Burundi’s economy has continued to grow at a slower pace than envisaged owing to the impact of food and fuel shocks on aggregate demand. The macroeconomic outlook remains broadly positive but subject to risks that emanate from the security situation and the external environment. The foremost risks are a decline in donor support, warranting an abrupt fiscal adjustment, and a worsening in the security situation. These risks are mitigated in part by reforms that have improved revenue mobilization and efforts in nation building.
The Burundian economy is recovering but at a slower pace than previously expected, while inflation is expected to rise considerably. The macroeconomic outlook has been adversely affected by the surge in global food and fuel prices. Policies focused on the appropriate policy response to the food and fuel price shock, with a view to consolidating economic stability and further reducing poverty are required. Executive Directors urge the government to anchor medium-term fiscal policy to debt sustainability. Sustained growth depends on accelerating structural reforms.
The Burundian economy faced several adverse shocks. The government responded by allowing greater exchange rate flexibility and by tightening its monetary policy. The fiscal stance was in line with the program, and program implementation has been broadly satisfactory despite difficult circumstances. Sustaining revenue mobilization remains a top priority. Public financial management needs to be bolstered significantly and the country remains at high risk of debt distress, underscoring the importance of reinforcing debt management. Monetary policy should remain tight until inflation falls.
This paper presents key findings of the First Review for Burundi under the Poverty Reduction and Growth Facility (PRGF). Economic growth in Burundi increased to 4.5 percent in 2008, mainly because of a good coffee harvest and more donor-financed projects. The economic outlook is generally positive but subject to risks arising from the security situation and the external environment. Performance under the PRGF-supported program has been broadly satisfactory. All quantitative and structural performance criteria at end-September 2008 were met, and structural reforms are proceeding.
This 2012 Article IV Consultation highlights that despite a difficult economic and social context, Burundi has made steady, though uneven, progress in implementing its Extended Credit Facility (ECF)-supported economic reforms. Real GDP growth is estimated to have increased to 4.2 percent in 2011. The medium-term macroeconomic outlook is challenging. Risks emanate from a delicate social situation given persistent shocks and the high cost of living. Executive Directors have emphasized the importance of pursuing public financial management reforms to foster greater transparency and accountability, and to strengthen institutional capacity.
Burundi is one of the poorest countries in the world. The country is emerging from more than a decade of civil conflict. The World Bank’s country assistance strategy focuses on structural reforms to further increase growth and reduce poverty. The economy is emerging from the effects of the global crisis. Performance under the Extended Credit Facility-supported (ECF) program has been satisfactory. The discussions focus on the appropriate policy mix to consolidate economic stability and support recovery of the economy. The economy is expected to continue to recover from the effects of the global crisis.
KEY ISSUES Context: Since the last Article IV Consultation in 2012, notable progress has been achieved to enhance macroeconomic stability, underpinned by the Fund-supported program. However, continued progress could be tested as the country faces a more challenging environment, due to increasing social and political tensions and frequent strikes in the run-up to the 2015 elections. Moreover, recent political developments reinforce uncertainties surrounding external budget support. Program: The Executive Board approved the three-year arrangement under the Extended Credit Facility (ECF) on January 27, 2012, with a total access of SDR 30 million. The first, second, third, and fourth reviews were completed on July 27, 2012, February 14, 2013, September 6, 2013, and February 28, 2014, respectively. For the fifth review, all end-March performance criteria were observed, but fiscal revenues underperformed in the first quarter of 2014 requiring corrective fiscal measures (about 1 percent of GDP on an annual basis). Satisfactory progress has been made on structural reforms, albeit with some delays. Outlook and risks: The medium-term macroeconomic outlook is challenging. The principal near-term risk is an intensification of election-related uncertainty, economic disruptions and violence, which would affect investment and growth. Governance issues or delays in making measurable progress in public financial management (PFM) reforms, and heightening of political tensions could curtail donor support. Reintegrating repatriated refugees is likely to add to unemployment pressures, increase demand for public services, and exacerbate social conflict over access to land. Staff Views: The staff recommends the completion of the fifth review under the ECF arrangement, setting of revised performance criteria and indicative targets for September–December 2014, and disbursement of SDR 5 million. The authorities have consented to the publication of this report following the completion of the review.