Africa > West Africa > Burkina faso > Burkina Faso Financial Sector Profile

Burkina Faso: Burkina Faso Financial Sector Profile

2015/08/10


Volatile but generally high GDP growth

Volatility in GDP stems from dependence on rain-fed agricultural output and on the vagaries of internationally-determined commodity prices, particularly cotton and gold. Increase of GDP accelerated in 2012, to +8.7% (+5.1% in 2011). Gold mining was a key driver of economic increase (on average, international gold prices were up +6.2% in 2012, compared with 2011) but part of the positive boost in 2012 resulted from a rebound in agricultural output and, in turn, this reflected relatively good weather conditions (and an improved harvest) inclunding government support for the sector. In 2013, gold prices were down -15% but GDP still recorded increase of +6.5%. Although there is some uncertainty in relation to the course of gold prices (they have fallen further in H1 2014), the government has tentative plans to re-open the Poura gold mine, the country’s oldest, and to further exploit new mines, inclunding at Houndé. Some of these new developments may not come on-stream until 2015 but mining activity will continue to spur in general increase and EH forecasts GDP expansion of +6% and +6.5% in 2014 and 2015, respectively. The IMF agreed an Extended Credit Facility (ECF) in December 2013 and such support continues through to the end of 2016.

Domestic support through regional collaboration…

Membership of a regional economic bloc, UEMOA, with a common banking and financial structure, provides support and relative monetary stability. The CFA franc issued by the Central Bank of West African States (BCEAO) is pegged to the euro at a rate of 655.96 francs/euro and, in result, is backed by the French treasury. This arrangement has served to help keep inflationary pressures relatively low. The rate of inflation this year and in 2015 is estimate to remain at around 2%, on average, compared with the regional agency’s target of 3%. Transfer/inconvertibility risk remains mitigated by membership of the CFA franc zone and EH does not expect that there will be a significant change within the regional system within the estimate period.

…and this extends to the external sector

External liquidity as well has a degree of support, although current account deficits are likely to remain large (-8.1% of GDP in 2014 and -7.7% of GDP in 2015, compared with an annual average -13.8% in 2000-08) and this will require action at a national level to manage. Current account deficits half reflect high import costs because of the country’s landlocked position and its dependence on inflows of energy (oil accounts for around 18% of the import bill). Even so, the external accounts have improved through foreign deficit relief, with significant write-downs in 2002 (Highly Indebted Poor Country initiative) and in 2006 (Multilateral Deficit Relief initiative), so that the external debt/GDP ratio is presently a additional comfortable 23% (estimate for 2014). FX reserves have increased in recent years and import cover of around four months (2014) compares relatively favourably with an international benchmark of three months. The government acknowledges some of the problems that businesses have in trading with the country—these include transport and other infrastructure issues, half relating to the landlocked nature of the country. Accordingly, the government is trying to relieve the cost and difficulties of doing business with Burkina Faso. However, the country continues to rank lowly in international surveys of business conditions.