Burkina Faso faces public finance dilemma
In a recent blog post, we discussed the impacts of socioeconomic and terrorist events on the Burkinabe economy noting that “to answer the terrorist threat, current expenditure will soar.” However, this should not be done at the expense of development programs and capital spending in economic infrastructure. Indeed, after the socio-political events experienced by Burkina Faso, we advocate for an economic stimulus based on the quality and increase in public investment expenditure.
After achieving over 6% in 2011, 2012 and 2013, Burkina Faso’s economic growth rate started waning in 2014 and 2015. This decline in growth has been accompanied by a reduction in public investment expenditure in 2014 and 2015. However, the risks hanging over the recovery in 2016 are mounting: terrorist attacks in January and their impact on security spending on the one hand, together with a series of social demands on the other.
Furthermore, the 2015/2016 agricultural campaign ended with a decline in cereal production by 6.3%, after an 8.5% reduction compared to the previous season. This decrease should result in a rise in grain prices in 2016, which could lead the government to subsidize the prices of cereals to contain the loss of household purchasing power. Furthermore, the issue of youth employment, one of the causes of the October 2014 events, was at the heart of the debate of the November 2015 presidential campaign. On this front, the government announced a 17% increase in the recruitment of civil servants over one year, and a massive job hire scheme under a high intensity labour work programme. In addition to new public employment, the implementation of the new public servant regulations, as well as free medical care for children under-5 and pregnant women will have a significant impact on current state spending in 2016.
Despite a forecast of higher capital expenditures in 2016, the pressure for current expenditure may inhibit the desire to increase investment spending. This will not be without consequences on economic performance for years to come. Already, the state's capital expenditures dropped in 2014 and 2015 from 38.5% to 33.1% of total expenditure, a significant drop from 51.2% in 2013. Over the period 2014-2015, fiscal adjustments were made at the expense of public investment, which went from 8.5% of GDP in 2014 to 7.7% in 2015 after having reached 14.2% in 2013. This trend in public investment spending has had adverse effects on economic performance in 2014 and 2015, when GDP growth stood at 4.0% in both years, against an average of 6.4% over the period 2011- 2013.
It should be remembered that investment expenditure is involved in capital formation. Public investment has an immediate impact on economic growth since the latter is a component of GDP. If properly considered, public investment improves productivity and economic growth, and has a ripple effect on the economy. More specifically, in Burkina Faso, the public sector is a major investor. It averaged 45% of total investment and 12% of GDP. Moreover, this investment has a significant countercyclical power. Given these factors, the Burkinabe government should work for the realisation of public investments planned in 2016. It is the only guarantee to ensure strong economic growth and sustainably reduce youth unemployment over time.
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