Burkina Faso is a low-income Sahelian country with limited natural resources. Its economy is largely based on agriculture, although gold exports are on the rise. More than 40% of the population lives below the poverty line. Burkina Faso ranks 184th out of 191 countries in the 2021–2022 HDI report of the United Nations Development Programme (UNDP).
Political Context
After the September 30, 2022 coup that overthrew Lieutenant Colonel Paul Henri Sandaogo Damiba, Captain Ibrahim Traoré was sworn in as the new transitional president on October 21, 2022. Under the Transition Charter, he will not be eligible to run in the next presidential elections.
The transition process is being implemented by three main organs: the President of Burkina Faso, the transitional government with a civilian prime minister, and a transitional legislative assembly.
The Economic Community of West African States (ECOWAS) and the African Union have suspended Burkina Faso from their decision-making bodies until constitutional order is restored.
Since 2015, the country has been the target of terrorist attacks that have resulted in population displacements. While there were fewer than 50,000 internally displaced persons (IDPs) in the country in January 2019, this number stood at over 2.06 million by March 31, 2023.
The health and education sectors are heavily impacted, with 732 health facilities affected (including 375 completely closed) in July 2023, limiting access to healthcare for around 3.4 million people; 6,149 primary and secondary schools are closed, representing 23.90% of school infrastructure, affecting 1,041,681 children including 505,748 girls in May 2023.
Economic Overview
After a sharp decline in economic growth in 2022 to 1.5%, caused by a combination of new shocks both domestic (coups d’Etat, insecurity in mining areas) and external (invasion of Ukraine), a clear economic rebound in 2023 is projected at 4.3% (or 1.7% per capita).
This growth would be driven by a primary sector (4.1%) benefiting from better rainfall, a service sector (5.1%) driven by public administration spending, and a secondary sector in recovery (3%), after the contraction recorded in 2022, due to a return to growth in gold export volumes.
The current account deficit is set to improve to 4.4% of GDP in 2023, thanks to higher mining exports and improved terms of trade, driven by higher gold prices and lower oil prices.
After a 10-year high of 14.1% in 2022, due to the combined effects of insecurity (negative impact on agricultural labor supply), climate change (low or irregular rainfall), and Russia's invasion of Ukraine (disruption of global supply chains), inflation is forecast to fall sharply in 2023, with an estimated average of 1.9%. This decline is justified by higher agricultural yields linked to relatively more sustained levels of rainfall.
With public spending remaining high (defense equipment, humanitarian challenges linked to the crisis of internally displaced populations - IDPs - subsidies and other social transfers), the budget deficit for 2023 is expected to rise to 6.7% of GDP. Its financing should continue to rely essentially (at 83%, or 3.8% of GDP) on domestic borrowing, given the more limited availability of direct budgetary support since the 2022 coups d’Etat.
Medium-term outlook
In the medium term, real growth should return to its pre-COVID-19 trajectory, albeit subject to considerable uncertainty, and therefore to significant downside risks.
Growth in 2024 is projected at 4.8% and should be driven by the agricultural (4.5%) and services (5.9%) sectors, as well as a continued recovery in secondary production (2.8%). Assuming improved security and the implementation of key reforms favorable to the private sector (energy, mining, business climate), growth should improve in the medium term, reaching 5.1% by 2025.
Assuming no further deterioration in the domestic security situation, average annual inflation should remain stable in 2024 (2.0%), and within the BCEAO target range of 1-3% between 2024 and 2025.
The budget deficit should fall to 6.1% of GDP in 2024, in line with the new Extended Credit Facility (ECF) program signed with the IMF, which also provides for convergence towards the 3% of GDP target by 2027.
Financing the deficit will prove difficult, as the tightening of global financing conditions has already increased the cost of financing on the UEMOA regional bond market, and the country's access to concessional financing, notably budget support, remains limited. Greater access to such financing could ease the pressure on public finances, even though public debt will continue to rise, mainly due to the now overwhelmingly high proportion of domestic debt.
With low inflation and moderate growth, the incidence of poverty is set to fall by around one percentage point a year until 2025, but the projected number of people living in extreme poverty will remain above 7 million.
Persistent insecurity, climatic shocks and instability linked to the political transition pose significant downside risks to the outlook. The price of gold remains at historically high levels, but could fall in real terms, posing a risk to the current account and domestic revenue mobilization.
Last Updated: Sep 26, 2023
