Documentof The World Bank FORINTERNAL USEONLY ReportNo. 49588-BF INTERNATIONAL DEVELOPMENT ASSOCIATION INTERNATIONAL FINANCE CORPORATION MULTILATERALINVESTMENT GUARANTEE AGENCY COUNTRY ASSISTANCE STRATEGY FOR BURKINA FASO FOR THE PERIOD FY 10-12 August 10,2009 West Africa ICountry ManagementUnit Africa Region This document has arestricteddistribution andmay be usedby recipientsonly inthe performanceof their officialduties. Its contents may not otherwisebe disclosedwithout World Bank authorization. FOROFFICIAL USE ONLY The last Country Assistance Strategy for Burkina Faso was discussed on 12 May 2005. CURRENCYEQUIVALENTS (Exchange Rateas ofApril 30,2009) CurrencyUnit = CFA franc (CFAF) US$l.OO = CFAF 504.48 WEIGHTS AND MEASURES Metric System FISCALYEAR July 1 - June 30 ABBREVIATIONS AND ACRONYMS AAA Analytic andAdvisory Activities ACBP Administrative CapacityBuildingProjector Projet de renforcement des capacitds (( de l'entreprise (PRCA) )) ADMP Agricultural Diversification and MarketDevelopmentProject or "Programme d 'appui auxJilikres agro-sylvo-pastorales (PAFASP) )) AELP Africa Emergency LocustProject AfDB Africa DevelopmentBank AFR Africa Region, World Bank APFSP Agricultural Productivity andFood SecurityProject ARTEL TelecommunicationsRegulatoryAuthority or Autorite` de rdgulation des (( te`le`communications)) ARV Anti retro vir0 ASCE Higher Administrative Control Authority or Autoritd Supdrieurede ContrGlede (( 1'Etat )) CAS Country Assistance Strategy CASCR CAS CompletionReport CASPR CAS ProgressReport CBRD Community-BasedRuralDevelopmentor "Programme national de gestion des territoires (PNGT) )) CEDP Competitiveness andEnterpriseDevelopmentProjector Projet d'appui h la (( compe`titivite`et le dheloppement des entreprises (PACDE) )) CEFORE NationalAgency for AssistingCompany Creationor Centre de Formalitds des N Entreprises )) CEM Country EconomicMemorandum CFAF CoopdrationFinancikreAfricaine Franc CGAB GeneralBudget Support OrganizationalFrameworkor Cadre General (( d'organisation des Appuis Budge`taire ))s CGAC Country Governance andAnti-Corruption CPA CertifiedPublic Accountants CPAR CountryProcurement Assessment Review CPIA CountryPolicy and InstitutionalAssessment CPPR CountryPortfolio Performance Review CT Communes or Yollectivite`sTerritoriales ))s CVD Village DevelopmentCouncils or Conseils Villageois du Dkveloppement (( )) DGF DevelopmentGateway Foundation DHS DemographicandHealth Survey DPL DevelopmentPolicy Lending This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization. DSA Debt Sustainability Analysis DTIS DiagnosticTrade IntegrationStudy DUCB DecentralizedUrbanCapacity BuildingProjector "Projet depSles re'gionawr du dheloppement (PRQ) )) ECOWAS EconomicCommunity of West AfXcan States EFAIFTI Educationfor AlV Fast Track Initiative EITI ExtractiveIndustriesTransparencyInitiative ESW EconomicandSectorWork FDI ForeignDirectInvestment FSR FinancialSector Review FY FiscalYear GAC Governance andAnti-Corruption . GBS GeneralBudget Support GDP Gross DomesticProduct GEF GlobalEnvironmentFacility , . GER Gross EnrolmentRatio GFDRR GlobalFacilityfor DisasterReductionandRecovery GIR Gross IntakeRate GM Genetically Modified GovID GovernanceandInstitutionalDevelopment GPF GovernancePartnershipFacility HD HumanDevelopment HIPC Highly IndebtedPoor Country HIV/AIDS HumanImmunodeficiency Virus/AcquiredImmuneDeficiency Syndrome ICA InvestmentClimate Assessment ICR ImplementationCompletionReport ICT InformationandCommunicationTechnology IDA InternationalDevelopmentAssociation IDF InstitutionalDevelopmentFund IEC Information, Education, andCommunication IEG IndependentEvaluationGroup IFC InternationalFinanceCorporation IMF InternationalMonetary Fund JSDF Japanese SocialDevelopmentFund JSAN Joint StaffAdvisoryNote JSDF JapaneseSocialDevelopmentFund M&E MonitoringandEvaluation MAEP AfricanPeerReview Mechanism MAMS Maquettefor MDG Simulations MCA MillenniumChallengeAccount MCC MillenniumChallengeCorporation MDG MillenniumDevelopmentGoal MEBF N Maison de I'Entreprise du Burkina Faso )) MIGA MultilateralInvestmentGuarantee Agency MTEF MediumTermExpenditureFramework NGO Non-governmentalOrganization NPP NationalPopulationPolicy NPV Net PresentValue OHADA Organizationfor the HarmonizationofBusinessLaw inAfi-icaor "Organisation pour I'harmonisationenAfrique du droit des affaires)) ONATEL ovcs NationalTelecommunications Office or "Ofice national des te'le'communications)) Orphans andVulnerable Children ows OuagadougouWater Supply Project PAGEN Partnershipfor NaturalEcosystemManagementor "Projet departenariatpour I'amkliorationde lagestion des e'cosystdmesnaturels )) PAP PriorityActionPlan PBAs ProgramBasedApproach PDDEB Basic EducationTenYear DevelopmentPlanor "Plan de'cennal de dkveloppement de I'kducation de base )) PDO ProjectDevelopmentObjective PEFA Public ExpenditureandFinancialAccountability PER Public ExpenditureReview PFM Public FinancialManagement PIU ProjectImplementationUnit PN-AEPA NationalWater Supply andSanitationProgramor "Programme National d'approvisionnement en eaupotable et assainissement)) PPEP Post-PrimaryEducationProject PPP Public PrivatePartnership PRGF PovertyReductionandGrowthFacility PRSC PovertyReductionSupport Credit PRSP Poverty ReductionStrategyPaper or Cadrestrate'giquede lutte contre la (( pauvrete' (CSLP) )) PRSP-APR PovertyReductionStrategyPaperAnnual ProgressReport QAG Quality Assurance Group REAP RuralEnergyAccess Project SFD NationalMicrofinanceInstitutionor SystimeFinancier De'centralise')) (( SILEM Sahel IntegratedLowlandEcosystemManagement S M E SmallandMediumEnterprise SNAT NationalTerritorialPlanningStudyor Etude du Sche'maNational (( DYme'nagementdu Territoire)) SOFITEX Burkinabdtextile fibre company or Socibe'Burkinabe' desJibrestextiles )) (( SONABEL Nationalelectric companyor "Socie'te'nationale burkinabe'd'e'lectricite')) SONABHY Nationaloil companyor "Socie'te'nationale Burkinabe'des hydrocarbures )) SOPAL AlcoholProducingCompany sosuco Sugar Companyofthe Comoe or Socie'te'sucriire de la Comoe)) (( SRFP StrengtheningofPublic FinancesStrategyor "Strate'gie de Renforcement des Finance Publiques )) STATCAP Developmentof the NationalStatisticalCapacityProjector Projet de (( dkveloppement du systBmestatistiquenational (PDSSN M) STELA Aid Effectivenesstechnical Secretariator "Secre'tariattechniquepour I'eflcacite' de I'aide)) TA TechnicalAssistance TSP SecondTransport Sector Programor "Programme sectoriel des transports-phase 2 (PST2) " UNDP UnitedNations DevelopmentProgram UNFPA UnitedNationsPopulationF a d UNICEF UnitedNations Children's Fund UNPCB CottonProducersAssociationor Union nationale desproducteurs de coton du (( Burkina Faso )) WAEMU West AfricanEconomicandMonetaryUnion WAPP West AfricanPower Pool WARBP West AfricanRegionalBiosecurityProject WATTFP West Africa Transport andTransit FacilitationProject WE31 WorldBank Institute WCAASSP West andCentralAfrica Air Safety and Security Projector Programme desurete' (( et de se'curite'des transports ae'riens enAfrique de I'Ouest et du Centre (PSSTAAOC) )) IDA IFC Vice President: ObiageliK. Ezekwesili(AFRVP) Vice President: Thieny Tanoh CountryDirector: Ishac-Diwan(AFCW1) Director: Yolande Duhem Task TeamLeader: GalinaSotirova(AFMBF) CountryManager: ImoniAkpofure Senior Strategy Officer: FrankDouamba The World Bank Group greatly appreciates the in-depth collaboration with the Government of Burkina Faso inthe preparation ofthis Country Assistance Strategy. The preparation of this CAS was supported by a core CAS team and the broader Burkina Faso Country Team who participated in review meetings, conducted CAS consultations and provided comments and advice. Particular recognition goes to the core CAS team comprised of: Abdoulaye Kane, Adja Mansora, Aguiratou Savadogo-Tinto, Alan Tienmfoltien Traore, Asmaou Diallo-Bah, Bronwyn Grieve, Celestin Bado, Claude Bationo, Deo Ndikumana, Djibrilla Issa, Emmanuel Nikiema, Gilles Alfandari, Helene Grandvoinnet, Ibrahim Nebie, Irene Xenakis, John May, Julie Ballard, Kofi Nouve, Leopold Sedogo, Mamadou Diarrassouba, Mamata Tiendrebeogo, Mariana Todorova, Martien Van Nieuwkoop, Ousmane Kolie, Peter Kristensen, Pierre Kamano, Renaud Seligmann, Sabine Hader, Seydou Traore, Siaka Coulibaly, Thomas Vis, Trond Vedeld, Tshiya Subayi-Cuppen. BURKINA FASO COUNTRYASSISTANCE STRATEGY TABLE OF CONTENTS I EXECUTIVESUMMARY........................................................................................ i . I1 . COUNTRYCONTEXT........................................................................................ 1 A .................................................................................. 1 B .THEECONOMY ..POLITICS AND GOVERNANCE ........................................................................................................ 2 RecentEconomicDevelopments............................................................................... 2 MacroeconomicOutlookandDebt Sustainability.................................................. 3 C POVERTY, . HUMAN DEVELOPMENTDEMOGRAPHY AND ........................................ 7 I11 . BURKINAFASO'S MAINDEVELOPMENTCHALLENGESAND OPPORTUNITIES.......................................................................................................... 10 IV. BURKINA FASO'S VISION............................................................................. 20 V. BANK GROUPASSISTANCESTRATEGY....................................................... 22 A IMPLEMENTATION 22 OF THE LAST CAS .................................................................. B..THEPROGRAM~FASSISTANCEFY 2010-2012 ................................................. 25 1) Strategic Objectives ......................................................................................... 25 2) UnderlyingPrinciples...................................................................................... 26 3) IDA Availability............................................................................................... 28 4) CAS Instruments............................................................................................. 28 5) ProgramDelivery ............................................................................................ 30 C DEVELOPMENT .......................................... 39 D RESULTS .. PARTNERSAND AID EFFECTIVENESS MONITORING MANAGEMENT AND ........................................................ 40 VI. MANAGINGRISKS ........................................................................................... 41 Listof Tables Table 1: Basic Macroeconomic Indicators. 2004-2012 Table 2: Proposed LendingProgram ............................................................................................. ................................................................... 4 29 Table 3: Proposed AAA/TA Program ........................................................................................... 30 Table 4: Aid Effectiveness Roadmap ............................................................................................ 40 Listof Boxes Box 1:The State of Decentralization inBurkinaFaso ..................................................... -17 Box 2: The ProposedStrategy for Accelerated Growthand Sustainable Development 2011-2015 .................................................................................................. -21 Box 3 : Accelerating the shift towards use of country systems inBank-financed operations .......................................................................................................................... -36 Listof Figures Figure 1: Poverty Reducing Social Expenditures ................................................................ 9 Figure 2: GovernanceIndicator Percentile Ranking comparison: Sub-Saharan ...............15 Figure 3: Portfolio.Spendingby Sector............................................................................ -24 Figure 4: CAS Strategic Themes and Expected Outcomes ............................................... Figure 5: Areas of GrowthPotential.................................................................................. 26 33 Listof Annexes: Country Specific Appendices Appendix A: World BankProgramResultsMatrix ........; ................................................. 45 Appendix B: CAS CompletionReport .............................................................................. 58 Appendix C: The Unfolding Crisis inthe Cotton Sector ................................................. 102 Appendix D:Improvingthe Doing Business Indicators ................................................. 105 Appendix E: Overview ofthe Etude du Sche'maNational D'Ame'nagementdu Territoire (SNAT) ........................................................................................................... 107 AppendixF: Policy note onRegional GrowthPoles(May 2009) 110 Appendix G: The CAS Approach to Demography .......................................................... .................................. 117 Appendix H:The CAS Approach to GAC ...................................................................... 120 Appendix I:Lessonsfrom the Client Survey 2008 ......................................................... 123 Standard CASAnnexes Annex 1:World Bank PortfolioandPipeline .................................................................. 126 Annex 2: Summary ofNon-LendingServices ............................................................... Annex 3: SelectedIndicators of BankPortfolio Performanceand Management ...........127 128 Annex 4: Burkina Faso at a Glance ................................................................................. 129 Annex 5: BurkinaFaso Social andEconomic Indicators 132 Annex 6: Key Exposure Indicators ................................................................................. ................................................ 133 Annex 7: IBRDADA Program Summary ....................................................................... 134 Annex 8: IFC & MIGA ProgramSummary ................................................................... 135 Annex 9: StatementofIFC's Heldand DisbursedPortfolio.......................................... 136 Annex 10: OperationsPortfolio (IBRD/IDA and Grants) .............................................. ............................................. 137 Annex 12: CAS Consultations......................................................................................... Annex 11: Joint Bank-FundDebtSustainability Analysis 138 155 Annex 13: BurkinaFaso: FundRelations....................................................................... 157 Annex 14: Donor CoordinationinBurkinaFaso ............................................................ 160 Annex 15: Country FinancingParameters...................................................................... 166 Annex 16: CountryMap ................................................................................................. 167 I. EXECUTIVESUMMARY I n the last two decades Burkina Faso, a small, resourcepoor, land locked country, has achieved significant progress towards development. Political stability and the Government's progressive platform of economic and social reforms, sound macro economic policies and steady investment enabled Burkina to sustain significant growth rates (averaging 6 percent per annum) and maintain relative macro-economic stability over the decade preceding 2007. Steady economic growth, increase of social expenditures and significant improvements in access to basic services saw a decline in the incidence ofpoverty Yet,Burkina's economy remains vulnerable and the recent series of exogenous shocks are taking a significant toll on Burkina's development,highlighting the importance of diversification. Since 2007, variable rainfall, fluctuating commodity prices, fuel and food price increases and, recently, the global financial crisis have resulted in a decline in growth rates and a rise in the incidence o f poverty. The possible prolongation of the global recession, which could involve lower cotton prices, lower capital flows from FDI and ODA and weaker demand for BurkinabC exports risks further reversing Burkina's positive development trend. In this difficult context, Burkina faces the challenge of sustaining its positive growth trajectory, while at the same time laying the foundation for a diversifiedeconomy and decreasedvulnerability to exogenous shocks. Despite significant investments in basic services, Burkina's ranking in human development continues to be low and an unbridled population growth rate of 3.1 percent impedes the country's efforts to reduce poverty. With limited fiscal space, significant population growth and the move towards decentralized service delivery, improving governance and efficiency of social service delivery i s critical for making progress inhumandevelopment. Facilitatinga demographic transition, strengtheningthe `voice' of citizens and promoting community participation in decision-making are vital partsofthis process. This CAS aligns with the Government strategy for growth and sustainable development. I t seeks to assist Burkina Faso to begin to transform its economy, support equitable and shared growth and makeprogress on human development, while providingflexibility to address the impact of the global recession. The global crisis presents an opportunity for Burkina to focus on diversification and stronger agricultural performance and the CAS aims to help transform this opportunity into a reality. The strategy harnesses the Government's commitment to improved governance and enhanced public participation and aims to help improve social service delivery. It adopts new ways of doing business which involve better positioning Burkina's development in a regional context; strengthening analytical support and developing results-focused approaches to the emerging issues of environmental preservation and demography. At the same time, andtaking into account the potential impact ofthe crisis on BurkinaFaso, the CAS seeks to support more immediate efforts to address the country's economic and social vulnerabilities and it maintains flexibility for adjustments inthe program. To enhance developmentimpact, the strategy adopts a highly selective approach which i s framedaround two strategic themes and two cross-cutting issues: Strategic theme one: Minimizing economic vulnerability and promoting growth through economic transformation. Activities will concentrate on sustaining good performance in the cotton sector, increasing agricultural productivity, encouraging diversification towards commercialized agriculture and mining and strengtheningregional integration. Strategic theme two: Promoting shared growth through effective social service delivery. Activities will target building demand for transparent and quality social service delivery, improving public resource management and Strengthening the capacity of central and local institutions to deliver social services. Cross-cutting issues: Given the cross-cutting pertinence of governance and demography for growth and social service delivery, these issues will be mainstreamedinto all activities envisagedunder the CAS. I n line with the Government's request and renewed donor commitment, the strategy seeks to raise the stakes on aid effectiveness through: continued high levels of budget support; targeted support to facilitate the eventual use o f country systems and close coordination with other donors in sectoral activities, joint analytical work and in the preparation of ajoint donor assistance strategy inFY12. While the overall outlook for Burkina Faso is positive, several risks have been identified which could derail the implementation of the CAS or limit its impact, the most important being the possibility of a prolonged global recession, climatic shocks, limited capacity and coordination risks associated with the multi-sectoral program. The CAS sets inplace mechanismsto mitigate these risks. 11 9 . 11. COUNTRY CONTEXT 1. Burkina Faso is a small, predominantly rural, land- locked WestAfrican country bordered by s k neighbors. The rapidly expanding population of 13.7 million inhabitants relies upon a very narrow natural resource base, with cotton as the only major existing export commodity. The agrarian economy i s particularly vulnerable to climatic and external shocks. Burkina's fragile Sahelian environment i s drought-prone and susceptible to flooding and external factors, such as fluctuating fuel, food and cotton prices, which have a significant impact on the nation. As a land-locked country, Burkina Faso is highly dependent on good relations with its neighbors for transit, trade with external markets andpolitical stability. A. POLITICSAND GOVERNANCE 2. Since the early 19903, Burkina Faso has benefited from relative political stability, democraticrule and aprogressiveplatform of economicandpolitical reforms. Under the leadership of President Blaise Compaore - who has headed the Government through consecutive elections in 1991, 1998 and 2007 -Burkina Faso has movedtowards market-oriented reforms and re-engagementwith the international community. Over the last two decades, the Government has embarked upon a dramatic economic and political reform agenda, involving reforms inliberalization and the improvement of the investment climate, as well as efforts towards decentralized governance. Burkina Faso became one of the first countries to be eligible for the Highly-Indebted Poor Countries Initiative. Political stability and a committed leadership have enabled Burkina to achieve steady progresson boththe economic and social fronts. 3. BurkinabP national pride continues to be an important driver of change and a stimulus for leadership at the regional level. Burkina Faso means "the land of the people of integrity". Strong national pride has not only created a cohesive society, but it has also engendered a competitive determination in the country to continuously improve the nation's performance vis-&vis that of the region. Burkina Faso has assumed a leading role at the regional level. The country serves as the host country for the headquarters ofthe West African Economic and Monetary Union (WAEMU) and in2007 President Compaore took uponthe presidency ofthe organization. The President has also been actively engaged in peace-brokering initiatives in neighboring C6te D'Ivoire and Togo. 4. Despite progress in the liberalization of Burkina's political economy, challenges remain. Democracy has been embraced since the early 1990's with a series of peaceful elections, however the country is yet to experience political alternation and opposition remains weak. Burkina Faso's political system i s characterized by a highly centralized state systemwhich remains deeply rooted inhierarchical traditions. The well- organized and professional high level administration can be contrasted with weak lower 1 level administrative capacity. Patron-client relationships continue to exist in the state system, hampering the effectiveness o f reform implementation and the impact o f public debate. A general culture o f top-down governance has resulted in societal deference to the exercise of state authority. While social accountability has beenreinforcedby regular elections, the high levels o f illiteracy, adhesion to traditional concepts o f hierarchy, and the low capacity o f civil society and the independent media limit the effectiveness o f independent reflection on government functions. The State's dependence on donor financing also causes distortions in accountability. Greater attention is often given to donor demands, leading to a focus on the development o f higher level policies rather than policy implementationat the grass-roots level. 5. Rising social unrest in recent times, involving riots over price increases to basic foodstuffs, national strikes over salaries, student protests over poor pay and sporadic protests by the military and police forces have caused internal turbulence within the ruling party and marked a shift towards an increasingly vociferous public. A new Prime Minister was appointed in July 2007 and the Cabinet was reshuffled in September 2008 to strengthen reform initiatives with particular focus on governance and participation. Despite civil unrest in early 2008, the Regime appears to continue to enjoy a relatively high level of political legitimacy. There is speculation that President Compaore will stand again for elections in2010which would be legally possible underthe Constitution. B. THEECONOMY Recent Economic Developments 6. Structural reforms, sound macroeconomic policies and steady investment enabled Burkina to sustain significant growth rates and maintain relative macro- economic stability over the decade preceding 2007, however the economy's narrow resource base and high vulnerability to exogenous shocks jeopardize growth performance. Cotton exports formed the basis o f Burkina's high GDP growth rates which averaged about 6 percent during this period, significantly exceeding the WAEMU average. Inflation was kept under control, displaying low and even negative levels, while external assistance (increasingly on a grant basis), private flows and transfers helped finance current account deficits (see Table 1). The economy i s characterized by low state revenue and a high reliance on external aid', which gives rise to relatively low government expenditures. The economy also remains overly dependent on the export o f a few products (cotton, lately gold, and to a lesser extent livestock) and particularly vulnerable to exogenous shocks, notably weather and terms o f trade fluctuations. 7. The impact of exogenous shocks was particularly significant in the last few years. Low cotton prices, combined with the depreciationo fthe dollar against the euro, a significant drop in cotton production from irregular rainfall and rising food and fuel prices, resulted in a decline in GDP growth to 3.6 percent in 2007. Due to a good agricultural seasonand a series o f government stimulus measures, GDP growth recovered to 5 percent in2008. However, inflation increased to 10.7 percent inthat year as a result '80percent of public investmentsare externally funded: Draft MDGMid-Term Review 2000-2009. 2 of the rising international oil and food prices. The falling cotton exports2 only partly offset by gold exports, coupled with the increased cost of food and energy imports, also led to the widening of the current account deficit (including grants) from 8.3 percent of GDP in2007 to 11percent of GDP in2008. 8. Despite significant shocks, in the past two years the overall fiscal deficit has averaged 4.6 percent of GDP, mainly financed by official assistance. Public expenditurein2008 was reducedfrom 25.8 percentto 22 percent of GDP, inline withthe spending exercised in 2004/2005 prior to the first cotton crisis in 2006/2007. Fiscal policy has been broadly in line with the targets set under the authorities program, as confirmed by the successful completion of the third review under the IMF PRGF Arrangement in December 2008. Starting from a low tax base and through the approval of the tax policy strategy on October 1, 2008, the Government has placed significant emphasis on continued improvement in tax administration to raise domestic revenue further and limit external financing on credit terms. The tax policy strategy includes a combination of measuresto rationalize fiscal incentives, simplify and modernize the legal framework, improve the oversight and return of indirect taxes, and effectively tax the informal sector inurbanareas. 9. Fiscal policy did not Significantly crowd out private sector activity despite annual subsidies to the cotton sector and the 2007 recapitalization of certain cotton companies. Credit to the private sector has increased significantly on a cumulative basis since 2004, both in real terms (by about 30 percent) and as a share o f GDP. Access to credit for small and medium sized enterprises (SME) was facilitated by a new financial institution responsible for guaranteeing inter-bank credit, which was set up in 2007, as well as an expansion of credits provided by the National Microfinance Institution (S'stdrne Financier De`centralise`,or SFD). Also, the issuance o f landtitles in2006-2007 has facilitated the collateralization of loans, improvingthe quality o f guarantees. Macroeconomic Outlook and Debt Sustainability 10. The globalfinancial crisis is negatively affecting Burkina's growth andfiscal performance. Although the country has been resilient to the impact o f the financial crisis due to limited cross-border linkages in its banking system, the economic outlook has worsened as the lagged effects on the real activity are feeding through the economy. Dramatic reduction in cotton export prices and lower demand are the main transmission mechanisms, although lower oil and high gold prices are partly offsetting them. The lower global growth and the decline in domestic cotton prices (a drop of over 40 percent in the world's reference price) have significantly affected the profitability of ginning companies, placed pressure on government finances and risk causing a drastic cut in production by small cotton farmers potentially leading to a significant increase in poverty. With the tightening of credit conditions, foreign direct investment i s also 'While seed cotton is planted in April-June, the seasonal output is ginned toward the end o f the year, and ingeneral, soldthe following calendar year. As a result, a one year lag is often observed for output growth to translate into export growth. 3 expected to decline, especially in mining. Moreover, official aid may be reduced as donors tackle financial crises at home. Table 1: Basic Macroeconomic Indicators, 2004-2012 Indicator 2004I 2005I 2006 I 2007I2008'I2009' 2010' I2011* Growth RealGDP growth (percent annual change) Real GDP per capitagrowth .................................................................................................................................................. (percentannualchange) Fiscal Overall fiscal balance, including Balance of Payment Exports (f.0.b.; valued inCFA ....fiancs, annual .. Export of.......... ......" .........percentage change) ~ ~ goods (f.0.b.;................................... in " valued billions of CFA fiancs) ". Of which: ~ ......"..~ Cotton Gold ........" Imports (f.0.b.; valued inCFA ..fiancs, annual percentage change) Curre e, including official transfers ..@ercent of GDP) World cottonprice (US cents per ........................................... Pound) ~....................................................................................................... Terns of Trade (percent change) Reserve coverage (months of prospective imports of goods and services) ................................................................................................................................................ Monetary and Financial ~ CPI annualaverage (percent annualchange) "" "...... ............................... ......... ........... External Debt .................. ~ ~ Total External Debt Outstanding (eop, inpercentofyearly GDP) Preliminaw;'Proiections; 3BurkinaFas benefittedfromthe MDRIin2006. Source: IMF;Minisky ofEconomy and Finance, and Staffestimates. 11. As a result, GDP growth projections for 2009 were recently revised from 6.2 percent prior to the crisis to 3.5 percent. Growth projections for 2010 were similarly revised from 6.0 percent to 4.1 percent. Growth is expected to come mainly from the agriculture sector, as productivity measures introduced in 2008 in response to the food crisis are becoming effective, and inmining(albeit at a lower level), as gold prices have mostly resisted the downturn incommodity markets while more mines are moving to the exploitation stage. Growth is now not expected to recover to trend before 2012. The 4 current projections for 2009 also indicate fiscal and financing pressures, including: (i) a deterioration o f the fiscal deficit to 5.3 percent o f GDP (from an earlier projected 4.9 percent); (ii)a contraction o f inflows o f foreign financial, direct investment and aid, particularly in 2010 (-0.6 GDP point); and'(iii) falling international reserves to 5.3 months o f imports. The fiscal impact does not include the cost o f financing explicit fertilizer subsidies3 and debt settlement for cotton producers which are needed for a successful 2009/2010 cotton campaign. The current account balance i s not expected to be significantly affected for the moment because the drop incotton is offset by highgold prices and low oil prices. Also, inflation is expected to decline to 4.8 percent in 2009 stemming from the recent declines infood andfuel prices. 12. The cotton sector isbeing hit with particular intensiq. The cotton sector, which has not fully recovered from the last crisis in 2004 -2006, now faces impending bankruptcy in the cotton companies, heavily indebted farmer and village cooperatives who are unable to make profitable activity from cotton and low productivity levels which risk diminishing further if producers withdraw from the sector. Appendix C provides a detailed description o f the current situation and challenges in the sector. The crisis significantly aggravates systemic risks which could compromise the next campaign and the viability o f the entire sector inthe medium run. The Government i s putting together an emergency package which focuses on immediate measures to save the coming cropping campaign (2009/20 lo), including: (i) the extension o f genetically modified (Bt) cotton seed production; (ii) increased subsidies for fertilizers; and (iii) comprehensive a financial restructuring o f the ginning company, SOFITEX and a liquidity injection o f CFAF16 billion (around US$32 million) to the company's credit line. IDA-financed budget support was increased and accelerated in 2009 to support the Government's emergency policy reform and institution strengthening response. The Government is also preparing a three-year action planto address underlying structural problems and the lack o f competitiveness in the sector. Measures will target managerial efficiency o f cotton companies, improved management o f the Price Smoothing Fund, reduction inthe cost o f fertilizers possibly through a rotating input financing fund, the roll out o f Bt cotton in accordance with biosecurity safeguards and longer term solutions to producer indebtedness. 13. There are significant downside risks deriving from a deeper or longer than expected global crisis or additional exogenous shocks. A preliminary sensitivity analysis undertaken in April 2009 shows that an additional decline inthe cotton price o f 10 percent4 (beyond the 40 percent decline already experienced since mid 2008) would reduce current growth projections by around 0.5 percentage points', with a modest direct Fertilizer prices have only marginally declined this year suggesting an increase inthe overall input price. International Cotton Advisory Committee projections for 2009/2010 put a very wide interval for cotton prices, between 56 to 76 cents per pound, within a 95 percent interval confidence, acknowledging that major uncertainties regarding projected cotton trade in 2009/10 pose substantial downward risks to this forecast, projections are more likely to be withinthe 56 to 63 cents per pound range. A 10 percent reduction insale prices would be equivalent to a 20 percent reduction invalue added per ha at the farm level (supposing unchanged input costs and hiredservices). 5 impact on the fiscal balance of 0.1 percent of GDP.6 Also, the banking system could be negatively affected by risingnonperforming loans as the economy slows, with significant exposure to the cotton sector. The overall fiscal impact would be even more significant (up to 0.6 percent of GDP) ifthe Government had to recapitalize the cotton companies. Uncertainty on oil price projections constitutes another significant downward risk for the macroeconomic framework. A permanent increase of 20 percent in oil prices from the current macroeconomic framework7would result ina deterioration of the current account deficit by 0.8 percent of GDP on average during the projection period (2009-2011), corresponding to a financing gap of US$54 million in 2009 and of US$66 million per year, on average, over the three-year projection period. 14. A number of factors couldhelp to mitigatethese down-siderisks. The impact of low prices on cotton producers will be spread over time by the cotton smoothing fund - provided it is sufficiently capitalized - while new productivity investments inagriculture would continue to sustain growth. Over the medium term, as producer prices adjust to low world prices, it is likely that more producers will stop the production of cotton. This could have a negative impact on GDP, exports, poverty and other macro and micro indicators of the economy. But Government efforts to diversify and develop agricultural value chains would help producers reallocate their resources to other profitable products. This adjustment would thus mitigate the effects associated with the reduction of cotton prices, and could have the advantage of enhancing food production and, therefore, food security. Ongoing improvements in revenue mobilization and public financial management are also expectedto help improve the fiscal balance and efficiency o f public spending. In parallel, the Government intends to develop better targeted social safety nets with technical assistance from IDA to mitigate the impact of the crisis on the poorest, including through: (i)monetary transfers (conditional or not); (ii)food distribution programs; (iii)school feeding programs; (iv) labor intensive public works; (v) general subsidies (food and fuel); and (vi) exemptions to pay fees for basic services (health and education). Inorder to closely monitor the emerging impact of the crisis, the Government has established a special Consultation Framework (Cadre de Concertation) to regroup stakeholders in the cotton sector and donors behind a common monitoring process. The ongoing Household Budget Survey will also strengthen monitoring of the social impact ofthe crisis. 15. The latest joint BanWFund Debt SustainabilityAnalysis @SA) concludes that Burkina Faso's risk of debt distress remains high.8This is because the threshold for the NPV of debt to exports ratio is breached in the medium term; all other debt indicators remain comfortably below their policy-dependent thresholds under the baseline scenario. Burkina's low export base and the dependence on unprocessedcotton exports explain the main risk factor for the country's debt sustainability outlook. The impact of the global This is due to the fact that cotton only contributes around US$4mn in direct and indirect taxes to the budget, even ingood cotton years. The scenario assumed unchanged subsidies for fertilizers as inprevious ' F & s stress test, petroleum spot prices, per barrel, are assumed to reach US$62.4 in 2009, US$75.0 in 2010 and US$81.0 in 2011, which compares to US$97.0, the actual price reached in 2008, prior to the lobal economic downturn. k n n e x 11: Joint Bank/FundDebt Sustainability Analysis. 6 crisis on the country's debt sustainability outlook is assessed through an alternative scenario that assumes a further decline inprojected revenue compared to pre-crisis levels, a worsening o f the outlook for cotton, and lower gold prices as the global recovery starts to take hold. Under this alternative scenario, Burkina Faso would not see a significant deterioration o f its debt sustainability outlook, and most debt sustainability indicators would be little affected over the long term. The indicators remain below their indicative thresholds for medium performers, with the exception o f the NPV o f debt-to-exports ratio, which exceeds 200 percent. Burkina's debt portfolio i s sound, with no outstanding liquidity problems and a small level of domestic debt. Inaddition, work is underway to improve debt management practices through an integrated debt data framework. A Debt Management Performance Assessment concluded in May 2008, revealed that Burkina Faso meets or exceeds the minimum requirements. Weaknesses remain in certain areas including debt management strategy and operations, audit and budget execution. The Government is taking measures to lower the risk o f debt distress by implementing structural reforms (public financial management, financial sector and business climate) andthrough closer monitoring o fpublic enterprises to avoid quasi-fiscal losses. c. POVERTY, HUMAN DEVELOPMENT DEMOGRAPHY AND Poverty 16. poverty reduction and a further deterioration is possible if the impact of the ongoing The recent series of exogenous shocks have reversed six years of progress in global crisis worsens. Good economic growth and increased investments in social services resulted ina decline inthe incidence o fpoverty between 2004 and 2006, with the proportion o f the population living below the poverty line falling from 46.3 percent to 42.1 percent. However the deceleration in economic growth and heightened fuel and food prices resulted in a drop in average real income by 1.1 percent in 2007 and an increase in the incidence in poverty o f 0.5 percent in 2007 and 3 percent in 2008. The share o f the population living under the poverty line by 2008 reverted back to above 45 percent, a level o f poverty not observed since 2003-2004. The increase in poverty incidence in 2007-2008 was accompanied by increases in the depth and severity o f poverty', making prospects of recovery more difficult. While the immediate impact of the cotton crisis on producers i s being softened by the smoothing fund" rising poverty trends could be exacerbated if the impact o f the global financial crisis, particular on the cotton sector, were prolonged due to the close linkages between cotton production, rural revenue generation and food production inBurkina Faso.l1 In2007, povertydepthroseby 0.2pointsandseverityroseby0.3 points:CEM. 10 The CFAF equivalent of the Cotlook A index is within a couple of percentage points of the annual average ofthe past four years. '' The floor price for the coming campaign has been established as CFAF160kg of seed cotton. A previous analysis had estimatedthat a CFAF20 per kg (13 percent) reduction in the producer price fiom CFAF160 per kg of seed cotton to CFAF140 per kg would lead to an increase in poverty of about 3.5 percentage points amongcotton producers. See Annex 6 inIDA reportNo. 38008-BF (Programdocument for PRSC-7). 7 17. Burkina's poverty profile shows that rural populations, particularly households headed by women, are worst-affected and thatfood insecurity is chronic and regionally variable. Poverty remains a predominantly rural phenomenon in Burkina with the proportion of poor people living inthe countryside increasing from 92.2 percent in 2003 to 93 percent in 2005 to 94.1 percent in 2007. Household surveys conducted in 2003, 2005 and2007 revealed a close nexusbetweenrisk exposure, vulnerability and poverty in rural areas. Households are vulnerable to agro-climatic and price fluctuations and are incapable of regulating or insuring consumption levels during periods of revenue fluctuation. Like many Sahelian countries, the North-Eastern regions (Sahel, Central North and East) are particularly vulnerable to climatic shocks because of their low accumulation of assets. Although monetary and asset-based poverty does not appear to be significantly higher in households headed by women, these households experience a higher nationwide incidence of the worst form of poverty because they are much more exposed to food insecurity risks.12 Chronic food insecurity, which affected 38 percent of households in2007, remains a concern. HumanDevelopment 18. Increased public expenditures and targeted social service provision have led to improved access to basic services. Government spending on education, health and potable water and sanitation have generally risen steadily (Figure 1) and access to education and water, in particular, have increased. Gross enrollment rates in primary schools have increased from 41.7 percent in 1999-2000 to 72 percent in 2007. The enrolment rate in secondary schools has risen from 19.1 percent in 2005 to 27.4 percent in2008. Overall access to drinking water has improved to 79 percent in 2007 from 54 percent in 2004 with more modest gains in rural areas. Inhealth, access to services has also improved with subsidies for obstetrical emergency care and delivery services and gratuity for all preventive services at the primary health care level. Infantmortality rates are slowly falling as a result of improved access to ante and post natal care by qualified health personnel and better management of integrated childhood illnesses. HIV/AIDs prevalence has decreased from 7.17 percent in 1997 to 1.9 percent in 2008 in the adult (15 - 49 age group) p~pulation'~.These indicators are reflected in improvements to Burkina's Human Development Index which has risen from 0.259 in 1980 to 0.372 in 2008, with arelativelyhighpositive change ratio of 0.055 over the period2000-2006. l2 In 2003, three in five (60percent) of households headed by women were confronted with a food insecurityproblem, comparedto less thanone intwo (49percent)for male-headedhouseholds. In2007, the figures were 47percent for women-headedhouseholds, against37percentfor males. 13 The decline in prevalence can partially be attributed to the following: "In 2007, advances in the methodologyof estimations of HIV epidemics appliedto an expanded range of country data have resulted in substantial changes in estimates of numbers of persons living with HIV worldwide": 2007 AIDS EpidemicUpdate,UNAIDS, December2007, p.3. 8 Figure 1:PovertyReducingSocial expenditure^'^ Poverty ReducingSocial Expendimre6 (% of GDP) :: $ 3 2 0 4 I I , I I I I I I 2001 2002 2003 2004 2006 2006 2007 2008 2009 Year 19. Despiteprogress, Burkina maintains a comparatively low ranking of 173 out of 179countries in the UNDPHuman DevelopmentIndex and is unlikely to reach several MDG's by 2015. While Burkina Faso is on track to reach the MDGtargets for access to primary education, potable water and reduced HIV prevalence, significant challenges exist with respectto attaining the rest ofthe MDGs, inparticular those relatedto maternal and infant mortality. Mortality figures remain alarming with very high infant and juvenilemortality, respectively at 104per 1,000 and 191per 1,000 in2007. O fparticular concern i s the deterioration in malnutrition rates over the last decade. Burkina also compares less favorably than other countries for assistedbirthsdespite efforts to improve health provision. The worsening global crisis is likely to have a negative impact on the availability of public resources for basic services and Burkina's progress towards attaining the MDG's. Demography 20. Burkina's unbridledpopulation growth rate of 3.1percent represents one of the greatest obstacles to human development and poverty reduction. Recent studies, including the upcoming Country Economic Memorandum (CEM) and the National Territorial Planning Study (Etude du Schema National d'Amenagement du Territoire or SNAT) diagnostic, have identifiedthe serious repercussions of a population growth that i s driven by high fertility in Burkina. Burkina's population growth rate not only jeopardizes the provision of human capital investments, especially in the areas o f education and health, it also heightens food insecurity, hastens land saturation and environmental degradation and, inthe longer term, the expandedpopulation o f youth will place a strain on the already limited formal labor market. The phenomenal population increase renders attainment of the MDGs less likely and more costly and it has a direct impact on the poverty headcount. 14 Poverty-Reducing Social Expenditures include: health, education, women's welfare and other poverty- reducing social expenditure. Source: Burkinabe authorities and IMFstaffprojections and estimates l5 The impact of population growth on the evolution o f the Burkinabe economy, including poverty, is illustrated using Maquette for MDG Simulations (MAMS) inthe upcoming CEM. 9 111. BURKINA FASO'S MAIN DEVELOPMENT CHALLENGES AND OPPORTUNITIES 21. The strong performance of the country at a macro level and in key sectors, the important growth potential that exists and the stable political environment in which improving governance and accountability have recently assumed particular prominence provide a solid foundation for transformation in Burkina Faso. In order to harness this opportunity, Burkinafaces two main development challenges: (i) Sustainingthe country's positive growth trajectory; and (ii) Advancing human development through the improved delivery of social services. Governance remains a central component of both development challenges. Population growth, environmental degradation and climate change have an aggravating impact on these development challenges and are therefore integrally relevant. DevelopmentChallenge 1: Sustainingthe country's positivegrowthtrajectory 22. I n a difficult international context, the country faces the challenge of sustaining its positive growth trajectory through intensification and diversification of the economy. The upcoming CEM indicates that the growth effects of Burkina's currency liberalization in 1994 are nearly exhausted. The impact o f the global financial crisis also threatens to slow economic growth. Burkina can no longer afford to precariously balance on the undulating performance of the cotton sector, which renders the economy vulnerable to climatic shocks and fluctuations in international commodity prices. The country needs to overcome its economic vulnerability and develop a broader and more sustainable resource base through intensification and diversification of the economy. (i) Opportunities 23. The cotton sector is, and will remain, a vital element of Burkina's economy in the short to medium term and efforts to improve the productivity and viability of the sector are critical. Burkina Faso is Sub-Saharan Africa's biggest cotton producer with unprocessed cotton accounting for above half (in good years) to above a third (in bad years) of exports. The sector provides 700,000 jobs, employs 17 percent o f the population and constitutes the only source of cash revenue for many farmers. The cotton sector i s at once Burkina's success story and her Achilles heel. Reforms in the cotton sector have produced a model for integrated supply chain development and have resulted insignificant growth inthe sector. From 1995/96to 2005/06 cotton production increased by 17 percent a year in Burkina, against 2.1 percent a year globally. However, high commodity price volatility, low productivity and the sector's vulnerability to climatic shocks have resulted in low and unstable income generation and poor land management associated with cotton production has hastened environmental degradation. The 10 unfolding cotton crisis has revealed the critical importance of improving productivity, establishing reliable risk management mechanisms and support structures for producers and advancing structural reforms to improve the sector's competitiveness and viability. While there are gains to be made in improving the cotton sector's performance, ultimately over-reliance on the sector for economic growth i s both risky and unsustainable. 24. Economic diversification outside of the cotton sector isparamount to reducing vulnerability, enhancing export performance and ensuring sustainable growth in the medium to longer term Burkina Faso's low income level and small internal market makes it dependent upon exports for growth. Yet the country's 9.6 percent export rate between 1998 and 2004 was the worst of all WAEMU countries and fell well below the average regional rate of 30.8 percent. Burkina Faso's limitedexport earnings are due in large part to its failure to develop non-cotton sectors. While diversification is not a new concept in Burkina Faso, until recently, it has been approached narrowly from an agricultural productivity perspective with limitedfocus an post-production issues such as market access and export promotion. Initiatives have been fragmented and, lately, sidelinedby the focus on resurrecting the cotton sector inthe wake of the cotton crises. As a result, the country has achieved little progress in diversifying its economy. The challenge for Burkina Faso is to begin to develop key areas o f growth and export potential inan integrated manner, focusing on strengthening identifiedincome-enhancing products for which Burkinahas a comparative advantage and simultaneously overcoming barriers to production, private sector engagement and trade. In recognition of this challenge, the Government is now committed to concentrate scarce public investment resources ina few geographical areas that exhibit large growthpotential. 25. I n the medium term, agriculture (including livestock and agro-processing) is the most obvious source of growth and poverty reduction in Burkina Faso. The agriculture sector employs over 80 percent of the population and contributes to 40 percent of national GDP. Between 2001 and 2008, growth in agriculture exceeded the national average despite year to year fluctuations. However, agricultural growth over the past decade has predominantly relied upon area expansion, a practice that cannot be sustained due to fast-approaching spatial saturation, rapid population growth and land degradation. Productivity has remained stagnant. Subsistence farming is widespread, with limited access of producers to both internal and external markets and minimal involvement of agribusinesses in the sector. Environmental degradation and climate change have had particularly ravaging effects on the performance o f the sector. To harness the potential of the agriculture sector, two key challenges exist. First, there is a need to intensify agricultural productivity (including livestock feed) by improving development, distribution and access to yield enhancing technologies, enhancing natural resource and risk management and strengthening land tenure. This will enable Burkina Faso to develop its domestic market, thereby achieving food security and reducing the country's dependency on food imports in a time of global recession. It will also create the necessary conditions for a shift from subsistence farming to diversification into high income-enhancing agriculture. Second, there is a need to commercialize high value 11 agriculture products16by developing tightly integrated and efficient agricultural supply chains geared towards regional export markets and by harnessing the value-adding potential of agro-processing. 26. Mining is a key driver of diversijication and growth. Mineral resources are emerging as important export commodities in Burkina. Government reforms in the mining sector, including a modem mining code in2003, have already attracted important foreign direct investments, notably in gold mining exploration. Export earnings from gold mining rose from 16.1 billion CFAF in 2007 to 85.O billion CFAF in 2009. There are currently four producing gold mines and three under construction and the sector generated 3,350 jobs in 2008. The geographic dispersion of mineral deposits i s well spread across the country, and could play an important role in developing rural economies. While the global economic crisis may slightly dampen the prospects for expansion of the sector in the near term due to uncertain commodity prices and likely lower FDI, a supportive institutional framework needs to be developed to pave the way for diversification towards scaled up mineral exploitation inthe short to mediumterrn.17 Active engagement on governance and capacity building are critical to developing the potential of the sector. Reducing factor costs, enhancing the investment climate and engaging SME's linked to the mining sector will likely attract further foreign direct investment. Administrative capacity within the Ministryof Quarries, Mines and Energy and government oversight of the extractive industries would also strengthen the growth potential of the sector. The Government has started by developing a ministerial staffing strategy, establishing an anti-fraud commission to track gold mined at an artisanal level andparticipating inthe Extractive IndustriesTransparencyInitiative (EITI). (ii) Obstacles 27. Despite improvements to the investment climate, Burkina faces an ongoing challenge to attract strong private sector involvement and foreign direct investment. The country achieved significant progress in im roving its investment climate" and supporting domestic private sector development.7 9 Comparatively, however, Burkina Faso still ranks poorly in the Doing Business indicators (148 out of 181 countries) and the upcoming CEM identifies a decline inthe investment growth rate from 2.6 percent between 1994 and 1999 to 1.6 percent between 2000 and 2006, with further reductions possible in the wake of the global financial crisis. Private sector participation in the economy is weakened by the low capacity of domestic SMEs and the limitedavailability l6A plethora of studies have consistently identified the income-enhancingexport potential ofproducts such as livestock, leather, meat, cashew, sesame, shea butter, dried mangoes andhorticulture: CEM. l7Annual export revenues for gold are projected to increase from $125 million in2008 to $700 millionby 2015 andtaxation revenue i s projected to grow from 1.3percent to 14-20percentin2011: CEM. E.g. reforms to reduce labor market rigidity allowed Burkina to become the world top reformer in the labor regulation indicator. Burkina Faso's rankingimproved from 125/181 in2008 to 57/181 in2009; and Parliament passedthe National Policy for Rural Land Tenure inJune 2009 and the MillenniumChallenge Account (MCA) has committed significant financing to assist with the implementation ofthe policy. l9 E.g. the establishment of the National Agency for Assisting Company Creation (CEFORE) and the provisionofbusiness developmentservices bythe Maison de I'Entreprise du Burkina Faso (MEBF). 12 of tailored financial services2'. Acute skills deficits inkey areas of economic growth also significantly constrain private sector investment and performance. Acceleration of the investment climate reform agenda is critical and will need to focus particularly on the State's continued intervention inthe market through regulated parastatals, procedures for protecting property rights, and the creation of a legal framework to provide certainty to potential investors on the responsibilities and risk sharing arrangements inpublic private partnerships. The local private sector also requires further capacity development support (particularly in accessing finance). The Government's financial sector strategy aims to address improvements to financial intermediation and access to finance to support the private sector led growth agenda (particularly SME, rural, housing and long-term financing). Finally, as identified by a series of recent analyses21, a clear strategy to target critical skills deficits within the labor market will accelerate growth in key areas and improve the employment prospectsof youths inparticular. 28. Limited access, unreliability and high cos& associated with economic infrastructure represent major obstacles to private sector investment and economic competitiveness. Inenergy, Burkina stands to benefit fiom access to additional capacity at a much lower price from neighboring countries, under the regional West African Power Pool (WAPP), including connections with C6te D'Ivoire (due for completion in 2010) and with Ghana (expected to commence in 2011). While these connections are vital, there i s also a clear need for: (i) a sustainable national strategy on energy which addresses, on the demand side, the role of private sector participation inthe state-owned utility, SONABEL, and, on the supply side, the rationalization of pricing systems for energy products and services to promote efficiency and industrial development; and (ii) for improvedrural and peri-urbanaccess to renewable and sustainable energy sources. 29. Intransport, lack ofterritorial access to the sea, limitedfarmto market rural road access, road maintenance and high transport and transit costs are major constraints. The road network, which forms the main basis of external and internal transportation in Burkina is generally in a good condition22, however, a sustainable strategy to ensure adequate ongoing finance for road maintenance remains a priority.. The absence o f competition in the trucking industry, which is operated on a cartel-type rotational basis for all operators, is the most significant contributor to hightransport costs inBurkina and needs to be addressed at a regional level. Despite the revival of corridors with Togo, Ghana and Benininthe wake of the crisis inCBte D'Ivoire, Burkina still ranks poorly for trading across borders.23Trading across borders could be further improved with customs reform and better infrastructure inexternal ports. Modal diversification away from over- 2oA recent Investment Climate Assessment indicates that nearly Sopercent of all SMEs inthe formal sector consider limitedaccess to financial services as a major obstacle to their development. 21E.g. upcomingCEM (2010); InvestmentClimate Assessment (2006), Labor Study (2007). 22InDecember2007, the roads databaseassessed60percent ofthe roadnetwork to be ingoodworking condition, 22percent to be inworking condition, Spercent inbad condition and 9percent under rehabilitation or construction: CEM. 23The Doing BusinessBetter Program ranked Burkina Faso 173 out o f 181countries in2009 for trading across borders. 13 reliance on roadtransport is also critical to improvingtrade. Rail transport24and air trade represent promising options for landlocked Burkina. A key future challenge will be to attract rail and airport investments through public-private partnerships. Inthe context of informationand communication technologies (ICT), access to services is l o d 5and costs remain high despite significant progress inthe sector.26The challenge moving forward i s to continue to promote more effective ~ompetition~~through regulatory reforms, ICT skills generation, better use of ICT applications to improve delivery of social services and the creation of a more favorable operating environment for mobile phone operators. Possible regional SAT3 interconnections also provide promising opportunities in the sector. 30. Comprehensive regional integration remains critical to overcoming Burkina Faso's small size and landlockedposition.. The country stands to benefit from regional actions in the context of an integrated and open West Africa economic space under the auspices of WAEMU, the Economic Community of West African States (ECOWAS) and other cooperative initiatives. Through the WAPP, Burkina will gain access to regional power supplies, significantly reducing electricity costs and providing opportunities for improved regional ICT connections using the same transmission lines. Other important regional initiatives will result in improved financial intermediation, transparent mining operations, the establishment of regional risk management and mitigation mechanisms and improved cross-border transport and trade through road rehabilitation, customs reform and improved access to regional ports. The challenge will be to continue the momentum of these initiatives and promote new engagements. Efforts to pro-actively broach regional issues relatedto free trade, improved transfer of technologies, innovation and south-southlearning will also be critical. Development Challenge 2: Advancing human development through social service delivery 31. Broad-based public service delivery represents the most effective means of re- distributing the benefits of growth and advancing human development in Burkina Faso28. However, public expenditure on social services remains comparatively low in Burkina Faso, representing only 5.6 percent of GDP. Given the narrow fiscal space to increasepublic expenditures (with low tax revenues and weaker short-term prospects for economic growth and aid flows), the challenge for Burkina Faso will be to maximize the effectiveness of the limitedresources available inproviding quality social services. This 24 800,000 tons were imported by rail in2007 and in2008, reducingtransport costs by half (8 billion FCAF annually), reducing fuel imports (rail operations consume 3,5 times less than trucks, saving 13.5 million liters o f fuel or FCFA 5 billion), reducing C02 emissions, road accidents and preservingthe road network: *'Mobile CEM. communication penetration rates lag behind the 2007 Sub-Saharan Afiica average o f 18.28percent. 26 Government initiatives to attract investments resulted in significantly improved access to mobile communication networks fiom 5.5percent in2005 to 14Spercent in2008. 27 A recent World Bankstudy showed that effective competition, on its own, would result inover 90percent o fthe population being covered by mobile networks. 28 World Development Report 2009. 14 will be particularly relevant inthe context of the ongoing process towards decentralized social service delivery in Burkina. The specific challenges to delivery o f quality social services relate to: (i) the effectiveness and governance of state institutions operating in a decentralized system; (ii)public demand and oversight of service delivery and; (iii) particular areas of concern insocial services. Effectiveness andgovernance of state institutions 32. Despite demonstratedcommitment on the part of the Government to promote better governance, important challengesremain in strengtheningthe quality of public administration and accountability. Burkina compares favorably to the African average and Sub-Saharan Africa average for the six Governance Indicators constructed by Kauhann and Kraay. In 2008 the Governance Indicators on regulatory quality and corruption improved. The Prime Minister has put the fight against corruption at the top of the agenda and a new Higher Administrative Control Authority (Autorite` Supe`rieure de ContrGZe de Z'Etat or ASCE), in charge of promoting anti-corruption, is already operational. However, accountability, government effectiveness and rule o f law remain at issue, having declined inthe Governance Indicators for 2008. Figure2: GovernanceIndicatorPercentileRankingComparison: Sub-SaharanAfricavs BurkinaFaso I Volceand Accountability ,."6D?...,.., , -Percentile Rank Burkina Faso (0-100) -Percentile Rank Regional ~ Average (0-100) Regulatory Quality 1 33. Publicfinancial management has undergonepositive changes; yet there is still room for improvement. The Government is implementing a wide range of public financial management (PFM) reforms contained in an integrated action plan for 2007- 2015 (Strate`giede Renforcement des Finance PubZiques or SRFP). The SRFP aims to create a performance-based PFM system by 2015 within the context o f the new PFM WAEMU directives. Burkina's progress i s reflected in the country's high Public Expenditure and Financial Accountability (PEFA) scores29. Budget processes have 29 Burkina's 2007 PEFA assessment includes the best scores o f Francophone Sub-Saharan countries inthe following areas (i)strong budget legislation which reflects most o f the WAEMU directives on public finance; (ii) improved alignment o f budget allocations with PRSP priorities with the introduction o f a global MTEF; (iii)enhanced budget execution with the operation o f a computerized expenditure 15 improved, with increased pro-poor spending, the implementation o f medium-term economic frameworks, and fewer expendituredeviations. The creation o f an independent Court of Accounts has enabled timely and increasingly professional auditing of government accounts. Progress has also been achieved inenhancing the transparency of procurement procedures. However, remaining challenges include improving the implementation of procurement and financial management reforms, rationalizing PFM controls anddeveloping the capacity of control institutions, includingparliament. 34. Public administration, though generally well-structured, lacks efficiency due to cumbersome procedures, unresponsiveness and weak capacity. Civil service reforms that were introduced in 1998 to improve efficiency are slowly being implemented, however reforms are yet to reflect the shift towards decentralization in Burkina - incentive and accountability structures remain poorly aligned and there i s no local civil service. Limited accountability and capacity and resource constraints also impact upon the effectiveness of civil service performance. Although a nationwide capacity development policy has been created, it i s yet to be operationalized. Capacity- development within the public administration would significantly benefit from better coordination. The statistical capacity of the administration also needs to be strengthened to improve monitoringand evaluation. 35. I n Burkina Faso, the decentralization agenda is central to improving public service delivery. There i s broad agreement inthe country that the quality of services will not improve until accountability for service provision is shifted to the communal level where most of the actual delivery of services takes place. The General Local Governments Code 2004 (Code General Des Collectivitks Territoriales) confers responsibility for primary service delivery on the local municipalities in Burkina Faso. To date the ability of municipalities to carry out their mandates has been hampered by slow implementation of the decentralization agenda (see Box 1). An analysis of decentralization in2007 identified key challenges to the process. At the central level, the level of autonomy with which communes are expected to operate has yet to be clearly elucidated and this has constrained efforts to operationalize the legal transfer of responsibilities. In addition, the complex set of decentralization and de-concentration structures requires further rationalization and the mechanisms for intergovernmental transfers need to be clarified to ensure appropriate, regular and transparent resource transfers to the communes. At the commune level, limitedbasic capacity inplanning and budget management constitutes a major obstacle. Local revenue collection and adequate staffing also need to be addressed. Improved donor coordination around the decentralization agenda poses an additional challenge for the Government. Public demandfor and oversight of quality service delivery 36. Citizen, civil society, parliamentary and media participation as a means of bridgingthe accountabilitygap and strengtheningthe demand-sidefor transparentand quality public service delivery is yet to befully exploited. High levels o f illiteracy and management; and (iv) improved budget reporting and auditing with the introduction of an independent Audit Court. 16 societal deference to traditional hierarchies have resulted in a weak citizen "voice" and low community participation in decision-making and oversight. A political economy analysis conducted in2008 highlighted that civil society and the media are constrained by weak capacity, limited access to information and few opportunities for real engagement on decision-making and governance. Increasingly, however, the Government i s creating space for active public participation in decision-making, as demonstrated by the strong support for community-driven development. To improve accountability and transparency, opportunities for open and effective engagement with the public, civil society, parliament and the media need to be expanded, the public's role in monitoring activities and reform implementation enhanced and the freedom of information framework revisited. Specific challenges in social sewice delivery 37. I n education, the issues of literacy and educational quality continue to constitute a causefor concern. The Government has beenproactive inincreasing access to education, targeting the most deprived regions and focusing on raising female education rates. Yet the country maintains one of the lowest literacy rates in the world (below 30 percent) and the quality of education is negatively affected by inadequate teaching resources. The challenge will be to ensure that educational quality is not compromised by increasing access to education or by shifting service delivery responsibilities to the communes. 17 38. I n health, the coverage and quality of services remain priorities, while the momentum on tackling malaria, HIV/AIDS and epidemic diseases needs to be maintained. Under the ten-year health sector program adopted in 2001, access has improved with activities including: (i)the construction of health facilities; (ii)free preventive services for children and free prenatal care; (iii)expanded coverage of preventive and curative health services, with the percentage of children fully vaccinated increasing from 22 percent from 2004 to 44 percent in2006; and (iv) the introduction of a distribution system for essential drugs. However, the country continues to register high rates of unassisted deliveries and maternal mortalities, coverage is still insufficient and health facilities remain under-equippedand poorly staffed. Giventhe highmortality rates in Burkina, the steady progress in stabilizing and reducing HIV prevalence needs to be sustained30,as do the improved vaccination coverage rates for tuberculosis, meningitis and measles and the malaria prevention and treatment campaigns. Malaria remains the primary cause of infant mortality and morbidity in Burkina. The Ministry of Health has finalized a new fully costed malaria strategy, and has agreed to strengthen district-level planning tools to better align activities with the disease burden, as well as to develop an integrated approach to community-level interventions for malaria, tuberculosis, HIV/AIDS,reproductive health, andmalnutrition. 39. Nutrition has also become a primary health concern. Malnutrition rates have fluctuated and worsened inthe last decade, with chronic child malnutritionreaching 35.9 percent in 2007. Malnutrition impacts upon the high infant mortality rate in Burkina, accounting for 50 percent of deaths of children under five. Although on average overall food production in Burkina Faso appears to match consumption needs, food storage, access and diet quality are important underlying factors in the rising levels of malnutrition. A national nutrition strategy exists and intersectoral coordination mechanisms have been instituted, however, interventions will need to be sustained and further scaledupto dealwith the impending malnutritioncrisis. 40. Despite significant improvements to urban access to water, disparities in rural coverage and sanitation require greater focus. The Government has made particularly noteworthy progress in improving access to potable water with the development of the National Water Supply and Sanitation Program (PN-AEPA), improved public utility efficiency, an ambitious and successful urban extension program and the development of public-private partnerships between communities and the local private sector. While access in urban areas has increased significantly, the national program is focused on addressing the ongoing challenge of disparities in rural coverage and the development and implementation of sanitation programs. 41, Social safety net programs are of particular importance in the current context. The extent of high vulnerability amongst the population has increased the demand for 30Despiteprogress Burkina Faso still has one of the highest HIV/AIDS prevalence rates in the sub-region and a recent WHO report on the country identified ongoing risks associated with (i)insufficient human resource capacity; (ii)cost and rural access to ARV treatment; (iii) insufficient training of health workers; and (iv) discrimination. 18 social safety net measures. A significant challenge will be to address the unsustainability and ad hoc nature of existing public safety net programs, which rely almost exclusively on external funding. The preparation of a National Social Protection Strategy, a law on social protection and a ten-year implementation plan demonstrate the Government's commitment. The Centralityof Governanceto BurkinaFaso's DevelopmentChallenges 42. Good governance remains an important undercurrent to tackling Burkina's fundamental development challenges. The Government has signaled a clear commitment to improve the `governance' environment for economic growth through regulatory and institutional reform, with demonstrable progress in investment climate reforms, private sector development and land tenure policies. Yet specific governance constraints remain in particular growth sectors. By contrast, governance remains a binding constraint to effective and efficient social service delivery and human development in the country and it is in this context that emphasis on improving governance i s particularly critical. Such an emphasis will be facilitated by the recent commitment from Government to strengthen institutions and create greater space for public participation. Appendix H provides a preliminary overview of the governance risks ineach sector. The AggravatingImpact of PopulationGrowth and EnvironmentalDegradation on BurkinaFaso's DevelopmentChallenges 43. Urgent efforts to trigger a decline in high fertility and slow down the unsustainable rate of population growth are calledfor. Burkina's high fertility rates and expanding population substantially slow the rate of economic growth inthe country and minimize the impact of poverty-reducing and human development initiatives. Emigrationcan no longer be relied uponto alleviate population pressure, as it has done in the past, due to the recent decline in out-migration and the phenomenon of return - migration. Inthe past, demography received limited attention at a national level and the coordination of activities suffered from a timid National Population Policy and weak institutional capacity. The complexities of cultural, social and religious constraints to population control and family planning have yet to be fully explored but continue to exist. However, since 2008, and with the completion of the SNAT diagnostic and the recent census, the Government has taken an increasingly pro-active stance, elevating demography as a major development challenge. To achieve a decline in fertility, high level support for population coordination activities i s needed, inaddition to a nation-wide advocacy and communication effort, expanded reproductive health activities (which address related service delivery constraints) and the promotion of modern contraceptive usage.31 31The CEM indicates that 29percent o f Burkinabe women have expressed an `unmet need' for family planning, three times the number o f women usingmodem family planningmethods. The rate o f increase of modem contraceptive coverage is exceptionally slow and would only reach current unmet demand by 2060. The CEM recommends an increase inmodem contraceptive usage o f 1Spercent per year. Satisfying unmet 19 44. Thepromotion of women isfundamental to Burkina's overall development and it is also paramount to addressingthe demography dilemma. Though gender gaps are closing steadily in health and education, women's participation in economic activity tends to be confined to low salary rural and informal sector activities and Burkina is poorly ranked in the UNDP gender-related development index to HDI ratio32. The challengemoving forward is to improve women's involvement ineconomic activities and their autonomy andto continue to focus onaccess to healthandeducation services. 45. Burkina's changing environment has significant ramifications for the country's growth prospects andfor the quality of life of the population and requires both short term environmental preservation measures and longer term attention to climate change. Poor environmental management practices have reduced agricultural yields and the population's access to natural resources. Environmental preservation is furtherjeopardized by the expansion of mining. The effects of climate change are also beginning to have a real impact on the country, with desertification and lowered and variable rainfall levels affecting substantial parts of the country. Given the immediate impact of environmental degradation on rural populations, short term mitigation measures to improve natural resource management and ensure that safeguards are built in to the expansion of intensive agriculture and mining operations`are critical. Equally, the development of a coherent and coordinated national disaster risk management strategy will strengthenthe country's ability to rapidly respond to environmental crises. In the longer term, efforts to stem climate change will be important, including through regulatory mechanisms to encourage investments in renewable energy and reduce urban pollutionandthrough the exploration of carbon finance opportunities. IV. BURKINAFASO'S VISION 46. Burkina Faso's long term vision focuses upon human security (economic, health, food, environmental, individual and political) and poverty reduction and i s encapsulated in the country's Sustainable Human Development Policy of 1995 and the national prospective `Burkina 2025' of 2001. The long term strategies envisage: regional and global integration; sustainable economic growth; increased public expenditures to accelerate human capital development; and strengthened decentralization and modernization processes in Government. More recently, the Government-sponsored SNAT has mapped a diagnostic of the country's development and identified three fundamental long term strategic objectives: (i) deceleration of population growth and empowerment / advancement of women; (ii)human capital development; and (iii) increased and intensified agricultural production and self-sufficiency, (see further Appendix E). 47. The country's medium term strategic vision is being updated. Burkina's second Poverty Reduction Strategy Paper, the Cadre Stratkgique de Lutte Contre la Pauvrete` needs for family planning would avert an estimated 240,000 child deaths and 5,000 maternal deaths by 2015. 32In2008, 124of 154countrieshadgender-development to HDIratiosthat surpassedthat ofBurkina Faso. 20 (PRSP) which is accompanied by a Priority Action Plan for 2009-2011, continues to guide the country's medium term development direction, however the Government is now inthe process of developing a new Strategy for Accelerated Growth and Sustainable Development which is expected to update and supersedethe existing PRSP in2011. The 2003 PRSP aims to maintain real GDP growth above 4 percent per annum, halve poverty to 35 percent and increase life expectancy to at least 60 years by 2015. The four pillars of the strategy consist of: (i)raising growth and equity in a stable macro-economic environment to reduce poverty; (ii)increasing access to and quality of basic social services; (iii)improving employment and income opportunities for the poor; and (iv) improving governance with a particular emphasis on public sector management and budget management reforms.33Details of the proposed new government strategy have recently beenreleasedinthe form of a conceptnote (see Box 2). The CAS aligns support behind both the existing PRSP and the major areas of concentration envisaged for the new government strategy. 33For progressunder the PRSP, see hrtherAppendix 1CAS CompletionReport, andthe three GovernmentAnnualProgressReportsandJSAN. 21 V. BANK GROUP ASSISTANCE STRATEGY A. IMPLEMENTATIONOF THE LAST CAS 48. The CAS Completion Report concluded that performance under the last CAS was broadly satisfactory in supporting the country's efforts towards achieving its developmentoutcomes. The Poverty Reduction Support Credit (PRSC) series facilitated policy reforms in the cotton, energy and telecommunications sector, as well as marked progress in public financial management. The IFC's Doing Business program was instrumental inpromoting significant improvements to the investment climate. The CAS also contributed to the expansionof infrastructure networks, including regional electricity and road interconnections. Through programmatic approaches, gains were achieved in improving access to education, health and urbanwater. A notable achievement o f CAS implementation was the rapid response to the food crisis and meningitis epidemic which enabled re-allocated and additional financing for extensive seed distribution, school feeding programs and vaccinations. Details of performance under the last CAS are provided in Appendix Bythe CAS Completion Report. A client survey conducted in 2008 identified general satisfaction amongst key stakeholders as to the perfonnance of the World Bank(see furtherAppendix I). 49. The following key lessons have beenincorporated into the formulation o f the new strategy: e Greater selectivity and inter-sectoral coordination: The 2006 CAS aligned support across all pillars and outcomes of the PRSP and involved a country program of multiple projects and programs covering most sectors andgeographicalregions. The challengefor this strategy is to enhance the impact and visibility o f Bank interventions through a more selective and strategic program. This is particularly relevant in the context of budget support. While the PRSC series had an effective impact on central level reforms including public financial management, they had limited impact: (i)where reform implementation depended upon the involvement of particular line ministriesand on the capacity of the Ministry o f Economy and Finance to coordinate sectoral reforms; and (ii) institutional and in capacity development. Future general budget support would benefit from more selective targeting of key reforms at the central level. Closer cooperation among sectoral teams to harness the complementarities and synergies between sectors and projects will also improve the program's coherence and better reflect the interrelated and mutually reinforcing nature ofthe PRSP objectives to which the CAS aligns. e Aid effectiveness: Budget support through the PRSC series improved donor coordination and proved effective in advancing policy dialogue at a macro level. Programmatic approaches in basic services were successful insofar as they aligned support behind national sectoral policies. However, significant weaknesses in the implementation of national financial management and procurement systems represent major obstacles 22 to the use of harmonized sectoral approaches and pooled funding mechanisms. Moving forward, the World Bank needs to foster strengthened donor coordination through continued budget support and leadership in key sectors for which the World Bank has a comparative advantage. Support to strengthen the functioning o f country systems i s also critical. e Target support to local governments. While donors have supportedthe policy of decentralization, financial assistance has beenconcentratedat the central and community levels, with limited support to the governing bodies responsible for delivering decentralized services, the communes. Through the Community BasedRural Development project (CBRDII), the Bank has startedto shift financial support and capacity development from the village level to the rural commune structures. To advance the decentralization process and improve service provision, better targeted financial and capacity development support at the level of the provision of decentralized services i s therefore warranted. e Scale up support to institutionaland human capacity development. Given the magnitude of the capacity constraints in Burkina and the limitations they represent for aid effectiveness, a more consistent and mainstreamed approach to capacity development is required throughout the Bank portfolio as a complement to specific capacity development initiatives. 50. Current World Bank Group Program: The IDA portfolio in Burkina Faso consists of 14 active projects and the PRSC8 (general budget support) operation with a total (gross) commitment o f approximately US$534.88 million. As of 5 May 2009, approximately US$294.24 million remains undisbursed. Inaddition to the annual PRSC series, the portfolio includes major investment lending operations in community driven development, agricultural diversification, HIV/AIDS, capacity building, electricity (urban and rural), transport and private sector promotion. Burkina Faso is also participating in four regional projects34. 28 percent of the active portfolio i s allocated to programmatic approachesinbasic services. 5 1. Overall portfolio performance has been satisfactory. The Independent Evaluation Group (IEG) ratings of Burkina Faso projects have shown improvement inthe last 5 years and have exceededthe average ratings of the Afiica Region. However, recent worrying signs include the level of slow disbursements and the absence o f robust M&E systems. IEG has also recently drawn attention to the fact that the outcomes and sustainability ratings have slightly dropped inthe last 3 years (FY05-FY08). The country team i s currently implementing a portfolio review and action plan to address these shortcomings. Project readiness and prompt and effective implementation are strategic portfolio priorities underthis action plan. 34West Africa Regional Transport and Transit Facilitation project, West Afiica Regional Biosecurity project, West and Central Air Transport Safety & Security project, Africa Emergency Locus Project. 23 Figure 3: Portfolio Spending by Sector Urban development - 2% a Agriculture 8 Rural Dev 22% Public sector gowrnance 3% Fin 8 Pdvrectord Energy8 mining 16% 52. IFC, MIGA and World Bank Institute (WB4 activities have bolstered World Bank Group Support. IFC activities included: (i) the Doing Business Better Program; (ii) collaborationwiththeWorldBank,capacity-buildingformediumsizeenterprises in and support to financial institutions to improve SME accessibility to finance; (iii) technical support to medium-size enterprises in agriculture, construction and transport; (iv) project development support in the financial, hospitality, infrastructure and mining sectors; (v) a senior loan of Euro 7.5 million in support of the network expansions program of the privatized telecommunications utility, ONATEL; and (vi) support of ONATEL's Initial Public Offering (IPO). MIGA has supported the tourism and mining sectors. Intourism, MIGA extendeda guarantee to support investmentinthe renovation and expansion of the Hotel Independence in Ouagadougou. Inmining, MIGA is in the process of supporting a major investment by a Canadian company in the gold sector. WBI supported several country and regional programs, including in sustainable land management, natural capital, education and parliamentary capacity. 24 B. THEPROGRAMOFASSISTANCE 2010-2012FY 1) Strategic Objectives '53. The CAS aligns behindthe priorities identified in Burkina Faso's existing PRSP and the country's longer term vision. It also seeks to lay the foundations for a transition towards the new development strategy and a joint donor assistance strategy expected to be launched after 2011. To this end, the strategy will be shorter in duration and will culminate in 2011-2 (FY12). The CAS is framed around two strategic themes and two cross-cutting issues: 54. Strategic theme one: Minimizing economic vulnerability andpromoting growth through economic transformation. The primary objective of this strategic theme is to . assist Burkina Faso in recovering a strong positive growth trajectory and minimizing economic vulnerability ina time o f global crisis andto prepare for a transformation to an intensified and diversified economy. The substantial part ofthe financial assistancewill , therefore, support the first and third PRSP pillars relating to growth and increased employment and income generating activities. It will also support the emerging areas of environmental management and spatial development identifiedinthe concept note for the Government's new strategy. 55. Strategic theme two: Promoting shared growth through improved social service delivery. The primary objective of this strategic theme i s to improve both the supply of and demandfor effective and quality social services by targeting binding governance and capacity constraints. Financial assistance will primarily support the second and fourth pillars of the PRSP relating to improved access to basic social services and promoting good governance. It will also support the increasedemphasis on public participation and local development outlined inthe proposednew government strategy. 56. Cross-cuttingissues: Weak institutional andhuman capacity andrapidpopulation growth represent underlying constraints to both strategic themes o f the CAS. In recognition of their cross-cutting pertinence, the issues of (i)governance and capacity development and (ii) demography will be addressed through both individual operations captured under the two strategic themes and through mainstreaming across the World Bank portfolio. Appendices G and H detail the CAS approach to demography and governance and anti-corruption (GAC). These approaches align with the PRSP's fourth pillar relating to good governance andthe proposednew government strategy's emphasis on demography. 25 Figure 4: CAS Strategic Themes and ExpectedOutcomes BurMM Faso* Med&am 18m,viakm: PRSPII8ndPfioctCy AcUmPI= 2ook2011 Proporedstntspy for AocelerahdOr- and SusDinabIeDevelopmentMi* -2016 Country Assistance Strategy FYIO-I2 iii)Acoeleratsd-divenifl&tionandirkreased manlgementfor baiter ~8wleedstivery exports (HI) Strengthenedinstltut[onsforimproved (iv) Enhancedenablingenvironmentfor private dellveiyof qualitysocialservices sector-leddivenifloatlon (v) Improvedaccessto internationaland regionalmarkets Cross-cuttingissues: Governance,Capacity Development& Demography 2) UnderlyingPrinciples 57. Transformation. The situation in Burkina Faso calls for a transformative CAS. After years of steady growth and sound economic management, the impact of the global crisis has brought into focus the importance and urgency of accelerating diversification of the country's sources of growth and sustainably resolving endemic weaknesses in the cotton sector. At the same time, Burkina's political stability continues to provide a steady platform for sustained reform initiatives, national ownership i s developing strongly around an evolving development agenda which incorporates new focus areas, including demography and environmental preservation, and the current leadership has demonstrated clear commitment to better governance and broader participation in decision-making. The CAS seeks to harness these opportunities by (i)targeting clear entry points to achieve truly transformative impact in diversification; commercialized agriculture and social service delivery; and (ii) adopting new and transformative ways o f doing business which involve better positioning Burkina's development in a regional context, strengthening analytical support, adopting horizontal and multi-sectoral approaches to address growth and human development ina more integrated and holistic manner and developing results-focused approaches to the emerging issues of environmental preservation3' and demography. 35 Inthe case of environmental preservation, the CAS seeks to target short term mitigation measures that will enhance agricultural productivity, secure the population's access to natural resources and ensure that environmental risks associated with the drives of growth - agriculture and mining - are actively pursued. While the strategy does not directly focus upon the broader issue of climate change, the short term 26 58. Adaptability in the context of a global recession. The strategy simultaneously aims to assist Burkina Faso in weathering the storm of the global financial crisis by targeting the country's economic and social vulnerabilities and by partially front-loading available resources. Sustained budget support to accommodate losses in state revenue to support the Government's emergency policy reform and institution strengthening response inthe cotton sector and social protection, will be accompaniedby special safety net interventions (including food security and nutrition). The CAS also envisages the possible need for adjustment of the program to allow for critical or unforeseen eventualities, includingthe possibility of topping up budget support to provide supportive counter-cyclical financing. Giventhe slow-down inglobal markets, the growth agenda of the strategy placesparticular emphasis on developing local andregional markets. 59. Selectivity and improved inter-sectoral coordination for greater impact. The CAS focuses Bank engagement primarily on the targeted areas o f agriculture and governance in social service delivery. The new program will significantly reduce the areas inwhich the Bank provides financial support. For example, no new IDA financing i s envisaged for: (i)primary education; (ii)health and HIV/AIDS, outside of family planning; (iii) public sector management reform; and (vi) energy. In these sectors the focus will be on continued policy dialogue36and ensuring the implementation of the sizeable existing vertical portfolio in energy, health and education. This selectivity also takes into account the significant support provided by other donors inthe relevant sectors, as outlined in Annex 14. In the context of human development, while new vertical financing i s not envisaged for the period of the CAS, support will be channeledto social service delivery horizontally along the entire supply chain. The strategy also takes a more selective approach to budget support by targeting a narrower set of concentration areas for which clear institutional anchors for reform are identified. Financial support under the first strategic theme will also be spatially concentratedaround poles of growth. The selectivity adopted by the strategy will be accompanied by more effective inter- sectoral coordination. The CAS will reduce proliferation of activities and seek appropriate consolidation through multisectoral operations on growth poles and decentralized development and a reduction in the number of project implementation units. This will require continued effort to work effectively across sectoral silos and recognition of individual contributions to tasks. 60. Raising the stakes on aid effectiveness. The strategy i s ajoint strategy between the IFC, MIGA andthe World Bankwhich aims to enhanceWorld Bank Group synergies inkey areas such as private sector development, investmentclimate reform, goldmining, cotton and agriculture. The donor community is committed to developing a joint assistance strategy after 2011. During the CAS period, the World Bank will work with measures adopted are aligned with the Aftican Region's Strategy for Making Development Climate Resilient and the Bank will continue to explore regional opportunities to advance dialogue on climate change. 36 A key exampleis inbasic educationwhere the Bankwill continueto be the administrator ofthe EducationFor All FastTrack InitiativeCatalytic Fundgrant (EFA FTI) andwill remainengagedinpolicy dialoguewith Government onbasic educationobjectives. 27 the partners to bring this commitment to fruition. Improving aid effectiveness over the period of the CAS also constitutes one of the cornerstones of the strategy. The programmatic approachto budget support will be continued and assistance in improving the country's public financial management and procurement systems will pave the way for the increaseduse of country systems. The CAS program also actively seeks synergies withother donors. A mapping of donor's activities inthe relevant sectors is contained in Annex 14. At the same time, the strategy seeks to balance low costs and aid flow predictability with flexibility particularly given the current context of multiple shocks. This will involve exploring opportunities to provide counter-cyclical budget support in the event of unforeseencrises. 3) IDA Availability 61. The CAS covers the period FYlO - 12, the last two years of IDA15 (FY10-11) and the first year of IDA 16. The overall size of the IDA envelope during the CAS period i s assumed to be about SDR 354.3 million, with an average annual allocation of about SDR 118 million for each of the years. However, due to the frontloading of SDR 48 million in FY09 in response to the global financial crisis, the remaining indicative IDA envelope for the CAS period is reducedto SDR 306.3 million. The estimates for FY 11-12 are indicative only. Actual allocations during these years will dependon: (i) total IDA resources available; (ii) country's performance rating; (iii) performance and the the assistance terms of other IDA borrowers; (iv) the terms of IDA'Sassistance (grants or credits); and (v) the number of IDA-eligible countries. The FY12 indicative allocation assumes that IDA16 resources will be at the same level as IDA 15. IDA allocations are made in SDRs based on performance, and the US$ equivalent is dependent upon the prevailing exchange rate. With Burkina's three-year Country Policy and Institutional Assessment (CPIA) average of 3.7, the country i s currently classified with high risk of debt distress and, therefore, it will receive all its allocations inthe form of grants unless its debt sustainability position changes. The country needs to strengthen policies and institutioneffectiveness to improve its CPIA rating. A short to mediumterm action plan for improving the country's performance, particularly focused on measures achievable over the next two years, was developed during a workshop initiated by the World Bank and hostedjointly with the Government inDecember 2008. The action planincludes: (i) elaboration and implementation of an action plan in the finance sector; (ii) universal health insurance for improved social protection; (iii)the full alignment of sectoral policies with the PRSP; (iv) effective transfers to communes; (v) implementation of recommendations on the study on corruption inthe public sector; and (vi) publication of summaries of laws passedto inform the public. 4) CAS Instruments 62. Inline with Burkina's goodperformance, the Bank will continue and bettertarget the use of development policy lending. The PRSCs will be designed around three key objectives: (i) (including support to the cotton sector); (ii) growth decentralization; and (iii)public financial management. The PRSC series will closely complement the investment lending program by supporting policy reforms needed to create enabling 28 environments for effective implementation of the program's major operations which target diversification and effective decentralized social service delivery. Table 2: ProposedLendingProgram Lending PRSC10 70 Agricultural Productivity & Food Security Project 45 Growth Poles Project 70 FYlO Regional3' (JulO9 -Jun 10) 0 Agriculture Technology Sharing Project 5 Grants Education for All Fast Track Initiative (EFNFTI catalytic fundUSD$102million) Environmental Risk Management Program (GFDRR grant USD$S million) Sub-total FYlO 190 70 60 10 I - 10 Regional MiningSector TA Initiatke(incl. EITIi-t-) 5 Sub-tOtd FY II 155 PRSC12 (series IV) 70 Transport Infrastructure Project 60 FY12 (Jul 11-Jun 12) Regional - Regional Rail Project 10 Sub-total FYl2 140 63. Analytical and Advisory activities (AAA) and technical assistance (TA) have been scaled up to develop appropriate foundations (e.g. intrade, agriculture and country systems) for longer term reform under the upcoming joint assistance strategy. The program also seeks to support financial operations and respond to demandto provide real time support to the Government. Trust fund programs will complement the overall portfolio by providingAAA and TA intargeted areas. 37Dollar amounts are subject to the prevailing SDR/USD$ exchange rate. 38Amounts refer to the proportion o f country IDA allocations for regional project fmancing only. 29 Table 3: ProposedAAA/TA Program AAA/TA FYI0 ContinuedTA ESW: (FY10 12) - 1. Sources ofGrowth& Competitiveness (CEM; Policy Notes3') Country systems (PFM 2. PER Programmatic Series (Module 11; Decentralization andprocurement)TA PolicyNote) SocialSafetyNets TA - Reviewand TA DemographyPolicyNote& Action PlanTA - Sub-regionalTrade RegimeNote 5) Program Delivery Strategic theme 1: Minimizing economic vulnerability andpromoting growth through economic transformation 64. Under the first strategic theme, the CAS will focus on the following outcomes (i) sustained performance in the cotton sector; (ii) increased agricultural productivity and improved environmental management; (iii)accelerated diversification and increased exports; (iv) enhanced enabling environment for private sector-led diversification; and (iv) improvedaccessto regional andinternationalmarkets. 39Policynotes will include aCountry EnvironmentAssessment, Agriculture Sector Review, GrowthPole analysis andAfrica InfiastructureCountry Diagnosticbriefing note. 30 Outcome 1:Sustainedperformance of the cotton sector 65. Given (i) impact of the global recession and structural weaknesses affecting the the current viability ofthe cotton sector and (ii) importance ofthe sector for growth in the the short to medium term, significant resources will be invested to support the Government to rescue and reform the sector and protect populations fiom the negative impact of the cotton crisis. The Agricultural Productivity and Food Security Project (APFSP) planned for FY10 will include a cotton sector structural enhancement component. This component, together with the PRSC series, will support the adoption and implementation of the Government's three year action plan to address structural weaknesses and improve the sector's competitiveness. These operations will also support measures to protect local communities implicated in the cotton sector, including sustainable measures to address farmer indebtedness and improve access to affordable inputs. The ongoing Global Facility for Disaster Reduction and Recovery (GFDRR) - funded - integrated weather risk management study will investigate the feasibility o f weather-based insurance to protect producers against rainfall variations. The recently launched West Africa Regional Biosecurity (WARBP) project will support measures to ensure that appropriate biosafety standards are applied to the Government's roll-out of productivity-enhancing genetically modified Bt cotton. IFC will coordinate closely with the Bank to identify appropriate support to private activities inthe sector and MIGA will also examine the possibility of extending guarantees to the cotton ginning companies. Outcome 2: Increased apicultural productivity and improved environmental management 66. Increased agricultural production will help improve food security, generate rural revenue and facilitate the shift from subsistence farming to production for market. The APFSP will focus on improving access to productivity-enhancing technologies, enhancing post-harvest storage facilities andtargeting food access constraints. 67. Central to improving agricultural productivity and preserving Burkina's natural resource base is the need to improve natural resource management and resilience to extreme climatic variability. Burkina Faso has been selected as a priority country for disaster risk management support through the GFDRR. A country disaster risk management and climate change country program is under preparation and will form the basis for scaled-up support. The CBRD I1 project will continue to support local communities to sustainably manage their landthrough the dissemination o f conservation andproductivity-enhancing techniques. 68. Several regional agricultural projects will also contribute to the outcome, including: (i)a regional initiative that promotes collaborative efforts to improve agricultural technology generation and dissemination at the national and regional levels; (ii)the ongoing WARBP project; and (iii)sub-regional work on water resource managementinriver basins (Volta andNiger). 31 Outcome3: Accelerated diversification and increased exports 69. In line with the Government's proposed Strategy for Accelerated Growth and Sustainable Development, the CAS adopts a spatially concentrated `growth pole' approach to diversification, and commercialization o f agriculture and livestock. A series o f studies have already identified that Burkina has a competitive advantage in selected value chains, inagriculture and livestock, mining and tourism and that these value chains tend to be spatially concentrated, resulting inthe emergence o f several regional poles o f growth potential (see Appendix E). Examples o f these areas o f potential are depicted in Figure 5. The growth pole approach will be developedand launched duringthe period o f the CAS, following the direction o f Government and private sector commitment. As a mediumterm endeavor and in order to encourage private sector investment and achieve diversification and export growth, the growth poles approach will require sustained support beyondthe period o f the CAS. 70. During the CAS period, the World Bank will work with the Government and private sector to further appraise the potential and analyze the social, economic and environmental impact o f developing supportive infrastructure and services in a selection of growth poles. The upcoming National Industrial Policy, the Rural Investment Climate Assessment, the Sources o f Competitiveness and Sustainable Growth policy notes and a poverty monitoring exercise will strengthen the analytical underpinnings o f the growth pole selection. The IDA-financed GrowthPole Project will attempt to harness economies o f scale and synergies between sectors and promote the crowding in o f private sector investments by identifying and starting to develop a critical mass o f investments in selected growth poles. A Transport Infrastructure Project plannedfor FY12 will support the national road network strategy and facilitate improved production to market access in the designated growth poles. 71. The existing Agriculture Diversification & Market Development Project (ADMDP) and Competitiveness and Enterprise Development Project (CEDP) and the APFSP in FY10 will support selected value chains in agriculture, livestock and mining and, together with existing energy projects, may be re-oriented to concentrate support in the selected growth poles. The promotion of private sector investment inthe poles will also be supported by regional initiatives to improve access to and reliability o f energy supply and ICT connectivity. The IFC will support small and medium agribusinesses by providing dedicated agribusiness credit lines through supported local banks. The IFC will also closely coordinate its activities in private sector development and the finance sector with World Bank intervention^.^' MIGA will investigate possibilities for supporting private sector investment in growth poles through its Small Investor Program which provides guarantees for investments o f less than USD$lO million. 40Burkina is one o fthe countries that IFC has selected for its special S M E initiative launchedjointly by the IFC Global Manufacturing and Services department and the IFC Africa Department. 32 Figure 5: Areas of Growth Potential ThoLakw R.glon: .Hloh-vaIuo agrlc 72. In order to ensure that the requisite skills bases are available in the selected growth poles, the ongoing Post-Primary Education Project (PPEP) will analyze specific labor market needs and support programs aimed at developing specialized skills in key areas. Programs will target improving the employment prospects for youth inparticular. The IFC will investigate the possibility of supporting private providers of targeted skills development. The International Institute for Water and Environmental Engineering Project (2IE) will continue to support the training of highly skilled professionals in the areas o f water, energy, environment and infrastructure engineering. WBI will also investigate the possibility o f developing a regional tertiary education center of excellence inBurkinaFaso. 73. Supporting growth in the mining sector will continue with a focus on strengthening managerial, administrative and technical skills and knowledge in the mining sector as well as in major accountability institutions (such as the anti-fraud commission), enhancing social accountability and transparency and ensuring adequate support for the management of macroeconomic risks attendant on the development of the sector. The World Bank will assist the Government inthe implementation of the EITI++ through the West Africa Regional Mining Sector Initiative which aims to improve the capacity of regional governments to manage mineral sectors ina transparentand efficient manner and facilitate regional harmonization and coordination inthe development of the mining sector. This support will involve a scoping study to identify constraints and risks in Burkina Faso, including those related to the environment, local communities, transparency and supportive linkages in the sector. The ongoing CEDP will provide support to the Ministry of Mines to enhance institutional and monitoring capacities. In 33 support of private sector investment, the IFC's mining division and linkages unit plans to launch a sector-wide mining sector linkages and access to finance program which will be complemented by a Trade Development Trust Fund study to assess the availability and potential of private sector-provided supportive goods and services. MIGA's guarantee of Essakane's major gold mining investment constitutes a significant and ongoing contribution to growth in the sector and, if private sector interest exists, further guarantees could be explored during the CAS period. 74. To improve the competitiveness of BurkinabC exports, a regional rail project is under consideration and a study into the feasibility of a new international airport is underway. The World Bank will also support the Government in managing the environment and natural resource risks associated with the agricultural and mining drivers of growth through a Country Environmental Assessment policy note to strengthen the implementation capacity of the Ministry of Environment for environmental assessment and management. Outcome 4: Enhanced enabling environment for urivate sector-led diversification 75. The Bank will assist the Government in further developing an institutional and regulatory framework that i s conducive to encouraging private sector-led diversification in the growth poles, increasing export earnings and facilitating trade and commerce through the PRSC series and the ongoing CEDP. The IFC will continue to support investment climate reforms through its highly successful Doing Business Better program. In the finance sector, the World Bank and the IFC will support the creation of new financial services to improve credit access for small and medium sized enterprises, particularly inthe agricultural sector. The Bank will implementthe recommendations of the 2008 ROSC on Accounting and Auditing and assist the Government in promoting financial transparency, accountability and market discipline of the private sector and of state owned enterprises. The ongoing WAEMU Capital Market Development Project will support access to finance and the development of regional capital markets. Regional support will also be given to harmonization of business laws with OHADA. The implementation of land reform will also be critical for attracting investments in agriculture. The MCA has committed significant resources to assisting the Government with the implementation of the RuralLandReformLaw, whichwas passedby Parliament on 16 June 2009. As a complement to the MCA's support, the World Bank will provide targeted landreformimplementation support through the growth pole project series. Outcome 5: Imuroved access to regional and international markets 76. The CAS program is framed within the broader context of regional initiatives aimed at disenclaving the country and improving access to regional and international markets. The Bank will support regional initiatives to strengthen trade regimes and develop regional value chains to complement the program's in-country growth pole and value chain support. In transport, the ongoing West Africa Transport and Transit Facilitation Project will reduce transport delays, uncertainty and costs along the Tema- Ouaga-Bamako corridor to boost intra and inter-regional trade as well as support Burkina 34 and Mali's access to the sea. The Transport Infrastructure Project will enable extended support for road network extension and/or rehabilitation. The regional rail project will improve rail (especially freight) connections. The West African Air Transport Safety and Security Project will continue to support the development o f strategic airport investments for greater connectivity. In energy, the WAPP interconnections with Ghana and C8te d'Ivoire will reduce generation costs and increaseaccess to electricity. InICT, the World Bank intends to support the ECOWAS telecoms program to improve access to quality ICT services at a competitive price by promoting dialogue on the establishment of an integrated regional market and enhanced competition on international gateways, includingSAT3 optical fiber cable. Strategic theme two: Sharing growth through improved service delivery. 77. Under the secondstrategic theme, the CAS will focus on the following outcomes: (i)improved demand for quality social services; (ii)enhanced efficiency of public resource management for better service delivery; and (iii) strengthened institutions for improved delivery o f quality social services. Outcome I:Imgroved demand for quality social services 78. Greater involvement of communities, citizens, parliament and civil society will promote enhanced accountability with respect to the delivery o f services and the alignment of services with local needs and priorities. The strategy harnesses the supportive political environment for public participation in decision-making by placing particular emphasis on information dissemination and disclosure and public participation and monitoring. The PRSC series will continue to support disclosure and dissemination of accessible budget information, including intergovernmental transfers. Through policy notes, the Bank will facilitate broad public debate on key policy reforms. The CBRDII andDecentralizedUrbanCapacity Building (DUCB) projects andthe Public Expenditure Review (PER) program and decentralization policy note will support mechanisms for community involvement in local decision-making and monitoring. The follow-on Decentralized Development project will institutionalize local accountability in the decentralization process by: (i)strengthening the capacity of communes to use participatory approaches in the design and monitoring of local development plans and service delivery; (ii)developing clear guidelines for the regular dissemination of public resource expenditure information at both central and local levels; (iii)instituting an effective and standardized complaints mechanism; and (iv) establishing regular and systematic data collection at the local level to monitor the performance of the communes. The inclusion of civil society and local communities inmonitoring Bank operations will be scaled up during the CAS period, through Japanese Social Development Fund(JSDF) and Governance Partnership Facility (GPF) funding. The World Bank will also embark upon a more inclusive andparticipatory outreachprogram for civil society andthe media. 79. WBI will support initiatives to strengthenthe oversight capabilities of the media and the parliament and will investigate the possibility of facilitating learning, knowledge sharing, and advisory assistance through peer-to-peer media networks. WBI will also 35 explore further opportunities to enhance the National Assembly's ability to effectively perform its functions, particularly with regard to oversight of the budget and implementation and performance of sectoralpolicies and programs, includingmining. Outcome 2: Enhanced efficiencv of public resource management for better service deliverv 80. A focus of this outcome will be to strengthen public financial management and procurement systems. During the CAS period, the Bank will support capacity development initiatives and additional reforms to facilitate the eventual shift towards increaseduse of country systems, through the PRSC series, a PEFA Assessment inFY11 and other interventions (see Box 3). A multi-donor supportedprogrammatic PER started in FY09 will analyze the impact of the decentralization of basic service delivery on the transparency, efficiency and effectiveness of public expenditure, particularly at the local level. Additional PFM support for decentralized local government will be provided through the ongoing Administrative Capacity Building Project (ACBP), CBRDII and DUCB projects and through a PEFA Assessment on Ouagadougou. As a corollary to this, and drawing upon the present enabling environment on anti-comption, the World Bank will provide support to strengthening and rationalizing PFM control and oversight mechanisms. This will include continued support to the new ASCE41and to the quality of reporting by the Court of Accounts. 41The ASCE has already responded positively to ongoing IDF-funded support. Given the innovative form of the ASCE, which combines anti-corruption responsibilities with overall responsibility for the internal audit and oversight bodies in Burkina Faso, there is real potential to develop the institution as a best practice example in the SSA Francophone region, which is otherwise characterized by extensive institutional fiagmentation andjurisdictional conflicts betweenIGE/IGF/technical inspectoratesand Courts ofAccount. 36 Outcome 3: Strengthened institutions for improved delivery of quality social services 81. IDA will support both central and local levels in achieving functional and effective decentralized service delivery. At the central level, the Bank will support the Government in developing operational aspects o f its decentralization agenda, including an effective inter-governmental transfer structure, through the PER programmatic series, technical assistance and budget support. It will also strengthen central administrative capacity to effectively implement the decentralization process through the ACBP. The education sector is the furthest advanced sector in implementing the decentralization of social services, having already commencedfiscal transfers to urbancommunes. Through the PRSC series and the Education Fast-Track Initiative, the Bank will support the Education Ministry in ongoing efforts to rationalize and coordinate the devolution of education service delivery to the communes. The ongoing IDA financed Statcap Program aims to enhance the collection and analysis of reliable core national statistical data. 82. At a local level, IDA will focus on making decentralization work by: (i) supporting the development of local commune capacities to deliver quality social services; (ii)providing communes with resources to finance local development priorities and; (iii)strengthening capacity in the context of local community-managed services, including School-Based Management models. Drawing upon a capacity assessment of communes conducted by the PER, the existing projects on urban and rural decentralized support, DUCB and CBRDII, will be adjusted to facilitate a comprehensive capacity development program for all rural and urban communes, including those urban communes which are currently not covered by either project. The follow-on Decentralized Development project in FY10 will consolidate the DUCB and CBRDII capacity development activities and directly finance priority local development investments at the commune level. 83. Under the existing portfolio (Education for All Fast-Track Initiative, Health Services Support Program and CBRDII), IDA will continue to target vulnerable populations through support to the delivery of critical basic services, including literacy, nutrition (including quality and quantity) and social safety nets. Technical assistance for a review of social safety nets4* commenced inFY09 will (i) review existing social safety net programs and make policy recommendations to improve their effectiveness; and (ii) assist the Government to develop a framework for policy discussion and consensus- building among various stakeholders on the role of safety nets. As a follow on to the review and where needed, budget support funds will be reserved to increase the scope of safety nets. A Health Status Report will also be conducted in FY12. To support the urban expansion of the capital city and to extend the significant achievements of IDA'S earlier support to the Ouagadougou Water Supply project, the FY09 Urban Water and Sanitation project will be implementedduring the CAS period. 84. IFC's engagement through the HealthinAfrica and Afiica Schools initiatives will target improving access to finance for SME private health and education providers 42The scope ofthe review will focus upon non-contributive transfers to poor andvulnerablepeople. 37 respectively in order to increase the quality and supply o f private health and education services in the country. In FYlO/l1 IFC will seek opportunities to partner with local financial intermediaries to increase financing to these sectors and provide the relevant technical assistance to the private providers to enhance their management capacity and thus their eligibility for financing. IFC expects to support the Government inexploring furtheropportunities to promote private sector involvement inthe healthsector inFY10. The cross-cutting issues (i) Demography 85. Both strategic themes will be influenced by the cross-cutting imperative for decelerated population growth. The first strategic theme will place particular emphasis on the promotion o f women in economic activities and revenue generation, under the CBRDII project and APFSP. The IFC will also support a study into the economic autonomy o f women and will explore micro-financing opportunities directed at women. Under the second strategic theme, the education, health and community driven development projects include components to improve female literacy and education; enhance women's involvement in governance; address the issue o f female genital mutilation and increase access to reproductive and sexual health services, including family planning. 86. As a cross-cutting issue, the Bank will use its comparative advantage to advance policy dialogue, support further analytical work into the determinants o f population growth and provide technical assistance for the Government to update its policies and communication strategies, inclose collaboration with other donors. Inaddition, an IDA- financed Reproductive Health operation is planned in FYlO to support quick gains in meetingthe pent-up demand for access to modern contraceptives. The introductiono fthe demographic change filter, which is an innovative and untested mechanism, will be piloted across Bank operations to ensure that all lending and non-lending activities take demography into account. This holistic approach to demography i s explained indetail in Appendix F. (io Governance and Capacity Development 87. Governance and capacity development form the basis o f the second strategic theme on sharing growth through improved service delivery, with operations targeted at core governance issues. However, the CAS program also includes measures to address governance and capacity development constraints to growth under the first strategic theme. Given (a) the cross-cutting relevance o f governance and capacity development to Burkina's development; (b) the positive GAC enabling environment that currently exists; and (c) the importance o f reinforcing the message that "governance is everybody's business"- the CAS also seeks to mainstream a strategic approach to governance and capacity development throughout the country program. The GPF-funded Mainstreaming Governance and Capacity Development project aims to strengthen this mainstreaming agenda by promoting (i) smart project designs which take into account political economy 38 realities; (ii)capacity needs assessment and appropriate planning o f project fund allocations for capacity development; (iii) synergies with Bank operations and country systems; (iv) data collection enhancements; (v) proactive supervisioh; (vi) ongoing outreach to stakeholders for improved accountability and transparency; and (vii) local participatory monitoring mechanisms, in all Bank operations. A GovID filter and taskforce will be created under the project to support and guide the country team with mainstreaming. The strategy's overall approach to addressing both general and sector- specific governance and capacity development risks through the GovID filter, dialogue and particular operations is detailed in Appendix H. WBI will also investigate possibilities for supporting the integration of Burkina Faso into regional capacity development and governance networks to strengthenregional institutions. c. DEVELOPMENT PARTNERSAND AID EFFECTIVENESS 88. The Government has recently asserted its leadership role in coordinating development assistance in Burkina Faso both under the existing PRSP and around a revised development strategy expectedin2011. For the monitoring of the existing PRSP, the Government and donors have recently formed a `troika' leadership body consisting of three donors to represent the development partners. The World Bank has been selected as one of the three troika members for FY10. The donor community, including the World Bank, has also committed to developing ajoint assistancestrategy aligned withthe new government strategy. General budget support will continue to be embeddedinthe General Budget Support Framework (Cadre General d'Organisation des Appuis Budgetaires or CGAB), an organizational framework for coordinating and harmonizing budget support between the Government and relevant donors. The PRSC series will be fully aligned with the joint CGAB calendar and the joint performance matrix of the CGAB donors. However, to provide real time support in the event o f emerging crises, avenues for counter-cyclical budget support will be explored. 89. One of the top priorities of the CAS is to assist the Government in strengthening country systems in order to facilitate their use indonor-financed projects. The Bank will also lead sectoral donor dialogue through its chair positions in the budget support, education, public financial management and decentralization sector groups. Durin the CAS period, particular focus will be placed upon promoting joint analytical work4! In accordance with the Paris Declaration on Aid Effectiveness, the strategy also seeks to promote greater involvement of civil society and the private sector. 43E.g. PERFY09conductedinpartnershipwith other partnersincludingthe EU,AfDB, UNICEFandIMF; plannedAfricanMinistersCouncilof Water Country Status Overview of Water Supply and Sanitationand a UN-Water Global Annual Assessment of Sanitation and Drinking-Water will include WB, AfDB, UNICEFandWHO. 39 Table 4: Aid EffectivenessRoadmap Agenda Action Plan Govt ownership Alignment with Development Partners country systems broader partnerships D. RESULTSMONITORING MANAGEMENT AND 90. The CAS maintains a strong focus on managing for development results. Drawing upon the experience of the last CAS, the results framework has been carefully structured to incorporate the most relevant and effective indicators for monitoring progress. Participatory reviewso f progress on meeting the CAS outcomes will take place regularly and will be closely aligned with the annual joint review o f the PRSP and the budget support implementation. The focus on mutual accountability at the country level will be complemented by annual Country Portfolio Performance Reviews (CPPRs), which will focus greater attention on trust fund programs and their synergies with the rest 40 of the program. The country team's participation inthe Results Platformpilot will allow a close monitoringofthe portfolio44and continuous monitoring of CAS outcomes. 91. In order to address M&E shortcomings identified by the CPPR (2008) and the M&Ereview conducted in2009, the country team will makeM&Ethe focus ofportfolio management under the CAS. An M&E action plan has recently been introduced and targets: (i)the retrofitting of M&E systems to align with CAS objectives, through mid- term reviews and regular supervision; (ii)the inclusion of robust M&E systems in pipeline projects; and (iii) quarterly portfolio reviews in collaboration with the Ministry of Finance. The Bank Group will also strengthen monitoring and evaluation of projects through greater inclusion of civil society and local communities. The CAS monitoring system is closely aligned with the ongoing development of the national statistical capacity. As a troika representativeo f development partners for FY10 and generally, the Bank will continue to work closely with other main development partnersto support the Government's efforts to make more effective and operational the national M&E system for PRS implementation. VI. MANAGINGRISKS 92. A prolonged global recession constitutes the most significant risk to the economy, particularly in the cotton sector. Volatility in commodities prices, lower capital flows from FDI and ODA and weaker demand for BurkinabC exports will affect revenue generation, growth and public finances, as well as private sector activity. The strategy attempts to mitigate these risks by adopting realistic projections and targeting economic and social vulnerability. The focus on restoring balances in the cotton sector, improving transparency, accountability and financial management and supporting a more effective social safety net structure will cushion the effect of the economic downturn on the population and protect critical expenditure inthe context of limitedresources. As in previous strategies, the CAS retains significant flexibility to cushion a deeper than expected or more prolonged impact through program adjustments and possible top ups for countercyclical budget support financing. 93, Burkina Faso's vulnerability to climatic shocks. As demonstrated during the 2007 droughts and floods, climatic shocks impact upon food security, poverty and export earnings in Burkina Faso. While there is little that the Bank can do to prevent these shocks, the strategy envisages support to both ex-ante risk reduction (including weather- based insurance, land and water resource management and early warning systems) and post-facto mitigation through the provision of social safety nets, as well as technical assistance support to environmental management institutional development. The program aligns clearly behind the new broader African Region Strategy for Making Development Climate Resilient. 44 The Results Platform pilot uses outputloutcome indicators which are selected to reflect the Bank's contribution, and are based, as far as possible, on agreed and standardized indicators with other development partners (AfDB, DFID, ADB, OECD). They also include harmonized indicators for health, education, transport and water, established by the respective Sector Boards. 41 94. While the risks of internal political turmoil remain low despite prospective Presidential elections, sub-regional political insecurity continues to threaten trade competitiveness. To mitigate the risk associated with elections, the CAS i s firmly groundedinthe longer term national vision and i s unlikely to be substantially affected by changes of government or policy. The CAS i s realistic about the possibility that national elections may delay reform agendas inthe short term and it seeks to lay the foundations for likely invigorated reform implementation following the conferral o f a new electoral mandate. In mitigation of possible regional political instability, the CAS supports regional integration andthe opening up of corridors to Ghana, Mali andBenin. 95. Public sector capacity constraints can constitute a challenge to successful CAS implementation. Weak lower level and decentralized administrative capacity represents one of the most significant obstacles to reform and CAS program implementation. The strategy seeks to mitigate this risk by mainstreaming a consistent approach to capacity development that targets deep systemic weaknesses, throughout the country program, through the use of the innovative GovID filter. Significant resources will be allocated to developing decentralized government andadministrative capacity inparticular. 96. Spatially concentrating multi-sectoral investments in selected growth poles carry important risks. The selection of growth pole locations could be subjectedto elite capture. Further, the success of the approach in crowding in private sector investment could bejeopardized by a lack of or limitedprivate sector up-take, particularlygiven the current global financial crisis. Despite these fairly significant risks, the Government's commitment to the growth pole approach represents an opportunity for transformation and greater development impact. The strategy places particular emphasis on the collaborative and participatory selection and design of the growth poles to mitigate the potential for elite capture or lack of private sector up-take. Drawing upon the already strong analytical base, further analysis and technical assistance will be provided to support the Government in the objective and well-researched selection o f growth pole areas. The team will also work closely with the Government, the private sector and local communities to ensure that there is adequate commitment and private sector interest. As the growth pole approach i s a mediumterm endeavor, the strategy remains realistic as to the limitedprospects for short-term results. 97. Multi-sectoral program management in growth poles and decentralized development will require changes to the way in which the Government, World Bank and key stakeholders currently operate. Particular risks are associated with: (i) the difficulties in integrating the vertical focus of sectors with the horizontal approach adopted by the CAS; (ii)limited government capacity to implement multi-sectoral interventions; and (iii)the difficulties inensuring coordination betweenthe sectors at the stakeholder and country team level. The Government has demonstrated a clear commitment for engagement in multi-sectoral activities under the new development strategy, to which donors have agreed to align. The strategy seeks to strengthen program implementation capacity in executing agencies and institutions. Strong country management leadership and demonstrated commitment on the part of the country team 42 will also facilitate program management at a country team level, together with plans to further decentralize Bankstaff. 43 CountrySpecificAppendices 44 E oo 0 m n \o r- oo a 0 .e 0 F b 5 0 c) a a, 0 e, 0 W *7 v) U0 E El a 41 14 0 v) x - v) 8 m .-C 0 CL 2 I s 0 0 T. .s4 E B EM a E p: U a n 3 0 0 .3 X N 2Ba 4 a i x 0 0 N N *E E 0 e, 3u P E $k cp h2 2 F 2d a zC M .e .C 20 - 2 .C .C -3 0 .C Y u2 .-C m 0 -s" 2 c) 3 0 cc, 0 u v, M 3 E v1 R B u E Appendix B: CAS Completion Report Date of CAS : May 12,2005 Date of Progressreport : June 13,2007 Period covered by the CAS : FY06-09 Period covered by this report : FY06 -FY09 Date : January 5,2009 A. Introduction This CAS Completion Report (CASCR) assesses the effectiveness of the World Bank's Country Assistance Strategy for Burkina Faso (CAS) covering the FY06-09 period and highlights the lessons learned. The CAS was designed to support the implementation of the Second Poverty Reduction Strategy Paper (PRSP) approved in 2004. A Country Assistance Strategy Progress Report (CASPR) was prepared on June 13, 2007. This report covers the period FY06- first half of FY09 and its findings will inform the new CAS inpreparation for FY10. B. Burkina Faso's DevelopmentObjectives 1. Burkina's Faso's long term strategic objectives are linked to the Millennium Development Goal (MDG) targets for sustained pro-poor growth; poverty reduction and raised life expectancy. The four pillars of the strategy are: (i) raising growth and equity in a stable macro-economic environment to reduce poverty; (ii) increasing access to and quality of basic social services; (iii)improving employment and income opportunities for the poor; and (iv) improving governance with a particular emphasis on publicsector managementandbudget managementreforms. 2. Despite slower economic growth in the last couple of years and a recent increase in the incidence of poverty, Burkina Faso has performed well over the period. PRSP implementation has been characterized by a relatively stable macroeconomic environment (notwithstanding the difficult external environment), structural reforms inthe cotton, energy and telecommunications sectors, improvements to the investment climate and investments linked to the realization of the MDGs. Burkina Faso's CPIA rating remains relatively high at 3.7. The Government responded well to the series of crises, implementing emergency measures inthe cotton sector and elevating the longer term strategic importance of boosting agricultural production and food security.45 45The Government aims to achieve a `green revolution' through the development of market-integrated agriculture and competitive agro-industrial products through diversification, intensification and increased output inhigh-value added goods. (2007). 58 3. The 2006 CAS outcomes were appropriately aligned to supporting the country's longer term strategic goals and program lending allocations reflected nationalpriorities. The CAS aligned World Bank support to all four ofthe PRS pillars, using a blend of analytic work and investment and policy-based lending instruments. Importantly, the World Bank demonstrated flexibility in adjusting its operations to changing country priorities over the period. Heavy flooding in 2007, combined with rising fuel and food prices, a crisis inthe country's main export sector, the cotton sector, and the global financial crisis created unforeseen short term country needs and re- positioned certain long term national strategic goals. The World Bank supported safety net measures through: (i) re-allocation of existing project funds for seed distribution; the (ii)additional financing in FY08 for community nutrition and school feeding programs; and (iii)additional financing in the health sector to enable a rapid response to the meningitis outbreak in 2008. The World Bank also tailored upcoming budget support and re-oriented the focus of certain investment projects, such as the Competitiveness and Enterprise Development Project (CEDP), to re-align Bank support with Burkina Faso's evolving strategic goals. Increased emphasis was placed on stabilizing the performance of the cotton sector, improving, supporting the growing mining sector, and enhancing governance and anti-corruption measures. These revised priorities were accommodated by adjustments in the design of the proposed portfolio, accordingly no revision of the strategy was required. 4. The country's long term strategic objectives have hitherto failed to address the major development constraint of rapid and uncontrolledpopulation growth in Burkina. Recent studies, including the Government-sponsored Etude du Schema National D'Amenagement du Territoire (SNAT) and the upcoming Country Economic Memorandum (CEM) reveal the major challenges Burkina's population growth poses for its development. Neither the PRSP nor Burkina Faso's longer term strategies (e.g. Burkina Faso Vision 2025) identify demography as a constraint for which immediate interventions are required. This issue should be addressed inthe next CAS. B. CountryAssistance Strategy ProgressandOutcomes 5. Overall progress achieved in implementingthe CAS is satisfactory. 16 key indicators /outcomes were identified in the CAS Results Matrix to monitor the effectiveness of the Bank's implementation of the 2006 CAS. Performance against the CAS outcome indicators i s positive as reflected inTable 1. The stronger focus on results adopted by the CAS was successful in enhancing the monitorability and evaluability of the CAS itself. However a discrete measurement of the World Bank's contribution towards the PRS outcomes to which the CAS is aligned is difficult to assess because: a. Certain indicators in the CAS Results Matrix are influenced by the activities of other donors, particularly in the case of better harmonized sectors, such as health, education andbudget support. b. Certain projects did not have adequate mechanisms in place to measure some of the CAS indicators (due to poorly aligned project indicators or 59 weaknesses indata collection). Duringthe next CAS period, the design o f projects should better incorporate CAS outcomes and indicators. c. The contributions o f some Bank operations were not captured by indicators in the CAS Results Matrix. The mid-term review o f the CAS could be better utilized to fine-tune the results-framework. 6. CAS implementation was supported by a generally appropriate selection of analyticaland lendinginstruments. IDA support under the CAS shiftedthe focus from traditional projects, delivering support instead through participatory analytic work, expanded development policy lending, basket fund subhector-wide approaches and community-driven development mechanisms. Budget support amounted to 52 percent o f IDA spending and 28 percent o f the active portfolio in December 2008 consisted of programmatic investments in basic services. The channeling o f resources through the budget instead o f projects strengthened the decision-making capabilities o f the Government and enhanced Government ownership, and financial management and accountability and offered sufficient flexibility to accommodate changes. Specific program and project lending allowed targeted investments inpriority areas. The selection o f instruments also enabled the Bank to directly support different levels o f government, including central, sector-wide, district, commune andvillage levels. 7. The sequencing of analytical and lending services enabled the Bank to provide strategic and well-targeted assistance. The series o f studies completed in FY06, including the Labor Market Study, Investment Climate Assessment (ICA) and Financial Sector Review (FSR), assisted in identifying priority reform for supporting growth and helped to design the Bank's lending program. The Education Sector Review and Public Expenditure Reviews (PER) for FY09 on decentralized basic services enhanced the Bank's understanding o f key basic services sectors. The Doing Business Reports have also provided valuable guidance in targeting World Bank support in improving the investment climate. An internal political economy analysis (FY08) and the upcoming Country Economic Memorandum (CEM) have guided the Bank's decisions on the direction o fthe future CAS. 8. Notwithstanding this, Bank support could have benefited from greater selectivity and inter-sectoralcoordination. Inattempting to cover all o f the outcomes under each o f the four pillars to which the CAS aligned support, the country program spread Bank support widely across sectors and geographic regions. The extended scope and size o fthe program provedcumbersome to implement andresultedinmore dispersed and weaker impact and visibility than anticipated. Apart from greater selectivity, the program would have benefited from greater coordination between individual projects and sectors. The interrelated nature o f many o f the CAS outcomes called for a more cohesive approach through which the synergies and complementarities o f the various interventions could have been more fully exploited to maximize the efficient use o f Bank resources. The sequencing and balance between general budget support and investment lendingcould also have beenfine-tuned. While general budget support proved suitable for macro reforms, it had less impact in influencing sectoral reforms and institutional strengthening. In terms o f sequencing, capacity-building technical assistance projects 60 that were intended to run parallel to budget support initiatives were often hamstrung by unpredictability and delays in specific budgetary allocations. This was demonstrated in the Decentralized Urban Capacity Building Project (DUCB) which was impeded by delayed budget investmenttransfers to local governments. 9. CAS implementation had a moderate impact on the client's institutional development. Support to a multi-faceted reform agenda, improved public financial management and the decentralization process was coupled with targeted institutional strengthening and capacity-building initiatives across a broad spectrum of stakeholders, including central government agencies, departments, decentralized agencies, community structures and the private sector. However, institutional and human capacity remains exceptionally weak and requires intensifiedsupport. Futureplans to improve and utilize country financial management and procurement systems would enhance the impact of Bank interventions onBurkinaFaso's institutional development. 10. Sustainability:With a central Government that is committed and leading visible and meaningful reforms, the effects of many of the Bank's interventions during the CAS period are likely to be sustained over time. The country's strong ownership of the program considerably reduces the risks of reversal or change in direction. In addition, donor commitments remain strong which augurs well for sustained inflows o f external assistance. For example, investment climate reforms under the Doing Business program are helping to lay some of the foundations for growth and private sector involvement. The urban water project focused on strengthening the institutional capacity and management of the nation's water utility and the Community-Based Rural Development Project (CBRDII) supported the establishment of communal structures for ongoing local participation. O f concern, however, i s the drop inthe IEG's outcomes and sustainability ratings of the portfolio over the last three years. An action plan to intensify portfolio management is currently being implementedto address this issue. Supportingacceleratedandshared growth(pillar 1) Growthandpoverty reduction: 11. Despitesevere exogenous shocks inthe lastfew years, the countrywas able to maintainmacroeconomicstability. Due to a series of external shocks which caused a fall in cotton and agricultural production and exports and high food and energy prices, economic growth slowed from 5.5 percent in 2006 to 3.6 percent in 2007 and inflation rose from 2.4 percent in 2006 to 7.7 percent in April 2008 and 9.5 percent for 2008. However, economic recovery due to a good harvest in 2008 saw GDP growth rise to 5 percent. Although BurkinaFaso's development endeavors were adversely affected by the series of shocks over the period, the Government managedto maintain a relatively stable macroeconomic environment - a result o f its solid fiscal discipline, sound policy implementation and inflows of external aid. The unfolding negative impact of the global financial crisis on Burkina Faso poses a significant threat to the country's continued macro-economic stability. 61 12. The poverty headcount is estimatedto have decreased from 46.3 percent in 2003 to 42.1 percentin 2006, however a notableincrease in the incidenceof poverty between 2007 and 2008 has reversed the progress made over the previous four years. Decelerated economic growth, energy and food price increases and a drop in agricultural productivity in2007 and 2008 raised the share of the population living below ' the poverty line to 45 percent. 13. The Bank's strategy to support Burkina in accelerating shared growth targeted i) increasing regional integration; ii)expanding and diversifying export earnings; iii) improving the investment climate and; iv) developing more efficient economic infrastructure. The CAS achieved sound progress in supporting this pillar's objective, with achievements in meeting most of the outcomes for the pillar. As a result of the cotton crisis in 2007, the Bank placed particular emphasis on supporting the cotton sector. Consequently, support to diversification of the economy outside of the cotton sector has been slow to commence. Expanding and diversifyin? export earning: 14. The Government's initiation of higher yield Bt cotton seeds use, better storage facilities, advanced agricultural techniques, recapitalization plans for cotton companies and better-aligned producer price setting mechanisms enabled the country to withstand the cottoncrisis in2007. A reboundto pre-crisis levels incotton output was projectedfor 2008. However the global financial crisis and falling cotton prices are expected to exert significant pressure on the sector in the near to medium term and further efforts to address structural weaknesses and the lack of competitiveness in the sector will be needed. 15. The CAS identified a role for IDA in strengthening and liberalizing the cotton sector and increasing cotton yields. At the height of the 2007 cotton crisis (which involved a 44 percent drop in cotton production, 14 percent slump in producer prices, reductions in farmer revenues and increased indebtedness o f cotton farmer cooperatives), and in response to Government requests, IDA'Sresponse was escalated. Through the Poverty Reduction Support Credit (PRSC) series, support was given to short-term recapitalization of one of the cotton companies, the implementation of new producer price mechanisms, technical and financial support to the re-privatization process, and support measures to consolidate the cotton sector beyond the crisis. The Agriculture DiversiJication & Market Development Project (ADMDP) also supported increased productivity and farming system diversification initiatives. The upcoming CEM will suggest mechanismsto mitigate climatic, commodity price and exchange rate risks. Given the external climate and the significant vulnerability of the cotton sector, sustained efforts to support ongoing reforms and to stabilize performance will be crucial to the viability of this sector. 16. Progress towards economic diversification has been slow. The PRSP identified economic diversification as paramount to alleviating the over-reliance on the cotton sector and to expanding export earnings. The Government has focused on the 62 promotion of mining, improved agricultural productivity enhancing technologies and irrigated agriculture. Despite government efforts (including the formulation of a rural development strategy on crop production diversification; the adoption of standards for oilseed products and a law on seed and technology transfer; and restructuration of the Ministry of Agriculture, Water and Fisheries), exports have stagnated at 9 percent of GDP over the last decade, with the share of cotton exports rising from 48 percent to over 60 percent in some years. To achieve diversification, the Government faces the significant challenge of addressing a multitude of interrelated constraints including poor infrastructure, the high cost public services and utilities and inadequate policies and institutionalframeworks for private investmentand export promotion. Giventhis and the ' recent focus on cotton, the diversification process i s likely to take time. 17. The Bank's AAA support was instrumentalin assistingthe Government to identify areas for diversification. The Diagnostic Trade Integration Study (DTIS) suggested several measuresto improve prospectsfor export diversification beyond cotton to products such as cattle and meat, sesame, gold, zinc, mangoes and craft products. The CEM will provide further guidance. Budget support under PRSC7 was in part directed towards the adoption and implementation of an export promotion strategy. However, the impetus of these initiatives has been dampened by delays in the adoption and implementation of a national export strategy. 18. IDA'Ssupport in the agriculture sector has targeted the developmentof key market-driven agricultural supply chains. The ADMDP supported farming cooperatives, expanded irrigation, improvements to productive and marketing infrastructure and improvements to the private investment regulatory and legal framework. The progress o f the project was hampered by an overly ambitious project design and by complications in establishing an implementation structure. However, an intermediate plan of action enabled the project to conclude key supply chain studies and to finance supply chain and irrigation micro-pr~jects~~the project is now achieving and good progress towards its development objectives. The studies and experiences of the ADMDP will underpin and guide Bank support to the diversification process in the upcoming CAS. 19. The Bank adjusted its program to support the emerging export potentialin gold mining. Dueto the liberalization of the sector in 1996 and support from the World Bank-fundedMining Sector Capacity Building and Environmental Management Project (1998-2004), gold mining has emerged as a promising export in Burkina Faso. Mining production reached 5.2 tons in2008 and is projectedto grow by a further 8 tons by 2009. World Bank support during the CAS period has been directed towards assisting the Government to manage the influx o f private sector investments. In response to Government requests in2008, the CEDP project was restructured to enhance institutional capacity and monitoring capacities within the Ministry of Mines. Through budget support, IDA i s providing technical assistance on Burkina Faso's involvement in the Extractive IndustriesTransparency Initiative(EITI), 46These micro-projectshaveassisted inthe development ofmarket activities for onions, mangoesand meat, resulting inan export contractswhichexceeded 50 OOOt inFY08. 63 Improving the investment climate: 20. BurkinaFaso was rankedas one of the top ten DoingBusiness performersin 2009 for its business regulatory reforms, which formed part of a series of reforms introducedby the Government to improve the investment climate. Through these reforms the Government has improved contract enforcement, established two Business Registration Centers (CEFORE), reformed construction permit processes and reduced business registration formalities. The effects o f these extensive reforms are reflected in the consistent improvements to Burkina Faso's ranking in the Doing Business indicators4'. In energy, an important country outcome was to improve the legal and regulatory framework to encourage private sector and donor participation in the sector. The adoption o f the Electricity Law inNovember 2007 i s a key result on the institutional front. With respect to infrastructure, achievements included the adoption o f the Information and Communication Technologies (ICT) promotion policy and sectoral strategy. The Government made significant progress in land reform, with the development o f a National Policy for Rural LandTenure which is expected to be passed by the National Assembly in early 2009. However, structural reforms to the electricity utility, SONABEL, as well as to parts of SONABHY have lagged due to changing government plans for the liberalization o f the sectors. A key future challenge will also be to ensure the rapid implementationo f rural landreforms. 21. IDA'Searly analytic work program brought investment climate constraints to the top of the policy agenda4*. The Bank and IFC lendingprograms supported government progress in improving the investment climate. Budget support was directed towards labor market /regulatory framework reforms as well as reforms to enhance security o f land tenure and provide infrastructure at lower cost (reforms in electricity and petroleum). The IFC's Doing Business program was instrumental in supporting reforms to simplify and reduce the cost o f investment. The IDA-financed CEDP further supported the Government in privatization and utility reform. State divestiture o f at least 15 o f the 21 enterprises slated for privatization was achieved, including the privatization o f the telecommunications company, ONATEL (increasing teledensity three times above target). The CEDP also provided technical assistance to promote the development o f a strong and competitive private sector. Under the project, the Maison de 1'Entreprisedu Burkina Faso (MEBF) was established as a private sector- led structure to strengthen private sector capacity and improve business processes through the provision o f information, advocacy services and targeted business development services to over 4,500 private sector personnel. In support of diversification, the MEBF recently opened an office dedicated to assisting exporting enterprises and is working with the ADMDP in this regard. Regional projects in the banking and finance sector have improved financial transfer systems and strengthened capital markets. 47 Burkina's DoingBusiness rankingimprovedb om 161in2008 to 148 in2009. 48Studies includedthe ICA, FSR, LaborMarket Study andDTIS. 64 22. Improving the investment climate and developing the financial system remaintop priorities. Inits latest Annual ProgressReport, the Government heightened the importance of improving the investment climate. Development of the private and finance sector, including implementation of an investment promotion strategy and access to finance for Small and Medium Enterprises (SMEs), are crucial to growth and diversification. Efficient economic infrastructure: 23. The Government has made some progress in developing efficient economic infrastructure to reduce factor costs and stimulate private sector investment. In transport, the Government has also played a lead role in coordinating donor activity. Although a Road Fund has been established to ensure regular rehabilitation and maintenance of the road network concerted government efforts to ensure adequate funding ofthe Fundandto minimize inefficiencies inoperation remain critical. 24. Policy dialoguein the energy, telecommunicationsand petroleumsectors has promoted reforms to enhance infrastructure efficiency. The Bank's investment lendinghas also directly enhanced transport and energy infrastructure. As part of a consortium of donors assistingthe Government inrehabilitating and maintaining essential transport infrastructure, IDA financed the maintenance and rehabilitation of 11OOkm of roads and supportedinstitutional capacity buildingand structural reformin supporting the development of the Road Fundunder the Transport Sector Project (TSP). As a donor of last resort, the Bank funded tertiary and secondary roads with low economic rates of return, but high social impact. The sustainability of the Bank's initiatives will depend largely upon government efforts to ensure adequate financing of the Road Fund. In energy, IDA collaborated with four other partners to support both the immediate power needs of the country and longer-term economical energy measures under the Power Sector Development Project (PSDP). The project co-financed the construction of an 18MW power plant in 2006 and a regional interconnection transmission line from C8te d'Ivoire to Ouagadougou due for completion in late 2009. Co-financing for an interconnection with Ghana is forecast for FY10/11. Intelecommunications, the CEDP project is supporting the strengthening of capacity o f the telecom regulatory body, ARTEL. 25. Although the CAS indicated support for the development o f economic and market infrastructure in secondary urban areas, the subsequently designed DUCB funded technical assistance only and relied upon budget support for investment financing. Budgetary allocations for these infrastructure investments have only recently been committed and it i s therefore too early to assess progress. Regional Integration 26. As a landlocked country, Burkina Faso has recognized its long-term economic interest in pursuingregionalintegration. It serves as a host country for the headquarters of WAEMU and President CompaorC held the rotating Presidency of this 65 major sub-regional union in2007. The Government has taken significant steps to achieve greater regional integration inseveral sectors, including energy and transport. 27. The CAS supported regional integration through measures aimed at improving trade with the sub-region. Through the PRSCs and investment projects, IDA continues to support Burkina in reaching WAEMU macroeconomic convergence criteria and harmonizing trade and economic policies within the common West African framework. Regional banking projects have supported the BCEAO regional payment system and strengthened regional capital markets. 28. Inpartnershipwith other donors, IDA has supported the development ofthe West Africa Power Pool (WAPP) which will integrate national power systems into a unified regional electricity market. The IDNAFD financed extension o f the electricity interconnection with C6te d'Ivoire from Bobo-Dioblasso to Ouagadougou under the PSDP i s expected to halve the cost o f electricity. Following extensive delays, the connectionwill be completed in2009. 29. Also relevant to the outcome o f regional integration are the Bank-financed regional projects in transportation and the environment. The Bank's support to the development o f the Tema-Ouagadougou-Bamako transit corridor under the recently commenced West Afiica Transport and Transitfacilitation project (WATTFP) aims to facilitate more efficient traffic flows and improve Burkina Faso's access to Ghanaian ports. The West and Central Afiica Air Safety and Security Project (WCAASSP) aimed to assist Burkina Faso to improve air transport safety and security thereby increasing access to regional and international markets. Performance o f the project has not been smooth or speedy and has suffered inlarge measure from weak government commitment. Regional cooperation to develop strategies for preventing and mitigating locust infestations through the Afiica Emergency Locust Project (AELP) project has improved the early warningandresponse strategies ofBurkinaFaso andits neighbors. Supportingimprovedaccess to basicsocial services and socialprotection(pillar2) 30. Although Burkina Faso continues to rank poorly in the UNDP Human Development Index, it has made consistent progress49. The CAS period has been marked by positive trends inthe social welfare indicators, notably in improved access to basic services, regular increases in budgetary allocations and expenditures and better sector budget management. However, progress has been hampered by institutional weaknesses and capacity constraints inthe line ministries and issues relatedto the quality o fbasic services persist. 31. Administrative de-concentration and political decentralization continue to pose the greatest challenges to progress in this pillar. The framework for de- concentration and decentralization lacks clarity and the decentralization o f basic services 49Since 1980, Burkina's HDIvalue has risen &om 0.259 to 0.372, with arelatively highpositive change ratio of 0.055 over the period 2000-2006 66 has taken longer than expectedto materialize. While limitedtransfer of competencies to communes has been effected, resource transfers are only just commencing. Creating incentives to motivate education and health professionals to move to rural areas through the decentralization processrepresentsa particularlychallenging issue. 32. Sound progresshas been achieved in reachingthe CAS human development outcomes. The CAS supportedBurkina's humandevelopment goals by targeting access to the poor to (i) basic education, (ii) nutrition and HIV/AIDSprevention and care health, services, (iii)potable water and sanitation services, and (iv) more extensive social safety nets. The reialignment in lending approach towards harmonized, multi-donor delivery mechanisms improveddonor alignment with sectoral and sub-sectoral strategies, however implementation difficulties related to inadequate adherence to country systems and weak communication amongst donors limited the effectiveness of these approaches. Although the CASPR identified support to the decentralization process as a high priority, the program could have better-targeted support for decentralization in individual social service line ministries. Importantly, in FY09, sectoral budget support through the Education for All Fast-Track Initiative will assist the Education ministry inimplementing the decentralization agendainthe education sector. Giventhat decentralization is now in its operational phase, inthe upcoming CAS, greater focus on buildingthe capacity of the local communes to managetheir new responsibilities insocial services will be critical. Education: 33. Significant progress has been achieved by the Government in improving access to education, although issues relatingto quality of education and disparities in coverage continue to exist at all levels. The benchmark indicator for increasing national gross enrollment rate in primary education to 70 percent in 2009 has been reached, however important disparities still exist betweenurbanand rural zones. Though the country continues to have one o f the lowest GER inpost-primary inAfrica, the GER inlower secondary education increasedfrom 20 percent in2006 to 28.4 percent in2008, exceeding the target for 2008. Regular increases in education expenditures as a share of the GDP from 2.6 percent to 2.9 percent between 2004 and 2007 have allowed the Government to expand teacher training and upgrade schools with running water and sanitation facilities. The quality of education services represents an ongoing stumbling block and is reflected in the low literacy rates (28.3 percent), teacher absenteeism, poor student to teacher ratios and the low level of teaching hours. Teaching hours averaged 640 hourdyear in2007 comparedto the national requirementof 900 hours. 34. In primary education, the Governmentcoordinateda harmonizedsub-sector approach through the Ten Year Plan for the Development of Basic Education (PDDEB). The Bank supportedthese efforts by restructuringits existing basic education program at mid-term and directing its lendingtowards a harmonized multi-donor pooled PDDEB fund. The program has achieved sound results to date. Both GER and GIR indicators surpassed end-of-project targets. The number of public school teachers also significantly increased, reaching 24,277 in 2007 (well beyond the 23,500 target set for 2009) and in-service training programs have had a positive impact on learning outcomes. 67 The completion rate for primary education rose from 33.5 percent to 41.1 percent in 2007. 35. While the sub-sector wide approach has helped to align donor support behind a unified sub-sector strategy, significant implementation difficulties arose due to non- compliance with Bank procurement rules and misunderstandings amongst donors as to the Bank's fiduciary obligations. The program revealed the need to strengthen country financial management and procurement systems as a precondition for future integration of Bank programs into country systems. Burkina Faso is now a pilot for use of country financial management systems and i s being considered for inclusion as a pilot for use of country procurement systems. The new Fast Track Initiative operation under the Bank's supervision, which will be in the form of a Development Policy Operation, aims to further strengthennational fiduciary systems. TheBank's experienceunderthe education program also demonstratedthe importance of improvingdialogue with donors to arrive at common understandings with respect to donor expectations and internal constraints to harmonization. 36. In secondary educationthe innovativepublic privatepartnershipmodelwas replicated during the CAS period as part of the IDA co-financed Post Primary Education Project 2 (PPEPII). The project i s on a satisfactory course to achieve its objectives inall components, including the reduction inschool fees, the de-concentration of procurement management to regional levels and reforms in pre-service teacher training. PPEPII has also supported tertiary education reforms and vocational training. The recently established International Institute for Water and Environmental Engineering Project (2IE) aims to target skills generation by increasing the number of highly skilled professionals inthe areas of water, energy, environment and infrastructure engineering. 37. Government efforts to integrate primary and secondary education and increase efficiency in educational spending have resulted in the adoption of a consolidated medium-term expenditure framework (MTEF) for the sector as a whole. The Bank's PRSC series contributed towards the finalization of the MTEF. The recent Education Sector Review has assisted the Government in readjusting the national program towards the development of the education sector as a whole. Additional financing under the PDEBB project in FY09 will support implementation of the sector review. Through the Education for All Fast Track Initiative, the Bank will engage comprehensively ineducation policy dialogue. Health: 38. Health services have become more accessible. Positive trends in the health sector include improvements in vaccination coverage, reduced mortality rates from meningitis from 21 percent to 8.5 percent between 2005 and 2006, reduction in HIV/AIDS mother to child transmission rates and a significant rise in the treatment of people living with HIV/AIDS (beyond CAS and Government targets). During the CAS period, the Government introduced subsidies for obstetrical emergency care; 68 implemented a vaccination program (PEV) and a distribution system for essential drugs; constructed health facilities; recruited 1,039 health staff and began the implementationo f treatment policies, guidelines and protocols for HIV/AIDs which conform with those o f the region. Importantly, the Ministry o f Health's approach in contracting out the implementation o f community-based health and nutrition interventions to civil society organizations has rapidly scaled up essential health and nutrition activities at community levels. The Government has responded quickly to meningitis out-breaks and a malnutrition crisis through the establishment o f the Technical Committee for the Management of Epidemics andthe National Council for Nutrition Coordination. 39. Worrisome indicators despite improving trends include insufficient coverage with regard to geographical access, staff and equipment and the persistent high rates o f unassisted deliveries and acute malnutrition. 40. The Bank contributed to a constructive health policy dialogue within the PRSCs over the CAS period. This included support towards the establishment o f an MTEF for the sector, a systemo f obstetrical emergency subsidies and policies to reduce the cost o f assisted births. 41. The Health Sector Support and HIVproject (HSSXWAP),which contributes to a pooled fund with other donors, provided direct support to improving maternal and child health services and advancing prevention and treatment of malaria, meningitis and other communicable diseases. Vaccination levels (pentavalent) in children under 1 rose from 57 percent to 106.9 percent between 2005 and 2008. Subsidized bed net distribution increased from 600 000 in 2008 to 1, 607,000 in early 2009. The project supported the decentralization process by channeling pooled funds to the central level and directly to health districts and hospitals on the basis o f measurable indicators. While progress was achieved in reaching some o f the key indicators in the CAS, several targets were not reached. This is due in part to inefficiencies in implementation, particularly prolonged procurement processes. However it also reveals inadequacies in data collection and monitoring and evaluation systems within the sector. The program would significantly benefit from a stock-taking exercise in the form o f an ESW. 42. This basket fund is an innovative example o f improved aid effectiveness. Donors have aligned behind a common framework and a unified M&E system. The program has enabled financing through different levels o f administration, as well as through NGO's andthe private sector, inthe case o fARV treatment. Ithas also enabled flexible support o f annual work programs, including rapid response to epidemics. A significant achievement during the period was the Bank's rapid response to the meningitis epidemic (see Box 1). Notwithstanding the benefits, the transaction costs for the World Bank in taking this approach have been high due to donor reliance on the Bank's broad-based expertise and level o f country presence to carry out program oversight and review functions. 69 Box 1-A RapidResponseto the MeningitisOutbreak Recurrent outbreaks of meningitis have been reported over the last 20 years. The most recent and most devastating outbreak occurred in 1996 and left over 25,000 dead across the "Meningitis Belt" (from Senegal to Djibouti) and another 60,000 with severe neurological consequences. Epidemics occur every year, with more severe epidemics occurring every 8 to 12 years. 2008 was a particularly bad year for Burkina Faso, with meningitis taking the lives of nearly 8,400 people. When epidemics occur, health systems and health service personnel are often mobilized for weeks leaving regular patients to search or wait for care. Such situations are an indication of the non preparedness of countries to deal with emergencies. In the early stages of the 2008 epidemic, Burkina appealed to donors for a more concerted and robust response to the crisis, the donor community led by the Bank andUNICEF respondedquickly by allowing the country to use its existing credit proceeds to purchase 2.5 million doses of vaccines through a direct financing with UNICEF to make sure that the availability and quality of the vaccines were guaranteed. This crucial partnershippreventedthe deaths of thousands for people. After the crisis was contained, the Bank then proceeded to allocated an additional US$5 M for the purchase of additional vaccines to prevent shortages in the event that another epidemic might occur. 43. IDA financing supported marked improvements in the prevention and treatment of HIV/AIDS. The underperforming HIV/AIDS Disaster Response Project was superseded by the HSS/MAP pooled fund. Promising indicators include the reduction in HIV/AIDS prevalence from 7.17 percent in 1997 to 1.9 percent in2008 and the substantialincreaseinpersonsreceivingHIV tests (from 37,638 in2003 to 209,000 in 2007). Importantly, the World Bank succeeded in joining other donors in a pooled HIV/AIDs fund in 2008/9. IDA'S support of the regional HIV/AIDS project has contributed to the development of pilot strategies for strengthening country capacity to scale up comprehensivecare and treatment programs. Nutrition. Although the CAS envisaged a role for the Bank in combating child malnutrition, Government coordination of nutrition activities was initially slow to commence. The Determinants of Child Malnutritionstudy forecast inthe 2006 CAS was dropped. However, inthe wake of the food price crisis and inresponseto rising levels of malnutrition, nutrition became a primary concern and the Government escalated its coordination efforts. In response, additional IDA financing o f $10 million was secured for community-based health and nutritionactivities which aim to reach a minimumof 15 percent o f the total population of rural children under five. Additional financing of the PDDEB also targets school feeding programs. Now that malnutrition has come to the fore of the national agenda, the Bank will need to consider continued multi-sectoral support. Water and sanitation: 44. Burkina Faso is on track to meet the MDGs related to access to potable water. The Government successfully coordinated a multi-donor partnership to boost 70 large scale urban infrastructure in Ouagadougou. Support of village water management and social water connection programs through the development of public-private partnerships (PPP) between communities and the local private sector has also yielded results. Access to potable water has risen to 77 percent inurban areas and 54 percent in rural areas. Through the National Water Supply and SanitationProgram (PN-AEPA), the Government has developed a sectoral strategy which includes both urban and rural dimensions. Notwithstanding progress in this sector, important disparities remain in access to safe drinking water in rural communities. Improvements to sanitation have included the development of sanitation action plans in four 'cities. However these have not been implemented and sanitation plans for other cities are still outstanding. The Government has identifiedlack of humanresources as the main constraint to improving the implementation of sanitation programs. 45. IDA contributed to highly successful improvements to potable water access in Ouagadougou, under the $200 million multi-donor partnership coordinated by the Government. The Ouagadougou Water Supply project (OWS), which closed in December 2007, exceeded its objective by successfully ensuring continuity of the water service 24/7 and connecting 860,000 inhabitants to the water distribution network in the capital city. Importantly, the project also strengthenedthe institutional development and management capacity o f the national water utility, ONEA, resulting in increased bill collection, improved productivity of the commercial staff and alignment of annual financial reports with international standards. IDA will continue to support harmonized initiatives under the national strategy through an urban water and sanitation project planned for FY09. In rural areas, the Community-Based Rural Development Project 11 (CBRD-11) financed community-identified well and water purificationprojects. 46. The PRSC series supported legislativeamendmentsto enhance private sector participation in water delivery in secondary urban and semi-rural areas. The PRSCs also advanced a new water management framework and assisted with the development of sanitation strategic plansfor secondary cities. Social Protection Strategy 47. IDA has supported the most vulnerable by targetingorphans and vulnerable children (OVCs) through its education and health projects providing affordable education, school feeding and school-based health care. The number of OVCs receiving reduced or free school fees doubled between 2005 and 2007. In the health sector, the HSS/HIV project has contributed to improving OVC access to care and support. In 2007, 30 percent of OVCs received support. The World Bank's CBRD-I1 emergency seed distribution response in 2008 and additional funding to support nutrition campaigns in communities and schools helped to minimize the impact of food price increasesamongst vulnerable communities. 48. Social protection and the development o f social safety nets will be important issues in the upcoming CAS, due to the global economic downturn, the rising incidence 71 of poverty and the heightened levels of vulnerability to exogenous shocks. A review of social safety nets is under preparation. Supportingincreasedemploymentandincomeopportunitiesfor the poor (pillar3) 49. The Government's reform of labor market policy has advanced the national strategic objective of improving employment opportunities. The Government has also demonstrated a strong commitment to improving income opportunities for the rural poor through community-based rural development and the adoption of the National Policy on LandTenure Security inRuralAreas. 50. Under the 2006 CAS, Bank support aimed to target: i)enhanced labor market flexibility; ii)increased economic opportunities for women; iii)reduced risk and increased revenues for rural households; iv) community-based land and natural resource management and; v) expanded access to rural infrastructure. Progress has been achieved inrespect of each of these objectives. IDA'Scontribution towards rural development in BurkinaFaso, through the CBRD-11, has beenparticularly significant. Box2 CommunityBasedRuralDevelopment-a success story inBurkinaFaso - The Bank's Community Driven Development project in Burkina Faso is widely acclaimed as one of the `success stories' of CAS implementation. Since the inception of the first phase, the project has continued to develop the capacity of local communities to plan, manage and implement their own development plans. In support of the decentralization process, the focus of the project has extended to the development of the capacity of rural communes nationwide. The support of these structures has enabled the efficient and rapid implementation of local development plans and projects. A noteworthy example involved the targeted distribution of seed to rural farmers during the peak of the food price crisis in 2008. 3,500 tons of improved millet, sorghum, maize, beans and rice seeds were distributed to 140,000 households in 302 communities in the country for a total of $5 million. The targeting of households was carried out by the village councils, taking into account the level ofpoverty andthe impact of flooding. Enhancelabor market flexibility for job creation 51. Burkina Faso has recently stepped up initiatives to improve labor market flexibility throughseveral decrees in 2007 which regulatedovertime,dismissalsand working hours. As a consequence, the Doing Business Labor Market Rigidity Index rating for Burkina has fallen from a last-place standing of 90 to 61 in2008 (although this i s still well above the regional average of 42.6 and the CAS 2009 target of 50). A new labor code approving these changes was enactedin2008. 52. The Bank's AAA support was instrumentalin generating dialogue on labor market liberalization. The Labor Market Study, the ICA, the Regional ECOWAS Financial Market Review and the DTIS assisted the Government in identifying key logjams to labor market flexibility and guided the national reform agenda. IDA financed projects have also directly contributed to job creation. For example, job creation 72 initiatives in SME credit line supported the creation of 1486 new jobs under the CEDP project. EnhancedEconomic Opportunities for Women. 53. Government progress on girls and women's opportunities included the revision of the national employment strategy, translation o f women's rights into local languages and improved women's literacy in rural areas. A national policy for the promotion of women was adopted and disseminated in 2000 and the national gender policy was adoptedin2009. 54. Many World Bank operations have had positive benefits for women and girls, especially in the education, private, agriculture and health sectors. Gross primary school enrollment reached 64.84 percent in 2008 and secondary enrollment reached 23.5 percent for girls. Inthe agricultural sector, support was given to women's associations for production, marketing and processing, as well as access to technology geared to women's income-generating activities. Under the ADMDP, o f the 992 micro- projects approved by the selection committees in March 2008, 540 micro-projects were managedby women's groups, or individual women. CBRD-I1 supports the empowerment of gender-balanced village committees to define and implement local development projects, as well as literacy programs targeted at rural women. The project has also contributed to increasing women's awareness oftheir rights 55. Notwithstanding recommendations in the CASPR, Bank projects have not successfully and systematically integrated gender into their monitoring and evaluation frameworks. Given the central importance of empowering women as a mechanism for addressing the population growth dilemma in Burkina, further efforts to mainstream and track progress on gender are called for under the new CAS. Reducedrisk and increasedrevenues for ruralhouseholds 56. Government efforts to support income-generating activities and employment opportunities in rural areas have included the implementation of the small irrigation development program under the NationalPolicy for Sustainable Development of Irrigated Agriculture, improved management of cereal food stocks and the adoption of the rural land tenure policy. However, the vulnerability of rural communities calls for strengthened Government support to social protection mechanisms. Implementation of the rural landreforms also remains critical. 57. IDA'Sinvestment lendinghas supportedrevenuegrowthin rural areas. The micro-projects financed under the ADMP promoted contractual arrangements among supply chain operators to ensure that farmers receive a share of the value added to the supply chains. The project also strengthened the capacity o f producers to address key constraints at their level and engage in fair and balanced partnerships with other stakeholders. It yielded results insmall-scaleprivate irrigationproduction, increasing the income of farmers under the micro-projects by more than 30 percent. As identified by the ICR, under the Partnership for Natural Ecosystem Management Project (PAGEN), 73 the involvement o f local communities inactivities related to the management o fprotected areas (e.g. surveillance, reforestation, tourism) and the support to natural resource-based income generating activities (e.g. apiculture, aulacodiculture) resulted in a marginal increase inincome among peripheral communities. The first CBRD project, which ended during the 2006 CAS period, financed 18,250 local community micro-projects selected by elected Village Committees, thereby increasing rural household revenue and reducing vulnerability inthe effected communities. The CBRD-I1project is still inthe preparatory stages o f implementation, however through financing o f community and commune development plans from FY09, the project will reinforce earlier initiatives to increase the productive capacity o f the rural sector. The CBRD-I1 also provided support to the Government's landtenure reform. 58. The Bank also supported risk management initiatives in order to stabilize and improve the livelihoods of rural communities. These included the rapid development o f a regional early warning and response system for locust infestation and gradual improvements to land and water preservation and biodiversity through the PAGEN andSahel IntegratedLowland Ecosystem Management (SILEM) projects. Community-based landandnatural resource management 59. The Government's scaling-up of community driven development mechanisms has achieved positive results in community-based land and natural resource management. IDA took the lead in financing government community development initiatives under the CBRD project. The first phase o f the project, which ended mid-way through the CAS period, was highly successful. The project assisted local communities to implement and manage their own development plans. The second phase o f the project has been re-oriented to align better with the newly created decentralized administrative structures. The project will continue to support community development plans from FY09 through rural communes and village development committees (Conseil villageois de dkveloppement - CVD's). 60. Two projects were tailored to operate in connectionwith PNGT to enhance Bank support of community-based land and natural resource management. The GEF financed PAGEN which ended in 2007 aimed to reverse biodiversity trends in priority protected areas. The project introduced a successful community-based natural resource management model andresulted inthe adoption o f a community management o f wildlife andnatural resources strategy. The project revealedthe importance of educating communities and o f linking ecomanagement with income generation to mobilize community involvement. It also highlighted the importance of long-term funding commitments to properly achieve improvements inbiodiversity and sustained community involvement inprotection activities. The SILEM program has educated and empowered local governments and rural communities in four provinces to develop and implement sound environment andwatershed management and conservation sub-projects. 74 Expanded access to rural infrastructure 61. The Government has introduced important initiatives to improve access to rural infrastructure over the CAS period. In energy, the Government introduced a Rural Electrification Strategy and established the Electrification Development Fund to promote, administer and supervise rural electrification projects. In transport, the Government has committed to providing adequate funding for road maintenance. Rural communities have also benefitedfrom expandedaccess to telecommunication networks. 62. IDA funding focused on improving access to rural infrastructure through targeted transport and energy interventions. The recently commencedBurkina Faso Rural Energy Access Project (REAP) aims to promote the use of a spectrum of innovative service delivery mechanisms for improving rural electrification - through grid-based rehabilitation and expansion and the installation of external rural grids, thermal stand-alone grids, solar-based systems and multifunctional platforms. Capacity- building for cooperative and private sector participation forms an integral part of the project. Intransport, the IDA-financed TSP has facilitated improved access of the poor to rural infrastructure through the maintenance and rehabilitation of secondary and tertiary networks. Supportingbettergovernancewith greater decentralization(pillar4) 63. Governance. Progress achieved by the Government in the area of governance included: (i) the adoption and implementation of the Action Plan on the National Good Governance Policy; (iii) the adoption and ongoing implementation of an action plan basedon the Country ProcurementAssessment Review(CPAR); (iii) launching of the the African Peer Review Mechanism (MAEP) whose objective is to encourage mutual self- evaluation, monitoringand learning; and (iv) the adoption inMay 2006 of a national anti- corruption policy. Importantly, in 2007, the Government committed to step up efforts to improve governance and transparency with the establishment of an independent audit institution (ASCE). 64. PFM: The Government also made considerableprogress inthe context of public resource management with the introduction of a broader integrated action plan to strengthen public finances in2007 (SRFP), the introduction of computerized expenditure management systems in the regions; the preparation of timely reports on budget execution andadoption of program budgets andMTEFs inkey sector ministries. 65. Decentralization:Progresshas beenslower thanexpectedduring the operational phase of the decentralization process. Following the Decentralization Law of 2004, elections for local governments (Collectivitds Territoriales - CT's) were held in2006. A legal framework and administrative decrees were introduced and priority responsibilities covering most primary service delivery functions (primary education, safe water supply, basic health services etc.) were transferred to the newly elected. Despite these steps forward, the transfer of adequate funding and support has been slow and lacking in 75 clarity. CT's continue to lack the means and resources to properly plan and implement transferred mandates and activities. In implementing the decentralization policy, four issues critical to improved service delivery and poverty reduction remain: (i) adequate resource transfers to the local level andrationalizationo f administrative structures inlight o f the new institutional structure o f the state, (ii) capacity development at the local level; (iii)implementation of modern management tools in the civil service and (iv) strengthened local participation and monitoring. 66. An analysis o f the political economy in Burkina Faso in 2008 reveals that the country still faces significant governance challenges characterized by centralized decision-making power, low incentives for reform amongst actors with the strongest power and weak capacity on the demand-side. 67. The implementationof this pillar of the CAS has had mixed results. The 2006 CAS directed Bank support specifically towards the following outcomes: i)a more efficient judiciary for commercial cases; ii)improved public resource management in a decentralized context; and iii)increased local capacity and participation in public policy decisions. Significant progress was achieved in the context o f public financial management. However, the Bank's approach to governance and anti-corruption (GAC) over the CAS period was fragmented. With improved government ownership o f GAC issues since 2007 and the country's position as a CGAC pilot, a more strategic and cross- sectoral approach to GAC, covering both demand and supply aspects, is warranted inthe upcoming CAS. More efficient iudiciarv for commercial cases 68. The Bank's involvement in judicial reform has been limited. The IDA financed CEDP project trained 120 magistrates inbusiness law between 2003 and 2008, exceeding original targets. Progress was also achieved in harmonizing Burkina's business laws in line with OHADA standards and an arbitration and mediation centre withinthe Chamber o f Commercewas established. Improvedpublic resource management ina decentralized context: 69. The Bank's supportof public resourcemanagementhasfacilitatedBurkina's markedprogress in this area. The PRSC series continues to be an effective instrument in advancing the public financial management agenda, assisting procurement reform; budget de-concentration, expenditure management and budget control. The 2005 CPAR and 2007 Country FinancialProcurement Assessment (PEFA) reports were the key assessments performed in recent years by the Bank. The Government has used the findings o f these assessments to update the budget management reform program (Programme de Reforme de la Gestion Budgetaire). In terms o f PFM oversight, the production o f annual reports by the ASCE is a particular achievement. The Public Control Institutions Project funded by IDFhas helpedto reinforce the capacity o f control institutions to improve public financial management oversight and reduce corruption. Given that 68 percent o f audit reports in FY08 were considered not acceptable, further 76 strengthening of the capacity of both public sector control institutions and private audit firms i s warranted. A new IDF project will be developed this fiscal year to assist the CPA Board and aprivate audit firm assessment will be carried out. 70. Though important steps have been taken to improve the procurement and financial management regulatory framework, procurement reviews have revealed significant procurement and financial management capacity constraints. Burkina Faso has been selected as a pilot country for initiatives to strengthen capacity and enable further use of country financial management systems. Burkina is also being considered for inclusion as a pilot for use of national procurement systems. The Government has indicated commitment to this process. 71. As a key contributor to the decentralizationstrategy, the World Bank was positioned as a lead supporter of decentralizationin Burkina Faso throughout the CAS period, however financing has not, until recently, focused support on the decentralizedcommune structures. The Bank's support ofthe decentralizationprocess has been multi-faceted. Budget support and specific investment instruments have promoted policy dialogue. IDA financing has also supported strengthening the institutional capacity of central institutions and decentralized administrative structures (provinces, communes and villages) to implement the decentralization process. Until recently, however, the portfolio gave little direct support to the communes. An ESW on Decentralization was carried out in FY07 to assess the state of the decentralization process. The findings o f that report have yet to bepublishedhowever. 72. Decentralization has featured as an important element in both PRSC series. Under PRSC 6 the framework for the transfer of resources and competencies to communes was finalized. Subsequent credits were directed towards the implementation of the framework, however progress on this front has been slow and is complicated by resistance to the reform process. IEG acknowledged that the notwithstanding the slow pace of implementation, the early PRSC series were instrumental inaccelerating progress towards decentralization. The same can be said for the PRSC series underthe 2006 CAS. 73. The ACBP has strengthened central institutional capacity in the context of the decentralization process infour cross-cutting central ministries. The DUCB strengthened the capacity ofthe main urban municipalities to take on the responsibilities transferred to them through the decentralization process with support to urban management capacity, financial resourcemobilization and financial management of municipalities. The project assisted in the Government's creation of a fund for investment transfers (Fonds PermanentPour L e DCveloppementdes CollectivitCs Territoriales) inApril 2007. 74. Inthe rural context, the CBRD-I1project buildsuponthe successes of CBRD and adapts to the emergence of elected rural communes by channeling funding through and supporting capacity building of the communes. The project is inthe process o f financing crucial capacity training in the 302 rural communes. Direct funding of rural commune andvillage development planswill commencelater inFY09. 77 75. Despite multi-faceted support to capacity development, the impact of Bank operations on addressing systemic institutionaland capacity weaknesses has been limited:Inaddition to capacity-building components ineach of the projects, IDA funded the ACBP as an overarching capacity development program to support central ministries responsiblefor implementing public sector reform. The project supports decentralization, human resource management, public expenditure management and formulation, management and evaluation of public policies inthe three cross-cutting central ministries and the Prime Minister's Office. The project has suffered from a lack of government ownership accompanied with a lack of government spending in important areas such as civil service performance management and transfer o f competencies in the decentralization process. It is being re-structured to improve the quality o f the indicators and enhance implementation efficiency. Despite instances of improvement, globally the Bank's initiatives have not resultedincore institutional capacity development. A WBI- led retrospective will be carried out on capacity development initiatives in the Bank program to strengthenthe Bank's strategic approachinthe forthcoming CAS. 76. The Development of the National Stutisticul System Project (STATCAP) supported improvementsto the central statistics agency through capacity-building, development of a legal and institutional framework and enhanced statistical infrastructure. Though the results of the project are promising with the number of statisticians in training and the number of workshops implemented reaching target, statistical capacity remains low in Burkina Faso and represents a major constraint for effective monitoringandevaluation inall sectors. Increasedlocal capacity andparticipation inlocal policy decision making 77. World Bank support to this outcome has focused upon direct empowerment of citizens and local communities through the CBRD-I1 and DUCP. The CBRD-I1 supportedhundredsof villages inthe participatory preparation of their local development plans. A Japanese Social Development Fund-financed project in FY09 will introduce participatory monitoring and evaluation mechanisms into the health and education programs with a view to replicate the mechanism inother Bankprojects. 78. Contrary to indications in the 2006 CAS, the World Bank did not engage in capacity-building of civil society to any significant degree and the inclusion of civil society inpublic decision-making, whilst encouragedby the World Bank, did not receive particular attention. CGAC consultations held in 2007 and a study on demand-side governance in Burkina Faso have recommended increased Bank engagement with civil society. 78 C. MeasuringBankPerformance a) PortfolioAssessments 79. During the CAS period, Burkina Faso implemented four poverty reduction support credits under the second and third programmatic series (PRSC 5-8). Implementation o f the CAS outcomes also involved 4 closed projects, 15 active projects (including 5 regional), 7 new projects and 8 pipeline projects. IDA and GEF are the main sources o f funding inthe form o f either credits or loans. Annexes A and B compare the plannedand actual deliveries o f non-lending and lendingsupport duringthe CAS period under review. 80. Globally, the assessment of the portfolio is satisfactory with over half o f the projects considered satisfactory. There are no unsatisfactory or problem projects in the portfolio. There are, however, a number o f projects rated moderately satisfactory. Inthe case o f moderately satisfactory projects, four key issues require attention: design complexity; global implementation progress; project management and issues related to monitoring and evaluation. The portfolio's only past problem project, the Competitiveness andEnterprise Development Project, has beenrestructured. 81. The Country Portfolio Performances Review (CPPR) conducted in October 2008 revealed that the portfolio i s performing well above AFR region averages, with good results on the ground. However, the CPPR revealed widespread shortcomings in monitoring and evaluation systems, including poorly aligneddesigned results frameworks, a lack o f M&E expertise within projects and insufficiencies in statistical data collection and analysis. The review also identified: (i)delays inprojects beingmade effective; (ii) slow procurement processes (related to Bank delays innon-objections, slow mobilization o f the national counterpart and delays in signing contracts and cumbersome procedures); (iii) slow disbursement and weak absorptive capacity o f credits; and (iv) a lack o f incentives for government officials responsible for implementing the projects. The review recommended improvements to M&E systems, reducing complexity in project design; enhancing synergies between sectors and restructuring projects with weak performance to improve impact. An action plan has been developed and includes (i) documentation o f good practice; (ii) quarterly country team meetings on portfolio issues; (iii)strengthened government ownership inproject design; (iv) M&E support clinics; and (v) support to country financial management andprocurement systems. 82. The disbursementratio is to some extent reasonablegiventhat many projects are in fact onlyjust commencingimplementationand a few havereceivedadditional financing. As o f the 28 January 2009, US$345.6 million o f the total gross commitment o f US$530.38 million remains to be disbursed. The relatively weak disbursement ratio takes into account new projects which have been approved but for which no disbursements have been made. Ifthese projects are excluded, the disbursement ratio for the remainder o f the active projects is 51percent. This can be explained ifone takes into account the delay in execution for many o f these projects (generally 5 years). Gaps in 79 project readiness contribute to effectiveness delays and slow project start up which impedes implementationprogress and, inturn, disbursement. b) Quality of Productsand Services 83. Over the CAS period, the Quality Assurance Group (QAG) rated 3 projects (Transport, Statcap and CEDP). The Transport and STATCAP projects were rated moderately satisfactory on quality at entry. Quality o f supervision was rated satisfactory for STATCAP andmoderately satisfactory for the two other projects. 84. IEG ratings of Burkina Faso projects have improved over the last 5 years (particularly inthe context o f institutional development) and exceed the African Regional average. Of concern, however, i s the drop inthe outcomes and sustainability ratings over the last three years. The country team is presently reviewing this aspect o f the portfolio. The Independent Evaluation Group (IEG) evaluated seven projects. For six o fthem, IEG rated the Bank and Borrower performances as satisfactory or moderately satisfactory and the risk to development outcomes as moderate. While quality o f supervision was considered adequate for two projects, the quality at entry was considered unsatisfactory for one project and sufficient for the other. All ICRs reviewed were rated satisfactory, with the exception o f the Community-Based Rural Development project which was considered exemplary. c) CountryDialogue,Aid CoordinationandOutreachActivities 85. The countryteam has engaged in constructivedialoguewith the Government throughoutthe CAS period. Analytical work has supported dialogue on development priorities and, in the case o f fiduciary work, helped the design o f the reform program. The PRSC series was the most effective instrument for sustained dialogue on policy priorities and for assisting the Government to address the challenges o f macro reform implementation. 86. The presence o f in-country / in-region TTL's (5 TTLs and 1 co-TTL) improved response times, interactions with the client, monitoring o f projects and synergies between projects. Specialists in Health, Agriculture, Energy, Private Sector, Finance and Education also strengthened sectoral dialogue. The arrival o f a new Country Manager has improved the coherence o fthe Bank's approach. 87. Coordinationwith other donors has improved. Burkina Faso has been a donor coordination pilot country since 2003. One o f the cornerstones o f the CAS was the intended shift towards an increasingly programmatic approach. Progress has been made especially in harmonizing approaches in education, health, HIV/AIDS and water supply. However implementation difficulties remain. The establishment o f the joint Cadre General d'organisation BudgCtaires (CGAB) has also resulted indeepening coordination o f donors in the context o f budget support through alignment o f policy advice, a joint performance matrix and annual progress reports. Initiatives have also beentaken inother sectors (transport and energy) to align support behind common frameworks, although 80 further progress is needed. Through involvement in the Technical Secretariat for Aid Effectiveness (STELA), the World Bank has been engaged with the donor community andthe Government inapplying the recommendationsofthe recent High LevelForumon Aid Effectiveness in Accra. The World Bank is also leading initiatives to develop of broad partnership of donors with a view to creating a joint assistance strategy upon the preparation of the new PRSP. 88. Results from the 2008 Survey on Monitoring Paris Declaration show that the Bank has made substantial progress toward the Paris Declarationtargets but more efforts are neededto strengthen these achievements. The Bank i s on track to meeting the Paris Declaration targets for use of public financial; management (PFM) systems andhas made progress on increasing lending through Program-Based approaches (PBAs) as well as conductingjoint analytic work. 89. The Bank's experience in donor coordination during the CAS period has raised three particular issues: (1) coordination relies upon effective national leadership; (2) the implementation of country systems requires significant strengthening to enable greater integration of Bank support; (3) programmatic approaches tend to involve high transaction costs and dependupon the development of common understandings amongst donors with respect to fiduciary and monitoringand evaluation expectations. 90. Client Survey. The results of the client survey demonstrated that the overall impression of Bank performance amongst clients and stakeholders is good (6/10). The effectiveness of the Bank in supporting poverty reduction was also rated highly (7/10). Respondents listed financial resources and economic and policy advice as the two most important aspects of Bank support to BurkinaFaso. 75 percent of respondents considered that the World Bank's requirementsfor accessingfinance should be simplified. 91. Engagement with private sector, civil society and outreach activities. The World Bank's outreach activities have included public university lectures, communication open-house sessions withjournalists and sporadic consultations with civil society. Civil society remains relatively poorly informed about the World Bank's work inBurkina Faso. A regular outreach program with civil society has been proposedas a means of improving information dissemination and dialogue. The JSDF-financed project will also support local participatory monitoring of Bank projects. During the preparation and progress review o f the FY06 CAS, the Bank engaged inextensive consultations with private sector, civil society and partners across three regions. The Bank also engaged a broad spectrum of stakeholders during the recent retreat in October 2008 which included aportfolio review, anassessment of performance under the FY06 CAS andbrainstorming on the direction ofthe upcoming CAS. D. IFC andMIGA 92. IFC. IFC's strategy for Burkina Faso focused on (i) improving the investment climate through the Doing Business Better Program; (ii) capacity-building for medium- size-enterprises and support to financial institutions to allow them to cater to the SME 81 segment;, (iii) providing direct technical support to medium-size enterprises operating in sectors that have positive externalities on other related sectors (e.g. agriculture, construction, transport); and, (iv) proactive support for project development in the financial, hospitality, infrastructure and mining sectors. In agriculture, IFC and the World Bank worked with the MillenniumChallenge Account to develop a program to increase agricultural productivity by using local banks to support farmers. Intransport, the IFC and the World Bank engaged in dialogue with the Government on the new airport. IFC sponsored a study to review the Government's new airport proposal and public private partnershipoptions. 93. Specific investments included a US$6 million credit line and TA funding of US$141,000 to support the establishment of new micro-finance subsidiary of BACB; a Euro 7.5 million loan to Onatel S.A., to allow the telecom operator expand its activities; and a US$5 million trade finance line to Ecobank Burkina as part of an investment ' ` packagewith, Ecobank Transnational Inc. 94. MIGA. MIGA's portfolio inBurkinaFaso consists of 1project, insupport of the country's tourism sector, with a gross exposure of US$3.3 million. The Agency issued guarantees (against the risks of transfer restriction, expropriation and war and civil disturbance) to a Malian investor for its equity investment and loan guarantee toward a hotel renovation and expansion. The project aims to support the country's efforts to establish itself as a regional center for business tourism. It i s expectedto: (i) create local jobs; (ii)transfer knowledge; (iii)support the growth o f small and medium-size businesses; and (iv) generate an increase in taxes and foreign exchange for the Government. This investment is also a joint collaboration between IFC and MIGA. During FY09, MIGA is working with Canadian investors to provide guarantees for their investment ina gold mining project inBurkinaFaso. 95. WBI: Burkina Faso continues to be an active participant in WBI programs, particularly in the area of sustainable land management and natural capital, as well as education. Several participants from Burkina Faso also attended WBI Regional events thereby learning from and sharing development experiences with others in the Region. There are no specific country-level programs currently planned for FY09, however it is expectedthat anumberofregional eventswill attract participation from Burkina Faso. 96. Burkina Faso is a pilot country for the development of a joint World Bank Group CAS (World Bank, IFC andMIGA) in2009. E. KEY LESSONSLEARNED The following lessons can be learned from the 2006 CAS: 1. Given that the CAS aligned support across every pillar of the PRSP, the country program would have benefited from greater selectivity to enhance impact and visibility of bank interventions. The CAS did not achieve its stated objective of 82 simplifying the country program, indeed the number o f active-country-based operations increased. 2. To maximize the efficient use o f Bank resources, a stronger focus on inter-sectoral coordinationat the country level is warranted. Closer cooperation between sectoral teams to harness the complementarities and synergies between sectors and projects would have improved the country program's coherence and better reflected the interrelated and mutually reinforcing nature o fthe PRSP objectives to which the CAS aligned. 3. While budgetsupport provedeffectivein advancingdialogueat the macro level, it provedless effective in the context of sectoralreforms. Consistent progress was made in areas under the direct control o f the central ministries, notably the Ministry o f Finance, whereas progress was uneven where reform implementation depended upon the capacity and involvement o f particular line ministries. The PRSC series, which covered a multitude o f different reforms across the budget, could have benefited from targeting key reforms at the macro level. 4. While intheory, parallelTA projectsare an effective complement to budget support, inpracticethey have limitedimpact where budgetary allocations are not forthcoming for the particular activity to which the TA i s tied or where the sequencing o f budgetary allocations and supporting TA is poorly timed. 5. Government ownership is vital to the effectiveness o f interventions. A stark contrast can be drawn between interventions which lacked ownership, such as the aviation safety project and those which were supported by political willingness such as inthe Doing Business program andthe urbanwater project. 6. Donor harmonizationand coordination. Budget support through the PRSC series significantly improved donor coordination. Programmatic approaches in basic services were successful insofar as they aligned donor support behind national sectoral policies. However significant weaknesses inthe implementation o f country systems continue to represent a major obstacle. Future integration o f the Bank projects and programs through use o f country systems will require marked improvements to country financial management and procurement systems. The Bank is in a strong position to promote donor dialogue and alignment in the context of budget support andthrough sectoral working groups. 7. Successful diversification depends on overcoming a multitude of obstacles (infrastructure, private sector development, transport, export policies etc) andrequires the adoption o f a tightly integrated approach. Experience under the CAS shows that it will take time to achieve diversification. 8. The development challenges posed by Burkina Faso's rapid and uncontrolled populationgrowth need to be better understood and addressed by the Government andthe World Bank. 83 9. Burkina Faso's decentralizationprocess holds the key to improving access to and quality o f basic services. Adequate financial autonomy and strong institutional capacity are crucial to the proper functioning of decentralized structures. In this context, direct support to communes needs to be enhanced. 10. The successfulCDD approach has demonstrated that empowered communities are capable o f managing and monitoring their own development. Community-driven development initiatives led by the Bank during the CAS period represent a key Bank achievement worthy o f future replication. 11. Institutional capacity continues to be a major stumbling block to aid effectivenessand development. The Bankneedsto identify better targeted andmore extensive interventions geared towards longer term strategic capacity development objectives. 12. Tackling governance issues requires a more consistent and comprehensive program-wide approach which targets both supply and demand sides. Though the mandate o f the World Bank restricts the potential scope of interventions, the prevailing political momentum on GAC issues should be harnessed. 84 00 00 T r T T c c1 - 2 - E EE Pc .C c 5 .C 5 i ce I >a c F iE eEe - z: - - E EE t P I a C .C c s< C .C 5 c;C i TC s I C c b k - i -r T XIS t-b ? Nrn z 2 8 I- & S N 9 % 4 ? 2 I > >3 f Ee L 1 ? EE i i E ? L I L iI > Appendix C: The UnfoldingCrisis inthe Cotton Sector The cotton sector is in the midst of another crisis. The sector, which has not fully recovered from the last crisis in 2004 -2006 that ledto the recapitalization of SOFITEX in 2007 and Faso Coton as well as SOCOMA in 2008, now faces impending bankruptcyinthe cotton companies, heavily indebtedfarmer andvillage cooperativeswho are unable to makeprofitable activity from cotton (unless key financial parameters such as farm gate price, price of fertilizers, indebtedness and status, improve soon) and low productivity which risks diminishing further if producers withdraw from the sector. Cotton companies are expecting significant losses this campaign due to the drop of cotton prices on world markets and will likely be forced to recapitalize by October 2009 to avoid bankruptcy. After being recapitalized in 2007, SOFITEX and Faso Coton have again accumulated significant losses during the 2008/2009 cropping campaign amounting to over 50 percent of their capital. International bids in early April 2009 were between CFAFSOO and CFAF5lO/kg o f fibber cotton, significantly below the break-evenpoint for cotton companies, estimated at between CFAF680 to CFAF73Okg. Due to the companies' limited use of forward contracts at the start of the campaign to sell their upcoming production of fiber cotton when world prices were significantly higher, Burkina's three ginners still had a lot of unsold cotton at the end of the 2008/2009 campaign. The lack of sale contracts, a collateral requirementfor the banking pool, further complicated the access of cotton companies to their line o f credit for the financing of the 2009/2010 campaign. While world prices partly recovered at the end of April, they remain below the break-evenpoint. The cotton companies have now resumed sales, which allowed banksto disburse credits for the new campaign, however a significant financial deficit is expected from the three cotton companies for the crop year as a whole. The losses sustained are enough to trigger the OHADA law on liquidation. SOFITEX's management is proposing to carry out a three-phase financial restructuring to: (i) reduce its capital; (ii)revalue its fixed assets; and (iii) a state contribution of CFAF16 billion (about US$32 million) on thejoint receive current account it owns with the Government. Faso Coton and SOFITEX will likely seek recapitalization from the private sector. Injections of liquidity may also be neededgiven that the banking pool is forcing the cotton companies to clarify options for business continuity now, rather than inthe fall, as a necessary condition to authorize access to their line of credit for the 2009/2010 campaign. Heavily indebtedproducersface another difficult croppingseason and riskdroppingout of the sector. A significant proportion of internal debt has been accumulated over the last few cropping cycles and appears to be closely associated with the occurrence o f adverse climatic events in 2006/2007 and 2007/2008. Approximately 25 percent of producers are affected by debt, with a debt total of 4.3 billion CFA (approximately US$8 million) of which 2.8 billion CFA was accumulated in the 2007/2008 season alone. A study carried out by the cotton producer association (UNPCB) shows that about 22,000 producers are indebted toward their cotton producers group, but that as much as 100,000 producers may have been affected through their contribution to the existing solidarity guarantee groups. As a result of either their indebtedness or because they redistributed their profit last year through the solidarity mechanism, a significant proportion of farmers (15 to 20 percent overall, up to 30 percent in some areas) have renounced growing cotton this coming campaign. Conditions during the 102 2008/2009 campaign risk aggravating this withdrawal from production. Solvability constraints of the cotton companies from the late sale of cotton contracts have delayed payments to producers which are now only expected to be completed in July 2009 - well into the next cropping campaign. Contrary to expectations until June 2008, producers will not receive an additional price ("ristourne") on top of the floor price of CFAF165Ikg of seed cotton. The new floor price for the 2009/2010 season will be even lower given developmentson world markets, at CFAFlGOkg (3 percent less than last year). Furthermore, fertilizer prices have only marginally decreased this year, suggesting an increase in the overall input price (hiked up by financing costs). The globalfinancial crisis has catalyzedthe current crisis inthe cotton sector. The impact has resulted in a drop in cotton prices on the international market due to declining demand, increased input prices and more limited access to and higher costs of credit. However, the origins o f the crisis are rooted in underlying structural problems related to the lack of competitiveness in the sector and limited on-farm productivity. Any response to deal with the existing debt of farmers and cotton companies in the short term will therefore need to be embedded in a broader program of structural reform and improved competitiveness within the sector: The Government is putting together a sound emergency package to respond to the crisis, with a focus on immediate measures to save the coming cropping campaign (2009/2010). The Government's objective is to encourage seed cotton production at its 2008/2009 level (452,000 T) in the coming campaign, without distorting long-term incentives set by the price- setting mechanism. The emergency package includes: i. extendingtheproductionofGMcottonwiththesowingof120,000hain2009/2010and the coverage of the entire cotton area in2010-2011by this technology expectedto result in approximately a 30 percent increase in yield and an economy of 4 insecticide .. treatments per campaign. 11. increasing subsidies for fertilizers, subject to availability of funds, so that input costs to farmers remain unchangedfrom last year. This explicit subsidy would amount to CFAF7 ... billion (US$14 million equivalent), which is CFAF4 billionmore than last year. 111. removing the internal debt overhang at the producers' level without encouraging moral hazard. Clearing all internal debts of producer solidarity groups, as the Government envisages, would amount to CFAF4.4 billion (or nearly US$9 million). iv. improve incentives by requesting a revision of the insurance system among producers to both provide higher ex-ante collaterals and cap individual liability to the farmers' group so that surplus farmers keep part of their benefiteven inbadproduction years. V. launching a comprehensive financial restructuring of SOFITEX and increase by CFAF16 billion (around US$32 million) its credit line to the cotton company, which constitutes a contingent liability for the state. In total, the Government's intervention package to save the coming cotton campaign could amount to above CFAFl 1 billion, roughly equivalent to US$23 million, with another contingent liability of US$32 million to guarantee SOFITEX'Sbusiness continuity. 103 A threeyear actionplanto improvethe sector's competitiveness is also envisaged. Theplan will address underlying structural problems inthe sector, includingthe managerial efficiency of cotton companies, improved management of the Price Smoothing Fund, reduction inthe cost of fertilizer possibly through a rotating input financing fund and longer term solutions to producer indebtedness. The planwill also focus onthe roll out of Bt cotton inaccordancewith biosecurity safeguards to increase overall production volumes above the critical threshold of 500,OOOmt needed to boost utilization ratios of installed processing capacity above the minimal level requiredto arrive at internationally competitive unitprocessingcosts. The World Bank has respondedrapidly to the crisis with financial and technical support and remains flexible to providing further support. Through the PRSC series, IDA delivery was increased and accelerated in 2009 in order to help Burkina's exceptional budgetary financing needs and support the Government's emergency policy reform and institution strengtheningresponseto the cotton crisis. Additional support is envisagedinthe CAS. 104 Appendix D: Improvingthe DoingBusiness Indicators Over the 3 last years, major reforms achieved related to business start up, property registration, labor, tax regime, construction permits. This resulted in an outstanding increase o f Burkina's ranking in the Doing Business Report from 163 out of 175 countries in 2007 to 148th of 181 countries in 2009. This achievement is particularly notable as the country was also ranked amongst the top 10reformers globally in2009. Despite achievements, reforms need to be furthered and accelerated in order to improve Burkina's overall ease o f doing business index and ranking. Reforms related to trading across borders i s a priority giventhat Burkina Faso recorded its poorest performance inthis domain. The IFC "Doing Business Better in Burkina Faso" program has launched supportive sub- projects, including the Burkina Faso Trade Logistics project, the Burkina Alternative Disputes Resolution project, support for comprehensive reform o f 22 selected licenses, the withholding tax regime, the commercial justice systemandthe insolvency and creditors rights system. BURKINA FASO Easeofdoingbusiness(rank) 148 Sub-SaharanAtiica GNIpercapita (US$) 430 Low income Population (m) 14.8 Starting a business (rank) 113 Protectinginvestors(rank) 142 Procedures(number) 5 Extent of disclosure index (0-10) 6 Extentof director liability index Time (days) 16 (0-10) 1 Cost (percent of income per Ease of shareholder suits index (O- capita) 62.3 10) 4 Minimumcapital (percent of Strength of investor protection income per capita) 459 index(0-10) 4 Dealingwith licenses (rank) 106 Payingtaxes (rank) 132 Procedures (number) 15 Payments (number per year) 45 Time (days) 214 Time (hours per year) 270 Cost (percent of income per capita) 578 Total tax rate (percent o fprofit) 45 Employingworkers (rank) 57 Trading across borders(rank) 173 Difficulty of hiring index (0- 100) 33 Documents to export (number) 11 Rigidity ofhours index (0-100) 20 Time to export (days) 45 Difficultyoffiring index (0- 100) 10 Cost to export (US$ per container) 2132 Rigidity of employment index (0-100) 21 Documents to import (number) 11 Firing cost (weeks of salary) 34 Time to import (days) 54 Cost to import (US$ per container) 3630 Registeringproperty (rank) 148 Enforcingcontracts (rank) 110 Procedures(number) 6 Procedures(number) 37 Time (days) 136 Time (days) 446 Cost (percent ofproperty value) 10 Cost (percent of claim) 107 105 Gettingcredit(rank) 145 Closinga business(rank) 110 Strengthoflegal rights index(0- 10) 3 Time (years) 4 Depthofcredit informationindex (0-6) 1 Cost (percent of estate) 9 Public registry coverage (percent of adults) 2 Recovery rate (cents onthe dollar) 22 Private bureau coverage (percent of adults) 0 106 Appendix E:Overview of the Etude duScheinaNational D'Amgnagement du Territoire (SNAT) By the National Policy on Land Planning Decree (Decret No 2006 - 362), the Government of Burkina Faso commissioned the National LandPlanning Scheme (SNAT). The SNAT's mission i s to introduce both a long term perspective and territorial coherence to the development debate inBurkina Faso by mapping development risks and opportunities. The SNAT involves a three staged process: (a) a geographical diagnostic of national development issues; (b) an identification of the major concepts, objectives and directions for sustainabledevelopment inBurkinaFaso; (c) the validation by Government of a territorially coherent 20 year national development strategy for Burkina Faso. This appendix provides an overview of the diagnostic and second phase elaboration ofthe SNAT. The Government is yet to validate the SNAT. Context-nationalrealities The SNAT diagnostic underscoresthe impact of Burkina's unsustainablepopulation growth and land degradation. Burkina's population has tripled inthe last 30 years and agricultural growth has relied upon the degrading expansion of land for cultivation (at a rate o f 3 percent per year). It warns that the nation is fast-approaching spatial saturation and over population, which will have dire consequences for Burkina's food security, socio-economic and human development and socio-territorial harmony. The SNAT emphasizes the importance of developing a long term national policy which is not founded on poverty reduction alone. The focus should be to harness the nation's dignity and enable Burkina to steer its own direction. Burkina's transition towards development is a long process. The next 20 years ought to be conceived as a transition period in which the country embarks upon the significant task of reversing negative trends. The SNAT indicates that this will be a difficult period whichwill yield few tangible results. FundamentalChallenges: Demography and the Role of Women Burkina Faso is situated at the start of phase two of the demographic transition chart, with persistentlyhigh birth rates and lowering death rates. Annual growth rates are between2.5 to 3 percent, resulting in a doubling of the population every generation. Current population is estimated at 13.73 million. In order to reach sustainable population growth, Burkina needs to develop a clear and decisive national strategy to maintain its population below 20 million by 2025. This will require a reduction inthe population growth rate fiom 2.5 percent to 1.9 percent in2015 and 1.4 percent in2025. The SNAT identifies two key elements to curbing population growth: (1) intensive family planning and improved access to quality broad-basedhealth services for women; and (2) modernizing societal attitudes towards the role of women, including their economic participation, rights and social insertion. 107 Education The SNAT envisages the creation o f a new, educated and technically trained rural population, capable of improving agricultural productivity. The SNAT warns that the focus on increasing access to education has negatively impacted upon the quality of education. Teacher-student ratios are akey challenge. To sustainquality education, the number of teachers needs to increase by 8.5 percentper year until 2025. The SNAT recommends that secondary education initiatives should be expanded in areas which demonstrate good potential. Tertiary education and research needs to be properly aligned with the needs of the country and the existing university poles requirereinforcement. Bobo-Dioulasso is identifiedas a prime candidate for becoming a pole of excellence for researchand education inagricultural activities and agro-processingindustry. Agriculture and its integration with livestock The SNAT emphasizes the importance of developing food self-sufficiency rather than food security (which includes the concept `of imports) in Burkina Faso. It highlights the need to increase productivity of traditional food crops (millet, sorghum) and products of good potential (rice and potatoes). It also recommends (i)the integration of agriculture and livestock to improve manure usage, (ii)improving land management in cotton cultivation; and (iii) harnessingthe unrealized potential of Burkina's fertile shoal (bas fond) regions, with the aim of extending cultivationto anadditional 300 000 haof bas fonds in20-25 years. Environment andLand Tenure The environment and land tenure reform feature as central and over-arching preconditions for sustainable development. The SNAT indicates that, contrary to common perceptions, Burkina Faso does not lack water resources, instead the major constraints relate to regionally disproportionate and irregular rains and poor water resource management. The SNAT commends the preparation of the NationalRural LandTenure Reform Policy, but raises concern over the implementation of the land reforms. The SNAT recommends a staged land reform implementation process, involving the immediate identification of priority areas e.g. bas-fonds areas, zones of conflict over landtenure. Decisive factors The SNAT identifies three decisive factors which will direct the course of Burkina's development: (1) urbanization; (2) desenclavement; and (3) water and energy. Burkina's current urbanization rate of 20 percent falls well below those of other Sahelian countries. Rural communities remain cut off from markets due to the low urbanization rates and poor internal connections. 78 percent of agricultural products do not reachmarkets, 15 percent reachmarkets connected to the rural road networks and only 7 percent reach urban markets. The SNAT highlights the importance of well-managed and progressive urbanization for development. It recommends particular focus should be placed on internal desenclavement and farm to market access (80 percent o f the population are rurally based and the road network services only 22 percent of the country). It also highlights the importance of extending external rail connections (recommendations include: (i)extend rail Abidjan, Ouagadougou, Kaya up to Dori; (ii)link Bobo with Mali through Koloko; (iii)resurrect dialogue on the rail project to connect with 108 Ghana; (iv) implement a rail link with Benin-Niger via Fada N'Gourma). Investments in renewable energy sources, regional energy interconnections and water management are also discussed. Vectors of growth The SNAT draws upon the opportunities that exist within different regions and identifies good growthpotential inindustry, mining, tourism andhandicrafts. The SNAT proposes the gradual creation of different `zones of activity' to stimulate well- planned urbanization, job creation and growth. Several zones are suggested, including: rural micro-centers, the grouping of particular skills around particular villages, industrial zones, logistical export platforms and business districts. In the context of tourism, the SNAT recommends harnessing the small potential niche market by crating 5 regional tourism hubs in Fada NGourma, Dori, Ouahigouya, Bobo-Dioulasso and Ouagadougou. The creation o f these zones will require close coordination with rural communes and supportive landreforms. Cross-cuttingissues Two cross-cutting issues are identified in the SNAT. The credibility and effectiveness of the State will depend upon clear delineation of regional responsibilities. The SNAT also proposes a new system of international cooperation with regional neighbors and donors. Burkina needs to deepen its engagementwith regional neighbors and assume amore prominent leadershipposition insteeringdonor interventions. The SNAT map The SNAT mapping exercise spatially depicts geographic constraints (ecological and over- population) and opportunities (fertile regions, bas fonds, concentration o f high potential products, markets, infrastructure, transport, areas of urbanization, mining, tourism, transborder commercial exchange areas etc)) for development in Burkina. It does not cover social services which ought to be equally distributed. The map reveals that population density does not correlate with the most fertile rain-fed areas. This is largely due to historical and tribal factors. The map also shows that over-population predominantly affects the central bandofthe country. 109 Appendix F: Policynoteon RegionalGrowthPoles (May 2009) 1. The objective of this note on growth poles is to elaborate on the spatial approach adoptedunderthe first strategictheme of the proposed CountryAssistance StrategyFY10- 12, relating to intensificationand diversificationof the economy. The note is intended to provide a quick overview o f the theoretical underpinnings o f the growth pole approach, o f experiences in other countries, current policy orientation and existing studies in Burkina. The note will form the basis for further discussions with the Government and the country team aimed at defining the parameters o f a possible World Bank-financed operation to support the development o f regional agricultural growth poles. The GrowthPoleConcept 2. The principalobjectiveof a growthpoleis to develop economic activitiesaroundone or multiple industries or sectors of potential, by targeting a critical mass o f investments (economic infrastructure, private sector development, institutional reforms, policies to support enterprise and industry). The purpose o f developing a pole i s to catalyze value added activities and to encourage clusters of entrepreneurial investment. Given the right conditions, enterprises are likely to regroup into clusters to improve organization, coordination and competitiveness so that they can compete more effectively in external markets. The formation o f entrepreneurial clusters facilitates shared use o f the means o f production (treatment o f surplus production by one enterprise to avoid the losses o f another) and common training o f actors or technical support targetedat enterprises situated withinthe pole. The essential characteristics which determine the competitiveness o f enterprises ingrowth poles, accordingto Nadvi (1999) are: access to markets, flexibility and availability o f human capital, the effects o f intermediate consumption, technological advances and, joint action by enterprises to associate or collaborate with a common purpose. 3. The development of a growth pole can either be initiated by the spontaneous regrouping of enterprises and other actors in the same domain or promoted by specific public policy. The State's role inpromoting growth poles is one o f facilitator and coordinator and involves the development o f infrastructure and the implementation o f a host o f public measures directed towards encouraging private sector investment and enhancing competitiveness. A strategy for growth pole promotion should identify specific measures to remove constraints, improve quality and productivity, encourage domestic and international investment and enhance infrastructure. 4. Growth poles can be in the form of regionally delimited poles or targeted value chain poles. In order to determine whether a regional or value chain approach is most appropriate, an analysis into (i)the sectors and value chains with growth potential (ii)the investment constraints in these areas and (iii)the location and state o f existing economic infrastructure (energy, transport, markets, ICT, etc) i s necessary. Regional growth poles can be developed around one or several sectors and can take several forms including: (a) the formation o f specially delimited zones or industrial zones, (b) the installation o f industrial parks near the areas o f production (perimeter planning) to encourage agro-processing and light industry, and (c) the installation o f 110 technology parks and business incubators to create poles o f research and scientific enhancement. Value chain growth poles involve the organization o f and specific support to actors and service providers in selected supply chains as well as the adoption of policies to promote investment and enhance productivity. Innovation and human capital are central to both growth pole approaches and require the strengthening o f scientific research, the use o f business incubators and the scaling up o f professional training withinthe particular poles. Growth pole experiences inAfrica 5. A regional growth pole approach was adopted by the Malagasy Government in 2003-2004 following a series of studies and analytical work initiated by the authorities and the World Bank. The objective was to enhance growth by reducing constraints to investment, improving the investment climate, focusing on developing infrastructure and access to finance for business and strengthening the capacity o f humanresources. The approach was implemented through a multisectoral project inthree regions o f the country which corresponded naturally with potential growth sectors: the Nosy-BE pole for tourism; the Fort Dauphin pole for mining and tourism (with an innovative PPP with Rio Tinto) and the Antananarivo-Antsirabe for export growth. 5. The impact o f this operation on the Malagasy economy resulted inan exponential growth o f private investments from US$84 million in2005 to US$1,045 million in2007 and the creation o f 500 new businesses and 10 000 new formal jobs between 2006 and 2008. Progress in the poles has recently been constrained by the international crisis and internal political turmoil, although the infrastructure which was constructed (railway, port and hotels) appears to have not been affected. 6. A value chain growth poledwas adopted in Cameroon. The country focused on three sectors: forestry, tourism and ICT. In forestry, the Government has decided to promote investment and transformation o f the forestry sector, strengthen the capacity o f the relevant actors and improve technical training. In tourism, investments in infrastructure (road rehabilitation, PPP for hotels etc.) and capacity development are envisaged. In the ICT sector, the Government has decided to create a technology park with a training centre. A specific program for improving access to finance in the three sectors and a framework for promoting domestic and foreign investment will also be put inplace. It i s too early to measure the impact o fthis approach on the economy. Burkina Faso's Economic Diversification Strategy and the relevance of the growth pole approach 7. The Schima National d'Aminagement du Territoire (SNAT) presents a comprehensive diagnostic of the country's social and economic challenges. The SNAT provides recommendations for economic growth and diversification which include: (i)the improvement o f economic infrastructure; (ii) establishing support mechanisms for commerce; (iii)facilitating access by economic actors to resources (finances, production inputs, technology etc); (iv) increased revenue generation for the population through better access to markets and; 111 (v) support to small and medium processing industries. These recommendations build upon the orientation o f Pillar 1o fthe PRSP. 8. Diversification is addressed as a national priority in the context of rural development under the Poverty Reduction Strategy. The Government has initiated a policy o f diversifying export revenue sources through agriculture, agro-processing and the promotion o f tourism and mining. The Government has also developed an integrated platform o f reforms to release constraints to the investment climate and facilitate private sector investment. Over the last three years Burkina has made significant progress in improving the investment climate and the country was classified amongst the top ten performers in the world in the Doing Business 2009 report, particularly in relation to the creation o f business, labor market regulation and construction permit regulation. 9. A sectoral policy of private sector developmentis in the process of preparation, as well as specific strategies on export promotion, quality, standards and norms and a new industrialization policy. A coherent plan of action to regroup the approaches is under preparation. 10. The World Bankhas supportedreforms to the investmentclimate and helpedcarry out analysis to identify sectors and value chains that have a strong potentialto accelerate growth and diversify in Burkina." The series of analyses have converged in indentifyingthe major potential drivers o f growth. Agriculture i s identified as an essential sector for diversification with important growth potential in cotton oil, fruit and vegetable processing, meat, leather and skins. The Government has already prepared a project for a tomato and mango processing plant in Loumbila to respond to the need to transform surplus production o f these products andto increase their value as export products. 11. The BurkinabCadministrationhas investedin a series of studies on regionalpoles of competitivenessand territorial planning as part of its diversificationstrategy. There is a clear recognition o f the challenges related to spatial saturation and the limits o f existing production and exportation schemes. A study on the poles o f competitiveness explored the potential o f 13 regions in Burkina to be transformed into poles comprised o f clustered business investments and technology zones in which partnerships between scientific research and private enterprises are promoted. The SNAT also provides a prospective analysis o f spatial opportunities and challenges in Burkina, taking into account population growth. It identifies particular growth sectors and calls for the gradual creation o f zones o f activity as well as sound urban planning to support employment creation and revenue generation. Several zones o f activity are suggested including rural micro-centers, village clusters o f business and specialized skills, industrial zones and logistical export platforms. 12. The current discussion on diversification in the country is aligning around the spatially concentrated growth pole approach. The Government has recently indicated its 50 The DTIS completed in 2007 identified a number o f potential value chains for which Burkina Faso has a comparative advantage. Sectoral analyses prepared under the PAFASP project have targeted 5 particular value chains. The CEMprovides a detailed analysis o fdiversification and the sources of growth inBurkina Faso. 112 intention to develop spatially concentrated regional growth poles in objectively identifiedareas of growth potential which demonstrate favorable characteristics for mineral exploitationor high- value (selected value chain) agricultural productionand processing. It is notedthat this approach requires a strong commitment at the highest level and strengthenedinter-ministerial coordination to ensure effective roll-out of growth pole investments and reforms. The Ministries of Agriculture and Livestock, as well as the ministries responsible for trade, the promotion and organization of exports will need to be particularly implicated. The growth pole approach will provide an ideal opportunity for the country to implement the National Strategy on Export Promotionandthe national policy on quality standards. 13. Agro-industry, identified as one of the drivers of growth and diversification, requires specific spatial planning of zones around the areas of production. A land reform law, in the process of being adopted, establishes the regulatory framework for land use and agricultural production in rural areas. It confers secure landrights to farmers and promotes the expansion of developed perimetersof modern farming. The creation of medium-sized industrial plants requires the development of a coherent strategy to ensure adequate land allocation, investmentsineconomic infrastructure (water, energy, transport) and public utility services. To ensure the market competitiveness of agro-industries, professional training and capacity development, support for the quality standardization and adherence to international norms, coupled with improvedaccess to finance are critical. 14. The potential of mineral exploitation remains limited due to the lack of rail , infrastructurewhich would facilitate the transport of heavy minerals (manganese, phosphates). A public-private partnership to develop infrastructure could encourage exploitation and developing the full potential of the mines could be envisaged as part of the growth pole approach. 15. The tourism and handicraft sectors also have potentialfor growth although tourism, inparticular, requires concerted efforts to (i) disenclave regions through better road connections; (ii)develop public private partnerships at an international level and; (iii) develop policies to improve the capacity and professionalism of actors inthe industry. 16. The challenge for the Government will be to strengthen the competitiveness of identifiedhighvalue supply chains at a national level (a process which is underway already) and to develop regional growth poles by encouraging the emergence and clustering. of modern enterprises through the provision of qualified and skilled personnel and necessary infrastructure and services. The CAS seeks to fiuther the dialogue with the Authorities on the development of regional growth poles and provide financing to target investments in identified agricultural growthpoles inorder to catalyze investmentsand growth. Examplesof potentialgrowthpoles inBurkinaFaso 17. A more thorough analysis and extensive consultations are necessary to properly identify growthpoles in Burkina. Giventhat the first objective of this note is to contribute to the discussion onthe type of growthpole approachto adopt inBurkina, itwould bepremature to propose with finality any specific regions or zones. However, certain regions naturally form the 113 source of supply chains with value adding potential and a few examples of potential growth poles are presentedbelow to furtherthe disc~ssion~~. 18. Example of potential agriculture growth pole in the Haut-Bassins region: The Haut Bassins region i s comprised of three provinces, Houet, Tuy and Kenedougou. The largest city in these provinces is Bobo-Dioulasso which accounts for over half of the population of the region. The potential ofthe region is manifestedin: 0 The supply of high value agro-pastoral products: cotton, cereals, livestock, sesame, cashew, fruits and vegetables (with a particular abundance of fruit in Kenedougou - 24000 tonnes per year) 0 Existing economic infrastructure: an industrial zone is already in place in Bobo and plans are underway for the installation of an additional 2 zones: the airport could provide transport opportunities; a multimodal platform for transport recently constructedis directly linked with the railway which connects to the nearest port city of Abidjan; the re-opening of roads and rail networks with the Ivory Coast will enhance market access for the region which suffered badly during the Ivoriancrisis; a central electricity interconnectionwith Ivory Coast will enable reducedfactors costs. 0 A core of enterprises inthe region with strong concentration in Bobo: the figures on entrepreneurial activity from the Chamber of Commerce state that 4120 enterprises exist inthe region, of which 65 percent are incommerce, 26,2 percent are inservices and 8 percent are inindustry. There are numerous small and mediummanufacturing and processing plants (oil processing, dairy, fruitjuice, dried h i t and vegetables) as well as large enterprises such as CITEC (cotton oil, soap cottonseedmeal), SOFITEX (cotton), BRAKINA (drinks and mineral water), FILSAH (cotton thread) and DAFANI (fruit concentrates andjuices). Other industries inmetallurgy, mechanics, chemicals and auxiliary products are also found in the region and have developed exportation links with the sub-region, WAEMU countries and Europe and the Maghreb (cotton). 0 A promising experience inagrobusiness is the DAFANIfactory which startedin2006 with a production capacity of 12000 tonnes. The factory has relied upon a similar structure to SOFITEX, using a partnership with local producers to ensure primary product supply. 0 Support structures (Chamber of Commerce, MEBF branch, CEFORE, CEFAC) and a laboratory for quality control which could be used to lift the quality of export products to conform with international norms and build the capacity of exportation companies. 19. Example of a potential agriculture pole in the Cascades region: The Cascades region i s situated in the south west of Burkina Faso extending from the Haut Bassins region. It i s comprised of 2 provinces, Comoe and Leraba. Potential inthe region includes: ExistingWE3 fmanced operationshave targetedsupport to a few value chains: PAFASPadopted acombination value chain approachbytargeting four production basins for onion production (Ouahigouya, Koudougou, Sourou, Tenkodogo). However, the project lacks sufficient linkageswith marketaccess, ago-processing and quality assurance. This underlinesthe needfor the development integratedservicezones 114 Supply of agricultural products: cashew, mangoes and bananas are the fruits most produced inthe region. The regionis the second largest producer of horticulture after Haut Bassins and the largest producer of cashew in Burkina. Cashews are exported on a large scale to India and Europe. Sugar cane exists as a potential export product, even though the industrial processing unit has encountered financial difficulties in recent years. In this region, the accent could be put on the processing of fruit, vegetables and cereals (processing o f cereals, dried hit, cashew hulling) Economic infrastructure: the rail linking Burkina with Ivory Coast traverses this region and is in a good state; a special industrial zone could be created to attract the emergence ofprivate processing investment The existence of a number of agro-industrial enterprises: even though there is no formal industrial zone, the region accounts for some of the largest food processing units like SOSUCO (sugar), SOPAL (alcohol and molasses) SOFITEX (cotton), SN- GMB (imported wheat flour conditioning). Some ofthese entities are on the verge of bankruptcy but the emergence of other enterprises of medium size capable of developing economies of scale could produce a positive effect. The existence of a number of associations and cooperatives specialized inexportation is equally an asset which could be usedto linkproduction andmanufacturing with larger installations for export. Administrative support structures could be reinforced to enable entrepreneurs to obtain administrative documentsand make arrangementsat a local level. 20. Exampleof a potentialtourismgrowthpole: A Bank evaluation ofthe different tourist sites conducted in 2008 identified priority areas with probable future tourist potential and those secondary sites with limited potential. The evaluation also examined the possibilities for creating sustainable revenue in each area. The evaluation established a list of sites by order of priority, namely (i) Arly (ii) Nazinga (iii)Hippopotamus Lagoon and Banfora (iv) Sahel (in particular Oursi with its links to the Dogon region of Mali). To develop these areas as regional tourism growth poles, however, it would be necessary to develop the sites, create a PPP at an international level with a strategy of disenclaving the access to the site and strengthen the professional capacity withinthe sector. 21. Example of a mining growth pole in Tambao. The development of the mine in Tambao for the exploitation of manganese requires a heavy investment in rail infrastructure which would have positive externalities for access to marketby other export products (livestock, agricultural products etc). According to the mining study in the CEM, the Tambao mine contains 19 million tonnes of manganese reserves with an average content of 50 to 54 percent Mn02. The feasibility study indicates an investment of US$844 million is required with investments in the order of US$350 million for the construction of the rail line fiom Kaya to Tambao. This line of 250 km would open the north of the country and would link through Ouagadougou, the DoriNiamey line which i s envisaged inthe development plans. A PPP for the construction of the mine and the railway could be explored because of the positive externalities for export of other products, the disenclavement opportunity, and the possibility for transportation o f 500 000 to 1000000 tonnes per year over 20 years. The benefits of this mine and infrastructure need to beverified with specialists andmore detailed studies. 115 22. The selection o f the growth poles will require a further analysis o f the potential, needed investment and existing capacities. However, a set o f requirements will always apply: clear synergy will need to be established with the development o f targeted human capital. This will involve the creation o f technical professional centers, technical training in food progressing, technology transfers with foreign business partnerships, industrial maintenance, professional tourism training, finances, call centers, networking etc. 0 measures to catalyze the creation and installation o f a significant number o f medium size enterprises inall o fthe identified sectors will need to be put inplace. partnerships to facilitate private domestic and international investment need to be created. promotion o f clusters requires a cross-sectoral approach which focuses on a panoply o f issues including, production, distribution, the development o f a suitable skills base, adapted and disseminated technology (local and foreign), the development o f professional technical training, and efficient intra-enterprise partnerships andjoint action. The m a l development and private sector specialists must work together and develop a coherent plan that addresses the development o f growth poles in an integrated manner. Institutional support by the authorities, as facilitator, and the development partners i s imperative. Such support might include, the securing o f landtenure for farmers inthe poles, agribusiness, access to economic infrastructure (transport, electricity, water, telecommunication and broadband internet for poles dedicated to services) as well as the conditions for exploitation, concession zones for tourism and facilitation procedures for handicraft exportation. 116 Appendix G: The CASApproachto Demography I. ChallengeofRapidPopulationGrowth 1. Burkina Faso has notyet startedthe last stage of its demographictransition, i.e. the decline of fertility. The current rate of population growth is estimated at 3.1 percent per year, translating into a doubling time of the population inless than 23 years. Unless fertility declines rapidly, population growth will accelerate due to improving mortality conditions and reduced emigration flows. Today, almost half of the Burkinabe population is less than 15 years old. The potential for population growth, which is built into the young age structure (a phenomenon known as the population momentum), will further exacerbate the rapid population growth and contribute to the youthfulness ofthe age structure. 2. Rapid population growth will require that greater levels of public spending be mobilized for the formation of human capital and the delivery of basic services, in particular in education and health. This situation will be aggravated by the youthfulness of the population as this translates into larger demand for services. Inaddition, the small formal employment sector will face huge pressure fiom a fast growing working age population andjob creation will become a critical issue. Finally, the rapidly rising Burkinabe population will increase the demand on the agricultural sector, whose productivity i s already weak, and will hastenlandsaturation and environmental degradation. 11. GovernmentResponse 3. Over the past decades,the lack of strongpoliticalaction contributedto a failure to significantly lower fertility rates and slow down population growth. The demographic crisis that has resulted now demands concerted political commitment and engagement. First, the consequences of rapid population growth for development and humancapital investmentsneed to be fully understood and acted upon by the Burkinabe leadership as well as their development partners. This will require enhanced advocacy inthe area ofpopulationand reproductive health as well as the strengthening of the current institutional framework to address population issues. Second, development strategies including poverty reduction programs need all to factor in the importance of demographic change, including the use of consistent data and more realistic assumptions. Importantly, the Government has recently demonstrated clear political commitment to addressing demography as a critical development constraint. A new development strategy forecast for 2010-2011envisages placing heavy emphasis on demography as an `emerging development issue'. 4. The implementation of the new National Population Policy (NPP), revised in 2000, has been disappointing. The efforts in the area of population and reproductive health require consistent and long programmatic efforts that are supported with a strong Monitoring & Evaluation (M&E) framework. Instead, the NPP presents a broad spectrum of interventions that are not time-bound and do lack precise quantitative targets. Furthermore, programmatic documents, such as the health strategies, do not address directly the issue o f the contraceptive prevalence rates. Even specific documents, such as the contraceptive security strategy, remain too vague and do not use quantitative planningtools. 117 5. Interventionsin the area of populationand reproductivehealthurgentlyrequire scaling up. The demographic evolution generally assumed in Burkina Faso's development strategies will not happen automatically, but can only be achieved with more proactive policies. Moreover, the coordination between strategies for different sectors needs to be strengthened by mainstreaming a coherent use of population data and consistent population policy interventions. It is suggestedto focus the effort on a few key interventions that can possibly and rapidly bring demographic change. These include: strategic use of realistic demographic data for programs' design; effective information, education, and communication campaigns aimed at behavior change; universal education especially for girls; access to quality family planning services; and better employment and economic opportunities of women. 111. The CountryAssistance StrategyApproachand DemographicChangeFilter 6. In most Bank strategic documents in Burkina Faso (e.g. Country Economic Memorandum,CAS), populationgrowthis identifiedas beingamongst the most important developmentconstraints(thisis also the case inthe SNAT or Etude Sche`mad'ame`nugement du territoire funded by the African Development Bank). The CAS draws upon the new political enabling environment to target demography as a cross-cutting issue which affects Burkina's major development changes of growth and social service delivery. A holistic approach is adopted which incorporates: (i) dialogue and technical assistance; (ii) operations; policy targeted and (iii)portfolio mainstreaming. 7. The Bank seeks to draw upon its comparative advantage in policy dialogue to promote greater government and stakeholder engagement in demography and to establish clear linkages betweenpopulation growth, macro-economic stability and poverty reduction. 8. Analytical support and technical assistance will help to guide government policies, communication strategies and activities. In order to assist the Government in developing well-targeted and effective population interventions, IDA will support a more detailed analysis of the underlying determinants of high fertility and limited use of family planning. Through technical assistance, IDA will work with other partners such as UNFPA, to support the Government in updating its population policies and developing and implementing effective information, education, and communication (IED) and behavior change communication (BCC) campaigns. 9. IDA financed operations will also target demographic issues. Several existing IDA projects ineducation, health, and community driven development, support the deceleration of rapid population growth. These operations include components to improve: female literacy and education; women's access to, and involvement ineconomic activities and governance. The Health Support Services and HIV/AIDS program specifically supports access to reproductive and sexual health services, including family planning. The Transport Sector Development Project also incorporates a component on HIV/AIDS education, which includes improving access to condoms. The design of these operations relies already on realistic demographic data. A new reproductive health operation inFY10 will strengthen government initiatives to improve access to family planning and increase modern contraceptive usage. The CEM highlights the immediate significance of improving access in order to meet the high level of m e t contraceptive needs in Burkina Faso (currently at 29 percent). As the Bank is a new player in addressing population growth and reproductive health in Burkina Faso, partnershipswith other 118 agencies that have greater comparative advantage will be explored to assist in effective implementation. 10. In order to highlightthe importanceof demographyas a developmentissue and support the widespread disseminationof informationand education, the World Bankwill pilot the applicationof an innovativedemographicchange filter throughout the portfolio. The filter will draw upon expertise within the Bank and will be designed in collaboration with the Government andrelevant stakeholders. Itwill provide task teams with a check list of options to integrate demographic issues in the design of new projects and AAA work, as well as in the retrofitting of existing projects (iffeasible). The filter will encourage: (a) The use of adequate and sound demographic data in the design ofproject andor AAA activities. This will also entail the use of such data in a strategic manner. For example, urban projects should target their interventions according to the best available demographic data on urbanization in order to prioritize the neediest populations. This may call for the gathering of the best available data and analysesto be included inthe project design; (b) The incorporation of a consistent communications stratem on demographic issues. The filter will include a communications strategy, aligned with the relevant new government strategies, to guide task teams in mainstreaming a consistent and clear message on demography inall lending and non-lending operations. (c) Where relevant, the inclusion of speciJicpopulation and family planning IEUBCC components in order to reach project personnel and/or constituencies (this is especially important for projects that involve communities and/or community leaders). This approach will mirror the approach adopted by existing projects to address HIV/AIDS. Information and education about family planning choices and options will empower women and couples to take conscious decisions on childbearing and enable behavior change. (d) Where relevant, an assessment of the impact of the project development objectives (PDOs) on demographic and reproductive health outcomes. For example, an urban project could estimate the impact of urban improvements on demographic outcomes such as improveduse o f contraception among urbanpopulations. 119 I I I I I I z1 1 0 0 .3 .3 S I a a 1 I I I I 1 1 1 I I 9 i u Y u ..* P2 I I I I I I Ym c: -3 0 a 8 Ys rr 0 8 Y $ E Yh *E3 g8 a8 a a a I Appendix I:Lessonsfromthe ClientSurvey2008 Globally, respondents of the client survey identified government effectiveness/ governance and access to education as the top development priorities for Burkina Faso, followed by poverty reduction and growth. When considering poverty and growth, the survey findings indicate the overwhelming view that agricultural productivity i s a critical element to both poverty reduction and generating faster growth in Burkina. At the same time, the survey findings indicate a clear understanding of the link between poverty and growth, and private sector development, governance, and access to education. An interesting dissonance emerges between where stakeholders think the Bank focuses its attention and resources, and where they think the Bank should focus its attention. A plurality of respondents reported that the World Bank considered growth its primary priority (followed by governance and environmental quality). However, nearly a third said that the Bankshould focus primarilyon agriculture productivity, followed by education, growth, environmental quality and infrastructure. 3.8 Bank good, but issue not Bank relatively good and issue is a priority 3.7 perceived to be a priority 3.6 Health Sectore *Education Sector PrivateSector* 'Infrastructure 3.5 'Environmental Impactof WB Programs u)3.4 fafeguard against Corruptionin Bank Program! Q v) FinancialSystemI* *Agricultural Development .-03.3 GenderDisparities* /* *Economic Growth CI 5> NaturalResources Management 3.2 *p RegulatoryFramework. Ei EmpowerCommunities* *Transparency in Governance c 3.1 *Food Security *Reduce Poverty =Q Cotton Sector* Q i *Energy Sector 3.0 PublicSector 2.9 of Life *Redu:e Corruptionin the Country 2.8 'Urban Quality*Adapt/AvertClimateChange *Social ProtectionSector 2.7 *JudicialSystem Banknotsogoodon 2.6 Bank not so good, but issue not perceived to be a priority priority issues I 3.6 3.7 3.8 3.9 4.0 4.1 4.2 4.3 . 4.4 4.5 4.6 4.7 4.8 Mean Importance Insummary, respondentswould liketo see the Bank significantly involvedinkeypriorityareas- agriculture, education and growth inparticular - less so governance which they consider the top development priority in the country. The survey findings also suggest opportunity for greater emphasis on private sector development (potentially more coordination with IFC perhaps) and focus of researchand knowledge. The Bank received high ratings in a number of areas related to its behaviors, relationships and work. Stakeholders consider the Bank very responsive and forthcoming with information. In 123 addition, they strongly believe that the Bank gives appropriate priority to growth in Burkina. Overall, the Bank i s viewed as `fairly relevant' inBurkina. Areas for improvement include: - Sectoralactivities: Ratings on some o fthe Bank's key priorities inBurkina, agricultural - productivity, food security, energy security andthe cotton sector are fairly low. Relationships: While respondentsreportedthat they likedto work withthe Bank, their - ratings on whether the Bank treats stakeholders with respect is low. Theway the Bankworks: The Bank is ratedquite low on flexibility, prompt disbursement - o f funds andwhether it works efficiently. The Bank's programmaticrecommendationandstrategies:The survey indicates that - there is concern about how sustainable and realistic the Bank's strategies are inBurkina. Changingtheway the Bankdoes business:The survey results show overwhelmingly that respondents consider obtaining Bank's financing overly complex. Inaddition, more than a thirdo frespondents believe that the Bank would increase its value inBurkina ifits experts had greater knowledge o f challenges that Burkina faces. 124 STANDARD CAS ANNEXES 125 Annex 1:World BankPortfolioand Pipeline Burkina: World BankActive Portfolio, data as of06/15/2009 (inUSDmillion) PostPrimaryEducation 06/20/2006 22.9 9.57 HealthSectorSupportandMultisectoralAIDS Project 04/27/2006 62.7 31.57 Admin CapacityBuilding 03/22/2005 7 2.73 IPower SectorDevelopment 11/30/2004 I 63.6 34.91 -Developmentof 9 1 II II the National StatisticalSystem 03/25/2004 10 0.64 -Transport 10 Sector 04/08/2003 92.1 28.11 -CompetitiveandEnterpriseDevelopment 11 03/04/2003 30.7 12.18 13 Basic EducationSector 01/22/2002 47.6 18.05 14 GEF Sahel Lowland EcosystemManagement 06/22/2004 4.5 0.54 E Public Sector controlinstitutions(IDF) 04/11/2007 0.378 0.226 UrbanWater I1Project 05/28/2009 80 80 IDA Approval IDA UndisbursedAmount of LendingOperations Date Commitments Active Projects West Africa Regionaltransport and Transit Facilitation Project63 02/05/2009 70 42.2 Africa EmergencyLocustProject(R) 12/16/2004 8.4 1.8 West Africa Biosafety(R) 11/13/2007 3.9 3.6 18 West andCentralAir Transport Safety & Security project(R) 11/15/2006 6.5 4.0 126 Annex 2: Summaryof Non-LendingServices As Of Date06/15/2009 Completion Cost Product FY (US$OOO) Audiencea Objectiveb Recentcompletions FSAP 2008 139 G/D/B PS Underway Education Sector Review 2009 212 G/D/B/P WPD Public Expenditure ReviewI 2009 150 G/D/B/P WPD/PS Country Economic Memorandum 2010 244 G/D/B/P WPS Planned Competitiveness & Sustainable Growth Studies 2010 150 G/D/B/P WPDPS PEFA 2010 150' G/D/B/P WPD/PS Public ExpenditureReview I1& Decentralization PolicyNotes 2010 150 G/D/B/P WPD/PS Poverty Assessment 2011 100 G/D/B/P WPD/PS HealthSector Status Report 2012 100 G/D/B/P WPD/PS a. Government, donor, Bank, public dissemination. b. Knowledge generation, public debate, problem- solving. c. Co-financed by other donors. 127 Annex 3: Selected Indicators of BankPortfolio Performance and Management As Of Date 0611512009 Indicator 2006 2007 2008 2009 PorffolioAssessment Numberof Projects Under Implementationa 16 15 14 15 Average ImplementationPeriod(years) 2.6 3.0 3.0 3.7 Percentof Problem Projects by Number 12.5 6.7 0 - 0 Percentof Problem Projects by Amount 15.5 5.7 0 0 Percentof Projectsat Risk by Number a,d 12.5 6.7 0 0 Percentof Projectsat Risk by Amount 15.5 5.7 0 0 DisbursementRatio (percent) 25.2 22.8 19.6 16.7 Porifolio Management CPPR during the year (yedno) Yes Yes Yes Yes Supervision Resources(total US$) $1,191m $1,104m $1,425m $1,129m Average Supervision(UWproject) $107.0 $44.0 $66.0 $81.O Last Five MemorandumItem Since FY 80 FYs Proj Eva1by OED by Number 57 11 Proj Eva1by OED by Amt (US$ millions) 1,416.2 485.1 percentof OED Projects Rated U or HU by Number 26.3 18.2 percent of OED Projects Rated U or HU by Amt 16.8 14.4 a. As shown in the Annual Reporton Portfolio Performance(except for current FY). b. Average age of projectsin the Bank'scountry portfolio. c. Percentof projects rated U or HU on development objectives (DO) and/or implementationprogress (IP). d. As defined under the PortfolioImprovementProgram. e. Ratio of disbursementsduring the year to the undisbursedbalance of the Bank's portfolioat the * beginningof the year: Investmentprojectsonly. All indicatorsare for projectsactive in the Portfolio,with the exception of DisbursementRatio, which includesall active projectsas well as projectswhich exited during the fiscal year. 128 Annex 4: BurkinaFaso at a Glance llt ( 1 3 B t 9 5 -1 1 I 4 i t 3 278 228 26 2 26 A 13 -1 1 89 0 3 i40 5 t 7 5 129 Burkina Faso Balance of Payments and Trade 2000 2008 I Governance indicators, 2000 and 2007 (US$ millions) Total merchandiseexports (fob) 206 676 Total merchandiseimports(cia 413 1,119 Voice and accountability Nettrade in goods and services -436 -1,117 Political stability Currentaccount balance -320 -929 as a % of GDP -12.3 -11.0 Regulatoryquality Workers' remittances and Ruleof law compensationof employees(receipts) 67 50 Controlof corruption Reserves.includinggold 0 25 50 75 100 Central Government Finance 02007 Country'spercentilerank (0-100) 02000 hlpherMIU~S bensrrelinp mply (% of GDP) Current revenue(includinggrants) 13.0 16.2 Soum: Kaufmann-KraayMaStNUzd.WorM Bank Tax revenue 10.6 12.3 Currentexpenditure 10.5 12.6 Technology and Infrastructure 2000 2007 Overallsurpius/deRcit -9.7 -8.5 Pavedroads(% of total) 160 4 2 Highestmarginaltax rate (%) Fixedline and mobile phone Individual subscribers(per 100people) 1 8 Corporate High technology exports (% of manufacturedexports) 3 1 9 8 External Debt and Resource Flows Environment (US$ millions) Total debt outstandingand disbursed 1,422 1,461 Agnculturalland (% of land area) 37 40 Total debt service 47 43 Forestarea (% of land area) 253 248 Debt relief (HIPC, MDRI) 772 603 Nationallyprotectedareas(% of landarea) 154 Total debt (% of GDP) 54.5 21.6 Freshwaterresourcesper capita (cu.meters) 987 646 Total debt service (% of exports) 14.9 5.2 Freshwaterwithdrawal(billioncubic meters) 0 6 Foreigndirect investment(net inflows) 23 26 CO2 emissionsper capita (mt) 006 005 Portfolioequity (net inflows) -3 0 GDP per unit of energyuse (2005 PPP $ per kg of oil equivalent) Composition of total external debt, 2007 Energyuse per capita(kg of oil equivalent) (US$ mMons) IBRD Total debt outstandingand disbursed 0 0 Disbursements 0 0 Pnnopal repayments 0 0 Interestpayments 0 0 US$ millions IDA Total debt outstandingand disbursed 593 468 Disbursements 38 80 Private Sector Development 2000 2008 Total debt sewice 5 4 Time requiredto start a business(days) 16 iFC (fiscalyear) Cost to start a business(% of GNi per capita) 62.3 Total disbursedand outstandingporlfolio 1 3 Time requiredto registerproperty(days) 136 of which iFC own account 1 3 Disbursementsfor iFC own account 0 0 Rankedas a majorconstraintto business 2000 2007 Porlfoiio sales, prepaymentsand (% of managerssurveyedwho agreed) repaymentsfor IFCown account 0 0 Access tolcost of financing 37.0 Electricity 19.6 MlGA Grossexposure 0 46 Stock market capitalization(% of GDP) 3 Bank capitalto assetratio (%) Note:Figuresin italicsarefor years otherthan those specified. 2008 data are preliminary 6/3/09 ..indicatesdata are not available. -indicates observationis notapplicable. DevelopmentEconomics,DevelopmentData Group(DECDG) 130 Millennium Development Goals Burkina Faso With selected targets to achieve between 1990 and 2015 (estimate closestto dateshown, +/- 2 yeam) Goal 1:halve the rates for extreme povertyand malnutrition 19BO IS95 2000 2007 Povertyheadcountratio at $125 a day (PPP, % of population) 71.2 70.0 56.5 Povertyheadcountratio at nationalpovertyline (% of population) 54.6 46.4 Share of incomeor consumptionto the poorestqunitile(%) 5.1 5.9 6.9 Prevalenceof malnutrition(% of childrenunder5) 35.2 Goal 1:ensure that chlldren are able to complete prlmaryschoollng Primaryschool enrollment (net, %) 27 35 47 Primarycompletion rate (% of relevantage group) 19 19 25 33 Secondary school enrollment (gross,%) 6 8 10 16 Youth Iieracy rate (Ohof peopleages 15-24) 20 19 33 Goal 3: elimlnate gender dlsparlty In education and empower women Ratioof girlsto boys in primaryand secondaryeducation(%) 62 70 60 Womenemployed inthe nonagriculturalsector (Oh of nonaghcukuralemployment) 13 Proportionof seats held bywomen in nationalparliament(%) 4 0 15 Goal 4: reduce under.5 mortality by two-thlrds Under-5 mortalityrate (per 1,000) 206 194 194 204 Infant mortalityrate (per 1,000live births) 123 116 116 122 Measles immunization(proportionof one-yearolds immunized,%) 79 43 59 88 Goal 5: reduce maternal mortailty bythree-fourths Maternalmortalityratio(modeledestimate, per 100,000live births) 700 Birthsattendedby skilled healthstaff (% of total) 42 31 54 Contraceptiveprevalence(% of women ages 15-49) 6 13 17 Goal 6: halt and begln to reversethe spread of HlVlAlDSand other major dlseases Prevalenceof HIV (% of populationages 15-49) 1.9 1.0 2.1 1.6 Incidenceof tuberculosis (per 100,000people) 159 156 181 246 Tuberculosis cases detectedunder DOTS (%) 11 17 17 Goal 7: halvethe proportion of peoplewithout sustainable access to basic needs Access to an improvedwater source (% of population) 30 45 54 61 Access to improved sanitationfacilities (% of population) 7 9 11 13 Forestarea (% of total landarea) 26.1 25.3 24.6 Nationallyprotectedareas (% of total landarea) 15.4 C02 emissions (metrictons percapita) 0.1 0.1 0.1 0.1 GDP per unit of energyuse (constant2005 PPP $ per kg of oil equivalent) Goal 8: develop a global partnershlpfor development Telephone mainlines(per 100people) 0.2 0.3 0.4 0.7 Mobile phone subscribers (per 100 people) 0.0 0.0 0.2 10.9 Internet users (per 100people) 0.0 0.0 0.1 0.6 Personalcomputers (per 100 people) 0.0 0.0 0.1 0.6 Educatlon lndlcators (%) Measles Immunization (% of I-year oids) iCT Indlcators (per 100 people) Y loo 1 lo1 25 2000 2002 20M 2wB 2007 -0-Primarynetenmllmentratio 1990 1995 20W 2W7 20w 2002 2w4 2 w m 7 -P-RatioofgirlstoboysInprimaryhsecondary OBurkina Faso USubSaharanAfrica oFked + mobile subscrlbers mlnlemetusers educatlon Note:Figuresin italicsare for years other than those specified. .. indicatesdata are not available. 6/3/09 DevelopmentEconomics,DevelopmentData Group(DECDG). 131 Annex 5: Burkina Faso Social and Economic Indicators Nationalaccounts(as % of GDP at current market prices) Gmrsdomestic pmdun 100.0 1000 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Agriculture' 359 37.1 39.2 37.5 39.1 37.7 37.9 39.1 39.4 40.1 Industry' 23.3 26.8 26.8 27.8 27.5 27.8 30.2 32.5 34.2 35.8 SeNlcesa 48.3 49.3 50.5 53.2 52.30 53.8 55.9 58.0 58.1 58.5 TotalConsumption I010 972 958 982 952 967 951 970 957 93.1 Gmssdomesuc mvestment 138 162 172 156 205 172 195 181 182 19.5 Governmentinvestment 8 2 7 1 6 2 7 8 7 9 84 9 0 6 4 8 6 8.5 Private inveshnent (includesincreaseinstocks) 56 9 1 110 7 7 126 88 105 117 9 5 11.0 ~ ~ p ~(CNFS)~ r t s 9 2 9 0 8 4 109 9 9 115 106 9 3 9 8 12.8 lmpons (GNFS) 240 223 215 247 255 255 248 254 250 27.1 Gross domestic savings -1.0 2.8 4.2 1.8 4.8 3.3 5.3 2.1 2.9 5.2 Gmrsnationalsavings ' 2.6 6.1 8.5 5.0 8.8 7.7 11.2 7.1 8.1 8.8 Memorandum Items Grossdomesticprodun (US$millionat currentpnces) 2815 3270 4333 5034 5436 5778 6767 8102 7849 8377 Realannualgrowthrates (%, calculatedfrom 1999pnces) Grossdomestic pmdunat marketprices 6 6 47 7 3 4 6 7 1 5 5 3 6 5 0 3 5 4 1 GrossDomesticIncome 6 6 4 7 7 3 4 6 7 1 55 4 0 4 5 6 2 6 0 Realannualpercapltagrowth rates ( %calculatedfrom 1999prices) Gmssdomestic productat marketpnces 3.3 1.4 3.9 1.5 4.6 3.1 1.3 2.6 1.2 1.8 Total consumption 6.7 -3.5 5.3 1 -1.7 5.9 0.1 3.8 2.2 1.2 Privateconsumption 7.6 -4.7 6.8 -0.2 -2.5 5.9 -1.2 4.6 2.3 0.9 Balanceof Payments(USSm) Exports(GNFS) 2602 293.8 366.0 548.7 537.1 664.4 710.2 819.6 817.2 932.4 MerchandiseFOB 223.6 245.9 320.3 479.9 469.3 588.8 618.8 713.7 712.5 797.7 ~mports(CNFS)~ -674.9 -730.1 -930.4 -1241.2 -1387.0 -1471.2 -1672.5 -2156.1 -1979.0 -2191.0 MerchandiseFOB 534.5 577.8 702.9 943.7 1026.5 1075.9 1222.7 1618.8 1479.7 1641.3 Resourcebalance -303.7 -302.2 -327.4 -365.4 -447.5 -421.5 -459.6 -6178 -615.5 -560.5 Net currentwansfen (mcludingofficial currenttransfen) 1239 129.7 2112 1915 235.1 255.3 403.8 437.9 404.4 338.7 Currentaccountbalance (after official capitalgrants) -230.9 -227.7 -219.8 -280.5 -334.6 -289.3 -294.5 -457.6 -500.6 -448.1 Netpnvate foreigndirect investment 8.2 13.4 27.3 23.3 34.4 32.6 343.3 177.6 79.3 41.8 Change m reserves 30.7 6 3 365.9 -116.2 -127.0 72.6 317.7 39.8 -50.8 -0.8 Memorandum lfems Resourcebalance (%afGDPatcurrcntmarketpnces) -14.7 -13.3 -13.0 -13.8 -15.6 -14.0 -14.2 -17.4 -16 1 -13.6 a IfGDPcomponentsare estimatedat factnr cost, a foatnoote indicatingtData-YR'fact shouldbe added, b "GNFS" denotes"goods andnonfactorservices." c. Includesnet unrequitedtransfers excludvlgofficial capitalgrants d. IncludesuseoflMF resources 132 Annex 6: KeyExposureIndicators As Of Date 0613012009 BurkinaFaso KeyExposureIndicators - Actual Estimated Projected Indicator 2005 2006 2007 2008 2009 2010 2011 2012 2013 Total debtoutstandingand 2003 1123 1461 disbursed(TDO) (US$m)" Net disbursements(US$m)" 0 0 0 0 0 0 0 0 0 Total debtservice (TDS) 17 17 17 (US$m)' Debt and debt service indicators (%I TDOKGS~ 320.0 137.7 179.1 TDO/GDP 36.9 19.5 21.6 TDSKGS 2.8 2.1 2.0 ConcessionaVTDO 93.0 86.6 83.8 IBRDexposureindicators(%) IBRDDS/publicDS 0.0 0.0 0.0 Preferredcreditor DS/public 78.0 77.0 53.4 DS(%)' IBRDDSKGS 0.0 0.0 0.0 IBRD TDO (US$m)d 0 0 0 Ofwhichpresentvalue of guarantees (US$m) Share ofIBRDportfolio (%) 0 0 0 IDA TDO (US$mld 1043 371 468 IFC (US$m) Loans andguarantees 2.6 2.6 11.2 21.9 14.2 Equity andquasiequity /c 0 0 0 0 11.5 MIGA MIGA guarantees (US$m) 35.4 43.0 44.8 a. Includespublic andpubliclyguaranteeddebt, privatenonguaranteed,use of IMF creditsandnet short- termcapital. b. "XGS" denotes exports ofgoods andservices, includingworkers'remittances. c. Preferredcreditorsare defined as IBRD, IDA, the regionalmultilateral developmentbanks, the IMF, andthe Bankfor InternationalSettlements. d. Includespresentvalue ofguarantees. e. Includesequity and quasi-equitytypes ofbothloanandequity instruments. 133 Annex 7: IBRD/IDA ProgramSummary As Of Date 07/1/2009 IBRDADA Lending Program Fiscal pmj Strategic Rewanls Implementationb year US$(M) b (HAIL) Risks ( H M ) 2009 BF-PRSC8 DPL 100.0 H M BF-PRSC9 DPL 100.0 H M BF: UrbanWater Sector Project 80.0 M L Result 280.0 2010 BF-PRSG10 DPL (last) 70.0 H M BF:Agricultural Productivity& Food Sec. 45.0 H M BF: Growth Poles 70.0 H H Result 185.0 2011 BF- Reproductive Health 10.0 M M BF-PRSG 11 DPL 70.0 H M BF-DecentralizedDevelopment 60.0 H H Result 140.0 2012 BF-PRSCG12 DPL 70 H M BF-Transport Infrastructure 60 H M Result 130 OverallResult 735.0 134 Annex 8: IFC & MIGAProgramSummary As Of Date 06/30/2009 Burkina Faso: IFC InvestmentOperationsProgram (total commitmentsper year) 2006 2007 2008 2009* Commitments(USSm) Gross 2.6 11.22 21.92 25.75 Net** 2.6 11.22 21.92 25.75 Net Commitmentsbv Sector (%l Financial Markets 0 53.50 27.37 0.6 Manufacturing and Services 100 23.97 18.88 13.5 Telecommunications 0 0 53.78 79.5 Infrastructure 0 22.53 0 0 Oil, Gas and Mining 0 0 0 6.3 Total 100 100 100 100 Net Commitmentsbv InvestmentInstrument(%) Loan 96.66 100 100 44.7 Equity 0 0 0 55.3 Guarantee 3.34 0 0 0 Total 100 100 100 100 * As of June 30,2009 ** IFC's Own Account only MIGA Outstanding Exposure(Gross Exposure,$ million) As ofendoffiscal year FY02 FY03 FY04 FYO.5 FY06 FY07 FY08 FYO9 through 31-May Guaranteed Investments into Burkina Faso 0 0 0 35.4 43.0 44.8 3.5 3.3 Guaranteed Investment Financed by Burkinabe Investors 0 0 0 0 0 135 0 0 0 0 0 0 0 0 o o o c o o o c 2 :Ln moat o o o c o o o c o o o c O O C O K c r y 2?2 m o a c r : IOc m b N UYIc m m 0 0 : ~~8 8 00000888E388g0 0 c m g ~ o ~ c m 0 0 0 0 0 0 0 0 0 N N N N N N N N N N N N N N N Annex 11: Joint Bank-FundDebt SustainabilityAnalysis INTERNATIONAL MONETARY FUNDAND INTERNATIONAL DEVELOPMENT ASSOCIATION BURKINAFASO Joint BanMundDebt SustainabilityAnalysis Preparedby the staffs of the International Development Association andthe International Monetary Fund Approved by Carlos A. Primo Braga and Sudhir Shetty (IDA) andMichaelAtingi-Ego andAnthony Boote (IMF) May 20,2009 The debt sustainability outlookfor Burkina Faso is aligned with the results of theprevious debt sustainability analysis @SA) update carried out in November 2008. 52 Despite a clear increase in projected gold exports in 2010, the medium- and long-term export outlook deteriorates slightly because exports of cotton are reduced. Burkina Faso is still classijed as a mediumperformer 53 and the country remains at high risk of debt distress. VII. BACKGROUND 1. The analysispresentedin this documentis based on the stock of BurkinaFaso's debt at end-2007. The stock of debt was established following a creditor-by-creditor and loan-by-loan reconciliation exercise that was carried out in April 2008 and showed a negligible discrepancy betweenthe authorities' and creditors' data. Moreover, the stock of debt at end-2008 has been estimated based on aggregated information provided by the authorities. 2. BurkinaFaso's externaldebt is composed in the largest part by financingfrom multilateralcreditors, which account for almost 80 percent of the total of outstanding loans. The share of the World Bank represents about one third ofthe total, that ofthe AfDB about 15 percent, and that of the IMF about 3 percent. Loans from bilateral creditors represent about 20 percent of the total, of which about 90 percentwere extendedby non-Paris Club creditors. Burkina Faso's loans have long maturities, with an overall grant element which currently stands at about 48 percent and is projected to remain above 35 percent for 52For thejoint DSA fiom April 2008, see EBS/08/136andAnnex 6 inIDA ReportNo. 4033-BF, August 26, 2008; for the DSA update fiom November2008 preparedby Fundstaff, see EBS/08/136. The comparisonto changes since the last DSA refers to the November2008 update, unless otherwise indicated. "Withathree-yearbackwardmovingaverageCPIAfor2005-2007below3.75. 138 the entire projection periodofthe DSA. While there is a gradual decline inthe grant element to about 37 percent by 2028, this is explained for the most part by a shift inemphasis innew lending from multilateral to bilateral creditors. With regard to the composition of external financing, the grant-financing share amountedto 56 percent in2008. 3. Since the transition from a centralized to a market-oriented economy in the early 199Os, BurkinaFaso'sGovernmenthas consistentlydemonstrateditscommitment to stay current on its external payment obligations. This includes the period before the country benefited from debt relief under the Heavily Indebted Poor Country Initiative (HIPC), when the NPV of debt-to-exports ratio was well above 200 percent. The 35 percent concessionality floor is strictly enforced for all central-government foreign-currency borrowings, and projects are consistently scrutinized by a National Public Debt Committee before negotiations are concluded. VIII. UNDELRYING MACROECONOMIC ASSUMPTIONS 4. The medium-termoutlookfor growthis generallyunchangedfrom the previous DSA. Projections for real GDP growth hold over the medium-term, but have been lowered by 1.4 percentage points for 2009 and 1.9 percentage points for 2010 because of the slowdown in global demand, notably in the cotton sector. As a result, nominal GDP projections are slightly lower than inthe previous DSA, but the upwardtrend i s clear for the medium and long term (Figure 1, Panel 1). Real GDP growth is projected to average 6 percent inthe long run, inline with the averagefor the past ten years. Inflation is projected to decline to 4.8 percent in2009,2.3 percent in2010, andto the historical average of about 2 percent in2011. expenditures. While recognizing how the Y) 15 ';::;%y;ppmont., 2w7-28 slowdown in global demand is affecting =-'*.. .............................................. .. -lo .a. public finances, the authorities remain ' 5 committed to a prudent fiscal policy, and tax policy reform is making progress. The long 0 l5 rundeficit is projectedto reach2.5 percent of 10. -5 GDP in 2020 (Figure 1, Panel 3), and external 5 . ULhWInddmgOm6(nght*r*) - -10 financing requirements are to be met equally E lhf14EXdYdlwGrant.(nghtam.) -RWM ...Expndrmnand ExdudmgOR* penms) Net Lending (Ionam) .I5 6. Recentcommodityprice developmentswarranteda revisionof some projections on the external sector compared to the previous DSA. In the near term, the projected 139 decline in cotton prices will be offset by an increase inthe price o f gold and a decline in oil prices, leading to an improvement inthe terms o f trade o f about 10 percent and a narrowing o f the current account deficit. The medium term export outlook has been revised for the following reasons: e Commodity prices: Cotton prices have declined by about 40 percent since their August 2008 peak; they are about 21 percent lower for 2009 and 14 percent lower for 2010 than the previous DSA projected (Figure 1, Panel 5). O n the other hand, gold prices are expected to be about 29 percent higher in 2009 and 27 percent higher in 2010. a Exchangerate: The value o fthe USdollar relativeto the CFA franc has beenrevised upwardby 5.7 percent, which over the medium term reduces the total value inU.S. dollars o f Burkina Faso's exports. e Medium-termexport potential:The first significant change is a downward revision inthe value ofcottonexports basedonlower export prices andthe negative impact on supply o f the increase in cotton inventories globally. Due to the shortage o f arable lands, the share o f cotton exports as a percent o f GDP is projected to decline markedlyover the longterm (Figure 1, Panel 2). The second important change comes from a dramatic increase inthe volume o f gold exports in2010, from 10.5 tons inthe previous DSA to 16 tons currently, because o f the operations over the next ten years o f a new gold mine. While exploration i s underway for additional mines, which could leadto significantly higher gold exports, this i s not reflected inthe assumptions o f the current DSA. A third change concerns the increase from 2015 onward in the exports o f fruits, vegetables and cereals as the authorities' agricultural diversification strategy comes into play. 7. The current accountdeficit is expectedto narrow moderatelyinthe mediumand longrunas the tighter fiscal stance dampens importdemand. Export growth is driven in the medium term by the projected increase in gold exports in2010 and inthe long term by efforts to diversify agricultural production away from cotton and into fruit, vegetables, and cereals. 140 Figure 1. Burkina Faso: Medium-TermFramework,Currentand PreviousDSA Nominal GDP over the medium term has been Whileexports are somewhat lower than in the revised downwards, as a result of lower growth in previous DSA, efforts are underway to diversify the short term. the export base. 4WOO Panel 1: NominalGDP, 2004-28 35000 (US$ millions,unle.( olheW(Ie indioated) 30000 mMnmIK.IPru*,*rn.i&) -wmm ihn 25000 ... PnMcu M A (bn a m ) 2woo 15000 1woo M O O 0 2005 2010 2015 2020 2025 2000 2005 m i 0 2015 2020 2025 Revenue is lower in the near term, but will gradually recover to reach 17percent of GDP, contributing to a reduction in the fiscal deficit over the medium term. Whilelower than expected in 2008, external borrowing requirements for the medium term remain in line with those of the previous DSA. -2 0% 1Panel3: ~veraiiBalance.IncludinoGrants.2007-28 Panel4: ExternalLoan Dlebunements, 0 8% 2007-28 .20 (US millions,~ n b oms~neeindalcd) s 1204- loooI :/t:" ,' .15 0 6% 0 4% 0 2% 0 0% 42% 4 40.4 . . . . . . . . . . ....Prenour.DSA. . . . . . . . (Idmi) -25 2005 2010 2015 2020 2025 2W5 2010 2015 2020 2025 As a result of lower demand at the global level, Notwithstanding better prospects for gold exports, cotton prices have declined markedly compared the long term export outlook is weaker than in the to the previous DSA. previous DSA. Panel 6: Cottonprices Currantand prevlour DSA 5000 2006 2028 (In cenb p r pound) . - cottonpnc.. - 4500 inel 6: Exportsof goodsand services, Currentand pnvlour DSA, 107-28 (in millions of US 5) 70 1 wem?p.QSn .... A'.......... 1 - 4000 . e */ 15% 0 3500 3000 50 . I 25W 40 . 0 2000 30 - s 1500 20 . lo t i" low o l I . , I , I I I , , I . I I I , ,, , I , , , l.2, 2005 2009 2013 2017 2021 2025 ~~ ~~ _ _ _ _ _ _ _ _ _ _ _ _ ~ Sources: Burkinabeauthorities,World EconomicOutlook,and IMF staff estimates and projections. 141 IX. EXTERNALDEBTSUSTAINABILITYANALYSIS 8. There are no significant changes to the indicators compared to the previous DSA (Figure 2). Under the baseline scenario, there i s a slight deteriorationinthe N P V o f debt-to- exports ratio, the only indicator that breaches the indicative thresholds. With the decline in cotton exports over the long term, the ratio peaks at 196.4 percent in 2024, compared to 190.7 percent in the previous DSA. Nevertheless, all other debt indicators remain comfortably below the thresholds. 9. Furthermore, the rate of external debt accumulation under the baseline scenario i s projected to remain manageable. The annual increase inthe NPV of public external debt i s substantially below 3 percent of GDP per throughout the projection period and, notwithstanding a small increase in the medium term, it i s projected to remain at about 2 percent o f GDP. Additional grant financing could improve the debt sustainability outlook significantly. Whereas DSA projections are based on a conservative 50 percent grant- financing share, raising the grant-financing share to 55 percent inthe projection period would lower the peak NPV of debt-to-exports ratio by about 20 percentage points. 10. Stress tests and alternative scenarios show Burkina Faso's debt outlook as vulnerable to large shocks to exports and less favorable financing terms. The NPV o f debt-to-exports and the debt service-to-exports ratios rises and stays above the threshold under some tests. In particular, these ratios are most vulnerable to a scenario o f exports remaining subdued and growing below historical levels (Figure 5). While all the other ratios remain below their indicative thresholds throughout the projection period, stress test show there are,vulnerabilities, in particular to a combination of lower GDP growth and a lower share o f grants in external financing (bounds tests B2 and B5 and alternative scenario A2 in Table 2, respectively). 142 Figure2. Burkina Faso: Currentvs. PreviousDSA Themain risk comes from the NPV of debt-to-exports ratio. Despite an improvement in the near term because of higher gold exports, long term the ratio deteriorates slightly because cotton exports fall. 250 Net pnsent value of debtlexports, 2007-28 (psrmnt) -NPV(EeM)lEvm?e -... -Thrmhdd. Msdiumpdormer Prenoui DSA Basetinew'h PMOYS denominator 2007 2012 2017 2022 2027 The NPV of debt-to-GDP and to-revenue ratios remain comfortably below the indicative thresholds. 50 Net presentvalue of deWGDP, 2007-28 300 45 Net presentvalue of dobtlnvenue, 2007-28 lpsrunt) (psrcem) 250 200 150 20- ................................ 15. 100 -NPVlOebf) IGDP -NPV(Debt)I Revenue8 10. -...PICVIOYI -Threshold. Medurn psdormer 50 -Thmhold- Medum pdormer 5 DSA -...Pr0no"i DSA BardinsHhh prenou8e.3nomlnator -. Basdinewrth prmouidBnOmnator - 0 . . . . . . . . . . . . . . . . . . . . . . . 0 2007 2012 2017 2022 2027 2007 2012 2017 2022 2027 Debt service ratios also remain well below their thresholds. Debtrervlcelexport., 2007-28 Debtrewlcdrevenue, 2007-28 (psrcsnt) lprcsnt) 30 ............................ -. 10 - D e h s e ~ c e I E X p r h -...-mreshdd. .......................... ................. Mcdiurn prformsr ................................ ...........:e Prevloul DSA ,.-. .-,. 0 . . . . . . . . . . . . . . . . . . . . . . . BaselineWh ~ ( M O Y Sdsnorninemr 0 . . . . . . . . . . . . . . . . . . . . . . . 143 X. ALTERNATIVE SCENARIOS 11. How vulnerable is the debt sustainability outlook to further backlash from the current global crisis? The baseline scenario of the DSA assumes (i)a continued improvement inrevenue performance to meet the WAEMU target of 17 percent in2015 and (ii)moderatedecline inthe shareofcottonintotal exportsthat iscompensatedinthe a mediumterm by a significant increaseinthe volume andvalue of gold exports. 12. The alternative scenario assumes a further decline in projected revenue compared to precrisis levels, a worsening of the outlook for cotton, and lower gold prices as the globalrecovery starts to take hold: Revenues are lower by 0.5 percentagepoints of GDP inboth 2010 and 2011, before gradually recovering to their baselinelevelby 2017. Cotton prices are 10percent lower in2010, returning to the baselinein2011. Cotton export volumes are 20 percent lower in 2010, an impact that carries over into the medium and long run as producers diversify away from the sector inresponseto lower prices in2009 and 2010 and declining prospects. Gold prices are 10 percent lower in 2011 and 5 percent lower in 2012 and 2013 before catching upto the baseline level in2014 (Figure 3). 13. The results under the alternative scenario do not foresee a significant deterioration of the debt sustainability outlook, and most debt sustainabilityindicators would be little affected over the long term. The indicators remain below their indicative thresholds for medium performers, with the exception of the NPV of debt-to-exports ratio, which exceeds 200 percent (Figure 4). 144 Figure 3. AlternativeScenariowith Lower Revenuesand Exports:Assumptions Revenue is lower by 0.5 percent of GDP in 2010 and 2011 but gradually recoversto reachthe WAEMU target of 17 percentof GDP in 2017. 18 ITotal Revenue,2005 2028 - .(mprwnt d GDP) 17 . 18 . 15 . 14 . 13 . 80 / Cottonprices. ZOOS 2028 - 300,I - < (csnbp r wund) c, Cottonexports, 2006 2028 (in tillioni of C F W A 250. couon PriC*.. current s c m 2w . COUD" Exporn. 150. 1W . \ / (100". 5 0 1 "" " " "" "" " ' ' ' ' ' I 2W5 2010 2015 2020 2025 2005 2010 2015 2020 2025 The value of gold exports declines as lower prices in 2011-2013 reflect an improvedoutlook for growth internationallyand less uncertainty in financial markets. 1400 Sold prices, ZOOS 2028- Goldexports,2006 -2028 us dO11ars p r ounce) 1200 3w .(~ nhilions of CFAF) 1WO 800 800 400 200 0 2005 2005 2010 2015 2020 2025 I 2010 2015 2020 2025 Sources: Burkinabe authorities and World Bank and IMF staff estimates. 145 Figure4. Alternative Scenariowith Lower Revenuesand Exports: Results If export performanceworsens, the NPV of debt-to-exports ratio would reach 206 percent, exceeding the threshold for strong performers ... 250 Net pmaentvalue of debUExport.,2006-28 (prwnt) 501 -NPV(Debtl - I Expm -Threshold. Msdumprformer,I , , , , , , , , , , , , , . ~ ,, , At tccnario , , , , 0 2007 2012 2017 2022 2027 ... but debt would remainotherwise sustainable ... 300 Net presentvalue of debURevenue,2006-28 Net presentvalue of debUGDP, 2006-28 (p,C*"t) 250 200 150 ................................. 100 -NPV(Detq I Revenues -NPV(DeU) I GDP 50 - 10 -Threshold. Medm prtormsr - -Thr@ihold. Medum prformer ...At IC*"*riO 0 0. . . . . . . . . . . . . . .... . . . . . . . . At lOB"l"0 2007 2012 2017 2022 2027 2007 2012 2017 2022 2027 ... because Burkina Fasowould preserveits capacity to stay current on externaldebt service. \ 10 .......... 5 ........... .-. -oeunMcaIEx~* --Threshold-Medurnpllormii 0. . . . . . . . . . . . . . . . . . . . . . . 0 . . . . . . . . . . . . . ..... . . . . . . . /ut. Ica"."O 2007 2012 2017 2022 2027 2007 2012 2017 2022 202' Sources: Burkinabeauthoritiesand World Bank and IMFstaff estimates. 146 XI. PUBLIC SECTOR DEBT SUSTAINABILITY ANALYSIS 14. The results for the fiscal DSA are similar to those for the external DSA. Domestic debt is low-gross domestic debt is estimated at approximately 2.7 percent o f GDP at end-2008, and net debt at 1.3 percent o f GDP. Moreover, it is assumed to decline further over the projection period as the authorities seek to avoid more costly domestic financing o f the fiscal deficit. As a result, public debt dynamics are largely determined by the evolution o f external debt. 15. Public debt indicators could worsen under some scenarios. The standard sensitivity tests reveal the public debt outlook to be vulnerable to persistent large primary deficits and an unexpected increase indebt creating flows, under which the debt ratios would increase sharply over the projection period. These results highlight the importance to follow prudent fiscal and borrowing policies. Failure to reduce the current deficits would lead to ever-increasing debt indicators; however the authorities are committed to ongoing tax reforms designed to lower the deficit to more sustainable levels. X. CONCLUSION 16. BurkinaFaso's risk of debt distress is highbecause o f the NPV o f debt-to-exports ratio; all other debt indicators remain comfortably below their policy-dependent thresholds in the baseline scenario. Nevertheless, the highrisk o f distress underscores the importance o f limitingexternal borrowing to concessional loans, maintaining a prudent fiscal policy to limit the accumulation o f new debt, including by sustaining the ongoing tax reforms, and making continued efforts to diversify and increase exports. Moreover, the authorities should continue to improve their policy and institutional environment, which over time may result in a higher CPIA rating andhigher debt thresholds. 147 148 i ? ? $ 0 i f ? 190 ' "Q2 OrOYrVrq I r O O N N r N r a I m r c e c f 2 2 2 IC ? m m m m m m 2 2 2 2 2 2 Lo a 4 a 4 a 4 + f E %E? m m a m a m a m m m m m m m i ~ . i c j d u j d 0 VI 3 v) Pv) v) Pv) Pv)v)v)*IC x 'C 8 C 4 'U :2 E> . . a! 2 m m m m m m 4N'tiiujd Figure 5. BurkinaFaso:Indicators ofPublic and Publicly OuaranteedMemalDebt UnderAlternative Scenarios (inpercent),2008-28 1/ 9 NPVofdebt-to-GDPratio 8 ' @ant element (right scale) - 50 7 I ' 35 6 5 4 3 Rate o f debt accumulation - 20 5m 2 10 1 0 0 0 2008 2013 2018 2023 2028 2008 2013 2018 2023 2028 NPVofdebt-to-exports ratio NPVofdebt-to-revenueratio Most extreme shock 300 P 250 lfhr:Sho?d - IIIIIIIII 300 200 L Most extreme shock Historical scenario 50 - Historical scenario 50 t Baseline 0 1 I 0 ' 2008 2013 2018 2023 2028 2008 2013 2018 2023 2028 25 Debt-service-to-evorts ratio 35 Debt-service-to-revenueratio I 20 Most extreme shock I 15 20 25 10 Baseline 15 - 10 - 5 Historical scenario 5 - Historical scenario 0 0 ' 2008 2013 2018 2023 2028 2008 2013 2018 2023 2028 Source: Staffprojections and simulations. 1/ Thresholdsfor mediumperformer. 151 152 H x 3 m Y a 0 cy 6 'C sc r c r a a o a o m v ) r . m o d r r o d dr o d d d d r r r crr w J e Table 4.Burkina Faso:Sensitivity Analysisfor Key indicators of Public Debt 2008-28 Projections 2008 2009 2010 2011 2012 2013 2018 2028 NPV of Debt-to-GDPRatio Baseline 14 17 20 21 22 24 25 28 A. Alternative scenarios Al. Real GDP growthand primary balanceare at historicalaverages 14 18 18 19 21 23 30 45 A2. Primarybalance is unchangedfrom 2008 14 17 19 21 23 25 34 50 A3. Permanentlylower GDP growth 11 14 18 20 21 23 25 30 42 B. Boundtesta 81. Real GDPgrowth is at historicalaverageminus one standard deviationsin 2009-2010 14 17 20 21 22 24 26 28 82. Primarybalanceis at historicalaverageminus one standard deviationsin 2009-2010 14 18 20 21 23 24 28 28 83. Combinationof 81-82 using one half standard deviationshocks 14 17 19 20 22 23 25 28 84.One-time30 percentreal depreciationin 2009 14 23 25 26 27 28 28 30 85. 10 percentof GDP increasein other debt-creatingflows in 2009 14 27 29 30 31 32 32 32 NPV of Debt-to-RevenueRatio 21 Baseline 79 90 102 107 109 113 119 128 A. Alternatlve scenarlos Al. Real GDP growth and primarybalanceare at historicalaverages 79 84 93 98 103 111 142 208 A2. Primarybalance is unchangedfrom 2008 79 87 99 108 111 121 158 233 A3. permanentlylower GDPgrowth 11 79 90 104 110 112 119 138 191 B. Bound testa 81, RealGDP growth is at historicalaverage minus one standarddeviations in 2009-2010 79 89 102 108 109 114 120 130 82. Primarybalance is at historicalaverage minus one standarddeviationsin 2009-2010 79 90 105 110 111 118 121 130 83. Combinationof 81-82 usingone half standard deviationshocks 79 87 99 105 107 112 119 131 64.One-time30 percentreal depreciationin 2009 79 119 131 133 130 133 129 137 85. 10percent of GDP increasein other debt-creatingflows in 2009 79 137 149 152 150 153 151 150 Debt Service-to-Revenue Ratlo 2/ Baseline 4 4 4 4 4 4 5 8 A. Alternatlve scenarios Al. Real GDPgrowth and primarybalanceare at historicalaverages 4 4 2 3 4 5 8 15 A2. Primarybalanceis unchangedfrom 2008 4 4 3 4 5 8 1 0 1 8 A 3 Permanentlylower GDP growth 1/ 4 4 4 5 5 5 7 13 B. Bound testa 81. Real GDP growth is at historicalaverage minus one standard deviationsin 2009-2010 4 4 4 4 4 5 5 7 82. Primarybalance is at historicalaverage minus one standarddeviationsin 2009-2010 4 4 4 5 5 5 5 7 83. Combinationof 81-62 usingone half standard deviationshocks 4 4 3 4 4 5 5 7 84.One-time30 percentrealdepreciationin 2009 4 4 5 5 5 5 8 8 85. 10 percent of GDP increasein other debt-creatingflows in 2009 4 4 2 1 1 1 8 7 7 1 0 Sources: Countryauthorities:and Fundstaff estimatesand projections 11Assumes that real GDP growthis at baseline minusone standard deviationdividedbythe square root of 20 (Le., the length of the projection period). 2/ Revenuesare defined inclusiveof grants. 153 Figure 6.Burkina Faso: Indicators o f Public Debt Under Alternative Scenarios, 2008-28 1/ 60 ~ NPV of debt-to-GDP ratio 50 40 30 20 Y -Baseline 10 ---NoReform Most extreme stresstest 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 250 NPVof Debt-to-Revenue Ratio 21 - 4 - 200 /- //--/ // /-/ 150 - -/*- #- /-/ 100 -Baseline 50 ---NoReform Most extreme stress test 0 . 20 18 ,- 2008 2009 2010 2011 2012 ,2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 Debt Service-to-Revenue Ratio 21 / #- 16 0 0 r' -Baseline #-0 14 ---NoReform / # - 12 --- Most extreme stress test l o - r' #- 8 - 6 - - / 4 - / - - \ - / # - 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 Source: Staff projections and simulations. 11 Most extreme stress test i s test that yields highest ratio in2018. 21 Revenue including grants. 154 Annex 12: CAS Consultations The country team has engaged in extensive consultations during the preparation of the CAS. Consultations involveda four-stage process. 1. In October, a 2 day CAS retreat involving Government, development partners, civil society, media and private sector took place. Participants reviewed performance under the 2006 CAS and agreed upon orientations for the new strategy. 2. Between October and June, a core CAS team consisting of government representatives and Bank staff has convenedregularly to develop the strategy. 3. In March 2009, extensive consultations in Ouagadougou and 8 provinces (Yatenga Sourou SCno Soum Houet KCnCdougou Sissili and Nahouri). Approximately 2000 participants from Government, civil society, rural communities, local municipalities, universities, media, parliament and the private sector were consulted on the strategy's diagnosis of development challenges and the approachand areas of concentration adopted. 4. On 22 May 2009, consultations were conductedwith government Ministers. The approach of the strategy was well-received during the March and May 2009 consultations. Participants agreed that a spatial approach to diversification and growth will enhance impact, but stressed the importance of selecting regions objectively and on the basis of thoroughly researched projections. Participants were also strongly infavor of support to decentralized social service delivery, citing capacity development for communes and direct funding to local communes as priorities. Opinions differed as to the instruments envisaged by the draft strategy. Civil society, local communities and parts of the private sector expressed concern that budget support did not reach intendedbeneficiaries or the private sector. While development partners and government counterparts highlighted the importance of scaling up budget support in the context of the global financial crisis. Overall, the consultations highlighted the importance o f ensuring an appropriate balance between general budget support and project lending, includingdirect support to local communes. The most frequently cited areas for WBG intervention included: Agriculture and livestock:training of farmers, irrigation, agro-processing, access to inputs and finance; access to local and regional markets; land tenure security; diversification into non-traditional products e.g. local native edibleplants Infrastructure: energy and transport costs; rural roads; explore alternative energy sources (solar, nuclear); rail Environmental degradation: natural resource management; disaster risk management; environmental damage causedby cotton production andmining. Cotton: debt relief for farmers; subsidized agricultural inputs; World Bank influence on global commodity price Mining:environmental protection; support to SMEs 155 a Water and sanitation:particularly inrural communities a Education:adopt a global approachwith focus on quality; literacy; and secondary andtertiary education a Food security:cereal banks; storage facilities a Health: education on family planning; geographic access to health facilities; ambulances a Private sector support: focus on factor costs and developing skills in labor market; export promotion; access to finance; source of employment; promote PPPS. a Goodgovernanceand anti-corruption: strengthen oversight institutions a Promotion of women, youth and people with disabilities: revenue generation; education a Promotion of Burkinabe culture a Work more closely with civil society, media andparliament. a Security was raised a concern inrural areas. The consultations highlighted the need for the Bank to adopt a better communication strategy in Burkina Faso. There is generally limited knowledge about the Bank's support. Former structural adjustment policies continue to dominate overall impressions o f Bankperformance inBurkina. The consultations also revealed the need to improve information dissemination on particular projects, avoid overly complex micro-project procedures and enhance monitoring and evaluation of Bank projects in the field through civil society and local community participation. 156 Annex 13: BurkinaFaso: FundRelations BurkinaFaso-IMF Assessment Notefor the WorldBank This note provides an assessment o f recent macroeconomic developments in Burkina Faso and progress under the Fund-supported three-year Poverty Reduction and Growth Facility program (PRGF). This assessment is based on the findings o f the mission for the fourth review that took place inOuagadougou March 18-April 1,2009. RecentEconomicDevelopmentsandProgramPerformance In 2008 and early 2009, Burkina Faso's economy weathered the triple external shocks (oil, food, and the global financial crisis) fairly well. Real GDP growth reached an estimated 5 percent in 2008, supported by a rebound in agricultural production and the opening o f'three new gold mines. With the decline in commodity prices, inflation fell to 6.8 percent year-on-year in March 2009 after peaking at 15.1 percent in June last year. Domestic food prices, however, have declined less than international prices. The trade deficit widened to 11.O percent o f GDP, from 8.8 percent in 2007, because of higher oil imports and lower cotton exports. Despite difficult economic conditions, program performance was broadly in line with objectives. All quantitative performance criteria were met, including the targets for the fiscal deficit, revenues, and social expenditure. However, foreign-financed capital expenditure was some 2% percent o f GDP lower than programmed, mainly due to poor project planning and execution and higher costs that required renegotiation o f loans. Despite progress on preparation for tax policy reform, some delays have occurred because o f late delivery o f technical assistance, inadequate domestic capacity, and the challenging external context. OutlookandPolicyChallenges The global financial crisis influences the near-term outlook and is constraining growth. Monthly trade indicators and trade-related revenues are slackening. While lower prices dampen the outlook for cotton exports, the impact on the balance o f payments will be cushioned by agricultural initiatives, lower oil prices, and higher gold prices. Real GDP growth is projected to decline to 3% percent in 2009. Changes in commodity prices are expected to improve the terms o ftrade and slightly narrow the current account deficit. There are risks to the outlook. Further decline in world cotton prices could threaten the financial stability o f the ginning companies, which would have negative side-effects for the entire economy. A worsening global crisis could also further push down remittances, foreign direct investment, and other financial flows, lowering investment and 157 consumption. An unexpectedly fast global recovery would support a turnaround in BurkinaFaso. Inthis difficult environment, the key challenge is sustain the reform momentum, with a particular focus on fiscal reforms to raise revenues, and growth-enhancing reforms to makethe cotton sector more efficient andthe financial sector stronger. While there is some scope for countercyclical fiscal policy, debt sustainability concerns call for caution, and grant financing will be especially important in the event that downside risks to revenue materialize. Medium-term fiscal consolidation remains necessary to reduce the high risk of debt distress, and while the fiscal deficit on a commitment basis is projected to widen to 5.1 percent of GDP in2009, it should decline to 4.1 percent of GDP by 2011. Preparatory work for tax policy reform is underway with a view to revise the businesstax, streamline tax exemptions, and strengthenVAT. In the cotton sector, though financing for the next campaign has been secured on conditions similar to last year's, the capital base of SOFITEX, the largest ginning company, is eroding, and producer association internal arrears have risen. Reforming the sector is critical if the country's medium-termgrowth and development objectives are to be achieved. The authorities have stressed their commitment to increasing the transparency and efficiency of SOFITEX. Staff encouraged the authorities to work closely with the World Bankand take the necessary steps to increaseproductivity. The financial system has so far weathered the global financial storm, but could be vulnerable to a drying-up of liquidity, an increaseinnonperforming loans as the economy slows, credit concentration, or withdrawal of foreign banks if disruptions in international financial markets should intensify. Better surveillance, supervision, and risk management at bothnational and regional levels are thus essential. Staff encouragedthe authorities to ensure adequate follow up to the financial sector action plan that was submittedto Cabinet inMarch2009. Overall, we believe that the PRGF-supported program will provide a sound macroeconomic framework to guide the authorities' reformefforts. Staff will continue to maintain close coordination with donors. Relationswith the IMF The Executive Board discussion of the fourth review under the PRGF arrangement is scheduled on June 22, and the mission for the 2009 Article IV consultation and fifth review under the PRGF arrangementi s expectedto take place in September. 158 Table 1. Burkina Faso: SelectedEconomicand FinancialIndicators, 2007-1 1 2007 2008 2009 2010 201I Est. ProcI. Proi. Proa. Proi. Proa. Proi. Proi. (Annual percentagechange, unless otherwiseindicated) GDP and prices GDP at constantprices 3.6 4.5 5.0 4.9 3.5 6.0 4.1 5.3 GDP deflator 3.6 5.1 5.9 3.4 3.0 2.1 2.1 2.0 Consumer prices(annual average) -0.2 9.7 10.7 5.0 4.6 2.1 2.3 2.0 Consumer prices(endof period) 2.3 5.5 11.6 3.5 3.3 2.0 2.0 2.0 Money and credit Net domesticassets (bankingsystem) ' -5.5 9.9 16.9 12.1 6.2 8.3 4.4 5.4 Credit to the government' -9.6 1.8 4.2 4.5 -0.9 0.6 0.6 0.0 Credit to the economy 0.6 8.1 14.4 7.6 9.1 7.8 3.8 5.4 Broad money (M2) 22.9 9.8 12.0 6.5 6.7 8.2 6.3 7.4 Velocity (GDPIMP) 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 Externalsector Exports (f.0.b.;valued in CFA francs) -2.9 6.6 -2.8 21.0 13.1 10.1 44.4 6.3 Imports(f.0.b.;valued in CFA francs) 4.1 25.0 17.1 8.2 3.1 3.5 12.6 3.2 Terms of trade -1.4 -3.1 -2.8 12.4 -3.6 -2.6 -1.3 Realeffective exchange rate(- = depreciation) 1.o -0.6 7.0 6.6 ... ... ... ... ..I Worldcotton price (US$ cents per pound) 63.3 75.0 71.4 70.0 55.0 69.0 59.0 61.0 Average petroleum spot price (US$ per barrel) 71.1 99.8 97.0 68.0 52.0 75.0 62.5 67.5 (Percentof GDP, unless otherwise indicated) Central government finances Current revenue 13.6 13.5 13.4 13.6 13.2 14.2 13.8 14.4 Of which: Tax revenue 12.5 12.6 12.3 12.7 12.1 13.2 12.7 13.3 Totalexpenditure 25.8 24.9 22.0 24.5 24.6 24.4 23.8 23.6 Of which: Currentexpenditure 13.9 13.1 12.6 12.4 12.6 12.0 11.8 11.5 Overallfiscal balance,excl. grants (commitments) -12.2 -11.4 -8.5 -10.8 -11.4 -10.2 -9.9 -9.2 Overallfiscal balance,incl.grants(commitments) -5.7 -5.3 -4.5 -4.8 -5.1 -4.4 -4.6 -4.1 Overallfiscal balance, incl. grants(cashbasis) -5.2 -5.5 -4.0 -4.9 -5.3 -4.4 -4.7 -4.3 Domesticfinancing 2.1 1.4 1.1 0.9 1.5 0.1 1.0 0.8 Savlnga and Inveatment Current account balance(including currentofficialtransfers) -8.3 -11.9 -11.o -11.1 -10.0 -10.7 -10.7 -10.3 Current account balance(excludingcurrentofficial transfers) -12.6 -16.0 -14.7 -14.9 -14.0 -13.4 -13.2 -12.7 Gross investment 19.5 19.9 18.1 19.5 18.2 20.0 19.5 20.4 Government 9.0 8.0 6.4 8.5 8.6 8.7 8.5 9.8 Private 10.5 11.9 11.7 11.1 9.5 11.3 11.0 10.6 Gross domestic savings 5.3 2.7 2.1 3.5 2.9 5.4 5.2 6.8 Government 0.8 1.5 2.4 1.7 1.3 2.3 2.3 2.9 Private 4.5 1.1 -0.3 1.7 1.7 3.2 3.0 3.6 Gross national savings 11.2 7.9 7.1 8.4 8.1 9.2 8.8 10.1 Government 4.8 5.3 5.7 5.2 5.0 4.7 4.5 5.0 Private 6.5 2.6 1.4 3.2 3.1 4.6 4.3 5.1 Externalsector and debt Indicators Exportsof goods and services 10.6 10.2 9.3 11.3 9.8 11.7 12.8 12.7 Importsof goods and services 24.8 27.4 25.4 27.3 25.0 26.2 27.1 26.3 Externaldebt 19.8 21.4 20.1 24.4 22.7 26.8 24.0 24.7 NPVof externaldebt 11.6 12.6 11.4 14.8 14.1 16.2 15.5 16.5 NPVof externaldebt (percent of exports) 110.0 123.2 122.6 131.3 144.7 138.6 121.0 130.0 NPVof external debt (percent of revenues) 85.5 93.2 85.1 108.5 106.9 114.4 112.3 114.5 Memorandumitem: NominalGDP (CFAF billions) 3,239 3,549 3,603 3,851 3,844 4,166 4,084 4,388 'Sources:Burkinabeauthorities,and IMFstaff estimates. IMFCountryReport09/38, Percentof beginning-of-periodbroadmoney. 159 Annex 14: Donor CoordinationinBurkinaFaso Since the adoption o f the Paris Declaration in March 2005, the Bank has been working with other development partners to align support with Burkina Faso's priorities and policies (as laid out in the PRSP) and coordinate donor activities to reduce transaction costs andachieve greater results. In2007 the NationalAction Planfor Aid Effectiveness was producedand a coordination body (la Coordination Nationale de 1'EfficacitC de 1'Aide' `CONEA') was established to facilitate aid effectiveness and donor coordination in Burkina Faso. A National Coordinator for Aid Effectiveness was also appointed to act as an interface betweenthe Government and development partners. The Government has recently re-asserted its commitment to leading the aid coordination process, particularly inthe context of the upcoming Accelerated Growth and Sustainable Development Strategy. InApril 2009, the Government released a new Concept Note on Improving Aid Effectiveness which focuses on strengthened government leadership and enhanced mutual accountability. To lower transaction costs and facilitate coordinated development partner monitoring of the PRSP,the Government and development partners have agreed to the formation of a `troika' of donors to lead discussions and represent the developmentpartner community. The Government has also launched the preparation of a study on technical assistance and the national policy on public aid in Burkina Faso. To centralize and monitor systematically the various aid flows, the Government is in the process of establishing an Aid Management Platform based on web technology developed by the Development Gateway Foundation (DGF). This platform will strengthen alignment of donor interventions behind national priorities, improve the predictability of aid flows, support the coordination of assistance by the Government and allow better results monitoringof aid flows. A technical secretariat (STELA) was establishedin2005 to support development partners in aligning behind the country's National Action Plan for Aid Effectiveness and in developing a Joint Assistance Strategy (JAS). While progress has been slow, the development partners have recently renewed their commitment to develop a JAS following the introduction of the next Poverty Reduction Strategy expected in 2010-11. A retreatwill be conducted inFY10to consolidatethe approachof development partners towards aid coordination in Burkina and clarify a country diagnostic in preparation for the development of the PRSP. Development partners have also committed to improving information sharingthrough the Country Analytic Work website. Results from the 2008 Survey on Monitoring Paris Declaration show that the Bank has made substantial progress toward the Paris Declaration targets but more efforts are needed to deepen these achievements. The Bank is on track to meeting the Paris Declaration targets for use of public financial management (PFM) systems and has made progress on increasing lending through Program-Based approaches (PBAs) as well as conductingjoint analytic work. 160 Program-Based approaches (PBAs). Since 2000 the World Bank's Country Assistance Strategies have supported CSLPI and I1 implementation. The CAS 2006-2009 results matrix clarifies the link betweenWorld Bank-supported activities and PRSP objectives. Programmatic approaches have been adopted in the education, health and water sectors, although full fiduciary integration is yet to be achieved due to inadequate country system implementation. Use of nationalfinancial systems. Significant progress in strengthening public finance management has allowed increased use of national PFM systems by the development partners. The 2008 Survey on monitoring Paris Declaration indicates that 58percent of Bank disbursements in 2007 used national PFM systems against 3Opercent for the African countries group that respondedto the survey. The Bank undertook a PERjointly with the African Development Bank, UNICEF and European Union during the CAS period. Reliance on parallel PIUS. The Government and external partners are making some effort to progressively integrate PIUs into country structures. The Bank is increasingly relying on single PIUSto coordinate multiple projects for a sector, including community driven development, transport, water and rural development. The size of PIUs is being progressively scaled down. Their role and functions are shifting from project execution to capacity building and coordination. The Bank has made real progress in integrating project management into existing national structures. The 2008 Survey on Monitoring Paris Declaration shows that 1OOpercent of the Bank-financed projects were integrated into national structures in2008. Coordinated Technical Assistance. A progressive move toward budget support is helping the Government and external partners strengthen coordinated capacity support around country needs and priorities. In January 2005, the Government signed a Memorandum of Understanding for joint budgetary support, the Cadre gCnCral pour l'appui budgCtaire (CGAB), along with nine external partners: the AfDB, France, Denmark, the EC, Germany, the Netherlands,Sweden, Switzerland andthe World Bank. The CGAB provides for coordination of all participating partners' capacity building activities to strengthenpublic financial management. External partnersalso committed to rely on national expertise to conduct analytical work related to public financial management. The Government has recently introduced a new monitoring structure to combine budget support and PRSP monitoring. The World Bank will lead donors as chair o fthe CGAB processinFY10. Joint analytic work. While analytical work i s mostly carried out separately, some effort i s being made to conduct joint analytical work. The 2005 Country Procurement Assessment Review was conductedjointly by the AfDB and the World Bank. AFD and the World Bank also supported two environmental impact assessments in the power sector and relied on them to launch parallel operations. InFY07, external partners also supported the Government in assessing the quality of financial managementthrough the PEFA framework and in FY09 a joint PER i s being carried out on decentralized basic service delivery. 161 B L Q O P P .I Q * 8 ii 0 k c) n L .1 s~ouop30 JaqmnN I SS!MS I uadar I 6uamJaD I I I = I = 0, L + * I E * I I * I * I E / * I l * * I * ** ** : I I m t- Annex 15: CountryFinancingParameters Date: June 15,2009 Item Parameter RemarksExplanation A. Costsharing upto loopercent Bank financing for individual projects may be up to Limit on proportiono findividual loopercent of project costs. This is determined by: (i) project cost that the Bank may the availability ofthe IDA financing envelope; and(ii) finance the prioritization outlined inthe revised PRSP andthe new CAS. Full financing of project costs is expected to be applied selectively, primarily for operations supporting regional HIV/AIDS programs and reform efforts. Cost sharing will likely be the rule in projects with contributionsfrom other sourcesthan Government, co-financing by other donors, and projects with revenue generating and SWAP mechanisms. B. Recurrent costfinancing No country-level Giventhe country's fragile financial situation, the Any limitsthat would apply to the limit Bank will continue to monitor the aggregate fiscal and overall amount o f recurrent debt situation, and its implications for recurrent cost expenditures that the Bank may financing. Inall cases, recurrent cost financing will finance be applied after consideration of sector and project sustainability issues including:( i)institutional arrangementsto allow for greater emphasison sustainability through result-based M&E systems, and strengthening o f capacity at national and local level; and (ii)implied future budget outlays. C. Local costfinancing Yes The criteria for Bankfinancing of local costs are met. Are the requirements for Bank Therefore, the Bank may finance local costs inany financing of local expenditures proportion as needed for individual projects. met, namely that (i) financing requirementsfor the country's development programwould exceedthe public sector's own resources (e.g., from taxation and other revenues) and expected domestic borrowing; and (ii) the financing o f foreign expenditures alone would not enablethe Bank to assist inthe financing of individual projects. D. Taxesand duties None Currently, there are no excessive taxes or duties in Are there any taxes and duties that Burkina Faso. At the project-level, the Bank would the Bank would not finance? consider taxes and duties constitute an excessively highshare ofprojectcosts. 166 IBRD 33379 by The and on the or 14 12 of shown Bank on hcus N° N° imply, territory, Unit produced boundaries, not World fo any The was do The judgment of ec To Dosso Design information ASOF Bank. denominations of endorsement map any map Map other this part status any This the World colors, any on the Group, legal or antpecca boundaries. 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