 Total merchandiseimports(ci9 417 791 Voiceand accountability Net trade in goods and services -435 -747 Politicalstability Workers'remittancesand compensationof employees(receipts) 67 50 Regulatoryquality Current accountbalance -352 -591 Ruleof law as a % of GDP -13.5 -11.8 Controlof corruption Reserves, includinggold 244 463 0 25 50 7s 1w Central GovernmentFinance 2005 Country'spercentilemnk (0-100) 02000 hrghsr vdues ,mp& betler rmrngs (% of GDP) Revenue 12.3 Source Kaufmanr-Kraay-Mastnuzi WoM Bank Tax revenue 11.4 Expense Technology and Infrastructure 2000 2005 Cash surpluddeficit Paved roads(% of total) 16.0 31.2 Highestmarginaltax rate (%) Fixedline and mobilephone individual subscribers(per 1,000 people) 7 51 Corporate High technologyexports (% of manufacturedexports) 3.1 9.6 External Debt and Resource Flows Environment (US$ millions) Total debt outstandingand disbursed 1,456 2,115 Agriculturalland (% of land area) 37 40 Total debt service 47 46 Forestarea (Ohof land area) 25.3 24.8 HlPC and MDRldebt relief (expected;flow) 930 Nationallyprotectedareas (% of land area) .. 15.4 Total debt (% of GDP) 54.8 39.5 Freshwaterresourcesper capita (cu. meters) 945 Total debt service (% of exports) 14.9 7.6 Freshwaterwithdrawal(% of internal resources) .... 6.4 Foreigndirect investment(net inflows) 23 19 C02 emissionsper capita (mt) 0.09 0.06 Portfolioequity(net inflows) -3 GDP per unit of energyuse (2000PPP $ per kg of oil equivalent) Composition of total external debt, 2005 Energyuse per capita (kg of oil equivalent) (US$ mi//ions) IBRD Total debt outstandingand disbursed Disbursements Principalrepayments Interestpayments ---- ---- US$millions IMF. tM IDA Total debt outstandingand disbursed 593 1,043 Disbursements 38 107 Private Sector Development 2000 2006 Total debt service 5 12 Time requiredto start a business(days) -- - 34 IFC (fiscal year) Cost to start a business(% of GNI per capita) 120.8 Total disbursedand outstandingportfolio 1 0 Time requiredto registerproperty(days) 107 of which IFCown account 1 0 Disbursementsfor IFC own account 0 0 Rankedas a major constraintto business Portfoliosales, prepaymentsand (Ohof managerssurveyedwho agreed) repaymentsfor IFC own account 0 0 n.a. n.a. MlGA Grossexposure 0 35 Stock marketcapitalization(%of GDP) New guarantees 0 38 Bank branches(per 100,000people) Note: Figures in italicsare for years otherthan those specified. 2005 data are preliminaryestimates. ..indicatesdata are not available. -indicates observationis not applicable. DevelopmentEconomics,DevelopmentData Group(DECDG). - 130 - Millennium Development Goals Burkina Faso With selected targets to achieve between 1990 and 2015 (estmate closestto date shown, +/- 2 years) Goal 1:hake the rates for $1a day poverty and malnutrition 1990 1995 2000 2005 Poverty headcount ratioat $1 a day (PPP, % of population) 62.7 44.9 28.7 Poverty headcount ratioat nationalpovertyline (%of population) 54.6 46.4 Share of incomeor consumptionto the poorest qunitile(YO) 6.9 Prevalenceof malnutrition(% of children under5) 33 34 36 Goal 2: ensure that children are able to complete primary schooling Primary school enrollment (net,%) 29 36 45 Primary completionrate (% of relevantage group) 20 20 25 34 Secondary schoolenrollment (gross,%) 7 11 14 Youth literacyrate (% of peopleages 15-24) 31 Goal 3: eliminate gender disparity in education and empower women Ratioof airisto bovs in Drimarv and secondaw education(%) . . 62 70 77 Womenkployedin the nonagriculturalsector (% of nonagriculturalemployment) 13 13 14 15 Proportionof seats held bywomen in national parliament (%) 4 8 12 Goal 4: reduce under-5 mortality by two-thirds Under-5mortalityrate (per 1,000) 210 204 196 191 Infant mortalityrate (per 1,000 live births) 113 107 100 96 Measles immunization(proportionof one-yearolds immunized,%) 79 43 59 84 Goal 5: reduce maternalmortality by three-fourths Maternal mortalityratio (modeledestimate, per 100,000live births) 1,000 Births attended by skilled healthstaff (x of total) 42 31 38 Goal 6: halt and begin to reverse the spread of HIWAIDSand other major diseases Prevalence of HIV (% of populationages 15-49) 2.0 Contraceptive prevalence(% of women ages 1549) 8 12 14 Incidenceof tuberculosis(per 100,000 people) 158 155 182 223 Tuberculosis cases detectedunder.DOTS(%) 11 17 18 Goal 7: hake the proportion of people without sustainable access to basic needs Access to an improvedwater source(% of population) 38 61 Access to improvedsanitationfacilities (% of population) 7 13 Forest area (% of total land area) 26.1 25.3 24.8 Nationallyprotectedareas (% of total land area) 15.4 C02 emissions(metrictons per capita) 0.1 0.1 0.1 0.1 GDP per unit of energy use (constant 2000 PPP$ per kg of oil equivalent) Goal 8: develop a global partnership for development Fixed lineand mobile ohone subscribers(Der 1,000 DeoDle) 2 3 7 51 Internet users (per I.OOO people) 0 0 1 5 Personal computers (per 1,000people) 0 0 1 2 Youth unemployment (% of total laborforce ages 15-24) iducation indlcators (%) Measles immunization (% of 1-year olds) CT lndlcators (per 1,000 people) 60 loo 1 50 n 40 30 20 10 1998 2000 2w2 2005 0 1990 1995 2MO 2005 2000 2002 2005 &Primary net enrollment ratio -U- Ratioofgirlsto boysinprimary & OBurkina Faso OSub-Saharan Afnca 0Fixed + mobile subscribers secondary education mlntemet users Note:Figures in italicsare for years otherthan those specified... indicatesdataare not available. Development Economics. DevelopmentData Group (DECDG) - 131- xE b E BE E.. a f MAP SECTION 4°W 2°W 0° 2°E This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on OUDALAN the part of The World Bank M A L I Group, any judgment on the legal status of any territory, or any endorsement or a c c e p t a n c e o f s u c h BURKINA FASO Gorom boundaries. SOUM Gorom N I G E R LOROUM Djibo Dori To 14°N To Mopti a SÉNO SÉNO Niamey YATENGA n g Titao Niger t e a Ouahigouya BAM SANMATENGA Sebba Y Kongoussi YAGHA To To Dosso San SOUROU Gourcy ZONDOMA GNAGNA KOSSI Tougan Kaya Sirba To Yako Ségou NAMENTENGA KOURE- Bogandé Bogandé KOMONDJARI Nouna Toma PASSORÉ ASSORÉ WÉOGO WÉOGO NAYALA Boussé Boussé OUBRITENGA Boulsa Gayéri Gayéri Ziniaré Ziniaré Goroubi Dédougou Dédougou OUAGADOUGOU GANZOURGOU BANWA MOUHOUN Réo Réo Koudougou KADIOGO a Solenzo r m BOULKIEMDÉ BOULKIEMDÉ Fada G o u N'Gourma Diapaga 12°N SANGUIÉ SANGUIÉ TAPOA BAZÉGA BAZÉGA Volta Blanche Zorgo Koupéla Koupéla Kombissiri KOURITENGA Noire Volta GOURMA 12°N Boromo ZOUNDW ZOUNDWÉOGOTenkodogo ZIRO Rouge Manga BOULGOU KOULPÉLOGO KOULPÉLOGO KÉNÉDOUGOU KÉNÉDOUGOU Volta BALÉ BALÉ Sapouy Houndé Houndé Ouargaye KOMPIENGA HOUET ÉOGO TUI NAOURI Pama Dano SISSILI Bobo- LLéo éo Po B E N I N BougounioT Orodara Dioulasso IOBA Diébougou Diébougou To To TTéna Kourou éna 2°E Djougou Parakou (747 m) Sindou BOUGOURIBA Banfora LLÉRABA ÉRABA PONI BURKINA FASO KOMOÉ KOMOÉ Gaoua To To é Tamale Sokidé VoltaN PROVINCE CAPITALS 10°N Komo NOUMBIEL oire G H A N A NATIONAL CAPITAL Batié Batié To TOGO RIVERS Bole MAIN ROADS 0 20 40 60 80 100 Kilometers SEPTEMBER C Ô T E D ' I V O I R E RAILROADS IBRD PROVINCE BOUNDARIES To 0 20 40 60 80 Miles 33379 Bouaké To 2004 Koutouba INTERNATIONAL BOUNDARIES 4°W 2°W 0°