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Burkina Faso: Economic Outlook

Industry Relatively Immune to Impact of Unrest
The domestic unrest will have little impact on economic growth as it will not affect major industries. Following a lower-than-expected growth rate of 4.2% in 2011, constrained by weather-affected cereal production, economic activity is expected to accelerate, supported by higher gold, agriculture and cotton activity rates, with real GDP forecast to rise by 4.8% in 2012. Having averaged 2.7% in 2011, consumer price inflation will also accelerate this year, but only to an average of 2.3%, held down by heavily subsidized retail food prices.
Widening Trade Deficit Expected
Despite rising import costs, increases in gold and cotton export prices, in conjunction with higher gold production, caused the merchandise (goods) trade deficit to move into surplus last year. Better irrigation supported cotton production and, overall, the current account deficit narrowed from 2.3% of GDP in 2010 to 1.2% in 2011. However, we expect a relatively large trade deficit to re-emerge in 2012. While export earnings – principally from gold and cotton – will continue to rise, supported by higher global prices and demand, Burkina Faso’s import bill will skyrocket. This reflects the ascendancy of food and oil prices (and underlines the country’s structural inefficiencies) as well as devastation to the domestic grain crop and influx of Malian refugees causing more food to be imported. Added to this is a larger volume of capital goods required for public investment. Factoring in an increased deficit on services trade – mainly due to a larger import bill for freight and insurance – and reduced inbound transfers, the current account deficit will widen to 8.6% of GDP in 2012. The shortfall will put pressure on international donors to close a sizeable external financing gap.
For additional ICRG commentary and current risk ratings on Burkina Faso please click here.


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