PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO FISCAL REFORMS FOR RESILIENCE APRIL 2022 PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 2 © 2022 International Bank for Reconstruction and Development / The World Bank Some rights reserved. This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. 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The risk of claims resulting from such infringement rests solely with you. If you wish to re-use a component of the work, it is your responsibility to determine whether permission is needed for that re-use and to obtain permission from the copyright owner. Examples of components can include, but are not limited to, tables, figures, or images. All queries on rights and licenses should be addressed to World Bank Publications, The World Bank, 1818 H Street NW, Washington, D.C., 20433, USA; e-mail: pubrights@worldbank.org. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 3 ACKNOWLEDGEMENTS This report was prepared by a World Bank team led by Daniel Pajank (Senior Economist), Kodzovi Abalo (Economist), and Ousmane Kolie (Senior Public Sector Specialist). Clara de Sousa (Country Director), Abebe Adugna (Regional Director), Soukeyna Kane (former Country Director), Maimouna Fam (Country Manager), and Theo David Thomas (Practice Manager) provided overall guidance. The core team included Michael Evers, Waewnet Sukkasem, Robin Bartmann, Eugenie Kiendrebéogo and Jules Porte. Deborah Davis provided excellent editorial support. The team would like to thank Catherine Compaoré, Maude Jean-Baptiste and Micky Ananth for their logistical and administrative support and Christopher (Topi) Carlos for design and layout of the report. The report benefited from data and comments received from the Government of Burkina Faso and other stakeholders during three missions conducted in May, June and October 2021. This was in addition to other collaborative frameworks such as the Country Policy and Institutional Assessment (CPIA) Working Group jointly established by the Government and the World Bank country team to identify areas with potential for improvement. The team is grateful for comments received from Fabio Comelli (IMF) and several World Bank colleagues, including Jean-Pierre Chauffour, Ashley Taylor, Fabienne Mroczka, Robert Utz, Emilia Skrok, Bernard Haven, Chadi Habib, Moses Misach Kajubi, Agnes Couffinhal, Cristelle Kouame, Yasuhiko Matsuda, Leif Jensen, Laura Rawlings, Igor Kheyfets, Diksha Ramesh, Emilie Jourdan and Mariam Diop. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 4 ABBREVIATIONS AND ACRONYMS ACLED Armed Conflict Location and Event Data Project ASCE-LC High Authority of State Control and Fight against Corruption (Autorité Supérieure de Contrôle d’Etat et de Lutte contre la Corruption) BIC Tax on Industrial, Commercial and Agricultural Profits (Impôt sur les Bénéfices industriels, Commerciaux et Agricoles) BNC Tax on Non-Commercial Profits (Impôt sur les Bénéfices Non Commerciaux) BOOST Open Budget Portal BCEAO  Central Bank of West African States (Banque Centrale des Etats de l’Afrique de l’Ouest)  BNAF  National Anti-Fraud Brigade (Brigade Nationale Anti-Fraude)  BUNEE  National Environmental Protection Agency (Bureau National des Evaluations Environnementales)  CAC Anti-Corruption Unit of Tax Revenue Authority (Comité Anti-Corruption) CAD Current Account Deficit CAMEG  Central Purchasing Agency for Essential Medicines (Centrale d’Achat de Médicaments Essentiels Génériques et des Consommables Médicaux)  CAST Special Dedicated Treasury Account (Compte d’Affectation Spéciale du Trésor) CEB Basic Education Districts (Circonscription d’Education de Base) CFAF West African Franc (Franc de la Communauté Financière Africaine) CGCT General Code of Territorial Communities (Code Général des Collectivités Territoriales) CGE Computable General Equilibrium CICT Integrated Financial Management System of Territorial Communities (Circuit Intégré des Collectivités Territoriales) CID Integrated Expenditure Tracking System (Circuit Intégré de la Dépense) CIE Integrated State Accounting (Comptabilité Intégrée de l’Etat) CIT Corporate Income Tax CNPS  National Council for Social Protection (Conseil National pour la Protection Sociale) COMFIB Finance and Budget Commission (Commission des Finances et du Budget) CONASUR  National Council for Emergency Relief and Rehabilitation (Conseil National de Secours d’Urgence et de Réhabilitation)  COVID-19  Coronavirus Disease 2019  CPI Consumer Price Index CPIA  Country Policy and Institutional Assessment  CSPS Health and Social Promotion Centers (Centre de Santé et de Promotion Sociale) DGD Custom Revenue Authority (Direction Générale des Douanes) DGI Tax Revenue Authority (Direction Générale des Impôts) DGTCP Treasury and Public Accounting Office (Direction Générale du Trésor et de la Comptabilité Publique) DRM Domestic Revenue Mobilization DRS-C Regional Health Department of the Center Region (Direction Régionale de la Santé du Centre) DTS Decentralized Technical Structures ECOWAS Economic Community of West African States PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 5 EIU The Economist Intelligence Unit EHCVM  Harmonized Survey on Living Conditions of Households (Enquête Harmonisée sur les Conditions de Vie des Ménages)  EPE Public Education Entities ERP  Emergency Response Plan  EU  European Union  FBDES Burkina Economic and Social Development Fund (Fonds Burkinabè de Développement Économique et Social) FDI Foreign Direct Investment FONEPP National Fund for Studies and Preparation of Projects and Programs (Fonds National d’Etudes et de Préparation des Projets et Programmes) GDP  Gross Domestic Product  GGDC Groningen Growth and Development Center GNI Gross National Income HCI Human Capital Index HIC High Income Country HIMO Labor Intensive Infrastructure Program (Infrastructures en Haute Intensité de Main d’Œuvre) HIPC Heavy Indebted Poor Country ICT Information and Communications Technology IDA  International Development Association  IDP  Internally Displaced Persons  IGF General Inspectorate of Finance (Inspection Générale des Finances) IMF  International Monetary Fund  INSD National Institute of Statistics and Demography IRF Property Income Tax (Impôt sur les Revenus Fonciers) LIC Low Income Country LMIC Lower Middle-Income Country MENAPLN Ministry of National Education, Literacy, and Promotion of National Languages (Ministère de l’Éducation Nationale, de l’Alphabétisation et de la Promotion des Langues Nationales) MINEFID  Ministry of Economy, Finance and Development (Ministère de l’Economie, des Finances et du Développement)  MSME  Micro, Small and Medium Enterprises  OECD Organisation for Economic Co-operation and Development OHADA Organization for the Harmonization of Business Law in Africa (Organisation pour l’Harmonisation en Afrique du Droit des Affaires) PACT Support Project to Territorial Communities (Projet d’Appui aux Collectivités Territoriales) PAIRFP Integrated Public Finance Reform Action Plan (Plan d’Actions Intégré des Réformes de Finances Publiques) PCO Program of Creditor Outreach PEFA Public Expenditure and Financial Accountability PDSEB Strategic Development Program for Basic Education (Programme de Développement Stratégique de l’Éducation de Base) PFM  Public Financial Management  PHE Public Health Entities PIMA  Public Investment Management Assessment  PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 6 PIT Personal Income Tax (Impôt sur le revenu des Personnes Physiques) PNDES  National Development Program (Programme National de Développement Economique et Social)  PNPS National Policy for Social Protection (Politique National de la Protection Sociale) POA Performance Outcome Areas PPP  Purchasing Power Parity  PRSP Poverty Reduction Strategy Paper PUS-BF  Emergency Program for the Sahel/Burkina Faso (Programme d’Urgence pour le Sahel/ Burkina Faso)  REN-LAC National Anti-Corruption Network (Réseau National de Lutte Anti-Corruption) SDFP  Sustainable Development Finance Policy SINTAX Integrated Taxation System (Système Informatisé de Taxation) SOEs State Owned Enterprises SONAGESS National Food Security Stock Management Company (Société Nationale de Gestion du Stock de Sécurité Alimentaire) SP/CPF Permanent Secretariat of the Tax Policy Committee (Secrétariat Permanent du Comité de Politique Fiscale) SSA  Sub-Saharan Africa  SSN Social Safety Net ST-CSU Technical Secretariat in Charge of Universal Health Coverage (Secrétaire Technique Chargé de la Couverture Sanitaire Universelle) SUPERMUN Municipal Performance Monitoring Indicators (Suivi de la Performance Municipale) SYGASPE Integrated Administrative and Salary Management System for State Personnel (Système Intégré   de Gestion Administrative et Salariale du Personnel de l’Etat) TADAT  Tax Administration Diagnostic Assessment  TC Territorial Communities TFP Total Factor Productivity TVET Technical and Vocational Education and Training UMIC Upper Middle-Income Country VAT  Value Added Tax  WAEMU  West African Economic and Monetary Union (Union Economique et Monétaire Ouest-Africaine) WB  World Bank  WBG  World Bank Group  WDI World Development Indicators WHO  World Health Organization  PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 7 TABLE OF CONTENTS Executive Summary 12 Introduction 18 Chapter 1. Macro-Fiscal Context 20 Section I. Country and Strategic Context 21 Section II. Economic Growth Dynamics 26 Section III. Macro-Fiscal Stability 34 Chapter 2. Domestic Revenue Mobilization 41 Section I. Domestic Revenue Structure 45 Section II. Assessment of Tax Policy 54 Section III. Assessment of Tax Administration 68 Section IV. Tax Expenditures and Tax Gap 71 Chapter 3. Public Expenditure Analysis 75 Section I. Long-Term Public Spending Trends 76 Section II. Spending and the COVID-19 Shock 91 Section III. Focal Point: Public Wage Bill 95 Section IV. Public Spending on Social Sectors 102 Chapter 4. Public Financial Management 112 Section I. Performance of the Public Financial Management System 113 Section II. Decentralization in Education and Health 118 Section III. PFM Challenges to Local Service Delivery 126 Chapter 5. Conclusions and Policy Options 133 References 143 Technical Annexes 146 Annex I. Recommendations from Previous PERs and PER-like Studies 146 Annex II. Definition of Peer Countries 151 Annex III. Burkina Faso BOOST Databases 152 Annex IV. Methodological Framework: Country Policy and Institutional Assessment 153 Annex V. CPIA Burkina Faso Country Page 157 Annex VI. Revenue Mobilization in Burkina Faso 158 Annex VII. Burkina Faso Revenue Collection 161 Annex VIII. Total Revenue and Tax Breakdown 165 Annex IX. Organizational Structure of Major Tax-related Institutions 166 Annex X. IT Reforms under the Tax Revenue Authority 168 Annex XI. Tax Expenditure Breakdown 169 Annex XII. Tax Expenditures in Burkina Faso 171 Annex XIII. Tax Measures Taken to Mitigate the Impact of COVID-19 173 Annex XIV. Free Health Care 175 Annex XV. Summary of PEFA 2017 Indicators 176 Annex XVI. National Development Program PNDES II 177 PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 8 LIST OF FIGURES Figure E1. Budget Sources and Use (% of GDP), Burkina Faso, 2010 and 2019 12 Figure 1. Major Events and Economic Indicators, Burkina Faso, 2010-2021 22 Figure 2. Reported Fatalities, Burkina Faso, 2011-2022 23 Figure 3. Vulnerability to Climate, Selected Countries, 2018 24 Figure 4. COVID-19 Cases and Deaths, Burkina Faso, 2020-2021 24 Figure 5. Historic Growth Drivers and Trends, Burkina Faso, 2000-2020 27 Figure 6. Constraints to Efficient Growth, Burkina Faso, 1963-2020 29 Figure 7. Physical Capital Accumulation, Selected Countries, 2005-2019 31 Figure 8. Public Debt and Debt Service, Burkina Faso, 2010-2020 35 Figure 9. Fiscal Framework Scenarios, Burkina Faso, 2015-2025 40 Figure 10. Revenue Structure by Source (% of Total Revenue), Burkina Faso, 2010-2019 43 Figure 11. Composition of Revenues, Burkina Faso, 2010-2019 Average 43 Figure 12. Revenue Collection (% of GDP), Burkina Faso, 2010-2019 44 Figure 13. Revenue Collection by Tax Type (% of GDP), Burkina Faso, 2010-2019 44 Figure 14. Tax to GDP Ratio, Selected Countries, 2010-2019 47 Figure 15. Tax Revenue Collection (% of GDP), Selected Countries, 2018 47 Figure 16. Tax Revenue Collection (% of GDP), Burkina Faso and Selected Regions, 2010–2018 48 Figure 17. Tax Revenue Collection (% of GDP), Burkina Faso and Selected Income Groups, 2010–2018 48 Figure 18. Tax Revenue Growth by Type of Tax (contribution to growth (%)), Burkina Faso, 2011-2019 49 Figure 19. Benchmarking Non-Tax Revenue (% of GDP), Selected Countries, 2018 53 Figure 20. Non-Tax Revenue Breakdown (% of GDP), Burkina Faso, 2010-2019 53 Figure 21. PIT Collection in Regional Comparison (% of GDP), 2010-2019 57 Figure 22. PIT Revenue and Productivity Ratio, Selected Countries, 2018 57 Figure 23. Number and Share of Registered Taxpayers by Regime, Burkina Faso, 2020 60 Figure 24. Revenue Collection by Regime, Burkina Faso, 2020 60 Figure 25. CIT Collection in Regional Comparison (% of GDP), Selected Countries, 2010-19 61 Figure 26. CIT Productivity Ratio, Selected Countries, 2018 61 Figure 27. VAT Collection in Regional Comparison (% of GDP), Selected Countries, 2010-2019 62 Figure 28. VAT Revenue and VAT Productivity, Burkina Faso, 2010-2019 62 Figure 29. VAT Productivity Ratio, Selected Countries, 2018 63 Figure 30. VAT C-Efficiency Ratio, Selected Countries, 2018 63 Figure 31. Composition of Excise Tax, Burkina Faso, 2010-2019 Average 65 Figure 32. Excise Collection in Regional Comparison (% of GDP), Selected Countries, 2010-2019 65 Figure 33. Trade Collection in Regional Comparison (% of GDP), Selected Countries, 2010-2019 65 Figure 34. Contribution of the Mining Sector to the National Economy, Burkina Faso, 2014-2018 67 Figure 35. Industrial Gold Production and Mining Revenue, (% of GDP), Burkina Faso, 2010-2019 67 Figure 36. Informal Economy Share by Region (% of GDP), Selected Countries, 1991-2015 70 Figure 37. Benchmarking Tax-to-GDP Ratio and Shadow-to-GDP Ratio, 151 countries, 2004-2015 70 Figure 38. Benchmarking Informal Economy Share (% of GDP), Selected Countries, 2004-2015 71 PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 9 Figure 39. Tax Expenditures by Type of Tax, Burkina Faso, 2015-2019 73 Figure 40. Tax Expenditures by Recipient, Burkina Faso, 2015-2019 73 Figure 41. Tax Expenditures by Type of Exemption, Burkina Faso, 2015-2019 73 Figure 42. Total Expenditure, Selected Countries, 2010-2020 Average 77 Figure 43. Total Expenditure (% of GDP), Selected Countries, 2010-2020 77 Figure 44. Expenditure Structure (% of GDP), Burkina Faso, 2010-2020 77 Figure 45. Expenditure Struture (% of Total), Burkina Faso, 2010-2020 Average 77 Figure 46. Type of Expenditure (% of Total Expenditure), Burkina Faso, 2011-2020 78 Figure 47. Expenditure Defragmentation, Burkina Faso, 2010 and 2019 78 Figure 48. Type of Expenditure (% of GDP), Selected Countries, 2017-2019 Average 79 Figure 49. Logistics Performance Index, Burkina Faso, 2010-2018 79 Figure 50. Access to Infrastructure, Burkina Faso, 2019 79 Figure 51. Maintenance Expenditure, Burkina Faso, 2017-2020 80 Figure 52. Current Expenditure by Economic Classification (% of GDP), Selected Countries, 2017-2019 Average 81 Figure 53. Expenditure on Goods, Services, and Other, Burkina Faso, 2010-2020 81 Figure 54. Composition of Goods and Services Expenditure, Burkina Faso, 2019 81 Figure 55. Debt Expenditure, Burkina Faso, 2010-2020 82 Figure 56. Public Debt Stock, Burkina Faso, 2018-2023 82 Figure 57. Current Transfer Expenditures, Burkina Faso, 2010-2020 83 Figure 58. Subsidies and Transfers (Billions CFAF), Burkina Faso, 2017-2020 83 Figure 59. Government Transfers by Recipient (% of Total Transfers), Burkina Faso, 2010 and 2019 84 Figure 60. Government Transfers by Administrative Unit (% of Total Transfers), Burkina Faso, 2010 and 2019 84 Figure 61. Changes in Regional Welfare with Hypothetical Subsidy Removal, Burkina Faso, 2014 85 Figure 62. Hypothetical Welfare Impact of Removing Oil and Gas Subsidies, Burkina Faso, 2014 85 Figure 63. Real Contribution and Real Acceleration to Expenditure Growth, Burkina Faso, 2011-2019 87 Figure 64. Budget Execution by Funding Source (in %), Burkina Faso, 2010-2020 88 Figure 65. Domestically Funded Capital Expenditure by Function (% of Total), Burkina Faso, 2019 88 Figure 66. Budget Execution by Sector and Economic Classification, Burkina Faso, 2010-2019 89 Figure 67. Programmatic Composition of ERP Expenditure, Burkina Faso, 2020 94 Figure 68. ERP Expenditure and Execution by Economic Classification, Burkina Faso, 2020 95 Figure 69. Personnel Expenditure, Selected Countries, 2016-2018 Average 95 Figure 70. Personnel Expenditure Trends, Burkina Faso, 2010-2020 96 Figure 71. Personnel Expenditure by Administration (% of Total), Burkina Faso, 2010 and 2019 96 Figure 72. Public Wage Bill Spending by Sector, Burkina Faso, 2010-2019 97 Figure 73. Public Wage Bill Spending, Burkina Faso, 2015-2020 97 Figure 74. Size of Civil Service and Personnel Expenditure, Burkina Faso, 2011-2019 98 Figure 75. Components of Personnel Expenditure, Burkina Faso, 2010-2020 98 Figure 76. Distribution of Civil Servants Across Regions, Burkina Faso, 2010 and 2018 98 Figure 77. Personnel Expenditure Scenarios Based on Historical Performance, Burkina Faso, 2010-2025 100 Figure 78. Personnel Expenditure Scenario Based on Reform, Burkina Faso, 2010-2026 102 Figure 79. Expenditure by Administrative Classification (% of Total), Burkina Faso, 2010 and 2019 102 Figure 80. Education Expenditure (% of GDP), Selected Countries, 2016 104 Figure 81. Composition of Education Expenditure, Burkina Faso, 2010-2020 104 Figure 82. Education Expenditure and Outcomes, Selected Countries, 2017-2020 105 PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 10 Figure 83. Government and Out-of-Pocket Health Spending, Selected Countries, 2018 106 Figure 84. Composition of Ministry of Health Expenditure (%), Burkina Faso, 2010-2020 106 Figure 85. Health Personnel Density, Selected Countries, 2018 107 Figure 86. Health Expenditure and Outcomes, Selected Countries, 2017-2020 108 Figure 87. Composition of Social Protection Spending, Burkina Faso, 2010-2020 109 Figure 88. CPIA Social Protection Rating, Selected Countries, 2020 109 Figure 89. Social Protection Expenditure, Burkina Faso, 2005-2019 110 Figure 90. Social Safety Net Programs and Coverage (% of population/quantile), Burkina Faso, 2019 110 Figure 91. Social Safety Net Programs and Targeting, Burkina Faso, 2018 111 Figure 92. Share of PFM Reform Plan Recommendations Implemented, Burkina Faso, end-2020 115 Figure 93. Common Inter-Ministerial Expenditures, Burkina Faso, 2010-2020 115 Figure 94. Organization of the Education Sector for Local Service Delivery, Burkina Faso 120 Figure 95. Transfers in the Education Sector, Burkina Faso, 2017-2021 120 Figure 96. Organization of Administrative Services in the Health Sector, Burkina Faso, 2021 121 Figure 97. Organization of Care Services in the Health Sector, Burkina Faso, 2021 122 Figure 98. Transfers in the Health Sector, Burkina Faso, 2017-2021 122 Figure 99. Process of Transferring Financial Resources to Local Authorities, Burkina Faso, 2021 126 Figure 100. Resource Allocation and Service Delivery in Health and Education, Burkina Faso, 2021 127 Figure 101. Share of Resources Transferred to Communes (%), Burkina Faso, 2017-2020 128 Figure 102. Delivery of the Minimum School Bag, Burkina Faso, 2017-2020 128 Figure 103. Flow of Health Funds at Hospital and District Level, Burkina Faso, 2021 131 Figure A1. CPIA Score for Burkina Faso and Structural Peers, 2010-2020 153 Figure A2. CPIA Score and Cluster Scores, Burkina Faso, 2010-2020 154 Figure A3. CPIA Score for Economic Management Cluster, Burkina Faso, 2010-2020 155 Figure A4. CPIA Score for Public Sector Management and Institutions Cluster, Burkina Faso, 2010-2020 155 LIST OF BOXES Box 1. Regional, Structural and Aspirational Peer Comparison 19 Box 2. Burkina Faso’s National Development Network (2016-2021) 25 Box 3. Tax Collection in 2020: Impact of COVID-19 and Security 45 Box 4. Citizen Engagement Activities of Tax Authorities 74 PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 11 LIST OF TABLES Table E1. Burkina Faso’s Decline in Economic Policies and Institutions Between 2010 and 2020 13 Table E2. Policy Reform Options for Burkina Faso with Largest Potential Fiscal Gains 16 Table 1. Debt Reporting Heatmap, Burkina Faso, 2020-2021 36 Table 2. Debt Reporting Heatmap, WAEMU Countries, 2021 37 Table 3. Projection Drivers of Fiscal Framework Scenarios, Burkina Faso, 2015-2025 39 Table 4. Tax Revenue Breakdown (% of Tax Revenue), Burkina Faso, 2010-2019 46 Table 5. Responsiveness of Revenues to GDP Growth (2010-2019) 49 Table 6. Main Tax Reforms, Burkina Faso, 2010-2020 50 Table 7. Statutory Tax Rates (%), Selected Countries, 2020-2021 54 Table 8. Statutory Personal Income Tax Brackets, WAEMU Countries, 2020-2021 56 Table 9. Personal Income Tax, Selected Countries, 2018 58 Table 10. Corporate Income Tax, Selected Countries, 2018 59 Table 11. VAT Productivity and C-Efficiency, Selected Countries, 2018 64 Table 12. Mining Taxes (%), Burkina Faso, Mali and Ghana, 2003-2015 66 Table 13. Number and Nominal Values of Assessed Tax Expenditure Measures, Burkina Faso, 2015-2019 72 Table 14. Budget Rigidity (% of Total Expenditure), Burkina Faso, 2010-2020 86 Table 15. Budget Execution by Economic Category (%), Burkina Faso, 2010-2020 90 Table 16. Budget Execution by Selected Ministries (%), Burkina Faso, 2010-2020 90 Table 17. Overview of Covid-19 Emergency Response Plan (ERP), Burkina Faso, 2020-2022 91 Table 18. Costing of ERP (amounts in US$ million), Burkina Faso, 2020-2022 93 Table 19. Fluctuations in Social Sector Spending, Burkina Faso, 2010-2019 103 Table 20. Status of Education Sector Resource Transfers to Communes, Burkina Faso, 2021 121 Table 21. Status of Health Sector Resource Transfers to Communes, Burkina Faso, 2021 123 Table 22. Determining Resource Transfers for Operation and Investment, Burkina Faso, 2021 124 Table 23. Funds for Free Health Care, Burkina Faso (in CFAF), 2016-2019 132 Table 24. Tax Policy Reform Options with Indicative Timeline and Fiscal Gain 136 Table 25. Tax Administration Reform Options with Indicative Timeline and Fiscal Gain 137 Table 26. Public Expenditure Reform Options with Indicative Timeline and Fiscal Gain 139 Table 27. Public Financial Management Reform Options with Indicative Timeline 141 Table A1. Peer Group Selection 151 Table A2. Evaluation of the Core Functions of Burkina Faso’s Tax Administration, 2020 159 Table A3. Simulation of Excise Tax Revenue of Tobacco in Burkina Faso 161 Table A4. Burkina Faso Revenue Collection, 2010-2019 162 Table A5. Burkina Faso Public Expenditures (% of GDP), 2010-2020 164 Table A6. Burkina Faso Public Expenditures (in CFAF), 2010-2020 164 Table A7. Total Revenue and Tax Breakdown (% of GDP), Selected Countries, 2018 165 Table A8. National Development Program PNDES II Key Targets, Burkina Faso, 2020-2025 168 Table A9. IT Reforms in Burkina Faso under the Tax Revenue Authority DGI, 2018-2021 169 Table A10. Burkina Faso’s Tax Expenditure Breakdown, 2015-2019 171 Table A11. Examples of Tax Expenditures in Burkina Faso by Type of Tax, 2019 173 Table A12. Tax Measures Taken by the Burkinabe Government to Mitigate the Impact of COVID-19 176 Table A13. Summary of PEFA 2017 Indicators for Burkina Faso 177 PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 12 EXECUTIVE SUMMARY This Public Expenditure and Revenue Review (PERR) identifies Burkina Faso’s key public spending and revenue challenges and proposes solutions to develop more effective and transparent fiscal policies. The review, carried out by a World Bank team with inputs from the Government of Burkina Faso, is the first such core diagnostic for the country in more than 10 years. It fills an important information gap and serves as a starting point for deeper analyses in three areas: (a) domestic revenue mobilization, (b) the sectoral allocation of public expenditure, and (c) public financial management. This PERR analyzes the decade 2010-2020, with an emphasis on effectiveness and efficiency in the generation and use of Budget resources (Figure E1). The period encompasses the socio-political upheaval of 2014- 2015, with a popular uprising culminating in a regime change. The newly elected Government’s first National Development Program (PNDES I, 2016-2021) introduced several important reforms, including decentralization and performance-based budgeting. PNDES II, its successor program (2021-2025), was refocused to account for new realities, particularly the difficult security situation and the COVID-19 pandemic. Following a coup d’état in January 2022, the Transition Government outlined a Transition Agenda with priority actions to be implemented over three years. This PERR offers policy options to inform the implementation of PNDES II and the Transition Agenda and help achieve their key objectives. Figure E1. Budget Sources and Use (% of GDP), Burkina Faso, 2010 and 2019 2010 2019 3.8% Debt Interest 0.4 8.2% Debt Interest 1.2 46.7% Tax Revenue 10.5 Public Wages 4.9 Tax Revenue 14.5 62.1% Public Wages 9.0 17.1% Goods and Services 1.8 33.3% 14.5% Non-Tax Revenue 2.2 Goods and Services 2.1 4.5% Current Transfers 3.5 15.2% Other Revenues 0.5 Non-Tax Revenue 3.2 95.5% 93.7 100% Other Revenues 1.2 6.3% Current Transfers 5.2 Grants 3.0 100% 100% Investment 9.7 Grants 1.5 100% Investment 5.9 Net Lending 4.1 100% Net Lending 3.0 100% Source: BOOST, MINEFID and World Bank staff estimates. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 13 Three factors drove the deterioration of economic policies and institutions Following a period of relative stability, the quality of economic policies and institutions started to decline amid the political turbulence and transition of 2014-2015. The decline continued with the onset of conflict and violence in 2017, which affected large parts of the territory and led to a humanitarian crisis with massive displacement, putting additional demands on the country’s resources, policies and institutions. As a result, the Country Policy and Institutional Assessment score fell from 3.8 in 2010 to 3.5 in 2019. Over this period, only four countries in Sub-Saharan Africa (SSA) experienced a larger drop in their CPIA scores. The decline in Burkina Faso’s overall score was driven by a decline in three areas (Table E1). Table E1. Burkina Faso’s Decline in Economic Policies and Institutions Between 2010 and 2020 Key factors Underlying drivers Low Efficiency and Effectiveness A narrow tax base, low tax rates, a malfunctioning VAT credit refund of Revenue Mobilization system and a multitude of tax rates, exemptions and derogatory measures, leading to collection weaknesses, noncompliance and fraud Weak Expenditure Performance Sharp rise in public expenditure with shift towards higher current expenditure and lower capital spending, largely on account of the uncontrolled growth of the public wage bill Low Quality of Budgetary and Incomplete performance-based budgeting reform, lack of clarity on Financial Management policy program objectives, and therefore inefficient allocation of Budget resources 1 Low Efficiency and Effectiveness of Revenue Mobilization In a context of declining concessional financing, strengthening domestic revenue mobilization has become vital to safeguard fiscal sustainability. Following the political changes in 2014-2015, donor grants shifted from around 3 percent of GDP, to below 2 percent. After some progress in the early 2010s, the efficiency of revenue mobilization has stagnated. Taxes as a share of GDP rose from 10 to 15 percent in the early 2010s but did not rise further until 2020. This performance remains far from the target of 21 percent of GDP set by the Government in 2017 and recently reiterated in PNDES II. Overall tax revenue is also vulnerable to fluctuations in commodity prices, especially for gold. Confronted with multifaceted challenges (security, humanitarian, social, climate and COVID-19), the country’s fiscal sustainability could be further threatened if weaknesses in domestic revenue mobilization are not urgently addressed. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 14 Numerous challenges make the country’s tax system inequitable (weak progressivity), unfriendly to business (high compliance and transaction costs), and ultimately inefficient (high tax gap). Tax policy is characterized by (a) weak progressivity of the personal income tax (PIT) system; (b) an excessive set of tax exemptions in the form of value added tax (VAT) and corporate income tax (CIT) exceptions, CIT relief and customs incentives on imports; (c) a poorly designed excise tax regime; and (d) inadequate taxation of property and informal activities. The tax administration is also impeded by (a) an inefficient VAT refund system; (b) weak compliance rates; (c) ineffective VAT refund audit; (d) lenient penalties for fraud; (e) limited geographical reach; and (f) limited coverage of the informal sector. 2 Weak Expenditure Policy Performance as Wages Crowd out Spending Priorities The drop in expenditure policy performance is largely explained by a shift in the expenditure composition on account of uncontrolled growth in the wage bill and high current transfers. Public expenditure as a share of GDP rose from an average of about 20 percent at the beginning of the 2010-2020 period to around 25 percent of GDP over the second half. During the same period, the composition of public expenditure shifted towards current transfers and wages and away from capital spending. The shift towards higher transfers and wages came in the aftermath of the 2015 regime change and the ensuing security challenges and humanitarian crisis (both internal displacement and the COVID-19 pandemic). The growth of the wage bill has been crowding out investment spending and remains the principal threat to Burkina Faso’s fiscal sustainability. With high demand from the education and security sectors, the wage bill increased significantly over the last decade, accounting for 38 percent of the total budget in 2019, up from 22 percent in 2010. As a share of GDP, the public wage bill rose from 5 to 9 percent over the same period. Personnel spending has been well above the WAEMU-mandated ceiling of 35 percent of tax revenue for the last five years and surpassed 65 percent of tax revenue in 2020. In addition to increased hiring, the compensation structure is characterized by large bonuses and allowances, which are narrowly distributed and lead to more inequity and potential social discontent. The rapid rise in the wage bill over the past decade does not appear to have translated into substantial benefits in health and education. Instead, it triggered a decrease in capital expenditure as a share of total expenditure from 44 to 30 percent with less funds available for investment, including in growth-enabling sectors such as energy, transport, logistics, education and health. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 15 3 Low Quality of Budgetary and Financial Management The quality of budgetary and financial management has yet to show improvement as a result of the 2017 performance-based budget reform. Budget discussions are now rightly focused on outputs and expected outcomes (e.g., improved education level of the population); however, several other shortcomings are affecting the reform’s performance. The costing of inputs and outputs remains challenging. Further, the prioritization of sectoral policies and public investment projects needs to be reinforced. In addition, a lack of clarity on policy and program objectives makes it difficult to establish performance indicators. Finally, the performance information is not adequate for making resource allocations or management decisions. As a result, the major 2017 Budget reform has not yet translated into improved outcomes. Budget transfers have been insufficient to improve service delivery at the local level to address conflict drivers, due to a lack of accountability, limited capacity and inadequate procurement procedures. Since the introduction of the 2017 Budget reform, the share of budget transfers to the local level increased from 5 to 11.6 percent of total spending in 2020. The increase in transferred resources remains below the Government’s target of 15 percent and has been insufficient to improve the performance of local services or the institutional capacity of local governments, which is required to address constraints in conflict areas. Both issues are particularly acute in education and health, which account for about 88 percent of the total of transferred resources. These two sectors are most important in the decentralization agenda (and to address conflict drivers), but there are two major shortcomings in the way decentralization in these sectors is implemented: (a) the method of determining the resource transfers is not linked to performance in the provision of basic services; and (b) the process of transferring competences and resources to the local governments remains incomplete. Implementing fiscal reforms for resilience requires decisive action Policy Options to Unlock Fiscal Space The Government can generate fiscal space to implement the PNDES II and Transition Agenda. The elevated fiscal deficits of past years have translated into a rapid increase of public debt and associated debt service costs. As external concessional financing has fallen (with most of it now provided by IDA), the Government has been issuing domestic debt in the regional WAEMU capital market to finance implementation of the First National Development Program (PNDES I, 2016-2021), and more recently, to finance rising spending related to security and COVID-19. As a result of both a higher debt stock and a compositional shift towards more expensive domestic debt, debt service costs have increased steadily, reaching close to 8 percent of GDP by 2020, mostly related to the rollover of short-term domestic debt. This PERR offers options for policy reforms that can be implemented within two years (short term) and within five years (medium term). The following reforms are associated with the largest fiscal gains: PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 16 Table E2. Policy Reform Options for Burkina Faso with Largest Potential Fiscal Gains Option Details Time and Gain Reduce VAT • Enhance the implementation of the VAT refund Medium term compliance gap scheme (including through digitalization) to assure the credibility of the VAT system. 4.8 percent of GDP • Improve the VAT management capacity (including through digitalization) within the tax administration. • Promote voluntary compliance through continued and regular citizen-engagement campaigns. • Increase the VAT threshold (for selected necessity goods) to ease the burden of the tax administration and enable it to focus on a smaller number of VAT-liable taxpayers. Curb tax • Calculate all the costs and marginal benefits of Short term expenditures tax expenditures or tax incentives and factor into the overall tax policy reforms. 1-2% of GDP • Eliminate tax expenditures, especially deductions, exclusions, credits, exemptions, and preferential treatment, particularly to improve VAT and customs. • Strengthen collaboration between customs and tax authorities to share all available information and control evasion effectively. • Integrate tax expenditure rationalization as much as possible in the design of broader tax reform packages. • Ensure that the Investment Incentives Law is strictly enforced and clearly stated to boost the confidence of investors when they engage in a market or sector. Rein in the public • Limit the nominal growth rate of bonuses and Medium term wage bill through allowances. compensation • Freeze and then rationalize allowances, reducing 1.6% of GDP measures and them by 10 percent yearly. reduced hiring • Establish a maximum share of the wage bill for bonuses and allowances to increase the share of base salaries and make government compensation more transparent. • Initiate structural reforms addressing weaknesses in remuneration and public financial management, including harmonization of pay scales and allowances across sectors. • Improve categorization of compensation spending under goods and services, which currently vaguely categorize public service allowances. • Reduce recruitment by 40 percent below the trendline. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 17 The implementation of selected policy options outlined above could generate cumulative and recurrent fiscal gains of at least 7 percent of GDP over the medium term. The largest fiscal gain could be achieved on the revenue side through measures aiming at boosting VAT compliance (4.8 percent of GDP) and curbing tax expenditures (1-2 percent of GDP); excise tax reform could generate an additional 1-2 percent. On the expenditure side, reining in the further growth of an already elevated public wage bill would yield the largest fiscal gains. Using a Medium- Term Fiscal Framework, a reform scenario has been calibrated to illustrate the implementation of all policy options provided in this PERR. In such a scenario, the fiscal balance would gradually improve from -5.5 percent of GDP in 2021 to +0.7 percent in 2025 with public debt shrinking from 55 percent of GDP to 51 percent over the same period. Alternatively, the Government could use the additional fiscal space to invest in priority sectors, which would generate higher economic growth and help accelerate poverty reduction. Policy Options to Inhibit Drivers of Conflict In an evolving context of multiform crises, service delivery could be improved through a set of actions. The following reforms are particularly important to rein in underlying drivers of conflict and terrorism: a. Reforming the fiscal transfer modalities to local governments, and the use of performance-based transfer and accountability; b. Increasing the share of budget transfers to the Decentralized Technical Structures (DTS) to enable them to provide greater hands-on support to local governments; and c. Revising of the Public Procurement Code to require more delegation of authority to the local level. There is also potential to improve the delivery of health and education services at the local level through budgetary and financial management reforms. With regard to free health care through the Public Health Entities, there is a disconnect between aspiration and the budget allocation, due to (a) cumbersome financial management procedures, and (b) the procurement of medical supplies not being aligned with needs. This structural financing gap could be addressed by streamlining the procurement, budgeting and payment procedures, which would improve access to free health care and reduce beneficiaries’ out-of-pocket expenditures. In the education sector, governance issues affecting the management of school canteens, which account for 74 percent of fiscal transfers to the local governments, can be addressed through improved procurement procedures, quality control of the food supply chain, and enhanced social accountability. Finally, the Public Financial Management reform strategy needs to be rethought and refocused on the urgent needs of the population. In the area of public procurement, this requires the revision of the Public Procurement Code to adapt it to the crisis situation, while delegating to the DTS the authority to procure and receive goods and services. In addition, the link between budget strategies and public policies needs to be strengthened by adapting the content of budget programs and the associated performance indicators to the challenges of fragility and to the PNDES II results framework. Finally, accountability needs to be restored by deploying budget and accounting applications at the central and local levels, as well as by creating a network of accountants. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 18 INTRODUCTION This report is a Public Expenditure Review (PER) complemented by a public revenue analysis and therefore called a Public Expenditure and Revenue Review (PERR). PERs are among the most critical and commonly used tools to analyze and engage on the quality of public expenditure and financial management systems in the World Bank’s client countries. They serve as the main instrument guiding and influencing policy dialogue on reforms covering the full public finance cycle. PERs also help to mainstream public finance diagnostics in sector operations. PERs typically analyze government expenditures over a period of 5-10 years to assess their consistency with policy priorities. They may analyze government-wide expenditures or focus on a particular sector, such as health, education or infrastructure. PERs help to diagnose spending problems and support countries’ efforts to develop more effective and transparent budget allocations. Their immediate objectives are to establish a baseline understanding of key fiscal management and policy challenges, highlight priority areas of reform, and set the agenda for the next phase of budgetary planning. World Bank PERs generally evaluate multiple dimensions of public spending, including its effectiveness, equity and efficiency, as well as fiscal sustainability of the government’s spending program. They also benchmark the country’s performance against regional, structural and aspirational peers as described in Box 1. Coming after a hiatus of more than 10 years, this PERR aims to provide a detailed analysis of public sector management issues and policies in Burkina Faso, to inform implementation of the National Development Plan PNDES II and the Transition Agenda. No comprehensive PER has been conducted for Burkina Faso since 2009, and this information gap was only partially filled (see Annex I). The PERR aims to capture the economic, fiscal and institutional impacts of important changes over the decade, including the social uprising and regime change in 2014-2015; the rise of conflict, with an increasing death toll and large population displacements; deterioration in the quality of economic policy and institutions; and the onset of the COVID-19 pandemic. During this period, a newly elected Government implemented its first National Development Plan, PNDES I (2016-2021), which introduced several important reforms, including decentralization and performance-based budgeting. Its successor program, PNDES II (see Annex XVI), is expected to run until 2025. A Transition Government put in place following a coup d’état on January 24, 2022, is expected to continue the implementation of PNDES II in addition to the Transition Agenda outlined for the three-year transition period. This PERR will inform the implementation of these two plans, including through its guidance on the 2023 Budget, and its findings will also provide the basis for deeper sector-specific studies. The PERR examines the period 2010-2020, with an emphasis on effectiveness and efficiency in the generation and use of Budget resources. The report offers policy options to improve (a) the generation of domestic revenue; (b) the composition of public spending; (c) the quality of public financial management (PFM); and (d) the quality of public services. In the context of declining Official Development Assistance, the mobilization and efficient use of own financial resources is critical to implementing the Transition Agenda and PNDES II, which strives to improve the well-being of the population and achieve strong and inclusive growth by 2025 through a focus on education, health and social protection. The PERR establishes a key analytical basis to inform Government policies and the design of World Bank Group lending and technical assistance. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 19 The PERR builds on the Open Budget Portal (BOOST) approach and is methodologically anchored in the Country Policy and Institutional Assessment carried out annually over the past decade. The World Bank’s BOOST initiative strives to make well-classified and highly disaggregated Budget data easily available to researchers, policymakers and civil society, and to promote the effective and transparent use of these data for improved budgetary decision-making, analysis and accountability. The Open Budget Portals are user-friendly platforms that allow expenditure data to be easily accessed and used to examine allocation trends, identify potential sources of inefficiencies, and analyze how a central or subnational government is financing the delivery of public services. Three BOOST databases were built for this report: a standard Expenditure BOOST, a Revenue BOOST and an innovative COVID-19 BOOST to track expenditures related to the pandemic (see Annex III). Anchoring the PERR in the annual CPIA allows for changes in the quality of public policy and institutions to be viewed over the 10-year period. The report uses the CPIA scores, broken down into four clusters and 16 sub-ratings, to investigate factors linked to the deterioration of performance in (a) Economic Management; (b) Public Sector Management and Institutions; (c) Policies for Social Inclusion; and (d) Structural Policies. A focus on the sub-scores under each area helps to identify the specific factors that affect the cluster scores. The key factors include (a) Fiscal Policy (under the Economic Management cluster); (b) Quality of Budgetary and Financial Management; and (c) Efficiency of Revenue Mobilization (both under the Public Sector Management and Institutions cluster). (See Annex IV and V for the CPIA framework.) The PERR is complemented by several World Bank studies on Burkina Faso that were ongoing or recently completed as of March 2022. First, a set of Functional Reviews is supporting the Government’s reform efforts in the areas of wage bill management, human resource management and performance as well as accountability for results. Second, a Country Economic Memorandum is examining Burkina Faso’s past growth pattern and developing policy options to enhance agricultural productivity, improve spatial development, and reduce gender gaps. Third, a Country Climate and Development Report being prepared for the G5 Sahel countries examines the climate-development nexus. Fourth, a G5 Sahel Security Public Expenditure Management Review provides some in-depth analysis of the security sector in a regional context. Fifth, an Agriculture Public Expenditure Analysis will more deeply examine spending in this key sector of the economy. Annually published Economic Updates offer additional information and analysis. Box 1. Regional, Structural and Aspirational Peer Comparison The report also benchmarks Burkina Faso’s performance against regional, structural and aspirational peers. In contrast to groups of regional peers—Sub-Saharan Africa and West African Economic and Monetary Union (WAEMU) countries—the structural and aspirational groups were built using the World Bank’s dynamic benchmarking methodology, derived from the tool developed for the Country Economic Memorandum (see Annex II). For the group of structural peers—a set of countries that display economic and human development characteristics similar to those of Burkina Faso over the period 2010-2020—the methodology considered GDP per capita, CPIA, tax ratio, public expenditure composition and score on the Human Capital Index (HCI). The selected structural peers were Guinea, Mali, Niger and Uganda. For the group of aspirational peers, which were structurally similar to Burkina Faso in 2010 but thereafter experienced faster per capita growth and faster improvement in their HCI scores, the selected peers were Togo, Ghana, Cambodia, and Bangladesh. Source: World Bank staff estimates. PUBLIC PUBLICEXPENDITURE REVENUEREVIEW EXPENDITUREAND ANDREVENUE REVIEWFOR FORBURKINA BURKINAFASO 2022 FASO2022 20 CHAPTER 1: MACRO-FISCAL CONTEXT PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 21 This chapter provides the macro-fiscal context for the Public Expenditure and Revenue Review. The first section presents the country and strategic context, including key political and external events of the past 10 years; and implementation of the National Development Framework, focusing on the National Development Program PNDES I. The second section examines the economic growth dynamics and drivers of rapid structural shifts over the past decade, with a focus on the key constraints to more efficient, resilient and equitable growth. The third section discusses core challenges for fiscal sustainability, reform priorities and progress in implementation, and a medium-term fiscal framework. SECTION I. COUNTRY AND STRATEGIC CONTEXT Burkina Faso is a fragile and conflict-affected country facing enormous challenges. Some of these challenges are more recent such as the COVID-19 pandemic and the onset of conflict in several parts of the country, which has led to a humanitarian crisis with over 1.7 million internally displaced persons (IDPs); others are more structural such as climate change and related effects on agriculture and food security. This section first looks at the major political and security developments over the past decade which led to the current situation. Next, it briefly outlines the National Development Framework put in place to respond to these challenges, with a focus on the first National Development Program PNDES I (2016-2021). Key challenges confronting Burkina Faso include the following: a. Increasing violence and humanitarian challenges: Conflict has increased dramatically since 2017. Frustration among a young population faced with a lack of opportunity has intertwined with violent extremism, especially in the country’s rural areas. As a result, the number of IDPs has swelled to over 8 percent of the country’s population. b. Vulnerability to climate variability and food insecurity: Variable rainfall—from droughts to floods—and encroaching desertification threaten agricultural production. Rising temperatures threaten to exacerbate this problem, leading to insufficient food supply and food insecurity. c. The COVID-19 shock threatens progress in poverty reduction: Poverty has worsened during the pandemic, which laid bare the vulnerabilities already present. As a result, household incomes fell, and fewer people were able to access basic services. d. The above lead to continued socio-political frustration and upheaval: Violence has not been brought under control. With many displaced persons and worsening food insecurity, the vulnerabilities laid bare by the pandemic show the country faces considerable challenges and a shaky foundation from which to address them. As a result, the population is largely frustrated, and turbulent political developments present an acute risk. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 22 Areas of Vulnerability In the first half of the 2010s, the country underwent significant political changes that impacted economic growth and policy (Figure 1). In 2011, the end of the crisis in neighboring Côte d’Ivoire brought temporary relief to the national sociopolitical situation. However, due to the increasingly higher cost of living, social unrest soon resumed and ramped up. The situation was worsened by the repeated attempts of long-time President Blaise Compaoré to extend his term in office. Ultimately, the president was overthrown by a social uprising in October 2014. Following a coup d’état attempt by the former president’s supporters in September 2015—which failed due to strong pressure from civil society—general elections were held in November of the same year. Receiving 53 percent of the vote in the first round, Roch Marc Christian Kaboré was sworn in as president in the last days of 2015. Amid the political turmoil, economic growth and investment spending reached a low in 2015, but both picked up in 2017 as the first National Development Program, PNDES I, was put in place a year earlier. However, on account of concessions made by the new Government to calm the tense social climate, the fiscal deficit continued to rise, reaching a peak in 2017. Figure 1. Major Events and Economic Indicators, Burkina Faso, 2010-2021 Revenue Blaise Stable End of 2010-2011 collection and Compaoré economic year, COVID-19, a worsening Ivorian crisis, mining-sector overthrown rising regional food crisis, and nationwide unrest proceeds continue after 27 Roch Marc terrorist Performance- increased violence because of high cost to improve and years of Kaboré elected activity based budgeting pose a triple of living grow presidency as president introduced challenge 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 12 10 8 6 4 2 0 Fiscal Deficit (% of GDP) GDP Growth (%) Investment (% of GDP) Source: World Development Indicators and World Bank staff estimates for 2020 and 2021. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 23 Since 2017, the Government has been confronted with increasing violence and humanitarian challenges (Figure 2). The rapidly deteriorating security situation led the World Bank to add the country to its Fragile, Conflict and Violence-affected list in Fiscal Year 2020, with the attribute of “medium-intensity conflict.” Violent conflicts and casualties have grown dramatically since 2017, with violent extremism increasingly intertwined with frustration over longstanding exclusion, lack of opportunities, and inequities in the distribution of resources. Six of the country’s 13 regions are under a state of emergency, and the very presence of the State is jeopardized in many of those areas. 2021 recorded 2,373 fatalities (compared to an annual average of 2,262 for 2019-2020), with 59 percent reported in the Sahel region, and the remainder primarily in the Est, Nord and Centre-Nord regions. As a result of the violence, the number of IDPs has increased from roughly 50,000 in January 2019 to more than 1.7 million (about 8 percent of the population) as of September 1, 2021.1 Most provinces (including Nord, Sahel, Centre-Nord, Centre and Est) are hosting IDPs, which puts an already poor population under additional stress and threatens the Government’s ability to deliver social services while facing pressure for higher security spending. Figure 2. Reported Fatalities, Burkina Faso, 2011-2022 By year (2011-H1 2022*) By month (August 2019 - December 2021) 2,373 500 2,216 2,303 Mar 20 Jun 21 400 Dec 21 Dec 19 300 Average 200 303 Jan 21 81 117 155 100 10 32 8 36 23 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 0 By region (1 January 2021 - 14 January 2022) Sahel 1,401 Est 360 Nord 257 Centre-Nord 248 Cascades 93 Boucle du Mouhoun 90 Sud-Ouest 52 Centre-Est 12 Centre-Sud 6 Hauts-Bassins 5 Centre-Ouest 2 Centre 2 Source: Armed Conflict Location and Event Data Project (ACLED). 1 Burkina Faso is among the top 15 countries with the largest IDP population. Data from National Council for Emergency Relief and Rehabilitation (Conseil National de Secours d’Urgence et de Réhabilitation (CONASUR), January 31, 2022. Also see United Nations High Commissioner for Refugees (UNHCR), Global Trends: Forced Displacement in 2020, published in June 2021. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 24 The country’s high vulnerability to climate change magnifies this challenging context (Figure 3). The low and variable rainfall as well as degraded soils with low productivity and water-holding capacity constrain agricultural and livestock production. Climate variability is a major risk to food security, human and animal health, the environment and poverty reduction. High temperatures and reduced rainfall are accelerating desertification, deterioration of the ecosystem and losses of arable land. Seasonal intense rainfall causes outbreaks of crop and livestock pests and diseases, which negatively impact smallholder incomes. Increased temperature and reduced rainfall are affecting water resources and causing wells and other water sources to dry up. At the local level, climate change impacts are demonstrated by extreme and unpredictable events—including prolonged droughts, violent floods, deadly heat waves and erratic beginnings and ends to rainy seasons. At the regional level, distinct patterns become apparent in each agro-ecological region. Desertification has already claimed extensive areas, and land degradation affects nearly 34 percent (more than 9 million hectares) of the country’s land. Figure 3. Vulnerability to Climate, Selected Countries, Figure 4. COVID-19 Cases and Deaths, Burkina Faso, 2018 2020-2021 700 35 9 8 600 30 7 Daily Confirmed Cases 500 25 Daily Confirmed Deaths 6 400 20 5 4 300 15 3 200 10 2 100 5 1 0 0 0 10-Mar-20 10-May-20 10-Jul-20 10-Sep-20 10-Nov-20 10-Jan-21 10-Mar-21 10-May-21 10-Jul-21 10-Sep-21 10-Nov-21 Ghana Benin Senegal Togo Congo, Rep. of Kenya Mali Ethiopia Cameroon Uganda Burkina Faso DRC South Sudan Climate-driven vulnerability index Cases Deaths SSA Average Source: IMF Climate Change Indicators. Source: Our World in Data. The COVID-19 shock and the associated economic downturn have reversed recent progress made in poverty reduction (Figure 4). Economic growth averaged 6.1 percent over 2016-2019 (3.1 percent per capita), but the economy grew by only 1.9 percent in 2020 in the wake of the COVID-19 crisis, shrinking by about 1 percent in per capita terms. The extreme poverty rate, measured by the US$1.9 a day (2011 PPP) poverty line, stood at 32 percent in 2019, with simulations suggesting that it increased by half a percentage point in 2020. The increase in poverty, combined with high population growth, resulted in an additional 290,000 extreme poor in 2020. Findings from eight waves of high-frequency surveys conducted in 2020 and 2021 suggest that the pandemic negatively impacted economic activities and led to an increase in unemployment and a sharp reduction in household incomes. With fewer or no sources of income, many households were not able to make ends meet, and about 50 percent of the interviewees reported that they can no longer meet their dietary needs. At the same time, intensifying insecurity in the country has put more people, especially the poor and vulnerable, at risk of being displaced and deprived of employment opportunities and access to basic services. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 25 The National Development Framework The post-revolution Government has put in place a set of development plans that together comprise the National Development Framework (Box 2). The new framework started with the National Development Program (PNDES I) for the period 2016-2021. PNDES I had three strategic pillars: (a) Reforming institutions and modernizing the public administration; (b) Developing human capital; and (c) Dynamizing growth-driving and job-creating sectors. Its overall objective was to provide coherent, efficient and sustainable health and social protection policies for poor and vulnerable segments of the population, including youth and women. PNDES I also aimed at maintaining macroeconomic stability while creating fiscal space for productive and social investment through increased domestic resource mobilization and improved efficiency in public spending. The PNDES highlighted climate change as one of the key drivers of vulnerability, and included commitments on mitigation and adaptation actions to transition to a green economy.2 Box 2. Burkina Faso’s National Development Framework (2016-2021) PNDES I was supplemented by a regional emergency plan to respond to humanitarian, development and peacebuilding challenges arising from the nascent armed conflict and growing insecurity. In 2017, the Government launched the Emergency Program for the Sahel/Burkina Faso (PUS-BF) to address governance and essential services deficits while strengthening economic resilience in both the Sahel and Nord regions. In June 2019, the Government expanded the PUS-BF to cover four additional regions impacted by insecurity. In February 2020, it adopted a Priority Action Plan for peacebuilding, emanating from the Prevention and Peacebuilding Assessment undertaken by the Government with support from the United Nations, the World Bank, the African Development Bank and the European Union. Further, when the COVID-19 crisis hit, the Government adopted an Emergency Response Plan (ERP) to contain the outbreak and mitigate its economic and poverty impacts. In April 2020, the ERP introduced a set of actions aimed at the following: (a) containing the spread of the virus and treating patients; (b) helping vulnerable populations and micro, small and medium enterprises (MSMEs) to withstand the economic impact of the COVID shock; and (c) laying the ground for a strong economic recovery. Although closely aligned with the objectives of the PNDES, the ERP specifically responded to the health crisis through the containment and treatment of patients and suspected cases. The ERP was later updated to also include a vaccine rollout program. More broadly, along with its socioeconomic dimension, the ERP supports (a) vulnerable households and individuals through, e.g., cash transfers and suspension of utility bills; (b) MSMEs and the informal sector through temporary tax breaks and incentives and dedicated private sector funds; and (c) vulnerable sectors through fiscal measures to support the hotel, commerce and transportation industries. Source: Government of Burkina Faso. 2 This will be further discussed in the World Bank’s forthcoming G5 Sahel Country Climate and Development Report. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 26 SECTION II. ECONOMIC GROWTH DYNAMICS This section provides an analysis of the country’s growth dynamics over the past decade. The first subsection, on growth performance, presents some defining characteristics of Burkina Faso, including its natural endowments. The second subsection identifies the key economic constraints to more efficient, resilient and equitable growth over the 2010-2020 period, with a focus on technology adoption, productivity, and capital accumulation. Growth Performance Burkina Faso is a landlocked Sahelian country whose growth process has been shaped by its demography as well as specific features of its natural endowments. Rapid population growth puts increasing pressure on the labor market, and drives migration from rural to urban areas and out of the country in search of economic opportunities.3 The lack of economic opportunities for youth, along with gender-related inequalities, prevents Burkina Faso from reaping the demographic dividend. At the same time, the country is endowed with substantial lands and massive mining reserves, which hints at comparative advantages in both the agriculture and mining sectors. However, because of limited water resources and harsh climatic conditions, the agriculture sector is becoming less productive and more vulnerable to climate change, while the mining sector is an enclave economy with limited linkages to other sectors and few benefits to the broader economy. Interrupted only by a short period of socio-political volatility, the country’s pre-COVID-19 headline growth trend was among the strongest in Sub-Saharan Africa (Figure 5). The economy recorded one of the best levels of macroeconomic performance in Africa over 2010-2013, with GDP growth averaging 6.8 percent a year (though only 3.8 percent in per capita terms). In 2014-2015, growth slowed to about 4 percent a year due to the decline in global commodity prices, the fall in aid inflows and weaker investor confidence due to the uncertain political climate. After the downturn when the new Government was put in place, growth rebounded relatively quickly under the first National Development Program, to an average of 6.1 percent a year over 2016-2019, driven by increases in cotton and gold production and public investment. This growth performance was close to the WAEMU average of 6.3 percent, and almost three times the SSA average of 2.1 percent. Moreover, these headline numbers were accompanied by relatively low inflation, below 2 percent since 2013 and with a 5-year average of 0.5 percent since 2016. Private investment in the agriculture and mining sectors was mainly funded through the banking sector, which contributed to a steady increase in domestic credit provided to the private sector. Domestic credit reached 28 percent of GDP in 2019, surpassing structural peers. However, rising security challenges, climate volatility and the COVID-19 pandemic led to a weakening of growth in 2019-2020 (Figure 5 provides additional details on macroeconomic trends and structural shifts since 2000). 3 About a third of the country’s citizens have lived abroad at one point, and rural-urban migration has made Ouagadougou one of the fastest growing cities in Sub-Saharan Africa. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 27 Figure 5. Historic Growth Drivers and Trends, Burkina Faso, 2000-2020 Growth became less volatile with onset of gold What will it take for Burkina Faso to reach the production but has remained weak in per capita terms current GNI per capita of peers? 40 10 30 8 6 20 4 2 0 10 -2 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 0 Uganda Ethiopia Ghana GDP Growth (annual %) GDP per Capita Growth (annual %) Years to reach at average 2000-2020 pace of Burkina Faso (2.6%) Years to reach at average 2000-2020 pace of Rwanda (4.5%) Years to reach at average 2000-2020 pace of Ethiopia (5.9%) Source: World Development Indicators (WDI). Source: WB staff estimates and World Development Indicators. The political transition in 2014-2015 led Given low FDI inflows, private sector to a decline in investment investment is driven by domestic credit 30 30 20 20 10 10 0 0 2000 2006 2008 2004 2009 2005 2002 2020 2007 2010 2016 2018 2019 2014 2015 2013 2012 2017 2011 Gross Capital Formation (% of GDP) Domestic Credit to Private Sector (% of GDP) Gross Savings (% of GDP) Foreign Direct Investment, Net Inflows (% of GDP) Source: World Development Indicators. Source: World Development Indicators. Gold exports dominate Gold exports (data dominate (data for 2020) for 2020 The onset of gold production around 2010 has doubled trade as a share of GDP Raw 30 Raw Cotton, Cotton, 20 3%3% 10 0 Zinc Ore, Zinc -10 2%Ore, 2% -20 Other Co -30 Oily Coconuts, co -40 See… Braziln… Nuts, Other Oily Cashews, Seeds, 2% 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 1% O… T… C… O Gold, Gold, 88% 88% R R ... ... Exports Imports Current Account Deficit (CAD) Source: Observatory of Economic Complexity. Source: IMF and WB staff estimates. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 28 High GDP growth, however, has failed to translate into an equally rapid increase in living standards and faster poverty reduction. From 2000 to 2020, Burkina Faso’s economic output tripled in real terms, while living standards increased by only 66 percent (as measured in per capita GDP), and growth averaged only 2.6 percent. If Burkina Faso—the 17th poorest country in the world, with a 2020 GNI per capita of only US$790 (Atlas method)4 —continues this growth trajectory, it will take about 41 years to close the gap of GNI per capita with Ghana or Cote d’Ivoire. However, if the country were able to accelerate growth to reach the pace of Ethiopia (5.9 percent), closing the gap would take 19 years, and at Rwanda’s rate of growth (4.5 percent), it would take just 5 years longer. Constraints to Growth Burkina Faso’s strong headline growth contrasts with indications of structural vulnerabilities. The total factor productivity decline since 2011 is especially troubling, as are constraints to development of human and physical capital in the context of high population growth. The productivity decline could be the result of allocative inefficiencies among sectors and regions, possibly caused by anti-competitive behavior or intense stratification of economic activity. The low level and rate of accumulation of human and physical capital is likely caused by local conditions that make it difficult for businesses and households to take advantage of the growth opportunities that exist in the wider economy. Finally, Burkina Faso remains a poor performer in labor force participation, with many workers and businesses choosing to remain in informal activity despite their increased vulnerability to economic shocks. Female labor force participation is particularly low compared with structural and aspirational peers. Low technology adoption and low labor productivity are key constraints to more efficient growth in the wake of rapidly unfolding structural transformation processes (Figure 6). Allocative inefficiency across sectors and regions appears to hold back productivity growth. Total factor productivity growth in Burkina Faso averaged -1.3 percent from 2011 to 2019. Much of the decline seems to have been due to a sharp fall of productivity in the non-government services sector—accounting for one-third of value added in 2018—amid large structural shifts in the economy during 2009-2018. Over this period, the non-government services subsector saw its share in total employment rise from 13 to 32 percent while its productivity declined. In contrast, agriculture saw a massive loss in its employment share, from 81 to 49 percent. The related influx of labor into manufacturing and mining was associated with a fall in the value-added share of manufacturing and a disproportional rise in the value-added share of industrial mining (mainly gold), the only subsector besides public services that saw an increase in labor productivity. 4 https://datahelpdesk.worldbank.org/knowledgebase/articles/378832-what-is-the-world-bank-atlas-method PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 29 Figure 6. Constraints to Efficient Growth, Burkina Faso, 1963-2020 Following a rise after the 1994 CFAF devaluation, Total ...and TFP’s contribution to growth has lagged most Factor Productivity has declined since 2011... peers over 2015-2019 Ghana 1.10 Niger 1.00 Mali Uganda 0.90 Burkina Faso 0.80 Togo Guinea 0.70 Bangladesh 0.60 Cambodia 1963 1967 1971 1975 1979 1983 1987 1991 1995 1999 2003 2007 2011 2015 2019 0 2 4 6 8 10 Percent contributions Capital Stock Labor TFP Source: Penn World Tables (2007=1). Note: Data for Cambodia, Bangladesh, Guinea and Togo come from the updated CEM Tool data in 2022, while the other countries have 2021 data. Source: WB Solow Growth Decomposition Tool. The share of mining in value added has risen, while …as agriculture’s share in total agriculture has stagnated... employment has plummeted 100% 100% 80% 80% 60% 60% 40% 40% 20% 20% 0% 0% 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Agriculture Mining Manufacturing Utilities Construction Trade Services Transport Services Business Services Financial Services Real Estate Government Services Other Services Source: GGDC The Economic Transformation Database. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 30 As people moved from agriculture to industry ...productivity increased in agriculture and declined and services... in industry and services 6 6 Annual Change (percentage points) Annual Change (percentage points) 4 4 4.89 1.68 2 2 1.76 0 0 0.18 -0.63 -3.68 -0.75 -2 -2 -4 -4 2000-2017 2000-2017 Employment Change = -0.24 Productivity Change = 3.68 Agriculture Services Industry Agriculture Industry Services Intersectoral Reallocation Source: WB Shapley Decomposition Tool. Source: WB Shapley Decomposition Tool. Burkina Faso’s chronic productivity gap is due primarily to limited technology adoption and innovation, which in turn is linked to persistently low levels of private investment in non-mining sectors. Except for a few niche subsectors, most firms operating in Burkina Faso do not use modern technologies. This is reflected in the 2021 Global Innovation Index, which ranked the country 115th out of 132 countries. The mining sector has attracted substantial private investment and has experienced significant productivity gains, but its poor linkages to the rest of the economy limit its positive spillover effects.5 Low levels of investment in other potentially growth- enabling sectors—including energy, transport, logistics, as well as education and health—have translated into limited technology adoption/innovation, and ultimately to low and declining labor productivity growth and job creation in those sectors. This lagging technological progress has resulted in slowing growth and a declining contribution of those sectors to total factor productivity (TFP) growth. Burkina’s technology and productivity gaps are further exacerbated by the high degree of informality in the economy.6 All in all, stagnating or declining labor productivity, declining TFP, and structural constraints hamper the country’s growth potential. 5 On September 22, 2021, the Government adopted a decree to increase local content in mining, with the aim of fostering linkages with the local economy. 6 In 2016, informal enterprises—which are mostly concentrated in non-tradeable sectors such as commerce and other services—accounted for 60 percent of non-agricultural employment in the private sector. Further, 90 percent of non-agricultural enterprises were informal. Such companies are often very small (90 percent have fewer than 10 employees), have a small turnover (less than CFAF 15 million), and generate only a marginal share (11 percent) of total sales in the country. Across sectors, informal firms are four times less productive than formal firms. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 31 The benefits of Burkina Faso’s gold boom have only partly reached into other sectors due to limited backward and forward linkages to the economy. With the rise of gold exports came a fall in export diversification. In particular, the agriculture sector, where the Government had embarked on expanding exports to include not only cotton, but also cashew nuts, sesame seeds, other oil seeds, tropical fruits and vegetable oils, did not receive the investment that would have enabled it to reach its potential. Most of the growth in agricultural value added has been on the extensive margin (more land, more inputs), while growth on the intensive margin (more productivity per hectare) has remained low. Further, productivity continues to be constrained by limited access to arable land and irrigation, finance, insurance mechanisms and poor vertical links with commercial vendors and the food-processing industry. Moreover, the services sector, which received a large influx of unskilled and informal workers from agriculture to work in mining-related trade services, saw a sharp fall in productivity. The acceleration of gold production has not contributed to significant improvements in key economic infrastructure (Figure 7). Burkina Faso’s very low rates of gross capital formation, gross national savings and foreign direct investment (FDI) outside of mining translate into low levels of access to key economic infrastructure. Access to electricity, roads, ICT, basic water and sanitation services and transport continue to be major challenges for people and firms operating in the country. Only 18 percent of the population has access to electricity (mainly concentrated in urban areas), which is significantly lower than structural peers (e.g., 48 percent in Mali). The country also has only 18 percent internet penetration, below structural peers Mali and Ghana (26 and 53 percent, respectively). Private investment is low, only about US$1.5 billion annually, representing less than 10 percent of 2020 GDP).7 Figure 7. Physical Capital Accumulation, Selected Countries, 2005-2019 Burkina Faso lags peers in capital and foreign ...and shows low levels of logistics performance investment... compared to aspirational peers Cambodia 2.4 Mali Track and Trace 2.5 SSA (excluding high income) 2.4 Logistics competence Togo Infrastructure and quality Burkina Faso 23.0 1.0 Guinea Uganda Ghana Timeliness Niger 3.0 International shipment Bangladesh 2.9 Customs 0 10 20 30 2.4 Gross Capital Formation (% of GDP) Burkina Faso FDI, Net Inflows (% of GDP) Rwanda Niger Source: World Development Indicators (data for 2019). Source: World Bank Logistics Performance Index 2018 (1=low, 5=high). 7 Burkina Faso Country Private Sector Diagnostic, July 2019. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 32 Burkina’s urban population has low shares of access to ...and few among the rural population have access infrastructure services... to electricity Percent of the total population by area of residence 120 120 100 100 80 80 60 40 60 20 40 0 20 Burkina Faso Togo Cambodia Bangladesh Burkina Faso Togo Cambodia Bangladesh Burkina Faso Togo Cambodia Bangladesh 0 Ghana Bangladesh Cambodia Togo SSA (excluding high income) Mali Guinea Ghana Niger Burkina Faso Access to People using at People using electricity least basic drinking at least basic water services sanitation services Rural Urban Total Source: World Development Indicators (data for 2019). Source: World Development Indicators (rural, urban, and total electricity figures: 2010-2019 avg; water access figures: 2010-2017 avg). Only 7 in 10,000 Burkinabè have a fixed ...and access to finance is low with large gender and broadband subscription... income gaps 1.20 1.12 60 1.00 50 0.80 0.73 40 0.60 30 0.39 20 0.40 0.19 10 0.20 0.07 0.06 0.04 0.01 0 0.00 Burkina Faso Mali Uganda Ghana Bangladesh Cambodia Burkina Faso Mali Uganda Ghana Bangladesh Cambodia Burkina Faso Mali Uganda Ghana Bangladesh Cambodia Cambodia Mali Togo Ghana Uganda Burkina Faso Niger Guinea Adults with account Gap between men and Gap between 2010 2019 ownership (%) women (percentage richer and poorer points) (percentage points) Source: World Development Indicators (data per 100 people). Note: Bangladesh data (2010: 0.28, 2019: 4.96) excluded to increase readability. Source: World Bank Global Findex (data for 2017). As a landlocked country, Burkina Faso depends on ports in its neighboring countries for overseas trade. Eighty- five percent of its exports are to countries outside the region, and imports accounted for almost 40 percent of GDP in 2020. About 30 percent of trade goes through Côte d’Ivoire, 25 percent through Ghana, 25 percent through Togo and the remaining 20 percent through Benin. However, the transport and logistics chains are highly inefficient, while the trucking industry is uncompetitive and operates below its potential. This adds significantly to the overall cost of doing business, which is one of the highest in the region. Among the major constraints are deficient infrastructure, roadblocks, a multitude of conflicting actors, poorly designed incentives, burdensome licensing requirements, ineffective tracking, and inadequate, ineffective and overlapping regulations. As a result, the overall environment for export-oriented investment is not conducive to competition and private investment. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 33 In the areas of transport/logistics and energy, critical bottlenecks undermine any competitive advantages the country may have. Investment decisions must factor in some of the highest energy and transport costs and lowest reliability in West Africa, coupled with acute skills shortages in certain competencies. Burkina Faso is among the world’s worst-performing countries in these key enabling sectors, and the high costs of these services erode returns to private investment. Although the country has opened most of its sectors and the Government does not generally crowd out private activities, this constraining environment hampers private investment and job creation outside of the mining sector. Poor physical infrastructure is one impediment—only 20 percent of the country’s 15,300 km of classified roads (roads of strategic importance) are paved, and only 50 percent of its 46,000 km of non-classified roads, are accessible during the rainy season. Non-competitive markets for transport and trucking services are another impediment in this sector. In the energy sector, the low electrification rate is another major bottleneck to raising the country’s growth potential. Electrification is only 35 percent in urban areas and an extremely low 5 percent in rural areas. With about 40 percent of consumed electricity having to be imported from the West Africa Power Pool, the country is also vulnerable to international price fluctuations. Low private investment and excessive reliance on only two commodities—gold and cotton—makes the economy vulnerable to shocks. In addition to the constraints described above, private investment, trade and—importantly—entrepreneurship, are also inhibited by the limited investment opportunities inherent to Burkina Faso’s underdeveloped private sector. Other barriers include a poor legal and regulatory environment, limited financing and inefficient, and cumbersome and opaque government regulations and procedures. Further, insecure land titles and property rights are a source of conflict and uncertainty for the private sector, especially in a context of rapid land degradation. Addressing all these key barriers to growth requires a focus on priority sectors and on improving policies and institutions. Growth can be made more efficient through the adoption of productivity-enhancing technologies in agriculture/livestock, manufacturing and other services delivered by the private sector. Growth can be made more resilient by focusing on the role of urbanization/agglomeration, formalization of MSMEs and improvement of infrastructure such as roads and energy, which are critical for private sector development and economic transformation. Growth can be made more equitable by focusing on women’s education and skills development. Realizing the demographic dividend will require active labor market policies that promote income-generating opportunities for the working-age population. PNDES II reflects this comprehensive approach in its key results targets, which include higher GDP growth and improvement in the quality of economic policies and institutions. Progress in these areas will be measured by the country’s scores on its annual Country Policy and Institutional Assessments over the PNDES II period. (For a detailed discussion of the CPIA scores and how they are used to measure progress, see Annex IV and V.) PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 34 SECTION III. MACRO-FISCAL STABILITY This section discusses core challenges for fiscal sustainability, reform priorities and progress in implementation, and a medium-term fiscal framework. The first subsection provides an overview of the core challenges for fiscal sustainability, which include a high and rising public wage bill and low domestic revenue generation among others. The second subsection defines reform priorities (i.e., improving debt transparency, debt management, and fiscal sustainability) and evaluates progress in implementation. Finally, the third subsection presents a medium-term fiscal framework with baseline, shock and reform scenarios that shows the potential fiscal impact of the implementation of reform options outlined in Chapter 5 of this report. Core Challenges for Fiscal Sustainability Declining fiscal performance over the past decade has led to a worsening of Burkina Faso’s quality of economic policy. While revenue performance improved in the early part of the 2010s, expenditure was already on the rise, partly due to higher social spending. Poor revenue mobilization and investment execution combined with high current spending (driven by an expanding wage bill) led to a record fiscal deficit in 2017 of 6.7 percent of GDP. As a result, several performance targets under IMF programs had to be modified or waived.8 The fiscal deficit remains structurally imbalanced and sensitive to external shocks that lead to large impacts on current spending (particularly in security and social spending). Poorly controlled wage bill growth and high current transfers have caused public expenditures to rise. Public expenditure as a share of GDP rose from an average of about 20 percent at the beginning of the decade to around 25 percent of GDP over the decade’s second half. Moreover, capital spending has been substituted by higher current transfers and wages, with heightened costs to address the security and humanitarian challenges. Consequently, public investment spending has stagnated, being adjusted downward to limit overall public spending. The public wage bill remains the principal threat to Burkina Faso’s fiscal sustainability. In addition, public finances are also threatened by the spending implications of continued security and humanitarian crises. Despite progress in the early part of the decade, domestic revenue mobilization has stagnated. Taxes as a share of GDP improved to around 15 percent in the early 2000s but then stagnated at this level until 2019. Several reforms were implemented during this period, however, underwhelming performance continued. Similarly, grants declined from around 3 percent of GDP to below 2 percent before a temporary bump (3.2 percent) in response to the COVID-19 pandemic in 2020. Domestic revenue must be mobilized to close the structural tax gap estimated at 4-6 percent of GDP. 8 For example, the ceiling for net domestic financing was breached at the end of 2018. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 35 The elevated fiscal deficits of past years translated into a rapid increase of public debt and associated debt service costs (Figure 8). As external concessional financing is limited (with most of it provided by IDA), the Government has been issuing domestic debt in the regional WAEMU capital market to finance implementation of the National Development Program and, more recently, rising spending related to security and COVID-19. As a result of both a higher debt stock and a compositional shift towards more expensive domestic debt, debt service costs have increased steadily, reaching close to 8 percent of GDP by 2020, mostly related to the rollover of short-term domestic debt. Figure 8. Public Debt and Debt Service, Burkina Faso, 2010-2020 50 47.0 45 40 35 34.0 30 28.9 31.7 25 25.7 20 15 16.0 9.8 13.7 10 8.6 7.8 9.6 5.4 6.3 8.5 4.7 4.4 5 2.1 2.4 1.3 1.2 1.3 1.5 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 External Debt (% of GDP) Public Debt Service (% of revenues) Domestic Debt (% of GDP) Public Debt Service (% of GDP) Source: IMF and World Bank staff estimates. With the Emergency Response Plan (ERP) being implemented to fight the impact of COVID-19 amid persistent security and social challenges, the fiscal deficit is projected to decline only gradually. The ERP comes with a cost of about 4.5 percent of 2020 GDP and is being implemented over a 3-year period, with 44 percent engaged in 2020; 30 percent committed in the 2021 Budget Law, in the form of temporary tax exemptions and additional expenditure to support households and firms; and the remainder reserved for 2022. Over the medium term, the Government is committed to reaching the WAEMU fiscal deficit target of 3 percent of GDP that was suspended in 2020. Already before the onset of COVID-19, the WAEMU Heads of States (in coordination with the IMF) temporarily relaxed the regional deficit convergence criterion for several Sahel countries, including Burkina Faso, to accommodate additional outlays related to security and humanitarian crises in the region. If the pandemic is prolonged, such deviations from target could last longer as expenditures remain elevated to address COVID-19 impacts and support a post-shock economic recovery. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 36 Reform Priorities and Progress in Implementation While public finances and institutions will continue to face pressures, strong reforms are required to keep the risk of debt distress at a moderate level. To prevent a deterioration of its moderate debt sustainability outlook, Burkina Faso would need to (a) maintain a sound macro-fiscal framework during the pandemic crisis and beyond; (b) implement structural reforms to diversify its export base; (c) exercise control over government guarantees and contingent liabilities; and (d) limit non-concessional borrowing and strengthen the implementation of its Medium-Term Debt Strategy to contain its debt service and gross financing needs. More specifically, to safeguard public finances the Government can build on the good progress achieved in improving debt transparency in recent years and focus on improving debt management and fiscal sustainability. These reform areas are consistent with IDA’s Sustainable Development Finance Policy (SDFP) approved on June 9, 2020 and supported through just-in-time technical assistance provided by the World Bank. Debt Transparency Following the implementation of a comprehensive debt reporting reform, Burkina Faso has become a leader in debt transparency. Notably, this involved the regular publication of quarterly debt bulletins in line with procedures and content outlined in the new regulatory framework established through an Arrêté on July 2, 2020. The improvements made by the Government to the quarterly debt bulletins and their regular publication are reflected in the World Bank’s Debt Transparency Heatmap (Table 1), which was published for the first time in 2020 and updated in 2021. Table 1. Debt Reporting Heatmap, Burkina Faso, 2020-2021 Assessment criteria 2020 2021 1. Data accessibility 2. Instrument coverage 3. Sectorial coverage 4. Information on recent contracted loans 5. Periodicity 6. Time range 7. Debt Management Strategy 8. Annual borrowing plan 9. Other debt statistics/ contingent liabilities Note: red=not implemented; orange=limited implemented; yellow=partially implemented; green=fully implemented; grey = not scored. Source: https://www.worldbank.org/en/topic/debt/brief/debt-transparency-report. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 37 Table 2. Debt Reporting Heatmap, WAEMU Countries, 2021 Assessment criteria Burkina Benin Togo Côte Niger Guinea- Mali Senegal Faso D’Ivoire Bissau 1. Data accessibility 2. Instrument coverage 3. Sectorial coverage 4. Information on recent contracted loans 5. Periodicity 6. Time range 7. Debt Management Strategy 8. Annual borrowing plan 9. Other debt statistics/ contingent liabilities Note: red=not implemented; orange=limited implemented; yellow=partially implemented; green=fully implemented; grey = not scored. Source: https://www.worldbank.org/en/topic/debt/brief/debt-transparency-report. Debt Management The Government is revising the regulatory framework to strengthen the management of debt-related contingent liabilities. The new framework, expected to be adopted by April 2022, will define all guiding principles, processes and procedures regulating debt management in Burkina Faso. The aim is to ensure prudent risk management by limiting, mitigating and monitoring fiscal risks arising from loans guaranteed and from on- lending by the Central Administration, as well as from non-guaranteed debt contracted by other public entities (including SOEs and local governments). The following improvements will be essential: a. Limiting fiscal risks through (i) introduction of a policy rationale for issuing loan guarantees; (ii) limiting to the Central Government the authority to issue loans; (iii) limiting the amount of debt that can be guaranteed; and (iv) the strengthening of eligibility criteria for beneficiaries of loan guarantees; b. Mitigating fiscal risks through the introduction of (i) insurance and partial risk guarantee schemes to cover government commitments; and (ii) fees that provide funding for possible guarantee calls and default of on-lent funds; and c. Monitoring fiscal risks through (i) expanding the coverage of debt statistics and extending the calculation of public debt to include all government guarantees beyond loan guarantees; (ii) the requirement for beneficiaries of loan guarantees and on-lending to provide regular financial/debt information; (iii) the quantification by beneficiaries of other debt-related contingent liabilities, including guarantees and on- lending, and (iv) the transmission of this information to the unit in charge of producing the Fiscal Risk Statement. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 38 Fiscal Sustainability The publication of a first Fiscal Risk Statement will be an important step to improve fiscal sustainability. The Fiscal Risk Statement, to be published in April 2022, is expected to analyze major sources of fiscal risks, including macroeconomic and public-debt risks and contingent liabilities. In this regard, Burkina Faso lags regional peers Benin and Cote d’Ivoire. The 2017 Public Expenditure and Financial Accountability (PEFA) report (see Annex XV) highlights the lack of reporting on budget risks as a major gap in public financial management (rating D+), as it complicates the development of risk-mitigation measures by both the Government and the Parliament. The addition of a Fiscal Risk Statement could ensure (a) systematic and continuous identification, analysis, quantification (where possible) and monitoring of major fiscal risks; and (b) ex ante fiscal policy responses and risk mitigation options (e.g., fee revenues, contingency funds, budgeting, financial hedges, insurance) aimed at preventing or mitigating such risks. Finally, the analysis in a Fiscal Risk Statement would help to control the continuous deviations from fiscal targets observed over the past years and support fiscal sustainability and the credibility of the Budget Law. The inaugural Fiscal Risk Statement should identify sources of explicit and implicit risks, quantifying them where possible, and formulate related mitigation measures. Thereafter, the statement should be produced annually, with its coverage to be gradually expanded. To begin, the inaugural statement would cover macroeconomic risks, risks associated with major public investment projects, risks associated with public debt, and risks associated with other specific fiscal risks related to contingent liabilities. The contingent liabilities section ought to include loan guarantees, on-lent funds and non-guaranteed debt contracted by local governments and SOEs. Considering the Government’s limited capacity in a context of fragility, conflict, and violence, the Fiscal Risk Statement may also include the amount involved in legal disputes or court cases, and estimated guarantees arising from Public Private Partnership contracts. A Medium-Term Fiscal Framework Burkina Faso has made strides to improve its public finances in recent years, but several challenges remain. The latest World Bank-IMF Debt Sustainability Analysis (2020) found it to be at moderate risk of overall and external debt distress. This places Burkina Faso without the defenses required to withstand macroeconomic and other fiscal risks. The country’s main challenge continues to be ensuring macroeconomic stability while protecting social and development spending and providing resources for growing security spending. To maintain sustainable debt levels, the country must aim to expand its tax base and temper the growth of the public wage bill, while seeking grants for budget support. This section analyzes fiscal and debt sustainability over the medium term under a variety of scenarios. It explores a range of proposed policy options to preserve fiscal sustainability and create fiscal space to mitigate future macroeconomic and fiscal risks. The baseline scenario represents a likely path for the key macroeconomic and fiscal variables that determine the path of future public debt. The shock scenario represents risks to the baseline, in the form of lower than anticipated growth over the medium term. The reform scenario then considers how additional reforms to strengthen fiscal consolidation would equip the country to better manage fiscal shocks and maintain fiscal sustainability. The key projection drivers are listed in Table 3; the scenarios are presented in Figure 9. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 39 Table 3. Summary of Projection Drivers of each Fiscal Framework Scenario, Burkina Faso, 2015-2025 Scenario Key drivers for the projections Baseline Revenue and Macroeconomic assumptions: real GDP growth of 7% in 2021, 4.8% in primary expenditure 2022, 5.3% in 2023-2025 and GDP deflator of 4% in 2021, 3% in 2022 and projections based 2% in 2023-2025 on the post-coup Revenue: tax revenue mobilization improves from 2022 onwards and macroeconomic reaches 15 percent of GDP in the medium term. Grants gradually fall framework from 1.8 % of GDP in 2022 to 1.4 percent in 2025. (February 2022) Total expenditure: Falls 2.5 percentage points between 2022 and 2025, with transfers and goods and services spending falling. Lower growth Macroeconomic Real GDP growth rate is assumed to be 1 percentage point lower than shock (lower GDP the average growth assumed in the baseline for 2022-2025. growth) Revenue declines in nominal terms relative to the baseline scenario, while expenditure does not change in nominal terms relative to the baseline Reform Fiscal consolidation Expenditure: Rationalization could yield approximately 2.2% of GDP in expenditure savings over the medium term. Tax revenue: PIT, excise tax, and tax expenditure reform could lead to additional fiscal revenues upwards of 4% of GDP in the short to medium term Source: World Bank staff estimates. Baseline Scenario In the baseline scenario, the fiscal outlook improves over the medium term, though without achieving revenue levels seen prior to the pandemic. The baseline reflects the revenue and expenditure projections based on the post-coup macroeconomic-framework. Faster than expected recovery in 2021 means revenue dips slightly by 0.4 percentage points to 17.3 percent of GDP in 2022 and increases to 18.3 percent in the medium term. Public expenditure increases by 0.6 percentage points to 23.8 percent of GDP in 2022 and subsequently falls to 21.3 percent of GDP by 2025. The overall fiscal deficit reaches 6.5 percent of GDP in 2022 and declines gradually to 3 percent over the medium term, in line with the WAEMU target. Under the baseline scenario, debt increases to 59 percent of GDP in 2022, falling slightly to 54 percent by 2025. Uncertainty is the principal characteristic of this forecast, and the materialization of substantial risks could have a detrimental effect on fiscal sustainability. Any shocks associated with the many fiscal risks Burkina Faso is facing could worsen prospects, undermining the sustainability of current policies and public debt.9 To assess the potential of a worsened outlook, the shock scenario imposes a shock on the baseline scenario. Notably, this reflects lower economic growth after the pandemic and security and political crises. Examining the deviation from the baseline helps in assessing the soundness and sustainability of the baseline scenario, identifying the impacts on fiscal space and public debt sustainability. 9 Joint World Bank-IMF Debt Sustainability Analysis, Burkina Faso, November 2020. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 40 Figure 9. Fiscal Framework Scenarios, Burkina Faso, 2015-2025 Baseline Scenario, % of GDP Lower Growth Scenario, % of GDP 2 70 2 70 60 60 0 0 50 50 -2 40 -2 40 -4 30 -4 30 20 20 -6 -6 10 10 -8 0 -8 0 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Public Debt - RHS Fiscal Balance (% of GDP) Public Debt (Baseline) - RHS Public Debt (Lower Growth) - RHS Fiscal Balance (Baseline) Fiscal Balance (Lower Growth) Reform Scenario, % of GDP Lower Growth with Reform Scenario, % of GDP 2 70 2 70 60 60 0 0 50 50 -2 40 -2 40 -4 30 -4 30 20 20 -6 -6 10 10 -8 0 -8 0 2020 2020 2024 2024 2025 2025 2023 2023 2016 2022 2016 2022 2018 2018 2019 2019 2015 2015 2021 2021 2017 2017 Public Debt (Baseline) - RHS Public Debt (Baseline) - RHS Public Debt (Reform) - RHS Public Debt (Lower Growth) - RHS Fiscal Balance (Baseline) Public Debt (Lower Growth + Reform) - RHS Fiscal Balance (Reform) Fiscal Balance (Baseline) Fiscal Balance (Reform) Fiscal Balance (Lower Growth + Reform) Source: INSD. WB and IMF staff estimates (baseline), author’s calculations (scenarios). PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 41 Shock Scenario The shock scenario assesses the impact of lower-than-expected growth on revenues and budget balances in a context of rigid spending. The scenario assumes a conservative outlook for economic growth and revenues. Specifically, it assumes the real GDP rate over 2022-2025 is 4.2 percent, 1 percentage point lower than the average growth assumed in the baseline for 2022-2025, due to considerable political and economic uncertainty. The lower growth scenario acknowledges the rigidities of expenditure policy due to institutional factors opposing downward adjustments and the inertia of recent spending needs. Thus, primary expenditure is unchanged in nominal terms relative to the baseline scenario, despite lower revenue. As a result, Burkina Faso’s public debt will surpass 59 percent of GDP throughout the forecast horizon. Based on an assumption of near-unitary tax revenue elasticity to GDP, revenues as a percentage of GDP remain around 13 percent of GDP in the lower growth scenario, while expenditures—assumed to be rigid in the short term— remain unchanged nominally and increase as a percentage of GDP compared to the baseline. In this scenario, fiscal deficits reach 7.3 percent of GDP in 2022 and 5.5 percent by 2025, compared to 6.5 and 3 percent, respectively, in the baseline scenario. In turn, public debt is projected to surpass 59 percent of GDP throughout the forecast horizon. Lower than anticipated real GDP growth combined with rigid expenditures would therefore decrease fiscal space and worsen debt sustainability relative to the baseline scenario. Reform Scenario The reform scenario shows a trajectory wherein Burkina Faso undertakes broad fiscal consolidation, providing buffers against fiscal risks. This scenario assumes the Government undertakes an ambitious fiscal consolidation effort achieving a fiscal surplus of 0.7 percent of GDP by 2025. The average fiscal deficit in 2022-2025 falls to 2.4 percent of GDP under this scenario with debt falling to 51 percent of GDP by 2025. The fiscal consolidation required under the reform scenario represents the ensemble of policy options outlined in this report. There are various expenditure rationalization measures the Government could consider to create fiscal space. Central to this are improving wage bill rationalization and undertaking fuel subsidy reform. Further reforms, such as improving the efficiency of government accounting could help in this pursuit. These measures are discussed in detail in Chapters 3 and 4. On the revenue side, several reforms could bring this fiscal consolidation closer to realization. These include curbing tax expenditures, raising the Personal Income Tax (PIT) rate for the highest earners, and streamlining the list of excisable items. Potential revenue measures are explored in Chapter 2. Under the scenario of lower growth, the measures proposed under the reform scenario still lead to greater fiscal space providing a buffer against fiscal risks. With lower growth, the fiscal consolidation effort leads to a 1.8 percent fiscal deficit by 2025. The average fiscal deficit in 2022-2025 falls to 4.1 percent of GDP, compared to 5.9 percent absent reforms, with debt falling to 56.4 percent of GDP by 2025, compared to 59.6 percent absent reforms. The following three chapters provide a deeper assessment of revenues, expenditures and public financial management, which feeds into policy options (presented in Chapter 5) that underpin the reform scenario. PUBLIC PUBLICEXPENDITURE REVENUEREVIEW EXPENDITUREAND ANDREVENUE REVIEWFOR FORBURKINA BURKINAFASO 2022 FASO2022 42 CHAPTER 2: DOMESTIC REVENUE MOBILIZATION PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 43 This chapter presents an assessment of domestic tax revenue collection over the period 2010-2019. It describes current tax policy and discusses the main challenges faced by the tax administration in mobilizing domestic revenue to meet the demands of the security, COVID-19 and IDP crises, while also financing the National Development Program in a context of declining donor grants. The chapter then quantifies the cost of the many tax exemptions, and assesses the overall tax gap. (Annex VII provides the revenue collection purely in numbers.) Burkina Faso’s fiscal sustainability could be threatened if weaknesses in domestic revenue mobilization are not addressed. In a context of increasingly expensive domestic debt and gradually declining grants (Figure 10, Figure 11), it has become vital to strengthen domestic revenue mobilization (DRM) to safeguard the country’s fiscal sustainability and finance the investments needed to meet development goals. Figure 10. Revenue Structure by Source (% of Total Figure 11. Composition of Revenues, Burkina Faso, Revenue), Burkina Faso, 2010-2019 2010-2019 Average 74+11+1122A 100% Grants Special Revenue 90% 13% 2% 80% Share in Total Revenue (%) 70% Capital Revenue 60% 0% 50% 40% 30% 20% Non-Tax 10% Revenue Tax Revenue 0% 11% 74% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Tax Revenue Capital Revenue Grants Non-Tax Revenue Special Revenue Source: MINEFID and World Bank Staff calculations. Source: MINEFID and World Bank Staff calculations. Despite numerous reforms of the tax system over the past decade, tax revenue has stagnated in recent years at around 15 percent of GDP, far from the country’s stated goal of 21 percent (Figure 12, Figure 13).10 Tax revenue and public expenditure analysis exhibits near-structural deficits over the past 10 years, with the fiscal deficit averaging 4.6 percent of GDP during 2010-2019.11 In the absence of additional DRM reforms, fiscal consolidation 10 This goal was set in 2017 (with a target for 2021), when a significant increase in the budget deficit (to 6.8 percent of GDP) led the Government to commit to reforms. WAEMU revised its tax revenue-to-GDP ratio target up to 20 percent in 2019 (from 17 percent previously). 11 In 2020, the deficit reached 5.5 percent of GDP amid the COVID-19 crisis in 2020. Specific tax measures to mitigate the impact of COVID-19 can be found in Annex XIII. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 44 Figure 12. Revenue Collection (% of GDP), Figure 13. Revenue Collection by Tax Type (% of GDP), Burkina Faso, 2010-2019 Burkina Faso, 2010-2019 25 19.8 20.4 18.7 20 18.1 17.6 18.4 18.4 18.1 17.8 6 16.2 5 15 4 10 3 2 5 1 0 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Tax Revenue Non-Tax Revenue CIT Excises Capital Revenue Grants PIT Trade Special Revenue Total Revenue and Grants VAT Source: MINEFID and World Bank Staff calculations. Source: MINEFID and World Bank Staff calculations. (i.e., lower budget deficits) appears out of reach given high spending pressures.12 In the face of limited fiscal space, the Government must implement ambitious structural tax reforms to not only safeguard long-term fiscal and debt sustainability, but also address the country’s pressing multifaceted security, human, social and health spending needs and long-term development goals. Key challenges confronting the tax system in Burkina Faso include the following: a. A weak progressivity of the personal income tax (PIT) system, which leads to equity concerns and, at times, regressive distributional effects; b. An excessive set of tax incentives, provided mostly as VAT and corporate income tax (CIT) exemptions, CIT relief and custom incentives on imports, which erodes the tax base, aggravates distortions and reduces the efficiency of both tax administration and compliance; c. Inefficient VAT refund and ineffective VAT refund audit systems, combined with lenient penalties for fraud, which leads to substantial revenue losses; d. An improperly designed excise tax regime and inadequate taxation of excisable goods, which also leads to significant tax revenue losses; and e. Insufficient geographic and sectoral coverage of e-services, especially in the informal sector and rural and semi-urban areas. 12 If the difficult insecurity situation does not improve significantly, the increase in defense and security spending could continue. Directly linked is a worsening humanitarian and IDP crisis, which both require higher social transfers. Moreover, the COVID-19 pandemic and its impact on the domestic economy has led to higher fiscal deficits and rising debt, projected to continue in the near future. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 45 SECTION I. DOMESTIC REVENUE STRUCTURE Tax Revenue Over the past decade, the performance of most tax categories has improved (Table 4). Personal income taxes gradually increased from 1.1 percent of GDP in 2010 to 1.5 percent of GDP in 2019. Corporate income taxes rose from 1.4 percent of GDP in 2010 to 2.7 percent of GDP in 2013; following a drop during the years of political transition, they steadily rose again to 3.4 percent of GDP in 2019. Excise taxes increased from an average of 1 percent of GDP in 2010-2014 to 1.4 percent in 2015-2019, due to higher excise taxes on tobacco, alcoholic beverages and gambling. VAT revenue rose from 4.4 percent of GDP in 2010 to 5.3 percent in 2018-2019, with peak years in 2013 (6.2 percent of GDP) and 2017 (6.1 percent of GDP), due to (a) the application of VAT on imports for mining companies (in the resource exploitation phase) and on companies subcontracting for the government; and (b) the introduction of standardized VAT invoicing to combat fraud.13 Finally, trade taxes were relatively stable—though following a slight downward slope—with an average of 1.8 percent of GDP over the 2010-2019 period. In general, tax collection performance in Burkina Faso has been in line with the group of emerging SSA economies. The impact of COVID-19 and recent security challenges is addressed separately in Box 3. Box 3. Tax Collection in 2020: Impact of COVID-19 and Security Revenue performances in 2020-21: In the wake of the COVID-19 pandemic shock, a 3-month lockdown was enacted in Burkina Faso, from March to May 2020. As a consequence, revenues were hit as businesses and consumers put off purchases in the face of uncertainty, firms scaled back production, transportation and tourism were put on hold, and borders closed. Subsequently, a set of mitigating measures were taken by the government to limit the negative impact of the COVID-19 shock on businesses’ operations and consumers’ purchasing power. Those measures included tax breaks, deferrals, and temporary cancellations, in the amount of about 0.5 percent of GDP. Ultimately, tax revenue as a share of GDP fell by 1.4 percentage points in 2020 from 15.2 percent of GDP in 2019. The decrease was driven by two factors: the tax giveaway of the government to businesses and households (-0.5 percent of GDP in tax revenue) and the quarterly negative growth induced by the lockdown (-1.0 percent of GDP in tax revenue). Meanwhile, due primarily to the lockdown and its negative impact on public services delivery, non-tax revenue fell as well, from 3.4 percent of GDP in 2019 to just about 2.8 percent of GDP in 2020. Overall, domestic revenue (tax and non-tax) stood only at 16.6 percent of GDP in 2020. That is 2.1 percentage points lower than in 2019 (18.7 percent of GDP) and about one percentage point lower than the pre-COVID projected domestic revenue for 2020 (17.5 percent of GDP). The decrease in domestic revenue was partially offset by a significant increase in grants, estimated at 3.2 percent of GDP in 2020 (vs. 1.4 percent of GDP in 2019). Ultimately, the combination of total revenue and grants was 0.8 percentage 13 IMF. Burkina Faso: The seventh review under the Extended Credit Facility arrangement. Country Report No. 17/222. July 2017. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 46 points of GDP lower in 2020 (19.8 percent of GDP) than planned pre-COVID-19. In 2021, overall revenue stood at 19.7 percent of GDP, almost unchanged from 2020. A fall in both grant levels (by 0.4 percentage point) and non-tax revenue (by 0.2 percentage point) was offset by a rise in tax revenue by half a percentage point. In 2021, tax collection performance improved slightly. Tax revenue rose to 14.3 percent (vs 13.8 percent in 2020). Meanwhile, non-tax revenue fell to 2.6 percent of GDP (from 2.8 percent in 2020) whereas grants declined to 2.8 percent of GDP. COVID-19-induced mitigating policy/administration measures: In the wake of the COVID-19 pandemic shock, the government accelerated its push toward digitalization to curb the decrease in tax revenue. First, by generalizing the use of the eSINTAX platform to all taxpayers and by developing the “eLiasse” module of “eSINTAX”, which now allows taxpayers to make the declaration of their financial statements online. Further, e-filing and e-payment are now mandated for all formal enterprises. Also, the DGI has developed and rolled out the Integrated Management System SYC@D to ensure transparency and security of land. In the same vein, the Inventory and Evaluation System of Taxable Assets (SIEBI) has also been developed. Additionally, the geographical coverage of tax centers was expanded throughout 2020 (though limited by the security situation, which forced closures of several local tax administration centers in violence-ridden areas), along with the rollout of mobile terminals in such centers to facilitate filling and payment for those who do not have easy access to the internet. Source: MINEFID and World Bank Staff calculations. Table 4. Tax Revenue Breakdown (% of Tax Revenue), Burkina Faso, 2010-2019 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Taxes on income, profits, and capital 26.0 31.0 30.2 30.0 30.1 27.3 29.4 28.2 31.1 34.3 gains Corporate income tax 13.3 18.3 18.4 18.2 18.3 15.3 16.5 19.9 21.4 23.6 Corporate mining taxes na na 10.2 8.1 4.5 1.8 2.5 3.3 3.9 3.9 Personal income tax 10.1 9.6 8.6 8.5 7.7 8.3 8.6 8.1 9.5 10.5 Property taxes 0.8 0.7 0.6 0.7 1.0 0.8 1.0 0.1 0.2 0.2 Other direct taxes 1.8 2.4 2.6 2.6 3.0 3.0 3.2 0.0 0.0 0.0 Domestic taxes on goods and services 56.9 53.3 52.3 52.8 54.5 57.3 56.2 57.5 51.1 51.0 VAT 41.9 41.0 41.1 42.7 41.7 42.4 41.2 41.9 36.8 37.9 Turnover tax 0.2 0.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Excises 8.5 7.5 7.5 6.0 8.4 10.4 10.3 10.7 9.8 9.0 Other taxes on goods and services 6.3 4.3 3.7 4.1 4.5 4.6 4.7 4.9 4.5 4.2 Taxes on international trade and 15.9 13.0 14.7 14.8 13.7 13.6 12.7 12.6 13.9 12.2 transactions Customs and other import duties 15.9 13.0 14.7 14.8 13.6 13.6 12.7 12.5 13.6 12.1 Export duties 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.3 0.0 Other taxes 1.2 2.7 2.8 2.4 1.7 1.7 1.7 1.8 3.9 2.5 Source: MINEFID and World Bank Staff calculations. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 47 Despite encouraging trends, tax collection performance is still short of both IDA and WAEMU targets (Figure 14, Figure 15). While Burkina Faso’s CIT revenue was highest among WAEMU countries, at 3 percent of GDP, over the period 2010-2018, its trade tax, property tax and personal income tax revenues were the second lowest in the region, at 1.9, 0.02 and 1.2 percent of GDP, respectively. Overall, Burkina Faso collected an average of 13.5 of GDP in tax revenue. Though this performance is better than the WAEMU region average, it remains below the IDA target of 15 percent of GDP, and well below WAEMU and Government targets of 20 and 21 percent of GDP, respectively. This performance also ranks poorly in comparison to regional peers, such as Togo and Senegal. Figure 14. Tax to GDP Ratio, Selected Countries, 2010- Figure 15. Tax Revenue Collection (% of GDP), 2019 Selected Countries, 2018 25 20 15 20 10 15 5 10 0 Togo Senegal Burkina Faso Mali Côte d’Ivoire Niger Benin Guinea-Bissau Mali Guinea Niger Uganda Togo Cambodia Ghana Bangladesh 5 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 WAEMU Structural Peers Aspirational Peers Interquartile Range Burkina Faso Emerging Markets in SSA UMI + High Income in SSA Trade VAT PIT Excise CIT Tax Note: Emerging economies in SSA consist of Lower-Middle Income (LMIC) and Low-Income (LIC) countries. Upper-Middle Income (non-emerging) countries are UMICs. The regional Note: Disaggregate data was unavailable for Guinea-Bissau and emerging economies in Sub-Sharan Africa (SSA) consist of 17 Guinea. Lower-Middle Income Countries (LMICs)—Angola, Cabo Verde, Source: IMF and World Bank Staff calculations. Cameroon, Comoros, Republic of Congo, Côte d’Ivoire, Eswatini, Ghana, Kenya, Lesotho, Mauritania, Nigeria, Senegal Sudan, São Tomé and Príncipe, Zambia and Zimbabwe—and 24 Low-Income Countries (LICs)—Benin, Burkina Faso, Burundi, Central African Republic, Chad, Democratic Republic of Congo, Eritrea, Ethiopia, The Gambia, Guinea, Guinea-Bissau, Liberia, Madagascar, Malawi, Mali, Mozambique, Niger, Rwanda, Sierra Leone, Somalia, South Sudan, Tanzania, Togo and Uganda. The interquartile range represents the difference between those in the 75th and 25th percentiles, or between upper and lower quartiles of the emerging markets in SSA. The 6 Upper-Middle Income Countries (UMICs) in SSA are Botswana, Equatorial Guinea, Gabon, Mauritius, Namibia and South Africa. The only High-Income Country (HIC) in SSA is Seychelles. Source: MINEFID, IMF and World Bank Staff calculations. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 48 Figure 16. Tax Revenue Collection (% of GDP), Burkina Figure 17. Tax Revenue Collection (% of GDP), Burkina Faso and Selected Regions, 2010–2018 Faso and Selected Income Groups, 2010–2018 25 25 20 20 15 15 10 10 5 5 0 0 Burkina Faso North America Europe and Central Asia Latin America and Caribbean East Asia and Pacific Sub-Saharan Africa Middle East and North Africa South Asia Burkina Faso High income Upper Lower Low income middle middle income income Trade VAT PIT Trade VAT PIT Excise CIT Tax Excise CIT Tax Sources: IMF and World Bank Staff calculations. Sources: IMF and World Bank Staff calculations. The country relies heavily on indirect taxes (particularly VAT and trade taxes), but they have been on a declining trend since 2017 (Figure 16, Figure 17 and Table 4). Indirect taxes on goods and services accounted for more than half of all tax revenue over the period 2010-2019. However, the shares of VAT and trade taxes have steadily decreased over the period, due to several exemptions introduced on major consumer goods, especially rice, water and electricity.14 The decline in international trade taxes can be explained by a fully liberalized trade policy within the WAEMU zone, but also by inefficiencies in customs tax administration. As for direct taxes (PIT, CIT and excise taxes), their shares generally increased over the past decade. The increase in income and excise taxes is attributable to several measures put in place by the authorities, including higher excise taxes on tobacco, alcohol and gambling, combined with improved IT capabilities that allow for tax and customs information systems to be linked.15 (For an international comparison of the tax breakdown, see Annex VIII.) A tax buoyancy analysis shows moderately satisfactory general tax collection performance, but also relatively low performance for major tax contributors such as VAT and PIT (Table 5).16 The buoyancy for all combined tax revenues over 2010-2019 stood at 1.41, which means that performance in tax collection has been generally positive and correlated with economic growth. The highest buoyancies are shown for CIT and excise taxes. Buoyancy is much lower for PIT (1.43), due to (a) the predominance of the informal sector, which is barely captured by the tax 14 These exemptions—the full list of related goods is described in Article 308 of the General Tax Code—were generally intended to address inequality and support the most vulnerable populations. However, in many instances, these exemptions have proved to disproportionately benefit wealthy individuals. For example, VAT exemptions on rice rationalized VAT exemptions on agricultural equipment and inputs, which benefited the wealthy (big farmers) and caused further VAT revenue gaps. The growing number of exemptions also created additional inefficiencies in VAT collection. 15 The IT capacity strengthening was supported by technical assistance from the IMF and the World Bank on transfer pricing, e-filing and e-payment procedures, development of a tax database for the mining sector, and the creation of special teams in charge of collecting tax arrears. 16 The buoyancy of a tax system measures the total response of tax revenue both to changes in national income and to discretionary changes in tax policies over time. It is traditionally interpreted as the percentage change in revenue associated with a one percent change in income. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 49 system; (b) the very low top marginal tax rate (25 percent) compared to those of other WAEMU countries; (c) the divergence in capital gain tax rates, which makes this tax difficult to administer; (d) the absence of a wealth tax applicable to net worth; and (e) the low rate of timely tax filing for the 58 percent of taxpayers earning salaries. The buoyancy is only moderately above 1 for VAT (at 1.22) and even more modest for trade taxes (1.06). Finally, the buoyancy is negative for property taxes, reflecting a declining trend observed over the past decade. Table 5. Responsiveness of Revenues to GDP Growth (2010-2019) Tax Type Buoyancy Total Tax Revenue 1.41 Personal income tax (PIT) 1.43 Corporate income tax (CIT) 2.14 Property tax -2.16 Value added tax (VAT) 1.22 Excise tax 2.04 Trade tax 1.06 Source: MINEFID and World Bank Staff calculations. Figure 18. Tax Revenue Growth by Type of Tax (contribution to growth (%)), Burkina Faso, 2011-2019 40 38.8 35 30 25 21.6 20 14.5 13.9 20 8.2 10 9.7 5.2 5 0 -5 -1.5 -4.5 -10 2011 2012 2013 2014 2015 2016 2017 2018 2019 Trade VAT PIT Excise CIT Others Tax Revenue Source: MINEFID and World Bank Staff calculations. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 50 In general, the growth in total tax revenue has been driven to a larger extent by VAT, CIT, excise taxes, and to a lesser extent by PIT and trade taxes (Figure 18).17 Despite its decline as a share of GDP and contribution to overall tax revenue, VAT remained the biggest contributor to tax revenue growth over nearly the entire period, generally followed by CIT and excise taxes. VAT has consistently been the major driver of overall tax growth, helping to achieve the good overall tax collection performance noted in 2011-2013, while helping curb the declining performances of 2014 and 2018. CIT was a key driver of overall tax growth during 2011-2013 and 2016- 2019, only interrupted by the political upheaval during 2014-2015. Recent reforms have helped to broaden the taxpayer base,18 but are yet to significantly increase tax collection performance and promote efficiency (Table 6). Tax policy targeted toward the informal sector, which employs most of the population, has been nonexistent for some activities and overly complex for others, resulting in a marginal contribution of the sector to overall revenue. In addition, similar to other SSA countries, inefficient and insufficiently digitalized tax filing and payment procedures raise taxpayers’ compliance costs, make it difficult to track fraud and overdue payments, and divert tax officers from control activities. Despite numerous reforms implemented over the past decade, tax revenue performance has stagnated far below the target of 21 percent of GDP set by the authorities in 2017 and reiterated in the PNDES II. Table 6. Main Tax Reforms, Burkina Faso, 2010-2020 Year Tax Policy Reform Objectives 2010 • Introduced a corporation tax • The objective of the introduction of a corporate tax in the tax system is to improve the business climate and align to international standards. • This new tax, which replaces a schedule of taxes on business and industrial income, applies either automatically or by option to the income and profits of the various types of companies as well as to other legal persons or organizations engaged in a profit- making operation. 2012 • Introduced the specific tax on income from • This reform aims to tax income from mining transactions in mining securities title transactions (i.e., tax on capital gains on the sale of mining securities). 2013 • Established exemptions from VAT and • This exemption aims to promote solar customs duties on imports and the energy. acquisition of solar equipment 17 The year-to-year growth contribution of a specific tax is estimated as the growth of that tax weighted with its share in the total tax collection. 18 The number of business and individual taxpayers registered in the government’s taxpayer database increased from 95,515 in 2017 to 170,197 in 2021. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 51 Year Tax Policy Reform Objectives 2014 • Introduced a standardized invoice • The reform aims to improve the efficiency of • Adopted in 2014 but effectively implemented taxes by better traceability of the invoicing of took place in 2017 commercial operations to fight against fraud and the use of forgery. 2015 • Revised the thresholds of the tax systems • The reform aims to improve the yield of • Revised the thresholds for VAT liability VAT by excluding companies that wrongly transferred the right to deduct (false invoicing) from the scope of this tax. 2016 • Introduced land contribution on built and • The purpose of the measure is to introduce unbuilt properties property taxation to improve tax equity. • Introduced an import tax on passenger • The reform aims to introduce a tax on vehicles with a power equal to or greater the import of vehicles for personal use, than 13 horses excluding vehicles intended for public passenger transport. • Abolished the exemption of parliamentary • This reform aims at improving the allowances of the Single Tax on Salaries and performance of personal income taxes while Wages (IUTS) promoting tax equity. 2017 • Adopted the General Tax Code • The main ambition of the new Tax Code is to put in place a simple and coherent tax system in line with community legislation (WAEMU, ECOWAS and OHADA). • The new code streamlines the country’s complex legal framework with the objective to ease up tax administration, reduce tax transaction costs for taxpayers, and improve compliance. • It also introduces business-friendly measures (including corporate tax incentives) aimed at boosting the attractiveness of the country to national and international investors. 2018 • Introduced a tax on capital gains from the • This new tax fills a gap in Burkina Faso’s tax sale of shares and securities of a company legislation and makes it possible to counter arrangements intended to avoid the tax on capital gains on the sale of mining shares and securities. In addition, the taxation of capital gains on the sale of company shares is effective in most countries of the subregion. • Introduced a tax on non-biodegradable • This new taxation aims to support the plastic packaging and bags implementation of the Law No. 017-2014/AN of May 20, 2014, prohibiting the production, import-export, commercialization, possession, distribution, and use of non- biodegradable plastic packaging and bags. The contribution of this tax is largely intended to support the Intervention Fund for the Environment (FIE). PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 52 Year Tax Policy Reform Objectives 2019 • Abolished the Beverage Sector Contribution • Following studies by the IMF that showed (CSB) applicable to persons carrying out an inadequate and under-taxation of the their activities in the resale of locally beverage sector, the reform abolished a manufactured beverages and its replacement non-cost-effective special tax regime; it by the standard tax regime also brought the sector into the general tax system through the revocation of exemptions granted to taxpayers previously subject to the CSB to improve the contribution of the beverage sector. • Introduced a tax on motor vehicles • This new tax aims to support the economic and social development and increase local revenues. Similar to the introduction of land contribution on built or unbuilt properties and patent contribution, the motor vehicles tax is part of an effort to broaden the local tax base. 2020 • Introduced a reduced VAT rate of 10 percent • The reform aims to support the hotel and for accommodation and catering services restaurant sector, which has been severely provided by hotels, restaurants and similar affected by conflict and COVID-19. approved firms • Extended the scope of the specific tax • This measure improves the performance on telecommunications companies to of the tax and improves fairness among companies transferring money by mobile businesses operating in the sector. phone and raised the tax rate from 5 percent to 7 percent • Increased the tax rate on tobacco, cigars, • This measure aims to bring the tobacco cigarettes and cigarillos from 45 to 50 taxation system in line with WAEMU Directive percent No. 01/2017/CM/UEMOA of 22 December 2017, to strengthen the fight against smoking, which creates a public health problem, and to improve tax yields. Source: Burkina Faso Tax Authorities, IMF FAD Database, KPMG: Tax Rates Online and PwC: Worldwide Tax Summaries Online. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 53 Non-Tax Revenue Burkina Faso’s non-tax revenue collection ranks fifth among the eight WAEMU countries (Figure 19). Burkina Faso’s non-tax revenue (1.7 percent of GDP) performed lower than the WAEMU average (1.9 percent of GDP) but better than all structural peers. Non-tax revenues come from four main sources: administrative fees, fines and penalties, financial products, and other non-tax revenues (Figure 20). These revenues contributed about 2 percent of GDP between 2010 and 2019. In 2010, administrative fees represented 75.6 percent of total non-tax revenue, or 1.7 percent of GDP. From 2011 to 2019, the majority of total non-tax revenue came from product sales, miscellaneous transfers and financial income.19 Figure 19. Benchmarking Non-Tax Revenue (% of GDP), Figure 20. Non-Tax Revenue Breakdown (% of GDP), Selected Countries, 2018 Burkina Faso, 2010-2019 3.5 4.0 3.0 3.5 3.0 2.5 2.5 2.0 2.0 1.5 1.5 1.0 1.0 0.5 0.5 0.0 0.0 Togo Benin Guinea-Bissau Côte d’Ivoire Burkina Faso Senegal Niger Mali Niger Guinea Mali Uganda Togo Cambodia Ghana Bangladesh 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Administrative Fees WAEMU Structural Peers Aspirational Peers Fines and Penalties Financial Products Non-Tax Revenue Average Other Non-Tax Revenues Source: MINEFID and World Bank Staff calculations. Source: MINEFID and World Bank Staff calculations. 19 The exceptional performance of 2019 comes from a one-off sale of 4G licenses to mobile phone companies. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 54 SECTION II. ASSESSMENT OF TAX POLICY Over the past decade, tax policy reforms helped Burkina Faso to streamline the tax regime, broaden the tax base and better align its tax rates with regional peers (Table 7). Under the 2017 revised Tax Code, the main taxes applicable to individuals and businesses are the following: (a) Personal Income Tax, (b) Corporate Income Tax, (c) Value Added Tax, (d) excise taxes, (e) mining taxes, (f) trade taxes, and (g) property taxes. The gap with structural peers in the rates of PIT and CIT (25 vs. 39 percent and 27.5 vs. 33 percent, respectively) reveals major tax revenue potential. Increasing PIT rates could also improve the progressive nature of the tax system. Another avenue for revenue mobilization is the expansion of the PIT tax base through better coverage of the informal sector. Table 7. Statutory Tax Rates (%), Selected Countries, 2020-2021 CIT PIT (Top Rate) VAT Benin* 30 40 18 Burkina Faso* 27.5 25 18 Côte d’Ivoire* 25 36 18 Guinea-Bissau* 25 35 17 Senegal* 30 40 18 WAEMU average 29 36 18 Guinea 35 40 18 Mali* 35 40 18 Niger* 30 35 19 Uganda 30 40 18 Structural peers average 33 39 18 Bangladesh 22.5a 25 15 Cambodia 20 20 10 Ghana 25 30 12.5 Togo* 27 35 18 Aspirational peers average 24 28 14 Africa average 28 32 16 Asia average 21 29 12 Latin America average 27 32 14 EU average 21 32 22 OECD average 23 42 19 Note: * = WAEMU members. a = 22.5 percent for listed companies, 30 percent for non-listed companies and for associations of persons, and 25 percent for a one-person company. Source: IMF, PwC, and KPMG. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 55 Overall, the tax system in Burkina Faso is not well targeted to tax the rich more than the poor. In 2019, Development Finance International and Oxfam compared the progressive taxation scores of various West African countries to assess their efforts to reduce inequality.20 With a score of 0.51, Burkina Faso performed somewhat poorly in comparison to many peers, including Togo (0.58), Benin (0.54), and Ghana (0.69).21 The modest performance is due to (a) relatively regressive income tax regimes; (b) a heavy reliance on consumption taxes such as VAT (with a flat tax rate applying to all); and (c) billions of dollars in tax revenue lost due to corporate tax incentives (see Section IV). Taxation of Capital and Labor Income Personal Income Tax Burkina Faso’s tax brackets align with the ability-to-pay principle, but the highest marginal PIT rate of 25 percent is very low compared to all selected peers (Table 8). Under this principle, the income tax burden is shared among individual taxpayers on the proposition that contributions should be based on their economic wellbeing. This principle states that (a) persons with equal ability to pay should pay the same taxes (“horizontal equity”) and (b) persons with greater ability to pay should pay higher taxes (“vertical equity”).22 International experiences suggest that a high number of tax bands adds to complexity without adding much to revenues or progressivity, while a lower number of tax bands encourages compliance and reduces administrative costs. Burkina Faso has more tax bands than most WAEMU members. Further, the highest marginal PIT rate is much lower in Burkina Faso (25 percent) than in all comparison groups. Although Burkina Faso’s low top marginal tax rate encourages compliance, the rate is too low to generate needed tax revenues. A better balance between encouraging compliance and generating revenues could be achieved.23 20 Hallum, Christian and Kwesi W. Obeng. The West Africa Inequality Crisis: How West African governments are failing to reduce inequality, and what should be done about it. Oxfam. 2019. 21 The highest score of 1 means the most committed to progressive taxation, whereas the lowest score of 0 means the least committed to progressive taxation. 22 Shukla, Gangadhar Prasad and Graham Glenday. 2012. Public Finance in Open Economies. Durham, N.C.: Duke Center for International Development, Duke University. 23 In addition, the number of tax bands is concentrated in the lowest income groups, dividing it into too many categories. In contrast, the highest threshold at CFAF 250,000 is relatively low when compared with WAEMU peers. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 56 Table 8. Statutory Personal Income Tax Brackets, WAEMU Countries, 2020-2021 Countries Number of Tax Bands Taxable Income (CFAF) Rate (%) 0 – 10 million 30 Benin 3 10,000,001 – 20 million 35 Over 20 million 40 0 – 630,000 0 630,001 – 1.5 million 20 1,500,001 – 4 million 30 Senegal 6 4,000,001 – 8 million 35 8,000,001 – 13.5 million 37 Over 13.5 million 40 0 – 900,000 0.5 900,001 – 4 million 7 4,000,001 – 6 million 15 Togo 6 6,000,001 – 10 million 25 10,000,001 – 15 million 30 Over 15 million 35 0 – 30,000 0 30,001 – 50,000 12.1 50,001 – 80,000 13.9 Burkina Faso 7 80,001 – 120,000 15.7 120,001 – 170,000 18.4 170,001 – 250,000 21.7 Over 250,000 25 0 – 175,000 0 175,001 – 600,000 5 600,001 – 1,200,000 13 Mali 7 1,200,001 – 1,800,000 20 1,800,001 – 2,400,000 28 2,400,001 – 3,500,000 34 Over 3,500,000 40 0 – 25,000 1 25,001 – 50,000 2 50,00 – 100,000 6 100,001 – 150,000 13 Niger 9 150,001 – 300,000 25 300,001 – 400,000 30 400,001 – 700,000 32 700,001 – 1,000,000 34 Over 1 million 35 PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 57 Countries Number of Tax Bands Taxable Income (CFAF) Rate (%) 1,000 – 2,200,000 2 2,200,001 – 3,600,000 10 3,600,001 – 5,200,000 15 5,200,001 – 7,200,000 20 7,200,001 – 9,600,000 24 Côte d’Ivoire 11 9,600,001 – 12,600,000 26 12,600,001 – 20 million 29 20,000,001 – 30 million 32 30,000,001 – 40 million 34 40,000,001 – 50 million 35 Over 50 million 36 Source: Deloitte: Guide to fiscal information — Key economies in Africa 2021; Guinea-Bissau: “Guinea-Bissau: Invest”; AD’OCC Economic Development Agency; Mali: “Find out how to get a job and work in Mali”; and Niger: The General Tax Code (CGI), MINEFID. From 2010 to 2019, personal income tax collection in Burkina Faso was relatively low (as a share of GDP) in comparison to most SSA group averages (Figure 21). Compared to the averages of upper-middle-income, high- income and emerging SSA countries, Burkina Faso’s PIT collection rate stagnated between 2014 and 2019, while the average performance of emerging SSA economies has gradually increased since 2010. In fact, over the last ten years, several countries in the low-income and lower-middle-income groups have collected much higher PIT revenues (as percent of GDP) than Burkina Faso (e.g., Lesotho 6.4 percent, Eswatini 4.5 percent, Kenya and Malawi 4.2 percent, Rwanda 4.0 percent, and Cabo Verde 3.3 percent). Figure 21. PIT Collection in Regional Comparison Figure 22. PIT Revenue and Productivity Ratio, (% of GDP), 2010-2019 Selected Countries, 2018 2.5 0.08 5 0.07 2.0 0.06 4 1.5 0.05 0.04 3 1.0 0.03 0.02 2 0.5 0.01 0.0 0.00 1 Senegal Côte d’Ivoire Burkina Faso Benin Mali Niger Togo Guinea-Bissau Uganda Mali Niger Guinea Ghana Cambodia Bangladesh Togo 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 LMICs LICs LICs LMICs LICs WAEMU Structural Peers Aspirational Peers Interquartile Range PIT Revenue (% of GDP) - LHS Burkina Faso Emerging Markets in SSA PIT Productivity Ratio - RHS UMI + High Income in SSA Productivity Ratio Average - RHS Source: MINEFID, IMF and World Bank Staff calculations. Source: MINEFID, IMF and World Bank Staff calculations. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 58 However, even with its PIT revenue amounting to only 1.2 percent of GDP in 2018, PIT productivity24 in Burkina Faso was higher than for most of its WAEMU, structural and aspirational peers. Despite lower applicable rates, Burkina Faso’s PIT productivity ratio ranks among the highest (Figure 22 and Table 9). Its productivity was 0.05 in 2018, which is higher than the WAEMU average of 0.038 (only Senegal ranks higher with a ratio of 0.06), and also higher than all structural and aspirational peers except for Ghana (0.08). This relatively high efficiency ratio contrasts with the poor collection performance, which could indicate that the low collection is mainly due to the low PIT base (large informal sector escaping paying PIT), the multiplicity of PIT-related exemptions and incentives, and the low taxation rates across income brackets as defined in the tax code. Further, the basic exemption threshold in Burkina Faso is very low (CFAF 30,000 or about US$52, which is the second lowest in the region, above only Niger’s CFAF 25,000), which pushes low-income taxpayers, including those below the international poverty line,25 into the tax net. In addition, the range between the top and bottom rates is the narrowest in the region, reflecting that the PIT system is skewed in favor of the richer earners, as indicated by the country’s tax wedge26 for low and middle-income earners, which is among the highest in the WAEMU region. Thus, the distributional aspects of the PIT system are a matter of concern. Table 9. Personal Income Tax, Selected Countries, 2018 Selected Countries (1) Standard PIT Rate (2) PIT Revenue (% of GDP) (3) = (2)/(1) Productivity Ratio Senegal* 40 2.43 0.061 Burkina Faso* 25 1.34 0.053 Benin* 30 1.19 0.040 Côte d’Ivoire* 60 1.55 0.026 Guinea-Bissau* 20 0.40 0.020 WAEMU average 35 1.33 0.038 Uganda 40 1.93 0.048 Mali* 37 1.36 0.037 Niger* 35 1.16 0.033 Guinea 40 0.30 0.008 Structural peers average 38 1.19 0.032 Ghana 25 2.00 0.080 Cambodia 20 0.91 0.045 Togo* 35 1.15 0.033 Bangladesh 30 0.80 0.027 Aspirational peers average 28 1.22 0.046 Note: * = WAEMU member. Source: MINEFID, IMF and World Bank Staff calculations. 24 The 2018 statutory tax rates are used to calculate the PIT productivity. 25 The international poverty line is set at $1.90 a day (in 2011 PPP). The basic exemption for an employee earning a salary or wage income is CFAF 30,000 (US$52) and Burkina Faso’s 2019 GDP per capita (current US$) is US$786.9. This shows that the PIT-exempt income is equivalent to about 6.7 percent of the per capita income, or 7.6 percent of the international poverty line. 26 Tax wedge is defined as the ratio between the amount of taxes paid by an average single worker (a single person at 100 percent of average earnings) without minor dependents and the corresponding total labor cost for the employer. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 59 Corporate Income Tax Burkina Faso’s CIT structure is sound and in line with international practices, except for the multiplicity of tax regimes (Table 10). The CIT was introduced in 2010 as part of a comprehensive tax reform. The reform replaced the then-existing schedule of taxes on business and industrial income, ended previous exemptions for reinvested capital gains and for start-up businesses, and created a Manual of Tax Procedures. The CIT applies to taxable profits earned by resident entities in Burkina Faso, as well as by nonresidents with a permanent establishment in the country. There are three corporate tax regimes determined on the basis of a company’s turnover, size, and legal form: (a) a standard regime (RNI) for large companies, (b) a simplified regime (RSI) for medium-sized enterprises, and (c) a micro-enterprises contribution (CME) for small or informal sector businesses. Large business taxpayers make up the smallest share of taxpayers registered but contribute the highest share to revenue collection (Figure 23 and Figure 24). Table 10. Corporate Income Tax, Selected Countries, 2018 Selected Countries (1) Standard CIT Rate (2) CIT Revenue (% of GDP) (3) = (2)/(1) Productivity Ratio Burkina Faso* 27.5 3.01 0.109 Guinea-Bissau* 25 1.80 0.072 Senegal* 30 2.17 0.072 Côte d’Ivoire* 25 1.71 0.068 Benin* 30 1.27 0.042 WAEMU average 28 2.10 0.073 Guinea 25 2.20 0.088 Niger* 30 2.36 0.079 Mali* 30 1.93 0.064 Uganda 30 1.76 0.059 Structural peers average 29 2.06 0.073 Cambodia 20 3.35 0.167 Ghana 25 2.80 0.112 Togo* 28 2.25 0.080 Bangladesh 25 1.64 0.065 Aspirational peers average 25 2.51 0.106 Note: * = WAEMU member. Source: MINEFID, IMF and World Bank Staff calculations. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 60 Figure 23. Number and Share of Registered Taxpayers Figure 24. Revenue Collection by Regime, by Regime, Burkina Faso, 2020 Burkina Faso, 2020 600,000 100% 7,697 8,302 500,000 80% 400,000 300,000 CFAF (Million) 60% 200,000 701 6,566 92,877 100,000 40% 504,721 2,000 1,500 1,337 20% 1,000 21,922 500 0% 115 0 0 Large Medium Small and micro 0 businesses businesses enterprises RNI RSI CME Unclassified Mobile money RNI RSI Large Businesses CME Unclassified Small and Micro Enterprises Medium Businesses Note: RNI = standard regime (réel normal d’imposition); RSI = Note: RNI = standard regime (réel normal d’imposition); RSI = simplified regime (réel simplifié d’imposition); CME = contribution simplified regime (réel simplifié d’imposition); CME = contribution of informal sector (contribution des micro-entreprises). of informal sector (contribution des micro-entreprises). Source: MINEFID, IMF and World Bank Staff calculations. Source: MINEFID, IMF and World Bank Staff calculations. A revision to the General Tax Code (CGI) in 2018 introduced provisions on the documentation for transfer pricing. Relevant transfer pricing regulations were adopted and conditions for implementing the transfer pricing documentation requirements were established. The documentation obligation applies to companies operating in Burkina Faso (a) whose annual turnover, excluding taxes or based on assets, is equal to or greater than CFAF 3 billion; and (b) that are carrying out transactions of any kind with related companies operating inside or outside Burkina Faso. Corporations must provide information to the tax authorities on (a) important business restructuring transactions, acquisitions and divestitures occurring during the fiscal year; (b) relevant and reliable information for the authorities to use in performing an efficient and robust transfer pricing risk assessment analysis; (c) a list of the company’s main intangible assets (including patents, brands, trademarks and know-how); and (d) a general description of the company’s transfer policy. Despite such comprehensive regulations, transfer pricing remains a tax risk area, with a significant likelihood of large compliance costs, especially in the growing and poorly regulated mining sector.27 The CGI provides no guidance on unilateral, bilateral or multilateral Advance Pricing Agreements, although taxpayers may request a Mutual Agreement Procedure if taxation has occurred, or is likely to occur, that is not in accordance with the provisions of a double taxation treaty to which Burkina Faso is signatory. In addition, there are no specific thin capitalization rules, although interest paid to a company’s shareholders on amounts loaned to or put 27 Transfer Pricing Country Summary Burkina Faso. TPA-global. June 25, 2018. https://www.tpa-global.com/wp-content/ uploads/2020/05/180706-burkina-faso-transfer-pricing-country-summary-report-2018.pdf. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 61 at the disposal of a company may be deducted only if the capital has been fully released. Further, there is a pressing need to simplify transfer pricing by implementing a prescriptive approach that requires benchmarking of mineral sales, using commodity market prices quoted on a specific date to compute the transfer price (often referred to as the sixth method). Moreover, tax authorities are insufficiently trained and do not have the proper tools and methodologies to assess international and intragroup transactions, or to conduct risk assessments of such transactions. Compared to regional peers, CIT in Burkina Faso has shown strong performance, but with major revenue losses due to tax exemptions. Figure 25 shows higher collection ratios for Burkina Faso’s CIT compared to emerging SSA economies—with an average contribution of 18.3 percent to total tax revenue, equivalent to 2.5 percent of GDP—and also an upward trend. Burkina Faso’s CIT revenue and productivity28 compared to peers is presented in Figure 25. In 2018, Burkina Faso’s CIT revenue to GDP ratio was the highest across all three groups (WAEMU peers, structural peers and aspirational peers), except for Cambodia (3.35 percent of GDP). In terms of the CIT productivity ratio, only Cambodia and Ghana, both aspirational peers, did better than Burkina Faso. CIT collection could be further improved by reducing the multiplicity of exemptions and tax relief that characterize the current system. Figure 25. CIT Collection in Regional Comparison Figure 26. CIT Productivity Ratio, Selected Countries, (% of GDP), Selected Countries, 2010-19 2018 4.0 0.18 6 3.5 0.16 3.0 0.14 5 2.5 0.12 0.10 2.0 4 0.08 1.5 0.06 1.0 0.04 3 0.5 0.02 2 0.0 0.00 Senegal Côte d’Ivoire Burkina Faso Niger Togo Mali Guinea-Bissau Benin Niger Guinea Mali Uganda Cambodia Ghana Bangladesh Togo 1 0 LMICs LICs LICs LMICs LICs 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 WAEMU Structural Peers Aspirational Peers Interquartile Range CIT Revenue (% of GDP) - LHS Burkina Faso Emerging Markets in SSA CIT Productivity Ratio - RHS UMI + High income in SSA Productivity Ratio Average - RHS Source: MINEFID, IMF and World Bank Staff calculations. Source: MINEFID, IMF and World Bank Staff calculations. 28 CIT productivity is measured as the ratio between the actual CIT intake (as a share of GDP) and the highest statutory marginal rate. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 62 Taxation of Consumption The VAT system VAT collection and productivity showed strong performance in most years over the period 2010-2019 compared to regional peers (Table 11). From 2011 to 2018, collection was above the interquartile average for emerging SSA countries; with the discontinuation of fuel excise taxes and the introduction of standardized VAT invoicing to reduce fraud, the VAT as a share of GDP oscillated around 5.5 percent (Figure 27). Similar to the VAT revenue pattern, VAT productivity29 fluctuated over the past decade (Figure 28), though always close to the higher end of the spectrum compared to other countries. In 2018, Burkina Faso’s VAT productivity ranked third in the WAEMU region—behind Togo and Senegal (Figure 29). Its C-efficiency ratio30 also ranked third in the WAEMU region and stood above all structural and aspirational peers except for Togo and Cambodia, respectively (Figure 30). Figure 27. VAT Collection in Regional Comparison Figure 28. VAT Revenue and VAT Productivity, Burkina (% of GDP), Selected Countries, 2010-2019 Faso, 2010-2019 7 7.0 0.40 0.35 0.34 6.0 0.32 0.31 0.31 0.31 0.30 0.35 0.29 6 0.29 0.30 5.0 0.24 0.25 5 4.0 0.20 3.0 4 0.15 4.4 5.3 5.7 6.2 5.6 5.5 5.6 6.1 5.2 5.5 2.0 0.10 3 1.0 0.05 2 0.0 0.00 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Interquartile Range VAT Revenue (% of GDP) - LHS Burkina Faso VAT Productivity - RHS Emerging Markets in SSA UMI + High Income in SSA Source: MINEFID, IMF and World Bank Staff calculations. Source: MINEFID, IMF and World Bank Staff calculations. 29 VAT productivity is measured as the ratio of actual VAT revenues to the product of the standard VAT rate and GDP. 30 VAT C-efficiency is measured as he ratio of actual VAT revenues to the product of the standard rate and final consumption. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 63 Figure 29. VAT Productivity Ratio, Selected Figure 30. VAT C-Efficiency Ratio, Selected Countries, Countries, 2018 2018 0.6 0.9 0.5 0.8 0.7 0.4 0.6 0.3 0.5 0.4 0.2 0.3 0.2 0.1 0.1 0.0 0.0 Senegal Côte d’Ivoire Togo Burkina Faso Mali Guinea-Bissau Niger Benin Mali Niger Guinea Uganda Cambodia Bangladesh Ghana Togo Senegal Côte d’Ivoire Burkina Faso Niger Togo Mali Guinea-Bissau Benin Niger Guinea Mali Uganda Cambodia Ghana Bangladesh Togo LMICs LICs LICs LMICs LICs LMICs LICs LICs LMICs LICs WAEMU Structural Peers Aspirational Peers WAEMU Structural Peers Aspirational Peers VAT Productivity C-Efficiency Ratio SSA Average (2010-2017) SSA Average (2010-2017) Average Average Source: MINEFID, IMF, UN Database, USAID and World Bank Staff Source: MINEFID, IMF, UN Database, USAID and World Bank Staff calculations. calculations. There is substantial room to increase VAT revenue collection. In addition to massive VAT exemption giveaways, the collection record has been impacted by a malfunctioning VAT refund system and by legislative limitations on netting-out. To that end, the Government is implementing or planning to implement the following measures: (a) limiting the production of supporting documents (invoices, customs documents) to enterprises that carry a risk; (b) conducting off-site or on-site audits for enterprises that present an obvious risk; (c) enabling online VAT refund claims; (d) replenishing the VAT account through a levy on the customs VAT and domestic VAT; (e) establishing a special account for VAT credit refunds, financed with a portion of VAT revenues; and (f) producing quarterly reports on the operational management of the special account. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 64 Table 11. VAT Productivity and C-Efficiency, Selected Countries, 2018 Selected Countries (1) Statutory VAT (2) VAT Revenue (3) = (2)/(1) VAT (4) Household (5) = (2)/((1)*(4)) Rate (% of GDP) Productivity Final Consumption C-efficiency (% of GDP) Cambodia 10% 5.71 0.57 70.63 0.808 Togo 18% 6.30 0.35 68.13 0.514 Senegal 18% 5.70 0.32 69.12 0.459 Burkina Faso 18% 5.17 0.29 64.32 0.447 Mali 18% 4.38 0.24 74.76 0.325 Guinea-Bissau 17% 3.80 0.22 86.54 0.258 Niger 19% 4.03 0.21 69.14 0.307 Guinea 18% 3.80 0.21 80.22 0.263 Bangladesh 15% 2.94 0.20 70.81 0.277 Uganda 18% 3.59 0.20 72.28 0.276 Benin 18% 2.85 0.16 70.45 0.225 Côte d’Ivoire 18% 2.75 0.15 69.33 0.221 Ghana 15% 2.30 0.15 72.01 0.213 Source: MINEFID, IMF and World Bank Staff calculations. Excises Revenue from excise taxes is low, accounting for only 1.2 percent of GDP or 8.8 percent of total tax revenue during 2010-2019. Excise duties are applied to specific goods and activities such as non-alcoholic beverages (15 percent), beer (30 percent), alcoholic beverages other than beer (35 percent), tea and coffee (12 percent), tobacco products (50 percent), kola nuts (10 percent), cosmetics and perfumes (15 percent), and petroleum products (unified CFAF 125 per liter for premium fuel and CFAF 50 for diesel).31 Excise taxes are levied on the import of petroleum products and to a far lesser extent on other products (Figure 31). Burkina Faso’s excise tax revenue shows below-average performance compared to SSA emerging countries (Figure 32). Whereas excise collection in the average emerging, upper-middle and high-income SSA groups has risen since 2017, collection in Burkina Faso has declined due to weaknesses in the policy design (including a narrow tax base, relatively low tax rates and absence of tax differentiation between domestic and foreign products). 31 The General Tax Code (CGI), Official Edition, 2020. Directorate General of Taxes (DGI), MINEFID. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 65 Figure 31. Composition of Excise Tax, Burkina Faso, 2010-2019 Average Tax on plastic packaging Tax on passenger vehicles (TEP) 2.3% 2.6% Tax on cosmetics and perfumes (TPPC) 5.9% Beverage tax Tax on coffee 38.4% Other and tea 6.4% 25.4% Tax on petroleum products (TPP) Tobacco tax 93.6% 22.1% Tax on kola nuts 3.2% Sources: MINEFID and World Bank Staff calculations. Taxation of International Trade Transactions Trade tax revenue also underperformed the emerging SSA and upper-middle and high-income SSA groups, averaging only 1.8 percent of GDP or 13.7 percent of total tax revenue between 2010 and 2019 (Figure 33). The low trade revenue collection can be explained partly by trade liberalization within the WAEMU and Economic Community of West African States (ECOWAS) regions but also by evident inefficiencies in customs administration.32 However, the most important factor is the multiplicity of import tax exemptions benefiting mostly multinational firms, particularly mining corporations. Figure 32. Excise Collection in Regional Comparison Figure 33. Trade Collection in Regional Comparison (% (% of GDP), Selected Countries, 2010-2019 of GDP), Selected Countries, 2010-2019 6 3.0 5 2.5 2.0 4 1.5 3 1.0 2 0.5 1 0.0 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Interquartile Range Emerging Markets in SSA Interquartile Range Emerging Markets in SSA Burkina Faso UMI + High Income in SSA Burkina Faso UMI + High Income in SSA Source: MINEFID, IMF and World Bank Staff calculations. Source: MINEFID, IMF and World Bank Staff calculations. 32 Weaknesses in customs administration include a lack of control and enforcement and lack of capacity to verify the declared value of imports. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 66 Taxation of Mining Activities The gold sector consists of both capital-intensive, large-scale modern mining operations and informal artisanal mines that employ and indirectly support about 3 million people, with a substantial portion of the production escaping taxation.33 Following the revolution of 2014, revisions were introduced to the 2003 Mining Code. The revised Code, adopted in June 2015, introduced additional taxes in the sector with the stated objective of increasing mining revenue for the Government and funding for local social and development programs for populations living in mining areas. The main tax changes were as follows: (a) mining license and industrial operations permit holders are to contribute 1 percent of their monthly turnover (excluding VAT)—or 1 percent of the value of the products extracted during the month—to a special Local Development Mining Fund; (b) mining activity profits are subject to income tax under the regular taxation regime; and (c) the sale of hydrocarbons for fuel will no longer be exempt from VAT.34 Under the revised Mining Code, mining tax revenues come from a complex set of duties, taxes and fees, in addition to dividends from the State’s profit-sharing stake in the firms. The State holds a direct 10 percent stake in the capital of every mining firm (formal sector). Mining operators are also subject to numerous taxes, royalties and similar charges, including (a) fixed fees for the granting or renewal of a large-scale or small-scale industrial operating permit, which vary depending on the type of minerals being mined and whether the activity is artisanal or industrial scale; (b) fixed fees for authorization to research quarry substances; (c) surface (i.e., per square km) taxes and royalties; (d) royalties based on the volume (cubic meters) of extracted minerals; and (e) tax on capital gains.35 In general, Burkina Faso has lower mining taxation than Mali or Ghana (Table 12). Table 12. Mining Taxes (%), Burkina Faso, Mali and Ghana, 2003-2015 Mining Code Burkina Faso Mali Ghana 2003 2015 2012 2006 Tax on special products (ICSP) - - 3 - Mining royalty rate (ad valorem) 3–5 3–5 3 5 Corportate Income Tax 17.5 27.5 35 35 Tax on income from securities 6.5 12.5 - 10 (IRVM)a Tax for local development 0 1 0 - (ad valorem) Government profit sharing stake 10 10 10 – 20 8 Note: a= IRVM was replaced in 2018 with Capital Gains Derived from the Sale of Mining Licenses and Capital Gains Made from the Sale of Shares and Securities of Companies. Source: Carole Sisso et al. 2016; IMF 2016b. 33 Carole Sisso, Delphine and Sawadogo, Boureima and Natama, Maimouna Hama. Decline in Gold Prices, Tax Receipts and Employment: Which Adaptation Strategy for Burkina Faso? (December 1, 2016). PEP working paper series 2016-28. 34 Burkina Faso: New Mining Code Adopted. 2015. https://www.loc.gov/item/global-legal-monitor/2015-07-21/burkina-faso-new-mining-code- adopted/. 35 This tax is not payable if the large-scale or small-scale industrial operating permit is transferred without charge to a domestically owned company. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 67 The revised Mining Code also maintained substantial tax incentives and exemptions, and introduced new incentives, for all phases of mining operations: (a) for the exploration phase, exemption from VAT on imports of mining equipment and from CIT; (b) for preliminary works, exemption from customs duties on specific items required to set up operations (e.g., lubricants for mining equipment); (c) for the exploitation phase, exemption from registration fees for documents pertaining to share capital increase, and stabilization of taxes and customs duties for up to 20 years. Despite increasing gold extraction, revenues from gold mining have decreased as a share of GDP since 2016. By 2019, Burkina Faso was the fifth largest gold producer in SSA, with an annual production of 62 tons, driven by the opening of new mining sites amid favorable international gold prices. This was only surpassed by Ghana (142.4 tons), South Africa (118.2 tons), Sudan (76.6 tons) and Mali (71.1 tons).36 As a consequence, the State’s mining revenue (dividends from its profit-sharing stake combined with taxes and related revenues from gold) had generally increased (Figure 34). However, in GDP terms, this nominal rise turns into a relative decline, revealing a failure of mining taxation to keep pace with the overall growth performance (Figure 35). Figure 34. Contribution of the Mining Sector to the Figure 35. Industrial Gold Production and Mining National Economy, Burkina Faso, 2014-2018 Revenue, (% of GDP), Burkina Faso, 2010-2019 19.6 300 70 3.4 15.9 16.2 15.4 60 3.0 2.9 2.7 2.7 2.6 2.5 12.8 2.6 2.5 250 50 40 1.1 200 30 20 23.5 32.6 30.2 32.5 36.5 36.4 38.1 46.0 56.6 62.0 168 168 190 226 266 150 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2014 2015 2016 2017 2018 Mining Revenue (CFAF billions) Industrial Gold Production (tonnes) Share in State Tax Revenue (%) Mining Revenue (% of GDP) Source: World Bank staff calculations based on Kabore 2020. Source: World Bank staff calculations based on Kabore 2020. The revision of the Mining Code in 2015 led to a proliferation of exemptions and, at times, the opaque usage of these complex exemptions by mining firms. This has led, along with informality and insecurity, to a relative decline in gold revenues. Large volumes of production are smuggled by informal miners to neighboring countries (particularly Togo) to avoid export taxes. Moreover, both criminal gangs and groups linked to the Islamic State and al-Qaeda routinely set up attacks on artisanal miners to disrupt production or take over mining sites.37 36 NS Energy. Top five gold mining countries of Africa from Ghana to Burkina Faso. August 28, 2020. https://www.nsenergybusiness.com/news/ top-gold-mining-countries-africa/. 37 https://www.voanews.com/a/gold-mining-in-burkina-faso-becomes-increasingly-dangerous/6306146.html PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 68 SECTION III. ASSESSMENT OF TAX ADMINISTRATION Organizational Structures of Revenue Authorities Burkina Faso has three semi-autonomous revenue agencies, all under the authority of MINEFID. These agencies are (a) the Tax Revenue Authority (Direction Générale des Impôts, DGI); (b) the Customs Revenue Authority (Direction Générale des Douanes, DGD); and (c) the Treasury and Public Accounting Office (Direction Générale du Trésor et de la Comptabilité Publique, DGTCP). The DGI is tasked with the preparation and application of domestic, state, land and cadastral tax legislation, and is the main collector of domestic tax revenue. The DGD is responsible for the preparation and application of customs legislation and the collection of customs duties and taxes. The DGTCP, in charge of cash management and ensuring the sustainability of the public financial system, is tasked with collecting non-tax revenue, but in practice it also oversees the collection of some taxes. (For a more detailed inspection see Annex IX.) To improve overall tax collection and reduce fraud, the Government has implemented several administrative reforms over the past decade.38 Key reforms have included (a) introducing taxpayer segmentation in order to improve VAT compliance in the small-enterprise segment, with a clear distinction between MSMEs (CFAF 50 million to 1 billion in turnover) and large companies (more than CFAF 1 billion); (b) strengthening tax management through regular updates to the taxpayers database; (c) developing or upgrading electronic platforms for tax administration;39 (d) improving audit efficiency by executing systematic risk analyses for target groups and increasing annual spot-check operations; and (e) enhancing tax billing and collection, including through digital filing and payment for formal enterprises. Challenges in Tax Administration This section lays out major areas of tax administration that still require improvement, building on the IMF’s TADAT report.40 Despite a series of tax administration reforms, a recent TADAT assessment identified deficiencies in several core tax administration functions (see Annex VI). This includes (a) taxpayer identification and registration, (b) payment processing, (c) arrears management, and (d) tax appeal. The assessment found a need for better overall coordination of different units within the tax administration, since lack of coordination and related corruption could damage the business environment and push some private sector enterprises into non- compliance or informality. 38 Recent reform steps. Addis Tax Initiative. https://www.addistaxinitiative.net/profile/burkina-faso. 39 Concretely, DGI has implemented a series of application interfaces to improve operations and information sharing between its business applications and those of other departments in MINEFID. In 2018, it launched the eSINTAX platform to allow taxpayers to e-file and e-pay through a secure channel. More recently, it developed a module to allow for mobile money payments of the tax on motor vehicles. Similar IT reforms were implemented by the DGD, including the introduction of a computerized Automated System for Customs Data (ASYCUDA++) module in 2010, the migration of ASYCUDA ++ to the ASYCUDAWorld platform in 2015, followed by the online rollout of ASYCUDAWorld to allow authorized customs brokers to file their declarations online and at any time, the introduction in 2016 of a trade single window system— the virtual link system for import and export operations (in French, SYLVIE)—to streamline a set of customs procedures, and finally the interconnection since 2021 of the SYLVIE and ASYCUDA systems to allow data exchange and simplify customs transactions. The most recent tax reforms by DGI are listed in Annex X. 40 IMF Tax Administration Diagnostic Assessment Tool (TADAT) Report. 2020. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 69 Taxpayer identification and registration: These functions are digitalized and centralized for all taxpayer information. However, there is a lack of secure online access to allow taxpayers to update their information, and no operational risk mitigation process is in place to monitor or control IT system failures and security violations. Moreover, the DGI does not have mechanisms in place to measure the time it takes for agents to respond to taxpayer requests for information or to identify improvements that would reduce taxpayer compliance costs. Filing: The DGI has an automated system to identify non-filers and generate late filing penalties; however, documentary controls are set to provide a follow up within fifteen days of the due date rather than seven days, which is international best practice. Electronic filing has been implemented since 2019 for large taxpayers and expanded to medium-sized businesses in 2020. However, filing rates for tax returns remain low, at 57.4 percent for the IRPP41 (Impôt sur le revenu des personnes physiques) and only 40.5 percent for the IRF (Impôt sur les revenus fonciers). Payment processing: While advance payment regimes are well established in Burkina Faso, payment processing is slow and lags behind the WAEMU average. Accurate information on the timeliness, number and value of VAT payments was not available. However, on average, firms in Burkina Faso spend 270 hours a year on filing, preparing and paying three major taxes (CIT, VAT and labor taxes, including payroll taxes and social contributions). This compares with an average of 281 hours for SSA countries, but 258 hours within the WAEMU region and 248 hours for the group of aspirational peers. Arrears management and tax appeal: DGI often fails to determine the amount of tax arrears owed or to resolve disputes in a timely manner. Only 54 percent of administrative reviews are completed within 90 days, compared to the international good practice standard of 90 percent of cases reviewed within 30 days. Further, the average time to pay VAT refunds exceeds 90 days, far longer than international good practice, often due to insufficient funds in the refund account. Audit: DGI has an automated accounting system, SINTAX (Système informatisé de taxation, Integrated Taxation System), linked to the accounting system of MINEFID, CIE (Comptabilité intégrée de l’Etat, Integrated State Accounting). However, DGI does not conduct regular external and internal audits to verify that the accounting system aligns with tax legislation and public administration accounting standards. Further, DGI does not have a transparent and proper complaints reporting system in place. Although DGI’s financial statements are audited by the Inspection Générale des Finances (IGF), the Ministry’s audit body, the documented audit findings and recommendation reports are not made public. DGI’s Anti-Corruption Unit (CAC) oversees the tax administration’s anti-corruption policies and conducts outreach activities (on taxpayers’ fiscal responsibility), but it does not investigate alleged cases of corruption by tax officials. DGI does not receive regular (monthly) reporting of CAC’s findings, and does not systematically monitor its own actions taken to address CAC’s anti-corruption recommendations. The DGI presents an annual activity report to the National Assembly’s Finance and Budget 41 The Personal Income Tax (IRPP) includes Tax on Non-Commercial Profit (BNC), Tax on Industrial, Commercial and Agricultural Profits (BIC) and Property Income Tax (IRF). PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 70 Commission (Commission des finances et du budget, COMFIB) before the end of September. However, this activity report is not made available to the public in a timely manner, i.e., within six months after the end of the fiscal year, in line with international best practice. Lack of coverage of the informal economy: Deficiencies in the governance of tax administration give rise to informality, which in turn leads to low levels of tax collection. Sub-Saharan Africa is one of the regions where the informal economy is most prominent, averaging around 36 percent of GDP between 2010 and 2015, compared to 28 percent for South Asia and 20 percent for Europe (Figure 36 and Figure 37). In addition to other non-tax factors, ineffective tax policy and cumbersome tax administration induce MSMEs to continue operating in the informal sector, including in Burkina Faso, despite its lower estimated level of informality compared to peers (Figure 38). Figure 36. Informal Economy Share by Region (% Figure 37. Benchmarking Tax-to-GDP Ratio and of GDP), Selected Countries, 1991-2015 Shadow-to-GDP Ratio, 151 countries, 2004-2015 50 40 30 20 10 40.0 38.6 26.6 25.8 20.2 36.2 35.3 42.9 42.4 33.4 24.2 32.9 23.4 22.4 15.3 24.7 16.7 31.3 19.4 21.2 38.1 28.1 27.9 41.1 0 OECD Europe East Asia Middle East and North Africa South Asia Burkina Faso Latin America and Caribbean Sub-Saharan Africa 1991-99 2000-09 2010-15 Source: Medina and Schneider. 2018. Shadow Economies Around Source: Medina and Schneider. 2018. Shadow Economies Around the World; IMF Working Papers; and World Bank Staff calculations. the World; IMF Working Papers; and World Bank Staff calculations. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 71 Figure 38. Benchmarking Informal Economy Share (% of GDP), Selected Countries, 2004-2015 55 50 45 40 35 30 25 Côte d’Ivoire Senegal Benin Guinea-Bissau Niger Togo Mali Burkina Faso Guinea Niger Uganda Mali Ghana Cambodia Bangladesh Togo LMICs LICs LICs LMICs LICs WAEMU Structural Peers Aspirational Peers Shadow Economy Average SSA Average Source: Medina and Schneider. 2018. Shadow Economies Around the World; IMF Working Papers; and World Bank Staff calculations. SECTION IV: TAX EXPENDITURE AND TAX GAP Tax Expenditures Since 2016, annual tax expenditure reports have been annexed to the Budget Law, though the number of measures covered remains low.42 The reports, produced by the Permanent Secretariat of the Tax Policy Committee (SP/CPF) under MINEFID, include a quantitative evaluation of tax expenditures included in the Tax Code but not on the list of taxable entities and commodities. This exercise contributes to greater transparency in public financial management (PFM), in line with WAEMU’s Directive No. 01/2009/CM/UEMOA of March 27, 2009, on Transparency in the Management of Public Finances. While not all tax expenditure measures have been evaluated, the number increased from 51.1 percent of all measures in 2016 to 77.3 percent in 2019 (Table 13). This demonstrates the Government’s intention to rationalize and improve the overall tax yield through possible reforms to the country’s tax and customs regimes. But this also points to significant room for improvement of both coverage and exhaustiveness, especially as there is no visibility in the reports on the profile of the gap (type of tax, beneficiaries) that remains to be covered. Further, there are, at times, significant differences in the classification of these exemptions over the years, which could complicate comparisons over time. 42 Tax expenditure data in Burkina Faso come from the databases of the Customs General Directorate (DGD), the Taxes General Directorate (DGI), the Information Systems General Directorate (DGSI), the Treasury and Public Accounts General Directorate (DGTCP), the National Institute of Statistics and Demography (INSD), and the Approved Management Centers (CGA) of Ouagadougou and Bobo Dioulasso. The production of tax expenditure accounts is harmonized with that of other WAEMU countries by the revenue forgone method. As provided in Article 6 of WAEMU Decision No. 08/2015/CM/UEMOA. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 72 The overall governance of the tax expenditures system should be revisited. First, the coordination and information transmission mechanisms between the Tax Policy Committee, tax authorities (DGI, DGD, DGTCP), and MINEFID is relatively weak, which contributes to the current low coverage and, at times, inconsistencies in the data (especially across years). Second, the current methodology used to assess tax expenditures could well be the reason why tax expenditures appear relatively low in Burkina Faso.43 Third, there is no national legal framework that clearly and formally set the decision rules that should drive the introduction of new measures or the criteria that should be met for existing incentives to be reconducted. Tax expenditures are embedded in several major taxes, primarily VAT, customs and other import duties and corporate taxes (Figure 39).44 They are estimated to cost between 1 and 2 percent of GDP and mostly benefit corporations, especially mining firms (via custom/import duty-type exemptions). Between 2015 and 2019, the amount of total tax expenditure averaged CFAF 80.2 billion a year, or about 1 percent of GDP (Table 13). The proxy values corresponding to full coverage are, respectively, CFAF 159.77 and 2.0 percent of GDP. Expenditures arising from customs and other import duties, primarily benefitting the mining sector, made up the largest share (32.2 percent), followed by expenditures under VAT (31.9 percent) and corporate income tax (21.5 percent). Specific examples of tax expenditures in 2019 are provided in Annex XII. Table 13. Number and Nominal Values of Assessed Tax Expenditure Measures, Burkina Faso, 2015-2019 Number of measures 2015 2016 2017 2018 2019 Total measures identified 237 271 405 862 911 Total measures assessed 121 153 286 622 704 Percentage assessed (pa) 51.1% 56.5% 70.6% 72.2% 77.3% Tax expenditures (partial picture), 75.99 92.54 87.21 68.91 76.08 in billion CFAFa In percentage of GDP 1.1% 1.2% 1.1% 0.8% 0.8% Tax expenditures (full picture), 148.83 163.92 123.50 95.50 98.45 in billion CFAFb In percentage of GDP 2.1% 2.2% 1.5% 1.1% 1.1% Note: a = The total amount of assessed tax expenditures (partial picture) is reported by the Permanent Secretariat of the Tax Policy Committee (SP/CPF). b = The total amount of tax expenditures (full picture) is calculated by assuming that the identified but not assessed measures have the same share of tax expenditures as the assessed portion. Source: Permanent Secretariat of the Tax Policy Committee (SP/CPF), and World Bank Staff calculations. 43 Though the WAEMU directive recommends the “tax revenue loss” method, other methodologies (e.g., the “expenditure equivalent” method the “tax revenue gain” method) exist and could be explored for purposes of comparative analyses, in which case the country could settle for a method that yields the higher tax expenditures. Such a switch could be necessary to better reflect the true value of tax expenditures, which could well be greatly underestimated with the current method. 44 A general inventory of preferential tax measures is classified by the Tax Code (including the General Tax Code (CGI); the Mining Code; the Investment Code; Law No. 025-2012/AN of the Strategy for Accelerated Growth and Sustainable Development (SCADD); the Growth Pole Law; and other legislation). See Annex XII for the detailed breakdown of tax expenditures under these codes. See Law No. 025-2012/AN of June 4, 2012 establishing a special tax and customs regime applicable to investment agreements signed with the State as part of the implementation of the SCADD; and Law No. 37-2013/AN of November 21, 2013 on the Finance Law for the execution of the State Budget. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 73 Figure 39. Tax Expenditures by Type of Tax, Burkina Faso, 2015-2019 Registration and stamp duty (DET) 6.35% Corporate income tax (CIT) Tax on employers and apprenticeship (TPA) 21.47% 3.77% Tax on income from securities (IRVM) Tax on non- 1.84% commercial profit (IBNC) 0.01% Tax on passenger Tax on income on Tax on industrial, vehicles movable capital commercial and 0.01% Value added tax (VAT) agricultural profit 31.89% (IRCM) 1.41% (IBICA) 0.01% Tax on property Customs and other income (IRF) import duties Tax on petroleum 0.02% 32.19% products (TPP) 1.03% Note: Income Tax on Securities (IRVM) was replaced in 2018 with the Capital Gains Derived From the Sale of Mining Licenses and the Capital Gains Made From the Sale of Shares and Securities of Companies. Source: Permanent Secretariat of the Tax Policy Committee. Rapport Sur L’evaluation De La Depense Fiscale 2015-19. Ministry of Economy and Finance, Burkina Faso. Companies make up an overwhelming majority (75 percent) of beneficiaries (Figure 40), most of which are international corporations operating in the mining sector. Three quarters of all tax expenditures granted are directed toward corporations. A fair share of these incentives is received by the mining sector, which is overwhelmingly dominated by foreign corporations. Most of these companies could be willing to pay for access to resources even without any tax incentives. Further, only about 12 percent of tax expenditures benefit households and even less (8 percent) go in support of the public administration. Figure 40. Tax Expenditures by Recipient, Burkina Figure 41. Tax Expenditures by Type of Exemption, Faso, 2015-2019 Burkina Faso, 2015-2019 NGOs and Associations Members of Parliament, Rate reduction Total exemption 1.28% members of the 8.26% 0.08% Projects and Programs Government, presidents Tax reduction 3.85% or institutions 0.03% 0.05% Public administrations 8.18% Temporary Households exemption 11.79% 38.05% Companies Partial exemption 74.85% 53.58% Source: Permanent Secretariat of the Tax Policy Committee, Source: Permanent Secretariat of the Tax Policy Committee, Burkina Faso. Burkina Faso. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 74 Tax Gap Assessment The tax gap is due to tax expenditures, a lack of compliance by taxpayers, weak capacity of the tax administration to collect what taxpayers owe, and inadequate tax policy (Figure 41).45 Noncompliance with the VAT (including from unregistered transactions) accounts for revenue losses totalling 4.8 percent of GDP. The VAT policy gap (excessive number of exemptions and different rates) accounts for another 0.3 percent of GDP. In total, up to 5.1 percent of GDP in additional revenue could be gained through improvements to VAT exemptions and compliance. Tax expenditures are responsible for another 1 percent of GDP in forgone revenue. Aligning tobacco taxation with the ECOWAS directives and WHO recommendations could, by itself, generate 1 percent of GDP in additional tax revenue (see Annex VI). All of these revenue losses add up to a total tax gap of at least 6 percent of GDP. Reducing this gap even by half would go a long way toward helping the Government achieve its goal of generating tax revenues equal to 21 percent of GDP. Further, even a fiscally neutral improvement in the progressivity of the PIT could stimulate national consumption, generate growth, and lead to additional tax revenue.46 To reduce the tax gap, the tax authorities already started citizen engagement initiatives to increase tax compliance (Box 4). Box 4. Citizen Engagement Activities of Tax Authorities , Over the recent years, the DGI has been conducting broad awareness and communication campaigns on tax compliance. The campaign, which covers communication and sensitization aspects, is focused on both central and local taxes. The latter category includes the Contribution of Micro Enterprises (CME), the Residence Tax (TR), the Tax on Use (TJ), the Tax on Motor Vehicles (TVM), and the Tax on built and non-built properties. » Geographical coverage: the actions of tax authorities cover all provinces and regions in the country. Through the Local Government Support Program (PACT), the World Bank has supported such campaigns across six regions: the Center-South, the Boucle du Mouhoun, the Center-West, the Hauts-Bassins, the South-West and the North. » Key actions: Regarding the promotion of tax compliance, several activities are regularly conducted, including the organization of the annual DGI Excellence Award and the regular participation of GDI in the renowned Tour Currently, tobacco, cigars and cigarettes are imposed in Burkina Faso at an ad valorem rate of 50 percent (29 percent lower than the du Faso. In terms of the fight against tax fraud, DGI and DGD have both intensified tax investigations, which have WHO’s recommended minimum of 70 percent. Further, the 2017 ECOWAS Tobacco Tax Directive introduced a minimum specific tax led to the identification of over a hundred companies and individuals involved in cases of fraud, and ultimately of $0.02 per cigarette (or $0.40 per pack of 20 cigarettes). The impact of adopting such ECOWAS directive (scenario 1) is substantial. to the recovery of tens of billion CFAF in 2021 only. Tobacco excise tax revenue is predicted to increase by 72 percent (from $21.94 to $37.79 for 1,000 cigarettes sold). In case the government also raises Source: the ad valorem MINEFID/DGI & DGD.excise tax to 70 percent (scenario 2), the excise tax revenue would be increased by over 82 percent, at $39.95 for 1,000 cigarettes sold. Overall, the combined scenario could generate 1 percent of GDP in additional excise tax. 45 The tax gap is the difference between the total amount of taxes owed to the government and the amount it actually receives. It is created by tax expenditures and all revenue loss due to a lack of compliance by taxpayers: late filing of tax returns, underpayment of tax liabilities, or underreporting and underpayment, which has the most significant impact on tax compliance. The tax gap is exacerbated by the tax administration’s lack of capacity to collect what is due from taxpayers. 46 Given the very low top statutory rate applied in the country (25 percent), an alignment to the WAEMU average (36 percent) could lead to a 44 percent increase in PIT revenues, representing 4 percent of GDP in additional tax revenues. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 75 CHAPTER 3: PUBLIC EXPENDITURE ANALYSIS PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 76 This chapter offers an overview of public expenditure trends over 2010-2020. The analysis pinpoints key drivers of changes in expenditure levels, composition of economic and sectoral expenditures, and execution performance. Budget performance is covered in the social sectors in terms of outcomes, in public investment in terms of sector outcomes, and for the public wage bill through international benchmarking. For more in-depth analysis, shorter periods are used. COVID-19-related expenditures are addressed separately, except where they follow already existing trends. The analysis is partly constrained by inconsistencies in the country’s public financial information systems and the data they generate. The sector breakdown of wages and salaries since 2016 is especially difficult to identify. Although the share of Common Inter-ministerial Expenditures (Dépenses Communes Inter-Ministérielles, DCIM) in overall spending decreased from 40 percent in 2010 to 9 percent in 2019, showing a significant improvement in expenditure attribution to different ministries and subnational entities, there is still no detailed administrative split for the remaining 9 percent of expenditures. However, in 2021, as part of the set of Policy and Performance Actions under IDA’s SDFP, an enhanced Public Debt Bulletin was published with more detailed information, including on state-owned enterprises.47 SECTION I. LONG-TERM PUBLIC SPENDING TRENDS General Trends Burkina Faso outspent all comparator groups during the period 2010-2020, while its GDP per capita was the lowest. The country outspent aspirational peers each year by 1.5-4.4 percentage points of GDP, and by 3.9 percentage points on average. Throughout the period, the country dedicated an average of 23.1 percent of GDP to public spending, outspending structural peers (18.6 percent of GDP) and aspirational peers (19.2 percent), as well as the WAEMU (20.6 percent) and SSA (22.5 percent) averages (Figure 42). Public expenditures rose significantly over 2010-2019, and accelerated in the latter part of the decade in response to the COVID-19 shock. The Government spent 26.9 percent of GDP in 2019, up from 21.7 percent in 2010 (Figure 43). Seven ministries contributed 91 percent of the overall increase in expenditures. The Ministry of National Education, Ministry of Defense, and Ministry of Health accounted for 33, 14, and 14 percent, respectively. These were followed by MINEFID (13 percent), the Ministry of Security (8 percent), the Ministry of Infrastructure (6 percent), and the Ministry of Water and Sanitation (3 percent). 47 Bulletin statistique de la dette, Mars 2021. Direction Générale du Trésor et Comptabilité Publique. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 77 Figure 42. Total Expenditure, Selected Countries, Figure 43. Total Expenditure (% of GDP), Selected 2010-2020 Average Countries, 2010-2020 25.0 4,000 23.1 3,500 25 20.0 22.5 3,000 20.6 Percent of GDP 19.2 18.6 2,500 US Dollar 15.0 2,000 20 10.0 1,500 1,000 5.0 500 0.0 0 15 Burkina Faso Aspirational Peers Structural Peers WAEMU SSA 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Burkina Faso SSA Structural Peer Average WAEMU Total Public Spending GDP per Capita (PPP) Aspirational Peer Average Note: 2020 amounts are estimates. Note: 2020 amounts are estimates. Source: IMF World Economic Outlook and World Bank World Source: IMF World Economic Outlook. Development Indicators. Expenditures were driven by the sharp growth in the public wage bill (i.e., personnel expenditure) and, to a lesser extent, in current transfers (Figure 44 and Figure 45). Personnel expenses and current transfers contributed 57 and 25 percent, respectively, to the expenditure increase. The fiscal burden of the wage bill nearly doubled over 2010-2019, growing from 4.9 to 9.2 percent of GDP. Current transfers, the second largest driver of expenditure growth, increased from 3.8 to 5.4 percent of GDP over the same period. While the share of investment spending fell by nearly half, from 10 to 5.9 percent of GDP, estimates for 2020 show an increase to 7.4 percent of GDP. Figure 44. Expenditure Structure (% of GDP), Burkina Figure 45. Expenditure Struture (% of Total), Burkina Faso, 2010-2020 Faso, 2010-2020 Average 35+28+21871A 30 Capital transfers, 1 Debt Interest, 7 20 Goods and Investment, 34 10 services, 8 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Interest Personnel Personnel, 28 Goods and Services Current Transfers Current Investments Capital Transfers transfers, 21 Other Note: 2020 amounts refer to the modified budget. Source: BOOST, Burkina Faso MINEFID and World Bank and IMF staff estimates. Source: BOOST, Burkina Faso MINEFID and World Bank and IMF staff estimates. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 78 Out of three large shifts away from capital to greater current spending, only one was corrected via subsequent Budgets (Figure 46). The first shift away from investment spending that occurred in 2011 was corrected over the following two years. A second and larger shift engendering a larger share of current spending in 2014- 2015 was only partially corrected through 2016-2017. The third shift in 2018-2019 was corrected through the 2020 modified Budget only to some extent. Continuing this correction over 2021-2023 would help limit runaway current expenditures. The large shift from investment to current expenditure (from 45.6 to 24.8 over 9 years) was mainly on account of increasing personnel expenditure. Expenditure attribution has improved slightly due to inter-ministerial spending consolidation, with expenditures more equally distributed across administrative bodies (Figure 47). This was mainly due to better accounting processes, which decreased inter-ministerial expenditures48 from 40 percent in 2010 to 9 percent in 2019, even though the number of ministries increased from 27 to 28 over the period. Figure 46. Type of Expenditure (% of Total Figure 47. Expenditure Defragmentation, Expenditure), Burkina Faso, 2011-2020 Burkina Faso, 2010 and 2019 31 80% 30 27 60% 20 40% 9 10 7 4 2 20% 0 0% Number of admin. Number of Ministries Number of admin. Bodies spending necessary to bodies spending less 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 more than 50 reach 1/2 of total than 1 percent of billion CFAF expenditures total expenditures Acceleration Phases Current Expenditure 2010 2019 Investment Expenditure Source: BOOST. Source: BOOST. Economic Composition of Spending Burkina Faso outspends peers on total, current and capital expenditures (Figure 48). The Government’s current spending (18.2 percent of GDP over 2017-2019) was higher than the averages for structural and aspirational peers and SSA countries (12, 15.8, and 12.9 percent of GDP, respectively). The country also spent 9.6 percent of GDP, on average, over 2017-2019 on capital investments compared to 7.3 percent of GDP in WAEMU countries, 6.6 percent in SSA countries and 7.3 percent among peers over the same period. While its invesment-to-current expenditure ratio ranks near the average of peers, infrastructure outcomes are lagging. 48 In Burkina Faso’s budget nomenclature, administrative spending categories include ministries, departments, and “inter-ministerial expenditures,” which serves as a catch-all group for expenditures common to several ministries. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 79 Figure 48. Type of Expenditure (% of GDP), Selected Countries, 2017-2019 Average 30 25 9.6 20 7.3 9.3 9.3 15 5.9 10 4.9 18.2 16.6 11.1 12.7 11.5 5 8.2 0 Burkina Faso Bangladesh Guinea Mali Togo Uganda Current Expenditure Investment Expenditure Source: World Bank and IMF staff estimates. Public investment spending decreased by nearly 12 percent from 2017 to 2019, which could lead to worsening infrastructure and little build-up of the capital stock. The share of capital spending decreased by nearly a third (from 11.6 percent to 7 percent of GDP) from 2017 to 2019, which was reflected in the declining quality of infrastructure (Figure 49). Furthermore, as of 2019, the country performed below peers on access to electricity and basic drinking water (Figure 50) and achieved a Public Investment Management Assessment (PIMA) score of 0.47 in 2017, well below the SSA average of 0.64—on a scale from 0 to 1.49 However, Burkina Faso has also seen some successes in recent years, showing a relatively high rate of mobile cellular subscriptions compared to peers and the SSA and WAEMU averages. As the COVID-19 response may require continued high levels of government transfers, there is a risk that the country’s infrastructure and capital stock could deteriorate in the medium term. Figure 49. Logistics Performance Index, Burkina Faso, Figure 50. Access to Infrastructure, Burkina Faso, 2019 2010-2018 100 3 80 2 60 40 1 20 0 0 Access to electricity People using basic Moble cellular (% of population) drinking water srvices subscriptions 2010 2012 2014 2016 2018 (% of population) (per 100 people) Overall LPI Infrastructure Burkina Faso SSA Note: 1 = lowest; 5 = highest. WAEMU Structural Peers Source: World Economic Forum GCI Database. Aspirational Peers Source: World Development Indicators. 49 Burkina Faso: Évaluation de la gestion des investissements publics – PIMA. Rapport d’assistance technique. Juin 2017. Fonds Monétaire International. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 80 Burkina Faso’s spending on maintenance has been declining since 2018 (Figure 51). In times of fiscal constraint, negative effects of lower capital spending can be mitigated through the maintenance of existing infrastructure. In 2017 and 2018, maintenance amounted to 14.2 and 17.4 percent of overall investment spending in the Budget, respectively. This equated to around 5 percent of total government spending each year, and around 1 percent of GDP. Since 2018, however, these figures have decreased. In 2019 maintenance spending amounted to only 8.8 percent of investment spending, 2.1 percent of total spending, and 0.5 percent of GDP falling further in 2020 to 4.4, 1.3, and 0.4 percent respectively. With higher operational spending resulting from the pandemic and ongoing insecurity, maintenance spending could increase to mitigate the deterioration of existing infrastructure. Figure 51. Maintenance Expenditure, Burkina Faso, 2017-2020 20 17.4 18 16 14.2 14 12 10 8.8 8 6 4.9 5.2 4.4 4 2.1 2 1.2 1.1 1.3 0.5 0.4 0 2017 2018 2019 2020 % of Investment Spending % of GDP % of Total Spending Source: BOOST, WB staff estimates. The Infrastructure Management Assessment made five key recommendations: (a) strengthening the framework for public-private partnerships; (b) improving the links among the various programming and budgeting tools for public investments; (c) strengthening the project maturation system through ex ante evaluations of projects by sector ministries and counter-appraisals by a competent central body; (d) rigorous selection of projects to be budgeted; and (e) improvement of expenditure commitments based on reliable cash flow forecasts. Once implemented, these measures will ensure the alignment of investment projects with the National Development Program (PNDES II), the proper management of fiscal contingent liabilities and the prioritization of results in investment decisions. Current spending in Burkina Faso is higher than in peer countries and is driven by high spending on wages (Figure 52). Burkina Faso spent 9.2 percent of GDP on wages and salaries in 2019, compared to 5.2 percent among WAEMU, 6.3 percent in SSA, and 4.9 percent for peers. Goods and services spending (2.3 percent of GDP in 2019) is on par with WAEMU (2.3 percent) and below that of all peers except Niger. Interest spending (1.3 percent of GDP in 2019) is below the WAEMU and SSA averages (1.4 and 1.8 percent of GDP), as well as those for peers (1.6 percent of GDP, on average). Burkina Faso’s transfer expenditure (5.5 percent of GDP in 2019) is higher than WAEMU (4 percent), SSA (4.3 percent), and peer (3.8 percent) averages. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 81 Figure 52. Current Expenditure by Economic Classification (% of GDP), Selected Countries, 2017-2019 Average 20 15 5.5 3.9 1.3 2.4 4.4 10 2.3 3.6 3.4 0.9 3.5 5.0 1.3 0.7 2.9 2.2 5 9.2 3.3 2.5 6.7 5.3 3.6 5.1 3.6 0 Burkina Faso Guinea Mali Togo Uganda Niger Personnel Goods and Services Debt Interest Transfers Other Source: IMF Article IV Reports, World Bank and IMF Staff estimates. Goods and Services Spending on goods and services has remained stable since 2010. The share of goods and services was 10 percent of public spending in 2019, slightly up from 9 percent in 2010. Data show that the Government spent slightly less on goods and services in 2020 in response to the pandemic; however, services spending is not sufficiently classified in the State budget, so these figures did not capture important trends. Since 2016, line items categorized as “Other” have become the most important share of goods and services spending in the Budget (Figure 53). These items can include bank fees, service delivery, employee training and other items classified only as “Other acquisition of services” (Figure 54). Non-monetary benefits of the public sector wage bill are also managed through the Budget, and since 2016 have been classified as “Purchases of goods and services.” Future wage bill reforms will need to unbundle the “Other” classification. Figure 53. Expenditure on Goods, Services, and Other Figure 54. Composition of Goods and Services (% of GDP), Burkina Faso, 2010-2020 Expenditure (% of total), Burkina Faso, 2019 1.5 Other services, 27 Other purchases of goods, 8 1.0 Provision of Travel and services, 14 0.5 mission expenses, 10 0.0 Materials, 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Water, electricity, gas equipment, and other sources of supplies, 14 energy, 13 Goods Services Other Source: BOOST, IMF World Economic Outlook. Source: BOOST, IMF World Economic Outlook. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 82 Debt Payments Spending on interest charges remained stable at 5 percent of total expenditures in 2019, slightly down from 6 percent in 2010. This apparent stability belies a sharp increase in the share of these payments in the middle of the decade, when Burkina Faso dedicated 10, 13 and 12 percent of its public spending to servicing the public debt service in, respectively, 2014, 2015 and 2016 (Figure 55). The steep decline in this spending in 2017 coincides with the Government’s switch to a program-based budgeting system in the same year, the drop is largely explained by new budget classification of debt payment spending. Interest payments rose from 0.08 to 0.25 percent of GDP between 2010 and 2018 as the total public debt stock increased from 27.8 to 37.7 percent of GDP, with a compositional shift away from concessional financing by international financial institutions and towards more expensive domestic debt issued in the WAEMU debt market (Figure 56). Figure 55. Debt Expenditure, Burkina Faso, 2010-2020 Figure 56. Public Debt Stock (% of GDP), Burkina Faso, 2018-2023 60 46.4 47.4 47.4 46.9 300 12.7 12.4 15 42 10.3 38 40 Billions CFAF 200 10 23.5 22.6 21.8 6.1 6.0 6.0 6.2 23.7 4.9 5.3 5.3 21.7 23.4 100 3.0 3.5 5 1.6 2.3 2.8 20 1.5 1.3 1.2 0.8 1.1 1.3 1.5 25.1 23.9 24.8 0 0 16.3 18.6 22.7 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2018 2019 2020 2021p 2022p 2023p % of Total Expenditure - RHS Domestic Debt % of GDP - RHS Foreign Debt Debt Interest Total Public Debt Source: BOOST, IMF World Economic Outlook. Source: IMF and WBG staff calculations. With a further move to more expensive domestic debt in 2021, foreign debt accounts now for less than half of the public debt stock. The country’s domestic debt rollover in the regional securities market was projected to peak in 2021 before the arrival of COVID-19, but the pandemic opened a financing gap of CFAF 250 billion in 2020, almost half of which has been covered through additional issuances of domestic debt. In 2021, net mobilization in the regional market reached an estimated CFAF 357 billion, the third highest among WAEMU members. Due to high debt rollover, planned issuances amounted to CFAF 925 billion (10 percent of GDP) in 2021, the second highest in the region. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 83 Reforms will be needed to avoid a worsening of the debt sustainability outlook. Based on the World Bank’s Debt Sustainability Framework for Low-Income Countries,50 the country’s debt-carrying capacity has been deemed moderate. The Joint World Bank-IMF Debt Sustainability Analysis from June 2020 assesses the risk of overall public and external debt distress as moderate. To prevent a worsening outlook, the Government would need to (a) maintain a sound macro-fiscal framework amid the pandemic shock and beyond; (b) implement structural reforms to diversify its export base; (c) exercise control over government guarantees and contingent liabilities; and (d) limit non-concessional borrowing and strengthen the implementation of its medium-term debt strategy to contain debt service and gross financing needs.51 Transfers and Subsidies Spending on transfers, which include subsidies, increased by 2 percentage points of GDP over the past ten years (Figure 57 and Figure 58). Since 2017, transfers account for about 88 percent of transfers and subsidies, with a significant share of transfers dedicated to public institutions (22 percent in 2019) and SOEs (26 percent in 2010), followed by transfers to households (17 percent in 2019). The largest share of these transfers, however, has been classified as “Other transfers” (Figure 59), with many transfers going to spending on combustibles and energy. In the State Budget, negligible amounts are recorded as being transferred to other Government entities outside the PFM system, such as other budgets (0.05 percent total transfers in 2018) and local authorities (2.1 percent of total transfers in 2018). Figure 57. Current Transfer Expenditures Figure 58. Subsidies and Transfers (Billions CFAF), (Billions CFAF), Burkina Faso, 2010-2020 Burkina Faso, 2017-2020 600 25 600 23 22 22 23 21 21 500 21 20 21 20 500 20 17 400 400 15 300 300 10 200 200 100 4 6 5 5 5 4 5 6 5 100 4 5 5 0 0 0 2017 2018 2019 2020 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Subsidies % of Total Spending - RHS Transfers % of GDP - RHS Transfers and Subsidies Source: BOOST. Source: BOOST. 50 https://www.worldbank.org/en/programs/debt-toolkit/dsa. 51 Joint World Bank-IMF Debt Sustainability Analysis, Burkina Faso, November 2020. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 84 Classified by administrative unit, the largest share of these transfers has been allotted to inter-ministerial spending, making it difficult to identify the nature of the expenditure (Figure 60). The share of inter-ministerial spending improved from 43 percent of total transfers in 2010 to 28 percent in 2019, as more transfers were mapped to MINEFID and the Ministry of Health. The education sector consistently accounts for significant transfer totals, with the Ministry of Higher Education executing 14 percent of all transfers in 2019 and the Ministry of National Education another 6 percent. Figure 59. Government Transfers by Recipient (% of Figure 60. Government Transfers by Administrative Unit Total Transfers), Burkina Faso, 2010 and 2019 (% of Total Transfers), Burkina Faso, 2010 and 2019 50 50 2010 2019 2010 2019 44 43 41 40 40 30 30 28 26 22 20 20 17 17 16 17 14 13 10 11 10 9 10 6 6 4 4 3 4 4 3 4 3 2 0 0 1 1 1 1 1 1 0 0 Other Public institutions Households Subsidies - Other Other public administration SOEs Private enterprises Supranational organizations Interministerial expenditures Economy and finance Higher educatuin and scientific research Health National education Collectivties Parliament Territorial administration Agriculture Presidency Source: BOOST. Source: BOOST. Fuel subsidies accounted for an average of US$55 million over 2017-2019, weighing heavily on the Government’s fiscal resources. In 2019, Budget transfers to the state-owned energy utility, Société Nationale Burkinabè d’Hydrocarbures (SONABHY), amounted to an estimated US$63 million (about 0.5 percent of GDP). Total gas and fuel subsidies amounted to 0.6 percent of GDP in 2019, equivalent to one quarter of the social assistance budget. These high subsidies tend to benefit those already well-off in Burkina Faso’s urban centers who are already connected to the electricity grid but have led to little advancement in poorer rural areas. The subsidies also limit public resources available for other investments that are critical for fighting poverty, particularly in rural areas. Simulations show that overall removing gas and oil subsidies would have the largest negative welfare impact in the Center region, which includes Ouagadougou, while having near zero impact nationwide on the wealth of the poorest 50 percent of the population (Figure 61 and Figure 62). Indeed, estimates show that by redirecting energy subsidy expenditures toward the social sectors and safety net programs, the poverty headcount ratio could be reduced up to 7 percentage points.52 52 Vandeninden, F., R. Grun and F. Fecher. 2021. Energy Subsidies And Poverty: The Case of Gas and Fuel Subsidies in Burkina Faso. JEPO-D-21-03129. https://ssrn.com/abstract=3983727 PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 85 Figure 61. Changes in Regional Welfare with Figure 62. Hypothetical Welfare Impact of Removing Hypothetical Subsidy Removal, Burkina Faso, 2014 Oil and Gas Subsidies, Burkina Faso, 2014 0 -0.2 % of Post-Reform Welfare -0.4 0 % of Post-Reform Welfare -0.6 -0.2 -0.8 -0.4 -1 -0.6 -1.2 -1.4 -0.8 -1.6 -1 1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10 Decile Decile Boucle Du Mouhoun Sahel Gas Fuel Gasoil Est Nord Centre Cascades National Note: Simulations based on 2014 survey data as the 2018 survey Note: Simulations based on 2014 survey data as the 2018 survey does not include the price of energy items by locality. does not include the price of energy items by locality. Source: Vandeninden et al. (2021). Source: Vandeninden et al. (2021). In addition, fuel subsidies result in US$3.9 million (0.03 percent of GDP) in lost tax revenue. The Government would have collected an additional CFAF 2.3 billion over 2010-2019 if it had fully transmitted the change in world prices to domestic prices. Although fuel price mechanisms to raise retail gasoline and diesel prices were adopted in November 2018, the price adjustments have been slow and incomplete, and prices for electricity and butane gas used for cooking remain unchanged. The forgone revenue, which would have been collected from high-income households, further restricts fiscal space for needed spending in priority sectors.53 Budget Rigidity Burkina Faso’s Budget has become more rigid since 2010, as domestically funded capital expenditures make up a lower share of total public spending (Table 14). The share of highly rigid spending, covering personnel, interest and externally funded investment expenditure, increased from 46 to 52 percent of total spending from 2010 to 2020, driven by the significantly larger share of personnel spending. Transfers also rose as a share of total expenditure from 18 percent in 2010 to 23 percent in 2020. Meanwhile, low-rigidity spending on goods and services and domestically funded investment projects accounted for 25 percent of total spending in 2020, down from 36 percent in 2010. 53 WP15/250 Coady David, Flamini Valentina, Sears Louis, 2015 IMF Working Paper – The Unequal Benefits of Fuel Subsidies Revisited: Evidence from Developing Countries. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 86 Table 14. Budget Rigidity (% of Total Expenditure), Burkina Faso, 2010-2020 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 High rigidity 46 46 43 42 50 51 54 40 45 49 52 Personnel 22 24 20 21 26 28 30 31 35 38 36 Debt interest 6 6 6 6 10 13 12 3 5 5 6 Externally funded investment 18 17 18 15 14 10 11 5 6 6 10 Medium rigidity 18 22 24 22 23 22 20 23 22 23 23 Current transfers 17 22 24 20 22 21 20 22 20 23 20 Capital transfers 0 0 0 2 1 0 0 1 1 0 2 Low rigidity 36 32 33 36 27 27 26 38 33 28 25 Goods and services 9 9 8 7 7 8 7 9 10 10 8 Domestically funded investment 27 23 25 28 20 19 18 28 23 18 17 Source: BOOST, WB staff estimates. Force and momentum analysis54 shows that, on average, wages and current transfers are the items with the highest contribution to expenditure growth. This approach evaluates the contribution of each category of spending to expenditure growth, and the rate at which this contribution is accelerating. From 2011 to 2019, personnel contributed an average of 3 percentage points to the expenditure growth rate, with current transfers contributing an additional point; externally funded investment expenditure (-1 percentage point) was the item with the lowest momentum over 2011-2019 (Figure 63). The force analysis helps to account for year-to-year volatility and confirms that, on average, personnel spending drove expenditure growth acceleration between 2012 and 2019. All other economic categories of spending had an average acceleration of 0 percentage points over the period. 54 Force and momentum of spending are concepts introduced in Merotto et al. (2015). Drawing from concepts of velocity, acceleration, momentum and force from physical science, the authors devise a measure of “force” for public finance economics. These measures use a combination of expenditure size and changes in growth rates for spending categories or individual items to compare their contribution to overall expenditure in each period. For the calculation of force and momentum in Burkina Faso, the growth rates were adjusted to real GDP growth to provide a more telling account of the expenditure changes. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 87 Figure 63. Real Contribution and Real Acceleration to Expenditure Growth, Burkina Faso, 2011-2019 Real Contribution to Expenditure Growth 29% 30% 20% 15% 2% 6% 10% 3% 0% -10% -3% -6% -8% -20% -12% 2011 2012 2013 2014 2015 2016 2017 2018 2019 Personnel Debt Interest Externally Funded Investment Current Transfers Capital Transfers Good and Services Domestically Funded Investment Total Real Acceleration to Expenditure Growth 40% 32% 30% 21% 14% 20% 7% 10% 0% -10% -20% -15% 30% -26% -13% -10% 2012 2013 2014 2015 2016 2017 2018 2019 Personnel Debt Interest Externally Funded Investment Current Transfers Capital Transfers Good and Services Domestically Funded Investment Total Note: The upper chart shows the real contribution to expenditure growth in percentage points and the overall growth rate. The lower chart shows the real acceleration to growth in percentage points and the overall acceleration rate. Source: World Bank Staff calculations. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 88 The strong growth of rigid expenditures over 2011-2019 muted the impact of less rigid expenditures. As highly rigid spending accounts for the largest share of spending, years of high growth (or contraction) in low-rigidity spending, such as goods and services, are either magnified or tempered. In 2012 and 2017, domestically funded investment expenditures witnessed significant contributions to growth (9 and 11 percent, respectively). However, the behavior of highly rigid spending resulted in disparate outcomes in these years. In 2012, the growth in personnel, interest and externally funded investment spending magnified the increase in spending, resulting in a 29 percent increase overall. Conversely, in 2017, a slower increase in personnel spending, and significant drops in interest and externally funded investment expenditure, tempered the impact of strong growth on low- rigidity spending items, and resulted in a lower overall expenditure growth rate of 2 percent. Hence, a focus on personnel spending must be at the core of any fiscal consolidation efforts. Budget Execution Overall Budget execution has remained relatively stable over the past decade, with much higher rates for domestically financed than foreign-financed expenditures (Figure 64). Total Budget execution averaged 88 percent from 2010 through 2019. Domestically financed expenditures, the majority of which went to Economic Affairs and Defense (Figure 65), experienced high execution rates throughout the last decade, averaging 96 percent execution overall. Conversely, foreign-funded expenditures averaged only 53 percent execution over the same period, indicating volatility in their execution. Lower execution rates on foreign-funded spending are largely explained by multilateral lending having more stringent regulations for project preparation, approval, and execution and monitoring. As institutional capacity improves, execution of foreign-funded budgets can as well. Figure 64. Budget Execution by Funding Source (in %), Figure 65. Domestically Funded Investment by Burkina Faso, 2010-2020 Function (% of Total), Burkina Faso, 2019 92 94 50 91 90 91 88 86 85 43.2 100 82 86 88 40 80 30 60 20 18.9 40 9.6 7.9 20 10 7.1 6.2 96 74 97 65 96 73 99 52 88 60 97 43 99 59 97 25 93 36 93 44 97 75 5.1 1.9 0 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Economic Affairs Defense Health Genral Services Education Housing and Community Facilities Public Orde and Safety Other Domestically Externally Total Funded Funded Source: BOOST. Source: BOOST. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 89 Budget execution during the same period remained uneven between current and investment expenditures and across functions. In the Public Administration, Economic and Social sectors, disparities between execution of current and investment expenditures persisted (Figure 66). In the Public Administration sector, investment expenditure saw pronounced over-execution (i.e., expenditures exceeded allocations) between 2012 and 2016, while the larger share of current spending was comparatively well executed. In the Economic and Social sectors, current expenditure was over-executed, due to the tendency to meet the budgets of wages and salaries but resulting in the under-execution of investment spending. Figure 66. Budget Execution by Sector and Economic Classification, Burkina Faso, 2010-2019 Budget Execution by Public Administration Sector 300 Budget 100% Executed 250 Total Public Administration Sector 200 Current Expenditure 150 Investment Expenditure 100 50 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Budget Execution by Economic Sector 300 Budget 100% Executed 250 Total Economic Sector 200 Current Expenditure 150 Investment Expenditure 100 50 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Budget Execution by Social Sector 300 Budget 100% Executed 250 Total Social Sector 200 Current Expenditure 150 Investment Expenditure 100 50 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Note: Execution was calculated with Committed Budget divided by Approved Budget. Source: BOOST. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 90 The economic decomposition of spending shows strong execution of current spending, with lower execution rates for investment spending (Table 15). Spending on personnel consistently saw strong execution, averaging 96 percent between 2010 and 2020. Other categories of current spending, such as transfers, goods and services, and interest payments similarly revealed high rates of Budget execution (95, 92, and 112 percent, respectively). Investment spending was the outlier, averaging only 75 percent execution over the period, even dropping as low as 66 percent in the mid-2010s. Table 15. Budget Execution by Economic Category (%), Burkina Faso, 2010-2020 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Personnel 100 96 91 97 91 90 100 100 97 100 102 Current Transfers 98 98 99 99 90 99 99 97 85 93 94 Goods and Services 93 96 96 98 83 94 85 93 92 89 94 Investment 84 80 84 76 66 67 77 68 73 69 83 Debt Interest 100 108 113 112 141 118 117 100 96 100 123 Capital Transfers 70 99 87 97 93 61 100 82 87 26 95 Source: BOOST. Budget execution has greatly improved across the largest ministries (Table 16). Of the five highest-spending administrative units, Budget execution was most volatile for expenditures classified to multiple ministries and to the Ministry of Health. While the Ministry of Health has historically under-executed its budget, it has improved in recent years, with execution rates climbing from 69 percent in 2015 to 97 percent in 2020. Inter-ministerial spending, conversely, is historically over-executed. While these expenditures were severely over-executed in the first half of the decade, the public financial management system has improved since 2017 with the introduction of program budgeting, which has helped to tame these catch-all expenditures. Continuing to build on these improvements in budget accounting will help improve budget execution and transparency in the medium term. Table 16. Budget Execution by Selected Ministries (%), Burkina Faso, 2010-2020 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Inter-ministerial Expenditures 172 159 163 140 114 140 128 95 96 81 88 Ministry of National Education 85 78 85 96 81 74 89 93 95 96 98 Ministry of Economy, Finance & 93 96 101 100 106 103 104 94 75 96 105 Development Ministry of Health 74 80 80 77 57 69 89 88 94 92 97 Ministry of Defense 100 100 100 99 97 100 100 100 95 100 100 Ministry of Security 91 90 - - - - 101 98 100 95 110 Source: BOOST. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 91 SECTION II. SPENDING AND THE COVID-19 SHOCK Fiscal Policies in Response to COVID-19 Burkina Faso’s fiscal policy response to the COVID-19 shock is enshrined in the Emergency Response Plan (ERP) and similar measures, at a total cost of 4.6 percent of 2020 GDP and with expenditures distributed over 3 years (Table 17). The health, social and recovery measures are on the expenditure side (Table 18), while the revenue measures are only revenue reducing (mainly in the form of tax relief).55 Table 17. Overview of Covid-19 Emergency Response Plan (ERP), Burkina Faso, 2020-2022 Overview of the Emergency Response Plan HEALTH MEASURES: These measures aim at controlling the spread of the virus and bringing the local outbreak under control • Communication campaigns for awareness and • Isolation (in hosting facilities) and monitoring of prevention at-risk cases56 • Lab testing of suspected cases • Clinical trials on Hydroxychloroquine • Contact-tracing • Treatment of patients SOCIAL MEASURES: These measures aim at mitigating the negative economic consequences of the pandemic on vulnerable and low-income households, and in some cases, on the entire population • 3 months coverage of water bills for low income • Free distribution of food and hygiene kits to low population income households for three months • 3 months coverage of electricity bills for low • Cash transfers to vulnerable and low-income income population households • Cancellation of penalties on electricity and • Suspension of payment for shop rent, parking water invoices fees, and security fees in and around markets • Reduction by 50 percent in the cost of solar kits • Establishment of a solidarity fund for the benefit for low income households of the informal sector and women • Securing stocks of goods and reinforced price • Reactivation of social food shops 55 2021 April Economic Update. Burkina Faso: Protecting the Poor During the Recovery and Beyond. World Bank. 56 Individuals that have been in contact with positively diagnosed patients. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 92 Overview of the Emergency Response Plan REVENUE MEASURES: These measures aim at mitigating the negative economic consequences of the pandemic on MSMEs and building their resilience General tax relief Labor tax relief • Cancellation of penalties for delays in the • Suspension of Employers Apprenticeship Tax on execution of public contracts and orders salaries from April to June 2020 for the benefit • Automatic forgiveness of penalties and fines due of companies in passenger transport and hotel for the months of April, May, and June 2020 sectors • Suspension of tax recovery proceedings • Deferment of tax and social security obligations • Direct tax rebates as part of an individualized (taxes paid on salaries, pension and medical review of applications in extreme cases funds, and value added tax) for solvent companies hit by the pandemic over a six-month Import tax relief period • Exemption of import duties on rice and milk • Exemption from value added tax on the sale of Sector-specific fiscal relief products used in the fight against COVID-19 • Reduced value added tax rate of 10 percent for • Exemption from taxes and customs duties on hotels and restaurants pharmaceuticals, medical consumables and • Elimination of charges and taxes imposed on equipment used in the fight against COVID-19 the organization of cultural activities • 25 percent reduction of the patent in favor of Individuals/households tax relief companies in the passenger transport, hotel, • Extension of deadline for payment of motor and tourism sector vehicle tax from March 31 to June 30, 2020 • Exemption of contribution of micro-enterprises in the informal sector from April to June 2020 RECOVERY MEASURES: These measures aim at boosting the economy and ensuring a sound recovery • Establishment of an economic recovery fund for • Establishment of a solidarity fund to support the companies in difficulty informal sector Source: World Bank staff compilation based on reports from MINEFID. The ERP was introduced through the revised Budget Law in July 2020. It includes measures to stop the spread of the epidemic, support vulnerable populations and MSMEs and lay the ground for a strong recovery. Forty- four percent of the package addresses health measures, including monitoring and containment and bolstering the supply of medical infrastructure, medical equipment and personnel. Eighteen percent is devoted to social assistance for vulnerable households and individuals. The remainder is allocated to supporting businesses and protecting jobs, including in the informal sector, through temporary tax incentives, suspension or delay of tax collection, special funds; and in other vulnerable sectors through fiscal support to hotels, commerce and transportation. Forty-five percent of the ERP’s total envelope was front-loaded in 2020, which contributed in large part to the elevated fiscal deficit of 5.2 percent of GDP. The implementation of the ERP, along with higher than anticipated security spending and a 1.5 percentage point of GDP decrease in tax revenues compared to pre-COVID levels, triggered the deficit increase. All COVID-19-related temporary tax deferrals and cancellations included in the ERP are factored into the lost domestic income. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 93 Table 18. Costing of ERP, Burkina Faso, 2020-2022 Costing of the Emergency Response Plan (amounts in US$ million) Total cost to be Amount budgeted Amount budgeted split in 2020, 2021, in 2020 revised in 2021 revised 2022 finance laws finance law finance law Health Emergency Response Plan 312 149 5 Patients treatment 102 49 Prevention and disease control 88 32 Logistics 79 54 Laboratory 16 9 Response coordination 15 4 Monitoring 10 1 Communication 2 1 Social Measures 128 66 40 Water bills 9 6 3 Electricity bills 25 18 8 Reactivation of SONAGESS shops 7 - 12 Cash transfer 20 - - Solar kits 10 1 9 Food, hygiene and dignity kits 42 41 - Shop rents and space rights in markets, 6 - - security fees and free parking for taxis Awareness campaign and access to fresh 9 - - products for everyday consumption Recovery Measures 267 200 55 Subsidies to private sector 176 123 55 Agricultural inputs and animal feed 53 53 Subsidies to the women in the informal 9 9 sector Infectious disease research and drug 26 9 production Arrears in the tourism and cultural 3 6 sectors Total 708 416 100 Total (% of 2020 GDP) 4.6% 2.7% 0.7% Source: World Bank staff calculations based on reports from MINEFID. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 94 As a result of ERP implementation, social spending and tax relief rose in 2020. Social spending increased by 0.9 percent of GDP in 2020, of which 0.7 percent of GDP comprised transfers to vulnerable households. Cash transfers were implemented through existing social safety net programs, local small businesses and household associations. Tax relief to the most affected sectors also amounted to 0.7 percent of GDP, in the form of lower rates for turnover-based taxes, waivers of late payment penalties and accelerated depreciations for investment. The authorities also implemented a partial guarantee fund for companies in hard-hit sectors such as transportation, hospitality and restaurants. Total COVID-19-related support to the private sector is estimated at about 1.5 percent of GDP. Execution of the Emergency Response Plan (ERP) The ERP achieved high execution rates through 2020, with spending targeted to transfers and investment. The greatest share of ERP spending (39 percent) was allocated to inter-ministerial programming to support businesses, social and economic development (Figure 67). This marked a return to problematic expenditure attribution. However, if affiliated to the one-off nature of the COVID-19 expenditure response, it does not necessarily represent cause for concern. A significant portion of the ERP was dedicated to programs in public health (23 percent), energy (7 percent), and national solidarity and catastrophe response (6 percent). ERP spending achieved an overall execution rate of 96 percent in 2020 (Figure 68). Figure 67. Programmatic Composition of ERP Expenditure, Burkina Faso, 2020 Job promotion Scientific research 3% 3% Women & Gender Potable water supply 3% 2% Governance 3% Prime Minister 0% Debt support in restaurant sector Animal production 1% 3% Agricultural production 6% Support to businesses in Solidarity Interministerial difficulty 6% Expenditures Burkina Faso 22% Energy 39% Economic and Social 7% Development 16% Public Health 23% Source : BOOST. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 95 Figure 68. ERP Expenditure and Execution by Economic Classification, Burkina Faso, 2020 80 120 70 100 100 100 60 90 Billions CFAF 80 Percent 50 40 60 30 40 20 10 20 0 0 Transfers Investment Capital transfers Revised Committed Execution - RHS Source: BOOST. SECTION III. FOCAL POINT: PUBLIC WAGE BILL Status Quo The public wage bill (i.e., personnel expenditure) is a greater fiscal burden in Burkina Faso than in any peer country (Figure 69). Over 2016-2018, Burkina Faso’s wage bill accounted for an average of 8.6 percent of GDP and 49.9 percent of tax revenue, well above WAEMU’s convergence criteria of 35 percent of tax revenue and the corresponding rates for structural and aspirational peers. Structural peer wage bills averaged 4.6 percent of GDP and 34.2 percent of tax revenue over the same period. Amounts were slightly higher for aspirational peers, whose averages still fell well below that of Burkina Faso. Figure 69. Personnel Expenditure, Selected Countries, 2016-2018 Average 9 8.6 60 49.9 8 7.1 7.0 50 45.6 6.8 7 40.7 40.5 40.8 6 5.7 5.1 40 36.6 31.3 5 4.0 26.3 Percent Percent 3.7 30 26.1 4 3 2.3 20 2 10 1 0 0 Burkina Faso Niger Mali Uganda Guinea Ghana Cambodia Togo Bangladesh Burkina Faso Niger Mali Uganda Guinea Ghana Cambodia Togo Bangladesh Wage Bill (% of GDP) Average Wage Bill (% of tax revenue) Average Source: IMF and WB staff estimates. Source: IMF and WB staff estimates. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 96 Increases in employment and average compensation since 2010 have led to a ballooning wage bill (Figure 70). While the Government allocated 22 percent of total spending to the wage bill in 2010, this amount soared to 38 percent in 2019, corresponding to an increase from 5 percent of GDP in 2010 to 9 percent by 2019. However, the wage bill in the Budget likely understates its true cost, as it does not capture compensation paid through transfers or off-budget fonds communs, the total number and resources of which are unknown (at least 10 to 20 agencies) due to lack of reporting. Personnel spending has been well above the WAEMU-mandated ceiling for the last five years and surpassed 65 percent of tax revenue in 2020. More than 80 percent of personnel spending in 2019 came from four ministries: Education, Defense, Health and Security (Figure 71). The sectoral decomposition shows that the Ministry of Education accounted for almost half the total wage bill in 2019, reflecting payments for teachers over a period of high recruitment. Personnel spending by the Ministry of Education increased gradually since 2010, with a jump of 7 percentage points in 2016. While personnel spending dropped at the Ministry of Defense, spending by the Ministry of Security jumped 9 percentage points from 2018 to 2019 as security worsened in the country. Figure 70. Personnel Expenditure Trends, Burkina Figure 71. Personnel Expenditure by Administration Faso, 2010-2020 (% of Total), Burkina Faso, 2010 and 2019 1000 45 50 900 40 45 800 35 40 Billions CFAF 700 30 600 35 25 500 400 20 30 300 15 10 25 200 100 5 20 0 0 15 10 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 5 % of Total Spending - RHS 0 Ministry of Education Ministry of Defense Ministry of Health Ministry of Security Ministry of Economy, Finance and Development Ministry of Justice Ministry of Foreign Affairs and Cooperation Other % of GDP - RHS Wage Bill 2010 2019 Source: BOOST, World Economic Outlook. Source: BOOST. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 97 The bulk of the wage bill is consumed by the education sector, followed by defense and health (Figure 72). These three sectors account for about three-quarters of Burkina Faso’s wage bill. On average over 2010-2019, education accounted for 40.5 percent of the total wage bill, or 3 percent of GDP. The combined wage bill for the Ministry of Defense and Ministry of Health remained stable at about 27 percent of the total wage bill, or 1.9 percent of GDP, over the same period. Since 2017, with increased insecurity and violence, the wage bill for the Ministry of Security surged from an average of 0.1 percent of GDP in 2010-2017 to more than 0.8 percent of GDP in 2018-2019. Over the years personnel spending increased sharply (Figure 73). Figure 72. Public Wage Bill Spending by Sector Figure 73. Public Wage Bill Spending, Burkina Faso, (% of GDP), Burkina Faso, 2010-2019 2015-2020 9 10 70 9.0 9.0 8 7 9 65 7.9 6 7.5 65.2 5 8 7.3 60 4 6.7 3 7 59.3 55 2 1 6 50 0 51.6 52.1 50.4 49.9 5 45 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 2020 Education Defense Health % of GDP - LHS % of Tax Revenue - RHS Security Economy, Finance and Development Source: BOOST and WB staff estimates. Source: IMF and WBG staff estimates. The high wage bill reflects the combination of a rapid increase of employment in the public sector from a low base, and high and increasing average compensation (Figure 74). Although the government-employment-to- working-age-population ratio in Burkina Faso is estimated at 1.9 percent, well below the 4 percent average of low-income and Sub-Saharan African peers, the number of public employees has increased rapidly, with more than 33,000 new positions posted between 2016 and 2019. In addition, in a context of long and recurrent strikes, the adoption of a new Civil Service Code in 2015 and other sector-specific agreements resulted in large increases in average salaries in 2014 and 2016, and new commitments in 2017 and early 2018. Available data suggest that government employees receive a substantial wage premium over formal private sector peers, after accounting for education and demographic characteristics.57 The compensation structure is characterized by large bonuses and allowances that are narrowly distributed (Figure 75). Since 2017, bonuses and allowances have averaged at 4.1 percent of GDP, reaching as high as 4.4 percent in 2019.58 This represented about half the entire wage bill in 2017, 2018, 2019 and 2020. The large proportion of bonuses and allowances is concerning, as their distribution tends to be less transparent and more difficult to control than base salaries. 57 When comparing the wage premium for men and women in the formal sector, Burkina Faso’s wage premium was the fifth highest out of 87 countries. See IMF Technical Assistance Report, 2018: Wage Bill Management and Civil Service Reform. 58 Data issues limit the certainty with which 2016 data can be assessed, as bonuses and allowances are likely grouped in with base salaries. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 98 Figure 74. Size of Civil Service and Personnel Figure 75. Components of Personnel Expenditure Expenditure, Burkina Faso, 2011-2019 (% of GDP), Burkina Faso, 2010-2020 250000 800 0.4 200000 600 4.4 4.3 Billions CFAF 3.7 3.9 150000 400 1.1 100000 1.5 1.3 1.3 2.1 1.9 8.0 200 50000 3.4 4.1 3.0 3.4 4.2 4.1 4.5 4.6 3.1 3.0 0 0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Number of Civil Servants - LHS Salaries Bonuses and Allowances Wage Bill - RHS Social Contributions In-Kind Wages and Salaries Social Benefits Other Note: Amounts exclude some spending in defense and security Total sectors. Source: National Institute of Statistics and Demography (INSD). Source: BOOST, World Economic Outlook. Burkina Faso’s civil service has historically been concentrated in the Center region, and while a deconcentration of public sector staff has occurred, regional disparities persist (Figure 76). In 2010, the Center region counted 17 civil servants for every 1,000 residents, while the country’s more remote regions reported 8 times fewer civil servants per capita. This ratio improved through 2018 as a result of the greater effort at regional equity in service delivery. However, Burkina Faso’s Center region still has twice as many civil servants per capita as its more remote regions, where insecurity and vulnerability require urgent service delivery. Figure 76. Distribution of Civil Servants Across Regions, Burkina Faso, 2010 and 2018 Civil Servants per 1000 Residents, 2010 Civil Servants per 1000 Residents, 2018 Source: INSD and WB staff estimates. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 99 A set of functional reviews of the country’s remuneration system highlighted several bottlenecks hindering the improvement of Burkina Faso’s wage management system.59 The review found that the management culture and the remuneration system were not oriented towards performance, the achievement of results, and user satisfaction and identified several key constraints: a. The absence of a change management policy and strong steering body to implement it, does not allow reforms to be fully owned by the actors concerned, despite progress made in the 10-Year Strategic Plan for the Modernization of the Administration (PDSMA) 2011-2020. b. Results-based management—the guiding principle of the Government’s Modernization Strategy—has not taken hold in the work culture. The achievement of results is often conflated with the implementation of activities and while annual plans are drafted, they are often transmitted late to the parties concerned. c. The remuneration system was not found to reward either effort or results. This system is characterized by an index system that remunerates the job category and seniority at the expense of results and performance, with allowances granted to all staff, regardless of their situation, and not compensating for the conditions of service in the workplace or remoteness. d. The system was a major factor in staff leaving; an effect particularly pronounced in the movement of staff to finance, health, projects, and international organizations. e. In the health sector, the remuneration of the hospital public service personnel is more attractive than that of staff under general status. f. In the justice sector, the salary and benefit system of the autonomous statutes—particularly for magistrates who receive allowances specific to their status—is more advantageous than that of the general statue. g. Finally, with basic salaries and allowances being managed separately from staffing data (i.e., through separate Ministries), the compensation system is not integrated and falls short of transparency and accountability standards. 59 World Bank. Forthcoming. Strengthening resilience in the civil service, education, health and justice sectors through institutional and organizational reform in Burkina Faso.. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 100 Reform Scenarios There are different scenarios for the evolution of the wage bill since 2010, based on recent nominal growth (Figure 77).60 The trajectory based on the 2018-2020 growth rate (3-year compound average) shows that the Government has succeeded in gradually decelerating wage bill growth, while the 10-year average trend leads to higher wage bill growth. However, in each scenario (including a 5-year compound average), the wage bill as a percentage of GDP continues to increase, in nominal and real terms, suggesting that structural interventions are necessary to bring wage bill growth under control. The lowest-end estimate, based on the 3-year average growth rate and without intervention, would see the wage bill increasing to 10.1 percent of GDP by 2025, with bonuses and allowances accounting for about 5 percent. Figure 77. Personnel Expenditure Scenarios Based on Historical Performance, Burkina Faso, 2010-2025 1800 12 1600 10 1400 1200 8 Percent of GDP Billions CFAF 1000 6 800 600 4 400 2 200 0 0 2010 2015 2020 2025 2010 2015 2020 2025 3-Year 5-Year 10-Year 3-Year 5-Year 10-Year Average Average Average Average Average Average Note: The scenarios are based on recent nominal growth rates. 3-year and 5-year average projections are virtually identical. Source: BOOST and World Bank staff estimates. 60 3-year average represents nominal compound average wage bill growth in wage bill from 2018-2020, 5-year average represents nominal compound average wage bill growth through 2016-2020, and 10-year average represents nominal compound average wage bill growth through 2011-2020. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 101 In recent years, the Government has implemented some reforms to contain the wage bill and committed to further reforms in the short term. Prior actions include the completion of an administrative census; the adoption of diametric enrollment; improvements in the payroll management IT system; the adoption of a Public Service Statute in 2015; and the issuance of a decree to harmonize indemnities. In June 2018, the Government held a conference with labor unions and civil society to address the civil service compensation system. The resulting recommendations concentrated on modernizing the human resources system and rationalizing the compensation system. Notable recommendations include the following: (a) making job descriptions available in all ministries, (b) eliminating sectoral negotiations of salary disputes in favor of collective bargaining, (c) harmonizing pay scales and allowances across sectors, and (d) capping compensation from fonds communs at a maximum of 25 percent of an employee’s total annual wage. The Government also committed to reducing new recruitment by 40 percent compared to 2018. Interventions to slow the growth of the wage bill have so far focused on the hiring side. The Ministry of Education and the Ministry of Health (representing 54 and 16 percent of civil servants, respectively) have initiated a substantial redeployment of existing staff. The redeployment of teachers from overserved to underserved schools has already begun and has contributed to a 26 percent reduction in new hiring by the Ministry of Education since 2018. By streamlining allowances in addition to hiring, the Government could accumulate savings equal to 1.65 percent of 2021 GDP by 2027 (Figure 78). Scenarios based on estimates for all ministries, but excluding certain sectors such as security, demonstrate the potential impact of allowance rationalization combined with a 40 percent reduction in hiring.61 These projections would see the growth in base salaries and allowances slow and eventually represent 5.8 percent of GDP in 2027, down from 9 percent in 2021. This reform scenario represents medium to long-term sustainability depending on structural reform to address weaknesses in remuneration and in public financial management. One approach would be to simplify the compensation scheme by disentangling base salaries, bonuses and the many allowances linked to different categories of the civil service. Such a simplification could achieve the following: (a) reduce pay disparities across and within the government sector, and (b) increase the competitiveness of base salaries by streamlining allowances and increasing the share of the base salary in total compensation.62 61 This refers to a reduction of 40 percent of additional staff each year compared to the anticipated trend. Trend forecasts for 2022-2027 are based on Ministry estimates of additional staff. 62 IMF. Xiao, Yuan et al. Technical Assistance Report. Burkina Faso: Wage Bill Management and Civil Service Reform. September 2018. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 102 Figure 78. Personnel Expenditure Scenario Based on Reform, Burkina Faso, 2010-2026 1200 8.0 7.0 1000 6.0 Percent of GDP 800 5.0 Billions 600 4.0 3.0 400 2.0 200 1.0 0 0.0 2010 2012 2014 2016 2018 2020 2022 2024 2026 2010 2012 2014 2016 2018 2020 2022 2024 2026 Streamlined Trend Streamlined Trend Note: Year 2021 based on 3-year trend, 2022 and onward based on hiring estimates. The reform scenario includes an allowance reform and a 40 percent reduction in recruitment. The figures exclude security sector personnel expenditure. Source: World Economic Outlook, BOOST database; hiring estimates by ministries, BOOST (2010-2021). SECTION IV. PUBLIC SPENDING ON SOCIAL SECTORS Social protection spending is difficult to identify through the BOOST database, so separate estimates were considered for the different social sectors. These estimates were based on two sources: (a) the budget reporting in BOOST by several key ministries; and (b) reporting under the National Policy for Social Protection (PNPS). The analysis found that Government spending in the social sectors fluctuated in the first half of the decade, with increases in the second half (Figure 79 and Table 19). With improved accounting and a focus on priority sectors, social sector spending attained levels around 41 percent of public spending and 10.7 percent of GDP by 2019. Figure 79. Expenditure by Administrative Classification (% of Total), Burkina Faso, 2010 and 2019 45% 41% 40% 35% 31% 29% 30% 25% 22% 20% 17% 13% 15% 9% 10% 8% 10% 6% 5% 5% 5% 2% 3% 0% Spending of Social Ministry of Ministry of Interministerial Ministry of Ministry of Other Sectors - Ministry Economy, Defense Expenditures Security Infrastructure of Education and Finance and Ministry of Health Development 2010 2019 Source: BOOST. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 103 Within the social sectors, spending on education has been highest, followed by health and social protection. Education accounts for more than 60 percent of total social spending, with its share remaining steady over the decade. Health sector spending accounts for more than a quarter of social sector spending (26 percent in 2019). Social protection spending has risen in prominence in the Budget, with its share of total spending increasing from 1.5 percent in 2010 to more than 2 percent in 2019. When looking at National Social Protection Policy reporting, however, social protection spending is much higher, attaining a value equivalent to more than 5 percent of GDP in 2019. Table 19. Fluctuations in Social Sector Spending, Burkina Faso, 2010-2019 Unit 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 % of Total Spending Social sectors 22.7 25.0 22.6 24.1 25.1 23.0 20.3 39.3 41.3 41.0 41.4 Education 13 13.9 12.7 13.4 15.3 13.6 11 22.8 24.9 25.4 24.0 Health 6.3 6.1 5.7 4.4 5.6 5.7 4.9 9.6 10 9.9 10.8 Social protection 3.3 5.0 4.3 6.3 4.2 3.7 4.3 6.9 6.4 5.7 6.6 CNPS/PNPS 14.0 13.5 14.4 % of GDP Social sectors 5.7 5.7 6.1 6.9 6.4 5.7 5.8 10.9 10.4 10.7 11.5 Education 3.2 3.1 3.4 3.8 3.9 3.4 3.2 6.4 6.3 6.6 6.6 Health 1.6 1.4 1.5 1.3 1.4 1.4 1.4 2.7 2.5 2.6 3 Social protection 0.8 1.1 1.2 1.8 1.1 0.9 1.2 1.9 1.6 1.5 1.9 CNPS/PNPS 3.5 3.5 4.0 Notes: PNPS = National Policy for Social Protection. 2018-2019 refers to reported figures from the National Council for Social Protection (CNPS); 2020 refers to budgeted amounts; MA = moving average. Source: BOOST, National Social Protection Policy reports on social protection spending, 2019 and 2020. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 104 Education Burkina Faso’s recent education spending has been high by SSA standards (Figure 80). From 2010 to 2015, the Government spent more for basic education than for higher education, a trend that has partially reversed since 2016. According to both the World Development Indicators and Burkina Faso’s BOOST database, spending on education was higher in Burkina Faso (5.4-6.4 percent of GDP) than in any peer country. Nearly 70 percent of the resources spent by education ministries in recent years comprised salary payments and allowances, up from 50 percent in 2010 (Figure 81). The rise in personnel expenditure has come to the detriment of spending on transfers and capital, which is critical for long-term improvements in human capital outcomes. If the share of personnel expenses continues to increase, Burkina Faso would move further from the target of one-third spent on non-personnel operational expenses recommended by the Global Partnership for Education. Figure 80. Education Expenditure (% of GDP), Selected Figure 81. Composition of Education Expenditure, Countries, 2016 Burkina Faso, 2010-2020 Burkina Faso* 6.43 100 11 13 11 7 10 11 7 6 9 Burkina Faso 5.38 18 16 19 18 Togo 5.37 80 25 26 26 24 21 19 18 7 6 Ghana 3.99 24 30 7 6 7 5 SSA (excluding high income) 3.99 60 7 6 6 6 5 Niger 3.55 40 Mali 3.10 51 57 52 52 57 62 62 63 68 70 67 Guinea 2.32 20 Cambodia 2.16 Uganda 2.13 0 Bangladesh 1.54 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 0 2 4 6 8 Personnel Goods and Services Note: * = 2018-2019 average based on BOOST. Transfers Investment Source: World Development Indicators. Source: BOOST. In comparison with other countries based on income, Burkina Faso performs below average on most education outcomes, while comparisons with peers varied (Figure 82). Burkina Faso outperforms the averages of peers and countries of similar income on harmonized test scores, but has worse than average performance on literacy, learning-adjusted years of schooling, and net primary enrollment. Among peers, only neighbors Mali and Niger performed worse on literacy, learning-adjusted years of schooling and net primary enrollment. Aspirational peers showed stronger performance on most measures except harmonized test scores, where Burkina Faso outperformed all peers except Guinea and Cambodia. Peer comparison shows that higher government spending in education is not needed, while a higher quality of spending is. Chapter 4 focuses on key areas for improvement in education spending. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 105 Figure 82. Education Expenditure and Outcomes, Selected Countries, 2017-2020 Education Expenditure (% of GDP) Education Expenditure (% of Total Expenditure) 10 Lower Upper 30 Low Income High Income Middle Income Middle Income Lower Upper (% of Government Expenditure) 9 Low Income High Income Middle Income Middle Income 25 Education expenditure 8 TGO Education expenditure Burkina Faso 7 20 GHA (% of GDP) MLI 6 Burkina Faso 15 NER 5 GIN TGO UGA 4 10 GHA MLI 3 NER GIN 5 2 UGA 1 0 0 0 6 0 5 0 36 00 00 0 25 37 50 00 00 99 00 00 0 ,2 ,0 ,0 1, 2, 3, 7, 0, 12 25 50 10 0 0 0 6 0 5 0 36 00 00 0 25 37 50 00 00 99 00 00 ,2 ,0 ,0 1, 2, 3, 7, 0, 12 25 50 10 GNI per capita, US$ GNI per capita, US$ Data are for 2017 unless otherwise specified. Note: X axes are expressed in logarithmic scale. Source: World Development Indicators Literacy Rate Harmonized Test Scores 100 Lower Upper Low Income Middle Middle High Income Income Income 528 Harmonized Test Scores 497 UGA GHA 75 BGD Literacy KHM GIN 412 Burkina Faso UGA 50 TGO 373 BGD Burkina Faso NER MLI Lower Upper 341 Low Income Middle Middle High Income Income Income 25 NER MLI GHA 250 500 1,006 3,995 12,236 35,000 100,000 250 500 1,006 3,995 12,236 35,000 100,000 GNI per capita, US$ GNI per capita, US$ Learning-Adjusted Years of Schooling Net Primary Enrollment 20 18 Lower Upper 100 Low Income Middle Middle High Income Income Income Learning−Adjusted School Years 16 TGO KHM Primary enrolment rate, net 14 GHA Burkina Faso 12 75 10 NER MLI 8 KHM TGO BGD 50 6 GIN GHA Burkina Faso UGA 4 NER MLI Lower Upper 2 Low Income Middle Middle High Income Income Income 25 0 250 500 1,006 3,995 12,236 35,000 100,000 250 500 1,006 3,995 12,236 35,000 100,000 GNI per capita, US$ GNI per capita, US$ Source: World Development Indicators. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 106 Health Relatively high government health expenditure has allowed for less out-of-pocket healthcare spending than peers. Over the last decade, health expenditure increased from 3.9 to near 10 percent of total spending. Measured in terms of the size of the economy, Burkina Faso outspends most peers on public health. Higher public spending in the sector has allowed Burkinabè to spend less than populations in peer countries on out- of-pocket health expenses (Figure 83). However, the specter of the COVID-19 pandemic and weak healthcare systems could lead to increasing costs for government and individuals. Initial estimates show higher investment spending in the health sector for 2020, though this may not continue beyond the short term. The share of personnel expenditure in the health sector increased from 35 percent in 2010 to 47 percent in 2019 (Figure 84). Wages and salaries accounted for 41 percent of the health sector wage bill in 2019, while another 37 percent was put toward allowances. The health sector accounts for 12 percent of the government wage bill and has already been identified as a priority sector for wage bill reform (along with education, civil service, and justice). Clear procedures for personnel redeployment across territories are being implemented at the decentralized and deconcentrated levels, through multiple Decrees that were drafted in consultation with the labor unions over the past years. Figure 83. Government and Out-of-Pocket Health Figure 84. Composition of Ministry of Health Spending, Selected Countries, 2018 Expenditure (% of total), Burkina Faso, 2010-2020 0 20 40 60 80 100 48.8 17 24 24 16 22 30 20 15 Niger 25 24 2.4 33 80 35.8 29 29 27 32 28 27 32 2.4 31 Burkina Faso 60 32 26 22 SSA (low income) 33.2 11 9 13 12 7 8 6 1.9 40 13 11 9 7 Ghana 37.7 35 38 33 36 44 38 42 37 40 47 40 1.4 20 Cambodia 57.5 1.3 0 Mali 33.9 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 1.1 Togo 56.3 1.1 Uganda 38.4 Personnel Goods and Services 1.0 Guinea 60.6 Transfers Investment 0.6 Bangladesh 73.9 Source: BOOST. 0.4 0 1 2 3 Public Expenditure on Health (% of GDP) - Bottom Axis Out-of-Pocket Health Expenditure (% of Health Expenditures) - Top Axis Note: Public expenditure on health is measured as percent of GDP. Out-of-pocket expenditure is measured as percent of current health expenditure. Source: World Development Indicators. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 107 Health service provision is labor intensive, and Burkina Faso lacks the human resources to meet the needs of a growing population (Figure 85). In 2018, the country had 0.97 health workers per 1,000 inhabitants, which lagged significantly behind the WHO norm of 2.3. Although it outperforms WAEMU peers, the density of health workers was also below the average for countries with similar levels of public health expenditure. Aspirational peers spent less and achieved a higher density of health workers, as did Uganda. Figure 85. Health Personnel Density, Selected Countries, 2018 Ranking of Countries based on Number of Doctors, Number of Doctors, Nurses and Midwifes (per 1,000 Nurses and Midwifes (per 1,000 inhabitants) inhabitants) and Public Health Expenditure 20.1 15 Number of doctors, nurses and midwives 7.4 Number of doctors, nurses and midwives 12 (per 1,000 population) 2.7 GHA (per 1,000 poppulation) WHO norm (2.3) UGA LMICs average (3.2) 9 KHM WHO norm (2.3) BGD 1 Burkina Faso SSA average (1.35) LICs average (1.05) MLI 6 TGO Burkina Faso (0.97) 0.4 NER GIN 3 0.1 7.4 20 55 150 400 1100 Log of public health expenditure per capita (USD) 0 Note: High-income countries excluded. Source: World Development Indicators; WHO Global Health Observatory. In 2019, total (public and private) expenditure on health was above the average for countries with a similar level of income (Figure 86). At about US$53.9 and US$26.9 per capita, respectively, Burkina Faso’s total and public expenditure on health are located above the regression line representing the relationship between each measure and GNI per capita. All peers except Niger are situated below the regression line for public health expenditure, contributing lower levels of per capita public expenditure to health. For this spending, Burkina Faso sees a higher density of health personnel than structural peers but lags on health outcomes. In comparison with other countries based on income, Burkina Faso performs below average on most health outcomes, while comparisons with peers vary. The country outperforms peers and the average of countries of similar income on infant mortality, but performs below average for life expectancy and for maternal and under-5 mortality. Among structural peers, only Mali and Guinea perform worse on the latter two measures. As in education outcomes, aspirational peers Bangladesh, Cambodia, Ghana and Togo show stronger performance on most measures. The analysis suggests that overall, Burkina Faso spends enough on health, while there is significant scope to improve the quality of health expenditure. Chapter 4 provides a spending analysis of some health subsectors. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 108 Figure 86. Health Expenditure and Outcomes, Selected Countries, 2017-2020 Total Health Expenditure Public Health Expenditure 10,000 10,000 5,000 Public health expenditure per capita 5,000 2,000 Total health expenditure per capita 1,000 2,000 Burkina Faso ($26.93 per capita) 500 US Dollars 1,000 300 200 US Dollars 500 Burkina Faso ($53.9 per capita) 100 300 60 200 40 30 GHA 22 KHM NER MLI 100 KHM GIN GHA 10 60 TGO UGA BGD UGA 40 NER GIN BGD Lower Upper 30 TGO MLI Low Income High Income Middle Income Middle Income 22 Lower Upper 0 0 0 6 0 5 0 36 00 00 0 Low Income Middle Income Middle Income High Income 25 37 50 00 00 99 00 00 10 ,2 ,0 ,0 1, 2, 3, 7, 0, 12 25 50 10 0 0 0 6 0 5 0 36 00 00 0 0 25 37 50 00 00 99 00 00 ,2 ,0 ,0 1, 2, 3, 7, 0, 12 25 50 10 GNI per capita, US$ GNI per capita, US$ Data are for 2017 unless otherwise specified. Note: Both X and Y axes are expressed in logarithmic scale. Source: World Development Indicators; WHO Global Health Expenditure Database Life expectancy Child mortality 85 1500 800 GIN 80 MLI NER UGA 400 TGO Burkina Faso GHA 75 Rate per 100,000 Live Births 200 BGD BGD KHM 70 KHM 100 50 Years 65 UGA GHA 25 NER GIN Burkina Faso 60 TGO MLI 10 5 55 2 Lower Upper Middle Middle Lower Upper Low Income Income Income High Income Middle Middle 50 1 Low Income Income Income High Income 250 500 1,006 3,995 12,236 35,000 100,000 250 500 1,006 3,995 12,236 35,000 100,000 GNI per capita, US$ GNI per capita, US$ Maternal mortality Under-5 mortality 125 200 75 GIN GIN 100 MLI MLI Burkina Faso Burkina Faso NER 50 NER TGO TGO 50 Rate per 1,000 Live Births Rate per 1,000 Live Births GHA GHA UGA UGA BGD 25 BGD KHM KHM 25 10 10 5 5 2 2 Lower Upper Lower Upper Middle Middle Middle Middle 1 Low Income Income Income High Income 1 Low Income Income Income High Income 250 500 1,006 3,995 12,236 35,000 100,000 250 500 1,006 3,995 12,236 35,000 100,000 GNI per capita, US$ GNI per capita, US$ 0 Source: World Development Indicators; WHO Global Health Expenditure Database. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 109 Social Protection Social protection spending is largely accounted as investment and transfers in the state Budget (Figure 87). During the mid-2010s, investment spending accounted for the most important share of spending among four ministries largely involved in social protection spending.63 Since 2017, as social assistance programs have developed, transfers have begun accounting for a greater share of sectoral spending. This was markedly the case in 2020, when the Government implemented crisis response spending initiatives following the onset of the COVID-19 pandemic. The CPIA Social Protection Rating suggests there is still room for improving the quality of spending when compared to Uganda and Ghana (Figure 88). Figure 87. Composition of Social Protection Spending, Figure 88. CPIA Social Protection Rating, Selected Burkina Faso, 2010-2020 Countries, 2020 100 Uganda 19 21 20 14 33 Ghana 80 44 44 36 17 42 36 36 45 29 Togo 60 35 32 49 17 21 Niger 26 17 12 23 23 40 11 36 10 9 7 15 15 Mali 9 9 10 40 Burkina Faso 20 5 31 31 31 32 33 24 24 29 27 Bangladesh 15 0 SSA (excluding high income) 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Guinea Cambodia Personnel Goods and Services 0 1 2 3 4 Transfers Investment Source: BOOST. Source: World Development Indicators. While social assistance spending has gradually increased, social programs remain fragmented and skewed toward in-kind support. Reported social assistance expenditure as a share of GDP gradually increased to 2.4 percent in 2019 from 1 percent in 2010 (Figure 89). The sharp rise was due to both an expansion of programs and improved expenditure reporting mechanisms—notably with the publication of the annual reports of the National Council for Social Protection (Conseil National pour la Protection Sociale, CNPS), which track social protection interventions in the country. While spending has risen, social assistance is characterized by a multitude of programs. In 2019, there were more than 200 distinct social assistance programs, by far exceeding the regional average of 15 programs per country.64 The mix of programs remains largely skewed towards food and other in- kind programs, while cash transfers targeting poor and vulnerable populations account for only 5 percent of social protection expenditure (Figure 90). 63 These include the Ministries of Public Service, Labor, and Social Protection; Women and Gender Promotion; and the Ministries of Women, National Solidarity, Family and Humanitarian Action; and Youth and Promotion of Youth Entrepreneurship. 64 Beegle et al. (2018). PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 110 Figure 89. Social Protection Expenditure, Burkina Faso, Figure 90. Social Safety Net Programs and Coverage 2005-2019 (% of population/quintile), Burkina Faso, 2019 250,000 3 60 2.5 50 200,000 40 2 150,000 30 1.5 20 100,000 10 1 0 Child nutrition HIMO Cash transfer Food distribution Mosquito net School feeding Health fee waivers for pregnant women Health fee waivers for Under 5 50,000 0.5 0 0 2005 2007 2009 2011 2013 2015 2017 2019 Million CFAF - LHS % of GDP - RHS Total Q1 Q2 Q3 Q4 Q5 Source: Vandeninden et al., 2019 (for pre-2016 spending), and Note: Coverage refers to direct and indirect beneficiaries, i.e., the estimates for 2018 and 2019 based on CNPS. number of individuals in the population who live in a household where at least one member receives the transfer. Source: World Bank Staff computation based on EHCVM 2018/19. A large part of social assistance is regressive and could be better targeted towards the poor and vulnerable (Figure 91). As most programs rely on targeting by category rather than specifically targeting the poor, the coverage of most programs is smaller for the poorest quintile (Q1). In fact, the distribution of beneficiaries of social assistance programs reveals that most are relatively well-off. Many social assistance programs directly supported by the Government and other partners are regressive overall, with about 45 percent of beneficiaries in the two richest quintiles and 17 percent in the richest (Q5). Furthermore, three of the largest social assistance programs focus on university students (scholarships, meals and research grants), who are typically better off. Cash transfers show the best poverty-targeting with almost 80 percent of beneficiaries being in the bottom two quintiles. This is the case of the Burkin-Naong-Sa Ya program (funded by the World Bank and reaching about 1 million individuals in 2021), which uses a Proxy-Means-Test targeting method to reach the poor. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 111 Figure 91. Social Safety Net Programs and Targeting, Burkina Faso, 2018 Health fee waivers for Under 5 21.3 22.4 23.3 20.5 12.6 Health fee waivers for pregnant women 18.9 21.2 25.2 22.5 12.1 0.4 HIMO 23.4 42.3 20.9 13.0 School feeding 6.8 15.5 28.1 32.8 16.7 Child nutrition 6.9 53.2 15.9 9.3 14.7 Mosquito net 12.8 12.7 24.5 26.1 23.9 Food distribution 19.9 19.9 24.8 25.1 10.3 Cash transfer 53.0 24.2 15.6 6.7 0.5 All SSN (excluding fee waivers) 14.0 16.2 25.4 27.1 17.4 0 10 20 30 40 50 60 70 80 90 100 Q1 Q2 Q3 Q4 Q5 Source: World Bank Staff computation based on Harmonized Living Conditions Household Survey (EHCVM) 2018/19. Note: SSN = social safety net; HIMO = labor-intensive infrastructure program. Figure shows the proportion of beneficiaries in each quintile. The Government could improve social protection outcomes by targeting those programs to the poorest quintiles and funding their expansion with redirected energy subsidies. With gas and fuel subsidies equating to 0.6 percent of GDP in 2019, funds equivalent to a quarter of the total social assistance budget could be mobilized. Simulations show that phasing out energy subsidies would not increase poverty (Figure 61 and Figure 62) and that reallocating the savings from phased-out energy subsidies towards an unconditional cash transfer program would reduce the poverty headcount ratio by up to 7 percentage points with neutral budget impact.65 Such reform should be supported by additional analysis.66 65 This is assuming a top-up transfer in the four poorest regions. Simulations are based on the Continuous Multisectoral Survey (EMC) 2014. EHCVM 2018/19 does not allow replicating the analysis, as the market price of gas and fuel at the provincial level was not collected. Estimates for 2019 spending on subsidies are based on CNPS 2020 and include only allocations to the national companies, and not the forgone tax revenues. 66 The World Bank’s Energy Subsidy Reform Facility has provided the methodology and financing for undertaking such analysis in other countries. PUBLIC PUBLICEXPENDITURE REVENUEREVIEW EXPENDITUREAND ANDREVENUE REVIEWFOR FORBURKINA BURKINAFASO 2022 FASO2022 112 CHAPTER 4: PUBLIC FINANCIAL MANAGEMENT PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 113 This chapter examines the public financial management (PFM) system, with a focus on the delivery of education and health services at the local level. The chapter consists of three interrelated sections. The first section provides an overview of the PFM system and analyzes its performance, with a focus on whether the Integrated Action Plan for PFM Reform 2019-2021 has adequately set the stage for advancing the objectives of PNDES II, especially the decentralization. The second section presents the state of play of decentralization in the education and health sectors, including methods and modalities of resource transfers to the local level. This section provides contextual background information on the decentralization to better analyze, in the third section, the challenges of delivering education and health services through deconcentrated and decentralized structures. The chapter complements functional reviews of these two sectors, which provide detailed analyses of human resources and institutional and organizational capacity issues.67 The focus on the local level is aligned with the Government’s efforts to bring the State closer to its citizens, three-quarters of whom live in rural and remote areas.68 While several studies on PFM challenges at the central level already exist,69 this chapter fills an important gap with its analysis of the competencies of local authorities and public health services, including for the provision of minimum school supplies, school canteens, assisted childbirth, vaccination for children aged 0-11 months and free health care. For details see Annex XIV. SECTION I. PERFORMANCE OF THE PUBLIC FINANCIAL MANAGEMENT SYSTEM This section outlines the strengths and weaknesses of the PFM system in the context of the multifaceted crises (conflict, COVID-19, climate change) facing the country. It also analyzes the system’s capacity to facilitate implementation of the various contingency plans adopted to mitigate the effects of the crises, and highlights areas that need to be strengthened. Overview of the PFM System Burkina Faso’s PFM system is organized around the WAEMU directives on PFM of 2009, which the country has gradually internalized in its legal system.70 The directives require a results-based approach to PFM to improve effectiveness, efficiency and transparency of the system. In 2017, Burkina Faso was one of the first countries in the WAEMU zone to introduce a programmatic Budget approach, including Budget allocation based on performance 67 The reviews were financed under the World Bank’s Burkina Faso Emergency Recurrent Cost Financing Project. 68 General Population Census 2019. 69 Public Expenditure and Financial Accountability (PEFA) 2017; Public Investment Management Assessment (PIMA) 2017; and Methodology for Assessing Public Procurement Systems (MAPS) 2020. 70 Directive No. 01/2009/CM/UEMOA on the code of transparency in the management of public finances in 2013, Directive No. 06/2009/CM/ UEMOA on finance laws and implementing decrees in 2016, and Directive No. 01/2011/CM/UEMOA on the Financial Regime of Local Authorities in 2019. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 114 indicators. Annual performance plans and performance reports are now produced by all 33 line ministries, and the orientation of the Budget is debated each year in the National Assembly. Further, the deconcentration of the Budget function from the line ministries to the local level has been relatively effective. The latest assessments bearing on PFM highlighted several challenges to effective implementation of the PNDES and the decentralization of services. These challenges include inadequate performance in terms of (a) budgetary discipline; (b) strategic allocation of resources; and (c) effective and efficient delivery of public services (see Annex XVI). These general findings are confirmed by the reports’ evaluations of specific PFM components. For example, the PIMA of 2017 stresses that persistent weaknesses in multi-annual programming, ex ante project appraisal and project selection constrain the provision of quality public investments. Further, the 2020 MAPS report notes that, despite the adoption of the 2017 Public Procurement Code in line with international best practice, the tools for procurement and management of public contracts are still not fully in place. This explains the long delays in awarding contracts (249 days for requests for proposals and 180 days for open tenders). Further, there is an absence of electronic contract management, which is necessary to increase transparency of procurement and improve monitoring of the contracting and execution phases. To address these challenges, the Government began in 2019 to implement the Integrated Action Plan for PFM Reform, with support from development partners. The plan’s objective is to provide a basis for planning, dialogue with stakeholders (technical and financial partners and civil society) on priorities, and monitoring of progress on PFM reform. The IDA-funded Economic Governance and Participation Project (P155121) is supporting implementation of the Action Plan. Implementation of the Integrated Action Plan for PFM Reform Implementation of the Integrated Action Plan (2019-2023) shows uneven progress (Figure 92). The 2020 implementation report71 shows that out of the planned 102 reform measures under 7 pillars, only 16 had been fully implemented; 50 were under implementation; 5 had an unknown implementation status; 6 were not due; and 25 had not been implemented because of COVID-19, the security crisis and/or social tensions. In total, only 53 percent of activities had been implemented as of end December 2020, with uneven progress across the seven pillars of the Integrated Action Plan. 71 Government of Burkina Faso. 2021. Rapport de Mise en Œuvre du Plan d’Action Intégré des Reformes de Finances Publiques au 31 Décembre 2020. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 115 Figure 92. Share of PFM Reform Plan Recommendations Implemented, Burkina Faso, end-2020 80% 70% 60% 50% 40% 30% 20% 10% 0% Budget Reliability Budget Asset and Liability Budget Strategy Budget Accounting and Fi- External Audit and Transparency Management and Public Policies Predictability and nancial Reporting Oversight Control Source: PFM Reform Plan Implementation Report as of December 31, 2020. Implementation Progress by Pillar Pillar 1: Budget Reliability. Achievements in Budget reliability include the operationalization of Budget forecasting and execution tools. Among those that have been operationalized are the macroeconomic framework, the revenue forecasting model and the multiannual Budget and economic programming document. Despite this progress, Budget reliability could be further improved with the full reclassification of Common Inter-Ministerial Expenditures (DCIM) in the line ministries’ Budget appropriations (Figure 93).72 The DCIMs are Budget appropriations entered and managed by MINEFID for the benefit of line ministries, to be used for both operating and unforeseeable expenses. DCIMs accounted for 40.5 percent of the total government Budget in 2010. Considered a bad practice in Budget management—evidence of poor Budget forecasting and lack of transparency—DCIMs have affected the credibility of the Budget. The Government began to reclassify DCIMs in 2011, and by 2020 had reduced them by 28.8 percent. However, 10 percent of expenditures were still classified as DCIM in the 2020 Budget, showing the need for further transparency in the allocations to line ministries. Figure 93. Common Inter-Ministerial Expenditures, Burkina Faso, 2010-2020 600 45 40.5 36.5 36.5 40 500 35 400 27.5 26.9 30 Billions CFAF 23.5 25 300 20 15.4 13.3 15 200 10.1 9.9 8.9 10.0 8.3 7.9 8.4 6.8 5.8 10 100 4.4 3.7 2.8 2.2 2.2 5 0 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2010 2020 % of Total Expenditure - RHS % of GDP - RHS DCIM Note: DCIM = Common Inter-Ministerial Expenditures. Source: BOOST 2020. 72 Also see discussion on transfers, subsidies, and inter-ministerial expenditures in Chapter 3. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 116 Pillar 2: Budget Transparency. The Government has made significant progress on (a) the preparation, presentation and execution of the Budget in accordance with the required classifications (administrative, economic, functional and programmatic); (b) the publication of the Citizens Budget in local languages; and (c) the preparation and transmission to Parliament of annual performance plans and reports. However, there are still some gaps, notably the absence of summary data on budgetary risks (including contingent liabilities such as guarantees, and obligations associated with public-private partnership contracts) in the documents attached to the annual Budget Law. Pillar 3: Asset and Liability Management. Major changes in this pillar are needed to enable the prioritization of public investment projects that strengthen the country’s economic and social resilience. Despite the adoption of regulations on debt monitoring and the framework for ex post evaluation of investment projects, the reform of the National Fund for the Study and Preparation of Projects and Programs is still outstanding. This reform is essential to facilitate the financing of feasibility studies for investment projects. In addition, the criteria for analyzing projects need to be improved, focusing on the quality of project preparation and the project’s impact on employment, resilience and the environment. Pillar 4: Budget Strategy and Public Policies. Improvements in these areas can be achieved by linking Budget programs and their performance indicators to PNDES II priorities related to resilience, security, peace, social cohesion and the positive presence of the State. Associated with this dimension are the following results indicators: (a) the rate of recovery/socioeconomic reintegration of internally displaced persons; (b) the number of public services reopened; and (c) the proportion of local governments whose essential public services are functional. Moreover, some ministries have yet to incorporate these dimensions of the National Development Program into their existing sector strategies, program Budget or performance indicators.73 To align with PNDES II, it is necessary to update certain sector strategies, particularly those for health, education and justice, which are essential for social cohesion. Pillar 5: Predictability, Budget Control and Procurement. The inadequacy of procurement procedures in the context of the security and COVID-19 crises has resulted in a financial execution rate of only 45 percent as of end 2020. For example, both procurement regulatory reform and an enhanced devolution process are needed to improve the functioning of the Sahel Emergency Program adopted in 2017 (PUS-BF Sahel), which aims at mitigating the impact of the conflict on the population. Although the Government simplified procurement 73 In the Justice and Human Rights sector, the indicator in PNDES II on social cohesion entitled “Proportion of community conflicts resolved by the branches of the National Observatory for the Prevention and Management of Community Conflicts” has no corresponding indicator in the results framework of the Ministry of Justice and Human Rights. The same is true for indicators relating to gross school admission rates (at primary, post-primary and secondary levels), which are contained in the PNDES II results framework but not taken into account in the results framework of the Ministry of Education. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 117 procedures in 2021,74 implementation problems persist in fragile areas.75 While a strategy for public procurement in fragile areas is being drafted, a more systematic approach to revising the Public Procurement Code is still needed. Further, the lack of delegation of authority to the Decentralized Technical Structures (DTS) for the delivery of goods and services has had the effect of delaying the entire chain of public investment and the provision of basic services to the population. Pillar 6: Accounting and Financial Reporting. These are the weakest areas of the PFM system. Financial reports are prepared and transmitted to Parliament and the Supreme Audit Institution more than 15 months late. Further, they are not comprehensive, especially in terms of liabilities and assets. There are three reasons for these major shortcomings: a. The budgetary and accounting information systems at both the central and local levels are not interfaced. At the central level, the Integrated Expenditure Tracking System (CID), Integrated State Accounting (CIE) and Integrated Administrative and Salary Management System for State Personnel (SYGASPE) have limited capacity to facilitate the implementation of program Budgets. The N@folo integrated information system, which is being developed to replace the CID and CIE, is also facing design and deployment challenges. At the local level, the Integrated Financial Management System of Territorial Communities (CICT) is not yet widely deployed, hampering reporting to the central level. b. There is a lack of clarity on the roles and responsibilities of authorizing officers and accountants in the financial information chain. c. The network of accountants at both the central (Directorate General of Taxes, DGI, and Directorate General of Customs, DGD) and local levels has not been fully deployed, which is hampering consolidation and the reliable and rapid reporting of accounts. Pillar 7: External Audit and Oversight. Both functions are affected by poor performance in the preparation of the financial statements. Deploying the N@folo application with strong involvement of the end users would make it possible to improve the quality of financial information and reduce the time needed to produce financial reports. This would, in turn, facilitate external audits and parliamentary oversight. Insufficient monitoring of the implementation of the Supreme Audit Institution’s recommendations is another issue. Extending the simplified ASCE-LC’s monitoring arrangements to the Supreme Audit Institution would be an easily implementable step to strengthen the impact of external audit reports. 74 Decree No. 2020-0337/PRES/PM/MINEFID of May 12, 2020, eased the conditions for recourse to the direct agreement and public service delegation procedure for the 2020 tranche of the PUS-BF. Decree No. 2020-0615/PRES/PM/MINEFID eased the conditions for using the direct agreement procedure for the award of contracts and delegation of public services in the context of the fight against the COVID-19 pandemic. Order No. 2020-418/MINEFID/CAB established and organized the PFM system for times of crisis. Order No. 2020-044/PM/CAB listed eligible goods and services in the framework of the fight against the COVID-19 pandemic. 75 For example, the PUS-BF decree concerning the implementation of the annual tranche of the program requires renewal at the end of each year, despite the continuing crisis. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 118 SECTION II. DECENTRALIZATION IN EDUCATION AND HEALTH The education and health sectors are the front-line sectors for local public service delivery. This section examines how the sectors have been affected by weaknesses in the PFM system and its impact on service delivery at the local level. The section analyzes the Budget allocations among the actors responsible for service delivery, the methods of calculating the allocations and the modalities of the resource transfers. The Decentralization Context Burkina Faso launched the decentralization process in 2004, with the General Code of Territorial Communities (Law No. 055-2004/AN of 21 December 2004), with the objective of improving local service delivery. Following adoption of the Territorial Code, the process of transferring competencies and financial resources to local authorities was carried out in three major phases: a pilot phase in 2006,76 a spatial extension phase in 200977 and a generalization phase in 2014.78 The transfer process has been implemented in accordance with the principle of progressivity recommended in Article 5 of the Territorial Code. In 2009, four competencies—construction, rehabilitation, minimum school bags (teaching materials, books and school supplies, including pencils, papers, and rulers) and current operation of schools—were transferred to the communes. In 2016, nonformal education and post-primary education were taken into account in the transferred investment credits. In 2017, resources were transferred for the purchase of food for primary school canteens, and resources for food were extended to preschools in 2018. The transfer component to the regions has not yet been operationalized. Transferred resources remain insufficient to improve local service delivery. Although the share of transferred resources to local governments has more than doubled, from 5 percent in 2017 to 12 percent in 2021, the country and WAEMU targets of 15 and 20 percent, respectively, have yet to be met. There is also a lack of local institutional capacity, particularly in education and health, the two most important sectors in the decentralization agenda, even though these sectors accounted for about 88 percent of transferred resources over the last 5 years (2017-2021). Further, the method for determining the resource transfers is not linked to performance, and the process of transferring competencies and resources to the local governments and the Decentralized Technical Structures (DTS) remains incomplete. Under PNDES II, the decentralization strategy will be revised to include a pilot Model Communes Initiative (Initiative Communes Modèles). This initiative aims to link performance on service delivery to fiscal transfers. The World-Bank-funded Local Governance for Basic Services and Resilience Program is supporting the implementation of this initiative. 76 With the adoption of Decree No. 2006-209/PRES/PM/MATDS/MFB/MEBA/MS/MASSN/MJE/MCAT/MSL of May 15, 2006, on the transfer of powers and resources to urban communes. 77 With the adoption in March 2009 of five decrees, which led to a spatial extension to the rural communes of the three areas of competence (education, health, and water and sanitation) developed during the experimental phase, and to the transfer of water and sanitation responsibilities to all the communes (urban and rural). 78 With the adoption of 21 decrees marking the transfer of all eleven blocks of competences (land management; territorial management; natural resources management; planning and economic development; health and hygiene; education, employment, and vocational training; culture and sport; civil protection and rescue assistance; funeral and cemeteries; water and electricity; markets, slaughterhouses and fairs. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 119 In the health and education sector, the transfer methodology does not factor in the needs of internally displaced persons. These needs are covered by direct support from the central level through special programs. and include (a) the Strategy for the Schooling of Pupils in High Security Challenge Zones 2019-2024; (b) the 2019 Emergency Plan for the continuity of care in insecure areas, which has been developed to respond to this difficult context at least partially; and (c) interventions of development partners. PNDES II puts a focus on decentralization to improve the delivery of basic services at the local level. A detailed note annexed to PDNES II sets out the achievements, challenges, and prospects of the decentralization process. The note includes the major findings identified in the various diagnostics, most of which are included in the PERR (i.e., limited capacity of communes, insufficient resources transferred at the local level, and the incomplete fiscal transfer reform to introduce a performance-based approach). However, the note omits discussion of two key shortcomings. First, it does not include the need to support deconcentration through Decentralized Technical Structures (DTS) and other core stakeholders playing an essential role at the local level, such as the governors of regions, the high commissioners of provinces, and the prefect departments. Second, the strategies aiming to ensure the continuity of local service delivery are not analyzed in a context characterized by recurrent security incidents in rural communes. Organization of Education and Health at the Local Level Education The organization of the education sector at the local level is complex (Figure 94). It includes DTS at the regional and provincial levels (Regional and Provincial Directorates, respectively), as well as the communes and regions. In addition to their core function (i.e., implementation of the ministry’s strategy at regional and provincial levels), the DTS are supposed to provide advisory support services to the Territorial Communities (TC). In practice, however, this is not done due to the lack of a formal framework and financial/material means. The communes and regions are responsible for the management of primary schools and general secondary schools. From 2017 to 2021, about 58 percent of the education budget (excluding salaries, special funds and external financing) was transferred to TC (i.e., local authorities) and DTS (Figure 95). Thirty-five percent continued to be managed at the central level and 7 percent at the level of the regional Public Education Entities (EPE). PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 120 Figure 94. Organization of the Education Sector for Local Service Delivery, Burkina Faso PRE-SCHOOL, PRIMARY, AND POST-PRIMARY AND NON-FORMAL EDUCATION SECONDARY EDUCATION DECENTRALIZED LEVEL School High School DE-CONCENTRATED Basic Educ. Centre LEVEL School High School Provincial Provincial Directorate Directorate School Basic Educ. Centre Regional Regional School High School Directorate CENTRAL Directorate Basic Educ. Centre LEVEL School Provincial Provincial Directorate Ministry of Directorate High School School Education Basic Educ. Centre School High School Source: Constructed from the Ministry of Education organigram. Figure 95. Transfers in the Education Sector, Burkina Faso, 2017-2021 2017 36% 7% 14% 43% 2018 36% 9% 20% 35% 2019 40% 8% 19% 33% 2020 28% 6% 30% 36% 2021 33% 5% 29% 33% Average 35% 7% 22% 36% Not Transferred (Central Level) Transferred to EPE Transferred to DTS Transferred to TC Note: EPE = Public Education Entities; DTS = Decentralized Technical Structures; TC = Territorial Communities. Source: Finance Directorate of Ministry of Education. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 121 The resources associated with certain areas of competence delegated to the communes have not yet been transferred. The takeover and development of post-primary education, secondary education, vocational training and non-formal education have not yet been transferred, despite a legal requirement for the transfer in place since 2009 (Table 20). Table 20. Status of Education Sector Resource Transfers to Communes, Burkina Faso, 2021 Transferred Not transferred • Promotion of pre-school education • Promotion of post-primary education • Promotion of primary education • Promotion of secondary education • Literacy development • Joint responsibility (with the State) for the promotion of employment, vocational training and nonformal education Source: UCLG Africa. 2016. Health The health sector consists of various entities at the local level (Figure 96 and Figure 97). It relies on (a) the DTS (Regional Health Directorates, Health Districts); (b) the University Hospitals and Regional Hospitals (Public Health Entities, PHE); and (c) the TC—the communes and the regions in charge of the Health and Social Promotion Centers (CSPS) and the surgical medical centers. In education, the DTS are responsible for providing advisory support, but as in education, this is not done in practice due to the lack of a formal framework and financial/ material means. Figure 96. Organization of Administrative Services in the Health Sector, Burkina Faso, 2021 Central level Intermediate level Peripheral level Central Structures Regional Health Directorate 1 Ministry of Health • Cabinet Central Structures Regional Health Health District 1 • General Secretary Directorate 2 Regional Health Central Structures Health District 2 Directorate 3 Health District 3 Source: Complete Health Profile of Burkina Faso 2017. Ministry of Health. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 122 Figure 97. Organization of Care Services in the Health Sector, Burkina Faso, 2021 Level 3 University Hospital Centers Level 2 Regional Hospital Centers Surgical Medical Centers Level 1 Medical Center Health and Social Promotion Centers Maternities and Dispensaries Source: Complete Health Profile of Burkina Faso 2017. Ministry of Health. The incomplete PFM reform has also affected the pace of decentralization in the health sector (Figure 98). Approximately 35 percent of financing (excluding salaries, special funds and external financing) has been transferred to the Public Health Entities (27 percent), Territorial Communities (4 percent), and Decentralized Technical Structures (3 percent) over 2017-2021. Despite a legal requirement for the transfer in place since 2009, resources associated with the application of sanitary standards and the management of regional surgical medical centers are yet to be transferred to the regions. On average, 65 percent of the health budget continues to be managed at the central level for the operation of central structures and the construction of major sector infrastructure. The resources associated with certain areas of competence delegated to the communes are still not transferred (Table 21). Figure 98. Transfers in the Health Sector, Burkina Faso, 2017-2021 2017 68% 25% 3% 4% 2018 60% 32% 3% 5% 2019 62% 29% 4% 5% 2020 69% 23% 3% 5% 2021 65% 24% 4% 5% Average 65% 27% 3% 5% Not Transferred (Central Level) Transferred to PHE Transferred to DTS Transferred to TC Note: PHE = Public Health Entities; DTS = Decentralized Technical Structures; TC = Territorial Communities. Source: Finance Directorate of Ministry of Education. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 123 Table 21. Status of Health Sector Resource Transfers to Communes, Burkina Faso, 2021 Transferred Not transferred • Construction and management of basic health • Health and hygiene measures facilities • Control of sanitary regulations • Organization of pharmaceutical supplies • Prevention of disease Source: Finance Directorate of Ministry of Health. Methods and Modalities of Resource Transfers Methods of Calculating Resources to be Transferred Resources are transferred to the communes based on standard budget envelopes rather than actual needs or the quality of services delivered during the previous period (Table 22). In the education sector, the amount to be transferred is obtained by dividing the envelope by the number of pupils for the minimum school bag and by the number of classes for the current operation of schools. In the health sector, the allocation per commune for the operation of Health and Social Promotion Centers (CSPS) is obtained by multiplying the cost per CSPS by the number of functional CSPS. These transfers do not take account of the Municipal Performance Monitoring (SUPERMUN) to measure the quality of services and the delivery capacity of communes. SUPERMUN includes indicators developed in 2014 under the Local Governance Support Project (Projet d’Appui aux Collectivités Territoriales, PACT). In the education sector, the indicators are measures for (a) school supplies (actual receipt by schools, receipt of supplies before start of school year, time taken to supply, schools’ level of satisfaction with supplies); and (b) food (existence of canteens in schools, actual delivery of food to schools, delivery of sufficient quantities of food). In the health sector, the indicators are (a) the availability of a functional refrigerator for the conservation of medicines; (b) the existence of a sufficient stock of gas, and (c) the average duration of gas stock shortages. The consideration of these indicators in determining resource transfers would encourage communes to improve the quality of service provision. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 124 Table 22. Determining Resource Transfers for Operation and Investment, Burkina Faso, 2021 Category Method of Determining Budget Allocation Education School canteens (pre- • The amount per pupil transferred to the commune is obtained by school and primary)a multiplying the cost of the pupil’s daily food (CFAF 10) by the number of days of meals. Minimum school baga • Overall budget as a share of the total number of students at an average of 2,500 CFAF per student Day-to-day operation of • Overall budget as a share of the total number of classrooms at an average schoolsa of CFAF 20,000 per classroom Rehabilitation • Allocation according to the needs expressed by the communes of educational infrastructure (minor repairs)a New constructionb • Allocation according to the educational map and the needs expressed by the communes, with priority given to the communes without buildings Rehabilitation • Allocation according to the needs expressed by the communes of educational infrastructure (major repairs)b Health Recurrent cost for the • Eleven budget lines defined for the operation of the CSPS and a lump sum operation of the CSPS in allocated to each line rural communesa • Annual unit cost per rural CSPS • Allocation per commune following the unit cost multiplied by the number of functional CSPS Recurrent cost for the • Six budget lines defined for the operation of the urban CSPS with a lump operation of urban CSPSa sum allocated to each line • Annual unit cost per urban CSPS • Allocation per commune following the unit cost multiplied by the number of functional CSPS New construction, • According to the programming of the health map for new constructions rehabilitation and • Rehabilitation and standardization carried out on the basis of the available standardizationb budget Source: Report on the process of making available and implementing financial resources transferred by the State to local authorities (DGDT). Note: a = resource transfers for operations; b = resource transfers for investments. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 125 Transfers to DTS: MINEFID allocates resources to DTS on a flat-rate basis. In the education sector, each DTS has received the same lump sum payment of CFAF 2.5 million over 2017-2020, regardless of the size of the district or its number of schools. In the health sector, allocations to DTS have also stayed relatively flat, hovering between CFAF 32 million and CFAF 36.5 million over the same period. These amounts barely cover the functioning of the structures. Transfers to PHE: Resources are allocated by MINEFID to the local Public Health Entities based on a combination of internal criteria and a distribution key that makes it possible for the Ministry of Health to allocate specific percentages of the budget envelope to the different categories of PHE (hospital and nonhospital). The details of the criteria and distribution key are strictly internal to the administration, which does not allow for an in-depth analysis of their relevance. Modalities of Resource Transfers Appropriations for the resource transfers are made available as soon as the Budget is put in place (no later than January 1 of each year). The appropriations managers at the Regional and Provincial Directorates (located in the main towns of the regions) can commit the various expenditures directly in the computerized Integrated Expenditure Tracking System (CID). For Provincial Directorates located outside the regional capitals that are not connected to the CID, managers commit their expenditures manually. These commitments follow the normal procedure: they are subject to approval by the regional or provincial financial controller (under MINEFID), who then authorizes the transfer of funds to the treasury accounts of the varies PHE. The Regional and Provincial Directorates have redundant controls at different stages of the circuit, which often results in multiple rejections, thus unnecessarily slowing down the expenditure execution process. The budgetary credits intended for the Basic Education Districts (Circonscription d’Education de Base, CEB) are included in the budgets of the Provincial Directorates. The procedure for making funds available is similar to that for the PHEs. When the CEB is attached to a province that does not have CID, it sends a request for funds to the Provincial Directorate, which follows the procedure described above for Provincial Directorates located outside the main towns of the region. As soon as the funds are received, the provincial manager issues a check to the CEB. The resources to be transferred to the communes for the management of schools are made available directly by the Central level. The process of transferring funds begins on January 1 and ends on March 20 of each year (Figure 99). This process has two main stages: the phase of drafting and signing transfer orders; and the phase of releasing financial resources, conducted by the various structures of MINEFID. Processing times have improved over 2020-2021, which has allowed the communes to receive the transfers by the February 21 deadline. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 126 Figure 99. Process of Transferring Financial Resources to Local Authorities, Burkina Faso, 2021 JANUARY FEBRUARY MARCH Preparation and Signing of Transfer Elaboration of draft Signing and Preapproval of transfer transfer orders Approval notification of orders transfer orders Orders Inter ministerial Line ministry/MINEFID Financial Controller Financial Controller Technical Committee Not later than Jan 7 Jan 8-10 Jan 11-21 Jan 22 - Feb 08 Feb 10-11 Feb 12-22 Feb 23-25 Feb 26 - Mar 20 Funds Release Phase Commitment Approval Order for payment Transfers MINEFID (DGDT) Financial Controller MINEFID (DGB) MINEFID (DGTCP) Note: DGB = Directorate General of Budget; DGDT = Directorate General of Development Terrirorial; DGTCP = Directorate General of Treasury and Public Accounts. Source: World Bank Staff based on consultations with MINEFID. SECTION III. PFM CHALLENGES TO LOCAL SERVICE DELIVERY This section takes a detailed look at how the shortcomings of the PFM system affect the allocation of resources for selected health and education programs (Figure 100). As noted at the beginning of the chapter, the slow pace of PFM reform, combined with lack of technical support in the context of decentralization, affects the performance of communes, DTS and PHE. In education and health, services are constrained by delays in the delivery of school supplies, food for school canteens and gas for the cold storage of vaccines. Moreover, the sustainability of service delivery is constrained by the insufficiency of funds allocated to free health care and the lack of technical support to the responsible administrative units. These shortcomings directly affect the overall performance of programs in these sectors, particularly minimum school bag, school canteens, assisted childbirth, vaccination for children aged 0 to 11 months, and free health care. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 127 Figure 100. Resource Allocation and Service Delivery in Health and Education, Burkina Faso, 2021 Note: DTS = Decentralized Technical Structures; PHE = Public Health Entities. Source: Decentratilization orders in Ministry of Health and Ministry of Education. Education Sector Management of Education Sector Resources Transferred to Communes Over 2017-2021, an average of 96 percent of resources transferred to the commune level were related to three programs. There are food for canteens (54 percent of transferred resources), new construction (23 percent), and minimum school bags (19 percent). The budget items with the lowest allocations were school operations (3 percent) and rehabilitation of school infrastructure (1 percent). Analysis by expenditure category shows that current expenditure accounted for 76 percent of transferred funds and capital expenditure for the remainder. Implementation rates for transferred resources declined from 88 percent in 2018 to 73 percent in 2020, insufficient to meet the needs on the ground, mainly due deterioration of the security situation in 2020 (Figure 101). The slow implementation rate is due largely to the complexities involved in bidding for and managing service provision contracts. In particular, some providers lack the capacity to submit bids for services using standard contracting procedures; moreover, the majority of communes do not have qualified personnel to ensure optimal management of resources. These difficulties have had a negative impact on education services and the quality of governance in the sector. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 128 Figure 101. Share of Resources Transferred to Communes (%), Burkina Faso, 2017-2020 100% 80% 60% 40% 20% 0% Minimum Operation of Canteens Rehabilitation Construction of school bag schools Buildings Current Expenditure Investment 2017 2018 2019 2020 2018-2020 Average Source: Annual Monitoring Reports 2018, 2019 and 2020 of the Basic Education Development Program and Annual Report of the joint Ministry of Education/Municipal Monitoring Mechanism of the implementation of the transferred competences of 2020. Minimum School Bag Funds are transferred each year to the communes for the acquisition of school bags (Figure 102). Yet in 2020, 46 percent of schools were dissatisfied with the quality and quantity of teaching materials and books received from the communes. The high level of dissatisfaction is due to delays resulting from poor procurement processes and the low quality of delivered materials. Figure 102. Delivery of the Minimum School Bag, Burkina Faso, 2017-2020 40 34% 40% 29% 26% 30 30% 20 14% 20% 10 10% 37 26 26 26 0 0% 2017 2018 2019 2020 Number of days delayed in the delivery of the minimum school bag % of school that received minimum school bag before the start of the school year Source: SUPERMUN data 2017 to 2020; PACT. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 129 Due to a lack of skills in public procurement, 60 out 352 communes had not been able to acquire and provide schools with the minimum number of school bags as of September 2020. Further, 29 communes had not even prepared the necessary tender documents79 by the December 31, 2019 deadline. The schedule for transferring funds to the communes should, in principle, allow for the timely provision of school supplies to pupils, but significant delays persist due to (a) lack of planning in the procurement process; (b) shortcomings in the preparation of tender documents, which leads to numerous rejections by the actors in the expenditure chain; and (c) inadequacies in the evaluation of needs, leading to insufficient requests for funds. Food for School Canteens In 2020, 93 percent of schools that received food were supplied for only 3 out of the 9 months of the school year, a situation that has worsened since 2015. The Presidential Initiative launched in June 2021—1 School Age Child, 1 Full Meal—aims to mitigate the effects of this finding. This initiative brings together all the initiatives at the level of the various ministries to move towards school canteens that truly meet their role, but also to ensure that vulnerable families can produce more and feed all their children. It aims to optimize the procurement and supply chain issues while connecting the local farmers with the schools and the communes. The shortage of food for schools shows (a) a lack of expertise in preparing and processing procurement documents; and (b) a deterioration of the security situation, which affects the logistic chain. As of end 2020, 11 percent of the communes receiving food had not yet prepared tender documents, and only 24 out of 336 communes (7 percent) had been able to provide their schools with food during the entire school year.80 The supply difficulties are mainly due to (a) lack of procurement planning, (b) lack of mastery of the preparation of tender documents, (c) lack of agri-food expertise, (d) lack of communication among actors, (e) difficulty in preserving certain local foodstuffs, and (f) long delays in food delivery. The food procurement system is also constrained by the presence of monopolies. The collection of food samples for appraisal is entrusted to a single service provider for the whole country, which creates major logistical challenges for the entire procurement chain. Quality control is also entrusted to a single laboratory with no decentralized facilities. Construction of Classrooms Construction delays result in school infrastructure not being completed by the start of the school year. As of end 2020, only 26 percent of the planned classrooms had been completed for the school year that began in September. The 2020 assessment report by the Joint Monitoring Mechanism (MINEFID and MENAPLN) notes that site changes are a major cause of disruption. Other reasons for construction delays include (a) insufficiencies in the procurement value chain (from planning through contracting and execution), (b) insecurity in certain areas, and (c) non-delegation of contract approval and management authority to the decentralized level. 79 Annual report of the Joint Ministry of Education/Municipal Monitoring Mechanism on the implementation of the transferred competencies in 2020. 80 Idem. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 130 Budget Execution Accountability and Monitoring Mechanisms Accountability and monitoring mechanisms are not fully adequate to avoid logistical bottlenecks and oversee the Budget execution. In addition to the work of the Joint Monitoring Mechanism, reports are produced by the Directorate General of Studies and Statistics, which collects information manually from the communes to elaborate the Budget execution report. The manual collection process is tedious and carries a high risk of errors and delays that can impact the integrity of the report. The weak deployment of the Integrated Financial Management System of Territorial Communities (CICT) also hampers the accountability process. While the Minister of Education organizes an annual meeting to review collaboration with the communes, which improves cooperation among the various actors, these meetings do not serve as a platform for judging the effective management of transferred funds. In addition, the SUPERMUN data on service delivery and institutional performance (including Budget execution) are not used to stimulate an effective public debate between the line ministries and the communes. Management of Education Sector Funds Delegated to DTS Education sector resources delegated to the DTS had execution rates close to 100 percent over 2017-2021. This was due largely to the availability of resources for commitment as soon as the Budget was put in place. However, the low level of funds allocated to the DTS does not allow them to adequately fulfill their mission. The difficulties noted in the construction of classrooms are partly due to the insufficient Budget allocated to the DTS to carry out their monitoring and control function and provide advisory support to the communes. Health Sector Management of Resources Transferred to Communes The poor management of resources once they are transferred to the communes means that CSPS often do not have a reliable supply of medical equipment and consumables. Further, the low level of deployment of the Integrated Financial Management System hinders the development of an accountability mechanism. The main difficulties at the commune level are (a) the lack of accountability and transparency in the management of transferred funds; (b) insufficient personnel for budget execution; (c) weak collaboration among the different DTS; and (d) frequent changes in the siting of infrastructure, often in disregard of the health map. These challenges, combined with the security situation and the influx of IDPs, have affected the indicators for the assisted birth and infant vaccination services provided by the CSPS; assisted births fell from 80 to 71 percent between 2017 and 2020, and vaccinations fell from 96 to 61 percent between 2017 and 2019 with an increase to 94 percent in 2020. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 131 Financial Management of Health Sector Funds Delegated to DTS As in the education sector, health sector resources delegated to the DTS had execution rates close to 100 percent over 2017-2021. This was due largely to the availability of resources for commitment as soon as the Budget was put in place. However, a lack of coordination among actors in the expenditure chain at the local level, and the frequent technical failures of the Integrated Expenditure Tracking System (CID) slowed the execution of the delegated resources. The following paragraphs provide a detailed analysis of free care, the most common service provided by the Public Health Entities. The reimbursement mechanism for free health care is administratively complex and often leads to dysfunction in the delivery of services (Figure 103). Funds to reimburse the PHEs for services are pre- positioned in a dedicated Treasury account on a quarterly basis, based on reports from the previous quarter. However, the process for making funds available is cumbersome, involving numerous steps and forms, registers and invoices. These requirements weigh heavily on health facility staff who deliver the services, as well as on the intermediate and central levels involved in the management of free care. Figure 103. Flow of Health Funds at Hospital and District Level, Burkina Faso, 2021 Hospital Level District Level STCSU Finance Directorate Public Treasury STCSU Finance Directorate Public Treasury Direct Payment in the Direct Payment in the Payment order per free health care dedicated Payment order per free health care dedicated Request per hospital hospital Request per hospital hospital account account A Transfer Payment Hospital dedicated health Payment CAMEG Regional Hospital health care CAMEG Hospital account CAMEG district accounting Invoice care account Invoice account Split by CMA,CSPS Hospital Financial Good and Office B Services and Goods Hospital Financial Services Health District delivered CMA, CSPS Account Accountant Monthy report on free Accountant health care Note: STCSU = Technical Secretariat in Charge of Universal Health Coverage; CSPS = Health and Social Promotion Centers; CAMEG = Central Purchasing Agency for Essential Medicines; CMA = Surigical Medical Center. Source: Joint order No. 2020-345/MS/MINEFID adopting the Free Health Care Procedure Manual of September 17, 2020. The insufficiency of the allocated funds combined with the scaling up of free health care have increased the financial gap in the free health care system (Table 23). For 2018, the Ministry of Health reported invoices amounting to about CFAF 32 billion, against CFAF 19 billion in the pre-positioned fund, a gap of CFAF 13 billion, equivalent to a reimbursement rate of 61 percent. In 2019, the additional allocation made to cover the 2018 gap was absorbed by the adoption of free family planning. As a result, 2019 recorded a much improved but still inadequate reimbursement rate of 93 percent. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 132 Table 23. Funds for Free Health Care, Burkina Faso (in CFAF billion), 2016-2019 Year Pre-Positioned Fund Invoiced Amount Coverage Rate (%) 2016 16.9 16.0 105 2017 27.5 28.6 96 2018 19.4 32.0 61 2019 25.7 27.6 93 Source: Excerpt from the ThinkWell Report, Presentation of the Policy of Free Access in Burkina Faso. September 2020. Delays and irregularities in the provision of funds are a major problem in the implementation of free health care. Transfers from the dedicated Treasury account to the accounts of the health facilities have not adhered to the quarterly timeframe since September 2018; the average transfer time is now about 6 months. This situation has repercussions not only for the functioning of the health centers but also for the Central Purchasing Agency for Generic Medicines (CAMEG) because of the non-reimbursement of medicines delivered to the health centers. According to the ThinkWell report,81 the transfers covered almost all of CAMEG’s costs in 2016 and 2017. By mid- 2018, however, the gap between transfers and invoices increased, causing CAMEG’s debt level to rise from less than CFAF 2 billion in the first quarter of 2018 to more than CFAF 10 billion by the end of the year, and threatening the sustainability of the health system’s drug supply. To reduce the risk of corruption in the free health care program, the Ministry of Health has set up a system of effectiveness checks outsourced to third parties.82 NGOs carry out controls at the health centers, and also conduct household surveys to identify overbilling and fictitious patients. The control procedures are formalized in a procedures manual and the indicators are based on WHO guidelines. The NGO reports are validated by a committee set up at the Ministry of Health at the request of the High Authority of State Control and Fight against Corruption (ASCE-LC) and are made public. Budget Execution Accountability and Monitoring Mechanisms Accountability and monitoring mechanisms are insufficient to avoid logistical bottlenecks and oversee the Budget execution. Unlike in the education sector, the health department has not yet put in place an accountability and monitoring system for resources transferred to the communes. In addition, the weak deployment of the Integrated Financial Management System for Territorial Communities also impedes the accountability process. Finally, the SUPERMUN data on service delivery and institutional performance (including Budget execution) are not used to trigger effective public debate between the line ministries and the communes. The Government has several options to improve the status quo; they are presented in the following and concluding chapter. 81 https://thinkwell.global/projects/sp4phc/burkinafaso/ 82 They include the NGO Terre des Hommes, ASMAD, SOS Sahel, Save the Children, Help, RAME, and Association Vision Nouvelle. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 133 CHAPTER 5: CONCLUSIONS AND POLICY OPTIONS PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 134 This Public Expenditure and Revenue Review has analyzed three main areas of public policy and institutions in Burkina Faso. The analysis has identified factors that have constrained the country’s ability to translate relative high GDP growth over the past decade into economic and social progress at the same rate as aspirational peers. The report used Burkina Faso’s annual Country Policy and Institutional Assessment (CPIA) scores over a 10-year period (2010-2019) to investigate the deterioration of performance in economic management, public sector management and institutions. The analysis showed a gradual deterioration of performance over the period in three areas: efficiency of revenue mobilization, fiscal policy performance, and quality of budgetary and financial management. a. Low Efficiency and Effectiveness of Revenue Mobilization was due to a narrow tax base, low tax rates, a malfunctioning VAT credit refund system and a multitude of rates, exemptions and derogatory fiscal measures, leading to collection weaknesses, noncompliance and fraud; b. Weak Expenditure Performance was due to a sharp rise in public expenditure with a shift towards higher current expenditure and lower capital spending, largely on account of the uncontrolled growth of the public wage bill; and c. Low Quality of Budgetary and Financial Management was due to an incomplete performance-based budgeting reform, lack of clarity on policy program objectives, and therefore inefficient allocation of Budget resources. Addressing these key shortcomings requires implementing measures to reform Tax Administration, modernize the Tax Code, control the wage bill, and complete performance-based budgeting reform. PNDES I (2016-2021) made a start on these reforms. It focused on reforming institutions and modernizing the public administration, developing human capital, and dynamizing growth-driving and jobs-creating sectors. Overall, public policies have not been able to enable the real wealth creation dynamics necessary to improve the well- being of Burkinabè; this situation can be explained by the combination of several exogenous and endogenous factors such as social unrest, the deterioration of the security situation and, more recently, the outbreak of the Coronavirus pandemic, which have seriously hampered development efforts.83 PNDES II (2021-2025) builds on PNDES I and incorporates a strong focus on resilience and social cohesion. It analyzes both the cause and impact of conflicts and includes a strategic pillar on “Building Resilience, Security, Social Cohesion, and Peace.” It reflects also a more comprehensive approach in its key results targets, which include higher GDP growth, and improvement in the quality of economic policies and institutions, as measured by the CPIA. The Government’s Transition Agenda (2022-2024) shifts the short-term focus towards four strategic objectives: (a) combating terrorism and restoring territorial integrity, (b) responding to the humanitarian crisis, (c) rebuilding the State and improving governance, and (d) working towards national reconciliation and social cohesion. 83 Government of Burkina Faso. 2021. Plan national de développement économique et social 2021-2025 (PNDES-II). PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 135 The fiscal space to implement the Government’s Transition Agenda and national development plan has been shrinking. The elevated fiscal deficits of past years have translated into a rapid increase of public debt and associated debt service costs. As external concessional financing has fallen (with most of it now provided by IDA), the Government has been issuing domestic debt in the regional WAEMU capital market to finance implementation of the First National Development Program (PNDES I, 2016-2021), and more recently, to finance rising spending related to security and COVID-19. As a result of both a higher debt stock and a compositional shift towards more expensive domestic debt, debt service costs have increased steadily, reaching close to 8 percent of GDP by 2020, mostly related to the rollover of short-term domestic debt. While IDA’s Sustainable Development Finance Policy (SDFP) will continue to support the country to keep the risk of debt distress at moderate levels, this PERR offers options for policy reforms that can be implemented within two years (short term) and within five years (medium term) in three areas: (a) enhancing the Efficiency of Revenue Mobilization through tax policy and administration reforms In a context of declining official development assistance and increasing debt, strengthening domestic revenue mobilization has become vital to safeguard the country’s fiscal sustainability.84 Despite numerous reforms implemented over the past decade, tax revenue performance has stagnated around 15 percent of GDP. While better than many countries in the WAEMU region, this performance remains far from the target of 21 percent of GDP set by the authorities in 2017 and recently reiterated in PNDES II. Confronted with multifaceted challenges (security, humanitarian, social, climate and COVID-19), which call for decisive and sustainable interventions, the country’s fiscal sustainability could be threatened if weaknesses in domestic revenue mobilization are not addressed. Numerous challenges make the country’s tax system inequitable (weak progressivity), business unfriendly (high compliance and transaction costs), and inefficient (high tax gap). Tax policy has several limitations, including (a) weak progressivity of the personal income tax (PIT) system; (b) an excessive set of tax expenditures, provided as VAT and corporate income tax (CIT) exemptions, CIT relief and customs incentives on imports; (c) a poorly designed excise tax regime; and (d) inadequate taxation of property and informal activities. The tax administration is also confronted with several challenges, including (a) an inefficient VAT refund system, (b) weak compliance rates, (c) ineffective VAT refund audit, (d) lenient penalties for fraud, and (e) limited geographic reach of the tax administration. The tax gap, estimated at 6 percent of GDP, could be fully closed in the medium run if pragmatic (and realistic) reforms are undertaken over the course of the implementation of PNDES II. There are several options for policy reforms (Table 24). In the short term, the Government could expand the tax base and remove unwarranted exemptions; in the medium term, the progressivity of PIT and VAT can be improved. Authorities might consider (a) reforming the valuation of properties, redesigning the excise tax regime and strengthening the coverage of informal activities; (b) improving the progressivity of the personal income tax (PIT) system, which in its current form creates regressive distributional effects to the detriment of the poor and middle classes; and (c) rationalizing—through systematic cost/benefit analysis and dynamic selection mechanisms—the set of tax exemptions and incentives, especially those linked to VAT, CIT and mining imports. 84 The 2013 Public Expenditure Review already called for strengthening debt management and domestic revenue mobilization to meet medium-term fiscal targets (see Annex I). PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 136 Table 24. Tax Policy Reform Options with Indicative Timeline and Fiscal Gain Options Details Time, Gain 1. Reform personal • Raise the exempt threshold to make system more progressive. Short term income tax regime • Increase the degree of progressivity of the tax on wages and salaries; e.g., raise the PIT rate for the highest earners, and reduce 2-6% of GDP the tax burden for salary and wage earners in the lower brackets. • Create a complete database with a breakdown of each taxpayer by income bracket. 2. Enhance the • Increase excises rate and base for the four main products Short term quality of the contributing to excise revenues (petroleum products, alcoholic excise tax policy beverages, tobacco, and tea and coffee). 0.9% of GDP • Streamline the list of excisable items: (a) items to be removed from the existing list of excisable goods, (b) excise taxes on items to be combined with customs duty, (c) to be introduced excisable items such as sugar contents in food manufacturing, motor vehicles, dishwashing machines for domestic use, clocks and watches. • Exempt microenterprises from paying an excise. • Enhance tax administration capacity at municipal level. • Conduct an in-depth analysis of the excise tax regime. 3. Continue • Review the property tax policy; e.g., tax base definition, what is Medium term property tax excluded, how property is taxed based on area or value. reform85 • Review the property tax rate structures and applicable tax abatement/relief schemes. • Use a business process analysis to trace through the cadaster coverage, identify process inefficiencies and suggest remedial interventions for improved property tax base coverage. • Estimate the number of properties that are not captured on the tax roll. • Examine the assessment/valuation appeals process. 4. Curb tax • Calculate all the costs and marginal benefits of tax expenditures Short term expenditures or tax incentives and factor into the overall tax policy reforms. • Eliminate tax expenditures, especially deductions, exclusions, 1-2% of GDP credits, exemptions, and preferential treatment, particularly to improve VAT and customs. • Strengthen collaboration between customs and tax authorities to share all available information and control evasion effectively. • Integrate tax expenditure rationalization as much as possible in the design of broader tax reform packages. • Ensure that the Investment Incentives Law is strictly enforced and clearly stated to boost the confidence of investors when they engage in a market or sector. 5. Reduce VAT • Broaden the VAT base through a reduction in the associated rate Short term policy gap gap (applying the same proportional tax of 18 percent on all final consumption, except self-consumption) and in the exemption gap 0.3-1% of GDP (reducing the list of eligible goods and services subject to VAT exemptions). • Conduct a cost-benefit analysis of existing VAT exemptions and consider removing them. 85 The Property Tax Diagnostic Manual includes several case studies from Tanzania, Pakistan, the Philippines, and India. More generally the manual provides guidance on how to analyze and assess immovable property tax systems, diagnose the strengths and weaknesses of such systems, and develop a property tax intervention strategy where needed. (http://hdl.handle.net/10986/34793) PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 137 Tax administration reforms could focus on digitalization, forced and voluntary compliance by taxpayers (short to medium term) and improved communication (Table 25). About 70 percent of the estimated tax gap (7 percent of GDP) comes from VAT compliance gaps alone. Authorities might consider (a) further strengthening the digitalization of administration processes and procedures, including for the VAT system; (b) increasing the human, technical and operational capacities of tax centers, especially regarding control, audit and enforcement; (c) expanding the geographic coverage of tax centers and public communication campaigns to explain tax processes; and (d) providing incentives to promote voluntary compliance. Table 25. Tax Administration Reform Options with Indicative Timeline and Fiscal Gain Options Details Time, Gain 6. Reduce VAT • Enhance the implementation of the VAT refund scheme (including Medium term compliance gap through digitalization) to assure the credibility of the VAT system. • Improve the VAT management capacity (including through 4.8 percent of digitalization) within the tax administration. GDP • Promote voluntary compliance through continued and regular citizen-engagement campaigns. • Increase the VAT threshold (for selected necessity goods) to ease the burden of the tax administration and enable it to focus on a smaller number of VAT-liable taxpayers. 7. Establish a • Codify the dispute resolution process in a general Tax Short term dedicated debt Administration Law that has uniform application across all core management unit taxes. and re-engineer • Establish a dedicated unit with full-time specialist staff trained to the tax audit apply tailored and debtor-oriented strategies for enforcement and process to enhance debt collection, this unit should be staffed by a dedicated team debt management specializing in behavioral changes and deploying new methods to influence taxpayers’ behavior. • Prioritize arrears cases based on risk criteria (e.g., size of arrears, age of arrears, number of core taxes involved, taxpayer’s payment history). • Support audit operations with consolidated IT systems and automate audit case management subsystem that allocates audit cases, monitors progress, records decisions, stores working papers and data, and generates management reports. (b) improving Expenditure Policy Performance through controlling wage bill growth and subsidies In a context of increasing debt, reining in spending—particularly public wage bill spending—has become vital to ensure fiscal sustainability. Government spending has risen significantly over the last decade, from 21.7 percent of GDP in 2010 to 26.9 percent in 2019. The country outspends all comparator groups, while having the lowest level of GDP per capita. Expenditure increases have been driven by a sharp growth in the public wage bill, which rose from 5 to 9 percent of GDP over 2010-2019. With insecurity and priority social sectors demanding greater government resources, the country’s fiscal sustainability is threatened if excessive spending is not brought under control. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 138 While the Government has been gradually slowing the growth of the wage bill, it remains the principal threat to spending sustainability. With high demand from the education and security sectors, the wage bill increased significantly over the last decade, accounting for 38 percent of the total budget in 2019. Personnel spending has been well above the WAEMU-mandated ceiling of 35 percent of tax revenue for the last five years and surpassed 65 percent of tax revenue in 2020. In addition to increased hiring, the compensation structure is characterized by large and nontransparent bonuses and allowances, which are narrowly distributed and lead to increases in average compensation, resulting in a ballooning wage bill, more inequity and potential social discontent. Structural reforms addressing the wage bill could build on recent developments in limiting hiring and rationalizing the compensation structure, particularly with respect to allowances (Table 26). Authorities might consider simplifying the compensation scheme by disentangling base salaries, bonuses and allowances linked to many categories of the civil service. This could reduce pay disparities across and within the government sector while increasing the competitiveness of base salaries in relation to the private sector—by streamlining allowances and increasing the share of the base salary in total compensation. Since 2017, gas and fuel subsidies have strained government resources, while they have a negative impact on climate change mitigation. In 2019, these subsidies amounted to about 0.6 percent of GDP and resulted in about 0.03 percent of GDP in lost tax revenue. Capturing and reallocating these resources could provide the Government with fiscal space to better respond to increasing insecurity and health concerns as the COVID-19 pandemic persists. Phasing out energy subsidies would help mitigate climate change as gas and fuel become more expensive, which may reduce their consumption if more climate-friendly alternatives are available. Thus, this reform could be complemented with investments in renewable energy to achieve a higher impact in the fight against climate change. Redirecting the fiscal gains from the hydrocarbon subsidy elimination to unconditional cash transfers could lead to a substantial reduction in poverty with neutral budget impact. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 139 Table 26. Public Expenditure Reform Options with Indicative Timeline and Fiscal Gain Options Details Time, Gain 8. Rein in the • Limit the nominal growth rate of bonuses and allowances. Medium term public wage • Freeze and then rationalize allowances, reducing them by 10 bill through percent yearly. 1.6% of GDP compensation • Establish a maximum share of the wage bill for bonuses and measures and allowances to increase the share of base salaries and make reduced hiring86 government compensation more transparent. • Initiate structural reforms addressing weaknesses in remuneration and public financial management, including harmonization of pay scales and allowances across sectors. • Improve categorization of compensation spending under goods and services, which currently vaguely categorize public service allowances. • Reduce recruitment by 40 percent below the trendline. 9. Eliminate • Conduct a comprehensive analysis for the phase-out of fuel Medium term distortionary subsidies. subsidies87 • Phase out fuel subsidies while at the same time expanding the 0.6% of GDP social safety net program targeted to the poor. (c) improving the Quality of Budgetary and Financial Management at the local level Although the share of resources transferred to local governments doubled from 5 percent in 2017 to 11.6 percent in 2020, the Government’s target of 15 percent is yet to be met. Further, the increase in transferred resources is not sufficient to improve the performance of local services or the institutional capacity of local governments, which is required particularly to address constraints in conflict areas. Both issues are particularly acute in education and health, which account for about 88 percent of the total of transferred resources. These two sectors are most important in the decentralization agenda (and to address conflict drivers), but there are two major shortcomings in the way decentralization in these sectors is implemented: (a) the method of determining the resource transfers is not linked to performance in the provision of basic services; and (b) the process of transferring competences and resources to the local governments remains incomplete. 86 Several countries have implemented wage bill reforms, including Ghana (http://hdl.handle.net/10986/4343), Eswatini (http://hdl.handle. net/10986/19464), and Serbia (http://hdl.handle.net/10986/2923). 87 The 2013 Public Expenditure Review and the 2019 study on social safety nets already called already for a reduction/elimination of price subsidies on hydrocarbons and recommended their reallocation towards programs targeting the poor (see Annex I). The ESMAP Energy Sector Reform Facility provides case studies of energy subsidy reform in Madagascar and Rwanda among others. It also developed an Energy Sector Reform Assessment Framework, a practical guide to understanding energy subsidy reforms aimed to help developing country governments. (https://www.esmap.org/esraf) PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 140 The increase in the share of budget transfers to the local level is yet to have a major impact on service delivery, due to a lack of accountability, limited capacity and inadequate procurement procedures. Service delivery could be improved through (a) a reform of the fiscal transfer modalities to local governments, and the use of performance-based transfer and accountability mechanisms; (b) an increase in the share of budget transfers to the Decentralized Technical Structures (DTS) to enable them to provide greater hands-on support to local governments; and (c) a revision of the Public Procurement Code to require more delegation of authority to the local level. Such reforms are particularly important with regard to reining in underlying drivers of conflict and terrorism. There is also potential to improve the delivery of health and education services at the local level through budgetary and financial management reforms. With regard to free health care provided through the Public Health Entities (PHE), there is a disconnect between aspiration and the budget allocation, due to (a) cumbersome financial management procedures, and (b) the procurement of medical supplies not being aligned with needs. This structural financing gap could be addressed by streamlining the procurement, budgeting and payment procedures, which would improve access to free health care and reduce beneficiaries’ out-of- pocket expenditures. In the education sector, governance issues affecting the management of school canteens, which account for 74 percent of fiscal transfers to the local governments, can be addressed through improved procurement procedures, quality control of the food supply chain, and enhanced social accountability. In an evolving context of multiform crises, the Public Financial Management reform strategy needs to be rethought and refocused on the urgent needs of the population (Table 27). In the area of public procurement, this requires the revision of the Public Procurement Code to adapt it to the crisis situation, while delegating to the DTS the authority to procure and receive goods and services. In addition, the link between budget strategies and public policies needs to be strengthened by adapting the content of budget programs and the associated performance indicators to the challenges of fragility and to the PNDES II results framework. Finally, accountability needs to be restored by deploying budget and accounting applications at the central (N@folo) and local (CICT) levels, as well as by creating a network of accountants at the revenue generating administration and local governments. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 141 Table 27. Public Financial Management Reform Options with Indicative Timeline Options88 Details Time 10. Revise public • Revise the Public Procurement Code to adapt it to crisis Medium term procurement management, by simplifying procedures and delegating the regulation89 execution and acceptance of goods and services to decentralized structures. • Dematerialize public procurement to increase transparency and access to public procurement in the regions, and use procurement to strengthen resilience and social cohesion at local level. 11. Link budgetary • Revise the content of program Budgets and related performance Medium term strategy and public indicators to link them to the issues and results framework of the policy new National Development Framework. • Implement a multi-criteria analysis, including the impact on employment and resilience, for the prioritization of public investments. • Prepare and include a report on budgetary risks in the annexes to the annual Budget law. 12. Enhance • Deploy the budgetary and accounting software N@folo at the Short to accountability and central level and CICT at the local level. medium responsibility • Adopt a by-law on the process of closing the accounts. • Appoint a Chief Accountant at the financial entities (DGI and DGD). • Continue the deployment of the accounting network to reach the target of one accounting post for every three local governments. • Deploy, at the Court of Auditors, the simplified system for monitoring ASCE-LC recommendations, to create a real mechanism for monitoring the status of implementation of recommendations. 13. Continue • Transfer resources from the last areas of competence provided for Medium term decentralization in the texts, in particular to the regional level. • Put in place a formal framework governing the advisory support of DTS to TC. 14. Improve • Introduce a performance window in the method of calculating Medium term financing of the resources to be transferred to the communes based on decentralization SUPERMUM in order to stimulate improvement in the provision of public services. • Reform the method of determining the resources to be transferred to take into account real needs, and include allocations for advisory support from DTS to TC. 88 Several of the proposed policy options can be linked to longstanding reform priorities identified through prior PERs or PER-like studies. The 2004 HIPC Public Expenditure Tracking Assessment and Action Plan called already for the implementation of new public procurement regulations, frequent external and internal audits on public procurement. The 2005 PER called for a simplification of procurement processes in the education sector and for strengthened accountability for funds at the district and community levels in the health and education sectors. It further recommended improving the distribution and motivation of health personnel through decentralization of budget posts. The 2013 PER called for increasing coherence between sectoral policies, the strategy for accelerated growth and sustainable development, the budgetary framework and the State Program Budget. It also provided several recommendations to improve service delivery in health and education. (see Annex I) 89 Rwanda has implemented wide-reaching procurement reforms (http://hdl.handle.net/10986/33977), so has Morocco some years earlier (http://hdl.handle.net/10986/20553). PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 142 Options88 Details Time 15. Reform • Decentralize the quality control laboratory for food canteens in Short to the provision pilot regions or open the activity to competition. medium term of services in • Increase the level of funds allocated to food canteens to cover Education demand throughout the school year. • Strengthen the capacity of actors in the procurement of food and school supplies that require standard contracts. 16. Reform the • Increase the resources allocated to free health care, and simplify Short term provision of management and PHE reimbursement procedures. services in Health 17. Transversal • Align the allocation of budgetary funds with the real needs of DTS Long term reforms to avoid allocation on a lump sum basis. • Deploy the information management system (CID) in the DTS at the provincial level to facilitate Budget management. Implementation of all reform options could yield cumulative and recurrent fiscal gains of about 5-11 percent of the GDP over the medium to long term. The largest fiscal gain (2 to 6 percent of GDP) could be achieved on the revenue side through a comprehensive personal income tax reform. Curbing tax expenditures and enhancing the quality of the excise tax policy could bring additional fiscal gains up to 2.9 percent of GDP. While the full implementation of the proposed tax policy measures could be politically difficult, complementary measures can be taken to strengthen tax administration. Such reforms are expected to have a positive impact on tax intake, although concrete fiscal gains are difficult to quantify ex ante. On the expenditure side, reining in the further growth of an already elevated public wage bill would yield the largest fiscal gains—up to 1.6 percent of GDP in the medium term based on a realistic reform scenario. Further fiscal gains can be reaped from the reduction and eventually elimination of fuel subsidies. The net fiscal gain of such reforms could be about 0.03 percent of GDP, and the social effect would be positive if the removal of regressive subsidies is combined with an expansion of social safety nets. The implementation of reforms needs to be informed through additional analytical work. For example, the mining sector (in particular gold) is already an important generator of fiscal revenue but a dedicated study could identify additional revenue potential that remains untapped so far. Further, for any tax and wage bill reform, just-in-time analysis will be necessary to assess the distributional, social, and fiscal implications of specific reform proposals. The same is true for fuel subsidy reforms, which require deeper understanding of the political economy and the sequencing steps of implementation. This can be developed through a set of analyses following the World Bank’s Energy Subsidy Reform Assessment Framework. Finally, when it comes to dimensions such as the environment and climate change, there are win-win and trade-off situations, for example with respect to public investment management, that can be further analyzed through Country Climate and Development Reports. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 143 REFERENCES ACLED. 2010. Introducing ACLED: armed conflict location and event data. Journal of Peace Research 47(5) 651- 660.  Beegle, K., A. Coudouel, and E. Monsalve. 2018. Realizing the Full Potential of Social Safety Nets in Africa. Africa Development Forum. Washington, DC: World Bank. https://openknowledge.worldbank.org/handle/10986/29789. Carole Sisso, D., B. Sawadogo, and M.H. Natama. 2016. Decline in Gold Prices, Tax Receipts and Employment: Which Adaptation Strategy for Burkina Faso? PEP Working Paper Series 2016-28. Economist Intelligence Unit. 2021. EIU country report Burkina Faso. http://country.eiu.com/burkina-faso. European Union. 2017. Burkina Faso Tax Administration Diagnosis Assement Tool. European Union. 2017. Evaluation des finances publiques selon la méthodologie PEFA 2016 au Burkina Faso. (PEFA 2017) Government of Burkina Faso. 2021. Direction Générale du Trésor et Comptabilité Publique. Bulletin statistique de la dette. Government of Burkina Faso. 2021. Rapport de Mise en Œuvre du Plan d’Action Intégré des Reformes de Finances Publiques au 31 Décembre 2020. Government of Burkina Faso. 2021. Plan national de développement économique et social 2021-2025 (PNDES-II). Government of Burkina Faso. 2012. Politique nationale de protection sociale. HIPC. 2004. Public Expenditure Tracking Assessment and Action Plan. Houssa, R., K. Megersa and R. Nikiema. 2017. The sources of VAT gaps in WAEMU: case studies on Benin and Burkina Faso. BeFinD Working Papers 0122, University of Namur, Department of Economics.  IMF. 2021a. Climate change indicators. https://climatedata.imf.org/. IMF. 2021b. World Economic Outlook: Managing Divergent Recoveries. Washington DC (April). IMF. 2019a. Burkina Faso 2018 Article IV Consultation; First Review Under the Extended Credit Facility Arrangement; Request for Waiver for Nonobservance of a Performance Criterion, and Modification of a Performance Criterion. IMF. 2019b. Burkina Faso: selected issues. IMF. 2019c. Case studies in tax revenue mobilization in low-income countries. IMF Working Paper. IMF. 2018. Burkina Faso: wage bill management and civil service reform. Technical Assistance Report. IMF. 2017. Burkina Faso: evaluation of public investment management. Technical Assistance Report. IMF. 2016a. Burkina Faso. 2016 Article IV Consultation, Sixth Review Under the Extended Credit Facility, and Request for Modification of a Performance Criterion, Extension of the Arrangement and Augmentation of Access. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 144 IMF. 2016b. Mali Technical Assistance Report: Mining Taxation—Modeling of Five Mining Operations. Country Report No. 16/84. IMF. 2015. The unequal benefits of fuel subsidies revisited: evidence for developing countries. IMF Working Paper WP15/250. IMF. 2012. Burkina Faso. Staff Report for the 2011 Article IV Consultation and the Third Review Under the Extended Credit Facility. IMF. 2010. Burkina Faso. Staff Report for 2009 Article IV Consultation, Fifth Review Under the Poverty Reduction and Growth Facility, and Requests for Augmentation of Access and Modification of Performance Criteria. Kabore, E. 2020. The 1 percent gold revenue campaign—a benefit-sharing campaign by PWYP Burkina Faso. Merotto, D.L., F. Hayati, D.A. Stephan, and W. Battaile. 2015. Dismal science, accounting and Newton’s second law: identifying force and rigidity in public expenditure analysis. Washington, D.C. World Bank Group. https:// imagebank2.worldbank.org/search/25107995 Our World in Data. 2020. Coronavirus pandemic (COVID-19). https://ourworldindata.org/coronavirus. ThinkWell Report. 2020. Presentation of the free of charge policy in Burkina Faso https://thinkwell.global/ projects/sp4phc/burkinafaso/. United Cities and Local Governments of Africa (UCLG Africa). 2016. Report of the study on the retrospective and prospective evaluation of the cost of the competencies transferred by law to the territorial authorities of Burkina Faso. https://knowledge.uclga.org/IMG/pdf/rapportdeletudeduburkinafaso.pdf Vandeninden, F., R. Grun and A. Semlali. 2019. The Way Forward for Social Safety Nets in Burkina Faso, Main Report (Vol.2). http://documents.worldbank.org/curated/en/822521567052802222/Main-Report. Vandeninden, F., R. Grun and F. Fecher. 2021. Energy Subsidies And Poverty: The Case of Gas and Fuel Subsidies in Burkina Faso. JEPO-D-21-03129. https://ssrn.com/abstract=3983727 World Bank. 2021a. Burkina Faso: protecting the poor during the recovery and beyond. Economic Update (April). World Bank. 2021b. Human Capital Index 2020 update: human capital in the time of COVID-19. http:// documents.worldbank.org/curated/en/456901600111156873/. World Bank. 2021c. Country Economic Memorandum, MTI Tools Country Scan 2.0. World Bank. 2021d. Africa Country Policy and Institutional Assessment. https://www.worldbank.org/en/data/ datatopics/cpia. World Bank. 2020a. Economic and poverty update in the time of COVID-19. World Bank. 2020b. Human capital project: mainstreaming human capital. Priorities in Public Expenditure and Institutional Reviews (HC PEIRS). World Bank. 2020c. Security expenditure management in Sahel. Advisory Services and Anaytics. World Bank. 2019a. Burkina Faso: relever le défi de la mobilisation fiscale. Rapport préparé dans le cadre d’une étude sur la politique fiscale en Afrique de l’Ouest. World Bank. 2019b. Burkina Faso: meeting the challenge of tax mobilization. Report prepared as part of a study on fiscal policy in West Africa. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 145 World Bank. 2019c. Étude sur la fiscalité en Afrique de l’Ouest. Rapport de synthèse: options de réforme dans une perspective sous-régionale. World Bank. 2019d. West Africa tax study: reform options from a subregional perspective. World Bank. 2015. Dismal science, accounting and Newton’s second law: identifying force and rigidity in public expenditure analysis. World Bank. 2013a. Burkina Faso: basic agricultural public expenditure diagnostic review 2004-2012. World Bank. 2013b. Public Expenditure Review: Towards greater efficiency in public spending on transport and energy. World Bank. 2009. Public Expenditure Review: Beyond the Burkinabè paradox: a roadmap for successful decentralization and more effective public spending. Report No. 50354-BUR. World Bank. 2005. Public Expenditure Review: The Budget as centerpiece of PRSP implementation. Report No. 29154-BUR. World Bank. 1993. Public Expenditure Review, Report No. 11901-BUR. World Bank, IMF. 2020. Burkina Faso Joint World Bank-IMF Debt Sustainability Analysis (November).   PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 146 TECHNICAL ANNEXES ANNEX I. RECOMMENDATIONS FROM PREVIOUS PERs AND PER-LIKE STUDIES A. HIPC Public Expenditure Tracking Assessment and Action Plan (HIPC-AAP), 2004 Short Term • Clarify roles of the various departments that implement externally funded expenditures, and establish appropriate information procedures and supporting documentation; • Draw up a list of projects and verify the table of agreements with external creditors; • Clearly identify poverty reduction expenditures in the Budget nomenclature; • Strengthen ex post audits by the IGF and IGE, increase the staff of audit units, review the status of inspectors, and make effective use of reports by the High Authority for the Fight against Corruption; • Expedite production of the Treasury’s general balance and accounting statements, with a view to submitting the Budget execution reports to the National Assembly no later than 12 months after the closure of accounts; • Implement the new public procurement regulations, finalize a decree on outsourcing and concessions. Medium Term • Finalize development and implementation of an integrated accounts system for local communes in order to integrate their financial data into the WAEMU Public Finance Tables (TOFE); • Produce ex ante and ex post consolidated statistics on the public sector under the Government Finance Statistics Manual classification; • Develop a computerized system to monitor externally funded capital expenditures; • Develop an accounting system for government property; • Amend Article 6 of Law No. 14/AN/2000 of May 16, 2000, deleting the provision on the limited time of service of auditors, introducing a career path for auditors and establishing their independence; • Elevate auditors to the status of judicial officers; • Conduct frequent external and internal audits on public procurement; • Develop a computerized system to monitor public procurement. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 147 B. Public Expenditure Review, Burkina Faso: The Budget as Centerpiece of PRSP Implementation, 2005 Budget planning, execution and monitoring • Systematically review the level of current and investment spending on priorities, based on Budget execution data for I998-2003; • Implement recommendations of the AFRITAC and EC technical assistance to improve programming and monitoring of foreign-financed investment spending; • Include identifier for priority spending in the functional Budget classification; • Report systematically on execution of priority spending in the PRSP progress reports; • Improve the functioning of inter-ministerial working groups to ensure consistency between PRSP and sectoral programs, and open the working groups to civil society, private sector and donor participation; • Further deconcentrate payment orders to line ministries and regions; • Improve efficiency of ex ante control through adoption of pricing referential, a decree on “morality” of expenditure, and a revision of the nomenclature of required documentation. Availability of budget data • Set up a public information center in the Ministry of Finance and Budget and the Ministry of Economy and Development containing all main documents related to the PRSP, sector policies, the Budget Law, Budget execution reports, and donor-financed programs and projects; • Publish within year reports on Budget execution; • Provide program Budgets and the global MTEF to the National Assembly together with the draft Budget Law. Predictability of foreign aid • Institutionalize exchanges with key donors on three-year projections of program and project aid; • Seek to better synchronize Budget aid with the Budget cycle and reduce uncertainty about amounts by accelerating provision of PRSP indicators and pursuing new agreements linking disbursements to known past performance. Integrate Budget and PRSP processes • Within a sector, prepare program Budget on a regional basis, to be consolidated into the national program Budget; • Instruct line ministries to prepare program Budget execution reports on regional and national level; • Prepare global Medium-Term Expenditure Framework with input from line ministries, based on the results of program Budget implementation reviews; • Begin preparing regional and national PRSP progress reports based on regional and national program Budget implementation reports, and conduct regional consultations; • Distribute Budget circular and prepare Budget proposals and new program Budgets; • Finalize PRSP progress with forward-looking section based on new global Medium-Term Expenditure Framework and updated program Budgets; • Conduct results-focused Budget arbitration in light of PRSP objectives. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 148 Health sector budgeting and efficiency • Establish regular program monitoring system and accelerate production of key indicators; • Revise planning cycle in light of the integration of program Budgets and PRSP processes to better include district and regional planning into the Budget cycle; • Increase Budget allocations to core programs of national importance (malaria, reproductive health, vaccination security, childhood illness); • Improve allocations for front-line services and develop criteria to improve equity of Budget allocations among regions and districts; • Strengthen monitoring and improve application of existing price reductions for preventive and primary care services; • Further reduce prices for essential care, continue efforts to reduce margins for essential drugs, and develop mechanism for identifying and subsidizing the poor and vulnerable; • Strengthen accountability for funds at the district and community levels by setting up a system to record receipts, expenses and account balances, with regular audits by the Ministry of Health; • Revise texts governing health committees to strengthen their role in public health; • Define and implement measures to increase the demand for health services; • Revise the system of user fees, and clarify financial and organization framework for subsidizing the poor; • Establish a system of annual reviews of hospital performance, initiate global audits and strengthen oversight of hospitals by the Ministry of Health; • Improve distribution and motivation of health personnel through better incentives in rural areas, decentralization of budget posts, and improved personnel management systems. Education sector planning and performance • Increase involvement of regions and provinces in Budget planning in the context of aligning Budget and PRSP processes, and increase the transparency of Budget discussions; • Simplify procurement processes and avoid overly stringent regulation of Budget lines in the Ministry of Secondary and Higher Education; • Extend the delegated credit system to the Ministry of Secondary and Higher Education; • Strengthen the accountability of schools and autonomous institutions through a system of information recording and audits; • Engage in capacity building at the regional and provincial levels to improve Budget planning, execution and monitoring; • Improve recruitment and deployment of teachers and inspectors through regional and provincial action plans, mapping of vacancies to regions and provinces, and development of a regional recruitment policy for the secondary level; • Improve teacher training in the sciences; • Establish procedures to recruit teachers at the local level; • Adopt incentives measures that could keep teachers in the local areas; • Reduce costs of higher education through definition of a viable long-term strategy that includes cost recovery, notably of the National Education and Research Fund. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 149 C. Public Expenditure Review, Burkina Faso: Towards Greater Efficiency in Public Spending on Transport and Energy, 2013 Macroeconomic and fiscal performance • Promote economic diversification and deepen structural reforms (e.g., cotton sector, financial sector, business climate) to improve growth prospects and poverty reduction; • Improve social policies and set up social protection systems for the most vulnerable social categories; • Maintain a prudent fiscal and borrowing policy stance and mobilize more revenues to meet medium- term fiscal targets; • Strengthen capacity in debt policy and management; • Increase coherence between sectoral policies, the strategy for accelerated growth and sustainable development (SCADD), the budgetary framework and the State Program Budget; and use the program Budget for its intended purpose in order to monitor public action and obtain concrete results in terms of development; • Gradually confer new competencies on ministerial managers in the context of the implementation of the State Program Budget. Public spending in the energy sector • Finalize the review of Law 027 to correct current shortcomings (implemented); • Establish a flexible mechanism for setting pump prices that will ensure the financial equilibrium of SONABHY while protecting vulnerable populations by reallocating price subsidies to social programs; • Strengthen the least-cost strategy and improve the efficiency of the Electricity Cooperatives Model; • Strengthen the capacity of the DGE to improve sector governance; • Make a strong political commitment to the effective operationalization of the Regulatory Authority to strengthen sector governance, particularly in pricing, monitoring of SONABEL’s investment program and private sector involvement; • Continue the development of interconnections and SONABEL’s efforts to cut costs, reduce technical losses and improve the recovery rate, with the aim of reducing production costs; • Combine investments to reduce production costs, tariffs and cross-subsidies to reduce and eventually eliminate State subsidies for hydrocarbons purchased by SONABEL for its thermal plants; • Study the possibility of converting some of SONABEL’s loans (particularly those based on public aid grants retroceded to SONABEL) into equity to limit the impact of tariff reforms; • Consider taking equity stakes in independent power producers in Côte d’Ivoire and Ghana as a way to reduce the risk of under-capacity and to lower the cost of production; • Analyze options for a tariff increase based on an in-depth tariff study as well as opening the market to independent producers; • Give priority to the optimal management of traditional energies, on which 80 percent of the population depends; • Introduce the principle of hybridization of diesel systems with photovoltaics in order to reduce the costs of rural electrification, depending on the development of the technology. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 150 Public expenditure in the transport sector • Adapt the liberalization texts to take into account private sector involvement in the management of road assets and axle load control; • Establish an effective axle load control system at the regional level; • Improve the road maintenance function by (a) moving to a second-generation Road Maintenance Fund (RMF) to mobilize sustainable and reliable resources, (b) adapting maintenance standards and strategies, (c) building manpower and skills capacity through training programs, and (d) establishing performance contracts to optimize road maintenance management; • Implement a program to upgrade the staff of SMEs (private sector) in the construction industry; • Adopt the Construction Sector Transparency Initiative approach for better governance in the sector; • Conduct a joint action with Côte d’Ivoire, in collaboration with SITARAIL, on the rehabilitation of the railways so they become the preferred means of transport for heavy goods; • Attract new airlines to promote competition and lower air transport costs. To this end, the construction of the Donsin airport, which is a considerable investment in the transport sector, could play a key role. D. The Way Forward for Social Safety Nets in Burkina Faso, 2019 Strengthen the governance of the social safety net system • Create a framework for multisectoral coordination; • Monitor and evaluate program effectiveness and impact, and address accordingly; • Strengthen public expenditure management; • Include citizens in oversight of program execution and delivery. Improve program targeting of the poor and vulnerable and move away from regressive spending • Disseminate the use of a proven targeting system; • Shift spending from universal subsidies toward programs targeting the poor. Improve the coordination of social programs by building a social registry • Adopt a harmonized questionnaire; • Build a social registry as a common gateway for multiple social programs. Use social protection expenditure to build human capital where it matters most, such as for early childhood development and literacy • Link social assistance programs to human capital building along the life cycle; • Promote basic skills training for adults and youth. Improve the capacity of SSN programs to respond to shocks (before, during and after) through adaptive social protection • Develop and test shock-responsive benefits; • Strengthen the early warning system. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 151 ANNEX II. DEFINITION OF PEER COUNTRIES Across the study, Burkina Faso’s performance has been benchmarked against two groups of countries, selected using a data-driven approach. Both groups of peer countries were built using the World Bank’s dynamic benchmarking methodology derived from the CEM 2.0 country scan tool. The group of structural peers for the study was constructed from a set of countries displaying economic and human development characteristics similar to those of Burkina Faso over the period 2010-2020. Those characteristics included GDP per capita, CPIA scores, tax ratio, public expenditure composition, and Human Capital Index (HCI) scores. The selected countries were Guinea, Mali, Niger, and Uganda. The group of aspirational peers was constructed from a set of countries that shared with Burkina Faso similar structural characteristics prior to 2010 but were able to grow faster in GDP per capita terms and exhibit higher levels of human capital by 2020. The selected countries were Bangladesh, Cambodia, Ghana, and Togo. Table A1. Peer Group Selection Group Definition Selection Criteria Selected Countries Structural peers Countries that have similar Countries with GDP per capita, • Guinea economic characteristics as HCI, revenue and expenditure • Mali Burkina Faso in 2010-2020 as ratios of GDP that are +/- 30 • Niger positions distant from Burkina • Uganda Faso’s average rank over 2010- 2020 Aspirational peers Countries with similar structural Countries that had HCI, revenues • Bangladesh characteristics as Burkina Faso and expenditures that were • Cambodia in 2000-2010 that grew (in per +/- 30 positions distant from • Ghana capita terms) significantly faster Burkina Faso’s average rank • Togo over 2010-2020 and enjoy higher over 2000-2010 and had average levels of human capital GDP per capita growth above 3 percent and an HCI in 2020 above 0.40 Source: World Bank Country Economic Memorandum 2.0 Country Scan. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 152 ANNEX III. BURKINA FASO BOOST DATABASES BOOST Update 2020. A 10-day retreat and workshop was held in September 2020 with key stakeholders from MINEFID’s Budget Office, Treasury Office, Debt Office, Economic Studies Office, Custom Authorities, and Tax Revenue Authorities. The purpose was to prepare several types of revenue and expenditure databases for Burkina Faso. In all, three revenue databases and four expenditure databases were prepared. BOOST Revenue Databases. The three revenue databases are “BOOST RECETTE 2010 A 2020,” “BOOST RECETTE BUDGET OBJET” (BO) and “BOOST RECETTE BUDGET PROGRAMME” (BP). The BO and BP files each act as standalone revenue databases that can be used to complement cross analyses alongside their corresponding expenditure databases (Object-based Budget vs. Program-based Budget). The “BOOST RECETTE 2010 A 2020” database allows for series analysis concerning state revenue and includes economic classification for all years. The set of revenue data also include the nature of the revenue. In line with the Public Financial Management rules, the revenue data set does not indicate the geographic reference where the revenue was collected. Overall, the revenue is consistent with the Budget Execution Law (Loi de règlement 2010-2015) and the draft Budget Execution Law for 2016. BOOST Expenditure Databases. The four expenditure databases are “BOOST DEPENSE BUDGET OBJET 10 A 16” (BO), “BOOST DEPENSE BUDGET PROGRAMME V2” (BP), “BOOST DEPENSE BN ET CAST 2010 A 2020” and “SITUATION DES DEPENSES anti COVID19 dans la LFR.” The BOOST data set is consistent with the available Budget Execution Law (Loi de règlement). 1. The “BOOST DEPENSE BUDGET OBJET 10 A 16” database contains budget data for 2010 through 2016, using the nomenclature of the object-based Budget in effect for those years. Administrative, economic, functional as well as sectoral and geographic classifications are available for these years. 2. The “BOOST DEPENSE BUDGET PROGRAMME V2” database contains Budget data for 2017 (first year of program-based budgeting in Burkina Faso) through 2020. Administrative, economic, functional and programmatic classifications, as well as sectoral and geographic classifications are available for these years. 3. The “BOOST DEPENSE BN ET CAST 2010 A 2020” database compiles budget data for the period 2010-2020, allowing for series analyses. Two databases are included in this file: “BN” for national budget, and “CAST” for extra-budgetary allocations through a Special Dedicated Treasury Account. Administrative, economic and functional classifications are available. In the BN database, however, programmatic classifications for the years 2017-2020 are notably excluded. 4. The “SITUATION DES DEPENSES anti COVID19 dans la LFR” database includes budget data for 2020. As a standalone database, this will allow for quicker tracing, updating, and monitoring as Burkina Faso’s COVID-19 Budget response evolves. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 153 ANNEX IV. METHODOLOGICAL FRAMEWORK: COUNTRY POLICY AND INSTITUTIONAL ASSESSMENT The Country Policy and Institutional Assessment is a diagnostic tool that is intended to capture the quality of a country’s policies and institutional arrangements. Produced annually, it focuses on aspects (policy, institution) that are within a country’s control, rather than on outcomes (such as growth rates) that are partly influenced by elements outside its control. More specifically, the CPIA measures the extent to which a country’s policy and institutional framework supports sustainable growth and poverty reduction, and consequently the effective use of domestic resources and development assistance. This PERR used the CPIA framework to provide a snapshot of key developments in Burkina Faso over the past decade in comparison with structural and aspirational peers. The annex takes a deep dive into the specific CPIA sub-scores—fiscal policy and budget policy—that saw the sharpest deterioration over the past 10 years. A summary of the CPIA scores in 2020 is presented in Annex V. The CPIA score showed that the quality of Burkina Faso’s policy and institutions deteriorated over the past decade (Figure A1). Following a period of stability, the score started to decline amid the political turbulence and difficult transition of 2014-2015. The decline continued with the onset of conflict and violence, which put additional pressures on the country’s policies and institutions. As a result, Burkina Faso’s CPIA score fell from 3.8 in 2010 to 3.5 in 2019. Over this period, only four countries in SSA experienced a larger drop (Mozambique, Gambia, Cabo Verde, Ghana) in their scores, and all structural peers performed better. The modest rise in 2020 results from a combination of new reforms and new information about earlier reforms that was not available for the previous assessment. Figure A1. CPIA Score for Burkina Faso and Structural Peers, 2010-2020 3.90 3.78 3.77 3.77 3.77 3.65 3.61 3.63 3.70 3.57 3.57 3.54 3.49 3.50 3.30 3.10 2.90 2.70 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Burkina Faso Guinea Mali Niger Uganda Source: World Development Indicators. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 154 The decline in the CPIA score over the past decade was due to a sharp deterioration in the scores for the Economic Management and the Public Sector Management and Institutions clusters (Figure A2). Traditionally, Burkina Faso has performed best in the Economic Management cluster, where it was among the top IDA countries in 2010—surpassed only by Armenia, Georgia, Bhutan and Mozambique. By 2019, Armenia and Georgia had graduated from IDA and Mozambique was in a severe economic crisis, while Burkina Faso was overtaken by 15 other IDA countries with better economic management. The country also lost ground in the Public Sector Management and Institutions cluster. Among the top 10 IDA countries in 2010, it had fallen to 23rd place by 2019. The scores of the other two clusters—Policies for Social Inclusion/Equity and Structural Policies—remained stable throughout the period, and Burkina Faso did not lose ground vis-à-vis other countries in these two areas. Figure A2. CPIA Score and Cluster Scores, Burkina Faso, 2010-2020 4.3 3.8 3.8 3.7 3.7 3.6 3.6 3.6 3.6 3.6 3.6 3.5 3.5 3.5 3.5 3.5 3.5 3.5 3.4 3.2 CPIA Economic Public Sector Management Policies for Social Structural Policies Management and Institutions Inclusion/Equity 2010 2015 2019 2020 Source: CPIA Africa. The deterioration in the Economic Management cluster can be explained mainly by an exceptionally large drop in fiscal policy performance (Figure A3). While the sub-scores for debt policy and macroeconomic management (covering monetary and exchange rate policies) remained relatively stable over the period, the sub-score for fiscal policy—which captures the quality of fiscal policy in its stabilization and allocation functions—dropped sharply. The country’s fiscal policy was not able to withstand multiple pressures that arose from both domestic and external shocks. For instance, a social crisis in April 2011 led to a fiscal package that included a reduction of taxes on salaries, abolition of the communal (commune-level) tax, payment of housing allowances for military personnel, compensation to small merchants for property damage, and fixing of food staple prices to protect the poor. As a result, the investment budget suffered significant delays in execution in the first half of the year. There was another, more powerful social uprising in October 2014, compounded by low gold and cotton prices and fears of Ebola, which led to a large drop in tax collection and the freezing of non-priority public expenditures. The macroeconomic management sub-score decreased in 2015, largely a result of the general political and economic crisis around that time. Then in 2017, a deteriorating security situation and public sector strikes led to a rise in military and security spending; while the continued implementation of wage increase agreements led to an accelerated rise in the public wage bill and a record fiscal deficit. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 155 Figure A3. CPIA Score for Economic Management Cluster, Burkina Faso, 2010-2020 4.5 4.5 4.3 4.0 4.0 4.0 4.0 4.0 4.0 4.0 3.8 3.7 3.7 3.5 3.0 3.0 Economic Management Cluster Fiscal Policy Debt Policy Macroeconomic Management 2010 2015 2019 2020 Source: CPIA Africa. The deterioration in the score for the Public Sector Management and Institutions cluster was largely the result of a weaker quality of budgetary and financial management (Figure A4). This cluster is composed of four sub-scores, three of which saw a deterioration between 2010 and 2019. The quality of budgetary and financial management score decreased the most, due to a decline in fiscal reporting, with a backlog of unaudited budget execution reports, limited public access to key budget information and overdue audit reports, and little evidence that recommendations were monitored or implemented. The effectiveness of financial management systems declined as well, mainly due to a rapid increase in current expenditure, a slowdown of investment execution, limited efficiency of budget monitoring and control systems, and major variations between budget forecasts and the composition of actual expenditure. A further factor was the lack of linkage between the Budget and policy priorities due to the absence of annual performance plans, which limited the ability of the administration to strategically allocate resources. Figure A4. CPIA Score for Public Sector Management and Institutions Cluster, Burkina Faso, 2010-2020 4.5 4.0 4.0 3.7 3.5 3.5 3.5 3.5 3.5 3.5 3.5 3.5 3.5 3.5 3.5 3.4 3.2 3.0 3.0 3.0 Public Sector Quality of Budgetary Quality of Public Efficiency of Revenue Transparency, Management and and Financial Administration Mobilization Accountability, and Institutions Management Corruption in the Public Sector 2010 2015 2019 2020 Source: CPIA Africa. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 156 The introduction of a major Performance-based Budget Reform Program in 2017 was a critical step toward improving allocative efficiency, but it has not yet visibly improved the quality of budgetary and financial management. Budget discussions are now revolving around outputs and results (e.g., improved education level of the population); however, several shortcomings are affecting the reform. The costing of inputs and outputs remains an important challenge. Further, the prioritization of sectoral policies and public investment projects needs to be reinforced. In addition, a lack of clarity on policies and program objectives makes it difficult to assess performance indicators. Finally, the performance information is not adequate for making resource allocations. As a result, the major Budget reform has not yet translated into improved Budget outcomes. Nevertheless, in 2020 the Government was able to reverse the downward trend in the quality of the budgetary and financial management sub-score to some extent with improvements in Budget transparency, COVID-19 funds transparency and accountability, and the implementation of longstanding audit recommendations. Also under the Public Sector Management and Institutions cluster, the sub-scores for quality of public administration and for efficiency of revenue mobilization contributed to the decline in the overall score of the cluster. The quality of public administration metric assesses the functioning of the central Administration (excluding health, education, and security) in three areas: (a) managing its own operations; (b) ensuring quality in policy implementation and regulatory management; and (c) coordinating the larger public sector human resources management regime outside the Central Administration (i.e., deconcentrated and arms-length bodies and subnational level). The latter element, human resources management, was negatively affected by the continued growth of the public sector wage bill. The efficiency of revenue mobilization metric assesses the overall pattern of revenue mobilization, including the tax structure as it exists on paper, and revenue performance from all sources as they are collected. The revenue mobilization sub-score was affected by the weaknesses in both (a) tax policy, related to value-added tax (VAT) refunds, ineffective excise and property tax systems, exemptions and derogatory tax measures; and (b) tax administration, leading to tax collection levels below the WAEMU target. In 2020, the Government took several measures to enhance the efficiency of revenue mobilization, including streamlining tax payment procedures, broadening the tax base, increasing the collection of property taxes, systematizing the use of unique taxpayer identification numbers, and improving the appeals mechanism, which is reflected in an improvement of the CPIA sub-score. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 157 ANNEX V. CPIA BURKINA FASO COUNTRY PAGE BURKINA FASO World Bank – Country Policy and Institutional Assessment CPIA 2020 Quick Facts Population (millions) 20.9 CPIA Score Change from Highest Lowest GDP (current US$, billions) 17.4 previous year performing cluster performing cluster 3.5 — 3.7 3.4 GDP per capita (current US$) 830.9 (Economic (Public Sector Management Poverty below US$1.90 a day (% of population, 2019, est.) 33 Above IDA Avg. No change Management) and Institutions) Human Capital Index (2019) 0.38 (2020) Country Policy and Institutional Assessment 2020 Trend OVERALL CPIA SCORES West and East and IDA 3.8 Burkina Indicator Faso Central Southern Borrowers Africa Africa Average 3.6 Economic Management 3.7 3.4 2.9 3.2 3.4 Monetary and Exchange 3.2 4.0 3.6 3.1 3.4 Rate Policy 3.0 Fiscal Policy 3.0 3.3 2.8 3.1 4.0 3.3 2.9 3.2 2.8 Debt Policy 2013 2014 2015 2016 2017 2018 2019 2020 Structural Policies 3.5 3.2 3.0 3.2 Burkina IDA Countries West and East and Trade 4.0 3.9 3.4 3.7 Faso Average Central Southern Africa Africa Financial Sector 3.0 2.7 2.7 2.8 Business Regulatory Environment 3.5 3.1 2.9 2.9 Comparison COMPARING OVERALL CPIA SCORES Policies for Social Inclusion 3.6 3.3 3.2 3.3 and Equity 3.4 Gender Equality 3.5 3.2 3.2 3.3 2020 2.8 Equity of Public Resource Use 4.0 3.4 3.3 3.4 3.5 Building Human Resources 3.5 3.6 3.5 3.6 3.5 Social Protection and Labor 3.0 3.0 2.9 3.0 2013 2.8 Policies and Institutions for 3.8 4.0 3.4 3.1 3.2 Environmental Sustainability Non-Fragile Fragile Countries Burkina Faso Public Sector Management Countries in SSA in SSA 3.4 3.1 2.8 3.0 and Institutions Property Rights and Rule-Based 3.0 2.9 2.6 2.9 Progress CHANGE IN CPIA SCORES FROM 2013 TO 2020 Governance 0.0 Quality of Budgetary and Financial 4.0 3.2 2.8 3.0 Management -0.1 Efficiency of Revenue Mobilization 3.5 3.3 3.3 3.3 Quality of Public Administration 3.0 2.9 2.7 2.8 -0.3 -0.3 Transparency, Accountability, -0.5 3.5 2.9 2.5 2.9 and Corruption in the Public Sector Economic Structural Policies Public Sector Overall 3.5 3.2 3.0 3.2 Management Policies for Social Management & CPIA Overall CPIA Score Inclusion/Equity Institutions Score Definitions: Average scores for comparisons refer to country groupings as follows: • CPIA: Country Policy and Institutional Assessment • IDA Borrowing Countries: 73 countries eligible for IDA credits and with CPIA scores in 2020 • IDA: International Development Association, the arm of the • SSA IDA Countries: 39 SSA IDA countries that had CPIA scores in 2020 World Bank Group that provides credits to the poorest countries • Fragile Countries in SSA: 20 countries with CPIA scores included in the World Bank’s Fragile and Conflict-affected Situations List for fiscal year 2021 • SSA: Sub-Saharan Africa • Poverty is based on PovcalNet poverty data as of June 2021 • Non-Fragile Countries in SSA: 19 IDA-eligible countries (excluding fragile countries) • The cutoff date for the World Development Indicators database is July 2021. • Fragile Countries outside SSA: 13 countries with CPIA scores included in the World Bank’s Fragile and Conflict-affected Situations List for fiscal year 2021 • The Human Capital Index is from the Human Capital Project, World Bank, 2020. • Non-Fragile Countries outside SSA: 21 IDA-eligible countries (excluding fragile countries) 64 Source: CPIA Africa. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 158 ANNEX VI. REVENUE MOBILIZATION IN BURKINA FASO Contribution of Large Business Taxpayers to Revenue As of December 31, 2020, there are 129,763 active registered taxpayers. Of these, 71.6 percent are under the micro-enterprises contribution (CME) regime, 16.9 percent are applicable to the simplified tax regime (RSI), 5.9 percent are unclassified, and 5.6 percent are liable to the standard regime (RNI). Most of 7,267 active registered taxpayers who fall under the RNI are registered as medium enterprises (6,566 or 90 percent) while those from large business taxpayers are only 701 firms or 10 percent. In terms of revenue collection, more than 98 percent or CFAF 504.7 billion of total revenue collection is attributed to large enterprises under the RNI. About 22,000 and 93,000 taxpayers under the RSI and CME regime respectively, contribute merely 0.02 percent or CFAF 114.8 million of total revenue. Unclassified revenue is about CFAF 1.3 billion. Contribution of Property Taxes to Revenue Recurrent annual property taxes have large potential for DRM, including for local governments. Property taxes include taxes on property income (IRF), real estate capital gains (TPVI), land registration rights (DIIF), inheritance (DS), right of donation (DD), central and local benefits (T/J-BN, T/J-BL), sale of land and real estate assets (VTAI), residence (TR), corporate property (TFS), and contribution on built and non-built properties (CF/PB & NB). The Ministry of Finance (MINEFID) oversees the functions of land surveying, land registration, land valuation, and taxation. Under MINEFID, DGI is responsible for managing the land administration for the country. On land matters, key DGI units include (a) the Directorate for Domain and Land Affairs (Direction des Affaires Domaniales et Foncières), (ii) the Directorate of the Cadaster (Direction du Cadastre), and (iii) the One-Stop Land Offices (Guichet Unique Foncier). Property tax revenue has been on a declining trend going from an average of 0.11 percent of GDP over 2010-2016 to only about 0.02 percent of GDP over the period 2017-2019. To improve property tax yields and strengthen local resource mobilization, Burkina Faso has implemented in 2021 “SYC@D, SIEBI” to digitalize the workflow for processing cadastral, land and property files. The Government had planned to open new land registration offices in the communes of Ouagadougou and Bobo Dioulasso in 2021. However, such plans were suspended due to a lack of cadastral staff. A two-year “land registration” program is being set up at the State School of Revenue Authorities (École Nationale des Régies Financières, ENAREF). Furthermore, other policy measures are being implemented, including (a) a census of property taxpayers (recently completed), (b) the creation of databases for built and non-built land, (c) the computerization of the property taxation valuation systems, (d) the internalization of the cadastral value defined in tax legislation as a reference value, (e) the implementation of a geographic information system, (f) the implementation of a digital orthophoto cadastral plan, (g) the development of automated and digitalized processes for land and cadastral management, and (h) the implementation of a computerized system to manage title registrations within the one-stop land offices (GUF). PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 159 Summary of Tax Administration Diagnostic The IMF assessed Burkina Faso’s Tax Administration system in late 2017. After several years of implementation of the related action plan, the DGI conducted a self-assessment during February and March 2021, using the Tax Administration Diagnostic Assessment (TADAT). TADAT provides a baseline assessment of tax administration performance, which can be used to identify priorities for reform. The TADAT framework focuses on the administration of the major direct and indirect taxes essential to central government revenues, i.e., corporate tax (IS), personal income tax (IRPP), VAT, excise, and Pay as You Earn (PAYE). The IMF assessed 28 high-level indicators in 2017 and the DGI self-assessed 32 high-level indicators in 2021 across 9 key performance outcome areas (POAs) covering most tax administration functions, processes and institutions to strengthen tax administration, enhance revenue mobilization, improve services to taxpayers, and promote taxpayer compliance and discipline. The 2020 TADAT self-assessment shows that Burkina Faso performs most strongly in the use of efficient collection systems (POA 5), in initiatives (i.e., a published rulings system) to encourage accurate reporting, and in monitoring and assessing the inaccuracy of reporting level (POA 6). However, major weaknesses in key areas undermine DGI’s ability to execute its mandate, which severely impacts tax compliance: (a) an unreliable and inaccurate tax registration database, (b) weak internal and external oversight of DGI and its IT system, (c) high use of manual operations and poor document management, (d) little to no analysis of internal and external data, and (e) little to no performance monitoring. The overall assessment suggests significant room for improvement (Table A2). Table A2. Evaluation of the Core Functions of Burkina Faso’s Tax Administration, 2020 Score Indicator Detailed Indicator 2017 2020 POA 1: Integrity of the Accurate and reliable taxpayer information C B registered taxpayer base Knowledge of the potential taxpayer base D C POA 2: Effective risk Identification, assessment, ranking, and quantification of D B management compliance risks Mitigation of risks through a compliance improvement D C plan Monitoring and evaluation of compliance risk mitigation D D activities Management of institutional risks D D Management of human capital risks D POA 3: Supporting Scope, currency, and accessibility of information D B voluntary compliance Time taken to respond to information requests D Scope of initiatives to reduce taxpayer compliance costs D D Obtaining taxpayer feedback on products and services C C PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 160 Score Indicator Detailed Indicator 2017 2020 POA 4: Timely filing of tax On-time filing rate D D declarations Management of non-filers C Use of electronic filing facilities D D POA 5: Timely payment of Use of electronic payment methods C B taxes Use of efficient collection systems A A Timeliness of payments D D Stock and flow of tax arrears D D POA 6: Accurate reporting Scope of verification actions taken to detect and deter D+ D in declarations inaccurate reporting Use of large-scale data-matching systems to detect C inaccurate reporting Initiatives undertaken to encourage accurate reporting A Monitoring the tax gap to assess inaccuracy of reporting A levels POA 7: Effective tax Existence of an independent, workable and graduated C+ B+ dispute resolution dispute resolution process Time taken to resolve disputes D D Degree to which dispute outcomes are acted upon C C POA 8: Efficient revenue Contribution to government tax revenue forecasting C B management process Adequacy of the tax revenue accounting system D C Adequacy of tax refund processing D D POA 9: Accountability and Internal assurance mechanisms C C transparency External oversight of the tax administration D D+ Public perception of integrity C B Publication of activities, results and plans D C Note: The “A” rating (bold green) corresponds to a performance that meets or exceeds good practices international. “B” (light green corresponds to a solid performance (good level of performance but a step below international best practice). “C” (yellow) means poor performance compared to international best practices. “D” (orange) indicates insufficient performance and is awarded when the minimum criteria corresponding to a “C” rating are not met. A “D” could also be assigned in case the information available is insufficient to determine and rate the level of performance. Source: TADAT Burkina Faso Rapport d’évaluation de la performance. IMF. March 2020. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 161 Generating Additional Revenues Through Tobacco Excise Tax Reform Reform of the tobacco excise tax could have a substantial impact on revenue collection (Table A3). Tobacco, cigars and cigarettes are taxed at an ad valorem rate of 50 percent, which is 20 percent lower than the World Health Organization’s recommended minimum of 70 percent. Further, the 2017 ECOWAS Tobacco Tax Directive introduced a minimum specific tax of US$0.02 per cigarette (or US$0.40 per pack of 20 cigarettes) in addition to the ad valorem tax. Under scenario 1, adoption of the ECOWAS directive, tobacco tax revenue is predicted to increase by 72 percent (from US$21.94 to US$37.79 for 1,000 cigarettes sold). Under scenario 2, with the Government raising the ad valorem excise tax to 70 percent, the excise tax revenue would increase by more than 82 percent (to US$39.95 for 1,000 cigarettes sold). Under scenario 3, both measures combined generate about 1 percent of GDP in additional excise tax. Over time, however, the tax intake may shrink as the higher tax incentivizes people to smoke less or quit. Table A3. Simulation of Excise Tax Revenue of Tobacco in Burkina Faso Status Quo Scenario 1 Scenario 2 Scenario 3 Add a specific tax Change the ad valorem excise Convert the tax structure of US$0.02 per tax from 50 to 70 percent into a mixed system cigarette Price per 20-Cigarette 1.35 1.35 1.35 1.35 (US$)a Quantity 1000 1000 1000 1000 Price elasticity of -0.7 -0.7 -0.7 -0.7 demandb Specific Excise rate per - 20 - 20 US$1000 Tax revenue - 15.85 - 15.85 (US$) Ad valorem Ad valorem 50 50 70 70 excise (%) Tax revenue 21.94 21.94 24.10 24.10 (US$) Total Tax Revenue 21.94 37.79 24.10 39.95 (US$) Note: Scenarios are calculated based on the following assumptions: (a) there are no tax changes and no cross-price effects; (b) the production of cigarettes is characterized by constant costs; (c) the own-price elasticity of demand for cigarettes in every experimental country is -0.7; (d) the own-price elasticity of supply is infinite; and (e) the sales would be 1,000 cigarettes. Source: WHO report on the global tobacco epidemic 2021: addressing new and emerging products; Tesche, J. and C.T. Van Walbeek. Measuring the effects of the new ECOWAS and WAEMU tobacco excise tax directives. Tobacco Control 2021. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 162 ANNEX VII. BURKINA FASO REVENUE COLLECTION AND EXPENDITURES Table A4. Burkina Faso Revenue Collection, 2010-2019 Revenue 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 National GDP in LCU (CFAF billions) 5,002.2 5,692.8 6,413.1 6,640.1 6,884.5 6,995.3 7,605.1 8,191.3 8,920.4 9,369.2 CFAF billions Total Revenue and Grants 810.0 1,028.4 1,199.2 1,316.3 1,211.1 1,283.8 1,400.2 1,480.3 1,584.8 1,910.0 1. Tax Revenue 524.9 728.4 885.4 971.3 927.9 913.7 1,040.3 1,191.2 1,252.6 1,355.8 Taxes on income, profits, and 136.5 225.5 267.8 291.7 279.4 249.9 305.5 335.6 390.0 465.0 capital gains Corporate income tax 69.8 133.1 162.8 177.1 170.0 139.4 172.1 237.4 268.6 320.1 Corporate mining taxes - - 90.5 78.5 41.6 16.9 26.4 38.8 49.0 53.1 Personal income tax 53.0 70.1 76.0 82.4 71.8 75.6 89.0 96.6 119.3 142.8 Property taxes 4.2 5.0 5.7 7.2 9.4 7.5 10.7 1.6 2.2 2.1 Other direct taxes 9.5 17.3 23.3 25.0 28.2 27.4 33.7 - - - Domestic taxes on goods and 298.7 388.4 462.9 512.6 506.1 523.9 584.2 685.2 640.2 692.0 services VAT 219.9 298.9 363.8 414.8 386.6 387.6 429.1 498.9 461.5 513.3 Turnover tax 1.1 3.4 0.4 0.0 - 0.0 - - - - Excises 44.6 54.7 66.0 58.0 78.1 94.7 106.7 127.9 122.7 122.4 Other taxes on goods and 33.0 31.4 32.7 39.8 41.4 41.6 48.5 58.3 55.9 56.4 services Taxes on international trade and 83.5 95.0 130.2 143.8 127.0 124.4 132.5 149.5 173.8 164.8 transactions Customs and other import 83.3 94.7 129.8 143.4 126.6 124.1 132.2 149.3 170.0 164.3 duties Export duties 0.3 0.3 0.4 0.4 0.4 0.4 0.3 0.3 3.7 0.5 Other taxes 6.2 19.5 24.6 23.2 15.4 15.5 18.1 20.9 48.7 34.0 2. Non-Tax Revenue 111.0 96.8 106.8 121.5 121.5 115.3 160.1 150.0 150.6 296.0 Administrative fees 84.0 35.5 38.0 33.9 32.5 34.6 38.8 41.4 30.5 155.0 Fines and penalties 1.4 1.0 1.1 2.9 1.0 1.2 1.8 2.0 2.6 1.5 Financial products 2.1 13.5 14.6 21.9 30.2 20.2 44.3 - - - Other non-tax revenues 23.5 46.8 53.0 62.8 57.8 59.3 75.1 106.6 117.6 139.5 3. Capital Revenue 11.6 7.1 5.6 3.7 1.8 4.4 1.5 - - - Sales of fixed assets 11.6 7.1 5.6 3.7 1.8 4.4 1.5 - - - 4. Grants 148.1 181.0 187.8 204.0 134.6 229.8 170.1 122.2 151.5 145.0 Program grants 148.0 180.5 171.1 119.1 118.3 168.7 77.5 61.0 78.6 102.4 Program grants (multilateral) 106.4 - 125.8 84.2 118.3 149.5 60.2 50.1 59.6 79.0 Program grants (bilateral) 41.6 180.5 45.3 35.0 - 19.3 17.2 10.8 19.0 23.4 Project grants 0.2 0.5 16.6 84.8 16.3 61.0 92.6 61.2 73.0 42.5 Project grants (multilateral) - 0.0 13.5 78.5 9.2 45.2 67.2 57.7 62.8 24.6 Project grants (bilateral Paris - 0.4 3.0 6.3 1.2 12.8 23.2 3.4 10.2 17.9 club) Project grants (bilateral - - 0.1 - 5.9 3.1 2.2 - - - non-Paris club) Project grants (others) 0.2 - - - - - - - - - 5. Special Revenue 14.3 15.1 13.7 15.8 25.2 20.6 28.3 16.9 30.0 113.2 PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 163 Revenue 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 National GDP in LCU (CFAF billions) 5,002.2 5,692.8 6,413.1 6,640.1 6,884.5 6,995.3 7,605.1 8,191.3 8,920.4 9,369.2 in percentage of GDP Total Revenue and Grants 16.2 18.1 18.7 19.8 17.6 18.4 18.4 18.1 17.8 20.4 1. Tax Revenue 10.5 12.8 13.8 14.6 13.5 13.1 13.7 14.5 14.0 14.5 Taxes on income, profits, and 2.7 4.0 4.2 4.4 4.1 3.6 4.0 4.1 4.4 5.0 capital gains Corporate income tax 1.4 2.3 2.5 2.7 2.5 2.0 2.3 2.9 3.0 3.4 Corporate mining taxes - - 1.4 1.2 0.6 0.2 0.3 0.5 0.5 0.6 Personal income tax 1.1 1.2 1.2 1.2 1.0 1.1 1.2 1.2 1.3 1.5 Property taxes 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.0 0.0 0.0 Other direct taxes 0.2 0.3 0.4 0.4 0.4 0.4 0.4 - - - Domestic taxes on goods and 6.0 6.8 7.2 7.7 7.4 7.5 7.7 8.4 7.2 7.4 services VAT 4.4 5.3 5.7 6.2 5.6 5.5 5.6 6.1 5.2 5.5 Turnover tax 0.0 0.1 0.0 0.0 - 0.0 - - - - Excises 0.9 1.0 1.0 0.9 1.1 1.4 1.4 1.6 1.4 1.3 Other taxes on goods and 0.7 0.6 0.5 0.6 0.6 0.6 0.6 0.7 0.6 0.6 services Taxes on international trade and 1.7 1.7 2.0 2.2 1.8 1.8 1.7 1.8 1.9 1.8 transactions Customs and other import 1.7 1.7 2.0 2.2 1.8 1.8 1.7 1.8 1.9 1.8 duties Export duties 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Other taxes 0.1 0.3 0.4 0.3 0.2 0.2 0.2 0.3 0.5 0.4 2. Non-Tax Revenue 2.2 1.7 1.7 1.8 1.8 1.6 2.1 1.8 1.7 3.2 Administrative fees 1.7 0.6 0.6 0.5 0.5 0.5 0.5 0.5 0.3 1.7 Fines and penalties 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Financial products 0.0 0.2 0.2 0.3 0.4 0.3 0.6 - - - Other non-tax revenues 0.5 0.8 0.8 0.9 0.8 0.8 1.0 1.3 1.3 1.5 3. Capital Revenue 0.2 0.1 0.1 0.1 0.0 0.1 0.0 - - - Sales of fixed assets 0.2 0.1 0.1 0.1 0.0 0.1 0.0 - - - 4. Grants 3.0 3.2 2.9 3.1 2.0 3.3 2.2 1.5 1.7 1.5 Program grants 3.0 3.2 2.7 1.8 1.7 2.4 1.0 0.7 0.9 1.1 Program grants (multilateral) 2.1 - 2.0 1.3 1.7 2.1 0.8 0.6 0.7 0.8 Program grants (bilateral) 0.8 3.2 0.7 0.5 - 0.3 0.2 0.1 0.2 0.2 Project grants 0.0 0.0 0.3 1.3 0.2 0.9 1.2 0.7 0.8 0.5 Project grants (multilateral) - 0.0 0.2 1.2 0.1 0.6 0.9 0.7 0.7 0.3 Project grants (bilateral Paris - 0.0 0.0 0.1 0.0 0.2 0.3 0.0 0.1 0.2 club) Project grants (bilateral - - 0.0 - 0.1 0.0 0.0 - - - non-Paris club) Project grants (others) 0.0 - - - - - - - - - 5. Special Revenue 0.3 0.3 0.2 0.2 0.4 0.3 0.4 0.2 0.3 1.2 Source: MINEFID, IMF, and World Bank Staff calculations. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 164 Table A5. Burkina Faso Public Expenditures (% of GDP), 2010-2020 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Percent of GDP Total Expenditure 21.5 20.5 22.7 24.9 20.8 20.2 21.5 26.2 23.9 23.2 25.4 Current expenditure 10.6 11.0 12.9 12.3 12.9 13.2 14.7 16.1 15.5 17.6 17.7 Wages and salaries 4.9 4.9 5.2 5.4 6.4 6.7 7.3 7.5 7.9 9.0 9.0 Base salaries 3.0 2.8 2.6 3.6 2.6 3.0 6.8 3.6 3.6 4.1 4.4 Allowances 1.3 1.2 1.2 1.0 1.9 1.7 0.3 3.3 3.4 4.0 2.1 Goods and 1.8 1.7 1.9 1.8 1.5 1.6 1.7 2.1 2.2 2.1 1.8 services Interest payments 0.4 0.5 0.7 0.5 0.6 0.6 0.9 0.8 1.1 1.2 1.4 Domestic 0.2 0.3 0.4 0.3 0.4 0.4 0.6 0.6 0.8 1.0 1.2 Foreign 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.3 0.2 0.2 Current transfers 3.5 3.9 5.2 4.7 4.4 4.3 4.9 5.6 4.3 5.2 5.5 Investment 9.7 8.6 9.7 12.9 8.0 7.2 6.9 10.1 8.5 5.9 7.8 expenditure Domestically 5.6 5.0 6.4 8.9 4.9 5.0 4.5 7.2 5.9 4.5 5.0 financed Externally 4.1 3.6 3.4 4.0 3.1 2.2 2.4 3.0 2.5 1.5 2.9 financed Source: IMF and BOOST. WB staff estimates. Table A6. Burkina Faso Public Expenditures (in CFAF), 2010-2020 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Billions CFAF Total Expenditure 1077.0 1166.0 1452.8 1652.6 1434.6 1411.6 1636.4 2146.5 2127.6 2177.4 2539.9 Current expenditure 530.9 628.3 828.7 818.9 886.6 923.2 1118.7 1318.7 1383.4 1644.5 1764.3 Wages and 245.8 281.4 332.3 355.5 437.3 468.5 554.5 618.0 705.1 844.4 897.2 salaries Base salaries 150.2 158.8 168.7 242.0 181.5 209.3 518.5 298.7 324.9 385.0 438.4 Allowances 65.5 66.8 76.6 63.1 128.5 118.1 26.0 268.7 302.2 370.7 205.4 Goods and 90.8 97.1 120.6 118.6 102.4 109.4 128.0 174.1 196.2 198.4 176.3 services Interest payments 21.4 28.3 41.8 34.7 44.0 43.8 65.3 69.5 97.2 117.1 140.6 Domestic 11.2 15.9 28.8 21.9 29.3 27.9 48.5 49.4 74.1 95.6 117.0 Foreign 10.2 12.4 13.0 12.8 14.7 15.9 16.8 20.2 23.1 21.5 23.5 Current transfers 172.9 221.4 333.9 310.1 303.0 301.5 370.9 457.1 384.8 484.6 550.2 Investment 484.7 488.6 625.1 858.4 554.1 501.0 526.4 831.3 754.3 556.8 780.0 expenditure Domestically 280.8 286.4 407.9 592.7 338.4 349.4 345.5 586.9 529.2 420.3 494.6 financed Externally 203.9 202.2 217.1 265.7 215.7 151.6 180.8 244.4 225.2 136.5 285.4 financed Source: IMF and BOOST. WB staff estimates. Note: Several data sources were used to complete the analysis in the PERR. The BOOST budget database allowed for in-depth analysis involving expenditure and revenue breakdowns and was used in the expenditure and revenue chapters. The IMF’s macroeconomic framework informed high-level analyses used for the PERR’s macroeconomic framework and fiscal sustainability. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 165 ANNEX VIII. TOTAL REVENUE AND TAX BREAKDOWN Table A7. Total Revenue and Tax Breakdown (% of GDP), Selected Countries, 2018 Selected No. of Countries GNI per Total Tax VAT Excise Trade Property CIT PIT Grant Countries in Group/Income Capita Revenue Revenue Tax Tax Group Range in US$ HIC 59 > 14010 36.64 22.07 7.34 2.32 0.83 1.58 3.26 7.14 1.18 UMIC 59 3960 – 12390 33.07 18.81 6.60 2.57 2.46 1.00 3.36 3.09 1.48 LMIC 46 840 – 3930 25.59 17.11 5.53 2.22 2.28 0.30 3.67 2.55 2.15 LIC 30 < 1,200 19.31 12.00 4.29 1.44 2.29 0.20 2.21 2.05 2.56 WAEMU Benin LIC 1,200 13.60 10.30 2.85 0.23 4.20 0.01 1.27 1.19 0.60 Burkina Faso LIC 760 17.77 14.04 5.17 1.38 1.95 0.02 3.01 1.34 1.70 Côte d’Ivoire LMIC 2,180 14.86 12.11 2.75 1.01 3.17 0.54 1.71 1.55 0.77 Guinea-Bissau LIC 7,50 17.40 10.80 3.80 0.70 3.00 0.60 1.80 0.40 4.60 Mali LIC 8,40 15.57 11.87 4.38 1.74 1.58 0.40 1.93 1.36 1.23 Niger LIC 5,40 18.13 11.06 4.03 0.63 2.70 0.05 2.36 1.16 6.02 Senegal LMIC 1,400 18.79 15.42 5.70 1.57 2.53 0.33 2.17 2.43 1.99 Togo LIC 660 23.89 16.53 6.30 1.54 3.72 0.04 2.25 1.15 3.56 Structural Peers Guinea LIC 850 17.40 11.90 3.80 0.50 3.20 0.00 2.20 0.30 1.40 Mali LIC 840 15.57 11.87 4.38 1.74 1.58 0.40 1.93 1.36 1.23 Niger LIC 540 18.13 11.06 4.03 0.63 2.70 0.05 2.36 1.16 6.02 Uganda LIC 750 13.56 12.09 3.59 2.39 1.38 N/A 1.76 1.93 0.62 Aspirational Peers Bangladesh LMI 1,750 9.42 8.19 2.94 0.08 2.37 N/A 1.64 0.80 0.12 Cambodia LMI 1,380 23.85 17.16 5.71 5.08 2.38 N/A 3.35 0.91 2.15 Ghana LMI 2,130 14.48 12.80 2.30 2.80 2.03 N/A 2.80 2.00 0.38 Togo LIC 660 23.89 16.53 6.30 1.54 3.72 0.04 2.25 1.15 3.56 Note: Benin, Côte d’Ivoire and Niger have rebased the real indicators (including nominal GDP) since the WAEMU initiative; Disaggregate revenue data (i.e., VAT, Excise, Trade, Property tax, CIT, and PIT) was from 2017 (Guinea-Bissau) and 2016 (Bangladesh); Per capita GNI is measured according to the Atlas Method from the World Development Indicators. HIC = High Income Country; UMIC = Upper Middle-Income Country; LMIC = Lower MIddle-Income Country; LIC = Low Income Country. Source: World Development Indicators, IMF, and MINEFID. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 166 ANNEX IX. ORGANIZATIONAL STRUCTURE OF MAJOR TAX-RELATED INSTITUTIONS MINEFID has three major revenue authorities that are part of its central structure: A. The Tax Revenue Authority, DGI, is responsible for the development and application of domestic tax legislation as well as state, land and cadastral tax legislation. The DGI is organized as follows: • 1 general directorate in Ouagadougou that oversees operations; • 7 central structures: the Tax Control Department (DCF), the Tax Services Department (DSF), the Department of Legislation and Litigation (DLC), the IT Department (DI), the Directorate of Tax Investigations and Research (DERF), the Cadastre Department (DC), and the Department of Land and Land Affairs (DADF); • 6 support structures: the Reform Strategy and Monitoring Service (SSSR), the Standardized Invoice Management Service (SGFN), the Archives and Documentation Service (SAD), the Human Resources Department (SRH), the Financial and Material Service (SFM), and the Communication and Public Relations Department (SCRP); • 13 regional directorates covering the 13 regions; • 12 directorates of the tax centers in Ouagadougou and Bobo-Dioulasso; • 43 provincial directorates covering provinces other than Kadiogo and Houet; and • 9 tax offices. B. The Customs Revenue Authority, DGD, is responsible for the elaboration and application of customs legislation and the collection of related duties and taxes. The DGD is organized as follows: • 1 general directorate; • 5 central structures: the Directorate of Customs Legislation and Regulations (DLR), the Directorate of Customs Accounting (DC), the Directorate of Customs Investigations (DED), the Directorate of Information Technology and Statistics (DIS), and the Directorate of Customs Cooperation (DCOD); • 5 support structures: the Human Resources Department (SRH), the Financial and Material Department (SFM), the Communication and Public Relations Department (SCRP), the Archives and Documentation Department (SAD), and the Studies and Planning Unit (CEP); • 7 regional directorates covering the 13 regions. C. The Directorate General of Treasury and Public Accounts, DGTCP, is responsible for ensuring the sound management of public funds, to guarantee cash flow for the State budget, local authorities and public establishments; and to ensure the viability of the national financial system. The DGTCP is organized as follows: • 1 general directorate; • 1 central structure comprising 7 service departments: the Monetary and Financial Affairs Department (DAMOF), the Insurance Department (DA), the Department of Public Debt (DDP), the Department of Studies and Financial Legislation (DELF), the Treasury Computerization Department (DIT), the Department of Supervision and Control of Decentralized Financial Systems (DSC-SFD), and the Department of State Financial Operations Monitoring (DSOFE); PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 167 • 4 support structures: the Human Resources Department (SRH), the Financial and Material Service (SFM), the Communication and Public Relations Service (SCRP), and the Archives and Documentation Service (SAD); • 4 accounting structures: the General State Treasury (TGE), the General Revenue of the Treasury (RGT), the Ministerial and Institutional Treasuries (TM/TI), and the Central State Accounting Agency (ACCE); • 5 deconcentrated structures: the Regional Treasuries (TR), the Provincial Treasuries (TP), the Departmental Treasuries (TD), the Treasuries at the Embassies and Permanent Missions of Burkina Faso Abroad (TAMP), and the Treasuries at the Consulates General of Burkina Faso Abroad (TCG). In addition, the Secretariat of the Tax Policy Committee, SP/CPF, is responsible for coordinating, under the supervision of the Fiscal Policy Committee, the process of reforming fiscal policy and monitoring its implementation; as well as for monitoring the WAEMU and ECOWAS fiscal transition programs. The Secretariat manages the database and conducts impact simulations of reform proposals before their submission to the Minister of Economy and Finance. Under SP/CPF, the Tax Policy Analysis and Monitoring Unit has been conducting tax expenditure analysis and drafting tax expenditure reports since 2015. The Coordinator of the Tax Policy Unit is appointed by decree by the Council of Ministers on the recommendation of the Minister of Finance and has the rank of Technical Advisor. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 168 ANNEX X. IT REFORMS UNDER THE TAX REVENUE AUTHORITY Table A8. IT Reforms in Burkina Faso under the Tax Revenue Authority DGI, 2018-2021 2018 1. Developed the electronic tax declaration module. 2. Established the ePAYMENT module for online payment and expanded the electronic tax declaration module from 15 taxes to all 33 taxes of the Burkinabè tax system. 3. Launched the module for the automatic generation of withholding tax certificates, allowing taxpayers to automatically receive online the source deduction certificates they declare and pay. 2019 4. Developed the mPAYMENT module for mobile payment methods through Orange Money and Mobicash applications. 5. Developed the DGI-CASH module for cash payment at bank counters allowing taxpayers to make tax payments in cash at bank counters. Only the United Bank for Africa (UBA) was available at this moment. 6. Developed the online application module for tax status certificates (ASF) that allows taxpayers to request and receive their ASF online. The secure ASF no longer require physical signatures but they must be stamped with a tax stamp in accordance with the provisions of the General Tax Code to be valid. 7. Established the online turnover certification application module that allows taxpayers to request and receive their turnover certifications online. The secure turnover certifications no longer require physical signatures but they must be stamped with a tax stamp in accordance with the provisions of the General Tax Code to be valid. 8. Started the online VAT credit refund application module that allows taxpayers to request a refund of their VAT credits online. Applications are submitted electronically for processing according to the internal procedures of the administration. Each step of processing the file is notified to taxpayers on their eSINTAX portal. 9. Generated the single online taxpayer account that allows taxpayers to view their tax file online. They thus have their entire tax situation on the platform. 2020 10. Generalized the use of the platform to all taxpayers. The use of the platform was previously limited to taxpayers of large and medium-sized companies. 11. Developed the Système d’inventaire et d’évaluation des biens imposables (SIEBI) software to improve inventory and evaluation for taxable property. 12. Developed the Système de gestion automatisé du cadastre et des domaines (SYC@D) application to automate the management system of the cadaster and domains. 2021 13. Produced the eLiasse module which allows taxpayers to file their financial statements online. Taxpayers are able to view their financial statements, request certificates from the Certified Public Accountants (CPA) and transmit the financial statements from the eSINTAX platform. The chartered accountants have access to a dedicated area to certify the financial statements online. 14. Implemented the payment of the tax on motor vehicles by mobile money. 15. Dematerialized the registration of acts and contracts. This module will be developed in eSINTAX during the year 2021 to allow the registration of acts and contracts. The module provides that the statement of accounts will be edited online, and that the registration procedure will also be done online. 16. Improved the function of DGI-CASH module and expanded to other banks. The DGI-CASH module that allows taxpayers to make cash payments at bank counters is currently only available at the UBA bank and its operation does not take into account certain parameters for calculating fees related to the payment method. This reform carried out to improve the current operation of the module to overcome certain shortcomings related to the calculation of fees and to allow its use to be generalized by the other banks in the market. 17. Developed a dematerialized management application of the micro-enterprises contribution (CME) called eCME. This reform will take place in 2022 and allow tax offcials using a tablet to impose and collect taxes in the field. Taxpayers will also be able to pay taxes by mobile money (Orange money and Mobicash). Note: N/A = no data available. Source: Burkina Faso DGI, MINEFID. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 169 ANNEX XI. TAX EXPENDITURE BREAKDOWN Table A9. Burkina Faso’s Tax Expenditure Breakdown, 2015-2019 CFAF billion 2015 2016 2017 2018 2019 Total tax expenditures 75.99 92.54 87.21 68.91 76.08 by type of taxes Customs and other import duties (DD) 19.95 24.12 30.01 26.95 30.62 Registration and stamp duty (DET) 7.29 7.84 5.41 1.16 4.25 Tax on industrial, commercial and agricultural profit 0.02 0.00 0.01 0.01 0.01 (IBICA) Tax on non-commercial profit (IBNC) 0.00 0.00 0.00 0.01 0.01 Tax on income on movable capital (IRCM) - - - 1.67 0.64 Tax on property income (IRF) 0.01 0.00 0.03 0.01 0.01 Tax on income from securities (IRVM) a 0.36 0.65 3.52 - - Corporate income tax (IS) 11.31 19.46 17.25 23.93 15.86 Tax on employers and apprenticeship (TPA) 2.91 2.81 3.33 3.00 3.39 Tax on petroleum products (TPP) - - 0.85 0.88 0.78 Tax on tourist vehicles (TVT) - - 0.01 0.00 0.00 Value added tax (VAT) 34.14 37.66 26.80 11.28 20.51 by recipients Companies 63.16 67.56 58.60 54.06 54.31 Households 4.83 12.77 12.53 10.23 9.20 Public administrations 4.64 9.36 11.14 2.42 5.24 Projects and Programs 2.60 2.82 3.24 1.05 5.74 NGOs and Associations 0.76 0.03 1.63 1.13 1.58 Members of Parliament, the Government, presidents of - - 0.08 0.02 0.02 institutions by objectives Encourage investment 35.56 40.12 54.34 51.99 51.43 Reduce factor costs 23.15 14.19 0.85 0.88 0.78 Promote solar energy 3.67 9.54 9.21 7.10 6.25 Reduce the state’s expenses 4.64 - - - - Promote Public Private Partnership - 7.01 0.04 0.01 0.17 Strengthen international cooperation 7.78 18.39 18.08 5.50 14.33 Support the energy, water and sanitation sectors - - - - - Support purchasing power 0.70 2.94 3.65 3.19 2.97 Facilitate access to telephone services 0.43 0.29 0.25 - - PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 170 CFAF billion 2015 2016 2017 2018 2019 Support the press 0.00 0.04 - - - Promote real estate 0.03 - - - - Promote Small and Medium Enterprises and Industries 0.03 0.02 0.02 0.04 0.03 Promote Microfinance - 0.01 - - - Promote the transportation sector - - 0.77 0.20 0.11 by type of exemption Partial exemption 0.01 - 0.03 0.04 0.03 Temporary exemption 6.76 7.18 - - - Rate reduction - - 0.04 0.08 0.08 Total exemption 44.91 51.23 53.78 29.49 46.58 Tax reduction 24.32 34.13 33.37 39.31 29.38 by type of budget function Economic Affairs 75.25 91.91 82.69 64.85 71.73 Housing and community facilities 0.03 0.04 0.03 0.02 0.02 Social protection 0.71 0.59 4.50 4.04 4.33 Note: a = replaced in 2018 with the Capital Gains Derived From the Sale of Mining Licenses and the Capital Gains Made From the Sale of Shares and Securities of Companies. Source: Permanent Secretariat of the Tax Policy Committee. Rapport Sur L’Evaluation De La Depense Fiscale 2015-19. MINEFID, Burkina Faso. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 171 ANNEX XII. TAX EXPENDITURES IN BURKINA FASO Table A10. Examples of Tax Expenditures in Burkina Faso by Type of Tax, 2019 Type of Taxes and Statutory Rates Legal Channel Specific Provisions IBICA • Tax Code • Exemption of income from movable capital. • 0 – 500,000 CFAF: 10% • Mining Code • Exemption for rents from off-balance sheet • 501,000 – 1,000,000 CFAF: 20% • Investment Code buildings. • >1,000,000 CFAF: 27.5% IBNC • Tax Code • Depreciation (all types of depreciation). • 0 – 500,000 CFAF: 10% • Loss carry-forward over 5 years. • 501,000 – 1,000,000 CFAF: 20% • >1,000,000 CFAF: 27.5% IS • Tax Code • Exemption for public establishments of the State • 27.5% • Mining Code or local authorities not having an industrial or • Investment Code commercial character. • Exemption of the institute of issue of the currency. • Exemption for agricultural credit unions. • Exemption for mutual or cooperative savings and loan institutions. • Exemption of professional non-trading companies. • Exemption for associations or non-profit organizations. • Exemption for securities investment companies and management and holding companies. IRCM • Tax Code • Exemption of income from loans or bonds of • 25% for debt income and for all cooperative groups and societies and associations income not subject to a specific of any kind, whatever their purpose and name, rate; constituted exclusively by these cooperative • 6% for interest, arrears and other societies. bond proceeds; • Exemption for general partners’ income in limited • 12.5% for other securities products; partnerships. • 6.25% for income from other • Exemption for income from interest shares in securities of newly incorporated partnerships. companies in respect of the first • Exemption of interest, arrears and all other three financial years. income from annuities, bonds and other public instruments issued by the State of Burkina Faso and the local authorities. IRF • Tax Code • Exemption for rental income from buildings • 0 – 100,000 CFAF: 18% owned by legal entities subject to corporate • >100,000 CFAF: 25% income tax. • Exemption for the rent of hotel rooms. • Exemption for rents from the rental of buildings owned by the State and local authorities. TPA • Tax Code • Exemption of the State and local authorities • 3% • Mining Code as well as public establishments not having an • Investment Code industrial or commercial character. • Exemption of diplomatic missions, international and inter-African organizations. • Exemption for private education and health care companies. • Exemption for non-profit associations or organizations, subject to strict compliance with their purpose. • Exemption of the mutual agricultural credit unions operating in accordance with the legal provisions governing them. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 172 Type of Taxes and Statutory Rates Legal Channel Specific Provisions VAT • Tax Code • Exemption for goods placed under a suspensive • 18% • Mining Code customs procedure. • Investment Code • Exemption on direct exports of goods, re-exports following a suspensive customs procedure and services assimilated to exports. Land transport for the part carried out abroad is treated as an export when the services are provided from Burkina Faso to a foreign country. • Exemption on international air transport and international removals by air. • Exemption for aircraft bunkering to foreign destinations. • Exemption for the sale, repair, conversion and maintenance of aircraft for airlines whose foreign services account for at least 50% of the total routes they operate. • Exemption of sales, services and real estate work carried out by taxpayers under the simplified tax regime and the contribution of microenterprises. • Exemption for sales by farmers, planters, ranchers and fishermen of non-tariff products processed from their cultivation, breeding or fishing. TPP • Tax Code • Exemption of petroleum products other than • Premium gasoline: 50 CFAF/ liter premium gasoline and diesel. • Diesel: 10 CFAF / liter TVT • Tax Code • Exemption of diplomatic missions and • 5% for imported passenger international organizations. vehicles of equal or greater power • Exemption of associations and NGOs. at 13 horsepower and tourist • Exemption of projects and programs. vehicles DET • Tax Code • Reduced rate of 2% for donations and legacies • Real estate transfer tax 8%; • Mining Code made to educational associations. • Public procurement 3%; • Investment Code • Reduced rate of 2% for donations and legacies • Sale of furniture 7%; made to the National Social Security Fund. • Lease for residential use 3%; • Exemption of leasing contracts relating to • Lease for non-residential use 5%; movable property. • Stamp: one per sheet. • Total exemption from transfer duties for all real estate acquisitions made in the context of investment for companies located more than 50 km from Ouagadougou. • Exemption, during the investment phase, from domestic taxes on the acquisition of goods, services and works intended exclusively for the realization of investment works. DD • Mining Code • Total exemption from duties during the research • Category 0: 0% • Investment Code phase of mining. • Category 1: 5% • Duty payment at the rate of 5% of category 1 on • Category 2: 10% operating equipment. • Category 3: 20% • Exemption from customs duties on the import of • Category 4: 35% goods from management structures (Bagré growth pole project). • Exemption from customs duties for SONABEL • 5% Category 1 tax rate for goods, materials and inputs for research activities. Note: For abbreviations see Annex XII. On October 25, 2013, ECOWAS Member States adopted the ECOWAS Common External Tariff with the 5-tariff band structure: category 0 for essential social goods; 1 for goods of primary necessity, raw goods and capital goods; 2 for intermediate goods and inputs; 3 for final consumption goods or finished goods; and 4 specific goods for economic development. Source: Permanent Secretariat of the Tax Policy Committee. Rapport Sur L’evaluation De La Depense Fiscale 2015-19. Ministry of Economy and Finance, Burkina Faso; and Trade Policy: ECOWAS Common External Tariff (CET). ECOWAS Trade Information System (ECOTIS) https://ecotis. projects.ecowas.int/policy-development/ common-external-tariff-cet/. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 173 ANNEX XIII. TAX MEASURES TAKEN TO MITIGATE THE IMPACT OF COVID-19 Table A11. Tax Measures Taken by the Burkinabe Government to Mitigate the Impact of COVID-19 # Measure and Details Lifted on 1 Automatic remission of penalties and fines due. This concerned by the measure, the penalties June 30, 2020 and fines due on the declarations and payments of taxes, duties and taxes incumbent on taxpayers. The discount was automatic on SINTAX and ESINTAX. Taxpayers therefore did not need to submit a request to this effect. 2 Suspension of on-site control operations with the exception of proven cases of fraud. With this June 30, 2020 measure, the controls which were in progress were suspended and no controls were initiated during the period concerned. However, the brigades were authorized to continue or initiate on-the-spot checks in proven cases of fraud. These were glaring situations of deliberately orchestrated manoeuvres in order to evade payment of tax. The suspension also concerned the exercise of investigation and visit rights (except for proven cases of fraud). The suspension did not concern the documentary check. 3 Exemption from the contribution of microenterprises (CME). The measure exempted taxpayers December 31, 2020 in this segment from paying CME for fiscal year 2020. In other words, the taxation and collection of CME has been suspended for the relevant period. However, taxation and collection were permitted for prior non-prescribed years. Taxpayers who had already paid this contribution for fiscal year 2020 received compensation with the CME for fiscal year 2021. 4 Exemption from VAT on importation and sale of products used in the fight against COVID-19. N/A 5 Postponement of the deadline for payment of the motor vehicle tax (TVM) to the end of June 30 June 2020 2020. Holders of taxable vehicles in the TVM must pay the tax on or before the March 31, 2020, or a late fee is applied. This deadline has been postponed to June 30, 2020. The measure does not reflect an exemption from the payment of the tax on motor vehicles. 6 Issuance of Tax Status Certificates (ASF) to companies not in compliance with their tax June 30, 2020 obligations. The measure authorized the issuance of the ASF to any taxpayer not in good standing with their tax obligations, regardless of their tax regime or sector of activity, until June 30, 2020. It aimed to facilitate the participation of companies to public order. Also, the Contract Award Commissions were instructed not to require the ASF in the documents constituting the submission files for public orders during the same period. 7 Suspension of the Employer and Apprenticeship Tax (TPA) on wages for the benefit of June 30, 2020 companies in the passenger transport, hotel and similar sectors, catering and tourism. The measure provided for an exemption from the Employer and Apprenticeship Tax (TPA) for the benefit of companies in the passenger transport sectors including air transport, hotels and the like, catering and tourism. This resulted in a suspension of declarations and payments of the said tax. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 174 # Measure and Details Lifted on 8 Suspension of proceedings in matters of recovery of tax debts and the non-collection of the June 30, 2020 minimum standard of collection for companies in the sectors of passenger transport, hotels, restaurants and tourism. Reminders for payments, notifications of collection notices, notices of formal notice to pay, notices to third party holders and all other procedures for the recovery of taxes, duties and taxes owed by taxpayers in the transport sectors of people including air transport, hospitality, catering and tourism were suspended until June 30, 2020. Companies in the passenger transport, hotel, catering and tourism sectors were exempted from declaring and paying the minimum lump sum collection. 9 Reduction of 25% of the license for the benefit of companies in the passenger transport, hotel June 30, 2020 and tourism sectors. The measure consisted of a 25% reduction in the contribution of taxpayers’ licenses in the passenger transport sectors including air transport, hotels, and tourism for the 2020 financial year. Reductions were made for companies for which tax notices had already been notified. Those who had already paid more than 75% of the patent contribution received compensation with the patent contribution for fiscal year 2021. 10 Application of a reduced VAT rate of 10% to the hotel and catering sector. The reduced rate N/A of 10% applies to accommodation and catering services provided by hotels, restaurants and approved similar organizations (inns, residences, motels, etc.). These taxpayers are entitled to collect VAT at the rate of 10% from their customers. However, they will bear the VAT at the common law rate of 18% or at the reduced rate of 10% depending on whether the purchases of goods and services is made from taxpayers subject to the common law rate or from taxpayers in the tax sector. The VAT borne whatever its rate is fully deductible subject to the exclusions and limitations of the right of deduction. 11 Abolition of charges and taxes imposed on the organization of cultural activities. The measure June 30, 2020 aimed to exempt the organizers of cultural activities or cultural enterprises from the duties and taxes linked to the organization of said activities. These duties and taxes amount to the tax on shows and the stamp duty levied at the rate of 5% on gross receipts from cinematographic, videographic and similar screenings. 12 Direct tax rebates as part of an individualized review of applications. The direct tax rebates June 30, 2020 should be made in accordance with the provisions of the General Tax Code which provide for the possibility for the taxpayer who knows a case of indigence or embarrassment making it impossible for him to be released to the Public Treasury, to request a tax rebate with the exception of indirect taxes. Note: N/A = not applicable. These measures have not been lifted as of December 2021. Source: DGI and MINEFID. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 175 ANNEX XIV. FREE HEALTH CARE Free Health Care was a commitment made by the Head of State of Burkina Faso during the 2015 presidential election, and was adopted as a policy by the Council of Ministers on March 2, 2016. Its objective is to improve access to health services for the most vulnerable populations. Free health care is provided in all public health institutions and in some private institutions under certain conditions. The program is managed by the Ministry of Health through the Technical Secretariat in charge of the Universal Health Coverage. The policy currently covers children under 5 and pregnant women. For children, free access includes pediatric services. Since its introduction, the average number of contacts between children under 5 and formal health services increased from 1.7 per year in 2015 to 3.1 per year in 2017. For pregnant women, free services include prenatal and postnatal care, deliveries, emergency obstetric care and caesarean sections. In addition, treatment of obstetric fistulas and screening for precancerous cervical lesions and breast cancer are covered for all women. For the poorest population, other coverages have reduced direct expenditures from 36.2 percent in 2015 to 31.7 percent in 2017. The objective of reducing financial barriers to health care has not been entirely achieved due to some irregularities. On the basis of field surveys, the ThinkWell report found the persistence of out-of-pocket payments, and 13 percent of patients reported irregularities.90 According to the same report, about 10 percent (63 out of 652) of the people interviewed by NGOs during audits in the Centre-Ouest region had paid directly for medicines and products included in the free package. In addition, a study, conducted just after the free health care policy was adopted in 2016, found that about 30 percent of women were still paying directly for maternity services. Another issue in the health care system is that products and services that are supposed to be provided free of charge are often not available at health centers, so patients are often advised to buy what they need from a local pharmacy. These types of payments are not necessarily fraudulent, but they are not considered appropriate, and the extent of this practice may be underestimated in NGO audits. 90 https://thinkwell.global/projects/sp4phc/burkinafaso/ PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 176 ANNEX XV. SUMMARY OF PEFA 2017 INDICATORS Table A12. Summary of PEFA 2017 Indicators for Burkina Faso Pillar I: Budget Reliability PI-1: Total Actual Expenditure D PI-2: Composition of Actual Expenditures D PI-3: Actual Revenue C Pillar II: Fiscal Transparency PI-4: Budget Classification A PI-5: Budget Documentation B PI-6: Headquarters Transactions Not Recorded in the Financial Statements D+ PI-7: Transfers to Sub-National Governments B PI-8: Use of Performance Information to Deliver Services D+ PI-9: Public Access to Budget Information D Pillar III: Asset and liability management PI-10: Reporting on Budgetary Risks D+ PI-11: Public Investment Management D+ PI-12: Public Asset Management D PI-13: Debt Management C+ Pillar IV: Policy-Based Budgeting and Strategy PI-14: Macroeconomic and Fiscal Forecasts B PI-15: Budget Strategy D PI-16: Medium-Term Perspective on Expenditure Budgeting B PI-17: Budget Preparation Process B+ PI-18: Budget Review - Legislative Branch C+ Pillar V: Predictability and Control of Budget Implementation PI-19: Revenue Management C PI-20: Revenue Recognition D+ PI-21: Predictability of In-Year Resource Allocation C+ PI-22: Arrears of Expenditure D PI-23: Payroll Controls D+ PI-24: Contracting Management D+ PI-25: Internal Controls over Non-Salary Expenditures B PI-26: Internal Audit C+ Pillar VI: Accounting and Reporting PI-27: Integrity of Financial Data B PI-28: In-Year Budget Reports D+ PI-29: Annual Financial Reports C Pillar VII: External Oversight and Audit PI-30: External Audit D+ PI-31: Legislative Review of Audit Reports D Note: The best score is A, the worst score is D. Source: European Union. 2017. Evaluation des finances publiques selon la méthodologie PEFA 2016 au Burkina Faso. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 177 ANNEX XVI. NATIONAL DEVELOPMENT PROGRAM PNDES II The overall objective of PNDES II is to restore security and peace, strengthen the nation’s resilience to conflict and climate change, and structurally transform the economy for strong and sustainable growth. PNDES II was prepared with inputs from civil society and development partners and is aligned with the conflict analysis findings from the Prevention and Peacebuilding Assessment. PNDES II includes a set of key targets to be achieved by 2025 (Table A6). Its results framework includes priorities for conflict prevention, peacebuilding and resilience to reestablish a positive State presence across territories. Table A13. National Development Program PNDES II Key Targets, Burkina Faso, 2020-2025 Indicator Baseline 2020 Target 2023 Target 2025 Peace, security, social cohesion and resilience of the country are strengthened Rate of socio-economic recovery/reintegration of internally 7 25 >50 displaced persons (%) Peace and Security Perception Index 0.76 0.80 0.85 Democracy is consolidated and the efficiency of political, administrative, economic, financial and local governance is improved CPIA Score 3.5 3.6 3.8 Corruption Perception Index 40.0 42.5 45.0 The level of education and training is increased and adapted to the needs of the economy Annual growth rate of TVET enrolment (%) 12.2 8.6 8.4 High school completion rate (%) 17.5 17.1 20.1 Decent employment opportunities are guaranteed for all, including youth and women Number of decent jobs created 0 150,000 250,000 Proportion of informal employment in non-agricultural sectors (%) 89.3 82.0 80.0 Health and living conditions of the population are improved and inequalities are reduced Total fertility rate 5.4 4.8 4.6 Incidence of poverty 41.4 38.0 35.0 The productive system is modernized, diversified and dynamized Economic growth rate (%) 2.5 6.3 8.5 Share of manufacturing industry in GDP (%) 9.0 11.1 12.9 Intergenerational equity is guaranteed Environmental performance index 38.3 39.3 40.3 Vegetation cover rate (%) 44.4 47.5 48.1 Source: Government of Burkina Faso. PNDES II is articulated around four strategic pillars and comes at a cost of US$33.7 billion: (a) Strengthening resilience, security, social cohesion and peace; (b) Deepening institutional reforms and modernizing the public administration; (c) Consolidating sustainable human development and solidarity; and (d) Boosting sectors with potential for growth and employment. PNDES II also forms the basis for the national strategic framework, Burkina 2025, as well as for the longer-range Vision 2060. PUBLIC EXPENDITURE AND REVENUE REVIEW FOR BURKINA FASO 2022 178 Macroeconomics, Trade, and Investment Global Practice AWFC1 Country Management Unit West and Central Africa Region The World Bank Group