• It represents 59.3% of the wealth of Burkina Faso
• Against a threshold set at 70% by ECOWAS
• Budget deficits and onerous loans in question
L’Burkina Faso’s outstanding public debt is estimated at CFAF 7,095.6 billion at the end of December 2022, an increase of 18.29% over the same period, in 2021. These figures were reported in the report of the Council of Ministers of January 25, 2023.
Written in this way, it is difficult to measure the country’s debt ratio. To do this, we relate this public debt to GDP. In the case of Burkina Faso and according to World Bank data, public debt in 2022 represents 59.3% of the country’s wealth. Reported to the population, it is a debt of about 350,000 FCFA per inhabitant to pay. It should be noted that the country’s GDP per capita in 2021 was 463,602 FCFA.
Budget deficits and onerous loans at issue
Data that shows that the public debt has increased in recent years and that the downward trend is not for now. High budget deficits and increasingly onerous domestic borrowing are the primary causes.
The budget deficit is the negative balance of the state budget. There is a deficit when the expenditure exceeds the revenue forecast for a year. In 2022, Burkina’s deficit amounted to 570 billion FCFA, against 604.7 billion for 2023, i.e. a deterioration of 34.6 billion FCFA.
This deficit is expected “to be covered by cash resources, in particular, program loans and bond loans”, said Aboubakar Nacanabo, Minister of Economy and Finance, during the validation of the State budget, exercise 2023, to the Transitional Legislative Assembly, on December 24, 2022.
With regard to bond issues, Burkina Faso mainly uses two instruments, namely: assimilable Treasury bonds (BAT) and assimilable Treasury bonds (OAT). The service of these debts (amounts to be paid by the borrower) is also experiencing an increase. From 389.1 billion FCFA in 2020, it rose to 620.2 in 2021. And for the first 3 quarters of 2022, debt service was 581 billion FCFA.
The determined ECOWAS threshold is 70% of GDP
Is this increase worrying? Is there a debt threshold above which government debt has negative effects on economic growth? The threshold determined at the ECOWAS level is set at 70% of GDP.
Thus, despite the increase in its public debt, Burkina Faso’s ability to repay remains sufficient. In addition, in terms of public debt management, the implementation of the Medium-Term Debt Management Strategy (MTDS) 2019-2021 has helped keep the risk of over-indebtedness at a moderate level. The objective of public debt management in Burkina Faso remains the satisfaction of the financing needs of the State while enabling it to meet its payment obligations at the lowest possible cost, while maintaining the risks at a satisfactory level and by achieving the other objectives of the authorities, in particular, the development of financial markets.
The forecasts of the Technical Debt Unit exceeded
To do this, the government has put in place a medium-term debt management strategy, the implementation of which, from 2020, will help keep the country’s risk of over-indebtedness at a moderate level. In addition to maintaining recourse to concessional resources, Burkina Faso, in accordance with its 2020-2022 strategy, plans to also resort to less concessional resources in order, on the one hand, to deal with the difficulties of mobilizing concessional resources and the weight of more increase in domestic debt and, on the other hand, carry out a reprofiling of domestic debt in order to improve the average maturity of the debt portfolio.
In its projections of the public debt situation, the Technical Debt Unit had announced that the outstanding debt would increase regardless of the strategy adopted. The debt structure, forecast for 2024, has already been reached. With the added bonus of a higher than expected public debt/GDP ratio. Anything that will impact the repayment profile provided for in the debt management strategy.
It should be noted that the objective of this strategy was to enable Burkina Faso to provide financing for investments to boost its economic and social development. Its main target remains the control of debt risks, in particular, by extending the average maturity of the debt portfolio and by containing the public debt ratio within acceptable proportions. The extension of the maturity of the debt portfolio was to be done through a non-concessional external loan in euros to carry out a reprofiling of the domestic debt.
Unfortunately, this loan could not be made. And the last quarter of the year, the country did not seek the regional financial market. No issue had been made after that of September 14. It took until February 15 for the country to raise 29.9 billion FCFA.
And despite everything, the deadlines must be respected. This is the payment schedule for borrowings on the financial market.
For the first quarter of 2023, Burkina owes more than 118.37 billion FCFA, including 28.36 billion in March. Until then, the country holds firm. He pays his credits and is not in default. This is the permanent challenge of the managers of this public debt.
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Glossary
Dahead : Amount, at a given date, of the outstanding current liabilities, effective which include the obligation for the debtor to repay the principal and/or pay interest, at one or more future times, and which are due to residents of an economy by persons or entities from the same economy and/or other economies.
External debt : Amount, at a given date, of outstanding current, effective commitments which include the obligation for the debtor to repay the principal and/or pay interest, at one or more future times, and which are due to residents of an economy by other residents.
Public debt : Debt resulting from loans contracted by the State or its branches from resident and/or non-resident entities Amount, at a given date, of outstanding domestic and foreign debt contracted and guaranteed by the central government. To date, local authorities and extra-budgetary structures (if any) have not resorted to direct borrowing. Other government debts, such as deposits from public entities and the actuarial liabilities of social security funds and the pension system, are not taken into account.
(Source: Statistical Debt Bulletin, Ministry of the Economy, Finance and Prospective, Directorate General of the Treasury and Public Accounting)
