Burkina Faso: Building Financial Resilience to Climate Risks

According to the latest Burkina Faso Economic Update, economic growth slowed to 2.5% in 2022, with the country posting the highest inflation rate in the West African Economic and Monetary Union (WAEMU), thereby exacerbating food insecurity.

Following a robust recovery of 6.9% in 2021, GDP growth slowed in 2022 to 2.5% (corresponding to a contraction in GDP per capita of 0.1%), owing primarily to a 13.7% decline in mining activity as a result of mine closures. Average inflation reached 14.1% while food prices increased on average by 23.4% over the year.

This report is part of the World Bank Group’s series of periodic publications highlighting recent economic trends, analyzing the short- to medium-term economic outlook, and devoting a special chapter to issues relevant to the country’s development. The April 2023 edition focused on building financial resilience to climate shocks. The report also highlights findings specific to Burkina Faso, which were drawn from the Country Climate and Development Report (CCDR) for the G5 Sahel region.

“Burkina Faso continues to demonstrate resilience, despite the security and humanitarian crises plaguing the country. These various crises are compounded by the country’s vulnerability to climate change,” says Maimouna Mbow Fam, World Bank Country Manager for Burkina Faso. “In light of these overlapping vulnerabilities, Burkina Faso’s medium-term outlook will depend largely on whether it can improve its financial resilience to all kinds of shocks, including climate change.” 

The report notes that weak growth in 2022 (particularly in the agricultural sector) and high inflation led to an increase in the poverty rate, estimated at 5.9 percentage points, and that an additional 1.5 million persons fell into extreme poverty. A case in point: the decline in the incomes of poor households that rely mainly on agriculture is attributable in part to the poor harvest in 2021 and disruptions in the growing season in 2022. 

Daniel Pajank and Kodzovi Abalo, World Bank senior economists for Burkina Faso and co-authors of the report, state: “Against a backdrop of persistent insecurity, an economy vulnerable to climate shocks, and limited fiscal space, we are proposing short-term solutions for fiscal and social policies, with a view to strengthening the national social protection system, combating food insecurity and preserving debt sustainability.”

The authors also recommend policy options to better manage the financial impacts of disasters. The report therefore indicates that the government could give consideration to combining risk financing instruments. Two complementary options are available: (i) a retention approach, where the government covers disaster losses from fiscal resources; and (ii) a pass-through approach, where the government passes through potential future losses to the insurance market against a premium.

There are glimmers of hope worth mentioning: growth is projected to rebound to 4.3% in 2023, driven mainly by private and public consumption, with public spending remaining high. Over the medium term, private investment is expected to recover and pick up pace, while the primary and tertiary sectors will remain the main drivers of growth.