Economic Analysis
Burkina Faso

Burkina Faso

Population 19.2 million
GDP per capita 655 US$
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Synthesis

major macro economic indicators

  2016 2017 2018 (e) 2019 (f)
GDP growth (%) 5.9 6.4 6.0 6.0
Inflation (yearly average, %) -0.2 0.4 1.3 2.0
Budget balance* (% GDP) -3.4 -7.7 -5.0 -3.1
Current account balance (% GDP) -7.1 -7.9 -8.6 -7.5
Public debt (% GDP) 38.3 38.3 41.0 41.3

 

(e): Estimate. (f): Forecast. *Grants included.

STRENGTHS

 

  • Major producer of gold (4th in Africa in 2017) and cotton (2nd in Africa in 2018)
  • Member of the West African Economic and Monetary Union (which ensures the stability of the CFA franc, fixed parity against the euro)
  • Supported by the international financial community (one of the first countries to have benefited from the HIPC initiative)

WEAKNESSES

  • Economy highly exposed to weather events
  • Size of the informal sector
  • Vulnerable to movements in cotton and gold prices
  • Heavily dependent on foreign aid
  • Weak electricity infrastructure
  • Demographic pressures, high poverty rate, very weak human development index

Risk assessment

Public investment is fueling growth with little diversification

The third year of implementation of the National Economic and Social Development Plan (PNDES) is expected to foster dynamic growth in 2019 through public investment, aimed at addressing the infrastructure deficit. The gold sector, another economic driver of the country (12% of GDP and more than 60% of exports), will experience an increase in its production in 2019, in particular thanks to the launch of commercial production at the Boungou mine in September 2018. Largely financed and operated by foreign private investors (Canadian SEMAFO for Boungou), the sector could, however, suffer from the fragile security environment (frequent kidnappings from mines), as well as from possible gold price fluctuations in 2019. Cotton production (the second largest export) is expected to increase by about a third (200 thousand tonnes), after the country lost its status as the leading African producer (to Mali) in 2018 due to harsh weather conditions. The sector is expected to benefit from higher prices resulting from lower production and rising global demand, as well as from the quality of its (GMO-free) cotton fibre. PNDES investments also aim to develop the agri-food and textile sectors with the aim of moving the country's economy, mainly production-oriented, towards the processing of agricultural raw materials, with a processing target of 25% by 2020. With this in mind, the artisanal cotton processing plant in Bobo-Dioulasso is expected to open in 2020, thanks to the mobilisation of a PPP. This method of financing responds to the government's desire to increase the contribution of private investment to growth in 2019. The increase in agricultural income (80% of the working population), as well as inflation control, should allow private consumption (more than half of GDP) to grow.

The desire to consolidate the public accounts in the face of cyclical risks

The budget deficit is expected to continue to decline in 2019 in order to move closer to the WAEMU convergence criteria, which sets a maximum of 3%. The slight increase in the amount of tax revenue will be due to the increase in certain taxes (tobacco, beverages), the increase in the tax burden rate to 20.2% presented in the budget, and the introduction of more efficient collection methods, among other measures. However, the high level of investment and current expenditure linked to the economic situation (fight against terrorism, social crisis) generates a high level of public expenditure (around 28% of GDP, IMF estimates for 2019) despite an expected slight decrease, jeopardising compliance with budgetary commitments.

The increase in gold and cotton production, as well as the increase in the latter's price, should offset the rise in oil prices (15% of imports), leading to a reduction in the trade deficit, which is highly dependent on commodity prices. At the same time, the services deficit (-7.2% of GDP in 2017) and remittances from expatriates (3.5%) are expected to remain at levels broadly similar to those of 2018. As a result, the current account deficit is expected to improve slightly, partly financed by the extended credit facility of €135 million granted by the IMF in March 2018. The improvement in the current account and the increase in grants should allow a slight reduction in the external public debt (24% of GDP).

A fragile security context and a tense social situation

Security will remain the main challenge facing President Kaboré and his government in 2019. The year 2018 saw an increase in attacks by Islamist terrorists, including that of Ouagadougou on March 2, which killed 30 people. The slow establishment of the G5 Sahel force, and its difficulty in financing, suggest that the unrest will not be resolved in 2019. In 2017, the government launched the Sahel Emergency Plan, which will run until 2020. The objective of this program, which costs around €700 million, is to provide a social response by developing public infrastructure (schools, administration, etc.) in the regions affected by terrorism, which are the poorest. In addition, the country has launched a new business environment steering and monitoring committee to improve poor performance (151st in the “Doing Business”, down three places compared to 2018) and the government hopes to see the first benefits as early as 2019.

With this hostile situation, the constitutional referendum of March 2019, which includes an amendment to limit the length of a presidential term to two consecutive terms of five years (10 years in total), will constitute a full-scale test for the executive as the next presidential elections in 2020 approach, when Roch Marc Christian Kaboré will run for his own succession. In addition, in May 2018, the country definitively severed its diplomatic ties with a historical ally: Taiwan. As a result, China reopened its embassy in Ouagadougou, which has been closed for 24 years. This augurs an increase in “political, diplomatic and economic” relations according to the Minister of Foreign Affairs, starting with an increase in trade and the release of funding for the G5 Sahel force.

 

Last update: February 2019

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