INTERNATIONAL DEVELOPMENT ASSOCIATION INTERNATIONAL MONETARY FUND BURKINA FASO Joint Bank-Fund Debt Sustainability Analysis – 2018 Update Prepared jointly by the staffs of the International Development Association (IDA) and the International Monetary Fund (IMF) Approved by Paloma Anos-Casero (IDA and Dominique Desruelle (IMF) This joint World Bank/IMF Debt Sustainability Analysis (DSA) has been prepared in the context of the 2018 Article IV consultation and first review of the three-year program supported by the IMF’s Extended Credit Facility (ECF). It is based on end-2017 debt data and the latest methodology underpinning the LIC DSF, which triggered an improvement in debt indicator thresholds.1 External risk of debt distress in Burkina Faso remains moderate. All external debt indicators remain below the relevant indicative thresholds under the baseline scenario. In line with the Staff Report, the baseline scenario is anchored on an overall fiscal deficit of 3 percent of GDP from 2019. In a customized scenario meant to illustrate fiscal and external risks, two thresholds are breached. The overall public debt does not breach the relevant benchmark in the baseline and Burkina Faso is assessed as having a moderate risk of public debt distress, as the external debt risk rating is moderate. Burkina Faso would need to: (i) maintain a sound macro-fiscal framework; (ii) implement structural reforms to diversify its export base; and (iii) limit non-concessional borrowing to prevent a deterioration of its debt sustainability outlook. 1 Burkina Faso’s Composite Indicator (CI) index, calculated based on the April and October 2018 WEO, is 3.0 52. Countries with a CI larger than 3.05 are classified as having a “strong” debt carrying capacity. BACKGROUND ON DEBT 1. Burkina Faso’s public and external debt levels have increased in the last few years following consecutive years of Table 1. Burkina Faso: Public Debt Stock, 2014-17 widening fiscal deficits (Text (percent of GDP) Table 1). The nominal stock of Share 2014 2015 2016 2017 (2017) public debt as of end-2017 stood Public Debt 29.9 35.6 39.2 38.4 100.0 at 38.4 percent of GDP. As in External Debt 23.0 26.3 27.8 24.1 71.1 Domestic Debt 6.8 9.3 11.3 14.3 28.9 previous DSAs, the composition of debt has continued to shift Memorandum items: Overall fiscal balance -1.9 -2.2 -3.5 -7.8 towards domestic debt, as the GDP growth (in percent) 4.3 3.9 5.9 6.3 regional market has traditionally Sources: Burkinabe authorities; and IMF staff estimates. been willing to finance the fiscal deficit at competitive rates. External debt comprised 71 percent of the total debt stock at end-2017, down from 77 percent at end-2014, unchanged from the previous DSA. 2. The country’s coverage of public debt is currently limited to external and domestic obligations of the central government (Text Table 2). According to information provided by the authorities, the two main state-owned enterprises that are majority owned by the public sector do not borrow externally.2 The authorities have recently been pursuing public-private partnerships (PPPs), some of which may have components that would need be classified as debt, depending on the financing package that is eventually agreed upon. 3 Domestic debt is defined as debt denominated in the regional currency, the CFAF. The choice of coverage based on currency, rather than residency is due to the difficulty of monitoring the residency of creditors for debt traded in the WAEMU regional market. 2The two public enterprises are SONABHY, the state-owned oil-importing company, and SONABEL, the electricity company. Under the new ECF-supported program, it is envisaged that a financial audit of SONABHY will be conducted in order to—among other things—corroborate this information. 3 Staff is working closely with the authorities to assess the potential fiscal and debt effects of these projects, and to determine whether they need to be included in the debt stock. 2 Table 2. Burkina Faso: Coverage of Public Sector Debt Subsectors of the public sector Sub-sectors covered 1 Central government X 2 State and local government 3 Other elements in the general government 4 o/w: Social security fund 5 o/w: Extra budgetary funds (EBFs) 6 Guarantees (to other entities in the public and private sector, including to SOEs) 7 Central bank (borrowed on behalf of the government) 8 Non-guaranteed SOE debt BACKGROUND ON MACRO FORECASTS 3. Text Table 3 and Box 1 summarize the main differences in macroeconomic assumptions between the previous full DSA (February 2018) and the current DSA. Burkina Faso’s future small deficits abide by the WAEMU convergence criterion, consistent also with the authorities’ commitment in the new ECF-supported program. While gold price forecasts remain slightly below the estimates for the previous DSA, they maintain an upward path amid continued robust expansion in the domestic gold sector. Prospects for Burkina Faso’s other main commodity export, cotton, benefit from a slight increase in future prices and solid prospects for improved production and quality; the latter should allow eventually for a higher international price per ton of cotton exports. Table 3. Burkina Faso: Changes in Assumptions for Current DSA compared with February- 2018 DSA 2017 2018 2019 2020 2025 2028 est. Current DSA (WEO) 1,257 1,261 1,218 1,255 1,382 1,382 Gold (USD/ounce) Feb-2018 DSA 1,257 1,344 1,378 1,418 1,513 1,513 Current DSA (WEO) 84 93 91 87 83 83 Cotton Prices (cts/lb) Feb-2018 DSA 84 92 85 83 83 83 Current DSA (WEO) 24.7 23.5 23.1 22.1 16.2 14.4 Exports of goods (% of GDP) Feb-2018 DSA 24.1 22.2 21.4 20.8 18.7 18.9 Current DSA (WEO) 6.3 6.0 6.0 6.0 6.0 6.0 Real GDP Growth (y/y) Feb-2018 DSA 6.4 6.0 6.0 6.0 5.4 5.3 Current DSA (WEO) -9.7 -8.1 -8.3 -7.0 -9.5 -10.6 Current Account (% of GDP) Feb-2018 DSA -8.4 -8.0 -7.0 -7.1 -7.7 -7.3 Overall Fiscal Balance Current DSA (WEO) -7.8 -4.7 -3.0 -3.0 -3.0 -3.0 (% of GDP) Feb-2018 DSA -8.2 -5.0 -3.0 -3.0 -3.0 -3.0 Sources: IMF staff estimates and World Economic Outlook projections. 4. The realism tools suggest that the baseline scenario is credible when compared to cross- country experiences and to Burkina Faso’s own historical experience (Figure 3 and 4). 3 5. Figure 3 points toward small differences between past debt creating flows and projected ones. The contributions of past debt creating flows remain relatively the same for the projection period, and unexpected changes in public debt are near the median of the distribution across low-income countries. The larger increase in overall public debt is mainly the result of unusually large fiscal deficits in 2016 and 2017. 6. Figure 4 shows the country's planned fiscal adjustment for the next 3-years at around 5 percent of GDP. Again, this reflects the historically unusually high fiscal deficit of 7.7 percent of GDP in 2017. A narrowing of the deficit to 3 percent of GDP by 2019, as assumed under the ECF-supported program thus represents a return to historical norms. 7. Figure 4 also shows the potential impact of the projected fiscal adjustment on the possible growth path assuming a range of fiscal multipliers. While the fiscal deficit is expected to adjust to 3 percent of GDP by 2019, growth performance is expected to stabilize at 6 percent, slightly above its potential under a range of plausible fiscal multipliers, reflecting the considerable resilience of the Burkinabe economy observed recently, as well as the uncertainty about and lags in the impact of fiscal multipliers and the contribution of private investment. 8. This DSA assumes continued modest use of non-concessional financing over the forecast horizon. Text Table 4 and Text Table 5 list the projects for which the authorities are seeking external loans in 2018 and 2019. The actual amount of new loans contracted, particularly non-concessional loans, will fall well short of the targeted amounts. Previous experience has shown that the borrowing plan has an aspirational element in it. The DSA includes both already- contracted and anticipated borrowing on a disbursement basis. The authorities debt strategy favors exhausting all options for concessional financing before exploring more expensive commercial options. Nevertheless, since financing needs exceed the amount of expected available concessional financing, this DSA assumes that non-concessional borrowing will continue at modest levels (on average around 20 percent of total external borrowing but a growing share over time) through the DSA horizon. Consistent with this and the assumption of a shrinking concessional financing to GDP ratio going forward, the grant element of new borrowing is assumed to decrease gradually over the forecast horizon from 40 percent on 2018 to 34 percent in 2028. 4 Box 1. Macroeconomic Assumptions Underlying the DSA Gold and cotton prices have remained relatively stable at levels profitable for Burkinabé exporters. WEO gold price projections have been lowered slightly since the last DSA, but they remain well above their cyclical lows. WEO cotton price projections have improved since the previous DSA, and price prospects for cotton exports are tilted to the upside given the traditionally high-grade quality of the export. Gold production is expected to rise steadily over the medium term, as new mines complete the development stage and begin to export, and demand for new prospecting licenses remains strong. The coming on stream of new gold mines and upward revisions in estimated gold reserves anchor the outlook for the sector. GDP growth assumptions are somewhat higher than the baseline forecast of the last DSA, reflecting resilience in the face of external shocks. Yet, significant risks to the downside remain due to the intensification of security challenges and increased vulnerabilities to commodity price shocks. The overall fiscal deficit (including grants) increased significantly in 2017 because of higher recurrent spending levels and a significant scaling up of domestically-financed public investment. In the context of the new 2018- 2020 ECF program, the authorities have reiterated their commitment to the WAEMU convergence criteria and place importance on meeting the fiscal deficit and debt criteria. The authorities are also committed to improving domestic revenue mobilization —through new tax policy measures and steps to broaden the tax base—, containing current spending particularly related to fuel subsidies, and to moderating investment levels, including by improving investment selection and execution, to narrow the fiscal deficit to the 3 percent of GDP target by 2019. This DSA, like the previous one, assumes the authorities are successful in reaching the 3 percent fiscal deficit target by 2019 and maintaining it at that level thereafter. Domestic debt is assumed to continue to increase consistently throughout the forecast horizon, reflecting the authorities’ large financing needs over the medium-term, as well as efforts to deepen the domestic financial market, especially the regional debt market. In 2018, domestic debt is expected to be around 18.6 percent of GDP, reaching 22 percent in 2028. In the medium term, the composition of domestic debt is assumed to be 25 percent of 1-year maturity bills, and 75 percent of 1 to 3-year bonds. An average interest rate of 6.5 percent is assumed. The remainder of the deficit (about one-third) is assumed to be financed via external debt, but on gradually less generous terms to reflect additional non-concessional financing and conservative assumptions about the availability of concessional financing in future years. The current account deficit is estimated to reach 8.1 percent of GDP in 2018 but is then projected to settle around 7 percent of GDP in 2020 as new gold mines begin to export and public investment is rationalized to a sustainable level. Upside and downside risks to the current account include: volatility in key exports (e.g. gold, cotton) and imports (e.g. oil, fuel, machinery); upward statistical revisions to the balance of payments data to increase the production (and export) of artisanal gold; and a deterioration in the security environment in the Sahel region. 5 Table 4. Burkina Faso: Planned Concessional and Non-Concessional Borrowing in 2018 Financing Requested (CFAF billion) N° Name of project Area PTF Non Satus of the conventions Concessional concessional Total Situation at 2018 Project to strengthen community road Cu2a section 1 Road infrastucture Japan 28.63 28.63 Signed on March 02 2018 Gounghin-Fada N Gourma 2 Interconnexion project (North Backbone) Electricity BAD 27.74 27.74 Signed on March 14 2018 3 Contract farming and ecological transition (PATCE) Agriculture AFD 6.5 6.5 Signed on March 29 2018 Project to build and equip a student residence OFID 8.4 Signed on April 2018 4 Higher education 14.65 (Norbert Zongo de Koudougou University) BADEA 6.25 Signed on January 20 2018 5 Additional financing of Bagrépole Agriculture IDA 25 25 Signed on May 11 2018 Regional support project for the initiative for 6 Agriculture IDA 12.5 12.5 Signed on May 11 2018 irrigation in the Sahel (PARIIS) Additional Financing for the West Africa Regional 7 Telecommunications IDA 10 10 Signed on May 11 2018 Communication Infrastructure Project (PRICAO-BF) 8 PADEL Local development WADB PM PM Signed on May 31 2018 (30) 9 Bangr Wéogo Sanitation WADB PM PM Signed on May 31 2018 (10) Commerz 10 CHU Bassinko Health 46.05 46.05 Signed on June 4 2018 Bank/Belgium 11 Water and sanitation program Water and sanitation IDA 150 150 Signed on August 21 2018 12 Reproductive health Health IDA 55 55 Signed on August 21 2018 13 Higher education support project Higher education IDA 38.8 38.8 Signed on August 21 2018 14 Energy sector reform support project Energy BAD 7.67 7.67 Signed on August 28 2018 15 BackBone Project NTIC Bank Of China 43.32 43.32 Signed on September 2 2018 16 STFL Commerce 4.7 Signed on October 19 2018 Support Project for Youth Employment & Skills 17 Youth employment ADB PM PM October Development Project in Rural Areas (PADEJ-MR) 18 Hydromet-Burkina Change IDA 4.25 4.25 Signed on October 26 2018 Signed on October 26 2018 19 Community road cu2a, Road infrastructure BAD PM (18,37) Project on the construction and paving of national FKDEA, OFID, 17 Road infrastructure 10 17.75 27.75 Signature to be programmed road n° 10 between Tougan and Ouahigouya (96 km) BADEA, 18 Credit line Microfinance BADEA 10 10 Signature to be programmed Decentralized Rural Electrification Project in 42 19 Energy FADD 5 5 Signature to be programmed localities 20 Interconnection project (North Backbone) Electricity IDA 90 90 Signature to be programmed Negotiated on October 11 21 Project on the creation of the Agricultural Bank Finance BAD 8.5 8.5 2018 Project on the sustainable intensification of agriculture 22 Food security IDA 40 40 In the process of negotiatiation for food and nutritional security +WATP Project to build 27 drinking water supply systems 23 Water and sanitation Belgium 9.8 9.8 Discussion underway (AEP) in the Center East Contribution to the ONEA 2018-2019 Investment 24 Water and sanitation AFD 21 21 Discussion underway Program Final assessment announced 25 Dangoumana Hydro-Agricultural Development Project Agriculture BID 16.5 16.5 for October 2018 Sub-total 2018 602.69 100.67 698.66 6 Table 5. Burkina Faso: Planned Concessional and Non-Concessional Borrowing in 2019 Financing Requested (CFAF billion) N° Name of project Area PTF Non Satus of the conventions Concessional concessional Total Situation in 2019 Construction and equipment of UFR and university 1 residences for the Dori and Tenkodogo university Higher education BADEA 26.7 26.7 centers Integrated Development Program for the Samendéni valley phase II (PDIS II): Development of irrigated Agriculture and 2 BID 12 28 40 perimeters component and recalibration of the agricultural schemes Mouhoun 3 Program for agricutural development and competivity Food security IDA 100 100 4 Support program for the promotion of growth poles Economy BAD 50 50 Call for studies AFD 23 23 Evaluation conducted in 5 "YELEN" solar project Energy ADB 48.85 48.85 September Project for the extension of the Zagtouli solar power 6 Electricity EIB 15.09 15.09 plant Banque 7 Bobo abattoir construction project Animal resources publique 10 10 italienne Orodara-Banfora–Border with Cote d’Ivoire road 8 Road infrastructure Japan 71.13 71.13 construction project Hydroelectric and 9 OUESSA hydro-electric and hydro-agricultural India 110 110 irrigation Improvement of urbain mobility in Ouagadougou, 10 Transport Sweden/France 134 134 combatting air pollution and poverty 11 Projet SMART City Security China 166 166 12 Establishment of a cotton processing unit par ASTAR Agroindustry ADB 30 30 Rainfed Rice Project Phase V (Projet de Agriculture and 13 China 40 40 Développement de la Riziculture) agricultural facilities Construction of 1000 school complexes with 3 14 Education China 42.13 42.13 classrooms to replace thatched roofs Project to reinforce drinking water supply systems in the cities of Pouytenga, Koupéla, Bogandé, Boulsa, 15 and Zorgho drawing on the Bilanga dam, and in the Potable water China 90 90 cities of Tenkodogo, Garango, Bittou and Bagré drawing on the Bagré dam+B21 16 General Budget Support from the World Bank Public Finance IDA 27.5 27.5 In the decision phase Subtotal 2019 745.70 278.75 1024.45 9. The authorities have been in discussions with a private international consortium about a budget support loan of €1.5 billion. This potential concessional loan—which is currently not reflected in the baseline scenario—assumes the proceeds would be used for debt management purposes and would replace other past and planned domestic borrowings. If this loan were to materialize, it would contribute to lower costs (through lower interest rates) and risks (lower rollover risk owing to a longer maturity) of the domestic debt that it will replace, but exchange rate risks would rise. This loan would not increase the authorities’ spending capacity as that would still be constrained by the overall program deficit targets of 4.7 percent of GDP in 2018 and 3 percent of GDP in 2019 and beyond. 7 COUNTRY CLASSIFICATION AND DETERMINATION OF STRESS TESTS A. Country Classification 10. Burkina Faso’s current debt-carrying capacity is consistent with a classification of ’strong’ (Text Table 6). 4 The country’s Composite Indicator (CI) index, calculated based on the October 2018 WEO, is 3.052, that is marginally above the “strong” threshold of 3.05. The relevant indicative thresholds for this category are: 55 percent for the PV of debt-to-GDP ratio, 240 percent for the PV of debt-to-exports ratio, 21 percent for the debt service-to-exports ratio, and 23 percent for the debt service-to-revenue ratio. These thresholds are applicable to public and publicly guaranteed external debt. The benchmark for the PV of total public debt for medium debt carrying capacity is 70 percent of GDP. Text Table 7 shows the change in thresholds under the new Debt Sustainability Framework. Table 6. Burkina Faso: Debt Carrying Capacity and Relevant Indicative Thresholds Debt Carrying Capacity Strong Classification based on Classification based on Classification based on the Final current vintage April WEO two previous vintages Strong Strong Strong Medium 3.05 3.06 3.63 EXTERNAL debt burden thresholds Weak Medium Strong PV of debt in % of Exports 140 180 240 GDP 30 40 55 Debt service in % of Exports 10 15 21 Revenue 14 18 23 TOTAL public debt benchmark Weak Medium Strong PV of total public debt in percent of GDP 35 55 70 4 Based on the revised “Guidance Note on the Bank-Fund Debt Sustainability Framework for Low-income Countries” (http://www.imf.org/en/Publications/Policy-Papers/Issues/2018/02/14/pp122617guidance-note-on-lic-dsf). Under the previous debt sustainability framework, Burkina Faso was classified as having a ‘medium’ debt-carrying capacity. 8 Table 7. Burkina Faso: Debt Thresholds for Countries with Strong Debt-Carrying Capacity Previous DSF New DSF External debt burden thresholds PV of debt in % of Exports 200 240 GDP 50 55 Debt service in % of Exports 25 21 Revenue 22 23 Total public debt benchmark PV of total public debt in percent of GDP 74 70 B. Determination of Scenario Stress Tests 11. Given the limited coverage of the country’s public debt, a stress test for a combined contingent liability shock of 9.7 percent of GDP was conducted (Text Table 8). State-owned enterprise debt of 4.7 percent of GDP is included as additional public debt to reflect potential domestic liabilities of mainly the two main public companies (SONABHY and SONABEL). No shock is used for PPPs, as the stock is still less than 1 percent of GDP. The default value of 5 percent of GDP is retained, representing the average cost to the government of a financial crisis. The authorities have created a database of all existing formal sovereign guarantees, and of all projects signed or planned as PPPs. They are currently working on auditing SONABHY. This work will allow the coverage of the country’s debt in the baseline scenario to expand in future DSAs. Table 8. Burkina Faso: Combined Contingent Liability Shock 1 The country's coverage of public debt The central government Used for the Default analysis Reasons for deviations from the default settings 2 Other elements of the general government not captured in 1. 0 percent of GDP 0.0 3 SoE's debt (guaranteed and not guaranteed by the government) 1/ 2 percent of GDP 4.7 SONABHY, SONABEL, and other SOEs 4 PPP 35 percent of PPP stock 0.0 5 Financial market (the default value of 5 percent of GDP is the minimum value) 5 percent of GDP 5.0 Total (2+3+4+5) (in percent of GDP) 9.7 1/ The default shock of 2% of GDP will be triggered for countries whose government-guaranteed debt is not fully captured under the country's public debt definition (1.). If it is already included in the government debt (1.) and risks associated with SoE's debt not guaranteed by the government is assessed to be negligible, a country team may reduce this to 0%. 12. A tailored stress test for commodity price shocks was also conducted given that commodities constitute around 70 percent of total exports in Burkina Faso. This shock is applied to all countries where commodities constitute more than 50 percent of total exports of goods and services over the previous three-year period. The scenario captures the impact of a sudden one standard deviation decline in the export prices of gold and wheat in 2019, corresponding to a decline in prices by 13 percent and 6 percent, respectively. 9 DEBT SUSTAINABILITY A. External Debt Sustainability Analysis 13. Under the baseline scenario, all external public and publicly-guaranteed (PPG) debt indicators remain well below the policy-relevant thresholds for the next ten years (Figure 1). Having a 55 percent threshold, the PV of debt-to-GDP ratio is expected to remain below 18 percent over the projection horizon, decreasing from 16 percent in 2018 to 13 in 2028. The PV of debt-to- exports ratio is expected to grow gradually from 58 percent in 2018 to 71 percent in 2028 yet remain well below the 240 percent threshold. Neither of the debt service indicators causes any breach of their respective thresholds. The debt service-to-exports ratio remains at around 5 percent for most of the projection period, reaching 7 percent in 2028; while the debt service-to-revenue ratio declines from 6 percent in 2018 to 5 percent in 2028. 14. The standardized stress tests show that an export shock has the largest negative impact on the debt trajectory, yet no threshold is breached (Figure 1).5 The PV of debt-to- exports ratio and the debt service-to-exports ratio are significantly increased by the export shock. The former reaches 182 percent in 2024, and it continues increasing for the remainder of the projection period. The latter reaches 17 percent in 2027 and 2028. The test highlights the need for a sustained effort to improve the economy’s export potential. Other shocks, including to real GDP growth, the primary balance, and a one-time 30 percent depreciation, do not lead to any breach of the debt thresholds either (Table 3). 15. The tailored tests for contingent liabilities and commodity prices cause all debt trajectories to move upward in the aftermath of the shock, but without breaching any threshold. 16. If the potential private loan materializes, all external debt trajectories would also move upward. Under an export shock, the PV of debt-to-exports and the debt service-to-exports ratio would breach their respective thresholds earlier and with a higher value. However, the country’s risk rating would remain moderate. B. Public Sector Debt Sustainability Analysis 17. Under the baseline scenario, the PV of public debt-to-GDP ratio does not breach the 70 percent benchmark (Figure 2). The ratio remains around 35 percent over the projection horizon. The PV of debt-to-revenue ratio is expected to remain around 145 percent until 2028. 5 Under the new Debt Sustainability Framework, the export shock is constructed by setting the nominal export growth (in USD) to its historical average minus one standard deviation, or to the baseline projection minus one standard deviation, whichever is lower in the second and third years of the projection period. The previous framework always set the export growth to its historical average minus one standard deviation. This change in methodology caused a larger export shock when compared to the previous DSA. 10 Debt service-to-revenue ratio reaches nearly 50 percent by 2028, given the short maturity of domestic financing. 18. The standardized sensitivity analysis shows that the most extreme shock leading to the highest debt figures in 2028 is a shock to commodity prices, yet the public debt benchmark is not breached (Figure 2, Table 4). The PV of debt-to-GDP ratio would reach 49 percent of GDP in 2028 in this scenario. This test highlights Burkina Faso’s susceptibility to terms of trade shocks given the price volatility of its major export commodities. A negative shock to gold prices also affects the fiscal position as lower gold revenues would put pressure on the deficit. The commodity price shock is closely followed by the export shock, which triggers a ratio of 46 percent in 2020. The most extreme shocks for the PV of debt-to-revenue ratio and the debt service-to- revenue ratio are to commodity prices as well. 19. The tailored test for the combined contingent liability shock also causes a deterioration in debt sustainability without breaching the benchmark. The trajectory of the PV of public debt-to-GDP ratio moves upwards by 1-10 percentage points from the baseline. RISKS AND VULNERABILITIES 20. Fiscal risks are substantial. The baseline scenario assumes Burkina Faso achieves the planned fiscal consolidation to WAEMU fiscal deficit convergence criteria of 3 percent of GDP in 2019 and then maintains the deficit at this level over the medium-term (see Staff Report). Achieving this ambitious target will require substantial policy actions. The projected fiscal adjustment is large in historical comparison, notwithstanding the fact that it envisages a return of the fiscal deficit to levels observed in the more distant past, as flagged by the relevant realism tool. Also, exports and overall GDP may develop less favorably than projected under the baseline in view of the vulnerability of narrow exports (namely cotton and gold) to commodity price shocks, and a potential deterioration in the security conditions, as highlighted in Box 1 which could undermine growth. In a customized scenario, in which fiscal deficits stay similar to previous years (around 5 percent annually) and are financed through additional external debt, external debt indicators would breach their respective thresholds under the standardized export shock (Text Figure 1). 11 Figure 1. Burkina Faso: Indicators of Public and Publicly Guaranteed External Debt under 5-percent Fiscal Deficit, 2018-2028 PV of debt-to GDP ratio PV of debt-to-exports ratio 60 300 50 250 40 200 30 150 20 100 10 50 Most extreme shock is Exports Most extreme shock is Exports 0 0 2018 2020 2022 2024 2026 2028 2018 2020 2022 2024 2026 2028 Debt service-to-exports ratio Debt service-to-revenue ratio 25 25 20 20 15 15 10 10 5 5 Most extreme shock is Exports Most extreme shock is Exports 0 0 2018 2020 2022 2024 2026 2028 2018 2020 2022 2024 2026 2028 Baseline Historical scenario Most extreme shock 1/ Threshold Sources: Country authorities; and IMF staff estimates. Customization of Default Settings Borrowing Assumptions for Stress Tests* 21. Burkina Faso would Size benefit from a more diversified export base. Under Interactions all the Default external User defined debt indicators, the most extreme shock Shares was of an marginal debt shock. This highlights the importance of export No No External PPG MLT debt 100% diversifying Terms ofmainly exports, which currently consist Tailored Tests of gold and agricultural products. marginal debt Combined CLs Yes Avg. nominal interest rate on new borrowing in USD 2.4% 2.4% 22. n.a. an increased Burkina Faso has Natural Disasters n.a. risk USD ofrate Discount a negative debt shock arising from (present 5.0% 5.0% Commodity Prices 2/ No No Avg. maturity (incl. grace period) 27 27 and future) contingent liabilities Market Financing n.a. n.a. associated Avg. grace period various off-budget activities, 6 with including 6 debt Note: "Yes" indicates any change to the size or * Note: All the additional of state-owned enterprises, fuel subsidies and potential PPPs. The materialization of these financing needs generated by the shocks under the stress tests interactions of the default settings for the stress are assumed to be covered by PPG external MLT debt in the external DSA. Default terms fiscal tests. costs"n.a."could indicateslead that the tostress test does not from a deviation of marginal debt are based the baseline path. on baseline 10-year projections. The proposed benchmarks in the ECF apply. program to audit SONABHY, adopt a fuel price adjustment mechanism and include any remaining Sources: Country authorities; and staff estimates and projections. fuel subsidies in the budget, and develop a database of sovereign guarantees and PPPs are 1/ The most extreme stress test is the test that yields the highest ratio in or before 2028. Stress tests with one-off breaches are also presented (if important steps any), while these one-off in building breaches capacity are deemed tomechanical away for analyze andWhen signals. mitigate these a stress test risks. with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented. 2/ The magnitude of shocks used for the commodity price shock stress test are based on the commodity prices outlook prepared by the IMF 23. A risk arises from uncertainties regarding the willingness of the regional market to research department. absorb a higher amount of debt issued by Burkina Faso, since the liquidity conditions in the market are directly affected by the BCEAO’s monetary policy decisions as well as the borrowing plans of other WAEMU members, particularly its larger members. Also, increasing regional 12 market interest rates and potential direct borrowing of the government from domestic financial institutions could crowd out private sector credit growth, which is already comparatively sluggish. These conditions could lead to a heightening of rollover risks. However, if the private concessional loan materializes and is used to replace past and planned domestic borrowings, these risks would be mitigated given the longer maturity of the loan. 24. Other risks emanating from external factors need to be considered which could negatively affect the outlook. Burkina Faso is susceptible to terms of trade shocks given the price volatility of its major export commodities and large volume of fuel imports. A negative shock to gold and oil prices also affects the fiscal position as lower gold revenues. While Burkina Faso currently benefits from access to the regional debt market, a shock to investor confidence or a notable change in liquidity conditions and interest rates on the regional market could jeopardize the ability to issue debt in current volumes and prices. A deterioration in security conditions in the Sahel region could also weigh on Burkina Faso’s external and fiscal positions and negatively impact economic growth. Insecurity discourages domestic and foreign investment, could hold back tourism, trade and government revenue, and increase government security-related spending. CONCLUSION 25. According to staff’s assessment, Burkina Faso’s risk of external debt distress remains moderate. The baseline scenario shows no breach of debt distress thresholds for any of the debt and debt service indicators, which would imply a low risk rating. However, in a customized scenario aimed at illustrating the potential impact of fiscal and external risks, two thresholds are breached under the export that there is substantial space to absorb shock. The granularity in the risk rating (Figure 5) suggests shocks without risk of downgrading to a high risk of debt distress rating. 26. The DSA suggests that overall risk of public debt distress remains moderate. While there are no breaches for overall public debt, the risk of overall debt distress remains moderate because the risk of external distress is moderate. To avoid a deterioration of the risk of debt distress rating, several risks and vulnerabilities need to be addressed, particularly: (i) pressures to deviate from the agreed fiscal consolidation, (ii) a non-diversified export base, (iii), fiscal costs arising from contingent liabilities associated with various off-budget activities, including possible future PPP arrangements, (iv) rollover risk related to domestic financing, (iv) risks related to possible private sector external debt on which very little is known, and (v) constrain non-concessional borrowing to maintain debt vulnerabilities. AUTHORITIES’ VIEW 13 27. The authorities concurred with the results of the updated DSA. Given the elevated expectations from the population for swift reforms, the authorities saw the necessity to utilize some fiscal space to finance public investment and catalyze sustainable economic growth. At the same time, they reiterated their commitment to maintaining prudent debt levels and favoring concessional over non-concessional borrowing with a view to maintaining their assessed level of debt distress at a ‘moderate’ rating. 14 Table 1. Burkina Faso: External Debt Sustainability Framework, Baseline Scenario, 2015-2038 (In percent of GDP, unless otherwise indicated) Actual Projections Average 8/ Historical Projections 2015 2016 2017 2018 2019 2020 2021 2022 2023 2028 2038 External debt (nominal) 1/ 26.3 27.8 24.1 24.2 23.4 22.5 21.3 20.6 20.1 18.5 20.2 24.2 20.7 Definition of external/domestic debt Currency-based of which: public and publicly guaranteed (PPG) 26.3 27.8 24.1 24.2 23.4 22.5 21.3 20.6 20.1 18.5 20.2 24.2 20.7 Is there a material difference between the Yes two criteria? Change in external debt 3.3 1.5 -3.7 0.1 -0.9 -0.9 -1.1 -0.7 -0.5 -0.1 0.2 Identified net debt-creating flows 10.9 3.3 3.4 3.8 4.0 3.0 3.7 4.6 5.0 8.0 9.1 4.1 5.4 Non-interest current account deficit 8.4 7.3 9.5 7.7 8.1 6.8 7.0 7.3 7.4 10.3 11.3 7.2 8.3 Deficit in balance of goods and services 9.8 7.3 9.7 9.1 8.5 7.3 7.5 7.8 8.0 11.0 13.9 10.3 9.0 Exports 26.5 30.0 28.6 27.5 27.1 26.1 25.3 23.8 22.5 18.2 12.9 Imports 36.3 37.3 38.3 36.7 35.6 33.5 32.7 31.5 30.5 29.2 26.9 Debt Accumulation 6.0 45 Net current transfers (negative = inflow) -4.4 -3.3 -3.2 -3.9 -2.8 -2.8 -2.5 -2.4 -2.3 -2.0 -1.5 -4.4 -2.5 of which: official -2.3 -1.5 -1.2 -2.2 -1.2 -1.1 -1.1 -1.0 -1.0 -1.0 -0.9 40 Other current account flows (negative = net inflow) 3.0 3.4 3.0 2.5 2.4 2.2 2.0 1.9 1.7 1.2 -1.1 1.3 1.8 5.0 35 Net FDI (negative = inflow) -2.1 -3.1 -3.0 -3.0 -2.9 -2.8 -2.4 -1.7 -1.6 -1.6 -1.6 -2.0 -2.0 Endogenous debt dynamics 2/ 4.6 -0.9 -3.1 -0.8 -1.1 -1.0 -1.0 -0.9 -0.9 -0.7 -0.7 4.0 30 Contribution from nominal interest rate 0.2 0.2 0.2 0.4 0.2 0.2 0.3 0.3 0.3 0.3 0.4 Contribution from real GDP growth -1.1 -1.5 -1.6 -1.3 -1.4 -1.3 -1.2 -1.2 -1.1 -1.0 -1.1 25 3.0 Contribution from price and exchange rate changes 5.4 0.4 -1.7 … … … … … … … … 20 Residual 3/ -7.6 -1.8 -7.1 -3.7 -4.9 -3.9 -4.8 -5.3 -5.5 -8.1 -8.9 -3.8 -6.0 of which: exceptional financing 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2.0 15 10 Sustainability indicators 1.0 PV of PPG external debt-to-GDP ratio ... ... 17.2 16.0 15.9 15.4 14.7 14.3 14.0 12.9 14.7 5 PV of PPG external debt-to-exports ratio ... ... 60.3 58.2 58.8 58.8 58.2 60.1 62.3 71.0 113.6 0.0 0 PPG debt service-to-exports ratio 3.9 3.6 3.9 4.3 4.8 4.0 4.2 4.2 4.4 6.5 11.5 15 2018 2020 2022 2024 2026 2028 PPG debt service-to-revenue ratio 6.1 5.6 5.7 6.3 6.5 5.2 5.1 4.8 4.7 5.4 6.9 Gross external financing need (Billion of U.S. dollars) 0.8 0.6 0.9 0.8 1.0 0.8 1.0 1.3 1.5 3.1 7.8 Rate of Debt Accumulation Grant-equivalent financing (% of GDP) Key macroeconomic assumptions Grant element of new borrowing (% right scale) Real GDP growth (in percent) 3.9 5.9 6.3 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 5.7 6.0 GDP deflator in US dollar terms (change in percent) -19.1 -1.4 6.6 8.7 0.6 3.4 2.6 2.9 2.4 2.0 2.0 0.9 2.8 Effective interest rate (percent) 4/ 0.8 0.9 0.9 2.1 1.0 1.2 1.2 1.3 1.4 1.7 2.4 1.0 1.5 External debt (nominal) 1/ Growth of exports of G&S (US dollar terms, in percent) -13.9 18.3 7.9 11.0 4.9 5.7 5.3 2.6 2.6 4.8 -1.0 19.2 4.6 of which: Private Growth of imports of G&S (US dollar terms, in percent) -12.7 7.5 16.2 10.4 3.4 3.2 6.4 5.1 4.9 7.2 7.1 12.4 6.3 30 Grant element of new public sector borrowing (in percent) ... ... ... 39.5 38.9 38.1 38.8 38.1 37.4 33.7 26.4 ... 37.0 Government revenues (excluding grants, in percent of GDP) 17.0 19.1 19.4 18.7 19.9 20.4 20.8 21.1 21.1 21.8 21.4 16.7 20.9 25 Aid flows (in Billion of US dollars) 5/ 122.5 145.1 124.8 0.7 0.6 0.6 0.6 0.7 0.7 1.0 1.7 Grant-equivalent financing (in percent of GDP) 6/ ... ... ... 5.1 3.7 3.3 3.1 3.1 3.1 2.9 2.4 ... 3.3 20 Grant-equivalent financing (in percent of external financing) 6/ ... ... ... 76.9 72.3 74.7 76.9 73.9 72.8 66.9 54.1 ... 72.2 Nominal GDP (Billion of US dollars) 10 11 12 14 15 17 18 20 21 32 69 Nominal dollar GDP growth -15.9 4.5 13.4 15.3 6.7 9.6 8.8 9.1 8.6 8.1 8.1 6.7 9.0 15 Memorandum items: 10 PV of external debt 7/ ... ... 17.2 16.0 15.9 15.4 14.7 14.3 14.0 12.9 14.7 In percent of exports ... ... 60.3 58.2 58.8 58.8 58.2 60.1 62.3 71.0 113.6 5 Total external debt service-to-exports ratio 3.9 3.6 3.9 4.3 4.8 4.0 4.2 4.2 4.4 6.5 11.5 PV of PPG external debt (in Billion of US dollars) 2.1 2.3 2.4 2.6 2.7 2.8 3.0 4.1 10.1 0 (PVt-PVt-1)/GDPt-1 (in percent) 1.3 1.0 0.9 0.6 0.9 0.9 1.0 1.4 2018 2020 2022 2024 2026 2028 Non-interest current account deficit that stabilizes debt ratio 5.1 5.8 13.2 7.6 8.9 7.7 8.2 8.0 8.0 10.4 11.1 Sources: Country authorities; and staff estimates and projections. 0 1/ Includes both public and private sector external debt. 2/ Derived as [r - g - ρ(1+g)]/(1+g+ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, and ρ = growth rate of GDP deflator in U.S. dollar terms. 3/ Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes. 4/ Current-year interest payments divided by previous period debt stock. 5/ Defined as grants, concessional loans, and debt relief. 6/ Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt). 7/ Assumes that PV of private sector debt is equivalent to its face value. 8/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years. Table 2. Burkina Faso: Public Sector Debt Sustainability Framework, Baseline Scenario, 2015-2038 (In percent of GDP, unless otherwise indicated) Actual Projections Average 6/ 2015 2016 2017 2018 2019 2020 2021 2022 2023 2028 2038 Historical Projections Public sector debt 1/ 35.6 39.2 38.4 42.5 42.0 41.7 41.4 41.2 41.1 40.9 40.6 31.5 41.3 Definition of external/domestic Currency- of which: external debt 26.3 27.8 24.1 24.2 23.4 22.5 21.3 20.6 20.1 18.5 20.2 24.2 20.7 debt based of which: local-currency denominated Change in public sector debt 5.7 3.5 -0.7 4.0 -0.5 -0.3 -0.3 -0.2 -0.1 0.0 0.0 Is there a material difference Identified debt-creating flows 4.9 2.3 0.9 1.7 -0.5 -0.2 -0.2 -0.2 -0.1 0.0 0.1 1.8 0.1 Yes between the two criteria? Primary deficit 1.5 2.5 6.9 3.4 1.7 1.7 1.6 1.6 1.6 1.4 1.4 3.1 1.7 Revenue and grants 20.7 21.8 22.1 22.8 22.8 23.0 23.3 23.5 23.6 24.0 23.1 21.0 23.5 of which: grants 3.7 2.8 2.7 4.1 2.8 2.6 2.5 2.5 2.4 2.2 1.7 Public sector debt 1/ Primary (noninterest) expenditure 22.2 24.3 29.0 26.2 24.5 24.7 24.9 25.1 25.1 25.4 24.4 24.1 25.2 Automatic debt dynamics 3.4 -0.2 -6.0 -1.7 -2.2 -1.9 -1.8 -1.8 -1.6 -1.4 -1.3 of which: local-currency denominated Contribution from interest rate/growth differential -0.6 -1.5 -2.6 -1.9 -2.0 -1.7 -1.7 -1.6 -1.5 -1.1 -1.0 of which: foreign-currency denominated of which: contribution from average real interest rate 0.5 0.5 -0.3 0.3 0.4 0.6 0.7 0.8 0.8 1.3 1.3 of which: contribution from real GDP growth -1.1 -2.0 -2.3 -2.2 -2.4 -2.4 -2.4 -2.4 -2.3 -2.3 -2.3 45 Contribution from real exchange rate depreciation 4.0 1.4 -3.4 ... ... ... ... ... ... ... ... 40 Other identified debt-creating flows 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -0.1 0.0 35 Privatization receipts (negative) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 30 Recognition of contingent liabilities (e.g., bank recapitalization) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 25 Debt relief (HIPC and other) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 20 16 Other debt creating or reducing flow (please specify) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 15 Residual 0.8 1.3 -1.6 2.5 -0.3 -0.3 -0.2 -0.2 -0.2 -0.4 -0.4 -0.4 -0.1 10 5 Sustainability indicators 0 PV of public debt-to-GDP ratio 2/ ... ... 30.7 34.6 34.4 34.6 34.8 34.9 34.9 35.3 35.1 2018 2020 2022 2024 2026 2028 PV of public debt-to-revenue and grants ratio … … 139.1 151.8 151.3 150.3 149.3 148.1 148.4 147.1 151.9 Debt service-to-revenue and grants ratio 3/ 13.1 25.2 22.6 28.7 39.1 34.9 36.4 42.5 42.7 49.1 49.6 Gross financing need 4/ 4.2 8.0 11.9 10.0 10.6 9.7 10.1 11.6 11.6 13.2 12.8 of which: held by residents of which: held by non-residents Key macroeconomic and fiscal assumptions 1 Real GDP growth (in percent) 3.9 5.9 6.3 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 5.7 6.0 Average nominal interest rate on external debt (in percent) 0.8 1.0 0.9 2.0 1.1 1.2 1.2 1.3 1.3 1.7 2.4 1.0 1.4 1 Average real interest rate on domestic debt (in percent) 8.9 5.5 -0.4 2.9 4.2 4.3 4.4 4.4 4.4 4.4 4.4 2.6 4.2 Real exchange rate depreciation (in percent, + indicates depreciation) 18.2 5.5 -13.1 … ... ... ... ... ... ... ... 0.2 ... 1 n.a. Inflation rate (GDP deflator, in percent) -3.1 -1.1 4.5 3.5 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.5 2.1 0 Growth of real primary spending (deflated by GDP deflator, in percent) 1.5 16.1 26.5 -3.9 -1.0 6.9 7.0 6.9 5.9 5.8 5.6 7.9 4.8 Primary deficit that stabilizes the debt-to-GDP ratio 5/ -4.3 -1.1 7.6 -0.6 2.2 2.0 1.9 1.8 1.7 1.4 1.4 0.8 1.5 0 PV of contingent liabilities (not included in public sector debt) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0 2018 2020 2022 2024 2026 2028 Sources: Country authorities; and staff estimates and projections. 1/ Coverage of debt: The central government. Definition of external debt is Currency-based. 2/ The underlying PV of external debt-to-GDP ratio under the public DSA differs from the external DSA with the size of differences depending on exchange rates projections. 3/ Debt service is defined as the sum of interest and amortization of medium and long-term, and short-term debt. 4/ Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period and other debt creating/reducing flows. 5/ Defined as a primary deficit minus a change in the public debt-to-GDP ratio ((-): a primary surplus), which would stabilizes the debt ratio only in the year in question. 6/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years. Figure 1. Burkina Faso: Indicators of Public and Publicly Guaranteed External Debt under Alternative Scenarios, 2018-2028 PV of debt-to GDP ratio PV of debt-to-exports ratio 60 300 50 250 40 200 30 150 20 100 10 50 Most extreme shock is Exports Most extreme shock is Exports 0 0 2018 2020 2022 2024 2026 2028 2018 2020 2022 2024 2026 2028 Debt service-to-exports ratio Debt service-to-revenue ratio 25 25 20 20 15 15 10 10 5 5 Most extreme shock is Exports Most extreme shock is Exports 0 0 2018 2020 2022 2024 2026 2028 2018 2020 2022 2024 2026 2028 Baseline Historical scenario Most extreme shock 1/ Threshold Customization of Default Settings Borrowing Assumptions for Stress Tests* Size Interactions Default User defined Shares of marginal debt No No External PPG MLT debt 100% Tailored Tests Terms of marginal debt Combined CLs Yes Avg. nominal interest rate on new borrowing in USD 2.4% 2.4% Natural Disasters n.a. n.a. USD Discount rate 5.0% 5.0% Commodity Prices 2/ No No Avg. maturity (incl. grace period) 26 26 Market Financing n.a. n.a. Avg. grace period 6 6 Note: "Yes" indicates any change to the size or * Note: All the additional financing needs generated by the shocks under the stress tests interactions of the default settings for the stress are assumed to be covered by PPG external MLT debt in the external DSA. Default terms tests. "n.a." indicates that the stress test does not of marginal debt are based on baseline 10-year projections. apply. Sources: Country authorities; and staff estimates and projections. 1/ The most extreme stress test is the test that yields the highest ratio in or before 2028. Stress tests with one-off breaches are also presented (if any), while these one-off breaches are deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented. 2/ The magnitude of shocks used for the commodity price shock stress test are based on the commodity prices outlook prepared by the IMF research department. 17 Figure 2. Burkina Faso: Indicators of Public External Debt under Alternative Scenarios, 2018-2028 PV of debt-to GDP ratio 80 70 60 50 40 30 20 Most extreme shock is Commodity price 10 0 2018 2020 2022 2024 2026 2028 PV of Debt-to-Revenue Ratio Debt Service-to-Revenue Ratio 250 80 70 200 60 50 150 40 100 30 20 50 Most extreme shock is Commodity price Most extreme shock is Commodity price 10 0 0 2018 2020 2022 2024 2026 2028 2018 2020 2022 2024 2026 2028 Baseline Most extreme shock 1/ Public debt benchmark Historical scenario Borrowing Assumptions for Stress Tests* Default User defined Shares of marginal debt External PPG medium and long-term 17% 17% Domestic medium and long-term 58% 58% Domestic short-term 24% 24% Terms of marginal debt External MLT debt Avg. nominal interest rate on new borrowing in USD 2.4% 2.4% Avg. maturity (incl. grace period) 26 26 Avg. grace period 6 6 Domestic MLT debt Avg. real interest rate on new borrowing 4.4% 4.4% Avg. maturity (incl. grace period) 3 3 Avg. grace period 1 1 Domestic short-term debt Avg. real interest rate 4% 4.0% * Note: The public DSA allows for domestic financing to cover the additional financing needs generated by the shocks under the stress tests in the public DSA. Default terms of marginal debt are based on baseline 10-year projections. Sources: Country authorities; and staff estimates and projections. 1/ The most extreme stress test is the test that yields the highest ratio in or before 2028. The stress test with a one-off breach is also presented (if any), while the one-off breach is deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented. 18 Table 3. Burkina Faso: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2018-2028 (In percent) Projections 1/ 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 PV of debt-to GDP ratio Baseline 16 16 15 15 14 14 14 13 13 13 13 A. Alternative Scenarios A1. Key variables at their historical averages in 2018-2028 2/ 16 16 17 17 16 16 14 12 10 8 6 0 #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A B. Bound Tests B1. Real GDP growth 16 16 16 16 15 15 15 14 14 14 14 B2. Primary balance 16 16 16 16 16 16 15 15 15 15 15 B3. Exports 16 21 29 28 27 26 25 24 24 23 22 B4. Other flows 3/ 16 18 20 19 18 18 17 17 16 16 16 B5.Depreciation 16 20 16 15 15 15 14 14 14 14 14 B6. Combination of B1-B5 16 21 20 20 19 19 18 18 17 17 16 C. Tailored Tests C1. Combined contingent liabilities 16 17 17 17 17 16 16 16 16 16 16 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price 16 17 17 16 16 15 15 15 14 14 13 C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Threshold 55 55 55 55 55 55 55 55 55 55 55 PV of debt-to-exports ratio Baseline 58 59 59 58 60 62 65 67 68 69 71 A. Alternative Scenarios A1. Key variables at their historical averages in 2018-2028 2/ 58 59 64 66 68 70 68 62 53 42 30 0 58 55 52 48 44 40 36 30 24 18 13 B. Bound Tests B1. Real GDP growth 58 59 59 58 60 62 65 67 68 69 71 B2. Primary balance 58 60 62 62 66 69 73 76 78 80 82 B3. Exports 58 96 169 167 171 176 182 187 187 184 183 B4. Other flows 3/ 58 67 75 74 76 78 81 84 84 85 85 B5.Depreciation 58 59 48 48 49 51 54 56 57 59 61 B6. Combination of B1-B5 58 82 73 91 93 96 100 103 103 104 105 C. Tailored Tests C1. Combined contingent liabilities 58 63 64 65 69 73 77 81 83 86 88 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price 58 65 68 66 68 70 71 73 73 73 74 C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Threshold 240 240 240 240 240 240 240 240 240 240 240 Debt service-to-exports ratio Baseline 4 5 4 4 4 4 5 6 6 6 7 A. Alternative Scenarios A1. Key variables at their historical averages in 2018-2028 2/ 4 5 4 5 5 5 6 6 7 7 7 0 4 5 4 4 4 4 4 5 5 4 3 B. Bound Tests B1. Real GDP growth 4 5 4 4 4 4 5 6 6 6 7 B2. Primary balance 4 5 4 4 4 5 5 6 7 7 7 B3. Exports 4 6 7 9 9 9 11 12 14 17 17 B4. Other flows 3/ 4 5 4 5 5 5 6 6 7 8 8 B5.Depreciation 4 5 4 4 4 4 5 5 6 6 6 B6. Combination of B1-B5 4 5 6 6 6 6 7 8 9 10 10 C. Tailored Tests C1. Combined contingent liabilities 4 5 4 4 4 5 6 6 7 7 7 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price 4 5 4 5 5 5 5 6 7 7 7 C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Threshold 21 21 21 21 21 21 21 21 21 21 21 Debt service-to-revenue ratio Baseline 6 6 5 5 5 5 5 5 6 6 5 A. Alternative Scenarios A1. Key variables at their historical averages in 2018-2028 2/ 6 6 5 5 5 5 6 6 6 6 6 0 6 6 5 5 4 4 4 4 4 3 2 B. Bound Tests B1. Real GDP growth 6 7 5 5 5 5 5 6 6 6 6 B2. Primary balance 6 6 5 5 5 5 5 6 6 6 6 B3. Exports 6 7 6 7 7 7 7 7 8 9 9 B4. Other flows 3/ 6 6 5 6 5 5 6 6 6 7 7 B5.Depreciation 6 8 7 6 6 5 6 7 7 6 6 B6. Combination of B1-B5 6 7 6 6 6 6 6 6 7 7 7 C. Tailored Tests C1. Combined contingent liabilities 6 6 5 5 5 5 5 6 6 6 6 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price 6 7 6 6 5 5 5 6 6 6 6 C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Threshold 23 23 23 23 23 23 23 23 23 23 23 Sources: Country authorities; and staff estimates and projections. 1/ A bold value indicates a breach of the threshold. 2/ Variables include real GDP growth, GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows. 3/ Includes official and private transfers and FDI. 19 Table 4. Burkina Faso: Sensitivity Analysis for Key Indicators of Public Debt, 2018-2028 (In percent) Projections 1/ 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 PV of Debt-to-GDP Ratio Baseline 35 34 35 35 35 35 35 35 35 35 35 A. Alternative Scenarios A1. Key variables at their historical averages in 2018-2028 2/ 35 36 37 38 39 41 42 43 45 46 47 0 #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A B. Bound Tests B1. Real GDP growth 35 36 38 40 41 42 43 44 45 46 47 B2. Primary balance 35 37 40 40 40 40 40 40 40 39 39 B3. Exports 35 39 46 46 45 45 45 44 44 43 43 B4. Other flows 3/ 35 37 39 39 39 39 39 39 38 38 38 B5.Depreciation 35 37 35 34 32 31 30 28 27 26 25 B6. Combination of B1-B5 35 36 36 35 35 34 34 34 34 34 34 C. Tailored Tests C1. Combined contingent liabilities 35 44 43 43 43 43 42 42 42 42 41 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price 35 36 38 40 42 43 45 46 47 48 49 C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Public debt benchmark 70 70 70 70 70 70 70 70 70 70 70 PV of Debt-to-Revenue Ratio Baseline 152 151 150 149 148 148 149 149 148 147 147 A. Alternative Scenarios A1. Key variables at their historical averages in 2018-2028 2/ 152 157 160 164 168 173 179 184 188 191 196 0 28.6501 35.5081 30.4599 30.734 35.6537 35.1415 37.0532 38.6326 39.6766 40.9007 41.4174 B. Bound Tests B1. Real GDP growth 152 158 165 169 172 177 181 185 188 191 195 B2. Primary balance 152 164 176 173 171 170 169 168 166 164 164 B3. Exports 152 170 200 196 193 191 189 188 185 180 178 B4. Other flows 3/ 152 161 168 166 164 164 163 163 161 159 158 B5.Depreciation 152 163 153 145 138 133 127 121 115 109 104 B6. Combination of B1-B5 152 157 157 152 148 146 144 143 142 142 141 C. Tailored Tests C1. Combined contingent liabilities 152 192 189 185 182 181 180 178 176 174 173 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price 152 162 169 176 181 187 191 193 196 199 203 C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Debt Service-to-Revenue Ratio Baseline 29 39 35 36 43 43 45 47 48 49 49 A. Alternative Scenarios A1. Key variables at their historical averages in 2018-2028 2/ 29 39 36 39 47 49 54 57 60 63 65 0 28.6501 35.5081 30.4599 30.734 35.6537 35.1415 37.0532 38.6326 39.6766 40.9007 41.4174 B. Bound Tests B1. Real GDP growth 29 40 37 41 49 51 55 59 61 63 65 B2. Primary balance 29 39 39 45 53 52 53 55 55 55 55 B3. Exports 29 39 35 38 44 44 46 48 49 51 52 B4. Other flows 3/ 29 39 35 37 43 43 46 47 48 50 50 B5.Depreciation 29 37 34 34 39 39 43 44 45 46 46 B6. Combination of B1-B5 29 38 34 38 45 45 45 46 48 49 49 C. Tailored Tests C1. Combined contingent liabilities 29 39 46 51 60 55 57 58 57 58 57 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price 29 40 37 40 49 53 58 61 63 65 67 C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Sources: Country authorities; and staff estimates and projections. 1/ A bold value indicates a breach of the benchmark. 2/ Variables include real GDP growth, GDP deflator and primary deficit in percent of GDP. 3/ Includes official and private transfers and FDI. 20 Figure 3. Burkina Faso: Drivers of Debt Dynamics - Baseline Scenario External debt Gross Nominal PPG External Debt Debt-creating flows Unexpected Changes in Debt 1/ (in percent of GDP; DSA vintages) (percent of GDP) (past 5 years, percent of GDP) Current DSA 40 80 Residual Previous DSA 40 proj . 70 DSA-2013 30 Interquartile Price and 20 range (25-75) 60 exchange rate 20 50 Real GDP growth 0 10 Change in PPG 40 debt 3/ 0 30 Nominal interest rate -20 -1 0 20 Current Median 10 account + -2 0 FDI -40 0 Change in -3 0 5-year 5-year Contribution of PPG debt 3/ unexpected Distribution across LICs 2/ historical projected 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 -4 0 changes change change 21 Public debt Gross Nominal Public Debt Debt-creating flows Unexpected Changes in Debt 1/ (in percent of GDP; DSA vintages) (percent of GDP) (past 5 years, percent of GDP) Residual 30 Current DSA Previous DSA proj. 20 DSA-2013 Interquartile 80 Other debt 20 range (25-75) 15 creating flows 70 60 Real 10 10 Exchange 50 rate depreciation 5 Change in debt 40 0 Real GDP growth 30 0 -10 20 Real interest rate -5 10 -20 Median 0 Primary deficit -10 5-year 5-year Distribution across LICs 2/ historical projected Contribution of 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 -15 unexpected change change 1/ Difference betw een anticipated and actual contributions on debt ratios. 2/ Distribution across LICs for w hich LIC DSAs w ere produced. 3/ Given the relatively low private external debt for average low -income countries, a ppt change in PPG external debt should be largely explained by the drivers of the external debt dynamics equation. Figure 4. Burkina Faso: Realism Tools 3-Year Adjustment in Primary Balance Fiscal Adjustment and Possible Growth Paths 1/ (Percentage points of GDP) Distribution 1/ 7 4 14 Projected 3-yr 6 12 adjustment 3-year PB adjustment greater than 2.5 percent of GDP in approx. top 3 5 10 quartile 8 4 2 3 In percent 6 4 2 1 In percentage points of GDP 2 1 0 0 0 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0 7.5 8.0 -4.5 -4.0 -3.5 -3.0 -2.5 -2.0 -1.5 -1.0 -0.5 2012 2013 2014 2015 2016 2017 2018 2019 More Baseline Multiplier = 0.2 Multiplier = 0.4 Multiplier = 0.6 Multiplier = 0.8 1/ Data cover Fund-supported programs for LICs (excluding emergency financing) approved since 1/ Bars refer to annual projected fiscal adjustment (right-hand side scale) and lines show 22 1990. The size of 3-year adjustment from program inception is found on the horizontal axis; the possible real GDP growth paths under different fiscal multipliers (left-hand side scale). percent of sample is found on the vertical axis. Public and Private Investment Rates Contribution to Real GDP growth (% of GDP) (percent, 5-year average) 10 7 6 8 5 6 4 3 4 2 2 1 0 0 Historical Projected (Prev. DSA) Projected (Curr. DSA) 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Gov. Invest. - Prev. DSA Gov. Invest. - Current DSA Contribution of other factors Priv. Invest. - Prev. DSA Priv. Invest. - Current DSA Contribution of government capital Figure 5. Burkina Faso: Qualification of the Moderate Category, 2018-2028 1/ PV of debt-to GDP ratio PV of debt-to-exports ratio 60 300 Threshold 50 250 (1-X)*Threshold 40 200 (1-Y)*Threshold 30 150 20 100 10 50 0 0 2018 2020 2022 2024 2026 2028 2018 2020 2022 2024 2026 2028 23 Debt service-to-exports ratio Debt service-to-revenue ratio 25 25 20 20 15 15 10 10 5 5 0 0 2018 2020 2022 2024 2026 2028 2018 2020 2022 2024 2026 2028 Threshold Baseline Limited space Some space Substantial space Sources: Country authorities; and staff estimates and projections. 1/ For the PV debt/GDP and PV debt/exports thresholds, x is 20 percent and y is 40 percent. For debt service/Exports and debt service/revenue thresholds, x is 12 percent and y is 35 percent.