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close this bookThe Courier N° 126 - March - April 1991 - Dossier: AIDS - The Big Threat / Country Report: Burkina Faso (EC Courier, 1991, 96 p.)
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State finances

One of the causes of under-development in the ACP States, over and above any errors of management or economic policy options, is the shortage or indeed. total absence of financial resources. Burkina Faso is badly handicapped when it comes to money for a sustained programme of development. Unlike countries with major sources of income -Nigeria and Gabon (oil), for example, and Cd’lvoire and Cameroon (farming, timber and even petroleum) - Burkina is a landlocked nation whose financial limitations are a genuine constraint on all economic ambition.

The State Secretary for Finance, Tiraogo Celestin Tiendrebeogo, told The Courier about the structures and the new Ouagadougou Government’s method of handling State finances.

‘Our budget is financed mainly by taxes and a look at the structure of State income shows just how important this tax revenue is. In the 1990 budget, for example, which came to CFAF 96 097 billion, tax revenue accounted for CFAF 84 961 billion, which is 88.41 %, with non-tax revenue an estimated CFAF 9 400 billion, or 9.78 %. Then there are what we call the capital reserves, which are not tied to tax revenue, and they are worth CFAF I 734 billion, or 1.80 % of the budget’.

Almost 80 % of this tax revenue ‘is raised on consumption-it is indirect taxation, that is to say, customs duties accounting for about 55 % of the total State budget and such things as the business turnover tax and the duties on tobacco, fuel and locally-made beverages. So purchase tax is the main source of tax and budget revenue’.

An initial remark about the structure of Burkina’s budget and State finances is that income tax and the industrials and commercial profits taxes only account for about 20 % of the country’s total tax revenue.

Yet the budget could be financed and the percentage of customs duties and indirect taxation in the State finances reduced in another way, with the nation’s potential mineral earnings from, say, the Poura gold deposit. But as things stand, the income accruing from the working of the mines goes into repaying the loans (CFAF 23 billion) used to finance the mining concerns-which nonetheless, Ouagadougou hopes, will be bringing money into the State coffers soon.

The structure of Burkina’s State finances is fragile, obviously, when it comes to pressing on with the job of running the country without upsetting major economic projects. But President Compaor146;s Government does not want external financing for the budget. ‘The structure of our budget shows that we are anxious to avoid financing our operating expenditure (some CFAF 86 billion in 1989) with loans, subsidies or even grants as far as possible’, Tiendrebeogo said. As he sees it, channelling loans and subsidies into productive projects (capital spending of CFAF 17 billion in 1989)wouldenable the Government to achieve the twofold aim of getting operating expenditure under control and speeding up the implementation of development projects.

And the first result of this, he maintained, would be to ‘make our productive units efficient and able to boost their productivity and profitability and thereby generate more direct revenue in the form of industrial and commercial turnover taxes and more indirect revenue in the form of levies on non-commercial profits and other taxes on consumption’-which would keep up with the increase in income distribution. The Government is counting on more jobs and company productivity to do this. However, these are economic forecasts, not controllable data. Imponderables, be they short-term economic or other factors, could well compromise the success of the State’s budget financing policy.

Of course, ‘there are limits to tax pressure and we cannot rashly expand the basis of assessment’, the State Secretary said, but he still firmly believes that ‘a better performance from the production units... will push up the national income... and the public finances without any change to the present tax arrangements.

‘Someting which bothers us’

Heavier taxes on household spending would also raise the cost of living for low income groups, particularly those on low wages and would discourage the informal activities which are predominant in the economy and which make a considerable contribution to the success of any savings policy in Africa. ‘This is something which bothers us when it comes to recovering taxes and encouraging savings’, Tiendrebeogo said, particularly since, although the State ‘has limited resources, it still has economic development ambitions... So we have to be able to release the national counterparts of the financing for projects run with external funds’. Hence the need for investment resources ‘to prove our will to our external partners and show them we are making an effort to take an active part in the economic achievements and not waiting for them to, say, get productive investments going’, he emphasised.

But it has to be said that there are still doubts as to the State’s ability to do this properly, as Mr Tiendrebeogo admitted. His explanation for State intervention in African economies was that ‘private operators are fairly unenthusiastic about investing in many sectors which are vital to the national economy, regardless of major tax and other incentives’ from the Government. The many reasons for this include the general weakness of economic structures, i.e. the absence of a market, infrastructure and skilled workers, red tape and so on-enormous difficulties for the economy of Burkina and the continent alike and ones which must be solved ‘by contriving to organise and rationalise our countries’ management’.

However, the State Secretary for Finance, who is the man responsible for filling the State coffers, says that the structural adjustment policy may well not just result in better management. There could be bad effects too.

Structural adjustment should get State operating expenditure under control, but it may also mean a big drop in the purchasing power of the wage-earners on whose purchases much of the tax revenue depends. And as long as the economy is not really growing, the Government will be ill-placed to check this.

However, the structural adjustment measures should help cut operating expenditure by pruning the vast civil service (33 800 staff in 1990 as against 23 482 in 1983).

The State Secretary said that figures available at the end of 1990 suggested that debt servicing had also taken an encouraging turn, having gone from 26.35 % of export revenue in 1987 to 20.88 % in 1988. In terms of volume, the estimate for 1990 was CFAF 17 billion.

This positive trend, he felt, would continue. Thanks to its special schemes, the European Community would be helping cushion the social consequences of the structural adjustment measures being run with the return to good relations between Burkina and the Bretton Woods institutions at the end of 1990.

Political upheavals in Burkina have dealt a harsh blow to the economy, but the country now seems genuinely keen to adjust its aim and put more stress on economic performance and Government management.

L.P.