Burkina Faso - Country assistance strategy

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 15740-BUR MEMORANDUM OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A COUNTRY ASSISTANCE STRATEGY OF THE WORLD BANK GROUP FOR BURKINA FASO JUNE 13, 1996 Country Operations Division West Central Africa Department Africa Region This document has a restricted distribution and may be used by recipients only in the perfornance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  The last Country Assistance Strategy for Burkina Faso was presented to the Board on May 9, 1994. CURRENCY EQUIVALENTS (as of 06/13/96) Burkina Faso's currency is the CFA franc (CFAF), which is tied to the French franc (FF). Until January 12, 1994, the parity of the CFAF to the FF was 50 to I - since then it has been at 100 to I Currencv Unit = CFA franc I CFA franc = US$ 0.002 US$ 1.00 = 520 CFA francs WEIGHTS AND MEASURES Metric S- stem ABBREVIATIONS AND ACRONYMS API)F - African Proiect Development Facility BCEAO - Central Bank of West African States BNDB - Banque Nationale de Developpement dii Burkina BOAD - West African Development Bank BRCB - Bureau de Recouvrement des Creances du Burkina CAS - Country Assistance Strategy CBMP - Comptoir Burkinabe des Metaux Precieux ClPPR - Country Portfolio Performance Review E'DI - Economic Development Insitute ERC - Economic Recoveryv Credit ESAF - Enhanced Structural Adjustment Facility EJ - European Union FIAS - Foreign Investment Advisory Service GEF - Global Environment Facility GNFS - Goods and Non-Factor Services GDP - Gross Domestic Product GoBF - Goverunent of Burkina Faso IiPC - Heavily Indebted Poor Country ICR - Implementation Completion Report IDA - International Development Association IEC - Information, Education, and Communication IMF - Inteniational Monctarv Fund INSD - National Institute for Statistics and Demography MIGA - Multilateral Investment Guarantee Agency NGO - Non-Govenumental Ogranization ODI - Overseas Development Institute OHADA - Organisation pour l'Hanmonisation de Droit des Affaires en Afrique PASA - Agricultural Sector Adjustment Credit PASEC-T - Tranisport Sector Adjustment Credit PER - Public Expenditure Review PFP - Policy Framework Paper PID - Public Institutional Development Project PIP - Public Investment Program SAC - Structural Adjustment Credit SOFITEX - Societe des Fibres Textiles du Burkina Faso UEMOA - West African Economic and Monetary Union (after Jan. 1994) UMOA - West African Monetary Union (before Jan. 1994) UNDP - United Nations Development Program VAT - Value Added Tax FISCAL YEAR January I - December 31  FOR OFFICIAL USE ONLY BURKINA FASO COUNTRY ASSISTANCE STRATEGY TABLE OF CONTENTS 1. ECONOMIC AND SOCIAL DEVELOPMENT ...................................................1I A. Geographic, Social, and Political Background ................................................1 B. Structural Adjustment and Recent Economic Developments .............. ..............3 II. EXTERNAL ENVIRONMENT ....................................................6 Ill. COUNTRY DEVELOPMENT OBJECTIVES AND POLICIES ...............................................7 A. Growth Opportunities ...................................................7 B. Development Challenges ...................................................9 IV. IMPLEMENTATION AND PORTFOLIO MANAGEMENT .................................................. 12 V. ECONOMIC SCENARIOS AND RISKS ................................................... 12 VI. THE BANK GROUP'S COUNTRY ASSISTANCE STRATEGY ........................................... 15 A. Partnership and Aid Coordination .................................................. 16 B. Country Assistance Strategy Objectives .................................................. 16 C. Bank Instruments .................................................. 23 VII. AGENDA FOR BOARD CONSIDERATION ................... ................................ 25 BOXES Box 1: A Profile of Poverty in Burkina Faso 2..................................................2 Box 2: Past Reforms and Policy Agenda ...................................................4 Box 3: Promoting Private Investment - The Bank Group ............................................... 21 TABLES Table 1: Macroeconomic Indicators ...................................................5 Table 2: GoBF's Social Development Objectives ...................................................7 Table 3: Disbursement Performance .................................................. 12 Table 4: Macroeconomic Scenarios and Comparative Indicators .................................... 14 Table 5: Monitoring Social Targets .................................................. 18 Table 6: Proposed Lending Program FY97-99 .................................................. 24 Table 7: Lending Triggers .................................................. 25 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  ATTACHMENTS Attachment 1: Proposed FY97-99 Lending Program Attachment 2: Summary of Economic and Sector Work - Program for FY97-99 Attachment 3: CAS Objectives - Summary ANNEXES Annex Al : Bank Portfolio Performance and Management Annex A2: IBRD/IDA Lending Program, FY 1993-1999 Annex A3: Summary of Economic and Sector Work Annex A4: Burkina Faso at a Glance Annex A5: Key Economic Indicators Annex A6: Key Exposure Indicators Annex A7: Statement of Bank Group Operations in Burkina Faso  MEMORANDUM OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A COUNTRY ASSISTANCE STRATEGY OF THE WORLD BANK GROUP FOR BURKINA FASO This country assistance strategy (CAS) has been prepared following several rounds of discussion with Govermment, civil society, unions, donors and non-governmental organizations (NGOs) in Burkina Faso over the past eight months. During these meetings we listened to the concerns and goals of Burkinabe officials and private sector representatives prior to beginning the preparation of our assistance strategy. The change in attitude coming out of these meetings has already resulted in unexpected positive side-effects, such as closer collaboration in our economic work. To build on this progress, we intend to engage in an on-going dialogue around the Bank's assistance strategy as a routine part of our interaction with all segments of Burkinabe society. This CAS, thus, reflects the Government's own development strategy and our evolving assistance as Burkina Faso moves from stabilizing the economy in the aftermath of the devaluation to finding sustainable sources of growth and reducing poverty much more ambitiously over the coming decade and beyond. Our goal is to help reduce the number of Burkinabe living in absolute poverty from 4.7 million today to about 4 million by the year 2005. This is an ambitious goal, as it implies that economic growth would have to double compared with the past decade, reaching an average of 6 percent, and would have to reach the poorest segments of the population. In contrast, our most likely projections call for only moderate growth and a slight increase in the number of Burkinabe living in absolute poverty-on less than 25 cents a day. The objective of our assistance strategy is to help Burkina Faso move from the current likely growth path to achieve higher sustained growth. We intend to help Burkina Faso in removing constraints to faster growth and in providing better services to the poorest Burkinabe to allow them to fully benefit from new income and growth opportunities. I. ECONOMIC AND SOCIAL PERFORMANCE A. GEOGRAPHIC, SOCIAL AND, POLITICAL BACKGROUND 1. Burkina Faso is situated at the heart of the Sahel, bordering Benin, Togo, Ghana, and C6te d'Ivoire in the south, Mali in the North-West, and Niger in the East. In contrast to its southem neighbors, Burkina is poorly endowed with natural resources, has very limited rainfall-averaging about 350 mm in the north and 1000 mm in the south-west-and no coastal access. Since independence in 1960, Burkina Faso has remained one of the poorest countries in the world and ranked only 169th out of 174 countries in the United Nations Development Program's (UNDP) 1995 Human Development Index, barely ahead of its landlocked neighbors Mali and Niger. 2. Political Developments. As part of its colonial inheritance, and following a succession of short-lived governments, the state emerged as the dominant actor in the economy during the Sankara period (1983-87). The origin of today's structure of the economy-and the heavy involvement of the state in the productive sectors-can often be traced back to those roots. Perhaps most importantly, the role of the state as caretaker of the economy became even more deeply ingrained in the population, its leadership, and the civil servants during the mid-80s. As a result, it remains difficult to redefine the responsibilities of the state and enact civil service reform.  2 3. The current Government has been in place since October 1987, and has since moved Burkina steadily towards becoming a representative democracv. In addition to presidential (December 1991) and parliamentary elections (May 1992), municipal governments were elected in early 1995. This last step is a natural extension of Burkina Faso's tradition of communal participation, deliberation, and consensus building. It must therefore be seen as an important milestone. By implementing its ambitious decentralization program, Burkina Faso is bringing its political institutions much closer in line with traditional participatory social structures. In this context, the recent appointment of a new Prime Minister, the consolidation of the President's party, and up-coming parliamentary (May 1997) and presidential elections (December 1998), presage an intensified political period. The most significant socio-political changes are likely to come as the decentralization process continues and authority is increasingly delegated to the local level. These developments mean that civil society will become increasingly involved in the conduct of public policy; they also provide new opportunities for us to build on existing strengths in Burkinabe society. Box 1: A Profile of Poverty in Burkina Faso What does "poor" mean? . The poverty line defines an absolute level of poverty, based on caloric consumption requirements and non-food expenditures. In 1994, this line was established at 41,000 CFAF (US$74) per adult per year. The mean expenditure for the population as a whole was 71,000 CFAF (US$128), while the lowest quintile had expenditures of less than 28,000 CFAF (US$50). Where are the Poor? * 45 percent of the population falls below the poverty threshold. The incidence is the highest in north-central Burkina with 61 percent. . Absolute poverty is principally a rural phenomenon and concerns the agricultural sector in particular. Who are the Poor? . Where the head of household is engaged in subsistence agriculture, the incidence of poverty climbs to 52 percent, while those households where the head is employed in the public sector have an incidence of poverty of only 2 percent. . The literacy rate in the lowest quintile is 7 percent, compared with a national average of 20 percent and a rate of 44 percent in the highest quintile. Gender differences are particularly acute among the poor, where the literacy rate among women is only one fourth of that of men. . Primary school enrollment among the lowest quintile is 19 percent-14 percent for girls and 24 percent for boys-compared with a national average of 36 percent. . For all educational indicators, the discrepancies between urban and rural areas are twice as severe for girls as for boys. 4. Social Developments. Burkima Faso's population is growing at an annual rate of close to 3 percent. The population density is already the highest in the Sahel (40 inhabitants per km2) and contributes to the high incidence of poverty. At the sarne time, dependency ratios are high. With close to half the population being under the age of 15, rapid population growvth is not likely to diminish in the near future. Such high population growth rates will put a strain on water resources. Water management is also a critical health issue as much of the rural population has no access to clean drinking water. Moreover, Burkina Faso also continues to have among the lowest primary school enrollment rates in sub-Saharan Africa-44 percent for boys and 28 percent for girls. I Data for 1994.  3 Similarly, the health status of the population is poor with life expectancy at birth reaching only 48 years, compared with an average for sub-Saharan Africa of 52 years. 5. Poverty. The Poverty Profile, which was prepared by the National Institute for Statistics and Demography (INSD), provides a first statistical picture of living conditions in Burkina Faso (see Box 1). The objective of the profile was to establish an absolute poverty threshold and develop a gender differentiated analysis of the incidence and depth of poverty among different regions and socio-economic groups. The results obtained thus far are extremely striking in their clarity. Almost half of the population (45 percent) cannot afford a minimum standard of nutritional intake and non-food expenditures. and are thus considered to fall below the poverty threshold. Regionally, there is a strong correlation between rainfall patterns, soil degradation, and the incidence of poverty. Roughly speaking, the incidence, as well as the severity, of poverty increases from the south-west to the north of the country, with the exception of the two primary cities, Ouagadougou and Bobo-Dioulasso, which have significantly lower poverty indicators. B. STRUCTURAL ADJUSTMENT AND RECENT ECONOMIC DEVELOPMENTS 6. Burkina Faso approached the Bretton Woods institutions shortly after the new government was formed in 1987. Following a lengthy dialogue, the Government of Burkina Faso (GoBF) formally embarked on a structural adjustment program with the assistance of the International Monetary Fund (IMF), the World Bank, and bilateral donors in 1991. This coincided with the political transition to a representative democracy, which essentially brought the reform program to a complete halt during the first presidential and legislative elections in late 1991 and early 1992. Because of Burkina's membership in the West-African Monetary Union (UMOA), the adjustment process was initially centered around internal measures. The necessary external adjustment occurred only in January 1994, when the member countries of the CFA zone jointly decided to change the parity of the CFA franc to the French franc from 50 to 100. 7. Reform Achievements and Remaining Gaps. Substantial progress has been made in liberalizing the price and trade regimes, while less progress was made in public enterpnse reform and the management of public expenditures. Progress under the reform program and the policy agenda are summarized in Box 2. Of continuing concern is the weakness of domestic revenue collection. Following the consolidation of external tariffs into three categories in 1993, revenues declined as a result of implementation difficulties and an increase in the number of exemptions. Fiscal revenues fell further to 11.0 percent of GDP in 1994, compared with 12.6 percent in 1993, partially as a result of the devaluation, but also due to difficulties in the implementation of the value-added tax (VAT). Some improvement was observed in 1995 when the capacity to administer the new tariff structure and the VAT improved and revenues rose to 11.6 percent of GDP. 8. Prior to the start of the adjustment program, the Government had no clearly established sectoral priorities linked directly to budgetary allocations. As a result, primary education, basic health care, and the maintenance of basic infrastructure suffered. While sectoral budget allocations were agreed upon under successive Policy Framework Papers (PFPs), actual expenditures, excluding foreign financed investments, in health and primary education fell from 18.8 percent of public spending in 1991 to 15.4 percent in 1993. Only after the devaluation in January 1994 opened up a new opportunity to reallocate budgetary expenditures did this share increase to 21.3 percent in 1994. This sharp increase resulted from a new commitment by the GoBF to increase its focus on health and education, which was reflected in the Priority Action Plan for Primary Education and Health of the Economic Recovery Credit (ERC). In transport, annual allocations  4 of US$8-10 million for road maintenance were followed closely through the Transport Sector Adjustment/Investment Credit which resulted in a greatly improved quality of Burkina Faso's road network. Box 2: Past Reforms and Policy Agenda Pre-Reform Situation Current Situation Policy Agenda Fiscal Policy Domestic revenue collection Domestic revenues account for Increase domestic revenues was weak (13 percent of GDP 11.9 percent of GDP. Wage as percentage of GDP.' in 1991). Wage bill accounted bill is limited to 5.3 percent of Repay all domestic for 7 percent of GDP. Large GDP. Extemal arrears are arrears.' Increase social extemal and domestic arrears largely eliminated and intemal sector spending. a were accumulating. Domestic arrears have been sharply spending on social sectors reduced. Social sector accounted for 19 percent of spending accounts for 21.3 public spending. percent of public spending. VAT is in place since 1994. Scope of Public Most sectors of the economy Of 41 enterprises authorized Privatize I I enterprises in Sector were controlled by state for privatization, only 13 have 1996, 8 in 1997, and enterprises. been sold. All major utilities remaining 9 in 1998.' are controlled by state Open public utilities to monopolies. private participation. Allow private operators in telecommunications. Banking Sector State banks dominated the Govt. share is limited to 25 Complete full accounting Reform sector; non-performing assets percent. Non-performing for non-performing assets.' had reached intolerable assets are identified and Sell remaining share proportions and most banks had capital infusions of over currently held in trust with negative net worth. US$140 million have restored the BOAD to private financial viability. US$17.5 investors.' Complete million in non-performing liquidation of BND-B and loans have been recovered BRCB.a through BRCB. Trade Reform Import tariffs ranged from 5 to Tariff structure has been Remove restrictions on 45 percent. Public import and simplified to three rates (0, 4, sugar and rice imports.' export monopolies were 24). Import monopolies exist Liberalize exports, and common. for petroleum, sugar and rice. hides and skins.' Export monopolies exist for Complete tariff reforms in cotton, and hides and skins. the context of the The gold export monopoly is UEMOA.8 being abolished. Remove restrictions on petroleum imports. Price Extensive price controls were in Price controls on locally Remove price controls on Liberalization effect for agricultural goods and produced goods exist only for rice and sugar.' consumer products. Profit rice, sugar, generic drugs, Improve pricing structure margins for imported goods petroleum products, and and distribution of benefits were fixed. utilities. Profit margins are in the cotton sector.a eliminated. Remove price controls on petroleum. Regulatory State monopoly on placement of State employment monopoly is Complete harmonization of Envirornent workers in the formal sector. removed. Legal texts are business laws, including Outdated and diffuse legal being harmonized under labor and investment codes texts. Discretionary Investment OHADA initiatives. in the context of the Code. Investment Code provides OHADA and UEMOA.8 neutral and transparent incentives. a These reforms are assumed to be implemented for the purpose of our macroeconomic projections.  5 9. Public enterprise reform succeeded in eliminating large budgetary subsidies and placing the operation of state enterprises on commercial principles. Yet, of 41 enterprises slated for privatization, only 13 had been sold by the end of 1995. Banking sector reforms, which began in 1991, succeeded in disentangling the close web between state-owned banks and state enterprises that had led to weak risk management, a buildup of non-performing loans, and in most cases negative net worth. State ownership in the banking sector has now been reduced to no more than 25 percent in each bank and the financial viability of the banking sector has been restored. 10. Substantial trade reforms began in 1993 with the consolidation of tariff rates into three categories (0,4, and 24 percent). Price controls on locally produced goods, with the exception of rice, were eliminated. Regulations on profit margins for imported goods were removed, but domestic price controls remain in effect for generic drugs, petroleum products, and utilities which are still entrusted to public monopolies. 11. Macroeconomic Situation. Following the devaluation, macroeconomic performance was overall satisfactory, even though growth reached only 1.2 percent in 1994 as a result of excessive and untimely rainfalls. Tight fiscal policies helped reduce monthly inflation quickly from 5 percent during January-April 1994 to less than I percent during the second half of the year. Building on the stabilization progress made in 1994, the Government focused on a continued tight fiscal policy. Current expenditures recorded a small surplus in 1995, following a deficit of 1.7 percent the previous year, and capital expenditures rose to 9.7 percent of GDP (see Table 1). The accompanying increase in foreign project and program aid also allowed for a rapid reduction of both domestic and external arrears. Continued structural reforms have worked to stimulate private sector activity, particularly exports, and real GDP growth is estimated to have reached 4.3 percent during 1995. Table 1: Macroeconomic Indicators 1991 1992 1993 1994 1995 percent change Real GDP Growvth 10.0 2.5 -0.8 1.2 4.2 Inflation (GDP Deflator) -5.1 -1.9 1.4 28.1 8.8 percent of GDP Fiscal Current Revenues 13.3 11.8 12.5 11.0 11.9 Current Expenditures 12.0 11.9 14.9 12.7 11.3 Capital Expenditures 9.6 9.1 8.1 9.3 9.7 Overall Balance -8.2 -9.2 -10.4 -11.0 -9.2 memo: change in arrears -4.2 -0.4 0.4 -1.4 -1.9 External Exports (GNFS) 12.1 10.1 11.5 14.3 14.2 Imports (GNFS) 26.7 24.3 26.5 29.4 28.8 Current Account Deficit 11.4 10.8 11.9 12.8 12.9 12. Sustainability. Burkina Faso's medium-term growth prospects depend critically on the sustainability of policy reforms. The Government has shown resolve in continuing with the reform program and its management of the post-devaluation strategy was among the best in the CFA franc  6 zone, but there have also been some signs of adjustment fatigue. The implementation of reforms under adjustment operations has slowed, and the preparation of new ones has also been delayed. Yet, the greatest risks to a continuation of the reform program come from Burkina Faso's own past and a still deeply ingrained thinking about the role of the state as the predominant actor in the economy (see para. 2). Future reforms, particularly those delineating the responsibilities of the state, will have to be more thoroughly prepared and their necessity discussed with civil society, parliamnentarians, and civil servants, thus generating some genuine public debate about the role of the state. II. EXTERNAL ECONOMIC ENVIRONMENT 13. Trade. The devaluation provided a significant boost to Burkina Faso's external sector. Nevertheless, the economy is not very open to international trade. Exports of goods and non-factor services currently account for only about 14 percent of GDP. Diversification of export commodities is limited with cotton and livestock products accounting for about 33 and 22 percent respectively. Gold is the third significant export commodity, but recorded exports have fallen to only 1.5 tons recently, compared with 3.5 tons in 1990.2 Non-traditional exports, such as fruit and vegetables, have not yet become significant export commodities, but have the potential to do so (green beans are already successfully exported to France). Prospects for higher exports depend to a large measure on domestic reforms in the cotton and gold sector, as well as on the success of promoting non-traditional exports. Under current policies, neither artisanal gold miners nor cotton producers benefit sufficiently from favorable world market prices. 14. External Debt. Burkina Faso is currently classified as a Heavily Indebted Poor Country (HIPC). As of end-1995, Burkina Faso had almost US$1.4 billion in external debt outstanding and disbursed (equivalent to about 59 percent of GDP). About 73 percent of this debt was owed to multilateral institutions (including US$607 million to IDA and US$51 million to the IMF). About 20 percent of the total external debt was owed to official bilateral creditors, one quarter of which was previously rescheduled debt owed to Paris Club creditors. Debt service payments, excluding debt cancellation, in 1995 were equivalent to 18 percent of exports of goods and services. Multilaterals accounted for about half of the debt service payments in 1995. 15. The Government has made significant progress in improving its external debt situation since obtaining favorable debt relief as a result of negotiations With the Paris Club in 1991 and 1993. The agreements called for rescheduling of debt service obligations and outstanding arrears of pre-cutoff debt on Toronto and London terms, respectively. Most of the remaining outstanding bilateral debt is now owed to non-Paris Club creditors, principally Kuwait, Saudi Arabia, and Libya. Outstanding external arrears are owed to Libya and Russia. The GoBF is currently engaged in discussions with the principal non-Paris Club creditors to obtain debt relief on Paris Club terms. A new Paris Club agreement will be sought in 1996, which would provide for an exit from debt rescheduling negotiations. 2 In 1994, about 13 tons of gold were exported through the port of Lome. Much of it is presumed to have come from Burkina Faso illegally to avoid the state export monopoly.  7 III. COUNTRY DEVELOPMENT OBJECTIVES AND POLICIES 16. Having completed the first phase of adjustment, the GoBF declared poverty alleviation as its central long-term development objective at the most recent Donor Roundtable in October 1995. On that occasion, the Government set out its vision in the Letter of Intent for Sustainable Human Development (Lettre d'Intention de Politique de Developpement Humain Durable), which focuses on achieving monitorable progress in the Table 2: GoBFs Social Development areas of health, education, potable water, .e. and the allocation of public resources (see Objectives Table 2). The approach to achieving these 1995 2000 2005 objectives centers around three axes: (i) Real GDP Growth (%) 4.5 6.0 8.0 mcreasing income opportunities and Primary Enrollment (%) 38 .. 60 productive capacity; (ii) developing the Literacy (%) 20 3 1 40 social sectors through more efficient use and Life expectancy (years) 48 54 57 better targeting of public expenditures; and (iii) strengthening the role of the private sector. While the Government's growth objective appears somewhat optimistic, we believe more ambitious achievements in the social sectors can be made by using the results from the Poverty Assessment that are now becoming available to increase the effectiveness of public expenditures in the fight against poverty. A. GROWTH OPPORTUNITIES 17. Burkina Faso is at a cross-roads in its economic development. To achieve a reduction in poverty, a continuation of the current growth trend is not sufficient. While real GDP growth averaged 3 percent since 1985, the devaluation in January 1994 and the sound management of the post-devaluation adjustment process have built the basis for higher growth in the future, provided Burkina Faso opens up to new opportunities- domestically, regionally, and globally. While the economy is likely to remain highly dependent on its agricultural sector, the greatest growth potential exists in the secondary and tertiary sectors. 18. Sustaining growth in agriculture. Over the past decade, agricultural growth has outpaced the other sectors of the economy. However, much of this growth resulted from expanded cultivation of land recently freed of onchocerciasis. With over 80 percent of the population living in rural areas, agriculture is the main source of income and the main sector of employment. At the same time, the Poverty Profile has shown very clearly that the incidence of poverty is the highest among agricultural households. The challenge is to sustain growth in the agricultural sector. 19. Following the devaluation of the CFA franc in January 1994, export oriented commodities now have significant potential to expand. Cotton production had fallen from 190,000 MT in 1990/91 to 117,000 MT just prior to the devaluation before rebounding to 145,000 MT in 1994/95. Yet, producers are still faced with a number of structural problems, such as large amounts of arrears owed by cotton producer cooperatives to the state cotton monopoly (Societe des Fibres Textiles du Burkina Faso, SOFITEX). With improved price incentives-an increase to CFAF 160/Kg was announced for the 1996/97 season, up from CFAF 80/KG just prior to the devaluation-and improved management of the sector by SOFITEX, growth rates of 10- 15 percent annually could be achieved over the next several years. Similar growth rates can be achieved in other exportable commodities, particularly livestock products, fruit and vegetables. Continued growth can also be achieved in the production of traditional food crops where yields are low  8 compared with countries in similar climatic zones. While the potential to expand arable land is limited, significant yield increases are possible through improved cultivation techniques. 20. While traditional agricultural activities will continue to form the backbone for a large part of the rural population, poverty reduction can only be achieved if new and innovative activities are pursued simultaneously to advance beyond subsistence farming. Rural areas must therefore become the focal point of public service delivery and efforts to improve access to financial resources. Pilot operations conducted by Economic Development Institute (EDI) in Burkina Faso have already demonstrated the benefits of training women s groups in simple financial management. These methods are now applied more broadly by local NGOs and linked to on-going rural projects. Furthermore, Burkina Faso's tradition of communal involvement and decision making can be a great asset in ensuring that agricultural development goes hand-in-hand with natural resource management. 21. Developing new industries. The past performance of the industrial sector, particularly in manufacturing and mining, has been very poor. State control of strategic monopolies, such as petroleum import, electric power, and telecommunications, contribute to raising the cost of doing business and lowering the returns to private investment. Electricity costs of US$0.20 per kwh are high by any standard, and regular gasoline costs US$2.80 per gallon (of which only US$0.90 are taxes) compared with a cif price of US$0.60 at the port of Abidjan. 22. If current exploration plans for gold mining materialize and lead to the expected findings of additional gold deposits, actual production may well increase ten-fold, reaching 15 tons annually by 2005-provided the GoBF adheres to its decision to abolish the gold export monopoly (CBMP). This would make Burkina the fourth largest gold producer in Africa. To fully take advantage of these natural resources and maximize their contribution to poverty reduction, rural communities need to become involved to prevent possible harmful environmental effects of mining development, and link infrastructure and agriculture investments with mining production activities. 23. More generally, there is substantial room for growth in industrial production. Between 1990 and 1993, the Government's index of industrial production fell by 15 percent-textiles fell by 35 percent-in large measure due to a lack of competitiveness and declining cotton production. Following the devaluation, there was an immediate recovery in a number of subsectors-including a 17 percent increase in textiles in 1994-which bodes well for a revival of the manufacturing sector. One obstacle faced by successful informal businesses, however, is the currently high level of domestic tax rates (the corporate tax rate stands at 45 percent), which discourages small enterprises from expanding and becoming part of the formal economy. 24. Providing local, regional, and global services. The past performance of the services sector has been similarly weak. The banking sector has recently undergone a major restructuring exercise, but has been unable to mobilize adequate amounts of medium- and long-term financing. Financial intermediation could be greatly facilitated through the development of non-bank financial institutions, such as insurance companies, pension funds, and leasing firms, to create access to term and equity financing. 25. The financial system can also play an important role in facilitating the remittance of earnings from Burkinabe living abroad. Private remittances declined from US$113 million in 1991 to US$63 million in 1994 when the estimated 3 million Burkinabe living predominantly in Cote d'lvoire reduced remittances substantially in real terms. However, the anticipated economic  9 recovery in the entire CFA zone should lead to higher remittances. With the change in the parity of the CFA franc to the French franc, remittances from non-UEMOA francophone countries are an important source of national income. Such opportunities could be expanded by developing an educational policy that is based on regional labor demand. 26. A further growth opportunity, particularly for a landlocked country like Burkina Faso, are exports of high value-added agricultural products that depend on air transport, such as flowers, fruit and vegetables. However, to develop these opportunities, low cost access to reliable air, rail, and road transport is essential. Furthermore, entirely new service industries could develop with the advance of telecommunication technologies that make location a minor factor relative to labor costs. 27. The Government is already a strong supporter of regional initiatives, among them the customs union envisaged under the West African Economic and Monetary Union (UEMOA) treaty and the harmonization of business and commercial laws under the OHADA treaty.3 Regional integration in the framework of the UEMOA, however, must include not only a free movement of goods and services, but also labor and financial flows. The harmonization of external tariffs and investment codes means, furthermore, that Burkina Faso will have to compete for foreign investors by offering a more attractive investment climate through economic stability, efficient service delivery, and low cost access to key inputs. In addition, progress has to be made to upgrade the quality of the judiciary to provide the reliability and predictability necessary to reassure private investors. B. DEVELOPMENT CHALLENGES 28. Fiscal Management. Since 1991, Burkina Faso has received about US$150 million in official budgetary grants annually, equivalent to about 6 percent of GDP. At the same time, domestic revenues averaged about 12 percent of GDP-covering not even all current expenditures, which averaged close to 13 percent of GDP. As a result, over 90 percent of the investment budget was financed through external resources. To become less dependent on variations in external financing flows, domestic revenues will have to rise. Given the small base on which to collect tax revenue-essentially the formal sector and imports-this is not an easy task. Most of the improvement has to come from improved compliance and a broadening of the tax base, rather than higher tax rates. While revenue generation is one constraint, the distribution of expenditures, particularly current expenditures, is another. The wage bill is equivalent to 5.3 percent of GDP as a result of the high cost of civil servants who receive on average 12 times the per capita income, compared with 5 times the per capita income in Ghana. Bunching at the upper echelons of the pay scale is the structural factor underlying the high cost of the civil service. The anticipated increase in recruitment in the social sectors requires a careful look at the hiring, salary, and promotion policies, as well as a sharper definition of the role of the state to reduce the number of civil servants in areas where the private sector can provide services more efficiently. 29. Providing health services. Low life expectancy is to a large extent the result of high infant and child mortality, which is caused by widespread contagious diseases and unfavorable hygienic conditions. In addition, chronic malnutrition and micronutrient deficiencies among childbearing women are a significant cause of mortality among children and women in the 20-49 3 Organisation pour l'Harmonisation de Droit des Affaires en Afrique.  10 year age group. An additional health risk for the future is the rapidly increasing spread of AIDS. Already, an estimated 7 percent of the adult population has been infected with HIV. To combat these developments, the Government has developed a health sector strategy that focuses on decentralizing its activities through the establishment and development of 53 health districts, each covering a population of about 200,000. Thus far, however, efforts to reach the poor are handicapped by the inequality in the delivery of medical services. While the Province of Kadiogo, which includes Ouagadougou, has 5,700 inhabitants per physician, the Province of Seno in the North-East of the country has 153,000 inhabitants per physician. The disparity is similar for most medical staff and any other predominantly rural province. Equipping all 53 health districts not only with facilities and medication but also the necessary medical staff and requisite maintenance poses enormous financial requirements. In addition, generic drugs are not as widely used as was anticipated under the Priority Action Plan for Primary Education and Health. Of about 700 generic drugs deemed to be essential, less than 50 are currently distributed by the private sector. This severely limits the accessibility of generic drugs throughout the country. 30. Educating future workers. Since the implementation of the Action Plan following the devaluation, primary school enrollment has increased from 34 percent in 1993/94 to an expected 40 percent in 1996/97. For the poorest quintile of the population, the ratios are only half the national average. The situation is the most severe for girls who are on average half as likely to be enrolled in primary school as boys. The situation is similar for secondary school enrollment which has reached 9 percent in 1994 and is limited almost exclusively to the urban population. Here too, girls are only half as likely to attend secondarv school as boys. 31. At the primary school level, apart from low enrollment rates, the quality of teaching and the effective duration of the school year are still very low. Under the Action Plan, 950 new teachers are hired every year, but many don't receive the usual two year training program because of capacity limitations of the teachers' college. In addition, the effective school year has only 108 teaching days, compared with an international norm of 180 days. The Government is, however, in the process of developing a strategy for increasing the efficiency of resource use in the primary education sector. At the samne time, an integrated primary and post-primary education strategy is being formulated that aims at increasing the participation of the private sector, particularly in secondary education, to free up resources for the continued expansion of public primary education. 32. Managing natural and water resources. Environmental conservation and natural resource management are critical to poverty alleviation and economic growth in Burkina Faso. The fragility of the environment, which is largely caused by rising demands placed on limited water resources, agricultural mining of the soil (a product of high population density and migration), and mining of natural forests for fuelwood harvesting to meet the growing urban demand, poses a major threat to the sustainability of agricultural production and growth. Consequently, in June 1991, the Government put in place a National Environment Action Plan. More recently, parts of this plan have been implemented by a new approach to natural resource preservation based on community land management. This Bank-supported approach is now being implemented increasingly nationwide and finds widespread support among beneficiaries. 33. The management of water resources poses a particular problem in Burkina Faso. Rainfall is limited and the catchment area of the Volta river that includes most of Burkina Faso also covers most of Ghana, including Lake Volta and the Akasombo dam, which supplies much of Ghana's electricity. The medium-term potable water supply in rural areas can be sustained through groundwater resources, although soil degradation in rural areas has already led to lower  I1 infiltration rates and a fall in the water table in some regions. The situation is more urgent for urban centers, particularly Ouagadougou. Increased use of groundwater to supply Ouagadougou would not be sustainable, yet there are no other water resources in the immediate proximity. Applying a standard of 25-40 liters per capita per day, urban water supply coverage was most recently estimated in 1991 to be around 57 percent. The problem in rural areas is one of accessibility, rather than the total water resource availability. Based on a per capita consumption of 20 liters per day, rural coverage increased from 36 percent in 1986 to 72 percent in 1992 (most recent estimate), but large regional discrepancies persist-varying from 31 percent to 115 percent. As a result, an estimated 40 percent of the rural population have no access to clean water at all, usually in the poorest regions. The Poverty Profile has also very clearly identified the need to improve the distribution of services and the access to potable water in rural areas. 34. Developing implementation capacity. A formidable challenge for the future is the limited implementation capacity of the public sector. Although an annual investment budget is formulated as part of the regular budget preparation process, only about 70 percent has been implemented. While donor financing is available for about 90 percent of the investment budget, current institutional capacities do not allow for quick absorption of these funds. In addition, exact monitoring of investment spending at the central level is virtually impossible which makes redirecting resources towards priority sectors and regions difficult. However, a new financial management and public accounting system was computerized on January 1, 1996 and the first results are very encouraging. Improving control of financial flows, however, is not sufficient. A far greater challenge will be to redirect public spending from the planning stage forward. As part of this process, the GoBF is currently carrying out its own Public Expenditure Review with the intention of using it as an input into the budget preparation process to begin to address regional inequalities. Similarly, the results of the Poverty Profile are already used to provide policy makers with the information necessarv to improve the provision of public services to poor areas and to women. Both of these processes are in their early stages of development and will take time to become integral parts of public policy making in Burkina Faso. Having both exercises be led by Burkinabe teams, however, bodes well for the future. 35. The recently conducted civil service census is the first step towards re-aligning public sector functions. At the same time, the,Government intends to begin the process of defining its role for the future, in complement to the private sector. Faced with tight resource constraints in implementing its social sector agenda, the GoBF will have to make substantial efficiency gains in its service delivery, as well as reduce its spending on non-priority functions and areas where the private sector can provide services more effectively. At present, however, the debate over the role of the state is only slowly beginning. 36. A significant asset for Burkina's future development can be the on-going decentralization process. Community-based approaches to problem solving and decision making have worked well in Burkina. In addition to natural resource management, such approaches are increasingly adopted in the design and management of rural and urban projects. While the implications of the decentralization process are not yet fully clear, fiscal decentralization will become a part of Burkina's strategy to improve regional resource allocation. 37. A different challenge regarding the implementation capacity of the public sector exists for the judiciary. At present, judicial institutions and the legal profession in general are weak and do not provide a reliable forum for intermediating civil disputes. If the private sector is to become the engine of growth and market based principles are to guide investment decisions, the quality and  12 reliability of the judiciary will have to be upgraded substantially. While we are working with the Burkinabe on these issues, the response thus far has been very limited. IV. IMPLEMENTATION AND PORTFOLIO MANAGEMENT 38. Total IDA lending to Burkina Faso as of January 31, 1996 amounted to $801 million for 49 credits. The 15 on-going operations have an undisbursed balance of $188 million. Prior to FY91, we were restricting our investments primarily to agriculture and infrastructure, averaging one new credit per year and disbursing between US$11-14 million annually. New commitments rose quickly with the beginning of the adjustment program, averaging US$80 million a year over the period FY91-95. Correspondingly, our disbursements rose to US$90 million in FY95. The increase in our lending program was accompanied by four quick disbursing operations with a total of US$163 million-the first Structural Adjustment Credit (SAC 1), a transport and an agricultural sector adjustment credit, and the Economic Recovery Credit (ERC)-of which only US$8 million remains undisbursed from the Transport Sector Investment/Adjustment credit. 39. Implementation and Table 3: Disbursement Performance Disbursement. Following the (in US$ million) quadrupling of our lending program that occurred after the FY91 FY92 FY93 FY94 FY95 FY96 beginning of the adjustment Jul- program, we deliberately May slowed our new lending to Total Disbursement 14.5 67.7 49.5 65.4 89.7 64.1 focus on implementation durin Investment 14.5 26.5 49.5 36.1 38.5 43.9 focus on implementation during Budget Support 0.0 41.2 0.0 29.3 51.2 20.2 FY95-96. The results have paid off even though extensive contract restructuring following the devaluation in early 1994 temporarily slowed disbursement under investment credits. A significant step forward was the first full scale Country Portfolio Performance Review (CPPR) that took place in Burkina during April 1995. At that time, particular attention was paid to procurement reform which is already bearing fruit in the improvements in Burkina's own procedures-a process that is supported by our Public Institutional Development Project. A significant factor in improving our implementation performance has been our Resident Mission Implementation Unit. Monthly evaluations of disbursement and implementation performance with the 15 Burkinabe project teams and our task managers have helped resolve problems more quickly than in the past and will be relied upon even more heavily in the future. 40. To build up the Government's own implementation capacity, we are increasingly conducting supervision missions jointly with government officials. We will formalize this process on a pilot basis for our on-going Food Security Project. V. ECONOMIC SCENARIOS AND RISKS 41. If reducing the number of Burkinabe living in poverty is the yardstick for success in poverty alleviation, Burkina Faso has no choice but to significantly accelerate economic growth. Reducing the number of Burkinabe living in absolute poverty from 4.7 million in 1994 to around 4 million by the year 2005 would require that growth accelerates substantially to reach an average of 6 percent a year, and is equitable. Given that Burkina Faso has never achieved such growth rates over a sustained period of time, we consider this to be a goal, but not a likely projection. Our  13 most-likely projection assumes that structural reforms continue in agriculture, including improved price incentives for cotton producers, a lifting of the gold export monopoly, completion of banking sector reform, and improved public sector management (see also Box 2). We estimate that our projection would not lead to a reduction in the absolute number of poor living in Burkina Faso, but nevertheless to positive income growth on a per capita basis and, thus, a reduction in the incidence of poverty (see Table 4). 42. For illustrative purposes, we also provide a plausible macroeconomic scenario that would be consistent with the stated poverty reduction objectives. However, while we can identify the changes in the structure of the economy that would be required to support higher growth, we have not yet successfully identified the means by which these changes could be achieved. Much of our non-lending program will be geared towards this end. In addition, we have included a low growth scenario that might become relevant should the political risks identified below materialize. 43. Most-likely Projection. Our projection is for GDP growth through 1999 to average 5 percent, somewhat below the official target of 6 percent, but one that still represents a continuation of the positive post-devaluation trend. With the one-time effects of the devaluation fully absorbed, we anticipate that growth would average about 4 percent a year from 2000 onward. In assessing economic prospects, we have assumed that the GoBF continues with its prudent fiscal management, and generates increasing public savings to compensate for the expected decline in extemal grant and concessional financing. This would allow the GoBF to maintain public investments at around 8-9 percent of GDP, while maintaining a low inflation environment. 44. Private savings and investments would rise slowly, reflecting the improved domestic investment climate created through low inflation and regulatory reform. Such a development is consistent with a gradual decline in the extemal current account deficit. Both export and import volumes would rise gradually, but not substantially exceed real GDP growth as the presence of state monopolies is likely to suppress a significant expansion of trade volumes that would be associated with much higher levels of domestic and foreign private investments. 45. Burkina Faso's extemal debt position has been analyzed jointly by the IMF and the Bank and is currently assessed as sustainable. Debt service payments as a percentage of export of goods and services (liquidity ratio) are projected to fall to about 13 percent in 2005 assuming a slight decline in new commitments from IDA and continued access to concessional and grant financing. The ratio of the net present value of the debt stock to exports of goods and services is projected to fall from 235 percent in 1995 to 136 percent in 2000. Because of its high degree of dependence on foreign concessional financing, Burkina Faso is vulnerable to a change in financing terms. While we anticipate a decline in budgetary grants from US$160 million in 1995 to around US$110 million over the medium term, a sharper decline is possible. Assuming that a shortfall in grant financing is replaced by increased concessional lending on IDA terms, a reduction to US$50 million annually in budgetary grants would result in a liquidity ratio of 14 percent by 2005, while a complete stop of grant financing would raise the liquidity ratio to 15 percent. 46. High Growth Scenario. To sustain higher growth rates, the private sector will have to become much more active. Substantially higher export growth rates would have to be achieved and be supported by stronger growth in private investment, both domestic and foreign. This would allow the Government to increase its tax base significantly, and thus raise the financial resources to expand the provision of public services in health and education. Improved human. resource  14 development would then provide the basis for sustaining higher growth rates well beyond the year 2000. Table 4: Macroeconomic Scenarios and Comparative Indicators 1995 1996 1997-99 2000-05 Real GDP Growth, % High 4.2 5.3 6.0 6.1 Projection 4.2 5.3 5.3 4.1 Low 4.2 4.0 2.7 2.5 Number of Poor, in millions High 4.7 4.7 4.6 4.1 Projection 4.7 4.7 4.8 4.9 Low 4.7 4.8 5.3 6.4 Incidence of Poverty, % High 43.0 41.9 38.8 30.7 Projection 43.0 41.9 39.5 36.1 Low 43.0 42.3 44.5 47.0 Private Investment as % of GDP High 12.9 13.5 15.2 17.5 Projection 12.9 12.9 14.1 13.5 Low 12.9 12.5 12.5 10.3 Public Investment as % of GDP High 9.3 10.1 9.4 8.1 Projection 9.3 10.1 8.4 8.4 Low 9.3 9.8 7.1 5.7 ICOR High 5.3 4.7 4.1 4.2 Projection 5.3 4.6 4.2 5.4 Low 5.3 5.6 7.4 6.4 RealExportGrowth,% High 7.1 7.0 7.7 10.3 Projection 7.1 6.2 4.6 5.3 Low 7.1 5.0 3.6 3.3 Current Account Deficit as % of GDP High 12.9 12.8 11.6 9.7 Projection 12.9 12.8 11.3 7.7 Low 12.9 13.0 11.9 8.8 Budgetary Savings as % of GDP High 0.6 1.5 2.6 5.1 Projection 0.6 1.5 2.9 5.4 Low 0.6 1.2 1.5 2.2 47. Risks and Low Growth Scenario. Under our base projections, we are assuming continued policy reforms and an improvement in the implementation capacity of the public sector. Neither can be taken for granted and poses a risk for Burkina's growvth prospects. Given the experience garnered during the run-up to the last presidential and parliamentary elections, when the reform program came to a virtual standstill, some additional delays could occur during the next two years. Our Information, Education and Communication (IEC) strategy, will be the principal instrument through which we will attempt to mitigate this risk by disseminating infornation about the need for and the benefits from policy reforms (see below, para. 78). Concerns have also arisen from occasional policy reversals, such as export restrictions on hides and skins. While these have been rectified in the past, they are signs of underlying political disagreements on the direction of the reform program. A return to a more interventionist role of the state would jeopardize not only our  15 planned assistance, but more importantly the development of the private sector and prospects for growth in Burkina. 48. A continuing risk comes from Burkina's vulnerability to droughts. Poor rainfall can easily lead to a sharp contraction of output, combined with local food and water shortages. In addition, droughts can have a devastating effect on Burkina's export earnings, as much comes from cotton and livestock, both of which depend on adequate water availability. At the same time, food imports would rise quickly, although much of it may come in the form of food-aid. While the Government has developed a strategy for addressing localized food shortages, extended periods of drought could pose problems of a far greater magnitude, including a drop in the water table. Fortunately, rainfalls have by-and-large been adequate over the past decade. However, we intend to work with the GoBF to develop options for mitigating the impact of prolonged droughts. Some initial work has been conducted by the Overseas Development Institute (ODI) to address the macroeconomic impact of droughts in selected sub-Saharan African countries, including Burkina Faso. We will work in close collaboration with ODI to pursue this initiative further. VI. THE BANK GROUP'S COUNTRY ASSISTANCE STRATEGY 49. The focus of our assistance strategy for Burkina Faso is to support the Government in its goal to achieve sustainable development and poverty reduction through increased economic growth and better targeted human resource development as outlined in the Letter of Intent for Sustainable Human Development (para. 16). As such, our strategy is now evolving from the previous CAS, where the main objective was to stabilize the economy and manage the post-devaluation adjustment. That strategy was successful, which allows us to focus now more sharply on poverty alleviation. Our goal is to help Burkina Faso move beyond the currently anticipated growth path to achieve higher, equitable growth and substantially reduce the number of Burkinabe living in absolute poverty. 50. Achieving, and sustaining, the economic growth necessary to reduce poverty in absolute terms means a substantial improvement over Burkina's previous growth performance. Such growth is only feasible with strong policy reforms, greater participation by the private sector and a more selective, better focused public sector. While we can help the GoBF identify constraints to growth and work towards reducing existing barriers, we cannot '"ake growth happen" Economic development in Burkina Faso will have its very own characteristics. It will be very much community-driven and the outcome of participatory approaches. Our ability to convert this CAS into growth in Burkina will be maximized if we ourselves adopt participatory approaches in the implementation of our strategy. 51. For the coming three-year period, we are asked to support Burkina Faso's efforts to reduce poverty by working with the GoBF towards realizing the growth opportunities and meeting the development challenges outlined above. Our principal instrument of assistance will be investment operations, supplemented by adjustment credits. However, non-lending services will become increasingly important to improve targeting of public services and identify sources of growth in the post-devaluation environment. As in the past, we will continue to be selective in our focus and rely on the entire donor community, NGOs, and the private sector to work together towards helping Burkina Faso in the realization of its development objectives.  16 A. PARTNERSHIP AND AID COORDINATION 52. Burkina Faso benefits from broad-based donor support. The adjustment program, while initiated in discussions between the Government, the IMF and the World Bank, has benefited greatly from external assistance from the Governments of France, Germany, Norway, Canada, the Netherlands, Belgium, Denmark, and Switzerland, as well as the European Union, and the African Development Bank. Additional support was provided by the West African Development Bank, a number of Arab Development Funds, as well as the OPEC Fund. The UNDP has played a particular role in organizing the donor community through bi-annual Roundtables. While those partners remain important for us, others have helped spread innovative approaches. With the help of the Japanese government, Quality Circles have been introduced in Burkina, based on Japanese management concepts. These have proven to be highly effective and well suited to local conditions. Burkina Faso was also able to draw on resources from the Global Environmental Facility for the protection of biodiversity. 53. We coordinate closely with other multilateral and bilateral donors through regular consultations to secure adequate funding for projects, as well as through participation at UNDP-led Donor Roundtables. In addition, sectoral Roundtables serve to coordinate donor policies and assure financing that is adequate for sector needs. Such a roundtable recently took place in Ouagadougou for the transport sector and is being organized for the social sectors later this year. However, ensuring the presence of all concerned donors has been a problem. 54. We are also increasingly coordinating our activities with local and international NGOs. To this end, we have recently added a local NGO coordinator to our resident mission staff. While interaction on a project-by-project basis with local NGOs has always been part of our work, we are now pursuing more detailed initiatives to facilitate this collaboration. Promising contacts have been established particularly by EDI while working with local NGOs to teach women's groups basic credit and business planning techniques. 55. Close collaboration between the Bank and Fund during the course of the first program under the Enhanced Structural Adjustment Facilitry (ESAF) between 1993 and 1995 has led to broad agreement about the course of reform, as well as the macroeconomic program. This collaboration will continue during the next ESAF program that was presented to the Boards of the IMF and the Bank in June 1996. There are no outstanding disagreements between the two institutions regarding performance under the current ESAF program, or the evaluation of the sustainability of extemal debt. B. COUNTRY ASSISTANCE STRATEGY OBJECTIVES 56. Our assistance strategy supports the GoBF's development goals on three levels: (i) maintaining a sound macroeconomic environment in which equitable growth can lead to poverty reduction; (ii) expanding the provision of social services, particularly in health and education, to the poorest regions to provide the basis on which all Burkinabe can take advantage of growth opportunities; and (iii) improving productive opportunities to raise incomes and increase employment. Two themes guide our assistance strategy and resonate throughout the three areas of assistance: community based participatory approaches, and environmental awareness. Both are essential to achieving sustainable development and poverty reduction in Burkina Faso.  17 57. Monitoring will be an on-going component of our strategy. Macroeconomic outcomes will be monitored with the IMF through semi-annual joint missions in the context of thc ESAF. Social development outcomes will be monitored through sector missions and annual rcvicws of achievements against the indicators established below (see Table 5). Similar to the PFP process for macroeconomic indicators, we will continue the dialogue with the GoBF around these performance indicators and expect to update our targets on an annual basis. As a first attempt to systematically develop monitorable performance indicators for the social sectors in our CAS, we have relied heavily on the Government's own performance targets. Projections over the near-term (1996-99) can be achieved through programs that are currently under implementation, while longer-term targets (2005) represent ambitious goals that will require innovative approaches and stronger reliance on the private sector. During the course of our future dialogue, we anticipate developing new indicators that may prove to be better suited for the purpose of our assistance strategy. (i) MAINTAINING A STABLE MACROECONOMIC ENVIRONMENT 58. To achieve more rapid growth, Burkina Faso needs to maintaining a stable macroeconomic environment with low inflation. Prudent fiscal policy will continue to be critical to lay the foundation for sustained equitable growth. Short-term monitoring will be conducted under the recently approved second three-year ESAF program. As part of its technical assistance program, the IMF is advising the GoBF on short-term measures to increase domestic revenues through a broadening of the tax base. In addition, we are developing a pilot operation with the GoBF to improve domestic resource mobilization by using existing indigenous institutions and participatory approaches. 59. Medium-term financing will be increasingly coordinated through a move towards sector investment programs in our operations, closer thematic consultations on the ground, and participation in sectoral and macroeconomic Donor Roundtables. Strong performance in achieving the monitorable indicators below will be necessary to maintain the required net inflow of grant and concessional financing from multilateral and bilateral donors, and avoid the risks coming from decreased concessional financing. 60. To attract private investment flows, IFC and MIGA closely complement the Bank's role. Although their efforts thus far have not resulted in significant capital inflows, we will pursue the development of a regional stock exchange and promotion activities to attract, for example, foreign mining investors. In addition, we are working to improve the overall investment climate by strengthening the supervision of prudential standards in the banking sector and improving the capacity of the judiciary to arbitrate in civil disputes. (i;) PROVIDING SOCIAL SERVICES TO THE POOR 61. We will work towards accelerating the provision of social services by relying more heavily on the private sector, improving the quality of service delivery, and expanding the use of alternative methods of service delivery. However, policy reforms and new approaches implemented during the coming years are only likely to accelerate the provision of social services over the medium-term. Our objective for the coming three-year period is therefore to build the basis for faster improvement in social indicators in the future.  18 62. Education. We will support the Government's strategy to increase school cnrollment at the primary and secondary levels, increase the gender ratio in favor of girls, and increase the participation of the private sector. The public sector is not equipped to provide sufficient educational services alone. At present, just the wage cost of educating a single primary school student amounts to $40 a year. Maintaining this cost in real terms, and achieving 75 percent primary school enrollment by the year 2005, would result in teachers' salaries increasing from 20 percent of the total wage bill today to about 40 percent by the year 2005. This scenario is neither feasible nor sustainable, hence, new ways of delivering educational services will have to be employed and an increasing share of students will have to attend private schools. Table 5: Monitoring Social Targets 1994 1996 1997 1998 1999 2005 Actual Projected Target Primary School Enrollment Rate 36% 40% 42% 44% 47% 75% Gender Ratio (Girls/Boys) 0.66 0.70 0.72 0.74 0.76 0.85 Transition Rate from Primary to Secondary 27% 27% 28% 28% 29% 35% Child Vaccination coverage a 39% 45% 50% 55% 60% 90% Supply of Health Centers with Generic Drugs b 21% 35% 55% 80% 100% 100% Use of Contraceptives Urban 17% 21% 25% 29% 32% 45% Rural 2% 4% 6% 8% 9% 15% Urban Water Supply (50 liter/person/day) c 57% ... ... 70% ... 100% Rural Water Supply (20 liter/person/day) d 72% ... 85% ... 100% a Vaccination of infants under 12 months through the Programme Elargi de Vaccination b Availability of generic drugs through the Centres de Sante de Promotion Sociale (CSPS), which is the lowest level within the national health care system. c Most recent estimate is 1991. d Most recent estimate is 1993. Lending. Our support for the primary education sub-sector will continue to be the focal point of our human resource assistance. We anticipate a Basic Education Project as a follow-up to the Fourth Education Project. Our strategy will be to increase the involvement of the private sector in urban areas, where the poverty profile has shown that the ability to pay school fees exists, while focusing public resources on rural areas. At the same time, we are promoting new methods of education, such as leaming-at-a-distance with an increased use of telecommunication technology, an increase in the effective teaching days, and increased reliance on local communities. The success of increased primary enrollment, however, will only be sustained if a sufficient number of students can make the transition to secondary schools. We therefore anticipate new lending to bridge the gap between primary and post- primary education. Given the particular disparity between girls' and boys' access to secondary education, we support the Govenmment's efforts to reserve all new secondary school scholarships for girls coming from the 10 poorest provinces. Our new lending will support the construction of schools that will be operated by the private sector to double the share of enrollment in private secondary schools from presently 30 percent over the next ten years.  19 Non-lending services. We will work with the Government and the private sector through the on-going Public Expenditure Review (PER) and the Povertv Assessment to clearly define the resource constraints, and work to better target public expenditures in education towards the underserved regions. In addition, we plan on exploring the possibility of developing our Post- Primary Education project into a sector investment program. In this context, we will work closely with Government, donors, and NGOs to coordinate our policies and investment activities. We will also work with NGOs and local communities to address demand side constraints that keep girls in rural areas, in particular, from attending school. 63. Health. Our strategy in health will support increased access to preventative health services, generic drugs. and contraceptives in the poorest regions of Burkina. * Lending. Our two on-going operations will continue to support the Government's strategy to decentralize the health care deliverv system, improve the nutritional status of the population, accelerate the fertility decline, and slow the spread of AIDS. The specific targets for 1999 spelled out in Table 5 should be achieved at the conclusion of our on-going projects. Because of the long-term nature of change in reproductive behavior, and the severity of the AIDS crisis, we will remain involved in the sector through a Health Sector Investment Project. * Non-lending services. Together with the education sector, the health sector will be subject to a thorough analysis in the context of the on-going PER and Poverty Assessment. Particular attention will be paid to the recurrent cost implications of expanding the health care delivery system, and the geographic distribution of public expenditures. 64. Public Sector Implementation. Our strategy is to support the GoBF in defining the role of the state, re-aligning its functions with that role, and increasing its capacity to effectively deliver public services to the poorest regions. At the same time, we provide support to strengthen the local judiciarv and enable it to apply written law properly towards the settlement of civil disputes. * Lending. We support the Government's efforts to rationalize, focus, and modernize the public service through on-going technical assistance under the Public Institutional Development Project (PID). This includes the implementation of a modem financial management system to increase the Government's ability to effectively re-allocate public expenditures. Under the legal component, we support continuing education programs for the legal profession, but local participation and enthusiasm has, thus far, been disappointing. * Non-lending Services. The on-going PER has highlighted the need for better targeting of public services and a more equitable distribution of public expenditures. We will support the Government in the preparation of its ow-n PERs and in making them an integral part of the budget making process. We are participating in this exercise by providing guidance, suggestions. and feedback, as well as facilitating in the dissemination of results both domestically and within the donor community. We are fully supportive of the Government's efforts to combine this work with the on-going Poverty Assessment to further improve the Government's ability to direct public spending towards the poorest segments of the population. * Annual CPPRs will further serve to identify bottlenecks in the Government's implementation capacitv and, thus, serve as an important instrument even beyond the scope of Bank financed projects. Furthermore, as discussed in para. 40, we are increasinglv using the supervision of our lending operations to strengthen the Government's own project implementation capacity.  20 65. Decentralization. We intend to make full use of the on-going decentralization process to improve targeting of social serviccs to the poorest regions. While we do not anticipate direct financial or technical support for the decentralization process, all of our operations will explore opportunities to utilize this devolution of decision making to increase community participation. (iii) CREATING SUSTAINABLE INCOME, EMPLOYMENT, AND GROWTH OPPORTUNITIES 66. Our strategy is to improve income, employment and growth opportunities by strengthening the role of the private sector, improving access to services and resources, and opening new markets. We intend to use a combination of adjustment and project lending, as well as formal and informal analytical work. These instruments will be supplemented with services provided by IFC and MIGA (see Box 3). 67. Agriculture. The principal element of our agricultural sector strategy is to complete the reform agenda on trade and price regimes, liberalize and reorganize key sub-sectors (rice, cotton, and sugar), and streamline the public service deliverv of the Ministrv of Agriculture. To promote a supply response, we intend to help the Government to better target and improve the implementation of the Public Investment Program. As an important donor in the sector, we are well placed to work with other donors. particularly France and the European Union (EU), to support such reforms. We w,ill furthermore, work with the Government through an intensified economic dialogue on finding sustainable sources of growth in agriculture to meet the medium- and long-term development challenges set out above. * Lending. In support of this strategy, we anticipate a second Agricultural Sector Adjustment Credit. Delivery of gender-conscious public services and the restructuring of the Ministry will be supported by an Agricultural Services Project. * Non-lending services. To support sustained agricultural growth and explore new growvth opportunities, we will begin to develop an Agricultural Sector Growsth Strategy in close collaboration with stakeholders and Government. This will be our main analytical tool for integrating agricultural growkth with our environment and poverty alleviation strategy. 68. Mining. Our strategy is to help the GoBF manage the anticipated surge in international mining investment. by creating an attractive investment climate, strengthening the environmental monitoring capacity, and enhancing the GoBF s abilitv to assess the financial performance of mining investors. In this context, we support a complete withdrawal of the public sector from exploration and production activities. In tandem. MIGA and IFC will maintain close contact with foreign investors and could hclp mobilize financing for future developments. * Lending. Our mining operation will provide the necessary technical assistance to ensure that gold resources are exploited in a fashion that is consistent with the sustainable management of all natural resources. In addition, w%e will help the GoBF put in place a regulatory regime that focuses on taxing profits, rather than investments. 69. Finance. Our strategy focuses on supporting sustainable rural financial institutions and improved access to financial resources for women, the development of non-bank financial institutions. and improved regulatory supervision.  21 * Lending. In the area of rural finance, we will work through the second agricultural sector adjustment credit to coordinate on-lending policies among donors to avoid crowding out domestic savings generation, and undermining the financial sustainabilitv of indigenous institutions. We will also work specifically with local NGOs and rural financial institutions to expand access to financial resources and integrate such components in future lending operations aimed at rural areas. * Non-lending. In the formal Box 3: Promoting Private Investment - sector, we will work closely with The Bank Group IFC to assist Burkina Faso in the Prior to the devaluation, the poor investment climate in development of new financial Burkina Faso did not provide an adequate background for instruments to mobilize equity formal involvement by IFC and MIGA. Although the and medium- to long-term devaluation has improved Burkina Faso's competitiveness, it is likely that both IFC's and MIGA's activities will build up financing as well as todevelopa only gradually as the private sector expands. regional stock exchange. At the same time, we will continue to I IFC, in collaboration with IDA, intends to support the support the UEMOA banking establishment of a Regional Stock Exchange in Abidjan. commission to strengthen their IFC is also working on deepening the financial sector by supervisory capacity to enforce supporting the development of bank and non-bank existing prudential regulations in financial institutions. Investment opportunities have the banking sector. been identified and are currently being analyzed. In the small and medium-sized enterprise sector, the African * We will begin a review of legal Projects Development Facility (APDF) is providing statutes as they relate to the technical assistance and advisory services, while statutes as they relate tomthe investment opportunities are pursued through the financial sector with a particular African Enterprise Fund. The Foreign Investment emphasis on increasing the Advisory Service (FIAS) intends to help Burkina assess accessibility of credit for women. and improve its competitiveness and environment for In addition, we will build on the foreign investors. experience gamered under EDI supported pilot projects to expand . MIGA, through its Investment Marketing Services, has the linkage between Bank actively worked with the GoBF in the promotion of projects, NGOs and women's mining opportunities. Burkina Faso was represented at groups. The role of EDI during the African Mining Investment and Business this next phase will change from Opportunities Symposium. Investment opportunities are thatso anex imphaseeo ol thae pilot also being disseminated world-wide through MIGA's that of anmplementorofthepilot IPAnet, which provides information on Burkina's to a facilitator. We will retrofit mining sector to international investors over the on-going operations to continue Internet. this collaboration, and include them in our future operations in rural areas. 70. Transport and Infrastructure. We continue to use the sector investment approach to improve and expand the existing road netvork. In addition, we promote the stronger involvement of the private sector in the delivery of transport services. * Lending. Through our on-going Transport Sector Adjustment/Investment credit, we will continue to support out-contracting of road maintenance to assure sustainability of the road maintenance program. The provision of rail and urban transport services has already been transferred from the public sector to private operators through concession agreements and the privatization of air transport services is currently undenvay. We will continue to support an  22 improvement in both urban and rural infrastructure through our planned Local Development Support Program. 71. Water. We will support the sustainable management of water resources in urban and rural areas. In rural arcas, we promote community-based approaches to sustainable water resource management through our lending operations, and will begin analytical work to assess the long-term sustainability of ground water resources. We intend to continue our support for an expansion of sustainable water supply in Ouagadougou. Lending. Given the importance of water management to Burkina Faso, the relative technical difficulties in supplving Ouagadougou (see para. 33). and the donors' preference for rural water projects, we anticipate a Water Supply Project for Ouagadougou that focuses primarily on the poor urban periphery. We, thus, continue the approach we agreed with Government in 1993 with the approval of the engineering credit for the Ouagadougou water supply. At the same time, we will monitor the development of rural water supply against the benchmarks described in Table 5. Our resident mission staff will participate in coordination meetings with NGOs, Government, and other donors. If necessary, we would become more actively involved in the development of rural water supply in the context of a Local Development Support Program in follow-up to the environmental management project. 72. Environment. Our strategy is to promote community-based approaches to environmental management through investment lending. At the same time, we are promoting community-based approaches to health, education, and agriculture as an effective way to integrate natural resource management with social improvements and productive activities. * Lending. We will continue to assist the Govemment in its fight against land degradation and loss of soil fertility through our on-going Environmental Management Project. We anticipate continuing our participation through a Local Development Support Program, which would integrate the sustainable exploitation of traditional energy sources within the on-going natural resource management strategy. We expect to draw on resources from the Global Environment Facility (GEF) for the first phase of a traditional energy program. In addition, our lending for technical assistance in the mining sector will also improve the capacity to monitor and manage natural and water resources. 73. Utilities. We intend to work with the GoBF to lower the cost of public utilities by involving the private sector in the operation of utilities, such as electricity, telecommunication, and water. * Non-lending. During the initial stages, our support will be centered around the preparation and dissemination of best practice examples and their particular application to Burkina Faso. In the telecommunications sector, we will support the introduction of private service providers in competition with the state enterprise. Similarly, we would provide initial support in preparation for liberalizing petroleum imports and opening the power sector to private participation. In all cases, our concern is to find the least cost approach to providing an adequate level and quality of service. 74. Economic Integration. Openness to all external markets must be pursued to reach the growth rates required for poverty reduction. We continue to place great importance on helping Burkina Faso become further integrated in the region and fully support on-going initiatives in the  23 context of the UEMOA, the OHADA, as well as the development of a regional stock exchange. We will continue to support the commission of the UEMOA in preparing for a customs union. In the meantime, Burkina Faso can benefit from a further liberalization of its own trade regime. By creating a favorable external environment now, Burkina will be well placed for the planned customs union. In addition, developing an integrated approach to regional infrastructure development, such as the recent privatization of the railroad connection between Abidjan and Ouagadougou, needs to be pursued further-also with Burkina's other neighbors. This approach to regional integration is also promising in the area of power supply. Finally, regional initiatives to resource management need to be promoted more actively. This is certainly the case in water management where Burkina Faso controls the flow of the Volta River into Ghana, but also for cross-border land management initiatives. C. BANK INSTRUMENTS 75. Non-lending Services. With the emphasis for the coming years squarely placed on poverty reduction, we are increasingly asked to address the more difficult questions of how to achieve equitable and sustained growth in the post-devaluation environment. Our non-lending services will center around three separate areas: (i) understanding the dynamics of poverty in Burkina; (ii) targeting the delivery of public services; and (iii) identifying directions for future growth. We will work with the GoBF to address these areas through formal and informal economic and sector work. 76. The cornerstone of our formal non-lending services will be the Poverty Assessment that will guide us and the GoBF in defining more clearly the required composition and distribution of public services. Regular PERs will help to integrate the information stemming from the Poverty Assessment into the annual budget process. In addition, we will undertake more specific sector work to identify sources of growth in agriculture, assess the sustainability of rural ground water supply, and explore new opportunities for employment creation in rural areas. 77. We will increasingly use short policy papers, best practice examples, and regional case studies to facilitate the implementation of the remaining reform agenda. This is particularly the case in the work leading up to private sector participation in utilities, but also for the continuing regional trade and financial integration. 78. Improving Communication. The open discussions in preparation for this CAS have demonstrated, again, the need for better communication with Burkinabe society-about our program, the Government program, and the cooperation between the Bank and the GoBF. We intend to follow a two-pronged approach based on the IEC strategies prepared within our Department and by the Government. We will work within the Bank's overall framework to widely disseminate information about the Bank as an institution and its role in Burkina in particular. Our resident mission is already staffed with a NGO coordinator to facilitate this process. At the same time, the Government recently began to set up its own structure to improve communication about on-going programs and policy issues. This includes the appointment of a high-ranking government spokesperson who is coordinating all public relations efforts. 79. An important step will be the continuing in-country discussions around this CAS as one tool to promote not only our dialogue with the Burkinabe, but also to facilitate a more intense debate among Burkinabe around the challenges and goals identified in this CAS. These debates are supplemented by a series of presentations around the Poverty Assessment and the PER that are  24 scheduled to take place over the coming months throughout Burkina. While we will facilitate and support these discussions, they will be led by the Burkinabe 80. Base lending program. Table 6: Proposed Lending Program FY97-99 Under our base lending program, we would focus our support on achieving Base the monitorable social indicators set Commitments (US$ million) 205 - 260 out above (Table 5) and on providing Sector (%) assistance to the productive sectors, Education 20% mostly agriculture, with a focus on Health 10% rural areas. This base lending Agriculture & 29% program, averaging about US$75 Environment million for about two projects Water & Rural 33% annually, would be consistent with Infrastructure public investments under the base Private Sector 0% economic scenario. This would be Development 8% supplemented by one adjustment Total 100% operation. Instruments (%/6) 81. This level of new Project 84% commitments would result in a decline Adjustment 16% in gross disbursements to about Total 100% US$70 million annually for the FY97- 99 period from US$80-90 million annually over the past two fiscal years. Two factors would account for this decline: (i) the closing of 7 currently on-going operations during the course of 1997; and (ii) the reduced level of adjustment lending. Net transfers, however, would still amount to US$65 million annually over the FY97-99 period, as repayments on the bulk of our disbursements do not begin until after 2001. 82. High lending program. A substantial acceleration in the implementation of the reform agenda could allow us to increase our lending program. We are currently envisaging a second Structural Adjustment Credit that could be prepared for FY98 to support reforms of state monopolies and private participation in the major utilities. However, we will be flexible with regard to the choice of instrument until the content of the program and the financing requirements are more precisely defined. We would also continue our participation in the transport sector investment program through a second investment credit. With the necessary reforms on-going, additional support for direct investments in rural areas would strengthen our efforts to reach the poorest segments of the population and make a real dent in poverty. Under the high lending program, additional commitments of up to US$140 million over the FY97-99 period could be considered for a total of 11 operations, two of which could be fast-disbursing. 83. Low lending program. A number of our operations are conditional on the implementation of sectoral reforms, such as in agriculture and mining. Failure to come to agreement and implement these reforms would prevent us from moving forward with those operations and any other operation that was to benefit from the implementation of the reforms. However, we would continue lending in other sectors, particularly health and education, unless there is a clear change in direction of the Government away from broad-based poverty reduction.  25 84. Lending triggers. In our assessment, moving from our base lending program to higher lending could result in a greater impact on poverty reduction, provided the Government is firnly committed to accelerating the reform program and demonstrates its ability to implement projects efficiently. We, therefore, propose as triggers for a higher lending program measures that would clearly indicate the Governnent's commitment to private sector development, while continuing to focus public sector resources on achieving social sector targets (Table 7). Table 7: Lending Triggers Triggers From Base to * Failure to agree on agricultural sector reform, particularly liberalization of Low rice and sugar, and reform of the cotton sector. From Base to * Making clear progress towards meeting social targets described in Table 4. High * Agreeing to a timetable allowing private sector participation in telecommunications. I* Proposal to liberalize petroleum imports and pricing. VII. AGENDA FOR BOARD CONSIDERATION 85. The Board may wish to comment on: * the proposed use of monitorable social indicators to assess progress made in translating this Assistance Strategy into results on the ground. - the risk of fiscal relaxation in anticipation of parliamentary and presidential elections and the implications for our assistance programn. James D. Wolfensohn President Attachments Washington D.C. June 13, 1996 This strategy was developed by the Burkina Faso Country Team under the leadership of Whitney Foster. Hans-Martin Boehmer prepared the CAS under the supervision of Ngozi Okonjo-lweala. Olivier Lafourcade is accountable for this Assistance Strategy.  Attachment I Burkina Faso: Proposed FY97-99 Lending Program Proposed Projects Low Base High FY97 Post-Primary Education * * * Water Supply * * * Agricultural Sector Adjustment Credit 11 * * Mining Capacity Building Project * * FY98 Basic Education * * * Agricultural Services * * Second Structural Adjustment Credit * Transport Sector Investment Credit II * FY99 Health Sector Investment Program * * * Local Development Support Program * * Private Irrigation * Total Amounts (US$ million) 1010 205-.0 260 32510 Total Number of Projects 4 8 11  Attachment 2 Burkina Faso: Summary of Economic and Sector Work Program for FY97-99 FY97 FY98 FY99 Base Case Formal: Formal: Formal: Policy Framework Paper Policy Framework Paper Policy Framework Paper Public Expenditure Review Public Expenditure Review Public Expenditure Ag. Sector Growth Strategy Drought and Risk Review Employment Study Management Informal: Informal: Informal: Private Participation in Utilities Migration and Remittances Rural Water Legal Codes and Gender Cross Border Trade and Sustainability Price Formation Low Case Ag. Sector Growth Strategy Drought and Risk Rural Water Legal Codes and Gender Management Sustainability  Attachment 3 Page 1 of 2 BURKINA FASO CAS OBJECTIVES - SUMMARY OBJECTIVES MONITORABLE ACTIONS BANK SERVICES 1 Macroeconomic Raise Domestic Revenue NON LENDING: Stability: Raise Public Savings Annual Policy Framework Papers Bi-Annual RoundTable Sustaining real GDP growth at 5 percent Annual Public Expenditure Reviews Study on Drought and Risk Management 2 Providing Social Prepare annual PERs ON-GOING LENDING: Services: Public Institutional Development Project Food Security Project Increase Provision of Social Services NON-LENDING: in 10 Poorest Regions Annual Public Expenditure Reviews Poverty Assessment Annual CPPRs Education Increase Primary School Enrollment Rate ON-GOING LENDING: Education IV NEW LENDING: Improve gender ratio for Primary Post-Primary Education Project and Secondary Education Basic Education Project Health Increase Child Vaccination coverage ON-GOING LENDING: Increase Supply of Generic Drugs Population and Aids Health and Nutrition NEW LENDING: Health Sector Investment Program 3 Creating Income ON-GOING LENDING: Opportunities: Public Works and Employment NON-LENDING: Study on Private Participation in Utilities Employment Study  Attachment 3 Page 2 of 2 OBJECTIVES MONITORABLE ACTIONS BANK SERVICES (continued) (continued) (continued) 3 Agriculture Liberalize Sugar and Rice Imports ON-GOING LENDING: Restructuring of the Ministry of Agriculture Ag. Research Improve Price Structure and Disribution Ag. Services of Benefits in the Cotton Sector Improved provision of Extension Services NEW LENDING: Second Ag. SECAL Ag. Services II NON LENDING: Ag. Sector Growth Strategy Mining Remove Export Monopoly of CBMP ON-GOING LENDING: Create attractive investment climate Mining Capacity Building Ensure environmental sustainability Finance Complete Liquidation of BND-B ON-GOING LENDING: Develop Non-Bank Financial Instutions Private Sector Assistance Project Improve access to finance in rural areas Liquidation of BRCB NON-LENDING: Financial Regulation and Gender. Cross Border Trade and Price Formation; Migration and Remittances Infrastructure Adequatly fund Road Maintenace Program ON-GOING LENDING: Complete Privatization of Air Burkina Urban III Private Operation of Urban Transport Urban Environment Transport SECAL Water Update Letter of Sector Policy ON-GOING LENDING: Revision of Performance Contract for ONEA Engineering Credit Improve implementation of PIP Increase access to potable water in NEW LENDING: the 10 Poorest Regions Ouagadougou Water Supply NON-LENDING: Rural Water Sustainability Environment Complete a study on long-term ON-GOING LENDING: sustainability of rural water supply Environmental Management Expand Community-base approaches to land management NEW LENDING: Local Development Support Program  CAS Annex Al Run Date: 6/11/96 Data as of: 6/10/96 Burkina Faso - Selected Indicators of Bank Portfolio Performance and Management Indicator FY93 FY94 FY95 FY96 Portfolio Performance Number ofprojects under implementation 16.00 18.00 18.00 15.00 Average implementation period (years)' 3.23 3.28 3.73 4.46 Percent of problem projects rated U or HUb (for past years, rated 3 or 4) Development objectives' 0.00 5.56 5.56 6.67 Implementation progress (or overall 0.00 11.11 11.11 6.67 status for past years)d Canceled during FY in US$m 2.10 1.61 1.96 0.00 Disbursement ratio (%)' 20.78 17.29 16.69 17.18 Disbursement lag (%)` 24.90 30.70 20.08 20.61 Memorandum item: % completed projects 33.00 0.00 0.00 0.00 rated unsatisfactory by OED' Portfolio Management Supervision resources (total USS thousands) 1126.14 1093.60 1156.99 851.98 Average supervision (USS thousands/project) 70.38 60.76 64.28 56.80 Supervision resources by location (in %) Percent headquarters 73.58 74.43 74.59 63.97 Percent resident mission 26.42 25.57 25.41 36.03 Supervision resources by rating category (USS thousands/project) ProjectsratedHSorS 70.38 59.39 61.63 51.80 Projects rated U or HU 0.00 71.69 85.43 126.81 Memorandum item: date of last/next CPPR a. Average age of projects in the Bank's country portfolio. b. Rating scale: "HS" denotes "Highly Satisfactory", "S" denotes "Satisfactory", "U" denotes "Unsatisfactory", and "HU" denotes "Highly Unsatisfactory". c. Extent to which the project will meet its development objectives (see OD 13.05, Annex D2, Preparation of Implementation Summary [Form 590]). d. Assessment of overall performance of the project based on the ratings given to individual aspects of project implernentation (e.g., management, availability of funds, compliance with legal covenants) and to development objectives (see OD 13.05, Annex D2, Preparation of Implementation Summary [Form 590]). The overall status is not given a better rating than that given to project development objectives. e. Ratio of disbursements during the year to the undisbursed balance of the Bank's portfolio at the beginning of the year: investment projects only. f For all projects comprising the Bank's country portfolio, the percentage difference between actual cumulative disbursements and the cumulative disbursement estimates as given in the "Original SAR/PR Forecast" or, if the loan amounts have been modified, in the "Revised Forecast." The country portfolio disbursement lag is effectively the weighted average of disbursement lags for projects comprising the Bank's country portfolio, where the weights used are the respective project shares in the total cumulative disbursement estimates. & OED data, available in the statistical appendix to the most recent ARPP reports. Note: Disbursement data is updated at the end ofthe first week ofthe month. Supervision resources include Salaries, Benefits, and Travel for "BB" source of funds but excludes FAO staffand PCR task costs.  CAS Annex A2 Run Date: 6/11/96 Data as of 6/10/96 Burkina Faso - Bank Group Fact Sheet FY 1993-1999 IBRD/IDA Lending Program, FY 1993-1999 Past Current Planned' Category FY93 FY94 FY95 FY96 FY97-FY99 Commitments (USSm) 18.7 80.5 47.0 0.0 205-260 Sector (%)b Agriculture 40.1 0.0 0.0 0.0 29.0 Education 0.0 0.0 0.0 0.0 20.0 Health 0.0 68.9 0.0 0.0 10.0 Non-sector 0.0 31.1 0.0 0.0 8.0 Population 0.0 0.0 0.0 0.0 0.0 Public Sector Manage 37.4 0.0 0.0 0.0 0.0 Transportation 0.0 0.0 0.0 0.0 0.0 Urban 0.0 0.0 100.0 0.0 0.0 Water Supply & Sewag 22.5 0.0 0.0 0.0 33.0 TOTAL 100.0 100.0 100.0 100.0 100.0 Lending instrument (%/6) Adjustment loans' 0.0 31.1 0.0 0.0 16.0 Specific investment loans and others 100.0 68.9 100.0 0.0 84.0 TOTAL 100.0 100.0 100.0 100.0 100.0 Disbursements (USSm) Adjustment loans' 0.0 29.3 51.2 20.2 Specific investment loans and others 49.5 36.1 38.5 43.9 Repayments (USSm) 2.7 2.8 3.2 4.0 Interest (USSm) 2.8 3.1 3.8 2.1 a. Ranges that reflect the base-case (i.e., most likely) scenario. For IDA countries, planned commitments are not presented by FY but as a three-year-total range; the figures are shown in brackets. A footnote indicates if the pattemn of IDA lending has unusual charactemstics (e.g.. a high degree of frontloading. backloading, or lumpiness). For blend countries, planned IBRD and IDA commitments are presented for each year as a combined total. b. For future lending, rounded to nearest 0 or 5%o. To convey the thrust of country strategy more clearly, staff may aggregate sectors. c. Structural adjustment loans, sector adjustment loans, and debt service reduction loans. Note: Disbursement data is updated at the end of the first week of the month.  CAS Amex A2 Run Dae: 6/11/96 Burkina Faso - IFC and MIGA Program, FY93-95 Past Cartgory FY93 FY94 FY95 IFC app )vals (USSn) 3e <ar(%) TOTAL 0.0 0.0 0.0 bwurm humnuag(%) LM Equity TOTAL 0.0 0.0 0.0 MIOA awrau (USSm) MIGA wnia (USSm) 'hiduk qua.u.eityt rpes of both loan and equity inu .unts.  CAS Annex A3 Run Date: 6/11/96 Data as of: 6/10/96 Burkina Faso - Summary of Economic and Sector Work USS thousands Last F7 FY96 FY97 FY98 FY99 Carego,y Actual Education 7.9 0.0 0.0 0.0 0 Multi Sector 57.4 181.3 327.6 109.2 436.9 Other 16.9 33.0 109.2 109.2 0 Public Sector Mgmt 0.0 7.3 0.0 109.2 0 Total 82.2 221.6 436.9 327.7 436.9  Annex A4 Page 1 of 2 Burkina Faso at a glance Sub- POVERTY and SOCIAL Burkina Saharan Low- Faso Africa Income Development diamond' Population mid-1994 (millIons) 10.7 565 3,176 Life expectancy GNP per capita 1994 (USS) 300 510 390 Average annual growth, 1990-94 Population (X) 2.8 2.9 1.8 Labor force (X) 2.1 2.7 1.8 GNP Gross Most recent estimate (latest year available since 1989) per primary capita enrollment Poverty: headcount index (% of population) 45 Urban population (X of total population) 10 28 26 Life expectancy at birth (years) 48 52 65 Infant mortality (per 1,000 lIve births) 132 94 53 Child malnutrition (X of children under 5) 30 38 Access to safe water (X of population) 67 67 Access to safe water Illiteracy (X ofpopulation age 15+) 80 50 41 Gross primary enrollment (X of school-age population) 36 68 106 -Burkina Faso Male 44 77 112Lo-rregou Female 28 62 to2 Low-income group KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1976 1985 1994 1995 Economic ratios Gross domestic investment/GDP 26.1 24.3 21.2 22.2 Exports of goods and non-factor serviceslGDP 8.3 10.8 14.3 14.5 Openness of economy Gross domestic savings/GDP 2.5 1.3 6.1 7.1 Gross national savings/GDP 8.8 10.7 8.5 9.0 Current account balance/GDP -18.4 -13.6 -12.8 -12.9 Interest payments/GDP 0.2 0.7 0.8 0.8 Savings Investment Total debt/GDP 7.5 35.8 77.2 59.0 e Total debt service/exports 3.7 10.1 18.3 52.7 Present value of debVGDP 31.9 Present value of debtlexports 331.6 Indebtedness 1975-84 1985-95 1994 1995 1996-04 (average annual growth) -Burkina Faso GDP 4.0 2.7 1.2 4.2 4.6 Low-incone group GNP per capita 0.9 -0.2 -1.8 1.2 1.9 Exports of goods and nfs 4.7 2.4 -8.1 6.9 5.2 2 STRUCTURE of the ECONOMY 1975 1986 1994 1995 (X of GDP) Growth rates of output and Investment Agriculture 34.3 37.9 34.1 33.2 is Industry 29.2 20.1 26.8 27.6 10 Manufacturing 19.8 15.3 20.2 20.1 s Services 36.5 41.9 39.1 39.2 0 ;5 i 90 91 92 9 94 95 Private consumption 82.9 85.6 82.6 83.0 General government consumption 14.5 13.1 11.3 9.9 -GDI - GDP Imports of goods and non-factor services 31.8 33.8 29.4 29.4 1976-84 1986-96 1994 1996 (average annual growth) Agriculture 1.2 3.5 -0.2 -0.9 Growth rates of exports and Imports (%) Industry 0.8 2.3 2.3 5.8 40 Manufacturing 1.7 3.9 30 Services 10.3 2.8 2.0 8.1 20 Private consumption 4.1 3.1 2.6 6.8 0 General government consumption 5.7 1.8 -14.4 -8.5 -10 t I 9 95 Gross domestic investment -0.1 -1.9 6.7 12.3 -20. Imports of goods and non-factor services 2.4 0.6 -1.2 14.5 Gross national product 4.3 2.7 1.0 4.4 -Exports Imports Note: 1995 data are preliminary estimates. Figures in italics are for years other than those specified. The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete.  Annex A4 Page 2 of 2 Burkina Faso PRICES and GOVERNMENT FINANCE Domestic prices 1976 1985 1994 1996 Inflatlon(%3 (% change) 30 Consumer prices 18.8 6.9 24.7 7.8 25 Implicit GDP deflator 8.4 4.7 28.1 8.8 120 Govemrnment finance 10 (% of GDP) s Current revenue .. 9.8 11.0 11.9 - Current budget balance .. 1.8 -1.7 0.6 *5 go 93 95 Overall surplus/deficit . -4.4 -11.0 -9.2 -GDPdef. -CPI TRADE (millions US$) 1985 1994 1995 Export and Import levels (mill. US$) Total exports (fob) - 136 226 283 700 Cotton .. 30 59 102 ON- Livestock Products .. 14 57 49 SW-Il1!lI Manufactures 400 . 111111 Total imports (cit). 353 418 580 40 Food .. 59 51 58 300- -II 11 Fuel and energy 32 36 42 200 - Capital goods .. 106 66 126 IOD0 Import price index (1985=100) .. 100 150 167 Terms of trade (1985=100) .. 100 125 132 oExports Dimports BALANCE of PAYMENTS 1975 1985 1994 1995 (millions US$) Current account balance to GDP ratio i%) Exports of goods and non-factor services 88 155 266 333 0 - - r _ t _ Imports of goods and non-factor services 262 483 545 688 t2t89 0 91 92 93 94 95 Resource balance -174 -328 -279 -355 Net factor income -12 -6 -14 -12 -4 Net current transfers 32 140 57 65 -. Current account balance, a- before official transfers -154 -194 -236 -301 .10 Financing items (net) 147 188 354 355 -12 Changes in net reserves 6 6 -12 -62 a4 - Memo: Reserves including gold (milt. USS) 77 143 282 469 Conversion rate (lacaLUSS) 214.3 449.3 555.2 500.3 EXTERNAL DEBT and RESOURCE FLOWS 1975 1985 1993 1994 (millions US$) Composition of total debt, 1994 (mill. US$3 Total debt outstanding and disbursed 63 511 1,325 1,431 F G IBRD 0 0 0 0 441 IDA 11 149 425 518 E Total debt service 5 29 72 60 B IBRD 0 0 0 0 518 IDA 0 2 6 6 Composition of net resource flows Official grants 41 87 303 211 Official creditors 16 50 120 79 Private creditors 1 -9 0 0 Foreign direct investment 0 -1 0 1 D Portfolio equity 0 0 0 0 619 48 World Bank program Commitments 17 64 11 91 A - IBRD E - Bilateral Disbursements 5 21 64 79 s- IDA D - Other multilateral F - Prrate Principal repayments 0 1 3 3 C - IMF G - Short-term Net flows 5 21 61 76 Interest payments 0 1 3 3 Net transfers 5 20 58 73 International Economics Department and Country Operations Staff 6/13/96  Annex A5 Page 1 of 3 Burkina Faso - Key Economic Indicators Estimat Projected Indicator 1991 1992 1993 1994 1995 1996 1997 1998 National accounts (as % GDP at current market prices) Gross domestic product 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Net indirect taxes 3.5 3.2 2.8 4.6 5.2 5.2 4.9 4.9 Agriculture 33.5 32.4 34.0 32.5 31.5 31.3 31.3 31.3 Industry 19.9 21.5 21.4 25.6 26.2 26.3 26.6 26.8 Services 43.1 42.9 41.8 37.3 37.2 37.1 37.1 37.0 Total Consumption 93.9 92.8 95.2 93.9 92.9 91.7 89.9 88.3 Gross domestic fixed 20.7 21.3 19.9 21.2 22.2 23.0 23.6 24.1 investment Government investment 7.1 9.0 8.0 7.0 9.3 10.1 10.2 10.0 Private investment 13.5 12.3 11.9 14.2 12.9 12.9 13.3 14.1 (includes increase in stocks) Exports(GNFS)a 12.1 10.1 11.5 14.3 14.2 14.1 14.4 14.6 Imports (GNFS) 26.7 24.3 26.5 29.4 29.4 28.8 27.9 27.0 Gross domestic savings 6.1 7.2 4.8 6.1 7.1 8.3 10.1 11.7 Gross national savingsb 9.3 10.5 8.0 8.5 9.0 10.2 12.2 13.7 Memorandum items Gross domestic product 2783 2982 2805 1854 2338 2543 2700 2886 (US$ million at current prices) Gross national product per 290 310 290 230 220 210 230 240 capita (US$, Atlas method) Real annual growth rates (%, calculated from 1985 prices) Gross domestic product at 10.0% 2.5% -0.8% 1.2% 4.2% 5.3% 5.2% 5.5% market prices Gross Domestic Income 8.5% 2.2% -1.7% 3.1% 5.1% 5.4% 5.4% 5.8% Real annual per capita growth rates (%, calculated from 1985 prices) Gross domestic product at 7.1% -0.2% -3.4% -1.5% 1.3% 2.5% 2.4% 2.6% market prices Total consumption 8.0% -1.3% -3.4% -2.4% 2.1% 1.6% 0.7% 1.3% Private consumption 11.2% -1.2% -6.6% -0.2% 3.9% 2.1% 1.2% 1.1% (continued)  Annex A5 Page 2 of 3 Burkina Faso - Key Economic Indicators (Continued) Estimiat Projected Indicator 1991 1992 1993 194 1995 1996 197 1998 Balance of Payments (USSm) Exports (GNFS)' 337 302 323 266 333 358 390 422 Merchandise FOB 269 238 263 226 283 305 336 367 Ixnports (GNFS) 743 723 745 545 688 732 755 720 Merchandise FOB 490 516 540 348 484 519 537 557 Resource balance 406 -422 421 -279 -355 -374 -364 -358 Net current transfers 10S 120 III 67 76 81 84 89 (including official current transfers) Current account balance 43 26 -30 -25 41 -72 -97 -90 (after official capital grants) Net private foreign direct 0 1 0 1 3 3 3 3 investment Long-term loans (net) 92 88 95 82 -44 46 108 62 Official 92 91 96 67 -51 32 99 53 Private 6 -3 -I 16 7 8 8 8 Other capital (net, including -11 -69 2 -46 144 120 52 50 errors and omissions) Change in reserves' 44 -46 -67 -12 .62 -97 -66 -25 Memorandum items Resource balance (% of -14.6% -14.1% -15.0% -15.1% -15.2% -14.7% -13.5% -12.4% GDP at current market prices) Real annual growth rates (1985 prices) Merchandise exports 5.1% -13.3% 12.4% -14.2% 7.1% 6.2% 11.2% 6.1% (FOB) Merchandise imports -2.5% 2.5% -7.6% -17.3% 25.2% 5.6% 4.1% 3.3% (CIF) Public finance (as % of GDP at current market prices)d Currentrevenues 13.3 11.8 12.5 11.0 11.9 12.4 13.5 14.6 Current expenditures 12.0 11.9 14.9 12.7 11.3 10.9 10.2 10.1 (Continud)  Annex A5 Page 3 of 3 Burkina Faso - Key Economic Indicators (Continued) Estimat Projected Indicator 1991 1992 1993 1994 1995 1996 1997 1998 Current account surplus (+) 1.3 -0.1 -2.4 -1.7 0.6 1.5 3.3 4.5 or deficit (-) Capital expenditure 9.6 9.1 8.1 9.3 9.7 10.0 10.3 10.0 Foreign financing 10.2 9.4 9.6 10.5 12.3 7.7 8.5 6.2 Monetary indicators M2/GDP (at current market 20.7 21.8 23.5 23.5 24.7 prices) GrowNth of M2 (%) 5.0 6.3 8.1 29.6 19.2 Price indices( 1985 =100) Merchandise export price 187 191 188 188 220 223 222 228 index Merchandise import price 166 170 193 150 167 169 168 169 index Merchandisetermsoftrade 113 112 97 125 132 132 132 135 index Reai exchange rate 94 94 100 162 141 140 142 143 (LCU/ US $)' Real interest rates 8.5 14.5 9.9 -14.7 1.2 Consumer pice index 2.5% -2.0% 0.6% 24.7% 7.8% 4.0% 3.0% 3.0% (% growth rate) GDP deflator -5.1% -1.9% 1.4% 28.1% 8.8% 3.3% 2.7% 2.9% (% growth rate) a. "GNFS" denotes "goods and nonfactor services." b. Includes net unrequited transfers excluding official capital grants. c. Includes use of IMF resources. d. Central government only e. "LCU" denotes "local currency units." An increase in US$/LCU denotes appreciation.  Annex A6 Burkina Faso - Key Exposure Indicators Estimat Projected Indicator 1991 1992 1993 1994 1995 1996 1997 1998 Total debt outstanding and 1222.4 1168.1 1325.1 1430.5 1378.6 1448.8 1579.7 1663.6 disbursed (TDO) (USSm)' Net disbursements (USSm)' 115.9 93.1 108.9 111.8 -11.8 70.1 131.0 83.9 Total debt service (TDS) 46.5 63.1 72.1 60.2 213.4 98.6 57.4 59.9 (US$m)a Debt and debt service indicators (%) TDO/XGSb 271.5 271.2 300.7 434.8 340.6 334.0 336.8 329.9 TDO/GDP 43.9 39.2 47.2 77.2 59.0 57.0 58.5 57.6 TDS/XGS 10.3 14.6 16.4 18.3 52.7 22.7 12.2 11.9 ConcessionaYlTDO 78.8 81.4 84.4 83.8 81.6 82.0 81.9 81.5 IBRD exposure indicators (%) IBRD DS/public DS 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Preferred creditor DS/public 8.5 7.8 8.0 10.7 3.5 10.1 21.5 25.4 DS IBRD DS/XGS 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 IFC (US$m) Loans 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Equity and quasi-equity /c 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 MIGA MIGA guarantees (US$m) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 a. Includes public and publicly guaranteed debt, private nonguaranteed, use of IMF credits and net short- term capital. b. "XGS" denotes exports of goods and services, including workers' remittances. c. Includes equity and quasi-equity types of both loan and equity instruments.  CAS Annex A7 Run Date: 6/11/96 Data as of: 6/10/96 Status of Bank Group Operations in Burkina Faso IBRD Loans and IDA Credits in the Operations Portfolio Difference Last ARPP Original amount in USS millions between expected Supervision Ratingb Project Loan or Fiscal and actual Development Implementation ID) Credit No. Year Borrower Purpose 113RI) II)A Canccllations Undisbursed disbursements' Objectives Progr.ss Number of Closed Loans/Credits: 34 Active Loans BF-PA-274 C18960 1988 BURKINAFASO AG.RESEARCH 17.90 0.57 -1.78 S S BF-PA-276 C23320 1992 BURKINAFASO TRANSPORT SECAL 66.00 40.76 29.40 IIS S BF-PA-279 C20670 1990 BURKINA FASO URBAN 22.20 0.80 -9.83 S S BF-PA-279 C20671 1995 BURKINA FASO URBAN 10.00 8.71 -1.26 S S BF-PA-282 C22440 1991 BURKINAFASO EDUCATION IV 24.00. 8.18 1.18 S S BF-PA-285 C19790 1989 BURKINA FASO AGRIC. SERVICES 42.00 10.24 5.43 S S BF-PA-287 C25950 1994 BURKINA FASO HEALTII/NUTRITION 29.20 29.30 2.07 S S BF-PA-289 C24720 1993 BURKINA FASO PRIVATE SECTOR ASSIS 7.00 5.78 3.77 S S BF-PA-290 C22290 1991 BURKINAFASO ENVIRONMENTALMGMT 16.50 9.60 4.48 S S BF-PA-297 C27280 1995 BURKINA FASO URBAN ENV 37.00 35.82 IIS IIS BF-PA-300 C22820 1991 BURKINA FASO PUBLIC WORKS & EMPLO 20.00 2.05 0.82 S U BF-PA-301 C23780 1992 BURKINA FASO PUBLIC INSTITUTIONAL 15.00 10.05 8.89 U U BF-PA-303 C24140 1993 BURKINA FASO FOOD SECURITY 7.50 3.83 -0.63 S S BF-PA-308 C26190 1994 BURKINA FASO POPULATION/AIDS CONT 26.30 25.22 1.17 S S BF-PA-310 C25190 1993 BURKINA FASO ENGINEERING CREDIT 4.25 1.69 1.51 [IS HIS TOTAL 0.00 344.85 0.00 192.59 45.23 Active Loans Closed Loans Total Total disbursed (IBRD and IDA) 172.50 433.51 606.01 Of which repaid 0.00 22.48 22.48 Total now held by IBRD and IDA 344.85 384.52 729.37 Amount sold 0.00 1.85 1.85 Of which repaid 0.00 1.85 1.85 Total undisbursed 192.59 0.00 192.59  CAS Annex A7 Run date: 6/11/96 Burkina Faso - Statement of IFC Investments As of 4/30/96 (US$ millions) Original Gross Commitments Fiscal lb-t IFC Hold by Held by Undish. incl. Year Obligor Type ofBusiness Loan Equity Participants Totals IFC Participants Participants 1979 a/ Soci,t, Voltaiquede Plastique SARl.(SOVOLPLAS) Chemicals and Petrochemicals 0.41 0.14 0.55 Total gross commitments b! 0.41 0.14 0.00 0.55 Less cancellations, terminations, repayment & sales 0.41 0.14 0.00 0.5 5 Total commitments now held c/ 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Pending Commitments Total pending commitments 0.00 0.00 0.00 0.00 Total commitments held and pending commitments 0.00 0.00 0.00 0.00 Total undisbursed commitments 0.00 0.00 0.00 0.00 a/ Investments which have been fully cancelled, terminated, written off, sold, redeemed or repaid. b/ Gross commitments consist of approved and signed projects. c/ Held commitments consist of disbursed and undisbursed investment.    I MAG(I N G- Repm,rt No: 15740 BlJP Type: CAS