Chapter

10 World Bank– and IMF-Supported Programs: A Burkino Faso Perspective

Author(s):
Laura Wallace
Published Date:
May 1997
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Author(s)
Zéphirin Diabré

In the latter half of the 1970s and the early 1980s, most African countries, like other developing countries, were hit hard by the negative effects of trends in the international economic environment—particularly oil shocks, economic recession in the industrial countries, the steep rise in international interest rates, and the drop in raw materials prices. The impact of these exogenous shocks was intensified by the ineffective economic and financial policies that had gained currency in most of these countries. The convergence of these factors led to sizable and growing financial disequilibria (both internal and external), high inflation (except in the CFA franc zone countries), and economic recession. Structural weaknesses and the devastating effects of drought, particularly in the Sahelian region, made matters worse.

Thus, between 1965 and 1985, the average annual growth rate of GDP per capita was less than 1 percent for Africa, as opposed to 2.5 percent for Latin America, over 3 percent for North Africa, and just under 5 percent for East Asia and the Pacific.

Faced with these burgeoning economic and financial problems, a number of African countries—especially in the 1980s—embarked upon structural adjustment programs supported by the IMF and the World Bank. I would like to now review our experience with these programs, starting with preparation, then content and acceptance, and finally social impact.

Preparation of IMF and World Bank Programs

As the adjustment programs prepared for Africa are the target of fairly harsh criticism, some lessons should be drawn and proposals made. The ideas concern three problem areas: the political economy of adjustment, beneficiary/donor relationships, and the link between adjustment and long-term development.

Political Economy of Adjustment

First, the “ownership” of programs by the countries concerned is necessary: adjustment programs should be about what countries can do and not what the World Bank and the IMF want them to do. The top priority should be participation in the design process; defining programs should involve more than exchanges between IMF and World Bank staff and government authorities. If the participants in development, in all their diversity, are not committed to the adjustment program, it is destined to fail.

Second, the political marketing of adjustment is required. For a number of reasons, the word adjustment elicits a type of psychological rejection in sub-Saharan Africa that should be corrected through constant efforts to explain and increase awareness. This approach is all the more necessary as the democracy movement has introduced African societies to the coexistence of several branches of government (executive, legislative, and judicial), each a participant in the decision-making process. Economic reforms and political liberalization sometimes seem to be at odds.

Third, a regional approach to adjustment should be taken. The trend toward regional integration is very strong in Africa, as the recent formation of the West African Economic and Monetary Union (WAEMU) demonstrates. It is absolutely essential, therefore, that programs take into account the trends that influence a country’s overall picture.

Fourth, programs must be custom tailored, despite the strong temptation to formulate policies believed to apply to all countries that has long existed. As each country is a case apart, there are specific intrinsic factors that should be taken into account in the formulation of each program.

Beneficiary/Donor Relationships

Another problem area is the relationship between beneficiaries and donors when it comes to the assistance expected from the financial community to carry out planned reforms. The expected improvement in the current system will require two items in particular.

First, the approach to conditionality should be changed. The pace and sequence of reforms should be adapted to each country’s specific capabilities and constraints with the conditionality more exacting in the long term and less formalistic in the short term. The conditionality should include general agreements on economic policy, based on a medium-term program in which specific measures are but one component. Flexibility should also be a factor, so that economic policy can be adjusted to accommodate changes in the national or international situation. It is better to base the conditionality of a program on the country’s commitment and determination than on specific instruments or results.

Second, disbursements should be prompter. Experience has invariably shown that the amount of a disbursement is a determinant of the policy’s success. There are, unfortunately, numerous examples where the assistance expected from the financial community does not—for complicated reasons related to procedures, work methods, or disagreement among donors—arrive at the most opportune moment.

Adjustment and Long-Term Development

The problems inherent in the relationship between adjustment and long-term development take on a critical dimension in sub-Saharan Africa, for the simple reason that this link is not perceived to exist for the recipient countries. The general impression is that the emphasis is on restoring macroeconomic equilibria at the expense of bona fide development. Planning for the future, which is an essential component of any long-term approach, is given short shrift in the adjustment programs.

Reforms often seem focused on regulating trade patterns, to the detriment of the overall growth of supply. This is true of agriculture, for example, where most of the reforms supporting sectoral programs have emphasized marketing problems without considering the need to provide transactors with resources to increase production. This is also true of every plan for the liberalization of domestic and foreign trade, where it is only too obvious that the primary concern—the ability to compete internationally—has not been addressed.

Content and Acceptance of Reforms

The reforms recommended in World Bank and IMF programs vary as to content and pose more or less similar acceptance problems.

Reforms targeting the public sector (public finances, civil service, and public enterprises) undoubtedly have the largest number of problems from the standpoint of acceptance. However, reforms affecting the external sector or involving changes in the legal and regulatory framework (exchange adjustments, the deregulation of imports, trade and price liberalization, or creation of incentive systems) are perceived in direct proportion to the economic antagonism they create or their potential for upsetting the status quo.

Public Sector Reforms

The public finances of African countries undergoing adjustment are often in a general state of deterioration, characterized by chronic revenue shortfalls (revenue collection is somewhat problematic in Africa) and difficulty in containing expenditure.

On the revenue side, efforts to broaden the tax base have been at the center of all the tax and customs reforms, and the results of these reforms have been positive overall—whether in terms of taxes at the border (lowering of customs duties) or domestic taxes (taxation of previously exempt sectors and introduction of a value-added tax). Having said that, we should acknowledge that introducing value-added taxes (VATs) and taxation of the informal sector are some of the fiscal reforms that have had at times negative consequences or have been difficult to implement. The VAT, when it is first introduced in the African economic framework, creates instant confusion for local experts, who are little acquainted with it. Informal sector taxation is complicated by the sector’s elusive nature, its lack of public-spiritedness, and the difficulty of assessing its real activity.

Unquestionably, the most difficult type of public finance reform involves rationalizing expenditure. The necessity of this rationalization is obvious, as the African countries have, over the course of a decade, acquired spending habits sometimes out of proportion to their real ability to pay or to the exigencies of bona fide development.

But it is the pace of reform—more so than the objective—that sometimes causes a problem, owing to the painful consequences that these restrictive practices can have, especially in the social sphere or in terms of military security. On the latter point, it seems obvious that the burden of military expenditure still weighs too heavily on the distribution of resources in the African countries and is one of the most sensitive elements in the expenditure rationalization equation.

When African countries embark upon adjustment, their civil services are generally weighed down by not only sheer size—the excessive number of employees—but also a financial burden, with a large share of revenue going to the remuneration of the civil service itself.

Obviously, this creates a problem. But the usual solution—a drastic reduction in the size of the civil service—while inevitable, poses a certain number of problems:

  • the social function of civil service wages is severely diminished by downsizing or forced departures;
  • the possibility of retraining those who leave is very limited and eventually leads them either to try to return or to join the ranks of the discontented, which creates instability;
  • much of the supply of labor exists because of the attractiveness of civil service wages; and
  • the departure of certain individuals deprives the government of the experience or expertise it needs to fully accomplish its purpose, which leads to problems involving capabilities.

The subject of the poor management of public enterprises is raised in every assessment concerning the African continent. Every country, it turns out, is a poor manager, but this situation takes on a special meaning in developing countries, where the question of capabilities remains unresolved. Viewed from this perspective, the recommended withdrawal of the government from public enterprises operating in the competitive sector is the best solution. To date, the privatization programs launched here and there in Africa have yielded uneven results, for reasons related to procedural transparency, the climate of repression, social and political pressures, or the weakness of the local private sector. Even so, the trend toward government divestiture of public enterprises operating in the competitive sector—while it entails the painful expedient of reorganization and massive downsizing—is one that ought to be reinforced to enable the African countries to turn their attention to more vital tasks.

Reforms of the External Sector and the Regulatory Framework

In this area, price liberalization and the deregulation of imports are among the most difficult reforms to implement because labor and management view it as giving free rein to inflation. Price liberalization is widely criticized, particularly in its early phase. But it is important to realize that this hostility, coming especially from union organizations, is strongest where the basic necessities of the majority are concerned.

As for deregulation of imports, sometimes state-controlled productive sectors—especially when there are clear opportunities for “rent seeking”—take a dim view of the opening of borders, which, for them, is synonymous with fierce competition. While it is not possible, in principle, to give in to demands for limits or quotas, a look at the facts reveals that the subject of liberalization and competitiveness must be handled very delicately. Unfortunately, the feeling is entrenched that adjustment programs emphasize the former without providing sufficient resources to attain the latter. Only certain countries, such as Côte d’Ivoire, have been able to implement a program guaranteeing a certain level of competitiveness for their industries. Certainly, the best reforms involve the largest number of individuals and entities through innovative, participatory approaches. Knowledge of how to manage the entire political and social dimension of adjustment is needed.

Social Impact of Adjustment

Is not the debate concerning the social impact of adjustment in Africa skewed from the start? Because, in theory, the objective of programs supported by the IMF and the World Bank is initially to curb demand, these institutions are blamed for Africa’s difficult social problems (health, education, access to drinking water, etc.). In reality, such a generalization can be extremely injurious to the pursuit of reforms. Examining this question leads us to consider the social impact of economic reforms and Burkina Faso’s experience with the social aspect of adjustment.

Social Impact of Economic Reforms

Programs supported by the IMF and the World Bank are generally aimed at curbing demand and boosting supply, but while the reduction of demand is generally a short-term proposition, the recovery of supply takes time. Moreover, poverty is exacerbated in the interval.

What are the social impacts of specific policies? First, IMF-supported adjustment programs ordinarily limit the growth of total credit as part of the monetary and credit policy. As a result, the position of the largest enterprises can be strengthened at the expense of the smallest, and the poor working in small enterprises in the informal sector can be prevented from increasing their productive capacity. In addition, an overall limit on credit can have a negative, short-term impact on employment and real output, particularly when wages and nominal prices are rigid. This causes serious harm to certain segments of the poor, as the least-skilled members of low-income groups are usually the first to be fired when total employment shrinks.

Second, price liberalization measures are aimed at strengthening incentives and encouraging a more efficient distribution of resources. But even if these measures are justified in the short term, they have an impact on the least-advantaged populations, who benefited from administered prices.

Third, labor market policies are generally intended to preserve and expand employment by easing labor market rigidities. Particular emphasis is given to wage moderation policies and measures aimed at increasing job and wage flexibility. In the short term, these measures prove to be a difficult test for workers who have steady jobs in the formal sector. Moreover, a contraction in formal sector employment is generally accompanied by an increase in the supply of labor in the informal sector, which reduces the real income of the poor working in the informal sector. Unemployment cuts off not only the income of the poor in the short term but also their chances of finding long-term employment.

Fourth, turning to exchange rate policies, most adjustment programs come into being when there is a chronic imbalance in the external sector, which is often remedied by devaluing the exchange rate. When the factors of production are fixed, this leads in the short term to a rise in prices, dealing a severe blow to the poor.

Finally, regarding fiscal policies, all adjustment programs seek to bring about a significant reduction in the budget deficit, to diminish domestic imbalances and boost savings. The programs thus emphasize moderating expenditures and increasing revenues, but the measures generally involve a reduction in the wage bill, fewer subsidies, and the reorganization of public enterprises through privatization, liquidation, and so on—all of which translates into job losses in the short term.

Social Aspect of Adjustment in Burkina Faso

From the first adjustment program (1991–93) to the current one (1996–98), the social aspect of adjustment has been taken into account in Burkina Faso. This aspect figures prominently in our Policy Framework Paper.

  • Since 1991, only the priority sectors of education, health, and financial administration (responsible for administering the Structural Adjustment Loan) have been authorized to hire additional staff and these sectors have also received the requisite budget appropriations since that date.
  • A poverty profile study was conducted and the findings are now available—facilitating well-targeted action for accompanying measures.
  • Liberalization of the rice trade was postponed because rice is a consumer staple; similarly, the profit margin control was left in place to protect consumers from the possibility of exorbitant price increases.
  • To mitigate the effects of devaluation, a policy on the distribution of essential and generic medicines is being implemented with the support of the country’s development partners.

Conclusion

Several recommendations can be made to increase the chances of success of adjustment programs in Africa.

First, the strategic view of development should be internalized—a process that begins with the preparation by national leaders of the draft adjustment programs to be negotiated with the IMF and the World Bank. The process is strengthened by involving the general public in the adjustment process through explanations.

Second, poverty reduction should be the primary objective of programs in Africa. This can be accomplished by increasing incomes (particularly in rural areas), strengthening support for the private sector, and allocating budget resources more efficiently to benefit the social sectors.

Third, we not only believe that the shift in the approach of adjustment programs toward recognition of the social dimension is laudable, but also hope that this process will be continued so as to reduce conditionality.

Fourth, future programs in Africa will have greater chances of success if they are understood by the populations concerned, which presupposes the preparation of programs by national leaders and involvement of the general public through large-scale, democratic debates.

Finally, adjustment should henceforth have a regional dimension, which would avoid the duplication of effort in individual countries, given the similarity of situations, and help to incorporate the political will expressed by the African countries to create larger and more viable regional economic areas.

Zéphirin Diabré was not able to attend the seminar, but submitted this paper.

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