Documentof The World Bank FOROFFICIALUSEONLY ReportNo. 25782-BUR INTERNATIONAL DEVELOPMENT ASSOCIATION PROGRAMDOCUMENT FOR A PROPOSEDGRANT INTHE AMOUNT OF SDR 35.4 MILLION (EQUIVALENT TO US$50MILLION) TO BURKINA FASO FOR A THIRDPOVERTY REDUCTIONSUPPORT OPERATION June 16,2003 PovertyReductionand EconomicManagement4 Africa Region has a restricteddistribution and may be used by recipientsonly inthe their official duties. Itscontents maynot otherwisebe disclosedwithout World Bankauthorization. CurrencyEquivalents (as of May 31,2003) Currency Unit = C F A Franc (CFAF) US$1 = CFAF556.89 FiscalYear January 1-December 3 1 ACRONYMS AND ABBREVIATIONS AAP HIPC Accountability Assessment and Action Plan AFD FrenchDevelopment Agency AfDB African Development Bank BCEAO Central Bank o f West African States CAMEG National DrugProcurement and Distribution Company CAS Country Assistance Strategy CAS-PR Country Assistance Strategy Progress Report CET Common Extemal Tariff CFAA Country Financial Accountability Assessment CFAF Franc o f the Afiican Financial Community CID Computerized Expenditure Circuit CIDA Canadian International Development Agency CMA Advanced Medical Centers COGES Local Management Committees CONAGESE National Council for Environmental Management CPAR Country Procurement Assessment Report CSPS Community HealthCenters DAAF Directorate o fAdministrative and Financial Affairs DANIDA Danish Development Agency DCMP Central Directorate for Public Procurement DEP Directorate for Planning and Studies DGB Directorate General for the Budget DGPE Directorate General for the Preservation o fthe Environment DGCOOP Directorate General for International Cooperation DGTCP Directorate General o fthe Treasury and Public Accounts DHS Demographic and Health Survey DSA Debt Sustainability Analysis EMP Environmental Management Plan ENEP Teachers Training Colleges EU European Union GDP Gross Domestic Product GNP Gross NationalProduct GTZ German Corporation for Technical Cooperation HIPC Heavily Indebted Poor Countries IDA International Development Association IFC International Finance Corporation IGE General State Inspectorate IGF General Finance Inspectorate IMF International Monetary Fund INDS NationalInstitute o f Statistics and Demography JSA Joint Staff Assessment LDP Letter o fDevelopment Policy M D G MillenniumDevelopment Goal MEBA MinistryofBasic Education 11 MEF MinistryofEconomy andFinance FOROF'FICIALUSEONLY MOH MinistryofHealth MTEF Medium-Term ExpenditureFramework NHS NationalHousehold Survey ONAPAD National Observatory for Poverty and Durable Development ONATEL National Telecommunication Company PAMS Poverty Analysis Macroeconomic Simulator PER Public ExpenditureReview PDDEB Ten-year Basic Education Development Plan PHRD Japan Policy and HumanResourcesDevelopment Trust Fund PNDS NationalHealth Care Development Plan PNDSA NationalProgram for the Development o f Agricultural Services PNGT NationalProgram for the Management o f Territory PRGB Budget Management ReformPlan PRGF Poverty Reduction and Growth Facility PRSC Poverty Reduction Support Credit PRSP Poverty Reduction Strategy Paper ROSC Report on the Observance o f Standards and Codes SAC Structural Adjustment Credit SECAC Sectoral Adjustment Credit SDR Special Drawing Rights SIGASPE Budget PayrollManagement System SYGADE Debt Analysis and Management System SONABEL NationalElectric Power Company SONABHY NationalPetroleum Product Distribution Company SP-PPF Permanent Secretariat for the Supervision o f Financial Policies and Programs STC-PDES Technical Secretariat for the Coordination o f Social and Economic Development Programs SYGADE DebtManagement System TOD Decentralization Laws TOFE Government Financial Operation Table UNDP UnitedNations Development Prqgram WAEMU West African Economic andMonetary Union WBI World Bank Institute WHO World Health Organization CountryDirector: A. David Craig Sector Manager Emmanuel Akpa This document has a restricteddistributionandmay be usedby recipients only in 1 theperformanceof their official duties. I t s contents may not be otherwise disclosed without World Bank authorization. BURKINA FASO THIRD POVERTY REDUCTION SUPPORT OPERATION TABLE OF CONTENTS I INTRODUCTION 1 I1 RECENT DEVELOPMENTSAND ECONOMIC OUTLOOK .. ................................................................................................................. ...................................... A. Country Context and Background ...................................................................................... 22 B. 4 C. Recent Economic Developments ........................................................................................ Economic Outlook .............................................................................................................. 8 I11 POVERTY . ........................................................................................................................... A. Poverty Profile.................................................................................................................. 10 10 B. Poverty Dynamics............................................................................................................. 10 I V PRSP IMPLEMENTATION AND EXTERNAL SUPPORT . PRSP Implementation in2000-2002................................................................................. ......................................... A. 13 B. Progressand Challenges inMeetingthe MDGs............................................................... 13 15 17 D. C. Achievements under PRSC-1 and PRSC-2....................................................................... The 2000 Country Assistance Strategy and Bank Support to the PRSP........................... 18 E. Donor Collaboration inSupportingthe PRSP .................................................................. 22 V . A.THE .......27 Context of PRSC-3 ........................................................................................................... PROPOSEDTHIRD POVERTY REDUCTION SUPPORT OPERATION 27 B. Public Sector Reform and Governance............................................................................. 27 C. Sectoral Policies for the Poor............................................................................................ 40 VI FUTURE OPERATIONS . ................................................................................................... A. LessonsLearned ............................................................................................................... 43 43 B. Design and Focus of PRSC-4 ........................................................................................... 53 VI1 GRANTADMINISTRATION AND RISKS . .................................................................... A. 56 B. Grant Administration ........................................................................................................ 56 Risksand MitigatingMeasures......................................................................................... 57 Annexes Annex 1.Letter ofDevelopmentPolicy........................................................................................ 59 Annex 3.Burkina Faso at a Glance................................................................................................ Annex 2.FundRelations Note....................................................................................................... 81 85 Annex 4 Burkina Faso:Key Social Indicators.............................................................................. 86 86 Annex 6 Burkina Faso:KeyExposureIndicators......................................................................... Annex 5. Burkina Faso: Key Economic Indicators........................................................................ . 89 Annex 7 SimulatingPoverty-GrowthLinkages with PAMS........................................................ 90 Annex 8 Attaining the MDGs inthe Education Sector................................................................. Annex 9.Attaining the MDGs inthe Health Sector .................................................................... ... 95 Annex 10.Bank-Fund Relations Annex ...................................................................................... 102 105 Annex 11 RecentAnalytical Work on Burkina Faso.................................................................. Annex 12 ProgressinImplementingthe HIPC-Accountability Assessment and Action Plan...114 Annex 13. EnvironmentalAssessment ........................................................................................ .. 110 Annex 14.Experiences with the PRSCs inthe Health Sector ..................................................... 116 124 iv ListofBoxes Box 1. The MillenniumDevelopment Goals.. ...........................................................16 Box 3. Policies Supported by the Competitiveness and EnterpriseDevelopment Project.. .......55 Box 2. Key Results ofthe Growth and Competitiveness Study.....................,..................53 ListofTables Table 1. Burkina Faso: SelectedEconomic Indicators (1999-2004) .............................................. 5 Table 2. Burkina Faso: Government Financial Operations in2002-03 .......................................... 6 Table 3. Burkina Faso: Domestically-financedPriority Expenditure1999-2003...........................7 Table 4. Burkina Faso: FinancingRequirements2001-2004.......................................................... 9 Table 5. Burkina Faso: Poverty Indicators by Socioeconomic Groups ........................................ 11 Table 6. Burkina Faso: Simulation of PovertyIncidence and Inequality ..................................... 12 Table 7. Burkina Faso: Performance under SelectedPRSP Indicators inHealth and Education. 15 Table 8. Burkina Faso: Reform MeasuresImplementedunder PRSC-1 and PRSC-2..................20 Table 9. Burkina Faso: Key Outcomes Envisaged by End ofthe FirstPRSP-PRSC Program (2000-03) ....................................................................................................................................... 24 Table 11. Burkina Faso: PRSC-4 Matrix of Key Policy Measures............................................... Table 10. Burkina Faso: Policy MeasuresImplementedbefore PRSC-3 ..................................... 28 46 ListofFigures Figure 1. Burkina Faso: Poverty Incidence Scenarios.. ... Figure2. The PRSC Program and AAA Underpinnings........................ ..................................................13 ............,........26 The World Bank team for this operation was led by Jan Walliser and included: Boubker Abisourour, Marie- Christine Balaguer, CClestin Bado, Siaka Coulibaly, Ghislaine Delaine, Renee Desclaux, Korka Diallo, Pascale Dubois, Judite Fernandes, Jane Hopkins, Timothy Johnston, Remi Kini, Catherine Laurent, Luc Lapointe, Ibrahim Magazi, FranGoisNankobogo, Makha Ndao, Ibrahim NebiB, Emmanuel Nikiema, Lucie Poirier, Eavan O'Halloran, Eustache Ouayoro, Suzane RayaissC, Issouf Samake, Aguiratou Savadogo-Tinto, Miriam Schneidman, Emil Tesliuc, Amadou Tidiane TourC, and Hans W. Wabnitz. Advisors include EmmanuelAkpa, David Craig, Stefan Koeberle, Philippe Le Houerou, Jean Mazurelle, Luiz Pereira da Silva, and Miguel Saponara. The PRSC team worked closely with IMF teams headed by Pierre van den Boogaerde and Idrissa Thiam and the African Develoament Bank team headedbv TheoDhileGuezodie. V THIRDPOVERTY REDUCTIONSUPPORT OPERATION PROGRAMSUMMARY Borrower: Burkina Faso. Amount: SDR 35.4 million(US$50 million equivalent). Terms: IDA grant for debt vulnerable countries. Description: The proposed poverty reduction support operation (PRSC-3) is the third in a series of operations to support the implementation of the 2000 PRSP in line with the Bank's strategy presented in the 2000 CAS. Consistent with the four strategic pillars of the PRSP- accelerating broad-based growth, promoting access to social services, increasing employment and income-generating activities for the poor, and promoting good governance-PRSC-3 supports the implementationof key reforms to improve the management o f public resources, strengthen basic service delivery inthe social sectors, and raise rural incomes. Benefits: The proposed operation offers benefits in creating the economic and institutional environment permitting the sustained improvement in policy implementation necessary to advance key social indicators. PRSC-3 underpins the government's objective to maintain a sound macroeconomic environment and accelerate growth by providing external resources for the execution of the government's 2003 budget. PRSC-3 thereby enhances the government's capacity to implement the poverty reduction strategy !aid out in the PRSP and the latest PRSP-PR. As regards economic management, the reform program supported by PRSC-3 i s expected to further improve budget formulation and execution as well as fiscal management and ex-post controls. The operation also supports improvements in basic service delivery, notably in education and health, through increases in supply, reductions incosts, and deconcentration of budget execution. These policies will lay the foundation for increasing schooling rates and lowering child mortality. In the area of rural development, the operation accompanies the opening of the cotton sector for private investors to sustain the sector's competitive gains and supports crop diversification to raise rural incomes and lower the country's external vulnerability. R i S k X The main risksfor the operation come from vulnerability to external shocks, vested interests, and weak capacity. Fluctuating prices for Burkina Faso's main export good and instability in the region could affect revenue flows and thereby undermine the capacity o f the government to implementbudgetary expenditure as planned. Vested interests could stall application o f reforms or undermine their objectives, notably as far as increasing private sector involvement in the economy, cotton sector reform and procurement reform are concerned. Finally, institutional risks remain due to limited capacity vi to conceive, execute, andmonitor government programs. The risk of shortfalls in resources due to possible adverse external shocks is being managedby strengthening donor coordination so that various partners are ready to help cover any unforeseen resource gaps that may emerge from such event. The risk that vested interests might resist reforms and cause them to stall will be mitigated by the fact that all reform measures have beentaken before Boardpresentation and that PRSC-3 is embedded in a medium-termreform program. The risk of slower-than required program implementationowing to capacity constraints will be minimized through continued technical support by the World Bank and other donors to build capacity through the PRSP process and a planned new capacity building project. ScheduleofDisbursement: SDR 35.4 million to be released in a single tranche following effectiveness, expectedfor September2003. ImplementingAgencies: The Ministry of Finance and Budget (MFB) coordinates the implementation,which involvesseveralline ministries. ProjectIDNumber: PO76908 vii INTERNATIONAL DEVELOPMENT ASSOCIATION PROGRAMDOCUMENT FOR A PROPOSED GRANT TO BURKINA FASOFOR A THIRD POVERTY REDUCTIONSUPPORT OPERATION -- P I. INTRODUCTION 1. The proposed grant to Burkina Faso for Special Drawing Rights (SDR) 35.4 million, an amount equivalent to US$50 million, for a poverty reduction support operation (PRSC-3) is the third in a series of operations that started with PRSC-1 in2001. PRSC-3 is an integral part of the Bank's strategy-presented in the Country Assistance Strategy (CAS) and reaffirmed in the CAS progress report (CAS-PR)-to support the implementation o f the poverty reduction strategy the government laid out in mid-2000 in its poverty reduction strategy paper (PRSP).' Jointly with the government and incollaboration with other donors, PRSC-1 established a three-year policy framework and a series of performance indicators that were closely aligned with PRSP objectives. On the basis o f sound policy implementation in 2000-01, PRSC-1 was approved on August 23,2001 .2A second operation (PRSC- 2) was approved on July 11,2002 after key policy measures had been implemented in 2001-02.3 2. The implementation o f government policies in 2001-02 was satisfactory. InNovember 2002, the Executive Boards o f the International Monetary Fund (IMF) and the World Bank examined the second annual progress report o f the PRSP (PRSP-PR) and concluded that the strategy outlined inthe PRSP and its implementation remain a sound basis for concessional lending to Burkina F a ~ oAs . ~ regards the year-to-year program implementation, progress has been fully satisfactory, and all but one o f the original key performance indicators ("triggers") for PRSC-3 specified in the program document for PRSC-2 have been met fully or in large part. The satisfactory progress made since the approval o f PRSC-2 warrants a move to PRSC-3. Policy measures supported by PRSC-3 continue to draw on core analytical work undertaken before approval o f PRSC-1 and PRSC-2, notably a growth and competitiveness study, a Country Procurement Assessment Report (CPAR), a Country Financial Accountability Assessment (CFAA), the Accountability and Action Plan (AAP) established under the Heavily Indebted Poor Country (HIPC) Initiative, as well as other analytical work undertaken by the government and donors in support o f the PRSP process. 3. As preceding operations, the proposed PRSC-3 offers benefits in creating the economic and institutional environment permitting the sustained improvement in policy implementation that is necessary to advance key social indicators. PRSC-3 underpins the government's objective to maintain a sound macroeconomic environment and accelerate growth and poverty reduction by providing external resources for the execution o f the government's 2003 budget. In addition, by ' Burkina Faso: Country Assistance Strategy-Report No. 21285-BUR (November ZOOO), Burkina Faso: Country Assistance Strategy Progress Report-Report No. 25458-BUR (March 2003), and Burkina Faso: Poverty Reduction StrategyPaper andJoint IDA-IMF StaffAssessment of thePRSP-Report No. 21027-BUR (June 2000). * Burkina Faso: Poverty ReductionSupport Credit-Report No. P7477-BUR (July 2001). Burkina Faso: SecondPoverty Reduction Support Credit-Report No. 24310-BUR (June 2001). Burkina Faso: Poverty Reduction Strategy Paper Annual Progress Report and Joint IDA-IMF StaffAssessment of the PRSP Annual Progress Report-Report No. 24809-BUR (October 2002). augmenting the envelope to US$50 million, in line with the second scenario o f the CAS-PRYPRSC-3 responds to significant additional spending needs to cushion the impact o f the Ivorian crisis. The operation thereby enhances the government's capacity to fully implement the poverty reduction strategy laid out in the PRSP and the latest PRSP-PR. As regards economic management, the reform program supported by PRSC-3 is expected to further improve budget formulation and execution and to strengthen fiscal management. The operation supports improvements in basic service delivery, notably ineducation and health, through increases in supply, reductions in costs, and deconcentration o f budget execution. These policies will lay the foundation for increasing schooling rates and lowering child mortality, among others. 4. PRSC-3 has been selected for grant financing because o f its poverty focus and the close monitoring o f outcomes under the PRSP process. Under the strategy outlined in the CAS-PR, there would be lending o f US$177.9 million in fiscal year 2004 for two PRSCs and an energy operation. PRSC-3 represents approximately 28 percent o f planned IDA lending in fiscal year 2004 and was chosen for financing with grants for debt vulnerable countries because o f (i)its prominence in the government's poverty reduction program set out in the PRSP; (ii)the strong development impact in supporting reforms summarized above; and (iii) considerable impact o f grant financing o f PRSCs the on the government's debt profile giving their fast-disbursing nature. Moreover, PRSC outcomes are closely monitored under the PRSP progress reports presented annually to the Executive Boards o f the IMFand the World Bank as well as under subsequent Bank lendingoperations. 5. As outlined in the CAS-PR, it is expected that the Bank will continue its programmatic support with PRSCs inthe interim period until a new CAS has been prepared on the basis o f a fully revised PRSP. PRSC-4 would be subject to further progress in policy implementation, including by meeting the triggers presented in this document and the letter o f development policy (Annex 1). It would also be aligned with the third annual PRSP-PR. The priorities o f the fully revised PRSP that the authorities intend to prepare in2003 will be reflected in a new medium-termpolicy framework at the time PRSC-4 will be presentedto the Executive Board. 6. PRSCs offer scope to maximize the coordination o f donor interventions, based on the framework o f the PRSP. InBurkina Faso, the majority o f donors, with the European Union (EU) and the African Development Bank (AfDB) being the largest contributors next to the World Bank, have adopted the concept o f programmatic support for PRSP implementation but for the time being have tied disbursements to different criteria drawn from the PRSP. It is fully expected that the PRSP update in late 2003 will provide a good occasion for the government to give further impetus for the coordination o f donor support by deepening the policy content o f the strategy and further strengthening the evaluation and monitoring framework o f the PRSP to achieve common buy-infrom all donors. 11. RECENT DEVELOPMENTSAND ECONOMIC OUTLOOK A. Country Context and Background 7. Burkina Faso is a poor landlocked country o f about 12 million inhabitants with a very narrow natural resource base. In2001, its GDP reached about $230 per capita and Burkina Faso was ranked 159th out o f 162 countries in the latest United Nations Development Program (UNDP) Human Development Index. Only about 17 percent o f the population live in urban areas (mainly the capital 2 city Ouagadougou and Bobo-Dioulasso, the center o f the cotton-growing area) and most Burkinabk depend heavily on agricultural activities, many o f which do not generate cash incomes. Macroeconomic performance and progress in reducing widespread poverty therefore remain vulnerable to exogenous shocks such as climatic conditions and changes in world market prices for cotton, Burkina Faso's main export good. 8. Onthe political level, Burkina Faso has made steady progress duringthe past years towards a broad-based and inclusive process. From independence in 1960 to 1987, Burkina Faso was subject to instability and frequently changing forms o f government, including a revolutionary government o f military officers in 1983-87. Since 1987, the country has enjoyed relative stability under President Blaise Compaore, who initiated a move to greater political pluralism in the 1990s. President Compaore won elections in 1991 and was reelected in 1998 for a second seven-year term. As part o f a national reconciliation and appeasement process, a government including several opposition parties was appointed in November 2000 and a fund for the compensation o f victims o f past political violence was instituted in 2001. The legislative elections in May 2002 resulted in a large gain for opposition parties that had boycotted previous elections. As a result, the governing party retained only a narrow majority in the national assembly, and a new government was formed in June 2002. Local elections are expected to be held in2003 after the creation o f rural communities. 9. Since 1994, Burkina Faso has satisfactorily implemented three programs supported by arrangements under the IMF's Poverty Reduction and Growth Facility (PRGF). The last PRGF arrangement expired on December 9,2002 after the final disbursement was made. On June 11,2003, the IMF Executive Board concluded the 2003 Article IV consultations and approved a new three- year arrangement under the PRGF for Burkina Faso in an amount equivalent to SDR 24.1 million to support the implementation o f the government's program in2003-06 (see Annex 2). 10. The conflict in neighboring CBte d'Ivoire has exacerbated the vulnerability o f the Burkinabk economy, which is heavily dependent on the Abidjan port for imports and exports and on Ivorian inputsfor certain industrial activities. Since the onset o fthe crisis on September 19, 2002, the border between C6te d'Ivoire and Burkina Faso has been closed and railway operations have stopped. Burkinabk operators were forced to divert trade to other ports in Benin, Ghana, and Togo at higher costs and to find new suppliers for consumption goods and essential inputs. As a result, consumers face higher costs, and some businesses had to reduce work hours or close down. Exports o f cotton have been diverted to other ports, and livestock exports to CBte d'Ivoire have largely ceased with repercussions on cash incomes in rural areas. Moreover, the public treasury and rural communities have to bear the economic and social costs o f Burkinabk returning from CBte d'Ivoire, a number currently estimated at about 160,000. Although close historical links between the northern part o f CBte d'Ivoire and Burkina Faso may result in some sympathies for the rebellion among the Burkinabk population, the government has played a constructive role in the peace process by encouraging the full and swift implementation o f a negotiated settlement. Discussions are now under way to reopenthe borders and the railway at end-June 2003. 11. Foreign assistance, including assistance provided under the HIPC Initiative, plays a large role for macroeconomic management and poverty reduction in Burkina Faso. As a result o f the weak internal resource base Burkina Faso remains heavily dependent on foreign aid to maintain necessary levels o f government services and investment. In 2001, financial assistance by way o f grants, loans and HIPC relief accounted for more than US$350 million, representing 124 percent o f government tax revenue or more than 14 percent o f GDP. After assessing Burkina Faso's debt burden and the 3 implementation o f policy implementation since inception o f the HIPC Initiative, the Executive Board's o f the IMF and the World Bank approved the completion points for the original and enhanced HIPC framework in June 2000 and April 2002, re~pectively.~Taking into account a deterioration o f the external environment, the Boards also granted an exceptional topping up o f debt relief in April 2002. Despite the reduction in debt service, it i s expected that Burkina Faso will depend on significant levels o f foreign financing in the medium term to implement its poverty reduction strategy and create the conditions for a broader domestic resource base that is necessary to generate faster growth. 12. Although some progress has been made in recent years in a context o f fairly stable growth rates o f about 5 percent on average since 1996, key social indicators are substantially below the sub- Saharan average (Annexes 3 and 4). Illiteracy rates still reach an estimated 74 percent, primary school gross enrollment rates have stayed below 45 percent, and repetition rates are high. Likewise, infant mortality rates, child malnutrition rates, and maternal mortality rates remain elevated and have changed little over the past decade. According to the 1998 household survey, the latest available to date, 45 percent o f the population are below the poverty line. These summary figures combined with the economic vulnerability and highdependency on foreign assistance demonstrate the challenge for Burkina Faso in making significant strides towards meeting the Millennium Development Goals (MDGs). B. Recent Economic Developments 13. Growth and inflation. After the drought-related decline in the growth rate to 1.6 percent in 2000, growth rebounded to 5.6 percent in 2001 and is estimated at 4.6 percent in 2002 (Table 1 and Annex 5). The large increase in cotton production in 2001-02 and a pick-up o f growth in secondary and tertiary sectors in2002 were the driving forces o f the growth recovery. However, growth in 2002 was about 1percentage point below expectations since cereal output stagnated at the fairly highlevel attained in 2001. After the drought-related inflationary spike to 4.9 percent in 2001, consumer price inflation reached 2.3 percent on an annual basis in 2002. However, inflation accelerated at year-end to 3.9 percent as a result o f higher import costs after the closure o f the Ivorian border. 14. Cotton sector developments. With production costs o f about CFAF 700 per kilogram o f cotton fiber- almost 60 percent o f which represent the producer price-the cotton parastatal SOFITEX remained the most competitive cotton producer inthe sub-region. However, in 2001-02, it could not avoid losses on its record harvest o f 380,000 tons on account o f the low international cotton prices. SOFITEX lost CFAF 7.7 billion (0.4 percent o f GDP) on the sale o f cotton fiber, part o f which were compensated by the sale o f cottonseeds. Although SOFITEX maintained the producer price o f CFAF 175/kg o f seed cotton in 2002-03, it could not pay the CFAF 25/kg bonus that was paid in2001-02. However, since cotton prices have recently firmed up the cotton parastatal has been able to generate profits in 2002-03 on a cotton harvest o f about 400,000 tons, despite the higher transport costs following the Ivorian crisis, and a bonus o f CFAF 10/kg has been announced for the 2003-04 crop cycle. SOFITEX management has taken early steps to secure alternative export channels by renting secured storage facilities in the Cotonou, Lome and Tema ports and by negotiating with transport unions to allow foreign trucks to evacuate Burkinabi: cotton. Burkina Faso: Assistance under the HIPC Initiative-Report No. P7384-BUR (June 2000) and Burkina Faso: EnhancedHIPC Debt Initiative-Report No. P7525-BUR (March 2002). 4 Table 1: Selected Economic Indicators (1999-2004) Actual Est. Proj. 1999 2000 2001 2002 2003 2004 (Percentage change) Real GDP growth 6.6 1.6 4.6 4.6 2.6 4.0 GDP growth per capita 4.1 -0.9 2.1 2.1 0.2 1.6 Inflation -1.1 -0.3 4.9 2.3 4.5 2.8 (InpercentofGDP) Tax revenue 12.8 11.0 10.5 11.1 11.4 12.3 Overall fiscal balance, incl. grants -3.5 -3.6 -4.0 -5.0 -2.5 -3.3 excl. grants -11.7 -10.9 -11.3 -10.4 -11.0 -9.9 Current account balance, incl. current off. transfers -11.4 -12.3 -10.5 -10.3 -9.4 -10.1 excl. current off. transfers -14.2 -15.0 -13.6 -12.9 -14.2 -12.6 Source: Burkinabk authoritiesand IMF staffprojections. 15. Public finances. As a share o f the revised GDP, the overall budget deficit in2002 was about as large as projected. However, this outcome masks some weaknesses inthe 2002 budget execution. The deficit on a commitment basis, including grants, is estimated at 5.0 percent o f GDP (3.6 percent excluding spending under the HIPC Initiative) compared with a programmed deficit o f the same magnitude but with higher HIPC-related spending (resulting in a deficit o f 2.6 percent excluding HIPC spending). As summarized in Table 2, this outcome is largely due to the slow execution o f capital expenditure, especially those financed with HIPC resources, while current expenditure exceeded program targets. 16. Revenues experienced a shortfall o f 0.6 percent o f GDP (CFAF 14 billion) compared with original program projections. Nonetheless, tax revenue increased by more than 13 percent and rose from 10.5 percent o f GDP in2001 to 11.1 percent of GDP in 2002. While tax collection in 2002 was encouraging overall, especially at customs, corporate tax receipts and internal VAT collections remained weaker than expected on account o f lower-than-projected economic growth. The Ivorian crisis affected tax revenues only to a small extent toward the end o f the year. 17. In executing the 2002 budget, the government faced unexpected spending needs related to rising oil prices, legislative elections, and the Ivorian crisis. Current expenditure were executed at a fast pace ahead o f the May 2002 legislative elections and subsidies for electricity fuels and butane gas were higher than expected throughout the year. Moreover, with the onset o f the Ivorian crisis, substantial unplanned expenditure for security purposes and humanitarian aid, estimated at more than 0.5 percent o f GDP, used up budgetary allocations for materials and services and forced the government to postpone the payment o f the second and third quarter utility bills. These bills will be settled during2003. 18. Recurrent cash shortages in the first half o f 2002, delays in allocating HIPC resources, and some weaknesses in absorption o f aid resulted in a low level o f capital expenditure and limited the catching up o f HIPC-related spending. In late 2001, the government was faced by a significant shortfall in foreign financing for which it compensated by accumulating expenditure commitments for which payment orders were not issued. The total stock o f these unpaid commitments at end-200 1 reached 1.4 percent o f GDP. Combined with the above-mentioned pressures on current expenditure the expenditure overhang resulted in a recurrent tight cash position in early 2002 and forced the government to delay the commitment o f domestically financed capital expenditure. Moreover, 2002 HIPC resources were only allocated to the different line ministries in April 2002. Although the total spending o f resources received under the HIPC Initiative accelerated considerably to CFAF 28.2 billion in 2002, it remained below the target o f CFAF 52.3 billion and was insufficient to execute 5 both the leftover 2000-01 HIPC resources and those released in 2002.6 Regarding foreign-financed investment spending, the time needed to start-up new projects, notably in the education sector, as well as unexpected delays in procurement processes for certain infrastructure investment, slowed down disbursements. Table2: GovernmentFinancialOperationsin2002-03 (Inbillions ofCFA francs, unless otherwise indicated) 2002 2002 2002 2003 Budget law Financial Prel. Proj. program 1/ Total revenue and grants - 424.6 412.7 378.1 457.1 Tax revenue 286.0 253.5 240.9 271.0 Nontaxrevenue 22.2 20.0 18.5 20.7 Grants 116.3 139.2 118.6 165.3 Program 34.1 34.1 29.9 49.9 Project 82.2 105.1 88.7 115.4 Expenditure and net lending 491.1 525.7 484.9 554.2 Current expenditure 241.4 246.7 257.4 269.8 Of which: HIPC N/a 20.7 11.0 23.1 Capitalexpenditure 253.1 282.3 230.3 261.4 Domesticallyfinanced 85.8 111.3 86.7 115.0 Of which:HIPC N/a 31.6 17.2 32.5 Foreign-financed 168.3 168.3 111.9 146.4 Net lending -3.3 -3.3 -2.7 23.0 Overall balance(commitment basis) -66.5 -113.0 -106.8 -97.1 Excluding grants -182.9 -252.2 -225.5 -262.4 Financing 66.5 113.0 105.1 97.1 Change inexpenditurecommittedbutunpaid 0.0 -8.1 9.1 -15.0 Of which: expenditurecommittedfor which paymentorder havenotbeen issued 0.0 -8.3 12.4 -15.0 Change intreasury obligations 0.0 0.0 30.6 -22.0 Foreignfinancing 96.6 108.2 92.6 67.7 Domesticfinancing -5.: 12.9 -23.8 29.2 Errorsandomissions 0.0 0.0 -1.7 0.0 Financinggap (-:overfinancing)2/ -24.7 0.0 0.0 37.2 (Inpercentof GDP) Total revenue and grants 19.5 18.5 17.3 19.2 Of which: Tax revenue 13.1 11.7 11.1 11.4 Expenditure and net lending 22.1 23.9 22.3 23.3 Currentexpenditure 11.1 11.3 11.8 11.3 Capitalexpenditure 11.6 12.8 10.6 11.0 Domesticallyfinanced 3.9 5.1 4.0 4.8 Foreignfinanced 7.7 7.7 6.6 6.2 Overall balance(commitment basis) -3.1 -5.0 -5.0 -2.5 Basic balance3/ -0.7 -3.6 -3.8 -4.5 Residualfinancinggap 2/ 0.0 0.0 0.0 1.8 Memorandumitem: HIPC-financedexpenditure N/a 2.4 1.3 2.3 Memorandumitem: GDP (inbillions 01CFAF) 2179.0 2179.0 2179.0 2380.0 Source:Burkinabk authorities and IMF staffprojections. 1/ Programsupportedunder the IMF's PRGF, February2002. 2/ BeforeWorld Bankprogramlending. 31Revenueexcludinggrantsminusexpenditure excludingforeign-financedinvestment spending. InBurkinaFaso, HIPC resources are channeledthrough a special treasury account to priority social spending in addition to spending already included in the regular budget. All funds of the 2000 and 2001 accounts were committedby end-2002but only CFAF 2.7 billiono fthe 2002 account couldbe committed. 6 Table 3: Domestically-financedPriority Expenditure1999-2003 (Inpercent of GDP) 1999 2000 2001 2002 2003 Actual Actual Actual Prel. Proj. 1/ Total 4.0 3.8 3.9 5.0 6.4 Ofwhich: HIPC-financed 0.0 0.0 0.3 1.3 2.2 Basic education 1.7 1.6 1.7 2.0 2.5 Current expenditure 1.5 1.5 1.4 1.4 1.7 Capital expenditure 0.2 0.1 0.3 0.6 0.8 Health 1.4 1.3 1.4 1.8 2.0 Current expenditure 1.2 1.2 1.2 1.5 1.5 Capital expenditure 0.2 0.1 0.2 0.3 0.5 Infrastructure 0.0 0.0 0.1 0.1 0.2 Current expenditure 0.0 0.0 0.0 0.0 0.0 Capital expenditure 0.0 0.0 0.1 0.1 0.2 Agriculture and environment 0.7 0.7 0.7 0.8 1.1 Current expenditure 0.5 0.5 0.5 0.4 0.5 Capital expenditure 0.2 0.2 0.2 0.4 0.6 Other 0.2 0.2 0.1 0.3 0.6 Source: Burkinabe authorities and staff calculations. 1/ Projections for 2003 assume a full execution of the remaining2002 HIPC-financed expenditure. 19. Despite a significant disbursement o f budgetary aid in late 2002 (CFAF 37 billion), the government did not succeed in reducing the expenditure overhang and the stock o f its treasury obligations at year-end. The stock o f expenditure commitments for which payment orders were not yet issuedincreased further to about CFAF 41 billion (1.9 percent o f GDP) and deposits in treasury accounts by public entities increased by CFAF 30 billion, including the unpaid 2002 utility bills. These latter developments are representative o f certain deficiencies in budget management processes at year-end rather than lack o f cash since donor resources arriving inNovember and December 2002 went to build up government deposits at the BCEAO. Accordingly, the government began to use h e s e bank deposits in early 2033 to make the payments and ;tduce the stock o f outstanding commitments. 20. Notwithstandingthe difficult overall context for the implementation o f the 2002 budget, the government was able to achieve a hrther significant increase in executing social expenditure. As outlined in Table 3, domestically-financed social expenditure, including HIPC-financed expenditure in the priority sectors, increased from 4 percent of GDP in 1999 to 5 percent of GDP in 2002. A further net progression i s expected for 2003 with an acceleration o f the use o f leftover HIPC resource~.~ 21, In 2002, the government successfully managed the transition to bond financing in regional markets. With the freeze o f statutory advances from the Central Bank o f West African States (BCEAO), the treasury twice successfully accessed the financial markets o f the West African Economic and Monetary Union (WAEMU) and issued short-term treasury bills for a total o f CFAF 23.3 billion at very favorable interest rates o f below 4 percent on average. Two-thirds o f the T-bills were bought by banks inother WAEMUcountries. 7The plannedacceleration of HIPC-relatedspendingappears realistic taking into account that most of the leftover 2002 fbnds were committedby end-April2003. 7 22. Monetary developments. Monetary developments, which have to be interpreted in the regional context, appear to be in line with stable expansion o f monetary aggregates. Preliminary figures show a small increase in Burkina Faso's contribution to the BCEAO's external reserves in 2002 despite the turmoil in the subregion late in the year. Money supply increased only slightly but the decline in net credit to the government allowed an expansion o f credit to the economy o f more than 18 percent, including some further increase in crop credits reflecting the new financing mechanism o f cotton inputs and the fairly slow execution o f export contracts o f the cotton company. Preliminary figures for the development o f prudential ratios through September 2002 indicate that commercial banks in Burkina Faso continue to respect most o f them but that difficulties remain in adhering to the risk concentration ratios as a result o f the limited number o f large and medium-sized enterprises. The share o f provisioned loans out o ftotal commercial bank lending remained essentially unchanged in 2002. 23. External sector. The current deficit stabilized at about 10 percent o f GDP in2002 mirroring a stabilization o f the trade deficit following a slow-down in imports that compensated for the declining export revenues for cotton after the fall in international prices. Foreign financing from public and private sources was more than sufficient to meet the needs to cover the current account deficit and contributed to a small reserve accumulation at the BCEAO and commercial banks. C. Economic Outlook 24. Growth and inflation. The growth outlook for 2003 remains clouded by the fallout o f the political and economic situation in CBte d'Ivoire. Even with a return to peace, overall economic activity in Burkina Faso will be affected by the time it will take to restart the broken trade links and for the Ivorian economy to regain momentum. On this basis, the originally projected real growth rate o f 5.7 percent has been revised downward to 2.6 percent. Primary sector growth potential will be limited by the already large cereal output in 2001 and 2002, the disruption o f livestock exports and difficulties for the cotton company to distribute fertilizers and pesticides. Industrial production (cement, metal products, tires and a variety o f consumer products) inthe area o f Bobo-Dioulasso will likely be affected by the disruption o f economic links with CBte d'Ivoire for the immediate future. With industrial production representing about 13 percent o f GDP and an important part o f the formal economy, declining output could lead to a loss o f income in the formal sector. Trade and services activities would also suffer from the general slow-down in economic activity. Moreover, the slow- down in growth, decline in competitiveness and reduced attractiveness for foreign investment will likely affect the Burkinabe economy beyond 2003. The exogenous pressures from the higher import costs related to the Ivorian crisis have already resulted in an acceleration o f inflation at end-2002 to 3.9 percent. The inflationary pressures are expected to persist with the continuing closure o f the border and are projected to result inan average inflationrate o f 4.5 percent in2003. 25. Public finances and financing requirements.The current economic context will constrain the government's ability to generate revenues. At the same time the government will attempt to (i) further increase social spending; (ii)cushion the impact o f the crisis by subsidizing the higher transport cost component o f fertilizers, estimated at CFAF 2 billion, to avoid a strong reduction in production o f the main cash crop; (iii)significantly increase spending on road maintenance (by CFAF 3 billion), to prevent a deterioration o f the main routes to Ghana and Benin and accelerate payments to small and medium-sized enterprises in the sector; (iv) accommodate the Burkinabe returning from CBte d'Ivoire by financing their transit and giving immediate humanitarian assistance; and (v) achieve a considerable reduction in unpaid expenditure commitments and treasury 8 commitments by end-2003. The fiscal framework for 2003 (Table 2) reflects these cash needs. Since the fiscal impact o f the Ivorian crisis is significant and leads to clearly identifiable additional expenditure outlined above, the volume o f PRSC-3 has been increasedby US$10 million, inline with the second scenario o f the CAS-PR. Out o f total financing requirementso f CFAF 299.4 billion (12.6 percent o f GDP) external financing would cover CFAF 270.2 billion (Table 4). Project disbursements are expected to reach CFAF 156.4 billion, with estimated program aid from the EU (CFAF 33.2 billion), AfDB (CFAF 21.2 billion) and several bilateral donors (CFAF 16.8 billion) accounting for another CFAF 71.2 billion.* The residual external financing requirements o f CFAF 37.2 billion (1.6 percent o f GDP) would be covered by the World Bank disbursement under the augmented PRSC-3 and additional bilateral support.' Table 4: FinancingRequirements2001-2004 (InbillionsofCFA francs) 2001 2002 2003 2004 Actual Prel. Proj. Proj. Overall deficit (cash basis) excluding grants -230.9 -185.8 -299.4 -265.2 Projectgrants 121.1 88.7 115.4 130.4 Programgrants 27.2 29.9 49.9 36.7 Ofwhich: EuropeanUnion 1/ 9.9 16.0 33.2 27.1 Overall deficit (cash basis) including grants -82.6 -67.2 -134.1 -97.9 Financing 81.0 68.8 134.1 97.9 Foreign 88.4 92.6 67.7 60.0 Projects 56.0 53.3 41.0 33.8 Program 33.1 46.0 21.2 21.2 World Bank 33.1 24.5 0.0 0.0 African DevelopmentBank 0.0 21.5 21.2 21.2 HIPC relief 26.5 20.8 36.0 35.4 Amortizationdue -27.1 -27.5 -30.5 -30.5 Domestic -7.4 -23.8 29.2 -27.3 Errorsandomissions 1.6 -1.7 0.0 0.0 Residualfinancinggap 2/ 0.0 0.0 37.2 65.3 Source: Burkinabeauthorities andIMF staffprojections. 1/ In2003, estimateddisbursementsunder the budget support programandEU support for WAEMU tariff reform. 21Beforetaking into accountWorld Bankprogramlending.PRSC-3 would representCFAF 27.9 billion and PRSC-4 would representCFAF 33.4 billion. 26. Monetary and external developments. The financial program builds on a largely unchanged level o f Burkina Faso's share o f net foreign reserves o f the BCEAO. The slight reduction inthe government domestic debt would give room for credit to the private sector to expand by more than 14 percent in 2003. On the external side, the trade deficit i s expected to widen on account o f crisis-related higher import costs that will outpace the growth in revenues from cotton exports. However, the expected increase in grant inflows (including the PRSC-3 disbursement from the World Bank) would allow the current account deficit to narrow slightly to 9.4 percent o f GDP. The current account deficit would be fully financed by the expected foreign disbursements, debt relief under the HIPC Initiative, and private capital inflows. 8Bilateral donors with program aid disbursements in2003 are Belgium, the Netherlands, Sweden, and Switzerland. Support to close the residual financing gap has been pledged by the EU, Canada, and Denmark. France recently announced its intention to provide budget support inthe future. 9 27. Sustainability and regional convergence. Debt relief under the original and enhanced HIPC Initiatives and the topping-up o f relief at the completion point in 2002 have reduced Burkina Faso's net present value o f debt-to-export ratio to 150 percent at end-2001. However, the external vulnerability and the narrow resource base imply that Burkina Faso will depend on considerable external assistance for the foreseeable future (see also Annex 6). Achieving a sustainable external and fiscal deficit would require steady progress in enhancing and diversifying Burkina Faso's domestic economic resource base. The increasing share o f grant financing (including this operation) also will ensure that Burkina Faso's debt levels will remain sustainable but, given the limits to international assistance in the long term, it cannot solve the fundamental issue o f the country's dependence on external resources unless both grants and credits are used to lay the foundation for long-term economic development. As regards regional convergence, Burkina Faso has been among the leaders in the WAEMU in complying with regional directives for trade, notably the common extemal tariff (CET) introduced in2000. The country is currently pursuingthe implementation o f the fiscal policy and accounting directives. However, the large external and fiscal resource gaps imply that Burkina Faso will need some time to meet the convergence criteria for the fiscal deficit and the current account balance, and the formal sector needs to expand for the country to meet the tax revenue criterion. 111. POVERTY A. Poverty Profile 28. Existingpoverty analysis is based on the 1994 and 1998 household surveys. A new survey is currently underway to allow a full update o f the poverty profile in 2003. The new survey will also provide a clearer indication on the progress made under PRSC-1 and PRSC-2 in 2001 and 2002 and underpin a poverty assessment the Bank will prepare in fiscal year 2004. Between 1994 and 1998 poverty incidence remained broadly stable (see Table 5) despite real growth rates o f abo:;t 5 percent on average. Limited progress in improving this indicator resulted in part from a sharp increase in inequality in some areas, particularly non-cotton growing rural areas in the center-south and the north, as well as all urban areas. Overall, the incidence o f poverty i s significantly higher in rural (51 percent) than urban areas (16 percent) and the income distribution i s highly skewed, with the richest 20 percent o f the population accounting for over 60 percent o f aggregate national income and the poorest 20 percent accounting for less than 5 percent. Food crop farmers are the group with the highest poverty rates, and between 1994 and 1998 poverty increased for all socioeconomic groups except for growers o f cash crops. Moreover, sharp regional disparities inpoverty remain. B. Poverty Dynamics 29. Halving poverty rates between 2000 and 2015 is one o f the important goals o f the Millennium Initiative. Burkina Faso faces quite a few challenges in meeting this objective. The first difficulty arises from vulnerability to external shocks, which could prevent the country from sustaining sufficient per-capita growth rates. These shocks include fluctuating climatic conditions, external price variations, and unstable political conditions inthe subregion. A second challenge arises from the low overall educational attainment and the limited growth potential o f the traditional rural economy, where most Burkinab& live. These factors could initially limit the decline in overall poverty rates, despite sustained growth, because the benefits o f economic growth are unevenly 10 distributed and are not moving a large enough share o f the population above the poverty line to quickly reduce overall poverty rates. Table 5: Poverty Indicators by Socioeconomic Groups (Inpercent) HeadcountIndex 1/ Poverty Gap Index21 RelativeContribution 1994 1998 1994 1998 1994 1998 Wage public - . 2.2 5.9 .40 1.6 .20 S O Wage private 6.7 11.1 2.2 2.5 .40 .70 Artisadcommerce 9.8 12.7 2.8 2.7 1.4 1.6 Other activities 19.5 29.3 6.4 7.0 .30 .40 Export farmers 50.1 42.4 13.8 12.5 11.8 15.7 SubsistenceFarmers 51.5 53.4 16.3 16.5 78.9 77.1 Inactive3/ 41.5 38.7 14.5 12.1 7.1 4.0 National 44.5 45.3 13.9 13.9 100.0 100.0 1/ Percentof peoplebelow the povertyline. 2/ Measures the average distancefrom the povertyline ofthe poor in percentof the poverty line. 31Categoryincluding all observationsthat do not fit the remainingsocio-economic groups. 30. In order to better understand the potential dynamic interaction between macroeconomic developments and poverty, Bank staff recently prepared a poverty analysis macroeconomic simulator (PAMS) for Burkina Faso that is accompanied by a standard macroeconomic model (RMSM-X). PAMS can be used for several purposes, including the poverty impact o f a variety o f growth scenarios and external price shocks, as well as poverty and social impact analysis (PSIA) o f certain reforms." The model has been shared with the Burkinabe authorities as part of the Bank's support for the PRSPprocess, and the Bank will continue to provide training and technical support for its use. 31. A few growth scenarios have been simulated with PAMS to investigate the poverty impact of economic growth and the crisis in CBte d'Ivoire (see also Annex 7 for a more detailed discussion). PAMS has been calibrated for a poverty rate o f 45 percent in 2000 on the basis o f the I398 household survey and the projection o f developments in 1999 and 2000. It reflects the distribution o f incomes among socio-economic groups from the household survey. The simulations are based on an initial macro-economic projection ("initial") from September 2002 reflecting the continuation o f the economy on a solid growth path with steady increases in external trade. The second scenario has been established after the onset o f the Ivorian crisis and reflects the trade-diversion and disruption o f certain exports, notably livestock, as well as the changes in commodity prices, inparticular higher oil prices than expected in September 2002. The "shock" scenario assumes an economic recovery in 2004-05 with a return o f exports to pre-crisis levels. 32. As indicated in Table 6 and Figure 1, even with anticipated stable growth rates o f 5 percent or more over the 10-year horizon inthe initial projections prepared before the crisis, the progress in Burkina Faso's poverty rates, although important, would be lessened by rising inequality. The increase in inequality in the simulations is generated by the assumption o f a limited growth potential for traditional exports (cotton, live animals) and a diversification o f incomes to less traditional lo a For detailed descriptionof PAMS, see Luiz Pereira da Silva, B. Essama-Nssahand Issouf Samakk: A Poverty Analysis Macroeconomic Simulator (PAMSFLinking HouseholdSurveyswith Macro-Models, World Bank Policy Research Working Paper 2888, September 2002, also available at http:/iecon.worldbank.ornifiles/l8745 -wps2888.pdf. 11 income sources. Although the simulations take into consideration an increasing urbanization and participation inthe formal sector, the larger poverty gap inrural areas and the limited growth o f farm incomes restricts the progress o f the poorest segment o f the population with the largest poverty gap (see Table 5) and thus limitsthe decline inthe poverty incidence. Table 6: Simulation of Poverty Incidence and Inequality (Inpercent) 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Growth GDP growth (initial) 5.8 5.7 5.5 5.5 5.0 5.0 5.0 5.0 5.0 5.0 GDP growth (shock) 4.6 2.6 4.0 4.8 5.2 5.0 5.0 5.0 5.0 5.0 Poverty Incidence Total (initial) 43.1 40.7 37.9 36.0 35.4 35.4 35.3 35.2 35.1 35.0 Total (shock) 49.1 49.6 43.7 39.2 38.2 38.3 38.1 38.6 39.0 39.4 Rural (initial) 45.3 42.8 39.8 37.7 37.2 37.3 37.3 37.3 37.3 37.2 Rural (shock) 52.3 52.6 45.9 40.8 39.8 40.0 39.8 40.6 41.2 41.7 Urban (initial) 28.9 26.8 25.3 24.5 23.5 22.4 21.5 20.6 19.7 19.2 Urban(shock) 29.1 30.1 29.4 28.7 27.4 26.9 25.5 24.3 23.1 22.3 Inequality Gini (initial) 38.2 39.2 40.0 40.9 41.7 42.7 43.5 44.4 45.2 46.0 Gini (shock) 38.3 37.7 37.7 38.0 38.5 37.7 38.4 39.3 40.2 41.0 Source: Staff projections with PAMSmodel. 33. A second poverty scenario uses a new macroeconomic framework that reflects the estimated impact o f the crisis in CGte d'Ivoire on growth and incomes as well as higher petroleum prices and other changes in the economic environment. The slow-down in growth combined with the assumed impact o f the closure o f the Ivorian border for livestock exports has a potentially important impact on rural incomes. Given that the poverty gap in rural areas i s largest and many people are close to the poverty line, the slow-down in growth and the interruption o f trade could have a significant impact on poverty rates. Although it is assumed that trade channels will reopen in 2004, the lost output during the crisis year has a permanent impact on long-term progress in poverty rates, with an incidence still exceeding initial rates by 4 percentage points 7 years after the impact o f the shock. 34. The PAMS simulation illustrates the fragile foundation o f the Burkinabe economy for making quick progress towards the MDG o f halving poverty by 2015. Small shocks, especially to rural incomes, can have a lasting impact on reducing poverty rates. To meet this challenge, the government's strategy expressed in its PRSP simultaneously addresses several angles o f income and inequality. In the growth area, government policies aim at lowering factor costs and creating more attractive conditions for private investment, as well as diversifyingrural incomes by encouraging the planting of different crops and encouraging private irrigation, among others. These policies are accompanied by a special effort to improve education and health services for the poorest areas and for women in order to permit the most disadvantaged social groups to take advantage o f growth opportunities and put growth on a broader base. Inthe short term, the government is cushioning some o f the impact o f the crisis in CGte d'Ivoire through higher transfers to the rural sector, notably by covering the higher transport costs for fertilizers distributed by the cotton producer organization. Further improvements could be made in developing targeted social protection mechanisms for the most vulnerable groups o f the population. 35. Links between growth, poverty rates and inequality are focal areas for Bank economic and sector work in 2003-04. Bank staff is currently finalizing a study on risk and vulnerability that will 12 help in identifyingtargeted measures for the population most exposed to shocks. On the basis o f the new household survey, Bank staff will also prepare a poverty assessment in 2004 to take stock o f developments in 1994-2003 and improve the understanding o f the poverty-growth linkages, including through updates o f the PAMS model. The poverty assessment will also look at the information on poverty links to gender, household characteristics and educational attainment, and will provide useful input for a revision of the government's growth strategy and the Bank's country economic memorandum planned for 2005. Figure1:Poverty Incidence Scenarios 25% - 20% - 15%1 ~ 10% ~ 7 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 .---- Latest PO -Base PO 1 --__ IV. PRSPIMPLEMENTATIONAND EXTERNAL SUPPORT A. PRSPImplementationin2000-2002 36. The 2000 PRSP is grouped around four thematic pillars (i)accelerating broad-based growth; (ii)promotingaccesstosocialservices; (iii)increasingemploymentandincome-generatingactivities for the poor; and (iv) promoting good governance. In their joint staff assessment o f the PRSP, the staffs o f the Bank and Fund considered the strategy to be well founded, with a sound diagnostic base." The subsequent translation o f the strategy into budgetary priorities was facilitated by the introduction o f program budgets and a medium-term expenditure framework (MTEF). However, although the PRSP included a set o f costed investment programs, it did not elaborate a set o f priority policy actions. The PRSP remained therefore largely a document o f broad policy orientation and the underlying policies to achieve its objectives needed to be fleshed out further through additional exchanges with the authorities, including through the preparation o fthe PRSCs. ''Burkina Faso: Poverty Reduction Strategy Paper and Joint IDA-IMF StaffAssessment of the PRSP-Report No. 21027-BUR (June 2000). 13 37. As laid out in the first and second annual PRSP progress reports, the record o f PRSP implementation in 2000-01 has been mixed.12 On the positive side, despite adverse external developments, the government has been able to maintain a stable macroeconomic framework in 2000-02. However insufficient domestic revenue mobilization following a drought and delays in receipt o f donor disbursements disrupted the implementation o f the budget in 2000-01, and the execution o f expenditure financed with HIPC debt relief was initially slow. The 2000 drought also had a considerable impact on the livelihood o f a large part o f the population and its impact on poverty could only partially be compensated with food assistance. As laid out more fully below, steady progress was made in implementing institutional and structural reforms, notably in the area o f public finance management. As to the area o f financial control and fight against corruption, changes to the legislative framework have been made and now need to be fully implemented to bear full fruit. Inother areasthe pace ofreforms remainedbehindearlier ambitions, inparticular as regards private sector involvement in electricity generation and telecommunication services. In addition, in the growth area a comprehensive agricultural development strategy to underpinthe government's efforts infavor o fdiversification is still under preparation. 38. Some notable progress was made in improving social indicators but as a result o f the fluctuating climatic conditions and unsteady public expenditure execution, some targets could not be met (Table 7). Slow execution o f school construction projects, delays in implementing the ten-year basic education development project (PDDEB), and drought-related higher opportunity costs for sending children to school resulted in smaller-than-expected progress in raising school enrollment rates, which went up from 41 percent in 1999 to 43 percent in 2001. Health center staffing and prices o f essential drugs improved and met their targets. Impressive gains were made between 1999 and 2001invaccination rates for diphtheria-tetanus-cholera-polio (DTCP3) and measles, which increased from 42 to 64 percent and from 53 to 65 percent, respectively. However, more efforts are needed to encourage demand for curative care by increasing the size and execution rate o f deconcentrated budgets, verifying the application o f reductions in health fees and drugs, and meeting health center staffingnorms. 39. During the first two years o f implementation of the PRSP, difficulties of monitoring and evaluating progress on the basis o f a narrow set o f outcome or impact indicators became evident. It became clear that the selected indicators changed little on an annual basis and were subject to factors outside the government's control. Moreover, the overall impact on poverty rates i s only available every 3-4 years with an updated household survey. The government recognized this fact and began a consultative process on broadening indicators, operating through the national observatory for poverty and sustainable development (ONAPAD) o f the donor-supported Program for the Reinforcement o f Economic Governance. The extended list o f indicators should lay the foundation o f improvements for the monitoring and evaluation system for the new PRSP, and will also be linked to future PRSCs. As regards the government's PRSP monitoring system, certain weaknesses, such as irregular meetings o f sectoral groups and some confusion about their role, will need to be addressed to put the PRSP monitoring and the preparation o f the revised PRSP on a sound footing. The reorganization o f the government should give an opportunity to the newly created Ministry o f Economy and Development to focus mainly on the PRSP and strengthen monitoring and analytical underpinnings. `2Burkina Faso: Poverty Reduction Strategy Paper Annual Progress Report and Joint IDA-IMF Staff Assessment of the PRSP Annual Progress Report-Report No. 23190-BUR (October 2001) and Burkina Faso: Poverty Reduction Strategy Paper Annual Progress Report and Joint IDA-IMF StaffAssessment of the PRSP Annual Progress Report- Report No. 24809-BUR (October 2002). 14 Finally, further efforts will be made in2003 to broaden the participatory process and encourage more wide-ranging discussions on economic policy choices, includingon the regional level. Table 7: Performanceunder SelectedPRSPIndicatorsin Health andEducation (Inpercent, unlessotherwise indicated) 2000 2001 Target Actual Target Actual Health Healthministry share indomesticallyfinancedbudget Nla 12.4 13.2 13.5 Proportionof materialandservicesbudget allocated to de-concentratedunits Nla 40.0 39.9 36.0 Healthbudget execution rates N/a 99.2 >85.0 94.6 Share of infants(0-11months)vaccinatedagainst: -- BCG (Tuberculosis) 70.0 80.0 80.0 84.0 DCTPolio (Diphtheria, cholera and -- Measles tetanus) 50.0 57.0 60.0 64.0 55.0 59.0 60.0 65.0 Yellow fever l / 55.0 56.0 60.0 52.0 New contactsper personandyear at primary facilities (ratio) N/a 0.206 0.220 0.216 Proportionof healthfacilities meetingpersonnel standards N/a 70.0 75.0 14.4 Education Ministry ofBasic Educationshare indomestically N/a 16.9 15.9 17.2 financedbudget Proportionof materialand servicesbudget allocated N/a 65.2 74.9 75.5 to de-concentratedunits ExecutionofMinistry ofBasicEducationbudget Nla 91.1 >85.0 92.4 Grossenrollmentrate -- for N/a 42.7 45.0 43.4 girls 34.0 36.2 38.0 37.2 in the 20 provinces with the lowest enrollmentratios N/a 27.8 31.0 28.5 Gross admissionrdte (CP1) for girls 32.0 32.9 37.0 54.7 Grossadmissionrate (CP1) for the 20 provinceswith lowest enrollmentratio Nla 28.0 32.0 30.0 Grade repetitionrate (CP1) N/a 13.0 11.0 12.7 Source: SecondannualPRSPprogressreport and 2001 PRSPprogressreportof the Ministry of Basic EducationandLiteracy. 1/ 2001 actualsreflect a disruptioninvaccine supply. B. Progressand ChallengesinMeetingthe MDGs 40. The MillenniumDevelopment agenda (see box 1)to reduce poverty, increase schooling rates, lower mortality rates, fight communicable diseases, and improve sanitary conditions i s reflected in the objectives o f the PRSP. However, the horizon o f the MDGs goes generally beyond the horizon o f the PRSP. 41. Progress towards the goal o f reducing poverty rates has already been discussed in the previous section in some detail. However, it is important to keep in mind that the income poverty measure used by the Burkinabb statistical services, to which the previous section refers, does not correspond to the measure o f $1 per day. The 1998 poverty line o f CFAF 72,690 per year and person represents about $0.34 per day. Accordingly, poverty rates based on an unadjusted measure o f $1 per 15 day would be much higher and would exceed 90 percent o f the p~pulation.'~ measure adjusted for A purchasing power parity o f the US$ would still show poverty rates above 50 percent. In light o f the poverty dynamics outlined above, halving this figure by 2015 constitutes a formidable challenge and the goal is unlikely to be met despite satisfactory policy implementation and strong donor support for the PRSP. Box 1: The MillenniumDevelopmentGoals Goal 1targets: Halve, between 1990and2015, the proportionof people whose incomeis less than one dollar aday. Halve, between 1990and2015, the proportionofpeoplewho suffer from hunger. Goal 2 target: Ensurethat, by 2015, childreneverywhere, boys and girls alike, will be able to complete a full course of primaryschooling. Goal 3 target: Eliminate gender disparity in primary and secondaryeducationpreferablyby 2005 and to all levelsof educationno later than2015. Goal 4 target: Reduceby two-thirds, between 1990and2015, the under-fivemortality rate. Goal 5 target: Reduceby three-quarters, between1990and 2015, the maternalmortality ratio. Goal 6 targets: Have halted by 2015, and begun to reverse, the spread of HIV/AIDS. Have halted by 2015, and begunto reverse, the incidence ofmalariaand other major diseases. Goal 7 targets: Integratethe principles of sustainable development into country policies and programs and reverse the loss of environmental resources. Halve, by 2015, the proportion of people without sustainable access to safe drinking water. By 2020, to have achieved a significant improvement in the lives of at least 100 million slum dwellers. Goal 8 targets: Develop further an open, rule-based, predictable, non-discriminatorytrading and financial system. Addressthe SpecialNeeds of the Least DevelopedCountries.Address the special needs of landlockedcountries and small island developing states. Deal comprehensively with the debt problems of developing countries through national and international measures ir order to make debt sustainable in the long term. In cooperation with developing countries, develop and implement strategies for decent and productive work for youth. In cooperation with pharmaceuticalcompanies, provideaccess to affordable, essentialdrugs in developingcountries. Incooperation with the private sector, makeavailablethe benefits of new technologies, especially informationand communications. 42. Inthe education sector, attainment of the MDGs to reach universal primary education and eliminate gender differences also poses unique challenges (see also Annex 8). As outlined in the PRSP and its progress reports, school enrollment rates were very low in 2001, even by sub-Saharan standards, and considerable regional and gender inequality in schooling persisted, although all indicators had progressed significantly over the 1990s. The ten-year basic education development program (PDDEB) the government began implementing in 2001 sets out to increase school enrollment rates from around 40 percent to 70 percent in 2011. It aims at (i)eliminating supply constraints through school construction and hiring o f additional teachers; (ii)reducing demand constraints by improving the quality o f the school environment and lowering direct costs o f education; (iii)creating the institutional capacity for effective and sustained implementation o f policies; and (iv) targeting girls and zones with lowest enrollment rates to remove regional and gender differences. However, the resources committed to primary education under the PDDEB l3This fact shouldnot be surprising consideringthe per capitaincome levelo f $230 in2001 andthe skewedincome distribution. 16 would not have been sufficient to reach the MDGs in the sector. In light o f its well defined strategy and sufficient policy implementation, Burkina Faso qualified for the "Education For All - Fast Track" (EFA) Initiative in 2002 and can count on additional grant support to accelerate the implementation o f the PDDEB and make faster progress toward the MDGs. With resource constraints being lifted as a result o f additional external support under EFA, the challenge is to reinforce the capacity and create an enabling administrative environment to successfully implement the government's strategy. 43. As regards the health sector, meeting the MDGs for child and maternal mortality rates will require a considerable change in past trends (see Annex 9). Latest available data shows that little progress, if any, has been made inthe 1990s for child and maternal mortality rates. Moreover, health outcomes in Burkina Faso remain below those in comparable sub-Saharan African countries despite similar allocations o f resources, which points at inefficiencies in the use o f funds. The Burkinabe health care system i s characterized by low access, poor coverage, low quality o f care, large inequalities, and a skewed allocation o f health personnel in favor o f urban areas. Accordingly, the ten-year national health development program (PNDS) o f the government attempts to address these issues by (i)lowering barriers to health and nutrition service to the poor; (ii)improving quality and utilization o f health service; (iii)strengthening communicable disease control; and (iv) reinforcing capacity and human resource policies. Growing budgetary resources, includingHIPC-related savings, were devoted to the health sector (see Table 3) under the PNDS-after a decline in the late 1990s- and served to expand the supply o f health services (i.e., construction o f health centers and advanced medical centers, and increase in staff) and to reduce the cost o f services, including the free vaccination o f children. Further improvements o f equity and efficiency will be needed to make progress in outcome indicators. As regards HIV-AIDS, Burkina Faso belongs to the countries with the highest infectionrates inWest Africa. The government has shown strong commitment to stop the spread o f HIV-AIDS in line with the MDGs and implements since 2001 an IDA-supported project using a community-driven approach. The project is also supporting anti-retroviral therapy. Other communicable diseases such as malaria have been addressed through targeted initiatives for preventive measures but efforts need to be stepped up further. 44. The environmentaland sanitation targets also will need attention from the government to make progress. Increasing population pressures and urbanization will lead to large additional investmentsneeds for water supply facilities and require increased attention to environmental issues to ensure that Burkina Faso's development remains sustainable. Sanitation and water issues are a focal issue under the PRSP agenda and the government i s implementing a multi-donor financed project for the expansion o f water supply to the capital city Ouagadougou. Capacity building for environmental safeguards has also been included as one o f the objectives under the PRSC series, and the government has developed plans to fight soil degradation and desertification. However, to reach the MDGs more emphasis will need to be given to the environmental sustainability o f current policies. C. The 2000 Country Assistance Strategy and Bank Supportto the PRSP 45. The November 2000 Country Assistance Strategy (CAS) is closely aligned with the June 2000 PRSP. The 2003 CAS-PR confirms the strategic orientation o f the 2000 CAS for an interim period until the new PRSP can be finalized. The 2000 CAS aims at supporting the government's efforts to achieve sustained high growth rates, reduce the high incidence o f poverty, and improve the nutrition, health, and education outcomes o f the rural population. Specific objectives are (i) 17 supporting policies and programs aimed at improving the supply side o f the economy to allow for sustained, broad-based and export-oriented growth; (ii)improving public finance management to increase the flow o f resources to poverty-reducing activities; and (iii)ensuring that the allocation process and public spending goals place special emphasis on social services. 46. In supporting the implementation of the PRSP, the 2000 CAS proposes an increase in IDA resources for programmatic lending under PRSCs. Programmatic lending represents almost 30 percent o f the Bank portfolio proposed in the 2000 CAS, up from 18 percent in the 1997 CAS. PRSCs were conceived as primary instrument for (i)addressing budget management and public finance management issues; (ii)ensuring the dialogue on programs and budgetary allocations to reach the PRSP targets in the social sectors, with the health sector being exclusively covered by PRSCs since the closure o f two health projects in2001; and (iii)covering cross-cutting growth issues involving several sectors and ministries. The additional lending instruments proposed by the CAS support other aspects o f the government's poverty reduction program.I4 Inthe social sectors, PRSCs are complemented with an investment project for basic education with a capacity buildingcomponent to support the implementation o f the ten-year education project (PDDEB) and to lay the foundation for increasing the resource flow through the budget in the latter part o f the ten-year plan. A post- secondary education project addresses the development needs o f secondary and higher education, and an HIV-AIDS disaster response project underpins the government's strategy in damming the spread of the disease and treating the infected. In the growth area, a technical assistance project for competitiveness and enterprise development supports the implementation o f the divestiture, regulatory reform, and enterprise development agenda o f the government. Furthermore, the Bank's portfolio includes three rural sector investment credits-a community-driven rural development project (PNGT2), a private irrigation project, and an agricultural services project (PNDSA2)-which use specific instruments to directly encourage small-scale activity at the local level in line with the third PRSP pillar. Further, to address large-scale infrastructure needs, the Bank portfolio includes investment operations in water supply, urban development, mining, and transport. The water and transport project are closely coordinated and integrated with support from bilateral donors, notably the EuropeanUnion (EU). D. Achievements underPRSC-1and PRSC-2 47. A series o f three PRSCs was designed in 2001 (see Figure 2) on the basis o f a significant amount o f analytical work undertaken in 1999-2001, including a study on competitiveness and economic growth, a country financial accountability assessment (CFAA), a country procurement assessment report (CPAR), and a number o f public expenditure reviews (PERs), notably in the area of health and ed~cati0n.I~The PRSCs-developed in line with the policy framework o f the PRSP and on the basis o f the rich body o f analytical work-focused on two broad areas: public sector reform and governance and sectoral policies for the poor. The first component, reflecting objectives of the first and fourth PRSP pillar, included strengthening o f the budgetary process, improving audit functions, revising procurement regulations, introducing budget deconcentration, and reforming the civil service. The second component, based on PRSP pillars 2 and 3, incorporated measures to improve service delivery in education and health and strengthen income-generating agricultural activities, The supported measures were perceived as inputs for improving economic management and social service delivery, considered to be essential to reach PRSP objectives. l4See Annex 10 for a discussion o f the Bank portfolio and the division o f labor with the IMF. l5Annex 11presents a more comprehensive list o f analytical work undertaken for Burkina Faso. 18 48. Under PRSC-1 and PRSC-2 a number o f different policy measures were implemented, which are presented in Table 8. The immediate results o f these policy actions could be summarized as follows: 0 Budget formulation. Significant progress was made in mastering the preparation o f MTEFs, which have been established regularly since 2000. Moreover, program budgets linkingPRSP objectives with budget allocations were established in all key ministries. Budget formulation in several sectors (education, health, infrastructure, rural development) benefited from public expenditure reviews as analytical basis for improvements in budget efficiency. However, in 2000-01, weaknesses remained with the realism o f the revenue projections under MTEFs and their integration into the budget preparation cycle. The limited capacity for formulating expenditure programs linked to PRSP objectives also resulted in a mixed quality o f program budgets, especially in sectors without a long-term sectoralprogram. 0 Budget execution. Burkina Faso fully operationalized a computerized expenditure management system in 1999-2000. The system captures all domestically financed expenditure at the different stages o f the expenditure process (engagement, liquidation, mandatement, paiement) and allows to closely monitor the execution o f the budget and the level o f payment obligations. Moreover, the legal framework was created to delegate credits to regions and provinces and to deconcentrate the powers for the issuance o f payment orders. However, for technical reasons the payment orders continued to be issued inthe capital city Ouagadougou. Procurement. Roles for the different ministerial departments were clarified by the government, and a new procurement decree was prepared and adopted. The terms o f reference for the preparation o f a manual o f procedures and the audit o f 2001 procurement were drafted and an action plan for capacity building was drawn up. However, the new procurement decree had some s5ortcomings that were addressed inthe final version adopted inMay 2003. 0 Budget reporting and good governance. The government caught up with its legal obligation to submit budget execution reports to the audit court for the years 1996-2000. To strengthen external controls, an independent Supreme Audit Court was created and the resources were made available to make the court fully operational in 2002. The CFAA was finalized and its recommendations were integrated into the new budget management reform plan (Plan d 'actionpour le renforcement de la gestion budge'taire or PRGB) adopted in July 2002. A good governance plan was prepared and a highauthority for the fight against corruption was created. 0 Civil service reform. The development o f the computerized civil service payroll and salary management system was finalized. However, inconsistencies remained for about 9000 cases between the files o f the Ministry o f Civil Service and Ministry o f Finance, which needed to be resolved. 0 Policy monitoring and evaluation. A new list o f PRSP monitoring indicators was prepared in2002 that was used to expand the list o f indicators inthe second annual PRSP progress report. 19 Table 8: ReformMeasuresImplementedunder PRSC-1and PRSC-2 PolicyArea PRSC-1 PRSC-2 BudgetFormulation Adoption of the 2002-04 Medium- Adoption of budget law based on 2002- Term ExpenditureFramework(MTEF) 04 MTEF Institution of program budget in five Completionof programbudgets in 5 key more ministries ministries Adoption of budget procedures to Completionof 2 PERs more effectively track and record HIPC reliefandrelatedexpenditure BudgetExecution Full operationalization of a new Creation of the legal-administrative financial management system framework for payment order issuance on Creation of administrative framework the regionallevel for delegating credits Connectionofthe cooperationdirectorate (DGCOOP) with the financial management system Procurement Deconcentration of procurement Approval ofa new procurementdecree functions and involvement of Limit role o f DGCOOPto supervisionof ministerial finance (DAAF) and lendinganddisbursementprocedures planning(DEP) directorates Preparation of the terms o f reference for Reassignment of responsibilities for the preparationof amanualof procedures procurement financed internally Preparation of the terms of reference for (DCMP) and financed extemally an auditof2001procurement (DGCOOP) Preparationof acapacitybuilding plan Budget Reporting and Good Submission of budget execution Submission of budget execution reports Governance reports for 1996-1998 to the Chamber for 1999 and 2000 to the Chamber of ofAccounts Accounts Creation of an independent Supreme Adoption of an action plan to Audit Court operationalizethe Supreme Audit Court Adoption of a work program for the Finalization of the CFAA study and Executive Secretary for Good presentationof arelatedactionplan Governance Posting of allotted health budgets in Dissem:nation of the National Good pub'ic places Governance plan to all provincial authorities Civil Service Reform and Finalization of the development of the N/A Decentralization integrated payroll and salary managementsystem(SIGASPE) Policy Monitoring and Completion of a study on marginaltax Refinement ofthe list of PRSP indicators Evaluation ratesby economic sector Elaboration of a set of preliminary estimates to link growth and poverty outcomes Education Adoption of an action plan for Implementation of the action plan and recruitment of new teachers in educationpolicy statement accordance with provisionsof the 1998 Implementation of a mechanism to civil service reform subsidize school supplies in the 20 Adoption and release o f policy provinces with lowest school enrollment statement to eliminate automatic link rates between admittance to the national Expansion of the number of schools education school (ENEP), creationof a equippedwith runningwater and separate new category of teachersto be hired at sanitaryfacilities for girls the regionallevel, and expansion ofthe Continuation of provision of school community school program books free of charge, ensuring sufficient Adoption of a new organization chart resourcesto rural schools for MEBA Change criteria for promoting students and limit the repeating of grades 20 Policy Area PRSC-1 PRSC-2 Health Adoption of national health policy 0 Introduction of a number of preventive document services at the primary health care level Adoption of the 10-year health sector free of charge developmentprogram Reduction of prices of drugs sold by the Implementation of a vaccination purchasing center for generic drugs program (CAMEG) Establishment of national HIV-AIDS Provision of budgetary resources to coordinatingbody replace IDA funds financing regions and Implementation of plan to endow healthdistricts health centers with a minimum of 0 Continuationof the vaccinationprogram requiredstaff 0 Continuation of the implementation of Limitation of the inventory shortfall of the planto adequately staff healthcenters drug supply to normsofthe PRSP Limitation of the inventory shortfall of drug supply to norms ofthe PRSP Completionofbeneficiary assessment RuralDevelopment Completion of the public expenditure End SOFITEX legalmonopolyfor cotton review marketing Completion of the study on opening Establishment of an action plan for the cottonsector openingthe cotton sector Restructuring of IDA-funded rural development operations 0 Development of action plans for diagnosticstudies for cropdiversification 0 Enforcement o f health guidelines for livestock Environment Adoption of the national plan for 0 Clarification of mandates of the environmentaleducation environmental management committee Organization of campaign on (CONAGESE) and the directorate environmentalassessments general for preservation of the Upgrade of skills of environmental environment(DGPE) assessmentpractitioners 0 Preparationof athree-year actionplanfor capacity building 0 Establishment of ministerial focal points for environmentalassessments 0 Education. In preparing for the roll-out o f the PDDEB, a number o f measures laid the ground to achieve a significant increase in supply o f education services at sustainable expenditure levels. These measures include the end o f automatic hiring o f graduates o f ENEP into the civil service and the preparation o f delegation o f human resource management decisions to the regional level. The government continued the preferences in terms o f school supplies for the 20 provinces with lowest enrollment rates and increased the number o f schools with sanitary facilities. 0 Health. A new national health development strategy was adopted in 1999. The vaccination program was successfully continued. Prices o f essential generic drugs were reduced through a reduction o f the profit margins o f the National DrugProcurement and Distribution Company (CAMEG). The government hired additional health staff to increase staffing levels in health centers. 0 Rural Development.A strategy for a stepwise opening o f the sector was prepared. As a first step, the legal monopoly o f SOFITEX was removed and an action plan for the opening o f the sector for private investors was established. Several studies for the diversification o f crops were either undertaken or proposed for future consideration. 0 Environment. A national plan for training in environmental issues was adopted and the different role o f actors inthis area was clarified. 21 49. The policy measures supported under the PRSC series were designed by the government to achieve key PRSP output and impact indicators. Table 9 presents the set o f indicators established at the time PRSC-1 was presented to the Executive Board. These indicators overlap with the PRSP monitoring and evaluation framework inthe health and education sectors (see Table 7).16 It should be noted that achievements to date, notably in education and health, reflect data available for 2001. A full evaluation of the PRSP-PRSC program in 2000-03 can only be finalized with a certain lag in 2004-05. The most impressive gains in terms o f outcomes have been made in vaccination coverage after a very focused campaign that began under the closed health project. Additional results o f the first two PRSCs include an increasing share o f the budget o f the social sectors that is executed on a deconcentrated level, a return to regular reporting on budget outcomes and their publication in PRSP progress reports, as well as a modest increase in school enrollment rates. However, in general the progress has been slower than envisaged, in part because o f weak revenue performance and disruption o f budget execution due to slow disbursement o f donor funds in 2001, illustrating the generally fragile situation o f the Burkinab& economy and the resulting risks for PRSP implementation. 50. As regards gender issues, the PRSP and previous PRSCs have focused on improving gender- related social indicators, most importantly female school enrollment rates and maternal mortality rates. For example, in the education sector, expanding the availability o f school meals and constructing sanitary facilities were intended to facilitate female school enrollment. In the health sector, free provision o f pre-natal services was introduced to reduce the incidence o f mortality at child birth and identify problem pregnancies early. However, although female enrollment rates have progressed in 2001 and 2002, the gap to male enrollment rates has not been closed. The impact o f lower costs o f maternal health services has yet to be measured. In order to more directly address gender issues, the government intends to address gender issues explicitly in the forthcoming PRSP revision. Bank staff i s currently preparing a gender assessment, which could inform the government's PRSP revision as well as future PRSCs. E. DonorCollaborationinSupportingthe PRSP 51. The PRSCs have been part o f a concerted effort o f donors to provide a larger part o f assistance through programmatic support with a view to enhance ownership and reinforce the country's capacity. Under the leadership o f the EU, which committed euro 125 million o f budgetary assistance for 2002-2004, several other bilateral donors (Belgium, Denmark, Netherlands, Switzerland, Sweden) signed a memorandum o f understanding to create the group for harmonization o f budget support (soutien budgktuire concert&-SBC). The Bank and the third largest donor AfDB could not formally sign this memorandum in light o f the definition o f disbursement conditions conflicting with the Bank's PRSC guidelines and the AfDB's programmatic lending operations. However the Bank has worked as a very close associate to the SBC, participated in almost all meetings o f this group, and coordinated the PRSC with SBC members and other donors present in Burkina Faso. In particular, the PRSC team regularly exchanged views on the PRSP and program implementation, shared its written conclusions with the donor community, and donors were invited by the government to participate in recent Bank and joint Bank-IMF missions. The coordination ensured consistency o f supported measures and avoided duplication o f government reporting efforts. Bank staff i s currently seeking ways to broaden the specifications o f the memorandum o f l6See Table 3, p. 40 inBurkina Faso: Poverty ReductionSupport Credit-Report No. P7477-BUR (July 2001). 22 understanding so that the Bank might become one o f its full members for future programmatic operations. 52. The differences between bilaterals and the Bank arise largely as a result o f different approaches for measuring progress inpolicy implementation. Currently, the Bank and the AfDB link their disbursement to measurable policy inputs whereas the EU focuses on progress in PRSP outcome indicators-such as vaccination rates and school enrollment rates. In particular, the EU disburses its budget support in two tranches: the first tranche o f a fixed amount is linked to good macroeconomic performance, evidenced by the IMF's PRGF program remaining on track; and the second tranche varies based on the level o f certain PRSP outcome indicators. The EU has typically disbursed about two-thirds o f its variable tranche. The Netherlands, Sweden and Switzerland are providing direct budget support mainly linked to the IMF reviews under the PRGF and a satisfactory annual review o f progress in implementing the PRSP. The Belgian Cooperation offered parallel financing for PRSC-2for approximately US$5 million. 53. The disbursement criteria usedby the Bank and the SBC group are both fully consistent with the PRSP approach. The PRSP broadly defines a set o f government policies for achieving a number o f results. Implementation o f the PRSP can thus be measured by successful policy implementation and by the achievement o f results. Nonetheless, the relationship between policies and results can be distorted by exogenous factors and, as outlined in the previous section, is subject to important lags. Moreover, despite overall consistency o f the framework, the government-driven PRSP process could still give further impetus in 2003 for a closer harmonization o f support by providing a tighter link o f government policies with the input and impact indicators o f the monitoring and evaluation framework. The forthcoming revision o f the PRSP therefore should help to further enhance the coherence o f donor interventions by including a clearly defined set o f priority policy measures and related indicators. 23 I e e * e e e e e e e e e e e e e e e * e * e * e e m m e e e e e * . . . . . . . . e . & C .I C C I I I .I L a 2 II 51 0 I I IIII ++ I 4 51 C d E II lII a e EM I 52 QI --I E . . . . . . . . * 4 ; - 1 E 0 .. II N I Es izM III V. THE PROPOSEDTHIRD POVERTY REDUCTION SUPPORT OPERATION A. Contextof PRSC-3 54. The proposed PRSC-3 would be the third operation to support the implementation o f the 2000 PRSP. The PRSC-3 builds on the analytical work undertaken for PRSC-1 and PRSC-2 and the policy areas identified in previous operations as key issues to make progress in attaining PRSP objectives. Accordingly, the proposed PRSC-3 maintains public sector reform and sectoral policies for the poor as its two main components. PRSC-3 supports a series o f measures that build closely on the achievements under PRSC-1and PRSC-2 (Table 8) and move increasingly to more output-related actions. 55. The proposed PRSC-3 aligns itself closely with the 2003 budget. The 2003 budget, approved by the national assembly in December 2002 and amended by a supplementary budget law in May 2003, is consistent with PRSP objectives. The amended budget law i s an appropriate response to the changes in the macroeconomic environment after the onset o f the crisis in CBte d'Ivoire. It remains fully aligned with the PRSP. 56. As outlined in detail in the following two sections, the progress made so far by the government in implementing its poverty reduction strategy and the related reform program fully justify moving to PRSC-3. Triggers for moving to PRSC-3 were established in the program document for PRSC-2. As discussed in more detail below (Table lo), before presenting PRSC-3 to the Executive Board, all but one o f the triggers were met fully or in large part. The single trigger that was not met had to be postponed to a later date to allow a close alignment with other donors supporting the government in designing personnel incentives in the health sector. Moreover, a substantial body o f additional reform measures has been taken that demonstrates the government's ownership and d :termination inpursuingthe program outlined inits PRSP. B. Public Sector Reformand Governance 57. Budget formulation. After the introduction of MTEFs and program budgets under PRSC-1 and PRSC-2, the government hlly integrated the MTEF and program budget preparation into its annual budget cycle in 2002. The MTEF was prepared in March 2002 and established the ceilings used to notify line ministries in the May 2002 budget circular about their spending limits for 2003 and the ceilings for the 2003 program budgets. The 2003 finance law and program budgets were adopted by the council o f ministers in September 2002 and voted by the national assembly in December 2002. The finance law i s fully consistent with the priorities o f the PRSP. Notably, the budget incorporates an increase in allocations for social sectors (Table 3) in order to meet the school enrollment targets, further improve vaccination rates, and lower the cost o f curative care. Allocations to the social sectors were protected in the subsequent supplementary finance law, approved by the national assembly inMay 2003. An action plan for the 2004-06 MTEF exercise was prepared inearly 2003, and the 2004-06 MTEF was elaborated and adopted by the government in April 2003. The trigger inthis area was accordingly met. 27 a 6 0 m P 3 m m m IA M 58. The government could usefully strengthen the credibility o f the budget planning exercise in 2003-04. Revenue projections in the finance law still tend to be optimistic and thus expenditure envelopes are overstated often requiring cutbacks during budget execution. Nonetheless, overall the projections have become much more realistic over time and the value o f the MTEF as a medium- term planning instrument has increased greatly. Evenwhen spending cuts from the finance law were necessary in the past under PRSC-1 and PRSC-2, the government has consistently protected priority expenditure. Budget execution rates for domestically financed expenditure inthe social sectors were high, exceeding 90 percent inbasic education and 95 percent inhealth in2001 (Table 9), with similar rates achieved in2002. 59. The government has taken several steps under PRSC-3 to lay the foundation for a further improvement in budget formulation. The systematic follow-up on public expenditure reviews (PER) i s now being assured by a standing committee. The latter also prepares a program for future PERs and supervises their execution. For 2003, reviews o f the Ministry o f Higher Education and the Ministry o f Justice are being envisaged, as well as updates to the health and basic education PERs undertaken in 2000. As regards program budgets, a note was prepared on the government's experience with this instrument. It will underpin further analytical work, including a forthcoming global PER piloted by Bank staff, to focus government activity on improving the quality o f program budgets inareas with the largest impact on achieving PRSP objectives. 60. Budget execution and deconcentration. The government has made very good progress under PRSC-3 to make the computerized expenditure management system (CID) more comprehensive and allow a deconcentration o f budget execution. The CID was conceived originally to cover domestically financed budgetary expenditure. As a first step, the CID was expanded in 2001-02 to cover also expenditure financed with the special HIPC account. Under PRSC-2, the CID was linkedto the cooperation directorate (DGCOOP) in order to capture foreign-financed investment expenditure in the CID. However, despite the establishment o f a computer link between the DGCOOP and the CID and the training o f DGCOOP personnel, the CID was not fed with the necessary information to produce reliable information on foreign-financed spending. To align procedures and concentrate the disbursement functions for foreign-financed investment spending, the Minister o f Finance decided to transfer the supervision of project disbursements from the DGCOOP to the budget directorate (DGB) and the treasury and public accounting directorate (DGTCP) in 2003. Currently, data on project grants and loans are being reestablished and the full integration o f project disbursements into regular budget execution procedures and the CID i s planned for the 2004 budget. As regards the planned extension o f the CID to the debt management system SYGADE, the software and hardware have to be upgraded before proceeding with the integration. Establishing the connection to the CID therefore had to be deferred. 61. In order to support the deconcentration process, issuance o f payment orders on the regional level began on a pilot basis in Bobo-Dioulasso in April 2003. As part o f the effort to move budget execution closer to the beneficiaries, speed up execution, and improve service delivery, the government had begun a process o f budget deconcentration (the execution o f the central budget on the regional and provincial level) under PRSC-1 and PRSC-2. These previous operations prepared the ground for delegating budgetary credits to regions and provinces and issuingpayment orders on the regional and provincial level. However, the lack o f access to the CID outside the capital city limited the practical impact o f budget deconcentration. Although budget officers on the provincial and regional level could commit and verify expenditure, payment orders could only be issued in Ouagadougou. To actively pursue budget deconcentration while maintaining spending control, the Minister o f Finance issued instructions for the execution o f delegated budget credits in September 37 2002 and ministry staff prepared a feasibility study for extending the CID to the second-largest city Bobo-Dioulasso. On the basis o f the study, changes to the CID interface were installed and a computer link was established between Bobo-Dioulasso and Ouagadougou. Since April 2003, the linkhas been actively usedto issue payment orders on the regional level and the related trigger was met. 62. The government also took the first steps for the establishment o f a computerized integrated revenue management system (CIR). A study for its establishment was completed in 2002 and the government has contracted out the preparation o f a concept for the CIR. 63. Procurement. In 2003, the government undertook an important reinforcement o f the procurement framework and mostly met the different measures included under the procurement trigger. The CPAR prepared in 2000 identified several weaknesses in Burkina Faso's procurement system, among them the legal framework. A sound legal basis for public procurement and respect o f procedures are essential to making good use o f public resources. However a first attempt to revise the procurement regulation for PRSC-2 in2002 was unsatisfactory and neededfurther work. Therefore, a high level working group for procurement reform was created in December 2002 and a new decree meeting the standards o f best international practice was prepared under its supervision. The decree was adopted by the council o f ministers on May 7,2003. 64. Inaddition to the new decree, the government implementeda variety o fmeasures to improve procurement mechanisms under PRSC-3. In December 2002, the Minister o f Finance issued an instruction to line ministries to prepare a procurement work plan for 2003. This plan has been implemented successfully since the beginning o f 2003 and resulted in a faster execution of investment spending, particularly as regards priority and HIPC-related expenditure. On the basis o f the terms o f reference prepared for PRSC-2, a consultant was contracted to prepare a manual o f procedures for the new procurement code. A draft o f the manual was received by the government in June 2003 and will be adopted shortly. Likewise, a capacity building plan for procurement has been drafted by a consultant and submitted to the government in June 2003. As regards an audit o f procurement contracts for 2001 to identify weaknesses and inform the future reform agenda, the government accepted an offer from the EU in late 2002 to fully fund the audit. In view o f the significant size o f the contract, the selection o f an audit firm is still under way, with the opening o f the bids scheduled for end-June 2003. The results o fthe audit are expected for end-2003. 65. Public financial management. The 2002 CFAA, prepared by a group o f donors under Bank leadership, the HIPC accountability assessment and action plan (AAP), and the government's own 2001 action plan for budget management reform are the analytical underpinnings for the improvement o f financial resource management. In this respect, the 2002-04 action plan for the improvement o f budget management (Plan d'actionpour le renforcement de la gestion budge`taire or PRGB)was approved by the council o f ministers inJuly 2002. It incorporates and operationalizesthe recommendations of the different studies and its satisfactory implementation, as measured by a set o f agreed indicators, was a condition for moving to PRSC-3.17 Overall, the government implemented the PRGB in a satisfactory manner and met the trigger in this area. In particular, the government implemented the following measures: "AsregardsthespecificmeasuresincludedintheHIPC-AAP,Annex12givesanupdateontheirimplementation. 38 The budget execution reports for the years 1995 to 2000 were forwarded to the national assembly after their examination by the Supreme Audit Court, which had become fully operational in 2002. The national assembly adopted the reports after an intense debate in May 2003. The budget execution report for 2001 was examined by the council o f ministers in April 2003 and forwarded for evaluation to the Supreme Audit Court. A new organic budget law, in line with regional guidelines, was approved by the national assembly in January 2003. The law lays the foundation for the application o f the new budget classification by 2004, the changes to the chart o f accounts, and the fiscal accounting framework necessary to comply with regional guidelines. 0 The government defined a timetable for the closure of budget operations for 2002 and closed the budget management system for further commitments o f material and services spending at end-November 2002. However, the ongoing commitment o f investment expenditure and approval o f exceptional requests related to the Ivorian crisis continued until year-end. As a result, as mentioned earlier, the government could not reduce the expenditure commitments for which payment orders had not been issued in 2002. In early 2003, a number o f unpaid expenditures were cancelled and recommitted under the 2003 budget exercise. In 2003-04, the government could usefully draw on this experience and more systematically enforce the closure o f budget operations. 0 Legal opinions were sought out to define an administrative procedure for the budget accounts (comptes de gestion) before 2002. The procedure is necessary to define opening balances for 2002 accounts and to regularly produce the accounts for submission to the Supreme Audit Court starting in2003. 0 A draft decree was preparedto strengthen the role o f inspectors for the General State Inspectorate (IGE) and General Finance Inspectorate (IGF). The adoption o f the decree has been delayed to design a consistent framework for all bodies involved in external control, including the newly created high authority fc- the coordination o f the fight against corruption, which has the right to follow-up on findings of IGE and IGF and to order independent investigations. Its members were named only in late April 2003. IGE and IGF continue to be involved with donor audits by exploiting their results or, inthe case o f UNDP, participating directly inaudits.. 66. Civil service reform and decentralization. The decentralization agenda has gained new momentum in 2003. After little progress in 2001-02, the government has chosen a procedure o f stepwise deconcentration o f budgetary and personnel management to transfer capacity to the regional, provincial, and local level. The capacity building o f decentralized units is essential to permit the decentralization process to reap the intended benefits o f improved service delivery and closer scrutiny o f government priorities. 67. The Ministry o f Decentralization and Regional Administration (MATD) prepared revisions for the 1998 decentralization laws (TOD) and texts for their operationalization. Intotal 35 draft texts were identified for adoption in 2003 by an ad hoc committee for the implementation o f the TOD, o f which 26 passed the committee by end-May 2003 for further consideration by the government. Among these i s a draft law to change the TOD by defining the department as being equivalent to a rural community, which allows to cover the entire territory with rural communities. The revision will establish the conditions for holding local elections in 2003, as planned. A draft decree establishes the framework for a transfer o f personnel to deconcentrated and decentralized authorities, which to a 39 certain extent has already been anticipated by the deconcentration o f education staff. 4 texts were approved by the council o f ministers in March 2003 and prepared the ground for the nomination o f governors for the 13 regions by defining the role and attribution o f the deconcentratedauthorities and specifying the organization o f the governor's office.'* 68. In the area of civil service reform, the government has reinforced the policies of the public sector reform law of 1998. The previous introduction o f a merit-based personnel management system had not been successful because many job descriptions were not prepared. In the meantime, the Ministry o f Civil Service has trained personnel managers in the new system and the council of ministers issued new instructions in September 2002 for applying the system in 2003. Two decrees adopted by the council o f ministers inApril 2003 further clarify the setting o f objectives for different administrations and the evaluation and grading o f civil servants. The Ministry o f Civil Service has also received additional resources to finalize the unified personnel database. Inconsistent or missing personnel files for about 9,000 civil servants hampered progress and the files o f these employees still needed to be reconciled. It i s expected that most o f these inconsistencies can be resolved in 2003 to fully operationalize the unified database o f the integrated system for the administrative and salary management o f government personnel (SIGASPE). 69. PRSP monitoring and evaluation. The planned complete update of the PRSP in 2003 underscores the importance o f solid new data on poverty. For this purpose, the government has launched a new household survey in April 2003. In the first wave o f the survey during April-June, household welfare indicators a being collected and first results should become available by July 2003. The survey will continue with two more waves to gain a more comprehensive picture on household expenditure and will include modules on cotton and health that will permit to more closely study the poverty and social impact o f certain reforms. The government also conducted a participatory poverty assessment (PPA) that was completed in March 2003 and will complement household survey data with qualitative results. As outlined above, in the area o f poverty-growth linkages, the government has benefited from technical assistance by the Bank. A RMSM-X macro- model was fitted to Burkina Faso and a poverty analysis macro simulator (PAMS) was then calibrated for Burkina Faso on the basis o f 1998 household data to analyze the impact o f different growth paths derived from the RMSM-X. C. Sectoral Policies for the Poor 70. Basic education.The government's program for improving indicators o f basic education has been outlined in the PDDEB. The PDDEB i s fully aligned with the PRSP and being supported by a Bank investment project and the PRSCs. Budget allocations for the education sector in 2003 include a further increase from domestic and HIPC resources (Table 3) and have been aligned with the objectives o f the PDDEB. The 2003 budget also continues to pay particular attention to increasing resources for the most deprived areas by making special allocations for the 20 provinces with lowest schooling rates. Accordingly, the trigger for the education sector was met. The government's strategy includes strong measures to increase supply o f education services inrural areas through major efforts inschool construction and hiringofnew teachers. Itmakes use ofthe changes undertaken in2001-02 '*Burkina Faso has 13 regions and 45 provinces. Regions (headed by governors) have no independent budgets and represent the central government. Provinces have a double function o f deconcentrated powers (with the high commissioners representingthe central government) and decentralized units (a provincial advisory council allocates the limited own resources of the province). 40 inthe regulation ofthe education sector, after extensive consultationswith unions, to reduceprimary teacher training to one year, end the automatic link between teacher training and entry into civil service, and hire teachers at a salary level that is both comparable to other African countries and sustainable in the long run. Moreover, with the 2002-03 school year the MEBA has begun the deconcentration o f teaching positions and attached the budgetary posts o f more than 1000 new teachers to regional education directorates. Inorder to speed up the execution o f school construction, the government has removed bottlenecks by broadening the set o f supervisory agencies and it is planning to move the responsibility for execution and supervision o f construction to the provincial directorates o f the MEBA. 71. The measures on the supply side are accompanied by measures to lower direct and opportunity costs o f sending children to school through provision o f free books, construction o f sanitary facilities in schools, and installation o f school canteens managed by parents. Under the PDDEB, MEBA has also been at the forefront o f the budget deconcentration process to improve local service delivery and three-quarters o f the materials and services budget are now transferred to regional or provincial directorates for execution. The progressive extension o f the public expenditure management system to regional capitals outlined above should allow a considerably faster execution o f payments over time. 72. The execution o f the PDDEB is closely monitored by a group o f several donors who support its implementation. A joint supervision mission took place in March 2003. As a result o f the strong commitment o f the government and the sound long-term strategy, Burkina Faso was declared eligible for the EFA fast track initiative, which will provide the resources to speed up the implementation o f the PDDEB. To this end, further reinforcement o f capacity inprogramming and executing activities will be necessary to ensure the efficient absorption o f additional resources. 73. Health. Improving key health indicators such as maternal and infant mortality rates requires determined implementation o f sectoral policies under the health sector development plan to improve services and make them accessible for a broader set o f the population. In turn, achieving these outcomes requires that staffing o f health centers be further improved, their management strengthened, and prices for curative care be lowered to increase the uptake o f medical services by the population. Moreover, a more regular delivery of budget resources to the health districts needs to be ensured to allow a steady implementation o f health district programs. PRSC-3 supported a set o f policy measures aiming at improving both the supply of health services and lowering the cost for the most vulnerable segments o f the population. 74. Inorder to investigate policies that could encourage health workers to stay in remote areas, the government has conducted two studies in 2002-03 testing different incentives and their effectiveness. It was originally envisaged that these studies would be finalized in 2002 and the government would implement a change in human resource policies in 2003. However, the studies, one o f which was conducted by the WHO, took longer than planned and were only finalized in2003. Given the sensitivities o f changes to civil service remunerations beyond the health sector, the government believed that a careful preparation o f the reform was necessary and further discussion with donors and unions was warranted. This view was shared by the donors interveninginthe sector who participated in a recent round table meeting. Accordingly, the measure was postponed and the related trigger could not be met as specified. The agenda will be pursued under PRSC-4 with the development o f an action plan on the basis o f the recommendations arising from the studies and adequate budget financing for its implementation. 41 75. The government continued its highly successful vaccination policies that were instituted under the health and nutrition project in2000. All basic vaccinations are now provided free o f charge and "vaccination days" were held in October and November 2002 to raise awareness among the population. It is expected that the remarkable increase in vaccination rates will continue and vaccination rates will meet the targets set inthe PRSP. 76. The government made additional efforts to lower the cost o f medication and medical services and met the related trigger. Under PRSC-2, the profit margins for CAMEG in distributing generic drugs were lowered, which put downward pressure on drug prices. For PRSC-3, the government issued and published a unified list o f prices for standard medical services in hospitals (CMA) and health centers (CPSP), including a reduction inthe cost o f pediatric treatment and assistance at birth. The list also confirmed that prenatal and vaccination services were free o f charge. Moreover, the cost of three drugs for children were subsidized at a rate o f 10 percent. It will now be necessary to put a mechanism in place that verifies the application o f the price list in different regions and health districts. 77. In order to improve the flow of budgetary resources to health districts and replicate the management o f health services on the local level instituted with IDA resources under the closed health project, petty cash accounts (rkgies d'avance) were created for all 66 health districts and regions in 2002. At the request o f account managers, resources were transferred starting in March- April 2003. Their effectiveness in replacing a previous IDA-financed mechanisms o f health district accounts will be subject o f further evaluation in 2003. 78. Other measures taken before presentation o f PRSC-3 include a study on the legal framework and the composition o f health center committees to allow for an improvement in health center management. Moreover, a manual for the training o f health center staff was elaborated and about 66 percent o f health centers now have at least one member who was trained in health center management issues. Instructions for the application o f deconcentration and decentralization o f health staff were prepared to begin the transfer o f responsibilities to the regional and provincial level after the revisions to the decentralization texts have become effective. Finally, community strategies were developed and implemented for malaria, nutrition and reproductive health. 79. Rural development. Rural development plays a crucial role in achieving the PRSP objectives to create employment and generate incomes for the poor. In this respect, the PRSC- supported policies intend to raise the income from cash crops, diversify agricultural activities, and increase the effectiveness o f the administration o f the ministrieso f agriculture and livestock. 80. In 2001, the government established an action plan to open the cotton sector for private investors, who could compete with the parastatal SOFITEX. Introducing competition in the sector aims at further raising producer prices through increases in efficiency and stabilizing the sector by decreasing dependence on the performance o f a single marketing company. In order to keep the confidence o f cotton farmers and not disrupt the sector, the government decided to carefully prepare the regulatory setting and consult with producer organization before inviting new operators. The process o f reforms began with lifting the cotton trading monopoly o f SOFITEX at end-2001. In2002, consultations began on the sale o f two smaller zones to private investors, the assets o f SOFITEX in the two zones were evaluated, a list o f the staff to be transferred to the new operators was established, documents on the two zones and their production potential were elaborated and validated, and a team from the privatization commission at the Ministry o f Commerce was dispatched to help SOFITEX preparing the sale o f the two zones. In January 2003, a permanent 42 committee for cotton sector reform, presided over by the representative o f the Ministry o f Commerce, was formally nominated, and studies on the new price setting mechanism and modalities to secure payments to producers were elaborated. The plan for the evolution o f the cotton sector and two decrees demarcating the new zones were approved by the council o f ministers in May 2003 and are reflected in the specifications o f the biddingdocuments. The technical part o f the biddingprocess was launched inJune 2003, and technical bidswill be evaluated inAugust 2003, followed by a round o f financial biddingfor pre-qualified bidders. 81. Compared with the original timetable, the implementation o f the action plan was delayed by about 6 months inorder to conduct studies necessary to ensure a sound basis for the price setting and risk sharing mechanisms.Moreover, the needto ensure an environmentally sound management o fthe sector required that environmental audits of ginningplants be completed before the financial bids can be launched. Therefore, the financial biddingprocess and negotiations to reach the point o f sale will be conducted only later in2003. Accordingly, despite the considerable progress that has been made, the trigger was met only partially and the reform process will needto be pursued in2003. 82. The government undertook several studies to underpin the global rural development strategy to be finalized in 2003 and increase the effectiveness o f the Ministry o f Agriculture. Several action plans for the diversification were finalized or are under way. After the action plan for cowpeas prepared in 2001-02, the plan for cereals (millet, sorghum) was finalized, an action plan for oilseeds will be finalized by end-June 2003, and the action plan for fruits and vegetables is under preparation by a consulting firm. An institutional study o f the Ministry o f Agriculture was launched to identify weaknesses inthe organization o f the Ministry and the management o f the sector. As a next step, the conclusions o f these studies will need to be translated into policy changes duringthe implementation o f the global rural development strategy that i s currently being developed. They will also inform the forthcoming PRSP update. 83. Environment. The Bank provided support to the government to strengthen the capacity for environmental assessment (EA) and streamline environmental concerns into government operations. A workshop introducing the principles and methods o f EA was held in Ouagadougou with key government officials in November 2002. Ministries also named focal points for the implementation of EAs and joint ministerial instructions have been issued by the Ministry for the Environment and sectoral ministries on the application o f EAs. Further capacity building will be part o f future budget support operations to create a culture o f safeguarding the environment when executing public projects (see Annex 13). VI. FUTUREOPERATIONS A. Lessons Learned 84. The PRSC series has greatly reinforced the importance o f the budget and the country's own capacity for the success o f government policies. The PRSCs have steadily strengthened the focus on the budget as the main instrument for PRSP implementation and have clarifiedthe government's own role in defining a programmatic agenda to achieve its objectives. The importance o f the MTEF in formulating the government's budget has grown substantially. Moreover, expenditure systems were expanded and controls were reinforced. Inthe social sectors, the PRSCs have resulted in a process o f reorientation to program budgets as tools to translate priorities expressed in long-term sectoral 43 programs into budgetary allocations. However, a further reinforcement o f capacity is necessary to underpin this process and ensure that program budgets are closely aligned with the executed administrative budget and fully integrated in the evaluation and monitoring mechanism o f each ministry'splanning department. 85. PRSCs also successfully supported a number o f cross-cutting reforms. These reforms included the application o f deconcentration policies in budget and personnel management, which are part o f the policies to improve social service delivery. Inthe cotton sector, the opening o f two zones for private investors involved several ministerial departments in setting up the new regulatory framework and defining the roles o f the new and old stakeholders. Despite these achievements, a number o f challenges o f remain for the PRSCs. 86. Improving the PRSC-related sectoral dialogue. There is currently no specific sectoral investment operation in the health sector (except for the multi-sectoral HIV/AIDS disaster response project) and initially the ownership o f the PRSC-supported reform program by the Ministryo f Health was weak (see Annex 14). The transition from project to programmatic support was difficult because o f the required changes in instruments and the new focus on the budget. The Bank's PRSC team, with the health experts taking the lead, will attempt to advance the dialogue through greater involvement inhealth sector budget discussions, inparticular the design o fprogram budgets. 87. Reinforcingcapacity.The capacity o f the administration to formulate and execute programs remains weak. The preparation and implementation o f program budgets can only advance further if the capacity o f the civil service is improved. Inthis respect, the Bank will work with the government on a global PER in fiscal year 2004 to give guidance for further improvements in the budget process, especially as regards program budgets. Inthe area o f civil service management, the Bank i s currently preparing a capacity building project for presentation in fiscal year 2004 to accompany and complement future PRSCs, with preparatory work already being financed under a Japan Policy and Human Resources Development (PHRD) grant. Over time, the project aims at giving technical assistance for capacity assessment, establishing a work program, streamlining public administration, modernizing personnel management, strengthening o f poverty focus o f expenditure, and strengthening policy formulation. In the statistical area, the Bank will work closely with other donors, notably the IMF which is currently preparing a report on the observance o f standards and codes (ROSC) and the German cooperation (GTZ), to put together a capacity buildingplan that could be financed by the Bank's statistical capacity buildingcredit (STATCAP). 88. Aligning budget support with the budget cycle. The time necessary for policy implementation and complicated government credit approval procedures have thus far hampered the alignment o f PRSCs with the budget cycle. The implementation o f reform measures under the first PRSCs took about 12 months and all PRSCs have been approved in the months o f July-August.As a result o f onerous approval procedures on the side o f the government, PRSCs were often not disbursed until October-November, toward the end o f the government's budget year. Bank resources have hence not been able to alleviate the beginning-of-year cash shortages that are constraining investment spending. In order to align PRSCs more closely with the budget cycle, it is proposed to target PRSC-4 appraisal in January-February 2004, after approval o f the 2004 budget by the national assembly, with a possible Board date inMarch 2004. Subsequent PRSCs would then follow a similar timetable and closer align PRSCs with the budget cycle and PRSP implementation, which both follow the calendar year. 44 89. Stimulating growth. The PRSC series has addressed issues regarding service delivery and public sector performance. However, Burkina Faso faces difficulties in attracting private investment as a result o f low skill levels and high costs o f production factors. The growth agenda o f the PRSP will therefore be an additional important area for support under the PRSC, as discussed in detail below. 90. Improving the link between policy actions and the monitoring and evaluation framework. The link between PRSC measures and the PRSP impact indicators is at times tenuous as a result o f certain weaknesses o f the 2000 PRSP, which did not include a matrix o f policy actions and only contained a narrow set o f indicators. The government has already undertaken a substantial body o f work as part o f the UNDP-financed Poverty Observatory (ONAPAD) to improve its set o f PRSP indicators. ONAPAD's enhanced indicator list was discussed with the donor community and is a first step for establishing the monitoring framework o f the revised PRSP. In developing the revised PRSP, the government will needto closer integrate objectives with government policies by preparing a matrix o f costed policy actions and intermediate outputs that are linked with PRSP outcome and impact indicators. Future PRSCs would draw on this work. Bank staff, jointly with the donor community, will accompany the work on the PRSP revision throughout the year 2003 by providing feedback on different drafts o f the revised strategy. Moreover, the Word Bank Institute (WBI) is willing to conduct trainingactivities to reinforce the technical capacity o fthe PRSP team and sectoral planning directorates for preparing the logical framework o f the PRSP and sectoral strategies. The Canadian International Development Agency (CIDA) has spearheaded a regional study on strength and weaknesses o f monitoring and evaluation systems and, in collaboration with WBI, is disseminating the lessons from this study in mid-2003. Finally, the forthcoming capacity building project will give the means to reinforce the capacity o f planningdirectorates (DEP) to evaluate policy outcomes and make more effective use o f available poverty statistics and result indicators under the PRSP process. 45 O W 6 % 8 c C P 0 % d z" Eb Y .c P C m ss I P r: .cI s c B. DesignandFocus of PRSC-4 91. Alignment with PRSPs and CAS. Given the timeframe for the revision o f the full PRSP, PRSC-4 would be an interim operation based on the third annual progress report o f the 2000 PRSP and the extension o f the CAS described in the CAS-PR. Subsequent operations would then be adapted to the fully revised poverty reduction strategy and aligned with the new 2004 CAS. The revised PRSP is expected to contain similar focal areas as the original 2000 PRSP but with increased weight on the growth agenda and a closer reflection o f the long-term sectoral programs. It would also be expected to contain a detailed policy matrix and costed programs. Inthe meantime, PRSC-4 will focus on three broad areas: growth and employment creation (pillars 1 and 3 o f the PRSP), human development (pillar 2) and good governance (pillar 4). Triggers for PRSC-4 have been designed according to these three areas and are presented in Table 11. The policy matrix has benefited from intensive discussions with government officials and has also been shared and discussed with the donor community at several occasions during its development. As was the case for PRSC-3, Bank staff will be responsive to adapt PRSC measures if necessary to improve donor coordination, and the list o f indicators inTable 11will be fully aligned with the revised PRSP duringPRSC-4 preparation. Box 2: Key Results of the 2001 Growth and Competitiveness Study Major growth and development constraints 0 Limited internal and external liberalization, resulting inweak integration into the regional and world economy and limitedparticipation o fthe private sector informal sector activities 0 Elevatedfactors costs, notably (i) elevated cost o fprimary factors, with a comparatively highunit labor cost and weak marginal productivity o f capital; and (ii) costs o f infrastructure services high (telephone, water, and electricity), even incomparison to other countries inthe sub-region 0 Weak contribution o f global factor productivity to growth, signifying limitation o f skills and other factors with a potential to boost the effectiveness o f investments 0 Low level o f human development indicators, notably weak schooling rates and highmortality and morbidity rates Sourcesof Growth 0 Agriculture is expected to remain a-drivingforce for growth; potential for growth exists inthe traditional cotton sector, as well as the production o f h i t s and vegetables, specialized products, such as shea nutsand other products o fbiological or pharmaceutical interest 0 Transformation o f primary products could become a second growth area, and includes the industrial transformation o f cotton, h i t s and vegetables, and animal skins 0 Telephone and electricity services are still underdeveloped and could constitute a third growth axis Elements of a Growth Strategy 0 Develop humanresources by (i) access to primary and secondary education and health giving services; (ii)removing labor market rigidities; (iii) strengtheningthe role o fwomen and facilitating their accessto credit, education, andhealth; and(iv) strengtheningcommunity-based management o f education and health services 0 Improve performance o f economic infrastructure and lowering factor costs by developing a regulatory framework and a strategy for private sector involvement inthe telecommunication, energy, air transport, and water sectors 0 Improve access to credit by (i) strengthening the organization o f informal credit markets; (ii)support the development o f savings instruments;and (iii)facilitate the entry o fnew operators 0 Maintain a stable macroeconomic framework 0 Promote a further regional integration ("open neighborhood strategy") 0 Pursuethe institutional reform process and capacity building to improve government services 53 92. Growth and employmentcreation. Inaddition to sound macroeconomic policies, which lay the foundation for growth, the first PRSP axis covers government policies to improve the investment climate, increase rural income and employment opportunities, lower factor costs, and reinforce infrastructure. Policies inthis area draw on the 2001 Growth and Competitiveness Study undertaken jointly by the government and the Bank.'' It identifies costs o f labor and other productions factors, notably transport, electricity, water, and telecommunications, as important constraints for competitiveness and growth (see Box 2). To accelerate growth rates, the study identifies a variety o f areas for intervention, including the promotion o f alternative crops in the agricultural sector and removal o f marketing constraints, a more enabling environment for small and medium-sized enterprises, promotion o f more efficient infrastructure services, and development o f a broader human resource base. The agenda is supported under several Bank projects-the Competitiveness and Enterprise Development technical assistance project (see Box 3 for a summary), the Transport Sector investment project with a focus on rural roads, a water supply project for Ouagadougou, the basic education development project, and a planned energy sector investment project. The PRSCs support selected reforms inclose synergy with these projects. Particular areas o f reform proposed for PRSC-4 are: 0 Rural development. PRSC-4 would accompany the deepening o f the reforms undertaken under previous operations in the cotton sector to increase private sector involvement and competition in the sector. In particular, the bidding process will continue and negotiations with new private operators will be finalized. PRSC-4 would also support the dissemination and implementation o f some o f the action plans developed for several subsectors (cowpeas, oilseeds, cereals, fruits and vegetables) under prior operations. 0 Factor costs and utilities. The Growth and Competitiveness study and the PRSP identify high factor costs as one o f the obstacles for the competitiveness o f the Burkinabk economy. To tackle this issue, PRSC-4, in synergy with the competitiveness and energy projects, would accompany the crucial steps in introducing competition in the energy and telecommunication sectors and opening them up for private investors. The government intends to privatize the telecommunications company and i s preparing new regulation to pave the way for private sector investment in power generation and petroleum distribution. Increasing competition and modern investments are expected bring down telecommunication and electricity costs inthe medium to long term. Telephone tariffs would likely come under downward pressure with proliferation o f cellular phones and the potential for efficiency gains with the expansion o f the fixed line network. Inthe electricity sector, there could initially be upward pressure on tariffs if the government subsidy for petroleum products used by SONABEL was removed and the high capital costs for interconnecting the power grid with CGte d'Ivoire outweighed the falling variable costs o f electricity. To investigate these issues in preparing for SONABEL privatization, studies on short-term tariff policies and financial outlook financed by respectively the Danish (DANIDA) and French (AFD) Development Agencies are currently under way. An additional study will be conducted on lowest investment costs and long-term tariff policies. As regards the opening o f the capital o f l9Burkina Faso: Competitivenessand Economic Growth-Policies, Strategies, and Actions, Ministry o f Economy andFinanceofBurkinaFasoandThe World Bank,2001. 54 SONABHY for private investors, modernizing the equipment and efficiency gains could translate into lower costs o f imported petroleum products. Box 3: PoliciesSupported by the Competitivenessand Enterprise Development Project Competitiveness Telecommunicationssector. A prior technical assistancecredit assistedthe government indeveloping a sector strategy, creating a regulatory framework, and issuing two private cellular phone licenses. The resources o f the current project support the preparation o f the privatization o fthe telecommunications company, the development o f a strategy for rural areas, the development o f information and communication technologies, and capacity buildingactivities for the regulators. Energy sector. The project supports the development o f an energy sector strategy, the creation o f a new regulatory framework and regulatory agency, andthe opening o fthe electricity and petroleum sectors for private participation. A plannedcomplementary energy sector investment project would promote investments innew equipment and the interconnection with neighboring countries to lower the cost o f electricity. Air transport. The project assists with upgrades to the civil aeronautic code, capacity building at the civil aviation authority, andprivatization o f airport administration. Enterprise Development Improving the business environment. The project provides resources for a reform and codification o f business laws andthe simplification and streamlining o f administrative barriers, notably as regards land access and international commerce. Technical assistance to entrepreneurs. The project supports measuresto better organize information, improve access to technical assistance, improve the quality and diversityo f products, and ease access to financing. It does so by supporting the start-upo f an entrepreneur center, provide matching grants for support services, andprovide training and advice on quality management. Development of microfinance services. The project assists with the strengtheningo f the supervision authority for microfinance institutions at the Ministryo f Finance and building capacity inthe microfinance industry. 93. Human resource development. Human development encompasses policies in the education and health sector as well as improvements in supply o f safe water: 0 Education. PRSC-4 would support sufficient budget allocations in line with the PDDEB, the pursuit o f the decentralization agenda, and the preparation o f a sectoral MTEF. The sectoral MTEF would include post-primary education and provide a financial outlook for the entire education sector. This cohesion will become increasingly important with an increase in school enrollment rates and a larger number of students continuing their education beyondprimary school. 0 Health. Inthe health sector, PRSC-4 will attempt to deepen the dialogue around the program budgets to seek improvements in equity and efficiency o f health ministry spending. Measures would focus on the free provision o f vaccinations and further cost reduction in selected services, as well as a deepening o f the deconcentration agenda on both the personnel and budgetary side. In addition, PRSC-4 will support the preparation o f a sectoral MTEF. 0 Water sector. PRSC-4 would include management aspects o f the water sector as a new component to support the government inmaking progress towards the MDGs in this area. PRSC-4 would support the preparation of a strategy for public-private 55 partnership, accompanied by technical, organizational, and financial assistance to water management concessionaries. 94. Good governance.Under this thematic area, PRSC-4 would continue to support a variety o f public sector reform measures, as follows: 0 Budget preparation.PRSC-4 would continue the support o fthe MTEFand program budgeting exercises as part o f the annual budget preparation. In synergy with the forthcoming capacity building project, PRSC-4 would put its emphasis on further improvements in the quality o f program budgets in key sectoral ministriesand better mastery of revenue projections underlying the MTEF. Bank staff will also follow closely the implementation ofpast and ongoing PERs. 0 Budget execution. PRSC-4 would provide for the further extension of the computerized expenditure management system. In particular, the extension o f the CID to foreign-financed investments would become fully operational and integrated into the budget. Moreover, the controlled deconcentration o f budget management would continue with the extension o f the CID to further regions after the successful implementation at Bobo-Dioulasso. 0 Procurement. Measures for PRSC-4 would include the full application o f the 2003 procurement decree. They would cover the conduct o f regular and random audits to verify the systematic application o f procurement procedures, the preparation o f a decree on leasing contracts and concessions, and the technical preparation o f the integration o fprocurement information inthe CID. 0 Public financial management. PRSC-4 would support the implementation o f the related PRGB measures. Specific measures will include the application o f the WAEMUbudgetclassification, the monthly preparation o ftreasury account balances, and the drafting o f a concept for an electronic management system for government property. 0 Capacity building, deconcentrationand decentralization.PRSC-4 in combination with the capacity building project would support the deconcentration and decentralization agenda. Under PRSC-4 the regions would become functional deconcentrated government units. Other measures include the deconcentration o f personnel management after a full operationalization o f the personnel management system and its extension to line ministries and regions. 0 Environment. PRSC-4 would pursue the implementation of the capacity building plan and the preparation o f guidelines for environmental assessments. VII. GRANT ADMINISTRATION AND RISKS A. Grant Administration 95. Grant amount and financing. The proposed amount o f IDA grant financing is US$50 millionequivalent. 96. Tranching. The grant will be disbursed inone tranche o f SDR 35.4 million (US$50 million), to be released at effectiveness, anticipated to be in September 2003. The grant closing date would be June 30,2004. 56 97. Disbursement. The grant will follow IDA'S simplified disbursement procedures for adjustment operations?' Grant proceeds will be made available for disbursement upon effectiveness. The government will open an account with the central bank BCEAO. Upon notification o f release o f the tranche, IDA will deposit the proceeds in this account when requested to do so by the government. If, once deposited with the central bank, withdrawals are used for ineligible purposes (i.e., to finance goods or services on the standard negative list), IDA will require the government to refund the amount to the grant account. 98. Auditing. IDA reserves the rightto seek an audit o fthe deposit account. 99. Implementation. The reform program funded by this grant will be implemented by the Ministry o f Finance and Budget and other ministries. The Permanent Secretariat for the Supervision o f Financial Policies and Programs (SP-PPF) at the Ministryo f Finance and Budget is coordinating the contributions o f different ministries. Ministries involved in the implementation o f the program are the Ministries o f Finance o f Budget (budget management reform, budget process, and budget allocations for line ministries), the Ministry o f Economy and Development (economic developments and statistics, PRSP, statistical monitoring system), Ministry o f Basic Education and Literacy (implementation o f PDDEB), Ministry o f Health (implementation o f PNDS), Ministry o f Commerce and Enterprise Development (privatization program, cotton reform), Ministry o f Agriculture, Water, and Fishing (cotton reform, institutional reforms, agricultural diversification, sanitation program), Ministry o f Decentralization and Territorial Administration (decentralization program), and Ministry o f Civil Service and Reform o f the State (civil service reform). The coordination by the SP-PPF has been generally successful in mobilizing contributions o f line ministries. A deeper and earlier exchange o f line ministries with the SP-PPF would at times be useful, however, to avoid delays in coordinating sectoral activities under the PRSCs. Because o f its nature as a single-tranche operation, overall program implementation and macroeconomic performance will be reviewed in the context o f preparation for the following operation, as well as throuzh the assessment o f the implementation o f the PRSP with the IMF and other donors. B. Risks andMitigatingMeasures 100. The main risks to achievingthe objectives ofthe grant are vested interests, weak capacity and vulnerability to external shocks, which could all result in a smaller-than-estimated poverty impact o f the policies supported by PRSCs. Vested interests can represent important reform obstacles, notably as regards policies aiming at increasing private sector involvement in the economy, cotton sector reform, and procurement reform. The reform program supported by the PRSC series reduces the influence o f those with important stakes in sectors with limited competition, in public enterprises, and inpublic administration by removing obstacles for competition, diminishingpublic sector control over productive assets, and improvingtransparency and ex-post controls. Therefore, PRSC-supported policies may be challenged by influential groups, resulting ina slow-down o f the reform process, and policies may be subject to reversal after their implementation. Under the PRSC, these different risks arising from vested interests are mitigated by the fact that all policy measures are implemented before grant approval and that each operation is embedded in a medium-term policy framework. Owing to the close link between subsequent PRSCs, the likelihood that reforms are being followed through and policies are sustained i s being enhanced. The link between operations also permits to 2o Operational Memorandum: Simplifying Disbursements under Structural and Sectoral Adjustment Loans, February 8, 1996. 57 move increasingly from measures changing the institutional environment to measures verifying the application o f these changes, such as the adoption and subsequent implementation o f the new procurement regulation. Moreover, the commitment o f the government to the principle o f programmatic support through PRSCs combined with the financial importance o f the Bank's assistance enhances the likelihood that interests o f narrow groups can be overcome. 101. Achieving the grant objectives could become more difficult as a result o f weak administrative capacity in Burkina Faso and slow program implementation. To mitigate this risk, the Bank is giving technical support to the PRSP process with other donors and will prepare a technical assistance project for capacity building to accompany future PRSCs and underpin the implementation o f the government's poverty reduction and growth agenda. 102. The impact o f the credit could also be affected by fluctuating external conditions. To the extent that drought and economic conditions in the subregion, notably the Ivorian crisis, have an important impact on the government's own tax resources, external shocks could disrupt the implementation of the budget and thus disrupt the spending program implementing the PRSP. Moreover, the exogenous shocks also directly affect economic conditions o f the population and thus change poverty rates and other indicators measuring the impact o f government policies. In order to mitigate the risks and under the condition that government policies are sound, the donor community has generally closely coordinated its support to provide additional support ifnecessary to cushion the budgetary consequences o f exogenous events. Inresponding to the additional financing needs PRSC- 3 has been increasedby US$lO millionequivalent over the baseline scenario. 103. Fiduciary risks have become less important with successful implementation o f the PRSC reform program. As discussed in more detail above, recommendations o f the CFAA as regards the timeliness o f budget execution reports and reinforcement o f external audit functions are being followed. To ensure the sustainability o f these reforms, the PRSC series will continue to emphasize the full and timely application o fthe fiduciary safeguards. 58 Annex 1: Letter of Development Policy Unofficial translation of the French original MINISTRY OF FINANCE AND BUDGET BURKINAFASO Ouagadougou, June 5 2003 NO.2003-975/MFB/SP-PPF The Minister o f Finance and Budget To: Mr.James WOLFENSOHN President o f the World Bank WASHINGTON DC, 20433 (USA) LETTER OF DEVELOPMENT POLICY Dear Mr.President, 1. This letter o f development policies intends to describe the recent developments o f the economic and social situation o f Burkina Faso and the perspectives for the next years. It builds entirely on the Poverty Reduction Strategy Paper (PRSP) o f May 2000 and the last progress report o f September 2002. The policies discussed in this letter focus mainly on the elements o f the PRSP reform program suppofled by the World Bank's Poverty ReductionSupport Credits (PRSC!. 2. The recent time has been marked mainly by the crisis situation in CBte d'Ivoire since September 19, 2002, a crisis with several effects o f different nature on Burkina Faso resultingfrom the very close historical and economic links between the two countries. CBte d'Ivoire was, up until the beginningo f the crisis, the most important economic partner o f Burkina Faso in the sub-region, home o f the principal port o f evacuation for its exports, and origin o f most o f its imports. Inaddition, CBte d'Ivoire is the most important country o f immigration for Burkinab6 (almost 3 million o f them reside there) who contributed until 1999 through their substantial and regular remittances to balancing external accounts. 3. Despite the difficulties appearing in the last quarter o f 2002 from the effects resulting from the Ivorian crisis, economic activity increased by 4.6 percent, certainly less than expected, but at a still remarkable pace given the disturbances o f deliveries to enterprises, notably in the Western and South-Western region. These enterprises depend almost exclusively on CBte d'Ivoire for the primary inputsandtheir sales outside the country. 4. The government has maintained its efforts in fighting against poverty while consolidating the achievements and deepening the reforms undertaken previously within the framework o f different programs. It has begun, in line with the timetable annexed to the second annual PRSP progress report, the process of revising its strategy within an enlarged participative framework and this 59 process should lead until the end o f 2003 to the elaboration o f a new poverty reduction strategy paper. 5. The government has maintained the rhythm o f execution o f priority programs in the PRSP during 2002. Social expenditure financed with domestic resources have grown considerably, from CFAF 80 billion to CFAF 109 billion, o f which CFAF 28 billion represent additional expenditure financed with HIPC resources. It is noteworthy that the latter have seen a certain acceleration after the difficulties encountered in2001 linked, among others, to the novelty o f the spending mechanism, requiring a learning effort on the domestic level as well as the level o f the partners participating in the initiative. Owing to the monitoring device put in place and the guide for the execution o f HIPC expenditure elaborated in close relationship with the sectors benefiting from these expenditure, the procedures are now better mastered, leading to an improvement in speedo f the use o f resources. 6. This letter analyzes in its first part the recent developments o f the economic and social situation and the state o f the execution o f measures and reforms in 2002 supported by PRSC-3. The second part o f the letter outlines the perspectivesfor 2004. 1-Recent Developmentsof the Economic and Social Situation: Implementationof the Poverty Reduction Strategy 7. The Burkinabb government has pursued the implementation o f the PRSP to continue the creation o f conditions favorable for a significant decline o f poverty. To do so, multiple reforms have been put in place or begun. This reform program has been supported by PRSC-3. The appraisal o f reforms can be confirmedby the description below. 1.1-Accelerate EquitableEconomicGrowth 8. Despite the Ivorian crisis, the Burkinabb economy has been able to grow by 4.6 percent in 2002, compared with 5.6 percent in 2001. Inflation measured by the consumer price index ranged at 2.3 percent on an annual average, which is below the ceiling o f 3 percent established by the WAEMU convergence criterion. 9. In 2002 the execution of the budget has been confronted by difficulties, linked in part to a weakening o f fiscal revenue, which fell short by CFAF 13 billion, and in part to the growth o f unforeseen humanitarian expenditure. In total, the basic fiscal deficit (excluding HIPC), which reflects the result o f fiscal operations excluding foreign-financed investment, deteriorated from 2.2 percent o f GDP in 2001 to 2.5 percent o f GDP in 2002. 10. Money supply increased on average by 3.4 percent during 1999-2002, which is less than the nominal growth rate o f GDP, and the improvement in the position o f public finances allowed the government to limit the growth innet bank credit to the government. Inthese conditions, net foreign assets have continued to improve and the credit to the economy was able to grow to sustain economic growth. 11. Resulting mainly from a rebound incotton exports and a weakening o f imports for goods and equipment, the external current account deficit, excluding current official transfers, has been reduced from 15 percent o f GDP in 2000 to 12.9 percent o f GDP in 2002. The overall balance has improved considerably, leading to an accumulation o f gross foreign assets o f about CFAF 27 billion. 60 12. Despite the difficulties mentioned above, the government has continued to safeguard the budgetary expenditure allocated to the fight against poverty with a strong acceleration o f HIPC expenditure and the commitment o f almost all allocations o f the 2001 HIPC account. Thus, these expenditure increased from CFAF 6.5 billion in 2001 to CFA 28.2 billion in 2002, including CFAF 3.7 billion from the 2002 debt relief, which had not been committed untilthe fourth semester. 13. In order to support the process of improving budget management-indispensable to better fulfill the obligation to justify the use of resources-efforts have been made in the direction of renewing the computer tools o f budget management. These efforts were made in order to adapt them to the requirements for a modern management and to the new needs expressed by different financial administrations. 14. The 2003 budget, building on the sectoral budget envelopes o f the 2003-2005 MTEF, allocates almost 30 percent o f the total budget resources to the social sectors, including an appropriation o f more than 50 percent o f resources mobilized under the HIPC Initiative. The concern to accelerate the improvement o f social indicators justifies the importance given to the adequate financing o f the PDDEB and PNDS. 15. In the area of budget formulation, it is advisable to raise the issue of the extension of the MTEF working group to the main ministerial departments, in line with the recommendations o f the workshop on the instruments for budget programming that was held in Kaya in March 2002. This workshop has acknowledged the need to enlarge the ownership o f the MTEF by the different actors inthe budgetary process. 16. Agriculture employs the majority o f the population, remains the principal source o f growth, even if its contribution to GDP has weakened in 2002. The consolidation o f measures to support production, an improvement in returns, and the strengthening o f their organization allowed to better sustain the development o f other sectors. 17. To achieve the results outlined above, the priority actions have aimed at the development o f the rural market economy and the growth o f rural incomes through diversification o f sub-sectors and the reform ofthe cotton sector through its opening to foreign investors. The latter was translated into action through the launching o f the bids for the pre-qualification o f candidates to take over the East and Central cotton zones, after the rules that will govern the cotton sector and the validation o f the biddingdocuments were adopted by the cotton sector reform committee. This opening will introduce competition in the cotton sector, increase the income o f producers, and improve the food and nutritional security owing to crops growing in different seasons, which receive growing attention with the implementation ofa small irrigationprogram for villages. 1.2 - Guarantee Access of the Poor to Basic Social Services 18. Vigorous actions have been undertaken to allow a larger number o f Burkinab6, particularly the poorest, to have access to basic social services, namely basic education, health, and access to safe water. The intention o f the government has been translated into an increase in school and health infrastructure, improvements in equipment, and increase personnel (student, teachers, and health workers). The construction o f infrastructure was concentrated inthe poorest zones. A special effort to increase the school enrollment rate has begun in 2001-02 in the context o f the ten-year basic education development plan (PDDEB), financed with budgetary resources, HIPC resources, and external aid from different donors. Additional resources, notably under the "Education for All" 61 Initiative continue to be mobilized from donors in order to accelerate the implementation o f the PDEB in order to attain the Millennium Development Goals. In addition, with a view to reduce considerably the mortality and morbidity rates, infrastructures were made available to the population for a greater access to health services and medication. Globally, resources allocated to social sectors have increased on average by 10.7 percent annually between 1998 and 2002 and the share in the budget excluding debt service and HIPC has increased from 21.7 percent to 24.7 percent during the same period. This outcome reflects the demonstrated desire of the government to increase the supply and the quality o f education and health services, especially as regards the most deprived part o f the population, and to intensify the fight against AIDS. 1.2.1 -Access to Basic Education 19. As regards basic education, the government's policies build on the PDDEB, which constitutes a key element o f the PRSP. The principal objectives o fthe government to achieve through this program are (i)increase supply o f basic education; (ii)increase the quality, relevance and efficiency o f basic education; (iii)promote literacy; and (iv) develop the capacity o f the Ministry o f Basic Education and Literacy (MEBA) to develop, manage and evaluate programs. In the 2003 budget, approved by the national assembly in December 2002, the government has allocated substantial resources to MEBA to implement the PDDEB. The level o f allocations has been safeguarded in the supplementary budget law, adopted in May 2003 by parliament, which incorporates the impact o fthe Ivorian crisis on public finances. 20. In the context of deconcentration of the administration and to accelerate the execution o f construction works for schools and reduce costs, the government has begun the transfer o f responsibilities for work in this area to the provincial level, under the control o f provincial directorates o f basic education. 21. As regards recruitment, the year 2002 has been a year o f innovationwith the decentralization o f recruitments for basic education. More than 1750 teachers have thus been recruited inthe regions, bringingthe total number o fnew hires to 3600. 22. The effort to reduce disparities in schooling rates has been pursued.Inthe 20 provinces with the lowest schooling rates, the gross enrollment rate has increasedby 13 percent between 1999-2000 and 2000-01, compared with an average progression o f 5.8 percent nationwide. These provinces have besides benefited from an increased effort regarding endowment o f books, furnishings, and food for school kitchens. 23. Inpursuingthis policy o f priority for basic education development in quantity and quality, the government will also give attention to the development o f secondary and higher education. This i s to assure a continuation o f education for students finishing basic education in 2005-10 and to find a balance o fthe entire education system inthe medium and long term. 1.2.2 -Access to Health Services 24. As regards health services, the government's policy in the PRSP has been defined by the national plan for health development (PNDS). This plan, which was the subject o f a donor round table in April 2003, translates the government's desire to increase the quantity and quality o f health care. It also attempts to reduce health care costs to improve access to health centers and their use, seen as a way to reduce the still highmortality o f children and women. 62 25. Inthe context of reforms aiming at improving access to generic drugs, the government has already taken measures in 2002 to reduce the profit margin o f the CAMEG (by 32 percent). In order to deepen the policy o f lowering basic health care costs, a letter has been addressed inFebruary 2003 to the regional health directors. It defines a harmonized list applicable on the national level for the fees o f certain medical interventions, notably birth and caesarians, and the price for three drugs for pediatric use, which are subsidized at 10 percent. The list was widely disseminated in May-June 2003, including inthe localpress. 26. The government is aware o f the difficulties to place and maintain health workers in rural areas. In the context o f finding appropriate solutions, it had the objective to conduct two studies on health worker incentives in 2002, one o f which financed by the World Health Organization, and to begin the implementation o f resulting recommendations in 2003. However, as a result o f the delay in receiving the financing, the studies could not be finalized before May 2003 and the formulation o f government policies will take place during 2003. An action plan for the strengthening o f incentives for workers will be elaboratedand implemented beginning in 2004. 27. The deconcentration o f government services and the eventual transfer o f responsibilities to the deconcentrated level have already been taken into account by the health services. To improve the execution o f budget resources allocated to health districts in the context o f budget deconcentration, 66 petty cash accounts (rkgies d'avance)have been created in the regions and districts in 2002. The managers o f these accounts have been nominated at the beginning o f 2003 and will now be able to call funds for the provisioningo f the accounts. Inaddition, the Ministryo f Health, in anticipating the texts for the decentralization that are about to be adopted, has elaborated the texts for the decentralization o f health personnel, which will be applied after the implementation o f the regions. 28. In addition to the reforms described above, the government has taken measures for the strengthening o f management committees o f health centers (COGES). About 66 percent o f COGES have currently at least m e member trained in micro-planning on the basis o f training manuals. The Health Ministry is also preparing revisions for the judicial framework o f COGES on the basis o f a 2001 study. 1.3 -Increasethe Opportunitiesof Employmentand Income-GeneratingActivities for the Poor 29. Taking account the amplitude o f the poverty incidence in rural areas, the government's actions have been concentrated on the strengthening o f rural development sectors (agriculture, environment and rural water sector). 30. Cotton i s the primary source o f rural incomes and most important export good o f the country. The Burkinabk cotton sector, organized along the model o f an integrated sector, has been able to keep its financial stability despite the sharp decline in international prices linked for a large part to the subsidies o f industrialized countries. The government has integrated the producers already for several years inthe management o f the sector and has turned over to them 30 percent o f its shares o f the cotton company (SOFITEX). This decision explains the great stability o f the sector and the enthusiasm o f farmers for this crop. Notwithstanding these achievements, the government remains aware o f the risks linked to the great dependence o f this primary activity of the country on a single company. It also decided, after broad consultations with all the actors in the sector, notably the producers, to begin a process o f opening o f the sector to other operators. In this context, the government has lifted the monopoly o f SOFITEX in 2001, created a cotton sector reform committee in2002 andundertakensince early 2003 studies onthe producer price setting mechanism andthe risk 63 sharing mechanism for the opened sector, and prepared the bidding documents for two cotton zones (East and Central) and launched the bids for the technical pre-qualification at end-May 2003. 31. Other priority actions of the government inthis area consisted of: - the implementation o f actions to reduce in a sustainable way the vulnerability o f the agricultural activity to desertification and insufficient water management, including the operation o f 50,000 dung pits, the program o f small irrigation in villages and the - SAAGA program (artificial rains); the initiation o f series o f actions inthe direction o f intensification and modernization o f agriculture by way o f distribution o f agricultural material, improved seeds generating higher yields and fertilizer to poor farmers to allow them to produce sufficient amounts to nourish them and sell their surplus; - - the support o ftraditional livestock raising and the upgrading o f grazing zones; the financing o f activities generating higher and more diversified rural incomes. Thus, morethan 100projects o femployment have beenfinanced and the Fundfor the Support o f Income-GeneratingActivities o f Women (FAARF) has mobilized in 2001 some CFAF 2.3 billion to finance the economic activities o f women in almost all provinces; the promotion o f small irrigation invillages also takes part inthe objective - to improve rural incomes; a support for the creation o f farmer organizations by the adoption o f the decrees on the creation and status o f regional agriculture chambers (CRA) in December 2001, translating the government's desire to accompany different actors operating in the - agricultural sector; and the reduction o f isolation o f rural areas through the construction o f rural roads to create axes o f development capable to stimulate a diversification o f opportunities for economic activities. Thus, a first tranche o f 266 km o f rural roads has been constructed in 4 provinces and a second tranche o f 387 km in nine provinces have been realized with HIPC resources inthe context o f a program for the construction o f 6000 km o f rural roads by end-2004. 1.3 -PromoteGood Governance 32. Inthe area ofgovernance, efforts have been concentrated in2002 inthe political area on the strengthening o f democracy and the state o fjustice. Inthe economic area, the mechanisms that assure transparency, responsibility and the control o f the management o f public finances have been implemented. 33. Inthe area o fdemocratic governance, the search for a transparent electoral process receiving the support o f the entire political class has led to the revision o f the electoral code and the strengtheningo f the privileges o fthe national independent election commission (CENI). Inthe same thrust, the charter o f political parties and status o f opposition have been adopted by the national assembly and an independentobservatory for elections has been createdwithin civil society. 34. In the context of the implementation o f justice reform, the government has installed and made operational in 2002 the new supremejurisdictions (Constitutional Court, Supreme Audit Court, State Council, Appeals Court). Besides, the government has accelerated the implementation o f the support program for the consolidation o f the democratic process, the state o f justice, and good governance, with support from certain donors. 64 35. As regards economic governance, the preparation o fthe budget has beenfurther strengthened with the adoption o f the 2003-05 MTEF in April 2002, in line with the priorities o f the updated PRSP. The ceilings o f the MTEF have been integrated into the budget circular for 2003. The government has also adopted program budgets for 2003, consistent with the MTEF. 36. Significant progress as been made as regards the implementation o f the action plan for the improvement o f budget management (PRGB), adopted by the government in July 2002. It can be mentioned inthis context: - the operationalization o f the Supreme Audit Court in2002, materialized by its release o f its opinion on the conformity o f budget execution reports, authorizing the national - assembly to examine and adopt the reports for 1995 to 2000; the transmission to the Supreme Audit Court in 2002 o f the budget execution report - for 2001 that was adopted by the council o f ministers inApril 2003; the adaptation o f the legal framework for public finances to the harmonized regulation o f the West African Economic and Monetary Union (WAEMU), as signified by the adoption by the national assembly in January 2003 o f a new organic budget law and by the council o f ministers in May 2003 o f a new budget - classification applicable with the 2004 budget; the adoption o f an instruction for the delegation o f budgetary allocations to allow the issuance o f payment orders on the regional level, the extension o f the CID to Bobo- Dioulasso and the start-up o f the pilot site in Bobo-Dioulasso for the issuance o f - payment orders at the deconcentrated level inApril 2003; the pursuit o f reforms in the procurement area with the creation o f a working group for supervision o f reforms in December 2002, the establishment in the same month by ministerial arret6 o f an obligation for administrators o f the budget to prepare a procurement plan starting in 2003 and the adoption by the council o f ministers in - May 2003 o f a new decree for public procurement; the renovation o f the computerized budget management tools to adapt them to the requirements o f modern management and new needs expressed by different financial - administrations; and the extension o f the MTEF working group to different ministerial departments to enlarge the ownership o f the MTEF by the different actors in the budgetary process, in line with the recommendations of the workshop on the instruments for budget programmingthat was held inKaya inMarch 2002. 37. To deepen the analysis o f poverty in the context o f the preparation o f a revised PRSP in 2003, the government has launched in April 2003, financed with its domestic resources, a third household survey. The first results o f this survey are expected inJuly 2003. 38. As regards local governance, the process o f decentralization has made significant progress. The organizational set-up o f decentralization has been completed in 2001 with the creation o f 13 regions. The installation o f a permanent committee for the texts to apply the orientation texts for decentralization (TOD) and the creation o f an inter-ministerial structure for the implementation o f decentralization have allowed a significant improvement in the dynamic o f the programming and a better planningo f the actions to be undertaken. 65 2 -Outlook for 2003-04 39. The implementation o f structural reforms has allowed the Burkinabh economy to make notable progress in the macroeconomic area. However, the constraints linked to the social-political crisis in CGte d'Ivoire should effect growth in 2003 and reduce it to about 2.6 percent according to the projections established under the new three year program supported under the Poverty Reduction and Growth Facility. Nonetheless, the government will implement a series o f measures to keep the projected decline inreal GDP growth incheck and move it progressively to the desired level o f 5 to 6 percent, while limiting inflation to 3 percent, with the ultimate objective to reduce poverty to 37 percent or less by end 2006. To achieve these goals, the policies in the area o f employment, human resource development, and good governance will be reinvigorated to accelerate growth and the creation o f employment. 2.1 - Growth and EmploymentCreation 40. The acceleration o f growth requires in the first instance a reinforcement o f the competitiveness o f the economy by way o f a reduction o f factor costs. Duringthe next program, the government will pursue the opening o f the cotton sector to private investors, as well as the opening o f the telecommunications and energy sectors. 41. Inthe telecommunications sector, the privatization ofthe historicaloperator will be finalized in2003 withthe aim to increase the capacity for investments ofthe sector and subsequently increase the density o fthe network o f fixed lines and reduce the price for fixed and mobile telephone. 42. Similar measures will be undertaken to accelerate the opening o f the capital o f SONABEL and SONABHY for private operators with a view to improving their management, reduce the costs o f energy, in particular the production o f electricity and its consumer price. To this end, the government will proceed with the revision o f the judicial framework for the production and sale o f electricity and will put inplace an authority for the regulation o f the energy sector to watch over the respect o fthe enacted rules o f the game. 43. To support the environment for the private sector, the government will undertake a study for the legislative and regulatory framework of the labor market in order to identify the areas that merit strengtheningby appropriate reforms. 44. The improvement o f rural incomes will be pursuedwith the diversification o f crops. In this direction, the results o f the studies undertaken on different sub-sectors, notably fruits and vegetables, will be disseminated. To support the development o f crops and activities to be identified, local development windows will be put in place on the deconcentrated level in the 13 regions o f the country. To ease the transport and commercialization o f these products, the pursuit o f the rural roads programwill reduce the isolation o f remote areas. 45. To increase the income generating opportunities in rural areas, appropriate measures will be taken to finalize the opening o f the cotton sector with the sale o f two cotton zones (East and Central), the adoption o f a new price-setting mechanism and guarantee mechanism. This framework should guarantee producers a profitable price while ensuring the viability o f the sector. The increased investmentin the sector through this operation should allow an increase in mechanization rates (by about 10 percent until2005) and subsequently an increase inyields and income o fproducers. 66 46. In order to accompany the rebound of the mining sector, the government will encourage the development o f small minesby way o f a support to mechanization. HIPC resources will be made available to contribute inthis sense starting in2004. 2.2 -Developmentof HumanResources 2.2.1 -Basic Education 47. Despite progress made in the area of literacy during the past years, the gross enrollment rate has remained at about 43 percent in 2002. This rate shows well the efforts that still need to be made to attain the objectives o f the PRSP in the area o f basic education. For this reason, during the following years sufficient budget allocations will be made to the sector for the implementation o f the PDDEB,which has becomethe instrumentto channel allenergies inthe area o fbasic education. 48. Inaddition, the government will pursue the decentralization o fthe recruitment of teachers to the level o f regions (DREBA) while giving the DPEBA the budgetary resources necessary inorder to favor the practice o f managing resources close to the beneficiary. To improve the level o f teaching and increase the gross literacy rate in school-year 2003-04, the effective number o f teaching hours for teachers will increase to 780 per year at a minimum.The generalized application o f the sub-cycle will be verified with a view to reducing the rate o f class redoubling to 12percent, at a minimum,and increase the rate o f class attainment o fprimary school to 40 percent. 2.2.2 - Secondary Education 49. The taking into account of the systematic links between the different levels o f education is inevitable within a dynamic vision for the education sector. To this end, the government has organized the national sessions on education inApril 2002 to better specify how to arrive at a better synergy o f different components o f the education system (basic, secondary, higher). To pursue the research o f consistency between the primary education development program and post-primary education, a sectoral MTEF will be tried out in 2003 for MEBA and MESSRS. 2.2.3 -Health Care 50. Inthe health area, efforts will be channeled to an implementation o f measures contained in the PNDS. Inparticular, as regards the plan for the protection o f children, the program: 1/ assures the effective distribution, free o f charge, of vitamin A supplements; 2/ will undertake controls to assure the application o f the new prices structure for drugs and medical services with a view to verify its application; 3/ allocate sufficient budgetary resources to pay for subsidized health services. 51. Onthe institutional and organizational side, efforts will be made to strengthen deconcentrated personnel management on the level o f regional health directorates (DRS) and health districts and to create a monitoring framework for the annual evaluation o f the PNDS. Such a framework will ensure that actions are aligned with objectives by exposing difficulties and proposing solutions to lift constraints. 52. Inthe area ofwater and sanitation, inurban and rural areas, the government will implement with support from donors an action plan to achieve the Millennium Development Goals. To accelerate the progress in this sector and increase in particular the proportion o f the population having access to safe drinking water while reducing the disparities between urban and rural zones, 67 the strategy will be based largely on a participation o f the private sector. The structures for a technical support to provinces, communities, and water committees will be created and made functional. Moreover, a technical, organizational and financial support system for water concessionaries will be created. 2.3 -Promotionof Good Governance 53. The democratic process will be consolidated with the holding o f elections in rural communities in2003. 54. In the budget area, efforts will be maintained to consolidate the progress made in the past years. The actions o f the government will thus build on the achievement o f reforms defined in the plan for the strengthening o f budget management (PRGB). 55. Inthe area o f budget formulation, the accent will be placed on the improvement o f budget programming by strengthening the consistency between program budgets, MTEF, and budget law. The budget beingthe principal instrumento f economic and social policies inBurkina Faso, it will be formulated with a view to optimize the impact o f public finances on growth and poverty reduction, in line with PRSP objectives. 56. Inthe area o fbudget execution, the efforts undertaken inthe direction to facilitate execution will be strengthened with the improvement o f the computer systems o f budget management, the operationalization o f the integration o f foreign-financed investment spending into the CID and the finalization o f a technical concept for an computerized integrated revenue system (CIR). In parallel, the measures will be taken with a view to a rapid deployment o f the CID to four additional regional capitals, after the evaluation o f the experience in Bobo-Dioulasso. 57. As regards budget accounts, vigorous measures will be taken to apply effectively the budget classification o f the WAEMU starting in 2004, to produce monthly treasury account balances and to define an action plan for the development o f an accounting system for public property. 58. To keep budgetary discipline, the ex-post controls should be able to better take their role through a strengthening o f the capacity o f the General State Inspectorate (IGE) and the General Finance Inspectorate (IGF). 59. As regards procurement, the measures to take with a view to increase transparency and simplify procedures are the large distribution and verification o f the effective application o f the new decree regulating public purchases. To fully revise the regulatory framework for procurement, the leasing and concessions will also be subject o f a regulation. The measures inthis regard will be taken during the next weeks for the development o f a computerized application for monitoring public purchases to be connected to the CID. The plan for the strengthening o f capacity o f the actors in public procurement will be finalized and implemented to optimize the efficiency and the entire new systemthat will beput inplace. 60. In the area of civil service reform, the emphasis will be placed on deconcentration of personnel management, notably by elaborating and implementing an action plan for the deployment o f the integrated public personnel and salary management system (SIGASPE) to sectoral ministries. 68 61. The government o f Burkina Faso, which follows the principle sustainable development, will continue to strengthen the capacities for environmental impact analysis though the operationalization o f the environmental cells in ministries, as recommended by a workshop in March 2003 and specified inthe environmental assessment of PRSC-3. 62. The household survey under way will allow to draw up a new poverty profile that will allow to revise the PRSP within an improvedparticipatory process and to apply the lessons drawn from the PRSPunder way. 63. The Burkinabk authorities remainconvinced that the programs and measures described above are prone to contribute to enlarge the bases for healthy and sustained economic growth, with growth o f size and quality sufficient to draw the largest part o f the population out o f extreme poverty. Sincerely yours, Jean-Baptiste M.P. CompaorC Officer o f the National Order 69 MINISTERE DES FINANCES BURKINA FASO ET DU BUDGET UNITE. PROGRES-JUSTICE - a MonsieurJames WOLFENSOHN, Presidentde la Banque Mondiaie WASHINGTONDC, 20431 [USA] Obiet :Letirede Politiquede Developcement Monsieur le President, 1 , La presente iettre de politique de deveioppement se propose de retracer I'evoiution recente de la situation economique et sociale du Burkina Faso et ses perspectivespour les deux prochaines annees. Elle s'appuieiniegraiementsur la CadreStrategiquede Luttecontre la Pauvrete (CSLP)de mai 2000 et sur le dernier rapport de sa mise en ceuvre etablien septembre 2002. Les deveioppementsde ia letire sont principalementcentres sur les elements du programmede reformes du CSLP soutenus par des credits d'appui a la strategie de reduction de ia pauvrete (CASRP)de la BanqueMondiaie, 2. La periode recente reste marquee principalementpar ia situation de crise en CGte d`lvoire depuis ie 19 septembre 2002, crise dont ies effets induits sur ie Burkina sont multiples et multiformes, en raison des iiens historiques et economiques particulierement etroits qui existent entre les deux pays. La CGte d`lvoire etait, jusqu'a i`avenementde la crise, le premier partenaireeconomique du Burkina Faso dans la sous-region.Elie abritait son principal port devacuation de ses exportationsd'ou provenaitegaiement i`essentielde ses importations.Plus, elle constitue ie premier pays d`immigration de ses citoyens (presde 3 millions y resident) qui contribuaient, jusqu'en 1999, par leurs transferts substantieis et reguiiers,a I'equilibreducompte courant exterieur, 3. Malgre les difficultesapparuesau cours du dernier trimestre 2002 du fait des effets induitsde la crise ivoirienne,I`activiteeconomiquea enregistreunecroissance de 4,6 %, cedes moinselevee que prevue, mais dont ie niveau est remarquableen raison des perturbations du rythme d`approvisionnement des entreprises, notamment dans le rbion de i'Ouest et du Sud Ouest qui dependaient quasi exciusivement de la Cdte d'ivoire pour ies matieres premiereset pour leSVenteS a I'etranger. 4. Le gouvernement, tout en consolidant ies acquis et en approfondissant les reformes entreprisesanterieurement dans le cadre des differents programmes,a . maintenu ses efforts de lutte contre la pauvrete et engage, conformement au caiendrier annexe a son deuxieme rapport d`etape du CSLP, le processus de 70 revision de sa strategie duns un cadre participatif plus elargi, devant aboutir d'ici fin 2003 a I'elaboration de son nouveau document-cadrede strategie de lutte contre la pauvrete. 5, Le rythme d'execution des programmes d'actions prioritaires du CSLP est reste soutenu au cours de I'annee 2002, Les depenses sociales sur financement interieur ont ete sensiblement accrues, passant de 80 milliards FCFA a 109 milliards, dont 28 milliards de depenses additionnelles financees par les ressources de I'initiative PPTE. II convient de souligner que celles-ciont connu une certaine acceleration apres les difficultes notees en 2001 lees entre autres a la nouveautedu mecanisme, d'ou un effort d'apprentissage tant au niveau national qu'a ceiui des partenaires participanta I'initiative.GrGce au dispositif de suivi mis en place et au guide d'executiondes depenses PPTE elaboreen relation avec les secteurs beneficiaires, les procedures scnt a present mieux maitrisees, entrainant une ameliorationdu rythme d'utilisationdes ressources. 6. La presente lettre analyse duns sa premiere partie l'evoluticr; recente de la situation economique et sociale et I'etat d'eXeCUtiGndes mesurns et reformes en 2002 au titre du CASRP Ill, Enfin la deuxieme partie de la Lettre enonce les perspectivesenvisageespour 2004. 1- EVOLUTION RECEhTEDE I-4 SITUATIONECONOMIQbjE ETSOCWE: MISE ENCEWVRJZ DEI-4 STRATEGIE DE REDUCTIONDEW PAUVRETE 7 . Le gouvernement burkinabe a poursuivi la mise en ceuvre du CSLP pour continuer a creer les conditions propices a un recui significatiide la pauvrete.Pour ce faire, de multiples reformesont ete realiseesou engagees.Ce programmede reformes a ete soutenu par le CASRP Ill, Ce bilan peut etre confirme par les reaiisations decrites ci-dessous. 1.1- ACCELERER LACROISSANCE ECONOMIQUEETLAFONDERSURL'EQUITE 8. En depit de la crise ivoirienne,I'economieburkinabe a pucroitre de 4,6% en 2002 contre 5,6% en 2001, L'inflation mesuree par I'evolutionde I'indiceharmonise des prix a la consommations'est situee en moyenne annuelle a 2,306, soit en dessous du plafondde 3% fixe par les criteres de convergencede I'WEMOA, 9. En 2002, I'executiondu budget a ete confrontee a des difficultes. liees d'une part a un tassement des recettes fiscales interieuresqui cnt enregistre des moinsvalues de 13 milliards de F CFA et d'autrepart, a la croissance des depenses imprevues d'ordre humanitaire. Au total, le deficit de base (horsdepenses PPTE), qui reflete le resultat des operations financieres de I'Etat hors investissements sur financementsexterieurs,s'est degrade en passant de 2,2%du PIB en 2001 a 2,5% du PIB en 2002. 10.La masse monetaire a augmente en moyenne de 3,4% l'an au cours de la periode 1999-2002,soit moins que le taux de croissance nominale du PIB, et I'amelioration de la position des finances publiques a permis de limiter I'accroissement du credit bancaire net a I'Etat. Dons ces conditions, les avoirs exterieursnets ont continue a s'ameliorer et le credit a I'economiea pu s'accro?tre pour soutenir la croissance. 1 1 , Du fait principalement de la reprise des exportations de coton et d'un flechissement des importations de biens d'equipement, le deficit du compte courantexterieur, dons exclus, a ete ramene del50% du PIB en 2000 a 12,9'/0 en 2002. Le solde global est en nette amelioration, entrainant une accumulation d'avoirs exterieurs brutsd'environ 27 milliards de francs CFA. 71 12.Malgre les difficultes evoquees, le gouvernement a continue a securiser les depenses budgetaires affectees a la lutte contre la pauvrete avec une forte acceleration de I 'execution des depenses PPTE et l'engagement de la quasi- totaiite des credits du compte PPTE 2001, Ainsi de 6 3 milliards en 2001, ces depenses ont progresse en 2002 a 28,2 milliards de F CFA incluant 3,7 milliards de F CFA au titre des mobilisations de 2002, dont l'utilisation n'a ete engagee qu'auqemetrimestre, 13,Afin de soutenir le processus de renforcement de la gestion budgetaire indispensable pour mieuxfaireface a I'obligation de rendrecompte de l'utilisation des ressources, les efforts ont ete poursuivis dans le sens de la renovation des outils informatises de gestion budgetaire, pour les adapter aux exigences d'une gestion moderne et aux nouveoux besoins exprimes par les differentes administrationsfinancieres 14.Le budget 2003, cale sur ies enveloppessectorielles definies duns le CDMT 2003- 2C05, alloue pres de 30% des credits aux sectecrrs sociaux, y compris une affectationde plus de 50% des resourcesmobiliseesduns le cadre de I'initiative PPTE, Le souci d'accelerer le redressement des indicateurs sociaux justifie I'importanceaccordee a unfinancement adequat du PDDEB et du PNDS. 15.Duns le domaine de I'eiaborationdu budget,il convient de relever I'extensiondu groupe de travail du CDMT aux principaux depa~ements ministeriels, conformement aux recommandations de I'ate!ier sur les instruments de programmationbudgetairetenu a Kaya en mars 20C2. Cet atelier avait reconnu la necessite d'elargir I'appropriation du CDMT par les differents acteurs du processusbudgetaire. 16.L'agriculture qui occupe la majeure partie de ia population, reste la principale source de croissance, meme si sa contribution a la formotion du PIB a faibli en 2002, La consolidation amorcee des mesures de soutien a la production, I'ameliorationdes rendements et le renforcement de l'organisationdes acteurs Iui permeltentde soutenir davantageie developpementdes autres secteurs, 17. Pour atteindre les resultats enumeres ci-dessus,les actions prioritaires ont vise le developpement de Ileconomie de marche en milieu rural, I'accroissementdes revenus rurauxa travers la diversification des filieres et la reforme de la filiere coton par son ouveriure a de nouveaux investisseurs,concretisee par le lancement de I'appel d'offres de pre-qualification des candidats a la reprise des zones cotonnieres de I'Est et du Centre, apres i'adoption du cahier des charges devant regir le secteur et la validation du dossier d'appei d'offres par le Comite de suivi de la reforme. Cette ouverture permeRra d'instaurer la concurrence duns le secteur, d'accroitre les revenus des producteurs et la securite alimentaire et nutritionnelle grdce aux cultures de contre Saison qui suscitent un interet croissant avec la mise en o3uvre du programme de la petite irrigationvillageoise. 1.2- G.~RA~"TIR L'ACCES DES PAUVRESAUX SERVICES SOCLlUX DE BASE 18,Des actions vigoureusesont ete engagees pour permeitreau plus grand nombre de Burkinabe,et precisementles plus pauvres, d'avoir acces aux services sociaux de base, que sont I'educationde base, la sante et I'acces a I'eau potable. La volonte du gouvernement s'est traduite par I'augmentation des infrastructures scolaires et sanitaires, I'amelioration de leur equipement et I'accroissementdes effectifs (nombred'eleves, personnels enseignant et soignant).Les constructions d'infrastructures ont ete concentrees duns les zones les plus pauvres. Un effort particulier pour relever le taux de scolarisation a commence en 2001-2002 duns le cadre du Programme decennal de developpement de I'education de base (PDDEB)finance par le budget de I'Etat, les ressourcesPPTE et les apports exterieurs de plusieurspartenaires. Des ressourcescomplementaires, notamment au titre de 72 i'initiative education pour tous )>, continueront a &re mobilisees aupres des (( partenaires pour accelerer la mise en ceuvre du PDDEB afin datteindre les objectifs du milienaire. De plus, en vue de reduire sensiblement les taux de mortalite et de morbidite, des infrastructures ont ete mises a la disposition des populations pour une pius grande accessibiiite aux soins de sante et aux medicaments, Globalement, les ressources allouees aux secteurs sociaux ont augmente en moyenne de 10,7% par an entre 1998 et 2002 et leur part relative dons le budgetde I'Etathorsservice de la dette et hors PPTE est passeede 21,7% a 24,7'/0 sur la m h e periode. Ceci reflete la volonte manifeste du gouvernement d'accroitre I'offre et la qualite des services deducation et de sante, suriout en direction des populations les plus demunies, et d'intensifier la lutte contre le sida. 1.3.1- Acc& ausservices d'kducation debase 19,En matiere d'education de base, la politique du gouvernement est b6tie autour du PDDES qui constitue un element cle du CSLP. Les principaux objectifs vises par le Gouvernement a travers ce programmesont :i] accroitre I'offre educative de base, ii) ameiiorer la quaiite, la pertinence et l'efficacitede I'educationde base, iii) promouvoir l'alphabetisation,iv) developper les capacites de pilotage, de gestion et d'evaluationdes structures du Ministere de i'Enseignement de base et de I'Alphabetisation (MEBA),Dans la loi de finances 2003 votee par I'Assembiee Nationale en decembre 2002, le gouvernement a ailoue des ressources substantielles au MEBA pour la mise en ceuvre du PDDEB. Le niveau des aliocations a &e securise dons la loi de finances rectificatives adoptee en mai 2003 par le Parlementet qui integre les effets de la crise ivoirienne sur les finances publiques. 20.Dans le cadre du processus de deconcentration de I'administration et pour accelerer I'execution des travaux de construction des salles de classe et baisser les coOts, le gouvernement a commence la delegationde la maitrise d'ouvrage dons ce domaine au niveau provincial, sous le contrale des Directions Provincialesde I'Enseignementde Base. 21. En matiere de recrutement, 2002 a ete une annee d'innovation avec la decentralisation des recrutements dans le domaine de i'enseignement de base, Plus de 1750 enseignants ont ainsi ete recrutes dons ies regions portant le totai des recrutementsa 3600. 22. L'efforl de reduction des disparites en matiere de taux de scolarisation a ete poursuivi, Dans les 20 provinces les moins scolarisees, le Taux brut de scolarisation (TBS) a augmente de 13% entre 1999-2000et 2000-2001 contre une progression moyenne nationale de 58%. Ces provincesont par ailleurs beneficied'un effort accru en matiere de dotations en manuels, fournitures scolaires et en vivres pour les coniines. 23.Tout en poursuivant cette politique de priorite pour le developpement de l'education de base en quantite et en qualite, le gouvernement portera . .. egalement une attentionau developpementdes niveauxsecondaire et superieur afin d'assurer une continuite de I'education pour les eieves sortant du cycle primaire sur la periode 2005-2010 et un equilibre densembie du systeme a moyenet long terme. 1.2.2- Acchs aux services de santk 24. En ce qui concerne la sante, la politique du gouvernement contenue dons le CSLP a ete definie par son Plan national de developpementsanitaire (PNDS).Ce plan, qui a fait I'objet d'une table rondeavec leS partenaires en avril 2003, traduit la volontedu gouvernement d'augmenterla quantiteet la qualite des services de sante et de reduire le coOt des soins de base afind'ameliorer I'accesaux centres 73 de Sante et leur utilisation,vue comme un moyende reduire la'mortaliteencore elevee au niveaudes enfants et des femmes, 25. Duns le cadre des reformes visant a ameliorer I'acces aux medicaments generiques,le gouvernement a deja pris des mesures en 2002 pour baisser la marge beneficiaire de la CAMEG (de 32%), Afin d'approfondir la politique d'abaissementdes prix des soins de base, une lettre circulaire a ete adressee en fevrier 2003 aux directeurs regionaux de la sante, definissant une listeharmonisee applicable a l'echelonnationaldes frais de certainsactes medicaux,notamment les accouchements et les cesariennes, et des prix de trois (3) medicaments a usage pediatrique subventionne a hauteur de La liste a ete largement diffusee en mai/juin2003, y comprisdans la presse locale. 26. Le gouvernement est conscient des difficultes d'affecter et de maintenir le personnel de la sante dons les zones rurales.Duns le cadre de la recherchede solutions idoipes, il s'etait fixe i'objectif de conduire deux etudes sur les incitations du personneien 2002, dont I'une sur financement de I'Organisationmondiale de la sante (OMS],et d'entar?er la mise en ceuvre des recommandations qui en deCoUierGnt en 2003. Cependant, en raison des deiais de mise en place du financement, les dudes n'ont pas pu etre achevees avant mai 2003 et la formulation de la pclitique du gouvernement se fera au cours de l'annee 2003. Un plan d'action pour le renforcement des incitations du personnei sera elabore et misen ceuvre a partir de 2004, 27. La deconcentration des sewices de I`Etat et ie transfert eventuel des responsabilites au niveau deconcentre ont deja ete pris en compte par les sewices de la sante,Pour ameliorer I`execution des credits accordes aux districts sanitaires dans le cadre de la deconcentrationbudgetaire, 66 regies d'avances ont ete creees dans les regions et les districts en 2002. Les regisseurs ont ete nommes debut 2003 et seront desormais en mesure de faire les appels de fonds pour I`appiovisionnementdes regies d`avance. De plus, le ministere de la sante, anticipant les textes sur la decentralisationen cours d`adoption, a eiabore des textes sur ia decentralisation du personnel de la sante, qui seront mis en applicationdes ia mise en place des gouvernorats. 28, Outre les reformes decrites pius haut,le gouvernementa pris des mesures pour le renforcementdes comites de gestion des centres de sante (COGES).Environ66% des COGES disposent a present au minimum d'une personne formee en micro- pianificationsur la base des manueis de formation,Le ministerede la sante est en train de formuier des recommandationspour la revision de leur cadre juridique, suite a une etude realisee en 2001 I 1.3. ACCROIlTE LES OPPORTUNITES D'EMPLOIS ET D'ACTIVITES GENEEUTRICES DE REVENUSPOUR LES PAWRES 29.Compte tenu de I`ampleur de l'incidence de la pauvrete en milieu rural, les actions ont ete concentreessur le renforcementdes secteurs du developpement rural (agriculture,elevage,environnementet hydraulique rurale]. 30.Le coton est la principalesourcede revenus du monde rural et le premier produit d`exportation du pays. La filiere coton burkinabe, organisee selon un modele integre, a pu garder sa stabilite financiere malgre la chute brutale des cours internationaux lieeen grande partieaux subventionsdans les pays industrialises.Le gouvernementa integredepuisdeja quelques annees duns la gestion de lafiliere les producteursen leur cedant 30% de ses actions dans la societe cotonniere (SOFITEX). Cela explique la grande stabilite du secteur et I'enthousiasmedes paysans pour cette culture. Nonobstant ces acquis, le gouvernement reste conscient des risques lies a la grande dependance de cette activite principale du pays d'uneseule entreprise.Aussi a-t-ildecide, apres des concertationsetroites 74 avec I'ensemble des acteurs de la filiere, notammentles producteurs, d'engager un processus douverture de la fillere a d'autres operateurs. Dans ce cadre, il a leve le monopole de la SOFITEX en 2001, Cree un comite de suivi de la reforme du secteur coton en 2002, engage debut 2003 des etudes sur le mecanismede fixation des prixau producteur et sur le portagedes risques duns le contextedune filiere ouverte, preparele dossier d'appeld'offres pour deux zones cotonnieres (Est et Centre) et lance I'appel d'offres pour la pre-qualificationtechnique fin mai 2003. 31,D'autresactions prioritairesdu gouvernement dons ce cadre ont consiste en ~ - la conduite d'actions a m&me de reduire de faCon durable la vulnerabilite de I'activiteagricole Iiee a la desertification et a une insuffisantemaitrise de I'eau, dont l'operation 50 000 fosses fumieres, le programmede la petite irrigation villageoise et ia conduite du programme SPAGA (piuiesprovoquees). - l'initiationd'une serie d'actions duns le sens de I'intensificationet de la modernisation de I'agricuiture,a travers ia diffusion des equipements agricoles, de semences ameliorees a haut rendement et d'engrais aux paysanspauvres pour leur permettre de produire suftsamment pour leur alimentarion et de degager des surplus commercialisables ; - le soutien du developpement de I'elevagetraditionnel et ia valorisation des zones a vocation pastorale. - le financement des activites remuneratrices pour un accroissement et une diversification des revenus des ruraux, Ainsi, pius de 100 projets d'embouche ont ete finances et le Fonds d'Appui aux Activites Remuneratricesdes Femmes (FAARF) a mobilise au titre de I'annee 2001, quelque 2,3 milliardsde FCFA pour financet les activites economiques des femmes duns la quasi-totaiite des provinces ; la promotion de la petite irrigation villageoise participe egalement de cet objectif d'ameliorationdes revenus du monde rural. - un appui a I'emergence des organisations paysannes par I'adoption des decrets portant creation et statuts des Chambres regionales d'agriculture (CRA) en decembre 2001, traduisant ainsi la volonte du Gouvernement d'accompagner les differentsacteurs operant dons le secteur agricole; - le desenclavementdes zones ruraies par la construction de pistes rurales pour creer des p6les de developpement capables de stimuler une diversification des opportunites d'activites economiques.Ainsi, une premiere tranche de 266 km de pistes duns quatre (4)provinces et une seconde tranche de 387 km duns neuf (9) provinces ont ete realisees sur les ressources PPTE, duns le cadre dun programme globalde construction de 6000 kilometresde pistes ruralesa I'horizon2004. 1.4. PROMOLJVOIRLABONNEGOUVERNAiiCE 32,Au plan de la gouvernance, ies efforts ont ete concentres au cours de i'annee 2002 sur le renforcement, au plan politique, de la democratieet de I'Etat de droit. Dans le domaine economique, des mecanismes qui assurent la transparence,la responsabilite et I'obligation de rendre compte de ia gestion des finances publiques ont ete mis en oeuvre, 33. En matiere de gouvernance democrukpe, la qu&e dun jeu electoral transparent recueillant I'adhesion de I'ensembiede la classe politiquea conduit a une revision du code electoral et au renforcement des prerogatives de la commission electorale nationale independante (CENI]. Dans cette m&me dynamique, la charte des partis politiques et le statut de I'opposition ont ete adoptes par I'Assemblee Nationaleet un observatoire independantdes elections a ete Cree au sein de la societecivile. 75 34. Dons le cadre de la mise en ceuvre de la reforme de la justice, le gouvernement a instaiie et rendu operationnelies en 2002 les nouvelies juridictions superieures (ConseiiConstitutionnel,Cour des Comptes, Conseil dEtat, Cour de Cassation).I1 a par ailleurs acceiere io mise en place du programme dappui a la consoiidation du processus democratique, de I`Etat de droit et de io bonne gouvernance,avec I'appuide certains partenaires. 35.En matiere de gouvefnunce economique, la preparation du budget a ete davantage renforcee avec I'adoption en avrii 2002 du CDMT 2003-2005, en coherence avec ies priorites du CSLP actuaiise,et les plafondsdu CDMT ont ete integres a la circulaire budgetaire pour I`exercice 2003. Le gouvernement a egalement adopte ies budgets programmes 2003, conformes au CDMT. 36. Des avancees significatives ont ete enregistrees dans la mise en oeuvre du Pian d'actionconsoiide pour le renforcement de io gestion budgetaire(PRGB)adopte par le Gouvernement en juillet 2002. On peut relever a cet egard ~ i'operationnalisation de la Cour des Comptes en 2002, materiaiisee par la delivrance de ses avis de conformite autoriscnt i'exsmen et I'adoption par I'assembiee nationale des iois de regiement de 1995 u 2000 ; ia transmission a la cour des comptes en mai 2003 de IC loi de reglements 2001 adoptee par le conseil des ministresen avril 2003 ; i'adaptationdu cadre juridique des finar,cespubiiques au dispositif harmonise en io matiere de I'Union Economique et Monetaire Ouest Africaine (UEMOA),consacree par i'adoption par I'assemblee nationale en janvier 2003 dune nouvelle io1 organique reiative aux iois des finances et par ie conseil des ministresen mai 2003 d'unenouveilenomenclaturebudgetaireapplicable des ie budget 2004 : l'adoption dune instruction relative a la procedure de delegation de credit pour permettreI'emissiondes ordonnancements au niveau regional, i`extension du CID a Bobo-Dioulasso et le demarrage du site piiote de Bobo-Dioulasso pour I`ordonnancementdes depenses budgetaires au niveau deconcentreen avrii 2003; la poursuite des reformesduns le secteur des marches pubiics, avec la creationen decembre 2002 d'un groupe de travail pour leur supervision, i'institution le mbme mois par voie d'arrbte de I'obiigation pour ies administrateurs de credits de I`etablissementd'un piande passation des marches publics pour compter de 2003 et l'adoptionpar le conseil des ministres en mai 2003 dun nouveau decret portant reglementationdes achats pubiics ; ia renovation des outiis informatises de gestion budgetaire, pour les adapter aux exigences d'une gestion moderne et aux nouveaux besoins exprimes par les differentesadministrationsfinancieres ; l'extension du groupe de travail du CDMT aux principaux departements ministeriels, pour permettre delargir I'appropriation de cet outii par ies differents acteurs du processus budgetaire, conformement aux recommandations I'atelier sur les instrumentsde programmation budgetairetenu a Kayo en mars 2002. 37. Afin d'approfondirI'analyse de la pauvrete dans le cadre de la preparationd'un CSLP revise en 2003, le gouvernement a lance en avril 2003, sur ressources propres, la troisiemeenqugte prioritairesur les conditions de vie des menages,Les premiers resultats de ceife enqugte sont attendus enjuillet 2003. 38,En matiere de gouvefmnce locale, le processus de decentraiisation a realise certaines avancees significatives. Le dispositif organisationnel de la decentraiisationa ete ainsi complete en 2001 par la creation de 13 regions. La mise en place d`uncomite permanentde suivi des textes d`application des Textes , d'orlentation de la decentraiisation (TOO1 et i'institution d`une structure 76 interministerieilede mise en ceuvre de io decentralisation ont permis d'ameliorer de faqon significative la dynamique de la programmation et une meiileure planificationdes activitesa mener. 2- PERSPECTIVESPOLXLAPERIODE~ O O X - Z O O ~ 39. La mise en euvre de reformes structurelles a permis a I'economie burkinabe d'enregistrer des progres notables au plan macroeconomique. Toutefois, les contraintes liees a la crise socio - politique en C6te d'ivoire, devraient affecterla croissance en 2003 et la ramener autour de 2,6%, selon les projections effectuees dans le cadre du nouveau programmetriennal soutenu par la Facilite pour la reduction de la pauvrete et la croissance (FRPC). Neanmoins, le gouvernemeni meitra en ceuvre une serie de mesures pour enrayer le repli projete de la croissance reelle du PIE et ie porter progressivement au niveau souhaitable de 5 a 6%, tout en contenantI'inflationdans la limite de 3%, i'objectif ultimeetant de redLlre I'incidencede ia pauvrete a 37% au plus a I'horizon2006, Pour atieindre ces objectifs, les poiitiques dans ies dcmaines de i'emploi, du developpement des ressources humaines et de la bcnne gouvernance seront revigorees, afin d'accelererla croissance et de pousser5 la creationd`emplois. 2.1- CROISSlLUCE ECOXOhIIQUE ET CREATION D'ESIPLOIS 40 i`acceieration de la croissance passe en premier lieu par ie renforcement de ia competitivitegiobciede i`economiea travers la reduction des coirls des facteurs. Au cours du prochain programme, le gouvernement poursuivra I'ouverture au prive de la filiere coton ainsi que des secteurs de I`energie et des telecommunications. 41 Dons le secteur des teiecommunications,la privatisation de i'operateur historique sera bouclee en 2003, afin d'augmenter les capacites d'investissement du secteur et, subsequemment augmenter la densite du reseaufixe, reduire les tarifs aussi bien du telephonefixe que du mobile. 42 Des mesures analogues seront prises pour accelerer I`ouverture du capital de la SONABEL et de la SONABHY aux operateurs prives en vue d'ameliorer leur gestion, baisser les coClts de I'energie,en padiculier de la productiond`electriciteet de son prix QU consommateur.Pour ce faire, le gouvernement procederaa la revisiondu cadre juridique reglementantla productionet ia commercialisationde I'electricite et mettra en place une autorite de regulation du secteur de I'energie pour veiller au respect des regles du jeu edictees, 43 Pour conforter cet environnement des affaires, le gouvernement engagera une etude sur le dispositif Iegisiatif et reglementaire encadrant le marche du travail, afin de deceler les compartimentsqui meritent d`etre renforces par des reformes appropriees. 44 L`amelioration des revenus dans le secteur rural sera poursuivie grdce a la diversification des cultures. Dons ce sens, il sera procede a la diffusion des resultats des etudes achevees sur les fllieres agricoles, et notamment celles relative a la filiere fruits et legumes,Pour soutenir le developpementdes cultureset des activites qui seront identifiees, des guichets de deveioppement local seront misen place au niveau deconcentredans iestreize regions du pays. Pour faciliter I`enlevement et la commercialisationdes produits, le desenciavement des zones de productionsera renforcer par la poursuitedu programmede pistes rurales. 45. Pour accroitre les opportunites d'emploiet les activites generatrices de revenusen milieu rural, les dispositions idoines seront prises pour boucler le processus d'ouverture de la filiere coton avec la cession des deux zones cotonnieres [Estet Centre),I'adoptionet i'applicationde nouveaux mecanismes de fixation des prix 7 7 et de garantie des credits et risques,Ce dispositif devra garantir aux producteurs des prix remunerateurs tout en assurant la viabilite de la filiere. L'augmentation escomptee des investissementsdans le secteur a travers cette operation devrait permettre une progression de la mecanisation (de I'ordre de 10%d'ici 2005) et subsequemment une augmentation des rendements et des revenus des producteurs. 46. Afin d'accompagner la reprise dans le secteur minier, le gouvernement encouragera le developpement de la petite mine a travers un appui a la mecanisation.Les ressources PPTE seront mises a contribution a cet egard 6 partir de I'exercice 2004. 2.2- LEDEVELOPPEJIENTDESRESSOURCESHLTvLUNES 2.2.1. L'bducation de base 47. Malgre les progres eniegistres en matiere d'aiphabetisation ces dernieres annees, le TBS s'est situ6 aux anvirons de 43% en 2002, Ce taux illustre bien les efforts restanta fournir pour ;&aliser les objectifs d'etape du CSLP en matiered'education de base, C'est pourquoi il sera maintenu au cours des prochaines annees des credits suffisants au secteur pour la mise en ceuvre du PDDEB, devenui'instrument canalisant toutes les Gnergies dans le domaine de I'enseignementde base. 48. /I s'agira par ailieurs de poursuivreet de finaliser la decentralisation du recru:ement des enseignants au riveau des regions (DREEA) tout en dotant les DPEaA des ressources budgetaires consiquentes, a I'effet de favoriser la pratique d'une gestion de proximite, ?our ameiiorer le niveau de l'enseignement et accroitre le taux brut d'aiphabetisation des I'annee scoIa!re 200312004, le nombre effectif d'heures d'enseignement des eleves passera a 780 au moins i'an. L'application generalisee du systeme de sous-cyclessera verifiee en vue de reduire le taux de redoublement a molns de 12% et d'elever le taux d'achevement au primaire a 40%. 2.2.2. L'enseignement secondaire 49. La prise en compte des liens systemiques entre les differents ordres d'enseignement se revele kitre incontournable duns une vision dynamique du secteur de I'education.Pour ce faire le Gouvernement a organise des assises nationales sur I'education en avril 2002 pour mieux preciser la demarche afin d'aboutir a une meilleure synergie des composantes du systeme educatif (base, secondaire, superieur).Pour poursuivre duns la recherchede la coherence entre les programmes de developpement de I'enseignement primaire et des enseignements post-primaires, un CMDT sectoriel sera experimente en 2003 pour le MEBA et le MESSRS. 2.2.3. La santC 50. Dans le domaine de ia sante, les efforts seront canalises vers la mise en ceuvre des mesures contenues dans le PNDS. iI s'agit, sur le plan de la protection de I'enfant : 1/ d'assurer la distribution effective et gratuite de supplements de vitamines A ; 2/ d'effectuerdes contrales pour assurer I'applicationde la nouvelle structure des prix des medicamentset des actes medicauxen vue de verifier son application; 31d'allouer des creditssuffisantspour prendre en charge les sewices medicauxsubventionnes. 51, Sur le plan institutionnel et organisationnel, les efforts seront deployes pour renforcer la deconcentration de la gestion du personnel de la sante au niveau des Directions regionales de la sante (DRS)et des districts sanitaires et pour creer un cadre de suivi et d'evaluation annuelle du PNDS. Un tel dispositif assurera le maintiendes actions dans la trajectoiredes objectifs en mettant en exergue les difficultestout en proposantdes solutions pour lever les contraintes. 78 52. Duns le domaine de I'eau et de I'assainissementaussi bien en milieu urbain que rurai, le gouvernement mettra en ceuvre avec I'appui des partenaires, un plan d'action pour atteindre les objectifs du millenaire.Pour accelerer le progres duns ce secteur et accroitreen particulier la proportion de la population ayant acces a I'eau potable tout en reduisant les disparites entre zones urbaines et rurales, la demarche reposera largement sur la participationdu secteur prive.II sera Cree et rendufonctionnel des structuresd'appuis techniques aux provinces,communes et comites de points d'eau, ainsi qu'un systeme d'appui technique, organisationnel et financier des concessionnairesde services d'eau, 2.3- L% PROMOTION DEW BONXE GOUVEIWAUCE 53, Le processus democratique se consolidera davantage avec les elections de 2003 duns ies communes rurales. 54. Dans ie domaine budgetaire, les efforts seront maintenus pour consoiider les progres enregistres ces dernieres annees. L'acticn du gcuvernement porTe:a ainsi sur I'achevement des reiormes deiinies dans ie Plan de Renforcement de la Gestion Budgetaire[PRGB). 55. En matiere d'daboration du budget, l'accent sera mis sur l'ameiioration de la formulation et de la programmation budgetaire en renforqant la coi;erence entre ies budgets programmes,le CDMT, et la loi de finances, Le budget etant duns ie cor,texte du Burkina Faso le principal instrument de la politique economique et sociaie, ceiui-cisera eiabore dans i'optiquedoptimiser I'impact des depenses publiques sur la croissance et la reduction de la pcwrete conformementaux objectifs du CLSP, 56 Au niveau de I'execution budgetaire,les efforts entrepris duns le sens de faciliter I'execution du budget seront renforces avec i'ameiioration des systemes informatises de gestion budgetaire, par I'operationnalisation de I'integration des financements exterieurs au CID et la finalisation de la conception technique du Circuit integre de la recette (CIR).Parallelement,les actions seront menees envue d'un deploiement rapide du CID a quatre (4) autres chefs-lieux de region, apres I'evaluationde I'experience pilotede Bobo-Diouiasso, 57 En matiere d'ecritures budgetaires et comptables, des actions vigoureuses sont engagees pour I'applicationeffectivede la nomenclaturebudgetaire de I'UEMOA des 2004, pour mettre en route la productionmensueliedes balances du Tresor et pour definir un plan d'action pour I'implantation d'un systeme de comptabilite matiere, 58.Afin de maintenir la discipline budgetaire, le contr6le a posteriori devrait pouvoir mieux s'exercer avec le renfcrcement des capacites de I'lnspection Generaie d'Etat [IGE)et de I'lnspectionGenerale des Finance (IGF), 59,Concernant la passation des marches publics, les actions a entreprendre en vue d'accroitre la transparence et simplifier les procedures concernent la large diffusion et la verification de i'effectivite de I'application du nouveau decret reglementant les achats publics. Pour parachever la renovation du dispositif reglementaire en la matiere, I'affermage et la concession feront egalement i'objet d'une reglementation. Les actions a cet effet seront engagees au cours des prochaines semaines pour la conception d'applications informatiques connectees au CID pour le suivi des achats publics.Le plan de renforcementdes capacites des acteurs du secteur des marches publics sera finalise et mis en ceuvre pour optimiser I'efficacited'ensemble du nouveau dispositif qui sera misen place. 60,Dans le domaine de la reforme de la fonction publique, I'accentsera mis sur la deconcentration de la gestion du personnel par notamment I'elaboration et la 79 mise en ceuvre d'un plan de deploiement du Systeme integre de gestion administrative et salariale du personnelde I'Etat(SIGASPE)au niveaudes ministeres sectoriels. 61 Le gouvernement du Burkina Faso qui adhere au principe du developpement durable, continuera a renforcer les capacites d'analyse des impacts environnementaux par I'operationnalisation des cellules environnementales creees au sein des ministeres,tel que recommandepar I'atelierde mars 2003 et specifie dons ledocumentd'analyse environnementale du CASRP111, 62 L'enqu6te prioritaire en cours permettra de degager un nouveau profil de la pauvrete qui permettra de reviser le CSLP a la lumiere d'un processusparlicipatif mieux acheveet des leqonstirees de I'experience du CSLP encours. 63. Les autorites du Burkina Faso demeurent convaincues que les programmes et mesures decrites ci-dessus sont susceptibles de contribuer a I'elargissement des basesIj'unecroissanceeconomique mineet durable, dont I'ampleuret la qualite tireront la pluslarge portionde la populationde I'extrhepauvrete. 64. Je vous prie d'agreer, Monsieur le President, les assurances de ma haute consideration. Officietde i'Ordre Annex 2: Fund RelationsNote EXTERNAL RELATIONS DEPARTMENT Press Release No. 03/82 International Monetary Fund FORIMMEDIATERELEASE Washington, D.C. 20431 USA June 11,2003 IMFApprovesUS$34 MillionThree-Year PRGFArrangementfor BurkinaFaso The Executive Board o f the International Monetary Fund (IMF) today approved a three-year, SDR 24.08 million (about US$34 million) arrangement under the Poverty Reduction and Growth Facility (PRGF) for Burkina Faso, which will support the government's economic reform program for 2003- 06. The decision will make available to Burkina Faso an amount equivalent to SDR 3.44 million (about US$5 million). The PRGF is the IMF's concessional facility for low-income countries. It is intended that PRGF- supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners and articulated in a Poverty Reduction Strategy Paper (PRSP). This is intended to ensure that PRGF-supported programs are consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. PRGF loans carry an annual interest rate o f 0.5 percent and are repayable over 10years with a 5 %-year grace period on principal payments. In commenting on the Executive Board's decision, Am:: Krueger, First Deputy Managing Director and Acting Chair, stated: "Burkina Faso's performance under three medium-term PRGF-supported programs during 1993-2002 was broadly satisfactory, and the policy agenda laid out in the PRSP adopted in 2000 i s being followed faithfully. Real GDP growth has recovered over the period, inflation has remained low, and progress has been made in improving expenditure management and implementing structural reforms. However, Burkina Faso's economy remains fragile, and vulnerable to external shocks. Poverty remains high, and limited administrative capacity and poor infrastructure pose a challenge to efforts to raise the social indicators. A further strengthening o f governmental institutions, well-targeted and effective public spending, measures to improve competitiveness and economic diversification, and encouragement o f private sector and rural development will be needed to alleviate poverty and achieve sustained economic growth. "The authorities' fiscal consolidation efforts should continue. Particular attention needs to be paid to revenue collection, which has been weak and has fallen short o f the level required to meet the convergence criterion on revenue collection set by the West African Economic and Monetary Union. In light of this, the authorities appropriately plan to strengthen customs administration and tax administration, control, and collection inthe coming months. "The authorities will also continue to contain domestically financed public expenditure, and remain current on all domestic and external payments obligations. At the same time, resources will be 81 reserved to protect social sector spending, in particular for education and health. The government intends to strengthen transparency in public finance management and the effectiveness o f public spending, including HIPC Initiative-related spending. Further progress is expected inpromoting good governance, combating corruption, and further encouraging public debate on economic and social policy. The program and the PRSP policy agenda are appropriately focused on fostering economic growth and working toward achieving the Millennium Development Goals. "The government's program i s appropriately ambitious, and well aligned with the country's PRSP policy agenda. It merits the support o f the international community. All multilateral and non-Paris Club creditors are urged to participate fully in the HIPC Initiative for Burkina Faso," Ms. Krueger said. RecentEconomicDevelopments Since 1993, Burkina Faso has satisfactorily implemented three PRGF-supported programs associated with the conduct o f sound macroeconomic policies and significant structural reforms. Under these programs, and following the devaluation o f the CFA franc in 1994, the real GDP growth rate increased to 4.7 percent on average during 1996-2002 from 3.5 percent during 1990-95, despite two drought years in 1998 and 2000 and terms o f trades shocks in 2000 and 2002. Inflation remained low, but the external current account deficit widened during 1996-2002, reflecting, among other things, a weak performance in non-cotton exports. Fiscal policy improved generally, with the overall fiscal deficit contained. Major structural reforms have been carried out, including inthe areas o f price, trade liberalization, and governance. ProgramSummary Achieving the macroeconomic objectives o f the program will require the implementation o f appropriate fiscal policies and key structural reforms, including in tax administration, fiscal transparency, and governance. The fiscal program for 2003-04 aims at containing the basic budget deficit (including HIPC Initiative-related social spending) at 4.5 percent o f GDP in 2003 and at reducing it to 3.5 percent o f GDP in 2004. The overall fiscal deficit (excluding grants) would be limitedto 11.O percent o f GDP in 2003 and reduced to 10 percent of GDP in 2004. To improve fiscal transparency and good governance, the government will implementits medium-term action planto strengthen public finance management. Government revenue i s projected to increase to 11.4 percent o f GDP in 2003 and to 12.3 percent o f GDP in 2004. On the expenditure side, the ratio to GDP o f total budgetary outlays and net lending, excluding foreign-financed investment and lending, will increase from 15.7 percent of GDP in2002 to 17.1 percent o f GDP in 2003 and fall to 16.7 percent in 2004. The program also calls for reducing the stock o f expenditures committed but for which payment orders have not been issued by CFA 15 billion in 2003, and stabilizing them in 2004, with the view o f maintaining them below 10 percent o f total expenditure. The regional central bank BCEAO will continue to pursue a prudentmonetary policy in 2003-04 aimed at containing inflationary pressures and at reinforcingthe external position o fthe banking system. On the structural front, the cotton sector has been liberalized gradually in recent years, with the emphasis on strengthening the role o f producers' associations. To ensure the long-term viability o f the sector, the government's strategy involves opening the sector to private sector participation, with a view to improving further efficiency and competitiveness. 82 Table 1: SelectedEconomicand FinancialIndicators,2000-06 2000 2001 2002 2003 2004 2005 2006 Est. Rev. Est. Prog. (Annual percentagechanges, unlessotherwise specified) GDP and prices GDP at constantprices 1.6 4.6 5.7 4.6 2.6 4.0 4.8 5.2 GDP deflator 5.3 5.3 1.7 2.2 6.4 3.0 2.1 2.3 Consumerprices index (annual average) -0.3 4.9 2.0 2.3 4.5 2.8 2.6 2.4 Consumerprices (end of period) 2.4 1.o 2.0 3.9 5.0 3.0 2.8 2.6 Money and credit Net domestic assets (bankingsystem) 1/ 8.3 10.0 1.4 -1.2 9.7 5.4 5.4 6.1 Creditto the government 1/ 6.8 -4.5 -1.4 -10.6 -0.3 -0.4 -0.2 0.0 Creditto the privatesector 1/ 8.1 8.0 2.8 10.6 10.0 5.8 5.6 6.1 Broadmoney (M2) -1.4 10.7 10.6 0.8 9.2 7.1 7.0 7.7 Velocity (GDPM2) 4.8 4.8 3.8 5.1 5.1 5.1 5.1 5.1 Externalsector Exports (f.0.b.; valued inCFA francs) -6.3 11.9 8.1 0.2 8.5 7.5 7.8 6.9 Imports(f.0.b.; valued inCFA francs) 3.1 1.3 1.7 2.3 11.9 1.8 2.7 5.2 Terms oftrade -5.5 11.0 -7.2 -6.7 11.0 4.3 4.1 1.5 Realeffectiveexchangerate (deprec. =-) -4.5 3.3 ... 5.2 ... ... ... ... (InpercentofGDP, unlessotherwiseSpecified) Gross investment 19.0 19.1 28.1 18.3 19.1 19.1 20.6 21.5 Government 8.5 8.3 15.2 7.4 7.7 8.3 8.7 9.0 Nongovernment sector 10.6 10.9 12.9 10.9 11.4 10.8 12.0 12.5 Gross domestic savings 2.9 5.1 13.4 4.8 4.7 6.1 8.1 9.2 Government savings 3.3 2.9 7.0 3.0 3.7 4.8 5.7 6.6 Nongovernmentsavings -0.4 2.2 6.4 1.8 0.9 1.3 2.5 2.6 Gross nationalsavings 6.8 8.7 17.8 7.9 9.8 9.0 11.7 12.8 Central government finances Tax revenue 11.0 10.5 13.8 11.1 11.4 12.3 13.0 13.6 Current expenditure 10.5 10.7 13.4 11.9 11.3 11.3 11.3 11.2 Overallfiscal balance, excluding grants -10.9 -11.3 -13.5 -10.4 -11.0 -9.9 -9.5 -9.2 @.,era11fiscal balance, including grants -3.6 -4.0 -5.9 -5.0 -2.5 -3.3 -2.1 -1.7 Basic balance 2/ -1.4 -2.6 -4.3 -3.8 -4.5 -3.5 -3.2 -3.1 Excludinguse of HIPC Initiative resources -1.4 -2.2 -2.9 -2.5 -2.1 -2.1 -1.9 -2.1 External sector Exportsofgoods and nonfactor services 9.1 9.3 11.2 8.7 8.7 8.7 8.7 8.7 Importsof goods and nonfactor services 25.3 23.4 26.0 22.2 23.2 21.7 21.2 20.9 Current accountbalance(excluding current official transfers) -15.0 -13.6 -14.1 -12.9 -14.2 -12.6 -12.0 -11.7 Current accountbalance(including current official transfers) -12.3 -10.5 -10.5 -10.3 -9.4 -10.1 -8.9 -8.7 External debt indicators (before HIPC Initiative Debt-serviceratio 3/ 4/ 24.5 26.5 25.8 26.4 24.8 23.2 21.2 19.0 Gross officiaIreserves (inmonths of imports 4.3 4.2 5.3 4.3 3.9 3.7 3.6 3.7 of goods and services) Nominal GDP (in billionsof CFA francs) 1,852 2,040 1,834 2,179 2,380 2,548 2,728 2,936 Sources: Burkinabeauthorities; and staff estimates andprojections. 1/ Inpercentof beginning-of-period broadmoney. 2/ Revenue, excludinggrants, minusexpenditures,excludingforeign-financedinvestment outlays. From 1998 on, revenue includestaxes paid by contractors on foreign-financedpublic investments usingchecks issued by the treasury. 3/ Inpercentof exportsofgoods andservices. 4/ After traditionaldebt-relief mechanismsandbeforeoriginal Heavily IndebtedPoor Countries (HIPC) Initiatve assistance delivered as of end-2001. 83 Burkina Faso joined the Fund on May 2, 1963. Its quota is SDR 60.20 million (about US$85 million), and its outstanding use o f IMF resources totaled SDR 89.07 (about US$126 million ) as of endMarch, 2003. For questions please contact Mr.Idrissa Thiam, Division Chief, African Department, IMF, Tel. 623-5640. 84 Annex 3: BurkinaFaso at a Glance Sub. POVERTYand SOCIAL Burkina Saharan LOW- Faso Africa Income 2002 Population,mid-year (miilions) 11.8 674 2,511 Lifeexpectancy GNI per capita (Atlas method, US$) 250 470 430 GNI (At/asmethod, US$ billions) 2.9 317 1,069 Average annual growth, 199602 Population (%) 2.4 2.5 1.9 Laborforce (%) 2.0 2.6 2.3 GNI Gross per primary Most recent estimate (latest year avallable, 1996-02) capita enrollment Poverty (% ofpopulation below nationalpoverly iine) 45 Urban population (% of fotalpopulation) 17 32 31 Life expectancyat birth (years) 44 47 59 - Infant mortality (per 1,000 live bifths) 104 91 76 Chiid malnutrition (% of children under5) 34 Access to Improvedwater source Access to an improvedwater source (% ofpopulation) 78 55 76 Illiteracy (% ofpopulation age 15+J 74 37 37 - Gross primaryenrollment (% of school-agepopulation) 43 78 96 Burkina Faso Male 51 85 103 Low-income group ~ Female 35 72 88 KEY ECONOMICRATIOS and LONG-TERMTRENDS 1982 1992 2001 2002 Economic ratlor. GDP (US$ billions) 1.6 3.0 2.8 3.1 Gross domesticinvestmenVGDP 21.1 19.1 18.2 Exportsof goods and services/GDP 9.2 10.1 9.3 8.7 Trade Gross domesticsavingsiGDP -3.9 7.0 5.1 4.8 Gross nationalsavingsiGDP 14.9 6.0 7.1 T Current accountbalancelGDP -6.2 -11.8 -11.5 I Domestic Interestpayments/GDP 0.5 0.5 0.2 0.2 Investment Total debffGDP 22.6 34.8 47.6 53.4 savings Total debt service/expoTts 6.7 7.4 23.1 22.4 Presentvalue of debtlGDP Presentvalue of debVexports I Indebtedness 1982-92 1992-02 2001 2002 2002-06 (averageannualgrowth) GDP 5.7 4.6 4.6 3.8 1 -Burkina Fa:> GDP per capita .... 3.2 2.1 2.1 1.5 __ Low-incomegroup ~xportsof goodsand services 2.2 1.8 3.0 11.7 4.9 STRUCTUREof the ECONOMY 1982 1992 2001 (% of GDP) Agnculture III Industry 209 222 Manufacturing I Services 470 443 486 492 1': Privateconsumption 883 772 826 81 8 1 97 99 00 01 02 Generalgovernmentconsumption 156 158 123 135 1 - Importsof goodsand services 334 242 234 222 GDI *GDP (averageannualgrowth) Agriculture Industry 2 9 47 Manufacturing 2 2 Services 3 6 8 2 - Privateconsumption 3 1 4 3 Generalgovernmentconsumption 2 2 0 2 Grossdomesticinvestment 8 6 105 106 importsof goods and services Exports -0- Imports Note:2002 data are preliminaryestimates. Group data are through2001 *The diamonds show four key indicators in the country (in bold) comparedwith its income-groupaverage. If data are missing, the diamondwill be incomplete 85 PRICES and GOVERNMENTFINANCE 1982 1992 2001 2002 Domestic prices 1 Inflation (%) I (% change) I10 - Consumer prices 3.9 -5.9 4.9 2.3 Implicit GDP deflator -1.8 5.3 2.2 Government finance (% of GDP, includes currentgrants) Current revenue 13.2 12.5 13.3 Current budget balance 1.4 1.8 1.6 1 I Overallsurplusldeficit -7.7 -4.0 -5.0 -GDPdeflator +CPI TRADE I 1982 1992 2001 2002 (US$ millions) Export and Import levels(US$mlli.) Total exports (fob) 238 224 236 7w conon 94 131 128 T Livestock products 33 42 49 Manufactures Total imports (ci9 516 417 454 Food 90 73 70 Fuel and energy 53 93 102 Capitalgoods 131 158 179 Exportprice index (1995=100) 48 105 96 1 96 97 98 99 w 01 Importprice index (1995=100) 54 126 118 Exports Imports Terms of trade (1995=100) 88 83 81 BALANCE of PAYMENTS 1982 1992 2001 2002 (US$ millions) Current account balanceto GDP (%) Exportsof goods and services 175 302 260 273 Importsof goods and services 534 724 669 707 Resourcebalance -359 -422 -409 -434 Net income NIA -12 -6 -7 Net current transfers 89 248 87 79 Current account balance NIA -186 -329 -362 Financingitems (net) 247 332 374 Changesin net reserves NIA -61 -3 -12 -14 - Memo: Reserves includinggold (US$millions) 342 265 301 Conversionrate (DEC, local/US$) 328.6 264.7 732.4 694.8 EXTERNAL DEBT and RESOURCE FLOWS 1982 1992 2001 2002 (US$ millions) Composition of 2001 debt (US$ mill.) Total debt outstandingand disbursed 352 1,040 1,332 1,676 IBRD 0 0 0 0 IDA 95 364 835 Total debt service 20 33 74 74 IBRD 0 0 0 0 IDA 2 5 4 Compositionof net resourceflows Officialgrants 202 171 Officialcreditors 45 128 158 145 Privatecreditors 21 0 Foreigndirect investment 8 0 Portfolioequity 0 0 0 0 World Bank program Commitments 92 117 137 122 A - IERD E. Bilateral Disbursements 12 50 71 67 E IDA . D Olher multlateral . - . ~ F Private Principalrepayments 2 2 4 9 C IMF G Short-term Netflows 11 48 67 58 Interestpayments 1 3 4 5 Net transfers 10 45 63 53 86 Annex 4: Key Social Indicators Latest single year Same regionlincome group Sub- Saharan LOW- 1970-75 1980-85 1994-00 Africa Income POPULATION Total population, mid-year (millions) 6.2 7.9 11.3 658.9 2,459.8 Growth rate (% annual averagefor period) 1.9 2.5 2.4 2.6 2.0 Urban population (% of population) 6.3 11.4 18.5 34.4 31.9 Total fertility rate (births per woman) 7.3 7.3 6.5 5.2 3.6 POVERTY (% ofpopulation) National headcount index Urban headcount index Rural headcount index INCOME GNI per capita (US$) 140 180 210 470 410 Consumer price index (1995=100) 76 113 133 140 Food price index (1995=100) 92 127 INCOMECONSUMPTION DISTRIBUTION Gini index 55.1 Lowest quintile (% of income or consumption) 4.6 Highest quintile (% of income or consumption) 60.4 SOCIAL INDICATORS Public expenditure Heaith (% of GDP) 1.5 2.4 1.2 Education (% of GDP) 2.0 3.0 3.6 3.4 Social security and weifare (% of GDP) 0.6 0.8 Net primary school enrollment rate (% of age group) Total 9 23 34 Male 12 29 40 Female 7 17 28 Access to an improvedwate: jource (% of population) Total 55 76 Urban 84 82 88 Rural 41 70 lmmunlzatlon rate (?Aunder 12months) Measles 37 53 53 57 DPT 9 42 46 57 Child malnutrition (% under 5 years) 34 Life expectancy at birth (yean) Total 42 45 44 47 59 Male 41 44 44 46 58 Female 44 47 45 47 60 Mortality Infant (per 1,000live births) 139 117 104 91 76 Under 5 (per 1,000live births) 278 245 208 162 115 Adult (15-59) Male (per 1,000 population) 526 467 557 504 294 Female (per 1,000 population) 407 362 524 459 261 Maternal (per 100,000 live births) 1,400 Births attended by skilled health staff (%) 12 27 Note: 0 or 0.0 means zero or less than haif the unit shown. Net enrollment ratios exceeding 100 indicate discrepancies between the estimatesof school-age population and reported enrollment data. 2002 World Developmentindicators CD-ROM, World Bank 87 Annex 5: Key Economic Indicators Actual Eaimaie Projected Indicator 1996 1997 1998 1999 2000 2001 2002 2003 2004 Sational accounts(as % of GDP) Gross domestic producta 100 100 100 100 100 100 100 100 100 Agricu1ture 39 33 35 36 34 34 32 32 31 Industry 18 17 18 17 16 18 19 20 20 Services 44 49 47 46 49 49 49 49 49 Total Consumption 91 90 88 92 94 95 95 96 95 Gross domestic fixed investment 26 25 27 24 23 19 18 19 19 Government investment 12 13 12 15 12 8 7 8 8 Privateinvestment 14 13 15 9 11 11 11 11 11 Exports(GNFS)b 11 10 13 10 9 9 9 9 9 Imports(GNFS) 29 25 29 26 25 23 22 24 23 Gross domestic savings 9 10 12 8 6 5 5 4 5 Gross national savingsc 16 15 17 12 10 8 7 6 7 Memorandum items Grossdomestic product 2476 2602 2794 2815 2608 2185 3136 3948 4232 (US$millionat current prices) GNP per capita(US$,Atlas method) 240 260 250 260 260 250 250 280 320 Realannual growthrates(%, calculated from 1985 prices) Gross domestic productat market prices 7.5 13.5 1.o 6.7 1.6 4.6 4.6 2.6 4.0 GrossDomesticIncome 6.2 13.1 2.5 4.8 0.2 6.1 4.1 3.9 4.4 Realannualper capitagrowth rates (%, calculatedfrom 1985 prices) Grossdomestic productat market prices 5.0 10.8 -1.4 4.1 -0.9 2.1 2.1 0.2 1.6 Total consumption 2.5 9.1 2.5 0.2 -5.8 1.8 0.3 4.8 -0.5 Privateconsumption 2.9 10.0 5.4 0.2 -6.3 2.0 0.4 5.2 -0.6 Balanceof Payments(US%millions) Exports(GNFS)b 276 267 362 287 237 260 273 344 365 MerchandiseFOB 233 229 323 254 206 224 236 296 315 Imports(GNFS)b 740 671 807 743 674 669 707 959 987 MerchandiseFOB 563 510 634 581 519 510 549 733 753 Resourcebalance -464 -404 -445 -455 -437 -409 -434 -615 -622 Netcurrenttransfers 152 135 156 106 95 87 79 82 88 Current account balance -305 -271 -292 -355 -347 -329 -362 -535 -535 Netprivateforeign direct investment 14 8 1 9 24 12 11 15 17 Changeinreservesd 1 35 35 15 53 -3 -12 2 -28 Memorandum items Resourcebalance(% of GDP) -18.7 -15.5 -15.9 -16.2 -16.8 -14.7 -13.8 -15.6 -14.7 88 Actual Estimate Projected indicaror 1996 1997 1998 1999 2000 2001 2002 2003 2004 Public finance (as % of GDP at market prices)e Current revenues 14.8 12.6 14.2 15.0 13.1 12.5 13.3 15.4 14.7 Current expenditures 10.6 9.2 9.7 10.4 10.5 10.7 11.9 11.3 11.3 Current account surplus (+) or deficit (-) 4.2 3.4 4.5 4.6 2.6 1.8 1.4 4.1 3.4 Capitalexpenditure 11.2 12.0 12.5 15.0 12.5 11.7 10.4 11.2 11.8 Monetary indicators M2iGDP 25.6 24.4 22.9 22.5 22.2 20.8 19.6 19.6 19.6 Growth ofM 2 (%) 8.2 14.2 1.7 3.2 -1.4 10.7 0.8 9.2 7.1 Real interestrates Consumer price index (Yo change) 6.1 2.4 4.9 -1.1 -0.3 4.9 2.3 4.5 2.8 GDP deflator (% change) 8.1 5.7 7.4 -1.6 7.0 5.3 2.2 6.4 3.0 a. GDP at factor cost b. "GNFS" denotes "goods and nonfactor services." c. Includesnet unrequitedtransfers excludingofficial capitalgrants d. Includes use of IMF resources. e. Consolidatedcentralgovernment. 89 Annex 6: Key ExposureIndicators Actual Estimate Projected Indicator 1996 1997 1998 1999 2000 2001 2002 2003 2004 Total debt outstandingand 1294 1275 1358 1452 1523 1332 1676 1778 1832 disbursed(TDO) (US$m)a Net disbursements(US$m)a 81 69 63 126 Total debt service(TDS) 49 50 54 61 74 74 74 68 73 (US$m)a Debtanddebt serviceindicators (%) TDOiXGSb 312.4 477.7 375.5 505.3 641.5 531.5 582.5 520.3 482.0 TDSiXGS 11.7 18.7 15.0 21.3 31.0 26.5 26.4 24.8 23.4 ConcessionabTDO 83.9 83.0 83.6 82.2 IBRD exposureindicators(%) IBRDDS/publicDS 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Preferredcreditor DS/public 84.6 82.0 84.0 19.7 DS (%)c IBRD DS/XGS 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 IBRD TDO (US$m)d 0 0 0 0 0 0 0 0 0 Ofwhichpresentvalue of guarantees(US$m) ShareofIBRD portfolio(%) IDA TDO (US$m)d 636 690 710 IFC (US$m) Loans Equity andquasi-equity /e MIGA MIGA guarantees(US$m) a. Includespublicandpublicly guaranteeddebt, privatenonguamnteed,use of IMF credits andnet short- term capital. b. "XGS" denotesexportsof goods and services, includingworkers' remittances. c. Preferredcreditorsare defined as IBRD, IDA, the regionalmultilateraldevelopmentbanks, the IMF, andthe Bankfor InternationalSettlements. d. Includespresentvalue of guarantees. e. Includesequityandquasi-equity types of bothloanandequityinstruments. 90 Annex 7: SimulatingPoverty-GrowthLinkageswith PAMS The Poverty Analysis Macroeconomic Simulator (PAMS) simulates income changes o f a variety if representative households for any given change in aggregate economic output?l To do so, PAMS decomposes aggregate income changes into income changes o f a number o f representative households on the basis o f overall income growth and changes in relative incomes between households representing different socio-economic groups. The characteristics o f the socio-economic groups are drawn from a household survey and in Burkina Faso PAMS retraces income changes for the 9 groups derived from the 1998 household survey. PAMS methodology could be summarized as follows. PAMS builds on any standard consistent macroeconomic model. In the case o f the Burkina Faso model, PAMS data draws on a standard RMSM-X. The macroeconomic model is then linkedto a set o f representative households reflecting the original poverty headcount and income distribution. Representative households are grouped into representative households with different labor categories. PAMS disaggregates the GDP into sectors equivalent to the representative groups. By way o f simulating labor demand and supply for each group the model determines the wage for each group and ensures that these prices feed through to the production level. It then takes into account the income tax rates and transfers to determine income growth by group and representative agents. This information can then be used to derive the poverty headcount and determine the level o f inequality. The PAMS model has two shortcomings that should be kept in mind when analyzing its output. First, it depends on a macro-consistent model and therefore the quality o f the results will depend on the quality o f the model and the macroeconomic variables it produces. For example, the RMSM-X that was used in the Burkina Faso model depends on a fixed coefficient production function. Relative price changes therefore have no impact on the composition o f inputs since output requires the exact combination o f certain levels o f production. Second, the model depends on assumptions regarding the distribution o f incomes within representative groups and the elasticity o f labor supply and demand usedto generate the changes in labor incomes. The model can be used for a variety o f different policy simulations. In particular, it can be used to simulate the poverty impact o f changes inthe general macroeconomic environment, o f public spending and transfer levels, taxation, and o f certain structural reforms leading to shifts o f relative incomes. For the purpose o f the program document, the model has been used to represent the poverty impact o f the change in the macroeconomic environment following the Ivorian crisis, as played out by the differences in the macroeconomic scenarios before and after the crisis. In the following, the annex presents a few key outputs from the model underpinning the summary results shown in the main body o f the paper. For this purpose, Table 1 summarizes the main assumptions o f the macroeconomic framework used for the analysis. 21The description of PAMS draws on Luiz Pereira da Silva, B. Essama-Nssah and Issouf Samakk: A Poverty Analysis MacroeconomicSimulator (PAMStLinkingHouseholdSurveyswith Macro-Models,World BankPolicy ResearchWorking Paper2888, September 2002. 91 Table 1: 2002-2011:Simulation Scenarios 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 GDP Growth (real) Actual 4.6% 2.6% 4.0% 4.8% 5.2% 5.0% 5.0% 5.0% 5.0% 5.0% Initial 5.8% 5.1% 5.5% 5.5% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% Exports Values Actual Com 1 :wnon -7 5% I 1 0% 7.9% 4 8% 2.7% 1.5% 15% 1.5% 1.5% 15% Com 2 : live animals -13 0% -23 0% 37.0% 43.0% 7 0% 2.0% 2 0% 2.0% 2.0% 2.0% Com 3 : leather& hides 19.2% -20.6% 14.3% 7.0% 64% 2.0% 2 0% 2 0% 2.0% 2 0% Com 4 : livestock & meat products -33.6% 9 3% 40.1% 182% 5 3% 5.0% 5 0% 5 0% 5.0% 5.0% Com 5 gold ' 77.4% 109.0% 30.7% 25 2% 07% 00% 0.0% 0 0% 0 0% 0.0% Other Expons 7.1% 4.6% 3.6% 8.8% 4.6% 8.7% 8.7% 8.7% 8.7% 8 7% Initial Com 1 : cotton 4 7% 4 7% 7 9% 4 8% 27% 1.5% 1.5% 15% 15% 1.5% Com 2 : live animals 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2 0% 2.0% Com 3 : leather& hides 2.0% 2.0% 2.0% 2.0% 2.0% 2 0% 2.0% 2.0% 2.0% 2 0% Com4 : livestock & meat products 7.0% 7 0% 7 0% 7 0% 70% 50% 5 0% 5 0% 5 0% 5.0% Com 5 : gold 0.0% 0.0% 0.0% 0 0% 0.0% 0.0% 0 0% 0 0% 0 0% 0.0% Other Exports 5 0% 9 4% 9 2% 9 2% 87% 87% 8 7% 8 7% 8 7% 8 7% ExportsPrices Actual Food -9 5% 0.0% -1.9% -5.6% 4 8% 2.9% 2 9% 2.9% 2 9% 2 9% Other ConsumerGoods 3 5% 4 5% 112% 12.2% 128% 10% 1,O% I0% 1 0% 10% Primary Goods 0 2% 14.5% 10.1% 6.7% 7.7% 2.3% 2.3% 2 3% 2.3% 2.3% Manufactured Goods 0.0% 0 0% 0.0% 0 0% 0.0% 10% 10% 1 0% 1 0% 1.0% POL and Other Energy 4.6% 43.0% .23.7% 20 5% -4.4% 1.8% 1.8% 1.8% 1.8% 1.8% Capital Goods 7.8% 8 4% 4.1% 4 0% 2.0% 1.8% 1.8% 1 8% 1 8% 1.8% Non-Factor Services 0.8% 3.1% 26 4% 14% 6.3% 1.8% 1.8% 1 8% 1 8% 1.8% Initial Food 5.4% 5 5% 5.0% 5.2% 2 9% 2.9% 2.9% 2.9% 2.9% 2.9% Other ConsumerGoods 0.7% 1 0% 1.0% 1 0% 10% 1.0% 1.0% 1.O% 1 0% 1.0% Primary Goods 2.0% 5 1% 3.2% 2.5% 2 3% 2.3% 2.3% 2.3% 2.3% 2 3% Manufactured Goods 0.7% 1 0% 10% 10% 1.0% 1.0% 1.0% 1 0% 1.O% 1 0% POL and Other Energy -8.6% -10.2% -2 3% -2 3% 00% 1.8% 1.8% 1.8% 1 8% 1.8% Capital Goods 1.6% 1.8% 1 8% 1 8% 1.8% 1.8% 1.8% 1 8% 1 8% I8% Non-Factor Services 16% 18% 18% 1.8% 18% 18% 18% 1 8% 1 8% 1.8% ExternalFinancingShock (ODA, Private) '.ctual Direct Foreign Investment(US$),TOTAL 8 6 11 6 127 14.0 15.4 18.9 20 3 21.9 23.6 25.0 Capital Official Grants(US$),TOTAL I70 7 300.1 298.2 322 6 356.2 1582 I58 5 158.8 159.1 160.0 Initial Direct Foreign Investment(US),TOTAL 13.0 14.0 15.1 16.3 175 189 20 3 21.9 23.6 25 0 Capital Official Grants(US$),TOTAL I74 2 1644 157 5 157 7 1580 158.2 158.5 I58 8 159 1 I60 0 Additional Primary Sector Growth Actual Agriculture, TOTAL 1 9% 8 7% 4 2% 6 5% 75% 48% 5 0% 5 0% 5 0% 5.0% Manufacturing 12.8% 14.5% I O 1% 6 7% 7 7% 4 8% 5.0% 5.0% 5.0% 5 0% Initial Agriculture, TOTAL 4 1% 4 0% 4 0% 4.0% 4 5% 4 8% 5 0% 5.0% 5.0% 5 0% Manufacturing 7.5% 6 5% 6.5% 6.5% 60% 48% 5 0% 5.0% 5 0% 5 0% Fiscal Policy Change Actual Wages & Salaries/ Total Gov't 40.6% 42 2% 41.9% 41 9% 41 8% 40 5% 39 2% 39 2% 39 2% 39.2% Consumption, TOTAL Initial Wages & Salaries/ Total Gov't 40 6% 42.2% 41 Y ? 41 9% 41 8% 405% 39.2% 39.2% 39.2% 39 2% Consumption,TOTAL Actual Transfers to Private Sector / GDPmp 3.22% 3 10% 3 12% 3.21% 3 28% 3 30% 3 40% 3 40% 3.40% 3 40% Initial 92 Figure 1: Impact ofIvorian Crisis on PovertyIncidence 55 0% 500% 45 0% ~ 40 0% E 350% 2% 2 5 300% 1 250% 20 0% 150% 100% Zoo0 2Wl 2002 2003 2W4 2W5 2006 2W7 2038 2W9 2010 2011 - PO (%) -PO-R (%) --PO-U (%) 1 I As regards the development o f poverty incidence, figure 1underpinsthe explanation p rided inthe text as regards the distributional impact o f the Ivorian crisis. The "hump" of higherpoverty incidence (PO) is largely explained by income losses o f livestock exporters in the rural area (PO-R) buffering from the closure o f thz border. By contrast, the pover:y incidence in urban areas (PO-U) changes little. Rural poverty remains the driving force o f the overall poverty incidence. The second figure presents the development of income inequality under the crisis scenario. In particular, it shows that the macroeconomic assumptions presented in table 1 combined with the PAMS model assumption about labor demand and supply elasticities will lead to a gradual increase in inequality as measured by the Gini coefficent. Interestingly, the increase in the overall coefficient (Gini-T) i s much more pronounced than can be explained by the change in either o f the two subgroups, with the urban sector (Gini-U) showing an increase and the rural sector (Gini-R) a decrease in their coefficients. Hence the increase in overall inequality projected by the model i s largely a result o f an increase in inequality betweenrural and urban areas, reflecting the different income opportunities in both sectors under the projected long-term growth scenarios. 93 Figure 2: Income Inequality 500-- 40% ~~ 450 ~ -- -- 35% 3350 -- -- 30% 0 r 300 ~ -- -r 25% I ' 10% ' 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 1 1 1 ExpAnc -Gini-T (%) --Gini-R (%) +Gini-U (%) 1 94 Annex 8: Attainingthe MDGs inthe EducationSector During the last decade, Burkina Faso followed a satisfactory policy o f resource allocation which reflects the priority given to basic education. As a result, between 1990 and 2002, the primary school enrollment rate went up from 30 percent to 44 percent (36 percent for girls). New enrollments inthe first year o fprimary school doubled over the same period. Education opportunities have been greater for children in urban areas and especially for those in rural areas where 70 percent o f the new classes were constructed during the past few years. Moreover, discrepancies between provinces are diminishingsince the percentage o f provinces not achieving the national average school enrollment rate went down from 73 percent to 57 percent. resources were allocated for basic education in order to sustain its development - the portion o f the Recent progress was achieved through the implementation o f two strategies (i)additional education sector budget which was allocated to basic education increased from 45 percent to nearly 60 percent between 1990 and 2001 - the availability o f schools also increased through the construction o f an average o f 800 classes per year; and (ii)several measures were taken in order to substantially reduce high unit costs so as to facilitate the expansion o f basic education. These measures include among others (a) substantial hiring o f auxiliary teachers, thus allowing for the reduction o f the average salary cost o f primary school teachers from 8.2 to 6.2 times the GNP per capita in the country; (b) introduction o f double-shift classes, thus facilitating the enrollment o f 40 percent o f students in urban areas and thereby reducing urban demographic pressure; and (c) introduction o f multigrade classes which allowed for the enrollment o f 25 percent o f rural area children living inmunicipalities with very low populationdensity. Burkina also deployed major efforts to reduce demand constraints. To this effect, the ratio o f schools with running water and sanitary facilities reached 47 percent and 45 percent respectively. The number o f literacy centers more than doubled since 1990 and literacy programs which used to involve 90 villages in 1990 now cover 4,500 villages. Inorder to further encourage the enrollment o f poor students, the government has set up a system o f free donation o f school textbooks since 1996 and encouraged greater participation o f students' parents in school management. To lessen the opportunity costs and benefit poor households as well as to promote girls' schooling, an important effort was made to construct schools inthe vicinity o f villages; financial and material resources were made available to students' mothers associations, thus allowing them to conduct income-generating activities; inaddition, endogenous school canteens were opened inrural areas. The construction o f facilities for after school hours in rural areas (so-called bissongos) is an interministerial measure toward the promotion o f girls' education and it also helps women to be more productive. In parallel to those efforts, Burkina has taken measures to improve the quality of education by (a) distributing school textbooks on a regular basis, thus allowing for an average o f one textbook for two students in basic subjects; (b) improving the qualifications o f teachers, especially in rural areas; and (c) introducing bilingual education on an experimental basis. Overall, these improvements have helped reduce enrollment disparities between rural and urban areas, between regions as well as between boys and girls. 95 Constraints Despite these efforts, major problems still prevail, namely: Resource allocation to education can still be improved: public resources allocated to the education sector represent 21.6 percent o f public spending and 2.8 percent o f GNP, whereas African countries under HIPC devote an average o f 4.0 percent o f their GNP toward education; Unitcosts remainhighat the primary level (0.24 percent o fGNPper capita comparedto an average o f 0.15 for French-speakingAfrican countries); Inrural areas, the proportionof households not enrollingtheir children inschools increases with deciles o fthe less poor to the poorest; Retention rate i s low (60 percent compared to an average o f 67 percent for French-speaking African countries; and only 49 percent in rural areas and 41 percent for girls inthose areas); The education system remains characterized by high repetition rates: 15 percent between the first and the fifth years o f primary schooling and about 40 percent in the third year, which translates into highsocial demand for lower secondary education; and The cost o f one student successfully completing the primary level is double what it should be: drop out rates are high in the North (10.9 percent) and lower in the South-West (3.5 percent); the gender gap expressed indrop out rates varies between regions: 12.5 percent for boys and 7.1 percent for girls in the North; and in the West, rates are respectively 8.1 percent and 3.7 percent; in other regions, girls' drop out rates are either higher or more or less the same; in addition, the AIDS pandemic may undermine the results achieved so far. Not only does the life expectancy reduction due to AIDS limit the benefits from education investment, but it also threatens the efficiency o f the system due to the increased absenteeism o f teachers and students as well as to the necessity o f replacing sick teachers. The increased number o f AIDS orphaned children further complicates the management o f tasks within the education system. Visions toward MDGsinthe context ofthe Ten-Year Program In regard to basic education, PDDEB aims at increasing access to a good quality basic education for the majority of the country's population by looking for cost-efficient and financially sustainable solutions which would be capable o f solving the problems which have so far hampered the development o f the sector, causing its inequity and inefficiency. The PDDEB will involve communities andNGOs, setting up programs aiming at: a. Increasing access to basic education by acting both on the demand and supply sides: On the supply side, policies and programs put inplace will be expanded so as to: increase the number o f primary schools; improve the capacity o f schools through multigrade and double-shift systems; reduce repetitions, recruit and train more teachers; develop new literacy and basic education approaches for women and out-of-school children; and give priority, in terms o f expenditures, to rural areas in general and to the most vulnerable populations. 0 On the demand level, policies and programs set in place will be expanded so as to: provide all children with school textbooks and materials free o f charge (thus reducing costs for families); develop nutrition programs; involve students' parents in school 96 decision making and management; intensify efforts and incentives to attract girls to school and set up awareness programs in areas which are still opposed to school enrollment. b. Improving the school learning environment by offering instructional programs and materials which promote learning; reinforce the efficiency o f continuing education courses; make schools more responsible for education quality and better results; and increasing the volume o f teaching hours to over 800 hours. c. Through the education program, follow-up to the HIV/AIDS Population Project by recruiting enough teachers to replace those who contracted the HIV/AIDS virus; training and informing existing staff as well as new staff about HIV/AIDS related problems; ensuring that information reaches students by setting up (i)a tutorial system; (ii)a sensitization program; (iii)by changing attitudes; and (iv) by revising curricula, and by involving associations and NGOs already fighting AIDS to provide assistance to AIDS orphans. d. Reinforce decentralization and budget support capacities through improved procurement and financial management and by follow-up to the education system. e. Increase equity and efficiency o f expenditures by increasingthe share o f non-wage items The objectives for the nextten years are as follows: 0 At a reasonable cost, increase the gross enrollment rate inprimary school from 40 percent to 70 percent, especially for children and girls in rural areas and improve the quality and efficiency o f schooling, thus raising the graduation rate from 24 percent to 55 percent; 0 Offer quality functional literacy courses to adults (especially to women and to people living in deprived areas), to prematurely drop-outs and non-wage earning teenagers, and raise the literacy rate from 22 percent to 40 percent, to be provided by NGOs and community associations with low recurrent costs and with the creation o f a literacy and non-formal education fund; 0 Offer 300,000 children aged 3 to 6 years old an education based on early childhood development, and offer 165,000 youngsters aged 9 to 15 years old who never went to school or who dropped out, a four-year bilingual education, as well as a pre-professional training at low recurrent costs; 0 Improve the quality o f training and teaching in order to reduce waste due to high repetition and drop-out levels; 0 Reinforce the management capacity o f schools, inspectorates and regions as well as MEBA pilot capacity to better handle the high volume o f activities which will be generated by the program and the decentralizatioddeconcentrationpolicy o f the country. Inthe year 2010, mainly due to an increase inthe school-agepopulationby about 30 percent, the number ofyoung students enrolled inschools at that level will grow from 800,000 to 1,800,000, an 123 percent increase over the period. 97 IndicativeFramework Indicators Value in Indicative 2001 Values in 2015 Mobilization of resources Domestic revenuesin percent of GNP _ _ _ _ _ _ _ - _ _ _ _ _ _ _ _ _ _ _ _ - - - 12.5 _ _ _ 14-18 _ _ _ Current public expenditures in education as percent of 21 20 discretionaryrecurrent expenditures . . . . . . . . . . . . . . . . . . . . . . . _ _ _ Current public expenditures for primary education as 58 Dercent oftotal recurrent education exnenditures Student flow indicators percent ofthe age group enteringthe first year of 100 primary _ _ _ _ _ - - _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 100 percent of the age group reaching the sixth year of primary - - - _ _ _ _ _ _ - - - - - - - _ _ _ _ _ _ _ _ _ _ _ l o percent o frepeatitingstudents inprimary Indicatorsof education services _Studentkeacherratio_in_public_primaryschools _ _ _ _ _ - - - - _ _ _ _ _ _ _ _ _ _ _ 5111 4011 Average annual salary of existingteachers ' - _ - - - - - - - - - - - - - - - _ _ _ _ _ _ _ 7.6 Newteachers _ _ _ _ _ _ - - - - - - _ _ _ _ _ _ _ _ _ _ _ _ 3.6 3.5 Other current expenditures1percent ofteachers' cost _ _ _ _ _ _ - - - - - - - - _ _ _ _ _ _ _ _ _ _ 44 Annualnumber of hours of inst.xtion inpublic 820 850-1,000 primaryschools _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - - _ _ _ _ _ _percent_of_enrolledstudents_in_privately-fundedschools _ _ _ - - - - - - - - _ _ _ _ _ _ _ _ 12 10 Constructioncost of an equippedclassroom $7.000 $8,000 Policymeasuresto advancethe education agenda Five essential and highly complementary educational policy measures are in the process o f being implemented: Gaining control over the financial framework o f the Ten-Year Program by: (i)increasing (in connection with debt reduction) the proportion o f the State budget allocated to education sector operations from 21.6 percent to 26 percent by 2010, while at the same time ensuring that the allocation for basic education will represent 60 percent o f the budget, and that the allocation for literacy will in turn represent 7 percent o f the budget for basic education; (ensuringthat primary school teachers are recruited over the next ten years at the regional level, and that they are recruited under conditions comparable to those o f community-level teachers in satellite schools, Le.: with compensation ranging from 3.5 to 5 times the per capita GDP, dependingon seniority. Application o f this measure would result in an average cost corresponding to about 4.7 times the country's per capita GDP, thus makingthe program 98 financially feasible. An essential element taken into account under the program is the recruitment o f primary school teachers, since it is anticipated that 29,000 teachers will be recruited betweennow and 2010. 0 Gaining mastery o f the institutional framework. The directorates charged with management, design, evaluation, programming, steering and supervision in the educational sector, as well as the regional and departmental directors and inspectorates, will become a key element in the implementation o f the Ten-Year Program. In addition, the HIPC initiative will make substantial budgetary credits available to the social sectors. The plan is therefore to reorganize MEBA so that its services can be totally operational as soon as possible. This in- depth organization o f MEBA's administration will make it possible to specify mandates, responsibilities, appropriate professional profiles, norms and management and steering strategies, and to establish budget categories at the decentralized level. Improved capacity, within the Regional Directorates for Basic Education and Literacy (Directions Rkgionales de 1'Enseignementde Base et de 1'Alphabe'tisationor DREBA) for guiding basic education, and within the Provincial Directorates for Basic Education and Literacy (DPEBA) and inspectorates for the coordination o f activities, will thus be assured. Targeted actions geared to the poorest and most vulnerable population groups: the pursuit o f an integrative approach to education (both formal and non-formal) in order to stimulate demand for education and better integrate schooling into its larger context; the continuation and intensification o f construction o f equipped classrooms and teachers' housing, essentially inrural areas, inorder to satisfy demandwhere it exists; the routine construction oflatrines in all new schools in order to foster a healthy environment and a proper education in hygiene and health; the systematic construction o f water points (either boreholes or large-bore wells) in the interest of an education integrating hygiene and health and for purposes of environmental protection; the generalization and intensification o f activities to promote school canteens, especially in rural areas, through investments and equipment that would make canteens autonomous, since they are an important element in school attendance; the implementation o f economic projects geared to adult women as an accompaniment to their training; the authorization o f flexible school year calendars in rural areas, and exemption from annual parent contributions for the parents o f female pupils and inthe twenty provinces with the lowest school enrollment rates; and the continuation o fthe policy o f free distribution o f school textbooks. 0 Increasing the efficiency o f public resource utilization in education through interventions aimed at ensuring a smoother procession o f pupils through the educational systems at the primary and secondary levels. Measures currently under preparation are aimed, on the one hand, at increasing, by 2010, the proportion o f CPI pupils who go on to the CM2 level from 60 percent to 75 percent and, on the other hand, at reducing grade repetition at the primary level from 18 percent to 8 percent. Comparable progress is envisaged for the secondary level. Taking appropriate measures, to the extent that progress in school enrollment will mainly affect rural areas, to allow these populations, and particularly the poorest ones, to benefit effectively from the educational investments provided, and to ensure that those investments yield the anticipated social benefits. The important point i s that it will undoubtedly be necessary to make adjustments to the supply o f traditional educational services tin order to meetthe needs o fthese populations. 99 EFA-PAFinancingNeeds Macro-Financial Framework. The changes that occurred within the context o f the EFA-PA and within the Ten-Year Program framework are related to(i) a GNP growth expectation o f 5 percent; and (ii)the share o f primary education in current education expenditures which would diminish from 58 percent to 50 percent, instead of 55 percent as initially projected. Indeed, the current budget share o f basic education does not allow for financing post-primary levels o f education. The approach chosen frees up national resources and ensures an overall balanced system. The Ten- Year Program's projected share o f current education expenditures compared with revenues is maintained and would grow from 19,6 percent to 25 percent in 2015. This adherence to the framework will allow freeing up adequate national resources for the education sector. 2002 2003 2004 2005 Public School 1,027,93 1 1,137,307 1,25 1,673 1,37 1,214 Students (932,880) (107,661) (1,085,893) 1,167,709) Former Teachers' 13,586 13,178 12,783 12,400 Category New Teachers' 8,176 11,186 14,355 17,694 Category (6,164) (8,409) (10,761) (13,228) When taking into account the financial arrangements scheduled during the first year o f PDDEB, the EFA-PAgenerated impact i s as follows: 2002 2003 2004 2005 New Teachers' Quantity 2,102 4,789 8,393 12,849 Category (Total) Value 2,370 5,640 9,875 15,136 Classrooms Quantity 2,102 2,777 3,594 4,466 Value 9,054 12,496 16,173 20,097 Other Current Value 121 458 970 1,681 Expenditures Total Current Value 2,49 1 6,098 10,845 16,817 Expenditures Total of Capital 9,054 12,496 16,173 20,097 OverallTotal 11,545 18,594 27,O 18 36,914 EducationPolicy Framework. The school enrollment rate would reach 100percent instead o f 80 percent by 2015. The access rate in the first school year would reach 100 percent in 2010 instead o f 72 percent and the completion rate in primary school would reach 100 percent by 2015. The repetition rate, the average studentheacher ratio and the average salary o f new teachers remain fixed at respectively 8 percent, 40 and 3,6 times GNP per capita. In conclusion, the basic principles underlyingthe Ten-Year Program are not significantly modifiedwithin the EFA-PA framework. The difference o f results indicated below occurs as a consequence o f the acceleration o f the implementation o fthe PDDEB. 100 Practicalconstraintswhich EFA-PA The main constraint will be the capacity to implement the volume o f activities generated by EFA-PA. This question was already addressed inthe context o f the Ten-Year Program and had led to proposed institutional reforms to be progressively implemented before the end o f 2003. Within this framework, decentralized levels will be given more responsibilities, and NGOs and associations will be called upon by ministerial departments to assist the Ministry. 101 Annex 9: Attainingthe MDGsinthe HealthSector The recent Burkina Faso Country Status Report (CSR) provides the most comprehensive source o f information on trends and patterns in key HNP indicators over the 1993-1999period, using the last two Demographic and Health Surveys (DHS). The CSR provides the analytic underpinnings for health sector support, along with a series o f studies proposed under a PHRD grant that accompanies the PRSC-3. The CSR will soon be widely disseminated and discussed at the country level to raise awareness and to generate a consensus on key policy issues. The 2004 DHS (to be partly financed by the Bank under the Burkina MAP) will provide further insights on progress during the period covered by the CAS in terms o f HNP indicators as well as the first nationally representative data on trends and patterns in HIV infectionrates. A number o f trends in the MDGs are worthwhile highlighting. First, infant and child mortality, child malnutrition, and fertility are high in both an absolute terms, but also relative to other African countries and what might be expected for Burkina Faso's income level. This suggests that available resources (government and household) and not being mobilized efficiently or equitably to improve health outcomes. Second, with a few exceptions, most o f the key indicators appear to have stagnated or worsened during the 1990s, despite various efforts to increase health sector spending and initiate sector reforms. For example, infant mortality remained unchanged (about 105 deaths per 1000 births), but deaths among children aged 1-5 increased (from 109/1000 to 127/1000). Child malnutrition may also have increased slightly, with one-third o f children malnourished. Maternal mortality may have also declined during the 1990s but remains relatively high. Third, there are significant variations inHNP outcomes, particularly between rural and urban areas, and also between the richest 20 percent and the poorest income quintiles. Fourth, principle direct causes o f high morbidity and mortality include malaria (responsible for 1/3 child deaths), diarrhea, respiratory infections, and increasingly HIV/AIDS and tuberculosis. Indirect causes include poverty, low rates o f female education, and malnutrition. Burklna Faso: Trends in infant mortality, 1975-1999, with projections to 2015 160 140 120 +If recent trends 100 continue 80 +To achieve MDG 60 40 20 0 I Estimate a t five-year interval A cursory analysis o f the MDGs suggests that if trends in key health indicators were to continue, Burkina Faso would not meet its MDG targets. In fact, the country appears to be 'considerably off track' interms o f most o f these targets. For example, as can be seen from the figure above, if trends in infant mortality since the mid 1990spersist, Burkina will only be able to attain a 102 very modest decline inthe IMRby 2015. While the country is highly unlikely to reach the MDGgoal o f an IMR o f 37 by 2015 it will need to take appropriate actions to facilitate an accelerated and sustained decline. This will imply further raising immunization coverage rates, improving nutrition conditions, and promoting child spacing and exclusive breastfeeding. Particular attention will needto be given to identifying cost effective ways to target those in greatest need. By simply regaining the rate o f decline attained during 1975-89, the IMRcould reach 85 per 1000 live birthsby 2015; a more rapid rate o f decline would move the country even closer towards the MDGs. HIV/AIDS Operations IDA has played a pivotal role in supporting the government's HIV/AIDSnational program since the mid 1 9 9 0 providing well over 50 percent o f the total funding. The IDA-funded Population ~ ~ and AIDS Control Project, which closed in September 2001, assisted in raising awareness, strengthening treatment o f opportunistic infections and sexually transmitted infections, and supporting non-governmental organizations and associations. This project was instrumental in piloting an innovative community driven scheme for combating the HIV/AIDS epidemic. An external evaluation o f this scheme found that it i s feasible to mount a major initiative, on a large scale, in a relatively short time, and at a reasonable cost. In nine months, the pilot scheme funded close to 600 micro-projects worth US$175,000. This was a major accomplishment, with close to 95 percent o f all villages o f Poni province reached by the scheme. The pilot demonstrated the capacity and commitment o fprovincial and local authorities to mount an initiative o f major scale, and to move away from boutique approaches to HIV/AIDS. This scheme i s now being scaled up to other provinces in Burkina under the IDA-funded US$22 millionHIV/AIDS Disaster Response Project. The Burkina HIV/AIDS Disaster Response Project was approved in July 2001 under the Multi-Country HIV/AIDS Program for the Africa region framework. With the rapid preparation and approval o f the MAP operation, IDA has maintained a continual presence inBurkina Faso. The credit became effective in March 2002. The project built on many o f the lessons from both the Health and Nutrition Project and AIDS and Population Control Project, and is being implemented through the same experienced coordinating unit that managed the previous AIDS & Population Project. A Q A G assessment (August 2002) found that the overall quality at entry o f the project was satisfactory, with relatively high marks in terms o f project design, piloting o f key activities (e.g. Poni community scheme), tapping country and sector knowledge and monitoring and evaluation. The assessment also highlighted some weaknesses in terms o f environmental and implementation arrangements, and excessive number o f conditions o f effectiveness. The operation has gotten offto a good start with steady progress towards the accomplishment o f the development objectives. InJanuary 2003, roughly US$2.9 million had been disbursed or close to 13 percent o f the total project cost, suggesting that this is a relatively well disbursing MAP operation. Main achievements can be summarized as follows. First,the line ministry component has gotten off to an excellent start, buildingon the earlier experience with the channeling o f funds to line ministries piloted under the recently closed Population and AIDS Control Project. The CNLS has approved the work plans o f 12 line ministries for a total o f roughly US$2.0 million. All these line ministries have launched their activities and many have already requested replenishments. The execution rate (Le. percentage o f activities carried out in relation to programmed activities) is well over 70 percent in most cases. The challenge now will be to improve reporting and monitoring o f these activities and give greater attention to care and support. 103 Second, there has been good progress in moving forward on the community driven activities. Activities have restarted in Poni province with roughly 430 sub-projects now approved and underway. The 'scale up phase' has now gotten off the ground and is more ambitious in scope and scale than previously planned. The goal i s to extend this scheme to the 12 most populated provinces o f Burkina, reaching approximately 45 percent o f the total population. Training modules are now under translation into three local languages (Mori, Dioula, and Fulhlde). A workshop was held in late November 2002 to train some 220 provincial trainers. The goal is to use a cascade approach to training, whereby the 220 provincial trainers will train some 900 departmental trainers, who in turn will work with close to 20,000 village representatives. All provinces are expected to their sub- projects by early March 2003. This undertaking is rather ambitious, which will necessitate close follow up and technical support. Third, the Bank team is in the process o f finalizing the design o f a care and support component, including anti-retroviral therapy. Burkina Faso is one o f the first countries in the Bank (inaddition to Barbadosand Senegal) to include fundingo fARV drugsunderan IDA operation. The government has developed a well designed proposal which includes a three-prong approach: (i) strengthening the urban service delivery networks in Ouagadougou & Bobo Dioulasso by supporting the university hospitals and other service providers to expand the number o f patients under treatment and working with the lower level facilities to ensure patient follow up; (ii)developing a rural model for introducing ARV therapy to demonstrate the feasibility o f delivering these drugs in a rural setting; and (iii)supporting a prospective 2-year clinical trial through the Centre Muraz, which will place a cohort o f patients under treatment with a view to testing the efficacy o f a regimen o f generic ARV drugs; identifying most appropriate alternative drug regimens in case o f drug resistance and serious secondary effects; and testing two modalities for following up patients (Le. weekly vs monthly DOTS). The clinical trial is expected to provide valuable information to inform an eventual scaling up o f this initiative. It is expected that IDA support for ARV therapy would have an important catalytjc effect, encouraging other donors to support this program as well. The Bank team has also devoted a substantial amount o f attention to ensuring that a good system for monitoring and evaluating the HAART (highly-active antiretroviral therapy) initiative i s in place from the outset to assess results and to draw lessons for an eventual scale up of these activities. To this end, we have been working to foster a partnership between the government o f Burkina and ANRS (Agence Nationale de Recherches sur le SIDA), with a view to putting in place an external, independent evaluation o f the HAART initiative. The proposed evaluation would cover the national HAART initiative and not only the IDA operation. The 'process' evaluation would cover such as issues as: adequacy o f pricing arrangements; frequency o f drug stock outs; and quality o f services at various levels. The 'clinical and biological' evaluation would assess the efficacy o f treatment on a sample o f patients from all facilities, comparing certain indicators with those patients benefiting from the clinical trial. The 'socio-economic ' evaluation would aim to quantify the benefits o f treatment (e.g. gains inproductivity; foregone medical costs due to hospitalization; quality o f life improvements) incomparison to the costs (direct and indirect) o f treatment. Likewise, the evaluation would explore changes in discriminatory practices and solidarity mechanisms at the household and community level resulting from expanded access to treatment. The economic evaluation would also assess what is the most cost-effective way o f delivering these services in both an urban and rural setting. Finally, there would be an assessment o f how the introduction o f treatment has influenced sexual behavior and attitudes towards people living with HIV/AIDS. 104 Annex 10: Bank-FundRelationsAnnex (as o f May 12,2003) PartnershipinBurkina Faso's DevelopmentStrategy The government o f Burkina Faso outlined its development strategy in a poverty reduction strategy paper (PRSP) in May 2000. The Bank and FundBoard endorsed this strategy in June 2000, as well as the first (December 2001) and second (November 2002) annual progress report. The government intendsto fully update the PRSP in2003. The PRSP sets out the following four pillars o f the government's strategy (i)accelerating equitable growth; (ii) promoting access to social services; (iii)increasingemploymentandincome-generatingactivities forthepoor; and(iv) promotinggood governance. The Fundhas supported Burkina Faso under three arrangements under the Poverty Reduction and Growth Facility between 1994 and 2002, and the authorities intend to request a fourth subsequent arrangement in 2003. The Fund takes the lead in the policy dialogue on macroeconomic policies and monitors macroeconomic performance by way o f quantitative performance criteria. In addition, it has established inthe recent past structural performance criteria inthe areas o f tax policy, financial transparency and good governance, and trade policy. The Bank is supporting the implementation o f the PRSP in the areas o f public finance management, good governance, decentralization, health, education, and cotton reform through a series o f poverty reduction support credits (PRSC) complemented with a portfolio o f specific projects to address AIDS, basic education, infrastructure investments, rural development, and private sector development, as outlined more fully below. The Country Assistance Strategy (FY 00-03) and the BankPortfolio The general objctive o f the November 2000 Co,.mtry Assistance Strategy (CAS) for the World Bank i s to support the Government's efforts, as described in the June 2000 PRSP, to achieve sustained high growth rates, to reduce the high incidence o f poverty, and to improve the nutrition, health, and education o f the rural population, which constitutes the largest group among the poor. The CAS has three specific objectives: (i)supporting policies and programs aimed at improving the supply side o f the economy to allow for sustained, broad-based and export-oriented growth; (ii)improving public finance management to increase efficiency of public spending; and (iii) ensuring that the allocation process and public spending effectiveness goals result in special emphasis on social services. The Bank's assistance to the PRSP is intended to be selective and complementary to activities supported by other donors. Specifically, the Bank envisages a program and related country budget allocation which will (i)give priority to supervision o f ongoing projects; (ii)acknowledge the important role o f donors; (iii)consolidate lending operations into fewer but broader resource transfer mechanisms that are more closely integrated with the Government's own budgetary allocation and execution processes; and (iv) include a share o f non-lending services to foster a robust analytical base for consensus and partnership building. To refocus its assistance program with a consistent emphasis on rapid growth with poverty reduction, the Bank Group strategy in Burkina Faso focuses attention on (i) key social sectors where there are viable long-term strategies or where they can be developed; (ii)longer-term economic 105 reforms to improve competitiveness and reduce business costs; (iii)improving public resource management; and (iv) adapting Bank programs to the sub-regional framework and potentials. Bank lending to Burkina Faso takes the form o f results-driven programmatic credits (PRSCs) and self- standing projects for capacity building, support for Community Driven Development activities (concentrating on rural, social or HIV/AIDS interventions) and infrastructure investments directly targeted to poverty alleviation and private sector development. There is a continued commitment to analytical and advisory activities as knowledge i s the critical input for progress in the substantive areas presented inthe PRSP. The March 2003 CAS Progress Report (i)assesses the progress made on implementing the PRSP and the FYO1-03 CAS; (ii) provides an update on the economic and social developments;, (iii) elaborates the new challenges which Burkina Faso i s facing; and (iv) identifies the risks for continued implementation o f the PRSP and CAS. The progress report confirms that the strategy set out inthe 2000 CAS remains appropriate and proposes an extension o f this strategy for 12-18 months to cover the period until the new CAS is prepared. The new CAS is expected to follow closely the full update o fthe PRSP, which will likely be completed inearly 2004. Assessment of Country Policies. Inclose collaboration with the Burkinabe authorities, IDA has undertaken a substantial body o f analytic work over the past three years to assess key social, structural, and sectoral development policies and identify policy and institutional reform priorities for poverty reduction. IDA has relied on a combination o f the PRSP and its annual progress reports, a second priority poverty survey and two poverty profiles, sectoral policy notes, and informal papers on specific issues such as constraints to growth and competitiveness, or the dynamics o f poverty and income inequality. IDA has also helped the Burkinabe authorities carry out analytical work in key sectors (education, health, rural development, energy, transport, and private sector development) and assisted with the preparation o f a comprehensive economic study on long-term sources o f growth and competitiveness in 2001. On poverty reduction, two further studies are planned in the near future, a Participatory Poverty Assessment (2002-2003) and the ThirdNational Household Survey (2002-03). Since the beginning o f the structural reforms in the early 1990s, the World Bank has approved, in addition to support for investment projects, two structural adjustment credits, an economic recovery credit, an agricultural sector adjustment credit, a transport adjustment credit, an economic management reform credit and two poverty reduction support credits (PRSC-1 and PRSC- 2). The Bank's cumulative commitments to Burkina Faso as o f May 12,2003, amount to US$1,359.5 millionequivalent for 64 operations, comprising 61 IDA credits and 3 IFC investments. The currenr portfolio amounts to commitments o f US$504.3 million, o f which US$353 million is undisbursed. IDA'Sactive portfolio inBurkina Faso is as follows: The Second Poverty Reduction Support Credit (PRSC-2) was approved in July 2002 for US$35 million. The PRSC program focuses on key sectoral action plans and reforms to improve public finance management, the competitiveness o f the economy, and to facilitate the country's integration into the regional and world economy. Three operations support IDA'Sstrategy in the agriculture sector. A second Agricultural Services project (US$4 1.3 million, FY98) aims at increasing agricultural productivity and farmers' incomes, improving natural resource management and promoting institutional development. A Private Irrigation project (US$5.2 million, FY99) supports provision o f the 106 demand-driven services necessary for the development o f an efficient, sustainable small irrigation subsector in Burkina Faso. A Community-Based Rural Development Program (US$66.7 million, FYO1) aims at reducing poverty and promoting sustainable development in rural areas. Its first phase provides for building local capacity to plan and implement rural development projects, accelerating the pace o f public transfers for decentralized rural development, and supporting implementation o fthe country's decentralization framework. To support human resource development, four operations are being implemented. In education,a Basic Education operation (US$32.6 million) was approved inJanuary 2002 by the World Bank Executive Board. The project provides support for the Government's Ten- Year Basic Education Program, which will be implemented inthree phases the first o f which covers the period 2001-05. The main development objective o f Phase Io f the Ten-Year Program is to lay the foundation for accelerating the development o f basic education, while ensuring adequate quality and financial sustainability. A Post-Primary Education project (US$26 million, FY97) finances parts o f the Government's post-primary education strategy. The Bank also assists the country with the implementation o f a new Development Learning Center (US$ 2.5 million, FY03) for distance learning activities that will give the Burkinabk access to the latest research worldwide. A HIV/AIDS Disaster Response project (US$22 million, FY02) underpinsthe implementation o f the government's 2001-04 medium- term HIV/AIDS/STIs strategic plan, which has been endorsed by the country's technical and financial partners. In the urban sector, an Urban Environment project (US$37 million, FY95) aims at improving living conditions through priority urban works and urban services benefiting low- income groups. Under this project, supplemental financing o f US$22 million to the government's decentralization process was approved inFY02. A water supply project (US$70 million, FYO1) aims at increasing access to adequate and reliable potable water in Ouagadougou through expanded distribution and tertiary water networks and improvedurban water subsector management. 0 In the mining sector, a Mining Sector Capacity Building and Environmental Management project (US$2 1.4 million, FY97) supports regulatory reform and training, institutional strengthening and resource management, environmental management and small-scale artisanal mining. 0 A technical assistance credit for private sector development (Competitiveness and Enterprise Development project, US$30.7, FY03) provides support to implement the privatization program; improve the quality, access, and cost o f telecommunications; and promote the development o f a strong indigenous private sector in Burkina Faso through a streamlined business environment and well-targeted financial and non-financial services to small and medium-size enterprises. The Bank approved a Transport Sector Project in April 2003 for US$92.1 million. It is expected that this project will be effective by June 2003. The project concentrates on rural roads as the rural economy is the main source o f income and employment for 80 percent o f the population. 107 The Bank'sproposedlendingprogramis as follows: 0 In the energy sector, the Bank is considering assisting the Government, through a sector reform operation (FY04), aimed at introducing private sector participation to improve the efficiency o f the provision o f electricity services and the supply o f hydrocarbon products to the economy, and increasing access to infrastructure services, especially for rural communities. 0 A third PovertyReduction Support Credit (PRSC-3) is envisaged for Board presentation inearly FY04. Bank-FundCollaborationin Specific Areas Cotton sector. Bank and Fund staffs jointly follow developments in the cotton sector because o f its importance for macroeconomic aggregates and rural incomes. Fund staff focuses on the overall financial management of the cotton sector in order to limit spillover effects for government finances and the banking sector. Bank staff i s accompanying the government's structural reform agenda in the sector under a series o f PRSCs. These reforms aim at creating a more competitive environment by introducing additional operators over time while safeguarding the historical achievements o f a prudent financial management and involvement o f producer organizations in decision-making processes, includingthe setting o fproducer prices. Public finance management and good governance. Bank and Fund closely collaborate in supporting the government's reforms in the area o f public finance management and good governance. Important elements o f the reform program are enshrined inthe government's own action plan for the improvement o f budget management and incorporate the main recommendations o f the HIPC Assessment and Action Plan prepared jointly by Bank and Fund staff and the Country Financial Accmntability Assessment (CFAA). Recently, the Bank's PRSC has %cused on creation and operationalization o f the Supreme Audit Court, resumption o f regular submissions o f budget audit laws to the Supreme Audit Court and the National Assembly, as well as revisions to procurement laws and regulations. The Bank's PRSC i s also supporting extensions o f the computerized expenditure circuit to deconcentrate budget execution, and together with sector- specific projects is assisting with the preparation for the political decentralization planned for 2003. The Fund's PRGF-supported program included measures for the effectiveness o f the Supreme Audit Court, and the Fund has given technical assistance for tax and customs administration. Both Bank and Fund staffs have followed jointly the government's anti-corruption policies, including the creation o f the HighAuthority for the Fight against Corruption. Promotion of private sector activity. Given the importance o f private sector development for accelerating growth, Bank and Fund staffs take a close common interest in policies that foster competition as well as privatization. The Fundfocuses on trade policies and protection and monitors the financial performance o f public enterprises. The Bank has taken the lead in assisting with the privatization inthe energy and telecommunications sectors and removing administrative obstacles for the creation ofenterprises and private investment. 108 Statement ofIDA Credits (Inmillions ofU.S. dollars) Credit Fiscal Number Year Sector IDA Undisbursed C27280-BF 1995 Urban Environnent 59.0 22.8 CN0070-BF 1997 Post-PrimaryEducation 26.0 9.2 CN0290-BF 1997 Mining Capacity Building 21.4 5.9 C29740-BF 1998 Agricultural Services I1 41.3 17.3 C3161O-BF 1999 PrivateIrrigation 5.2 1.5 C34360-BF 2001 Community-BasedRural Devlpt. 66.7 59.3 C34760-BF 2001 OuagadougouWater Supply 70.0 64.6 C35570-BF 2002 HIVIAIDSDisaster Response 22.0 17.3 C35970-BF 2002 Basic Education 32.6 30.0 C36910-BF 2002 PRSC 2 35.0 0.0 N l e 2003 DevelopmentLearningCenter 2.3 2.3 N l e 2003 Competitiveness& Ent.Dev. 30.7 30.7 N/e 2003 Transport Sector 92.1 92.1 Total (number of credits: 13) 504.3 353.0 Nle: Not yet effective Source: World Bank. 109 Annex 11: RecentAnalyticalWork on Burkina Faso ABSP et Universitk de MontrCal. 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Evaluation de rendre compte de la gestion des finances publiques et des pratiques de la comptabilite' du secteur prive' (Country Financial Accountability Assessment and Risk Analysis) - rapport de collaboration entre le gouvernement burkinab2 et 1'e'quipe multidisciplinaire. [20021 Ministkre des Finances et du Budget, Plan d'action pour le renforcement de la gestion budge'taire - PRGB. [2002] Burkina Faso, Ministbre de la SantC. Rapport de I e'valuation interne par les pairs du syst2me de gestion de'centralise'e des DRS et DS appuye' par le Projet de de'veloppement sante' et nutrition. [2000] Burkina Faso, Ministkre de la SantC. Evaluation externe de la performance des services de sante' appuye'par leprojet de de'veloppementsante' et nutrition. [2000] Centre d'Etude et de Formations aux Technologies Economiques CEFTE. Programme d'appui re'gionalix 1'inte'grationdespays de 1'UEMOA.Burkina Faso. [19971 Collier, P, Romer M, Sachs, J et al. 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[1999] European Commission Bondation Entreprendre, Rapport sur 1'opinion des ope'rateurs e'conomiques etfournisseurs de I'Etat sur les re'formes et lapassation des marche's. [19991 111 FAOIWorld Bank, Burkina Faso, Strate'gie de Croissance Durable de 1'Agriculture et de 1'Elevage. [1998] Fofack, H., Monga, C. and Hasan Tuluy, Household Welfare and Poverty Dynamics inBurkina Faso: Empirical Evidence from Household Surveys, The World Bank, Policy Research Working Paper 2590. [2001] Fofack, H., The Nature and Dynamics o f Poverty in Burkina Faso in the 1990s, The World Bank, Policy ResearchWorking Paper 2847. [2002] Holveck, P. Energy Sector in Burkina Faso: Tenyear-Least-Cost InvestmentProgram. [19981 Inventaire des Projets de Production et de Transport8Electricite' au Burkina Faso. [19981 IMF,Report on Observanceof Standardsand Codes: Fiscal Transparencymodule. [2002] INSD,Profil de lapauvrete' au Burkina Faso. [2000] Mingat, Alain. Deux Ctudes pour la scolarisation primaire universelle dans le pays du Sahel en 2015, The World Bank, Africa Region HumanDevelopment Working Paper SeriesNo. 23563. [2002] Pays Bas-BASP 96, Etude sur la de'centralisationdu syst2me de sante' au Burkina Faso. [2000] Pays Bas - MDFICrystal, Etude sur le renforcement des capacitis institutionnelles duMinistire de la SantC [Janvier 20001 SOGREAH, Etude de Faisabilite' de la Ligne de Transport d'Electricite' Bobo-Dioulasso -- Ouagadougou;et de Bolgatanga (Ghana) -- Ouagadougou(Burkina Faso). [June 20011 UNICEFIWorld Bank, Etude sur la consolidation des e'coles satellites pour 1'ame'lioration de 1'enseignement de base au Burkina Faso. [19981 University o f Ouagadougou, World Bank, Coopiration franqaise, La Refondation de I'Universite de Ouagadougou,editedby Alfred Traore. [2000] World Bank, Note Techniquesur le systgme budge'tairedu Burkina Faso. [19991 World Bank, Local Level Institutions and Poverty Eradication: The Case of Rural Decentralization in Burkina Faso, ReportNo. 21997. [19991 World Bank, The Local Level Institutions Study: Local Institutions and Service Delivery in Burkina Faso, Swamy, A.V., Grootaert, C. and Oh, G.-T. [1999] World Bank, Country ProcurementAssessment Report (CPAR)for Burkina Faso. [19991 World Bank, Energy Sector Note on Burkina Faso, Michel del Buono. [19991 World Bank, Implementation Completion Report for Structural Adjustment Credit I I A Report No. 21555. [2000] 112 World Bank, Etude sur la compe'titivite'des$li&es de l'agriculture et de l'e'levage au Burkina Faso (Nicolas Gergely). [2000] World Bank, Improving Service Delivery at the Local Level: Challenges for Public Sector ManagementReform in Burkina Faso, ReportNo. 22188. [2002] 113 Annex 12: ProgressinImplementingthe HIPC-AccountabilityAssessment and ActionPlan Indicator Actions to Strengthen- Sta- Progressto Date on Action Plansand FromAgreed ActionPlans tus 31 IndicatedImprovements (Outcomes) and time horizon(SAM) 1/21 BUDGET FORMULATION Compositionof The current fiscal accountscover only a narrow budgetentity publicfinances, includingto definitionofcentral government.The localgovernments(M) governmentwill work on extendingcoverage of fiscal accountsto complywith WAEMU guidelines with the 2004 budnetcvcle. Limitationsto useof N/A, meetsbenchmark off-budget transactions Reliabilityofbudget N/A, meetsbenchmark The governmentstill needsto include outturn as guideto outturn- data inthe budget lawspresentedto the national level assembly. 4 Dataondonor Integratethe computerized I1 The computer links betweenthe government financing expendituremanagement departmentshavebeenreestablishedand systems ofthe Department for currently informationof foreign-financed Cooperationandthe investmentsis beinggatheredto feed it intothe BudgetlTreasury(S) computerizedexpenditure managementsystem; it shouldbecome operational in2003. 5 Classificationof ImplementWAEMU budget I1 The governmentwill convert its expenditure budgettransactions classification(S) management systemto the new classificationin 2003 andapply the new classificationwith the - 2004budget. Makethe necessary I1 Adjustments to the computerizedexpenditure adjustmentsto automatically management systemare underway for the 2004 generate a functional budget budgetexercise. classification(S) Identificationof N/A Povertyreducingexpenditure are identified povertyreducing throughbudgetarylines by ministry expenditures (administrativeclassification). Quality ofmulti-year N/A, meetsbenchmark The MTEF is fblly integratedinthe budget cycle expenditure andincludesHIPCresources. projections BUDGET EXECUTION Levelofpayment Linkcommitmentdecisionsto FI Implementedin2002. No new arrears were arrears cash reservesandreinforce accumulated. use of cash-flowplan(S) Prepare an annualcash-flow FI Implementedin2002. planandupdatemonthly(S) Extendcomputerized I1 Pilotextensionfor Bobo-Dioulassobecame expendituremanagement effective in2003. systemto locallevel(M) Quality ofintemal N/A Internalaudit functioneffective andfully audit integratedincommitment process. 114 - 10 Use o f tracking Reinforce the use o ftracking I1 Tracking surveys are conducted underthe PRSP surveys surveys onthe decentralized process but could be broadened and deepened level (S) further. Disseminate results o ftracking FI Implemented in2002. surveys within the administration (S) Quality o f N / A (meets benchmark) fiscalhanking data reconciliation Timeliness o f internal N / A (meetsbenchmark) budgetreports Classification used Tracking uses administrative classification as for budget tracking functional classification is not yet available. Timeliness o f N/A accounts closure Timeliness o f final Take an administrative I1 Legal opinions have beensought out to define audited accounts decision as regards the the administrative procedure. treasury account balances prior to 1994 (S) Regularly produce treasury I1 The government has accelerated the production account balances and submit o ftreasury account balances. accounts to the Supreme Audit Courtjointly with budget executionreports (S) Fully operationalize the FI The Court was set up, offices have been Supreme Audit Court (S) identified and renovated, and magistrates were named. The Court became fully operational in 2003. Respect the delays in I1 Thz 1999 and2000 execution report were sentto presenting budget execution the national assembly. The 2001 execution reports to the national report was approvedby the council o fministers assembly (S) inApril 2003. 1/ Action plans were agreed between the Government, the IMF, and World Bank at the time o f the 2001 AAP mission. In the meantime, the government has adopted a action plan for the improvement o f budget management (PRGB) in July 2002 that encompasses the recommendations o f the AAP and other analytical work, including the Country Financial Accountability Assessment (CFAA). The implementation o f the PRGB is supported by the World Bank's PRSC. The AAP update table does reflect only certain elements o f the government's public expenditure reform program. 2/ S = short term, i.e. action that i s expected to be completed in one year. M = medium term, i.e action that is expected to be completed in2-3 years. 3/ Degree o f implementation, i.e. whether implementation has been initiated (11), is not yet started (NS), or is complete (FI, for fully implemented). 115 Annex 13: EnvironmentalAssessment EnvironmentalClassificationand SafeguardPolicy Based on the above project objectives, PRSC-3 was classified as a sectoral adjustment credit (SECAC) at a meeting convened by the Bank-wide PRSC Working Group, in accordance with the Interim Guidelines for PRSCs o f May, 2001. According to Bank policy, the Operational Directive (OD) 8.60, Adjustment Lending, and Operational Policy (OP) 4.01 `Environmental Assessment' apply to this Credit. Inaccordance with OP 4.01, the Credit was categorized as a B without a separate Environmental Assessment. Since the Credit will support rural development through the development o f action plans in key `filihres' such as cotton and horticulture, OP 4.09, Pest Management may also apply. However, an environmental analysis consistent with the requirements o f OD 8.60 is annexed to the Program Document. In accordance with the Bank's revised disclosure policy, this environmental analysis annex was disclosed through the World Bank InfoShop, and in Burkina Faso prior to the appraisal o fthe credit. Analysis and Mitigation Measuresof the PotentialEnvironmentaland SocialImpactsof PRSC- Analysis of PotentialImpacts The potential environmental and social impacts o f PRSC-3 are those resulting from its sectoral coverage. Such impacts that relate primarily to the investments in education, health, and rural development are not expected to be o f a great magnitude, nor would be irreversible. At this stage, these potential environmental and social impacts can only be described in generic terms. More specific description o f the potential impacts associated with each targeted sector is provided below. Rural development: The rural development operations envisa5ed under PRSC-3 fall under two categories. The first category concerns the development o f actions susceptible to encourage agricultural diversification. The second category o f activities includes those associated with the liberalization o f the cotton sub-sector. The potential environmental impacts associated with the above-mentioned activities are o f many kinds, though not irreversible. Diversification may improve soil fertility management and reduce the need for insecticide use, but could also be accompanied by more intensive agricultural methods. Efforts aiming at intensifying agricultural production may lead to better soil fertility management (e.g., through nutrient replenishment) but may also lead to increased and inappropriate use o f pesticides, which may result in adverse (and sometimes catastrophic) environmental and social impacts. The privatization o f some o f the cotton ginning plants may require that environmental audits be commissioned inorder to identify and remedy outstanding any environmental problems that are associated with the operations o f these plants. Health sector development: Overall, the activities supported under the basic health sector development evolve around strategic policy reforms aimed at more effective targeting o f the poor for the delivery of basic services, institutional strengthening and decentralization o f service provision, and human resource strengthening. More specifically, improved access (through removing fees on preventive services, reducing the price o f essential drugs), maintaining adequate budget allocations for basic health services, and development o f better incentives for the outpost personnel will be the 116 priority under PRSC 3. Essentially, these activities that are all based on the 10-year national health development plan will generate limited irreversible adverse environmental impacts. The main environmental concerns evolve around the management o f hazardous medical waste, including needles, disposal o f hazardous substances, human body parts, etc.. Basic education development: As mentioned above, the main activities planned under the proposed PRSC 3 include continued support to the poorest families in the form o f subsidized school supplies, expanding the number o f schools, and strengthening the capacity o f the Ministry of Basic Education. The only potential environmental impacts associated with such activities would be those resulting from the construction o f school buildings and sanitary facilities. Mitigation measures PRSC-3 will address the environmental concerns described above by drawing on both the national regulations requiring environmental impact assessment o f qualified investments, on the on- going Bank-supported sectoral investment projects, and on environmental assessment capacity buildingactivities supported by PRSC-3. Rural development: The potential environmental associated with the intensification of agricultural production are addressed through two main axes o f government interventions. The first axis i s the promotion o f conservation practices that help maintain the productive capacity o f the resource base. Soil and water conservation activities have long been at the core o f the national efforts aimed at encouraging the adoption o f sustainable agricultural practices. In fact, soil and water conservation was the single most important environmental concern identified and included in the PRSP. Duringthe first year o f PRSP implementation significant progress was made inthis area under the aegis o f the national soil fertility initiative (supported by the HIPC resources). Labor-intensive soil and water conservation structures were constructed on 51,000 ha, and the adoption rate 80 percent in some of the targeted areas. The creation o f village resource comervation associations helped accelerate these efforts during the second year o f the PRSP implementation, although quantitative assessment is not available yet. The second axis o f intervention aimed at mitigating the adverse environmental impact o f agricultural intensification is the control o f pesticide-related pollution, and hazards. The most significant efforts in this area are related to pesticide registration. In addition to national policy initiatives, these efforts benefit from a regional pesticide registration initiative supported by a number o f donors through the CILSS. Pesticide and pest management efforts have increased inthe last years in Burkina Faso due to the increasing number of pesticide contamination and poisoning cases, but also to the increasing resistance o f pest to existing pesticides. In the country, there are cases of successful integrated pest management initiatives. However, these success stories are still very limited innumber. Inparticular, there i s no articulated national pest management plan. Through the on-going IDA-financed decentralized rural development operation, the government will support the promotion o f alternative and complementary ways o f pest management, in compliance with the requirements of Bank OP on Pest Management (OP 4.09), and Burkinabe regulations contained in articles 42-46 (dealing with pesticide and fertilizer management issues) o f the Environment Code. Compliance with these policies and regulations will require putting in place specific measures for handling, using, and storing products, awareness raising, and training o f stakeholders in these areas. The IDA-financed community-driven rural development operation is 117 developing a screening tool that will help identify and mitigate any adverse social and environmental problems associated with community-driven investments. Finally, en environmental audit o f the plants to be privatized will be conducted in order to capture any environmental problemdliabilities associated with this privatization. In addition to determining the scope o f these environmental liabilities, the audit will establish how the latter will be handled in the privatization transaction. The environmental audit will be completed before the financial bids are submitted, in order to make allowances for potential environmental and social mitigation costs. The environmental audit o f these plants will take place during the preparation o f PRSC-4. Prior actions for PRSC-4 also include activities pertaining to the privatization o f two key utility enterprises (SONABEL, SONABHY, and ONATEL). Inaddition to changes inthe regulatory framework and the adoption o f the privatizationstrategy, such activities will include the launching o f the bidding process for the transfer o f assets. The bidding documents and the "cahier des charges" will include provisions for addressing the environmental aspects identified by the environmental audits o f these two enterprises conducted in2002. Health sector development: Long before the country adopted an Environmental Code, hazardous healthcare waste was a concern to the authorities. Specific measures consisting mainly in the conditioning and disposal o f these wastes (through incineration) were included in the management and administration o f all health care facilities/services. These requirements are included inthe current 10-year national plan. Here also, the IDA-supportedHIV/AIDS operation has prepared and adopted a national healthcare waste management plan that will guide the implementing unit in handlingthese wastes. Basic education sector development: Through the Basic Education Sector project, PRSC-3 will make sure that Bank's requirements and policies are met inthe construction o f school buildings. The Basic Education Sector project has prepared a framework that meets Bank's requirements. Links Between PRSC-3 and Complementary Sector Investment Projects in Safeguards Compliance As is apparent from the analysis presented above, there is a direct and strong link between PRSC-3 and the on-going sector investment projects, as far as the compliance with environmental and social safeguards is concerned. Given the fact that these accompanying sectoral investment operations have their own environmental management plans (EMPs) that were developed to mitigate the main environmental and social impacts identified duringtheir appraisal, it makes more sense to rely on these elaborate plans to ensure compliance with Bank's requirementsandpolicies. Since, the TTLs o f these investments operations are members o f the PRSC-3 team, they are individually (at least, before the PRSC-3 team) responsible for ensuring that the EMPs o f the operations they manage are fully implemented. The details o f these EMPs can be found in the disclosed EA documents o f the respective projects. In addition to the operations o f the sectors covered by PRSC-3 (i.e., rural development, health and education), the Competitiveness and Enterprise Development project, and the Urban Environment project will also be part o f these compliance efforts because prior actions o f PRSC 4 include some activities o f these two projects (as mentioned above). More details on these compliance responsibilities are addressed below. For the sake o f information, the list o f the sector investment operations engaged in, and responsible for ensuring compliance with the environmental and social safeguards o f PRSC-3 include the following: 118 .....The Community-Based Rural Development Project; The Basic Education Sector Project; The HIV/AIDSDisaster Response Project; The Competitiveness and Enterprise Development Project; and The UrbanEnvironment Project. Consultationand Disclosure In accordance with the requirements of the revised disclosure policy, this annex was disclosed publicly in-country, and at the World Bank Infoshop. Investments made with support o f the PRSC will be subject to government policy, which likewise requires public consultation and for environmental impact statement ("notice environnementale") documents o f projects with potential adverse impacts on the environment. Inall cases, an environmental management plan, or a medical waste management planwould have to be produced (cost and institutional arrangement for implementation) and implemented. Arrangements should be made within each ministry in order to oversee the integration o f these aspects into the evaluation and implementation o f sectoral projects. Overall, PRSC-3 as a single tranche operation i s not likely to generate significant adverse environmental and social effects. BorrowerReadinessfor Addressing SafeguardIssues Like many other IDA countries Burkina Faso prepared a NEAP in the early 1990's. But unlike others, the Burkina NEAP did not get translated into a coherent investment program that would have included capacity building components. This resulted in delays in the establishment o f the regulatory framework, insufficient experience and low capacity in some areas o f environmental management, especially, environmental impact assessment. The current regulatory framework for environmental managment o f the country i s the result o f a slow but steady development o f environmental laws, includinga land law, a forestry law, and a mining law. In compliance with the Interim Guidelines (for PRSCs) and OD 8.60, the preparation of PRSCs provided the opportunity to ascertain the readiness of the country to apply environmental assessment to development projects. This readiness that was conducted under PRSC-1 focuses on the institutional and technical capacity o f the government agencies involved in the oversight o f environmental assessment (EA). Most environmental policies and practices in Burkina Faso are based on the Environmental Law enacted in 1997. Articles 17-24 o f this law describe the conditions under which an environmental assessment (EA) o f development activities i s required, and the procedures to be followed inpreparing EA studies. Typically, the law requires that any development activity that is likely to generate significant negative environmental impacts be subject to an environmental impact assessment, and that this assessment be cleared by the Ministry o f Environment. The law also requires public consultation to be heldwith affected parties/communities to discuss the potential impacts and their mitigation. The assessment found that although Burkina Faso has the necessary regulations pertainingto environmental assessment, compliance with such regulations is quite weak. There are three main reasons for this low performance in complying with EA regulations. The first one i s the very recent enactment o f these regulations (1997), and the late adoption o f the implementation decree o f these regulations (June 2001). The second reason i s the lack o f clarity in the responsibilities o f the institutions responsible for ensuring compliance with these regulations. Finally, the lack o f technical 119 capacity and awareness both within the government and in the non-government sector for applying EA to development operations constitutes a great obstacle to getting higher level of compliance with the enacted regulations. Based on this assessment, an agreement was reached to make capacity building in environmental assessment the key aspect of the measures proposed to deal with these environmental issues in PRSCs. PRSC-2 provided the opportunity for beginning to tackle these constraints. An agreement was reached during the appraisal o f PRSC-2 that the following measures will implemented in order to create the conditions necessary for ensuring compliance with both the World Bank environmental and social safeguardpolicies and the Government's own EA regulations: Preparing a three-year capacity buildingplan for EA; Establish small EA cells, at minimum in the ministries covered by PRSC-2 (i.e., Education, Health, and Agriculture and Livestock). These units will help screen sectoral investments for the integration o f environmental and social safeguards when necessary with technical and regulatory oversight from DGPE and CONAGESE). Environmental management plans (EMPs) will be financed by the investing sector/ministry, but the latter may benefit from technical support from other ministries, or specialized public or non public institutions; Clarify the mandates and responsibilities o f CONAGESE and DGPE in those areas pertaining to EA compliance and enforcement (will be done through the up-coming first national conference o f CONAGESE); Hold a workshop to share and disseminate the content o f national EA procedures and World Bank environmental and social safeguards in order to make it easier for the ministries involved (and other ministries involved in future PRSCs) to comply with these procedures and safeguards; and Prepare technical guidelines for sector- or activity-specific EAs. Some o f these measures were to be implemented before o f effectiveness o f PRSC-2, others during the implementation o f the credit and the preparation and implementation o f PRSC-3, still others, such as capacity building required long-term on-the-job, and formal training. In addition to the above measures, it was agreed that in the short-term the main burden o f complying with environmental and social safeguards (as required by Bank Policies) will fall on on-going IDA operations. Implementationof Agreed Measures Duringthe course o f 2002, the Government implemented most of the measures agreed at the time o f PRSC-2 appraisal: (i)TheGovernmenthasdevelopedacomprehensiveEAcapacitydevelopmentplan; (ii)FocalpointsforEAhavecreatedinkeylineministries; (iii)A workshop was heldwiththe sectoralfocalpoints, NGOs,andafew consultingfirms to workshop to share and disseminate the content o f World Bank environmental and social safeguard policies in order to make it easier for the ministries involved (and other ministries involved infuture PRSCs) to comply with these policies; 120 (iv) The responsibilities o f the former CONAGESE (now CONED) and the Directorate o f Environment in assuring compliance with EA requirements were clarified in a national workshop. Under the new institutional arrangements, the `Direction GCnCrale de 1'Environnement- DGE" holds primary responsibility for enforcing EA requirement, and CONED (national council for sustainable development- -former CONAGESE) i s to ensure that environmental concerns are fully integrated into development planningand policy making. It i s worth mentioning that during2002, the Ministry o fEnvironmentadopteda new organizational and functional chart that made it necessary to update the distribution o f responsibilities in the implementation o f the EA capacity development plan. Overall, by preparing a capacity building plan, establishing EA focal points in line ministries, and clarifying the responsibility between government agencies responsible for ensuring compliance with EA regulations, the Government has created important enabling conditions for ensuring the enforcement and compliance with its own EA requirements, and Bank safeguards. However, these one-shot measures need to be complemented and supported by sufficient investmentincreating the technical skills neededto improve the enforcement o f EA requirements in the implementation o f the public investment program, inparticular inthe sectors covered by PRSC-3. In fact, compliance with EA requirementsremains weak in both the private and the public sector despite the above-mentioned achievements. Lack o f awareness among public and private operators, and low technical capacity o f the agencies responsible for enforcing EA requirements remain strong bindingconstraints to achieving effective enforcement of, and compliance with EA requirements. Arrangementsfor Borrowerto Address SafeguardIssues Removingthe constraints to ensuring effective compliance with Bank safeguards policies and Burkina's EA requirements will require a long-term commitment to capacity building. In fact, Based on the review o f environmental pclicies and practices o f the county (PRSC-l), an agreement has been reached between the Bank and the Borrower on the fact that long-term national capacity building(national agencies, consulting firms, NGOs, civil society, etc.) in EA is the best avenue for assuring effective compliance with Bank safeguards in PRSCs. This approach that aims at filling the Borrower's capacity gap i s consistent with the Operational Memorandum on the Interim Guidelines for PRSCs (Attachments 1 & 2). The arrangements proposed for the Borrower to address safeguards issues build on PRSC-2. In particular, these arrangements evolve around two sets o f activities and aim at enhancing due diligence while allowing for the development o f local capacity to reach where national agencies can provide effective oversight and assure adequate enforcement o f EA requirements. The first set consists o f follow-up measures to those adopted and implemented under PRSC-2 and the preparation o f PRSC-3, while the second set focuses on enhanced supervision o f on- going Bank operations inthe country, in order to ensure full compliance with the environmental and social safeguards management plans agreed to at the appraisal o f these operations. Follow-up activities to PRSC-2: As mentioned above, there is a need for the Government to expand its efforts inthe creations o f the enabling conditions for the enforcement o f EA requirements. PRSC-3 will continue and expand the implementation o f the capacity building activities initiated under PRSC-2. More precisely, the arrangements aiming at assuring appropriate treatment o f environmental issues inthe proposed PRSC-3 build on the PRSC-2 measures and will evolve around three elements. 121 The first element is capacity buildinginEA. The activities o f the 3-year EA capacity building plan developed by the Borrower include training (Govemment staff, consulting firms, and NGOs), awareness-raising (education and information campaigns), and enforcement (environmental auditing, and technical assistance in the implementation o f environmental management plans o f investment operations). The cost o f this plan is about US$ 2 million. The plan was prepared with the idea to mobilize donor co-funding to support its implementation. Apart from some limited fundingprovided by a bilateral donor (now exhausted), resources have not been forthcoming. Thus, little capacity building activities has taken place since PRSC-2 due to lack o f lack of appropriate funding. An interim solution proposed under PRSC-3 is to identify priority capacity buildingactivities that could be fhded under the 2004 government budget. Inthe meantime, the dialogue with the Borrower will examine other means to assuring reliable funding sources that will allow a sustained and effective implementation o fthe updated capacity-building plan. The second element focuses on the mainstreaming o f environment into sectoral ministries, through development o f capacity and awareness raising. Under PRSC-2 this objective was pursued through creation o f EA focal points in line ministries. In fact, these focal points consist o f one individual per ministry. Given the high risk of having the focal point moved to a different locatiodfunction, it was felt that this risk o f disappearance o f the focal point would be mitigated by expanding it to include more than one individual. During the November 2002 workshop on Bank safeguards, the participants made the request to replace the notion o f sectoral EA focal point by sectoral EA cells which will include 2-3 members. These cells will help to ensure compliance with EA requirements insectoral investments when necessary and several o fthese cells have already been created. In particular, they serve as environmental screening starting points for public investments in their respective ministries, before the Ministry o f Environment can provide more elaborate recommendations, and follow-up. The third element o f EA capacity strengthening under the proposed credit is the development o f sectoral guidelines in order to help the Ministry o f Environment, the sectoral focal cells, and the non-govemment actors (NGOs and consulting firms assisting in conducting EA) in the screening, reviewing, and enforcement o f EA requirements. To sum up, the measures to be taken under PRSC-3 to ensure compliance with Bank ... environmental and social safeguards include: Financing o fpriority EA capacity development under the government's budget; Developing sectoral EA guidelines for the preparation, and review o f EA studies; and Changing the sectoral EA focal pointsto sectoral EA cells with more 2-3 members. Enhanced supervision of environmental management plans (EMPs): In order to ensure due diligence and compliance with Bank safeguards under PRSC-3, when EA capacity development activities are underway, it will be necessary to pay increased attention to the implementation o f the EMPs on-going sectoral operations supported by IDA. In fact, the task o f ensuring compliance with environmental and social safeguards during PRSC-3 will primarily be incumbent upon the ongoing operations in those sectors covered by the credit, that is, Rural Development, Education and Health. Because environmental and social mitigation measures constitute a key element o f any EMP, these operations will comply defacto with Bank safeguards policies when they implement their respective EMPs.Makingsure that the EMPs are adequately funded and implemented is therefore a prerequisite for assuring compliance with Bank safeguards policies under PRSC-3. The specific environmental issues requiring attention in each sector involved inPRSC-3 are described above. 122 The sectoral investment operations involved include the Community-Based Rural Development Project, the Basic Education Sector Project, and the HIV/AIDS Disaster Response Project. Given the sequential nature o f PRSCs, and the importance o f completing prior actions, this follow-up o f EMPs and other issues will also apply the environmental aspects associated with PRSC- 4. As a resultthe PRSC-4 prior actions inthe area o f utility and telecommunication privatization, and the preparation of an action plan for the achievement o f MDGs in the rural and urban water sector, the Competitiveness and Enterprise Development Project, and the Urban Environment Project will also be covered the enhanced supervision efforts. Monitoring and Supervision.A monitoring and technical assistance plan will be developed incollaboration with the Ministryof Environment. This planwill allow the Ministryo fEnvironment to help the project implementation units o f the sectoral investment projects in the implementation, monitoring, and supervision o f their respective EMPs. IDA will ensure the supervision o f the arrangements and safeguards measures included in this environment annex, and will produce an implementation report summarizing the results o f the PRSC-3 EA measures. This report will provide the basis for developing the EA annex for PRSC-4. 123 Annex 14: Experiences with the PRSCsinthe Health Sector Health and Nutrition Project. The Bank played a pivotal role in supporting the development o f the health districts through the IDA-funded Health and Nutrition Project, which closed in September 2001. As noted inthe ICR for this operation, a participatory, strategic planning and budgeting process was satisfactorily introduced with stakeholders playing an important role in setting priorities, developing local responses, and providing oversight. The decentralization o f financial resources and use o f management agreements enhanced ownership and accountability at all levels o f the health system. The channeling o f funds directly to local bank accounts gave district and regional authorities autonomy and flexibility in the use o f resources. Management agreements were instrumental inclarifying expectations and motivatinghealth personnelto improve performance. Following the completion o f the Health and Nutrition Project, the decentralized planning processes stopped abruptly in those districts that were financed primarily through the IDA credit (about half o f all districts nationally). This was because (i)transfers to district bank accounts stopped, which had been the primary source o f funding for the action plans; (ii)the planning and performance monitoring process that had been established and financed by the project, including regional workshops and other forms o f technical assistance, also stopped; and (iii)the project management unit which played a key role in organizing and implementing the process was disbanded. Those districts that were more heavily dependent on IDA resources have experienced a substantial disruption in activities. In districts that benefited from other donor financing, this planning process reportedly continued to varying degrees, but the overall system put in place by the IDA operation, however, (including regional workshops for developing plans are reporting on progress toward contracted results) has been dormant for the past year. The Netherlands is planning to restart the district planning and performance monitoring system through forthcoming project, and the first regional planningworkshops inover a year are currently scheduled to re-start inFebruary. After some iritial delays, the rigies d'avance \\:ere established in late 2002. This mechanism creates the potential for transfer o f government funding directly to districts. This is a positive development, and an important contribution o f the policy dialogue under the PRSC. It creates the potential for internalizing the resource transfer system that was initiated under the Health and Nutrition Project, and permitting direct decentralization o f government funds. However, there are concerns with: (i)the level and consistency o f transfers, which remains to be demonstrated; (ii) the equity and impact o f regional and district health spending, which will not necessarily be assured by the improved availability o f resources. Effective planning and monitoring o f progress toward priority outcomes is also required. PRSCs. With the closing o f the Health and Nutrition Project, support for the health sector was provided through a series o f PRSCs. To date, one could characterize the impact o f the Burkina PRSCs on the health sector as modest. It has not been easy to use the public expenditure program as an effective tool to bring about significant shifts in budgetary allocations, particularly as Burkinabe authorities have been reluctant to center the policy dialogue o f around budgetary choices in the Ministryo fHealth. The PRSC has not been able to substitute for the previous financial and technical assistance supporting the performance based contracting o f health districts under the closed IDA Health and Nutrition Project. As in other countries, the PRSC process has been centered around the Ministry o f Economy and Finance, which has the greatest sense o f ownership Initially, the Ministry o f Health (MOH) had 124 little ownership and understanding o f the PRSC and how this instrument could be more effectively used. The situation is beginningto improve but the process is slow. Eventhough Burkina was one o f the first countries to prepare a PRSP the Ministry o f Health lacked the capacity to translate PRSP objectives ineffective programs. The first two years o f PRSP implementation did not allow sufficient time for buildingbroad-basedconsensusand ownership either inthe country or inthe country team. The PRSC experience for the health sector in Burkina over the past two years has a number o f important lessons. The instrument should be considered among a menu o f other choices for supporting health system development and for attaining the MDGs under the Country Assistance Strategy. The main lessons learned for the health sector can be summarized as follows: 0 Importance o freinforcing capacity: It is important to prepare sectors for inclusion inthe PRSC. Areas for need ofprior capacity buildingcould include bothmacro measures (e.g. level o f progress o f public finance reform) and sector-specific ones (e.g. progress on developing institutional capacities, particularly with regard to preparing and implementing program budgets). The PRSCs should be used as a mutually reinforcing instrument to bring about policy reforms while providing support to the health sector through sectoral operations. 0 Need to further improve national budget as an effective tool: Another important lesson relates to the need to use the national budget as an effective tool for bringingabout changes in budgetary allocations. Because o f some reluctance to share the national budget prior to presentation to the national assembly, donors experienced difficulty using the PRSC process to engage the government inprior dialogue regarding improving the equity and efficiency o f health spending. 0 Need to strengthenownership and commitment: One o f the key lessons which has emerged from the Burkina PRSCs has been the need to build ownership and commitment to the PRSC process within the government, working closely with the Ministryof Healthto assist it to understand and accept this new way o f doing business. This would imply allowing sufficient time to mobilize a broad-based consensus, organize workshops and focus group discussions, and hold high-level discussions. Main Results. Levels and trends in health sector spendingThe PRSCs aimed to support an increase inresources for the health sector, including through the HIPC initiative. Likewise, measureswere to be taken to improve the efficiency and equity o f health spending and to reduce the financial burden . on households. Progressover the past two years can be summarized as follows: Total resources available to the health sector have increasedinthe past two years, both as a . percentageo ftotal expenditures. While an encouraging trend, these increases represent a returnto the level of spending that prevailed in 1996-97 (see table). Total spending declined during the late 1990s, reaching a low point in 2000. Thus the CAS periodhas seen a successfulreversal o fthe declining trend, but overall resource availability for health in the public sector is currently about the same as inthe mid-1990s. 125 . Moreover, while domestic financing has increased (including HIPC resources), external financing has declined (inpart due to the closure o f two IDA credits in2001), An unintended result o f this shift has been a relative increase in centralized control over health sector resources (PRSC funds are controlled by MOF, and HIPC allocations negotiated centrally . between MOF and the central MOH). The health budget expenditure "credit dC1CguC.s" to the health regions remained unchanged between 2000 and 2001 (at about 7 percent o f budget), although the rate o f execution increased (88 percent to 94 percent). These resources are programmed at the regional and district level, but require central approval before incurring expenditures. An increased . percentage o f the budgetwas allocated to this line in2002. The availability of liquid resources at the health district level appears to have declined with the end o f the Health and Nutrition Project, as the MOF was reluctant to allow transfer o f government funds to private bank accounts controlled by the districts following the close of the IDA operation. However, this situation may change with the rdgies d'avance accounts that were recently established. Total external financing o f the health sector has declined by half compared to the mid- 1990s (with more than a 50 percent decline in the past 2 years). This is likely in large partattributable to the closure o ftwo IDA-financed projects inthe healthsector in2000 PerformancebenchmarksThe Bank and other partners have been monitoring a series o f indicators (e.g. immunization coverage, prenatal care, drug stock out) that are used as proxies for health sector performance. The overall trends in these indicators is positive, as summarized in the recent PRSP progress report. According to service data from the Ministry o f Health vaccination coverage has improved progressively during the CAS period, as noted below. This progress, to be confirmed by the forthcoming Demographic and Health Survey, is likely due to a number o f factors, including the direct activities o f the GAVI initiative, contributions o f individual projects (including the Health and Nutrition Project, which included vaccination coverage as a key indicator in the performance contracting system), and the HIPC support, which has financed vaccination supplies and supported a government initiative to make vaccination free to public health centers in2001. 126 Poverty-ReducingSocialExpenditures, 1996-2001 1996 1997 1998 1999 2000 2001 Health 10.8 9.5 9.0 8.7 7.9 9.5 Current expenditure 4.6 4.7 4.6 4.3 4.7 5.2 Capital expenditure 6.3 4.9 4.5 4.4 3.2 4.3 Domestic resources 0.4 0.5 1.o 1.o 0.8 1.1 External expenditure 5.9 4.4 3.5 3.4 2.5 3.3 Health 2.4 2.3 2.2 2.4 2.0 2.4 Current expenditure 1.o 1.1 1.1 1.2 1.2 1.3 Capital expenditure 1.4 1.2 1.1 1.2 0.8 1.1 Domestic resources 0.1 0.1 0.2 0.3 0.2 0.3 External expenditure 1.3 1.1 0.8 1.o 0.6 0.8 Sources: IMF StaffReport (FJovember2002): Ministry of Economy and Finances; and staff estimates andprojections Vaccination CoverageRates: 2000 - 2002 2000 2001 Nov. 2002 BCG 80 84 91 DTCPl 84 86 88 DTCP3 57 64 67 VAR 59 65 64 VAA 56 52 61 VAT2 34 37 44 127