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Burundi

Author(s):
International Monetary Fund
Published Date:
January 2008
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I. Political Tensions and A Major Governance Incident Made Economic Management Difficult

1. Macroeconomic performance was broadly satisfactory in late 2006 and through mid-2007 (Table 1). Annual inflation was held to the single digits but economic growth, at 3.6 percent in 2007, will be lower than targeted because of a very poor coffee harvest and exports, and delays in implementing structural reform, owing primarily to the political difficulties (Figure 1, Table 2). Monetary policy was strengthened and continued to be prudent (Table 3). Gross international reserves declined to about 2.8 months of imports by September 2007 owing to delays in external budget support. The real effective exchange rate depreciated by 11.4 percent through August 2007. On July 1, 2007, Burundi became a member of the East African Community (EAC).

Table 1.Burundi: Selected Economic and Financial Indicators, 2006–10
20062007200820092010
Prog.Act.Prog.Proj.Projections
IMF

Country

Report No.

06/311
IMF

Country

Report No.

07/113
(Annual percentage change, unless otherwise indicated)
National income and prices
Real GDP growth6.15.15.53.65.95.76.0
GDP deflator4.83.74.69.56.24.04.0
Consumer prices (period average)2.52.84.27.16.64.04.0
Consumer prices (end of period)8.79.34.18.75.24.04.0
External sector
Exports, f.o.b. (US$)22.52.615.1−24.177.717.416.0
Imports, f.o.b. (US$)31.817.117.213.417.68.48.8
Export volume22.1−6.87.0−26.275.816.915.4
Import volume26.9−3.115.94.214.612.511.3
Terms of trade (deterioration = –)−3.3−8.96.4−5.5−1.54.22.9
Real effective exchange rate (end of period; depreciation = –) 1−2.9−11.4
General government
Revenue5.53.913.87.918.810.912.1
Total expenditure and net lending (commitment basis)26.214.115.216.719.111.511.9
Noninterest current expenditure (excl. demobilization and elections)51.228.425.69.422.220.25.7
(Change in percent of beginning of period M2, unless otherwise indicated)
Money and credit
Net foreign assets−1.32.2−1.47.31.8
Domestic credit22.923.112.913.215.7
Government8.27.80.412.78.9
Private sector14.713.712.51.86.7
Money and quasi money (M2)20.516.412.414.915.8
Income velocity (= Ratio of GDP to M2; end of period)3.13.13.33.13.0
Reserve money (12–month growth rate)10.55.911.612.68.7
Central bank refinancing rate (percent; end of period)14.5
Commercial bank lending rate (percent; medium term; period average)18.4
(Percent of GDP, unless otherwise indicated)
General government
Revenue (excluding grants)19.019.019.718.119.119.319.6
Total expenditure and net lending 241.838.442.439.641.942.543.2
Primary budget balance (excluding foreign-financed projects)−8.9−5.6−6.6−5.6−5.3−7.1−6.8
Overall balance (commitment basis)
Excluding grants−22.8−19.4−22.7−21.4−22.8−23.2−23.5
Including grants 34−0.4−1.80.72.1−0.781.7−2.5
Saving and investment 3
Current account balance 3−17.5−14.5−15.3−11.6−13.6−12.3−13.2
Current account balance, excluding official transfers−37.9−35.6−37.5−33.6−32.0−28.3−28.5
Gross investment16.116.317.917.620.121.621.8
Government9.68.38.98.610.611.811.8
Private6.58.09.09.09.59.810.0
Domestic saving−21.8−19.3−19.5−16.0−11.9−6.7−6.7
Government−13.2−11.1−13.8−12.8−12.2−11.4−11.7
Private−8.6−8.2−5.8−3.20.34.75.0
Gross national saving−1.41.92.66.16.59.28.5
Government3.31.50.61.7−0.42.2−1.9
Private−4.70.32.04.36.87.010.4
(US$ millions, unless otherwise indicated)
External sector
Current account, including grants 3−166.8−131.9−159.9−114.2−153.7−152.4−178.4
Overall balance of payments 34.7−10.24.3−7.4−10.251.0−11.4
Gross official reserves (end of period)145.0131.0159.5163.7186.6224.2231.5
Gross official reserves (months of imports of the following year)3.33.73.63.94.24.64.5
Debt-service ratio (scheduled; percent of exports; before HIPC and MDRI relief) 446.553.137.558.439.532.51.7
Debt-service ratio (actual; percent of exports; after HIPC and MDRI relief) 413.410.82.07.23.90.81.7
Stock of debt1,457.91,516.11,452.81,498.11,464.2431.5463.0
External payments arrears0.052.40.00.00.00.00.0
Memorandum item:
GDP at current market prices (Fbu billions)9579391,0311,0651,1971,3161,451
Sources: Burundi authorities; and IMF staff estimates and projections.

Data for 2007 are through August.

Including cost of the 2010 general elections.

Assumes financing gap is covered by grants in 2009–10.

Assumes HIPC completion point and MDRI in 2009. See Table 4, footnote 3, for additional details.

Sources: Burundi authorities; and IMF staff estimates and projections.

Data for 2007 are through August.

Including cost of the 2010 general elections.

Assumes financing gap is covered by grants in 2009–10.

Assumes HIPC completion point and MDRI in 2009. See Table 4, footnote 3, for additional details.

Table 2.Burundi: Balance of Payments, 2006–10 1
20062007200820092010
ActualProg.Proj.Projections
IMF

Country

Report No.

07/113
(US$ millions)
Current account−131.9−159.9−114.2−172.3−185.3−221.1
(excluding official transfers)−325.2−375.0−332.7−361.2−350.3−383.1
Trade balance−181.1−265.2−227.4−240.6−253.7−269.3
Exports, f.o.b.58.670.044.579.192.8107.7
Of which: coffee39.754.326.645.748.951.4
Imports, f.o.b.−239.7−335.2−271.9−319.6−346.6−377.0
Of which: petroleum products−57.5−56.0−66.2−78.1−81.5−85.5
Services (net)−160.3−110.9−118.6−136.9−120.1−136.9
Income (net)−12.8−20.1−15.8−14.4−2.9−2.9
Of which: interest on public debt (including IMF charges)−11.0−12.2−14.6−12.6−1.7−1.7
Current transfers (net)222.3236.3247.6219.6191.4187.9
Private (net)29.021.229.130.726.426.0
Official (net)193.3215.1218.5188.9165.0161.9
Of which: program grants64.883.092.886.785.085.0
Capital account69.6118.8117.9145.01199.4146.5
Of which: HIPC relief 235.739.439.439.71004.30.0
MDRI grant 20.00.00.064.80.0
Financial account29.638.9−11.117.2−963.139.1
Direct investment32.015.011.012.015.07.1
Medium- and long-term official loans (net)−5.4−11.1−24.13.6−986.531.5
Disbursements34.321.524.039.436.032.9
Project loans34.321.524.039.436.032.9
Program loans0.00.00.00.00.00.0
Amortization (excluding IMF) 2−39.7−32.6−48.1−35.8−1022.5−1.4
Other investment3.035.02.11.68.40.5
Errors and omissions22.50.00.00.00.00.0
Overall balance−10.2−2.2−7.4−10.251.0−35.5
Financing (increase in assets = –)10.2−4.37.4−8.4−83.9−7.2
Net change in official foreign reserves (increase = –)5.5−6.9−9.9−12.4−83.9−7.2
Gross official reserves−18.4−28.4−32.6−22.9−37.7−7.2
Liabilities to IMF, net21.021.510.510.5−46.20.0
Other, net2.90.012.20.00.00.0
Change in arrears (increase = +)0.8−49.9−0.4−48.00.00.0
Exceptional financing 33.952.517.752.00.00.0
Financing gap 40.06.50.018.632.842.8
(Percent of GDP, unless otherwise indicated)
Memorandum items:
Trade balance−19.9−26.5−23.0−21.3−20.5−20.0
Current account 4−14.5−15.3−11.6−13.6−12.3−13.2
Of which: excluding current official transfers−35.6−37.5−33.6−32.0−28.3−28.5
Gross official reserves
US$ millions131.0159.5163.7186.6224.2231.5
Months of following period’s imports, c.i.f.3.73.63.94.24.64.5
Imports
Growth rate17.117.213.417.68.48.8
Percent of GDP26.333.527.528.328.028.0
Exports
Growth rate2.615.1−24.177.717.416.0
Percent of GDP6.47.04.57.07.58.0
Debt-service ratio (percent of exports of goods and services)
Scheduled current maturities (including IMF)53.137.558.439.532.51.7
Actual debt service (including IMF; after HIPC and MDRI)10.82.07.23.90.81.7
Exchange rate (Fbu per US$; period average)1029
Nominal GDP (US$ millions)9121001989112912381346
Sources: Burundi authorities; and IMF staff estimates and projections.

Compiled in accordance with Balance of Payments Manual, 5th edition.

Assumes HIPC completion point and MDRI in 2009. See Table 4, footnote 3, for additional details.

Includes the March 2004 Paris Club rescheduling on Naples terms, and assumes rescheduling of current debt service and arrears to non-Paris Club creditors at comparable terms.

Assumes financing gap is covered by grants in 2009–10.

Sources: Burundi authorities; and IMF staff estimates and projections.

Compiled in accordance with Balance of Payments Manual, 5th edition.

Assumes HIPC completion point and MDRI in 2009. See Table 4, footnote 3, for additional details.

Includes the March 2004 Paris Club rescheduling on Naples terms, and assumes rescheduling of current debt service and arrears to non-Paris Club creditors at comparable terms.

Assumes financing gap is covered by grants in 2009–10.

Table 3.Burundi: Monetary Survey and Central Bank Accounts, 2006–08
200620072008
Dec.Mar.JunSep.Dec.Mar.Jun.Sep.Dec.
Act.Prog.

IMF

Country

Report No.

07/113
Act.Prog.

IMF

Country

Report No.

07/113
Prel.Prog.

IMF

Country

Report No.

07/113
Prel.Prog.

IMF

Country

Report No.

07/113
Proj.Projections
(Fbu billions, unless otherwise indicated)
Monetary survey
Net foreign assets76.039.677.759.462.339.431.346.097.888.286.3107.8103.9
Central bank42.925.632.445.419.425.47.632.054.841.234.453.948.1
Deposit money banks33.114.045.314.042.914.023.814.043.047.051.953.855.8
Net domestic assets276.2304.3283.7304.0306.9334.4329.1340.0307.1334.8347.3344.2365.6
Domestic credit337.4396.5344.6386.4360.2414.8390.3418.1376.8401.5408.5407.4430.8
Net claims on the government141.2155.7137.0136.6174.6162.2171.6157.8179.4193.5215.1210.2210.2
Credit to the economy196.2240.8207.5249.7185.6252.6218.7260.3197.4208.0193.4197.2220.6
Other items, net (assets = +)−61.2−92.2−60.8−82.3−53.3−80.3−61.2−78.2−69.7−66.7−61.2−63.2−65.2
M3352.2343.9361.4363.5369.3373.8360.4386.0404.9423.0433.6452.0469.5
Foreign currency deposits52.361.553.464.654.567.857.871.260.262.665.167.770.4
M2299.9282.4308.0298.9314.8306.0302.6314.8344.7360.4368.6384.3399.1
Currency in circulation68.471.062.975.071.776.078.777.283.583.285.385.488.7
Local currency deposits231.5211.4245.1223.9243.1230.1223.8237.6261.2277.2283.2298.9310.4
Demand deposits147.5124.6150.4131.9147.7135.5137.4140.0160.4170.2173.9183.5190.6
Quasi-money84.086.994.892.095.494.586.497.6100.8107.0109.3115.4119.8
Central bank
Net foreign assets42.925.632.445.419.425.47.632.054.841.234.453.948.1
Foreign assets132.7141.0138.7160.8131.8158.5128.5165.1172.7171.7174.9194.5198.6
Of which: official reserves131.4140.1137.5160.0127.6157.7125.5164.2171.8170.8174.0193.6197.8
Foreign liabilities89.8115.4106.3115.4112.3133.1121.0133.1117.9130.5140.5140.6150.5
Of which: use of Fund resources82.996.498.696.399.8114.3103.3114.4100.2112.8122.8122.9132.8
Net domestic assets63.581.867.467.689.589.5103.285.265.280.390.172.082.3
Domestic credit137.8164.9129.5144.7143.5168.5160.5166.2132.5144.2148.5132.3144.6
Government (net)144.4159.7120.4140.6140.3166.2148.1161.8162.9169.9169.9162.9162.9
Nongovernment credit−6.65.29.14.03.22.312.44.4−30.5−25.8−21.5−30.6−18.3
Of which: liquidity auction−10.51.14.4−0.10.0−1.89.10.3−33.8−29.1−24.8−33.9−21.6
Other items, net−74.3−83.1−62.1−77.1−54.0−79.1−57.3−81.1−67.3−63.8−58.3−60.3−62.3
Reserve money106.5107.499.8113.0108.9114.9110.8117.2119.9121.5124.5125.9130.4
Memorandum items:
Gross international reserves
US$ millions131.0136.0131.0155.3120.4153.1117.6159.5163.7161.2164.2182.7186.6
Months of imports f.o.b.3.73.13.13.52.93.52.83.63.93.63.74.14.2
M2 growth (12-month percent change)16.49.219.115.922.018.36.412.414.917.017.127.015.8
M3 growth (12-month percent change)18.313.319.118.720.618.15.214.014.917.017.425.416.0
Credit to the economy (12-month percent change)25.143.023.238.73.119.03.015.60.60.24.2−9.811.7
Reserve money (12-month percent change)5.913.35.316.312.117.112.911.612.621.814.413.78.7
Money multiplier (M3/reserve money)3.33.43.63.43.43.53.33.53.63.73.73.83.8
Velocity (GDP/M2; end of period)3.13.43.23.23.13.33.43.33.13.33.23.13.0
Velocity (GDP/M3; end of period)2.72.82.92.72.72.73.12.72.62.62.62.62.6
Sources: Banque de la République du Burundi (BRB), and IMF staff estimates and projections.
Sources: Banque de la République du Burundi (BRB), and IMF staff estimates and projections.

Figure 1.Recent Economic Developments

Source: Burundi authorities and IMF staff estimates.

2. The quantitative performance criteria for end-December 2006 were observed except for a temporary accumulation of external arrears (MEFP, Table 1).1 The quantitative quarterly indicative performance targets through September 2007 were met, except for overages in the primary deficit in March and June, and on domestic financing at end-June (MEFP, Table 3). The structural benchmark, at end-March 2007, on the launching of a risk–based internal audit at the central bank (BRB) was met. The performance criterion at end-June 2007, related to a single computerized payroll file in the Ministry of Finance was missed. This reflected the delay in conducting the census of public sector employees (end-June structural benchmark), which was to produce a single wage management file. Both targets were missed, primarily because of the impact of political tensions and delays and complications in the provision of technical assistance (TA) support (MEFP, Table 2).

3. The program was pushed off track in mid-2007 by a major governance incident, exacerbated by revenue underperformance and expenditure pressures (Table 4). Unbudgeted payments totaling 1.6 percent of GDP were made to the largest domestic petroleum distribution firm, INTERPETROL. The Inspector General’s Office found these payments to be fraudulent and implicated the former Minister of Finance and the former BRB Governor. The governance incident was a serious blow to fiscal policy, especially after another governance shock in 2006. Fiscal performance was further affected by a cut in petroleum taxation in July from 20 to 10 percent in the face of the large increase in world market prices (0.3 percent of GDP), delays in demobilization, promises of a large increase in civil service allowances, and a budget estimate error on excises and anticipated dividend receipts (about 1.0 percent of GDP).

Table 4.Burundi: General Government Operations, 2006-10
20062007200820092010
Act.Jan-MarApr-JunJul-SepOct-DecYearJan-MarApr-JunJul-SepOct-DecYear3Projections
Prog.Act.Prog.Act.Prog.Prel.Prog.Proj.Prog.2Proj.Budget
(Fbu billions)
Revenue178.848.450.256.948.247.547.050.347.5203.0192.958.357.954.358.8229.2254.3284.9
Tax revenue163.447.048.844.940.945.945.047.446.1185.2180.857.050.450.155.4212.8237.3266.3
Income tax45.915.119.912.910.98.19.812.013.148.153.721.314.29.914.760.069.479.2
Taxes on goods and services83.922.820.722.722.226.925.924.824.697.293.426.426.129.729.9112.1127.7145.7
Taxes on international trade29.78.67.89.26.710.78.48.97.637.430.58.78.89.29.836.535.636.3
Other tax revenue3.90.50.40.21.00.20.91.60.82.53.10.61.31.21.04.24.65.1
Nontax revenue15.41.41.411.97.31.52.02.91.417.812.11.37.54.23.416.416.918.7
Expenditure and net lending361.098.983.3117.6107.4116.7113.4103.6117.1436.8421.3117.9135.3125.9122.7501.8559.7626.4
Current expenditure221.561.857.769.872.972.061.364.561.1268.2253.066.681.973.166.2287.8314.7344.1
Salaries93.928.325.530.831.231.328.531.327.0121.7112.231.032.531.730.3125.5135.0145.3
Civilian55.917.214.019.719.719.016.819.015.374.965.818.620.219.819.177.785.493.9
Military22.96.47.06.47.07.16.97.17.027.127.97.47.16.96.828.229.631.1
New police force (SSR program)15.14.74.54.54.55.24.85.24.719.718.55.05.25.04.419.620.020.4
Goods and services63.812.414.821.522.223.214.814.115.071.366.815.725.616.816.474.589.199.9
Civilian29.07.09.310.010.610.86.77.86.535.533.18.215.88.07.839.852.160.7
Military22.93.53.57.57.58.14.84.15.823.021.64.96.35.16.122.323.023.4
New police force (SSR program)11.92.02.04.14.14.43.32.32.712.812.12.63.63.72.512.414.015.7
Transfers and subsidies39.511.610.811.612.711.69.811.610.746.544.011.917.315.613.658.670.078.8
Interest payments (due)24.39.46.65.96.85.98.27.58.428.730.08.16.49.05.929.320.720.1
Domestic12.66.54.12.54.13.43.54.94.717.316.44.44.45.13.717.518.818.3
Foreign11.72.92.53.32.72.54.72.63.711.313.63.72.03.92.211.81.91.9
DDR project23.59.39.38.38.37.87.87.87.833.033.08.17.65.65.126.415.00.0
Elections0.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.029.0
Project expenditure116.828.416.840.126.837.444.931.848.8137.6137.343.746.347.751.9189.6231.9255.2
Domestic resources35.32.26.314.48.711.46.35.810.233.831.47.610.69.68.636.355.161.8
External resources81.526.210.525.718.126.038.626.038.7103.8105.936.135.738.243.4153.3176.8193.4
Net lending−0.8−0.5−0.5−0.5−0.5−0.5−0.5−0.5−0.5−2.0−2.0−0.5−0.5−0.5−0.5−2.0−2.0−2.0
Overall balance (commitment basis)−182.2−50.5−33.1−60.8−59.2−69.2−66.5−53.2−69.6−233.8−228.4−59.6−77.4−71.7−63.9−272.6−305.4−341.4
(after grants) 1−17.16.68.820.0−33.9−25.0−12.45.360.06.922.5−14.9−11.026.1−8.0−7.81,075.5−36.9
Of which: primary balance−52.9−5.7−6.7−21.0−26.1−29.6−11.9−12.0−14.8−68.3−59.5−7.4−27.7−18.9−9.6−63.6−92.9−98.9
Change in arrears (reduction -)−13.7−4.33.80.0−7.40.00.00.0−32.8−4.3−36.4−1.3−1.0−2.00.0−4.3−3.00.0
External (interest)−1.80.0−0.40.00.00.00.00.00.00.0−0.40.00.00.00.00.00.00.0
Domestic−11.9−4.34.20.0−7.40.00.00.0−32.8−4.3−36.0−1.3−1.0−2.00.0−4.3−3.00.0
Of which: payment to Interpetrol−17.3−17.3
Overall balance (cash basis)−195.9−54.8−29.3−60.8−66.6−69.2−66.5−53.2−102.4−238.1−264.8−60.9−78.4−73.7−63.9−276.9−308.4−341.4
(after grants) 1−30.82.312.520.0−41.3−25.0−12.45.327.26.9−13.9−16.2−12.024.1−8.0−12.11072.5−36.9
Financing (identified)199.754.826.960.869.569.265.953.2102.6238.1264.860.978.473.763.9276.9293.4315.5
External grants168.957.239.480.928.244.253.458.4129.8240.7250.944.766.497.855.9264.81,365.9278.6
Program support67.515.310.342.22.55.21.722.881.585.596.00.025.154.612.291.990.491.7
HIPC relief (IMF, WB, AfDB, PC)36.712.112.110.110.210.710.77.77.740.640.711.49.510.06.937.81,068.00.0
MDRI grant (IMF, WB, AfDB, PC)0.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.068.90.0
Project grants41.220.67.720.27.220.633.320.232.981.781.125.925.028.332.3111.6138.6157.9
Special programs23.59.39.38.38.37.87.87.87.833.033.07.46.94.94.423.50.029.0
DDR23.59.39.38.38.37.87.87.87.833.033.07.46.94.94.423.50.00.0
Elections0.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.029.0
External borrowing6.4−1.3−5.0−1.90.1−2.64.3−2.5−8.1−8.3−8.82.12.32.51.18.0−1,049.133.9
Program loans0.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.0
Project loans40.35.62.85.410.95.35.45.75.822.124.810.210.79.911.041.738.335.5
Amortization (due)−40.8−7.5−8.7−8.3−12.0−8.5−9.9−9.2−21.3−33.6−51.8−9.1−9.5−8.4−11.0−38.0−1,087.4−1.5
Change in amortization arrears0.00.00.00.00.00.00.0−51.10.0−51.10.00.00.00.0−50.9−50.90.00.0
Debt relief (rescheduling; cancellation)6.90.60.80.91.20.68.852.07.454.218.31.01.01.051.955.10.00.0
Privatization proceeds3.11.00.01.00.02.00.11.61.05.61.10.02.10.02.14.14.03.0
Domestic21.3−2.0−7.5−19.141.225.68.0−4.4−20.10.121.614.07.7−26.64.90.0−27.40.0
Banking sector20.1−2.0−4.2−19.137.625.6−3.0−4.4−22.60.17.814.07.7−26.64.90.0−27.40.0
Nonbank sector1.20.0−3.30.03.60.011.00.02.50.013.80.00.00.00.00.00.00.0
Financing gap/errors and omissions−3.80.02.50.0−2.90.00.60.0−0.20.00.00.00.00.00.00.015.025.9
Table 4.Burundi: General Government Operations, 2006–10 (concluded)
20062007200820092010
Prog.

IMF

Country

Report

No.

06/311
Act.Prog. 2

IMF

Country

Report

No.

07/113
Proj.Budget 3Projections
(Percent of GDP, unless otherwise indicated)
Revenue19.019.019.718.119.119.319.6
Tax revenue17.317.418.017.017.818.018.3
Income tax4.34.94.75.05.05.35.5
Taxes on goods and services8.98.99.48.89.49.710.0
Taxes on international trade3.83.23.62.93.02.72.5
Other tax revenue0.30.40.20.30.30.40.4
Nontax revenue1.71.61.71.11.41.31.3
Expenditure and net lending41.838.442.439.641.942.543.2
Current expenditure26.423.626.023.824.023.923.7
Salaries9.910.011.810.510.510.310.0
Civilian6.06.07.36.26.56.56.5
Military2.32.42.62.62.42.22.1
New police force (SSR program)1.71.61.91.71.61.51.4
Goods and services8.56.86.96.36.26.86.9
Civilian4.03.13.43.13.34.04.2
Military3.02.42.22.01.91.71.6
New police force (SSR program)1.51.31.21.11.01.11.1
Transfers and subsidies5.14.24.54.14.95.35.4
Interest payments (due)2.92.62.82.82.41.61.4
Domestic1.71.31.71.51.51.41.3
Foreign1.21.31.11.31.00.10.1
DDR project2.12.53.23.12.21.10.0
Elections0.00.00.00.00.00.02.0
Project expenditure13.512.413.412.915.817.617.6
Domestic resources4.63.83.32.93.04.24.3
External resources9.08.710.19.912.813.413.3
Net lending−0.2−0.1−0.2−0.2−0.2−0.2−0.1
Overall balance (commitment basis)−22.8−19.4−22.7−21.4−22.8−23.2−23.5
(after grants) 1−0.4−1.80.72.1−0.781.7−2.5
Of which: primary balance−8.9−5.6−6.6−5.6−5.3−7.1−6.8
Change in arrears (reduction –)−2.9−1.5−0.4−3.4−0.4−0.20.0
External (interest)−0.2−0.20.00.00.00.00.0
Domestic−2.7−1.3−0.4−3.4−0.4−0.20.0
Overall balance (cash basis)−25.7−20.9−23.1−24.9−23.1−23.4−23.5
(after grants) 1−3.3−3.30.7−1.3−1.081.5−2.5
Financing (identified)25.721.323.124.923.122.321.7
External grants22.418.023.423.622.1103.819.2
Program support11.97.28.39.07.76.96.3
HIPC relief (IMF, WB, AfDB, PC)3.73.93.93.83.281.10.0
MDRI grant (IMF, WB, AfDB, PC)0.00.00.00.05.20.0
Project grants4.74.47.97.69.310.510.9
Special programs2.12.53.23.12.00.02.0
DDR2.12.53.23.12.00.00.0
Elections0.00.00.00.00.00.02.0
External borrowing0.50.7−0.8−0.80.7−79.72.3
Program loans0.00.00.00.00.00.00.0
Project loans4.24.32.12.33.52.92.4
Amortization (due)−4.2−4.3−3.3−4.9−3.2−82.6−0.1
Change in amortization arrears−0.40.0−5.00.0−4.20.00.0
Debt relief (rescheduling; cancellation)0.80.75.31.74.60.00.0
Privatization proceeds0.40.30.50.10.30.30.2
Domestic2.42.30.02.00.0−2.10.0
Banking sector2.22.10.00.70.0−2.10.0
Nonbank sector0.20.10.01.30.00.00.0
Financing gap and errors and omissions0.0−0.40.00.00.01.11.8
Memorandum items:
Primary spending (Fbu billions)266.3231.7271.3252.4292.8347.2383.8
Primary expenditure (program definition) 427.824.726.323.724.526.426.4
Military and security expenditure8.48.08.07.87.36.66.2
(percent of primary expenditures)30.332.630.532.929.724.923.6
Social expenditure (percent of GDP)9.38.810.79.210.111.111.6
Social expenditure (percent of primary expenditures)33.435.640.638.641.442.043.7
GDP at current market prices (Fbu billions)95793910311065119713161451
Sources: Burundi authorities; and IMF staff estimates and projections.

Assumes 100 percent grants financing of the gaps.

Expenditure for 2007 program column excludes a Fbu 4.7 billion contingency, subject to the confirmation of external budget support additional to that assumed in the original budget.

Expenditure for 2008 budget excludes a Fbu 10.3 billion contingency (Fbu 6 billion for civil salary, Fbu 1 billion for goods and services civil; Fbu 1.1 billion for goods and services military; Fbu 0.7 billion for goods and services national police, and Fbu 1.5 billion for capital expenditure locally financed). This contingency is subject to the confirmation of recovery of payments to INTERPETROL and other additional financing (above the amounts included in the budget), including from HIPC/MDRI debt relief should the HIPC completion point be reached in 2008. See discussion in the MEFP, paragraph 11 and TMU, paragraph 14.

Current expenditure, excluding interest, and domestically financed project expenditure.

Sources: Burundi authorities; and IMF staff estimates and projections.

Assumes 100 percent grants financing of the gaps.

Expenditure for 2007 program column excludes a Fbu 4.7 billion contingency, subject to the confirmation of external budget support additional to that assumed in the original budget.

Expenditure for 2008 budget excludes a Fbu 10.3 billion contingency (Fbu 6 billion for civil salary, Fbu 1 billion for goods and services civil; Fbu 1.1 billion for goods and services military; Fbu 0.7 billion for goods and services national police, and Fbu 1.5 billion for capital expenditure locally financed). This contingency is subject to the confirmation of recovery of payments to INTERPETROL and other additional financing (above the amounts included in the budget), including from HIPC/MDRI debt relief should the HIPC completion point be reached in 2008. See discussion in the MEFP, paragraph 11 and TMU, paragraph 14.

Current expenditure, excluding interest, and domestically financed project expenditure.

4. The government soon began implementing strong remedial measures to address the governance issue and introduced measures to bring the fiscal program back on track. It made efforts to recover funds, launch legal proceedings against those allegedly responsible, reinforce PFM, and launch an external audit of petroleum sector cross–arrears with the budget. Revenue measures were introduced (0.3 percent of GDP), proposed expenditure increases were postponed, and expenditure commitments in nonpriority areas were cut by about 1.5 percent of GDP. Disbursement of the bulk of donor budget support is expected in late 2007; in the interim the BRB is providing bridge financing. The monetary impact of additional interim budget financing is largely offset by a run-down in external reserves.

5. The authorities have made uneven progress toward the HIPC completion point (CP) (Table 5). They established the HIPC Oversight Committee in June and launched an audit of the HIPC account in early December 2007. Social indicators in the education sector have improved markedly, especially since free primary education was declared in 2005. Coffee washing stations were not sold in the second half of 2007, as expected, because of continuing delays in elaborating a privatization strategy and in drafting a new legal and regulatory framework. Burundi needs to accelerate efforts if it is to meet the HIPC CP triggers in 2008.

Table 5.Burundi: Progress Toward HIPC Completion Point Triggers
TriggerProgress
1. PRSP: Preparation of a full PRSP through a participatory process and its satisfactory implementation for one year, as evidenced by an Annual Progress Report that has been the subject of analysis in a Joint Staff Advisory Note.A full PRSP was published in September 2006 and discussed by the IMF and the World Bank Boards in March 2007.
2. Macroeconomic stability: Maintenance of macroeconomic stability as evidenced by satisfactory performance under the PRGFsupported program.Macroeconomic developments in the past two years have been broadly in line with the program, which has remained on track, except for a short period in mid-2007.
3. Use of budget savings resulting from HIPC-related debt-service relief during the interim period: Use of budgetary savings from debt relief in accordance with the priorities identified at the decision point and in the PRSP duly documented and discussed by a national Independent Oversight Committee on a semiannual basis.Pro-poor spending has increased markedly. The HIPC expenditure monitoring committee was re-activated in mid-2007. A financial and technical audit was launched in December 2007.
4. Public expenditure management: Establishment of an integrated public expenditure computerized system that provides a budget monitoring and control system, in particular for poverty-related spending, and the production of at least two quarterly budget execution reports based on the new unified budget nomenclature.An integrated computerized expenditure management system was put in place in January 2006 using the new budget related spending, and the production of at least two quarterly budget produced since mid-2006, but their coverage and reliability need improvement.
5. Governance measures and the delivery of services in keysectors: Completion for the education, health, and justice sectors of (i) a budget tracking exercise (budget monitoring) of public spending on the delivery of pro-poor services; (ii) an evaluation by users of the quality of services provided; (iii) an evaluation by providers of constraints to effective delivery of pro-poor services; and (iv) preparation of an action plan to address problems identified.A technical team began work to conduct an evaluation of services delivery (points i-iii) on August 20, 2007, with World Bank support. The surveys are expected to be completed by end-December and the analyses by end-February 2008. An action plan would be prepared before end-June 2008.
6. Demobilization: Execution of the National DDR Program in line with the pace and final objectives set forth in the Letter of Demobilization Policy to the World Bank, dated 19 February, 2004.The demobilization program made good in 2004-05 but has experienced delays since then. 24,105 persons demobilized by end-October 2007. The objective, after integrating all forces, is to reduce the army to 25,000 men. However, about 17,300 persons were absorbed into a new national police force, instead of being demobilized. Plans are being finalized for a new round of demobilization in late 2007–08 (FNL excluded), covering about 3,500 from the army (FDN) and 4,500 from the national police. This would reduce the FDN to about 25,000 and the police to about 15,000.
7. Structural measures: Tendering for sale the state holdings in a majority of coffee washing stations.In November 2006, the government approved a detailed action plan for the reform of the coffee sector, elaborated with the support of the World Bank. The action plan included i) a study of the competitiveness of the sector (done in 2007); ii) the identification and implementation of a strategy for the sale of main assets; and iii) the drafting of a new legal, regulatory and institutional framework for a liberalized sector. Parts ii) and iii) have been delayed and need to be reprogrammed.
8. Social sectors



Education: Increase in the gross national enrollment rate in primary schools from 74 percent in 2003/04 to 77 percent in 2006; and from 16 percent in 2003/04 to 18 percent in 2006 in secondary schools, subject to the provision that the average increase in provinces with lower than average enrollment rates in 2004 must be higher than the increase in the national rate over the same time period.

Health: Increase in the national immunization rate for children of less than one year of age from 75 percent in 2004 to 85 percent in 2006, subject to the provision that the average increase in provinces with lower-than-average immunization rates in 2004 must be higher than the increase in the national rate over the same time period.
The elimination of primary school fees in September 2005 resulted in a large increase in first grade enrollment. Primary school enrollment rate rose from an estimated 80 percent in 2003/04, to 85 percent in 2004/05, to about 101 percent in 2005/06, and 118 percent in 2006/2007. The gross enrollment rate in secondary education is estimated at 19 percent in 2006/07. No data are currently available on regional enrollment rates.

In June 2006, the Burundian Ministry of Health organized a national campaign for the vaccination against measles with the support of UNICEF and WHO. At end-October 2007 preliminary data suggest BCG coverage at 71 percent; polio 3 at 74 percent; DPT3 equivalent at 69 percent; and Measles at 30 percent. Data for 2006 are poor and not yet available for regional rates.
9. Debt management: Production of monthly external debt reports, including projections for the upcoming three months, for at least six months before the completion point.Reports have been produced for the months of March to July 2007. However, the reports for April to July were sent with considerable delay (about six months). The reports do not make full use of the new SYGADE software and reliability needs to be improved.

II. Policy Discussions for the Remainder of 2007 and for 2008

6. Policy discussions focused on steps to address the governance incident, correct the fiscal stance, and accelerate structural reform. Prior actions (MEFP, Table 2) were agreed in key areas that have experienced delays and on those to strengthen PFM. Managing public expectations of a peace dividend will be critical to macroeconomic stability and reinvigorating structural reform, particularly privatization, is critical to raising investment and growth.

7. The economy is expected to strengthen in 2008. Growth is projected to rise to about 6 percent as cyclical coffee output rebounds. Prudent monetary policy and a budget that avoids domestic financing are expected to keep inflation in the single digits. The monetary program provides room for credit to the economy to rise strongly in real terms. Gross international reserves would rise to about 4.2 months of imports by year-end.

A. Strengthening PFM is Vital

8. Fiscal policy for the rest of 2007 seeks to recover from the impact of the governance incident and for 2008 will continue shifting expenditure from security to social and infrastructure needs while financing the deficit entirely with external grants and highly concessional loans (MEFP, ¶¶ 10–13, and Table 4). The revenue effort is being buttressed with revenue measures equivalent to 1.3 percent of GDP in 2008. The 2008 budget contains expenditure contingencies of about 1 percent of GDP linked to possible additional financing, including from reaching the HIPC CP, to improve flexibility. Given considerable uncertainties on the timing of achieving the HIPC CP the program does not rely on full HIPC/MDRI relief in 2008.2 The primary deficit is to improve and the overall deficit (commitment basis, including grants) will be kept to 1 percent of GDP, without recourse to domestic financing. Spending on the social sectors will rise further to 10.1 percent of GDP in 2008.

9. Revenue administration is being gradually reinforced and tax policy reform is being launched to remove distortions and improve economic efficiency, with intensified TA. The intent is to prepare for the introduction a value-added tax (VAT) in 2009—something especially needed with Burundi’s entry into the EAC—and modernize the outdated tax code.

10. Burundi’s wage bill will be better managed; it is among the highest in sub-Saharan Africa. The wage bill will be held to about 10.5 percent of GDP as improved management and a further round of demobilization compensate for the hiring of new school teachers, a benefits increase for civil servants, and a salary increase for high-ranking officials. The program includes a prior action on the launching of the census of government employees, which will serve to establish a single wage bill data management file at the Ministry of Finance.

11. A special concern is to buttress PFM. The authorities are tightening expenditure commitment procedures, more carefully monitoring commitments, and improving public accounting. There is good progress in moving to a treasury single account. These efforts are supported by increased Fund and World Bank TA. A FAD back-stopped resident accounting expert was posted in 2007 and a PFM policy expert is expected to be posted in early 2008.

B. Monetary Policy is Becoming More Proactive

12. Monetary policy is becoming progressively more proactive and market-based in the context of a managed exchange rate regime. The BRB is modernizing its internal operations to strengthen governance and its ability to supervise the financial system (MEFP, ¶¶14–15). A new central bank law, recently approved by Cabinet and submitted to parliament, will make the BRB more independent and accountable. Improvements in BRB operational capacity are being assisted by MCM, including through the Financial Sector Reform and Strengthening (FIRST) Initiative.

13. The BRB is working to reinforce supervision of the financial sector and raise minimum capital requirements. Though the banking system is still fragile and under-capitalized, nonperforming loans have decreased as domestic arrears are cleared by the budget. A medium-term reform strategy is needed, to be elaborated with the support of a Financial Sector Assessment Program mission planned for 2008.

14. Burundi maintains a multiple currency practice subject to Fund approval under Article VIII.3 The exchange regime is liberalized for current international transactions and little remains to be done for Burundi to accept the obligations of Article VIII, Sections 2, 3, and 4.

C. Structural Reform Must be Accelerated to Raise Growth

15. The program calls for an acceleration of structural reform, especially privatization of productive sectors (coffee, tea, banking, and hotels) and improvement in the investment climate (MEFP, ¶¶16–18). Persistent delays have prevented progress in elaborating a strategy to privatize the coffee washing stations and set out a new legal, regulatory, and institutional framework for the sector. Nevertheless, new private investment in the coffee sector is emerging as a result of the liberalization of investment and the state marketing structure, but the public ownership legacy weighs heavily on further progress.

16. Burundi’s membership in the EAC is expected to boost trade and growth over the medium term. To take full benefit of this access, Burundi will need to focus on tax reform, improve the business climate, and spend more on infrastructure.

17. The authorities have begun a medium-term effort to improve the quality of national statistics, with the support of AFRISTAT (MEFP, ¶19). While there is a critical mass of data sufficient to monitor a program supported by the Fund, data are inadequate to permit effective surveillance because of acute shortcomings in the national accounts, government finance, and balance of payments statistics (see statistical issues discussion in the Informational Annex).4 A new statistical law promulgated in September 2007 provides a better legal foundation for the data collection entities.

18. Burundi needs considerable technical assistance across the range of macroeconomic management (MEFP, ¶24). Burundi is responsive to Fund TA recommendations but implementation is slow. Fund-provided TA has increased with the posting of a full-time resident representative and resident experts and from the new AFRITAC-Centre. But sustained efforts by the international community are needed to strengthen donor coordination and increase TA.

III. Program Monitoring, Financing, and Risks

19. The prior actions for completion of the sixth review address slippages in implementing structural reforms and the need to improve PFM. Indicative quarterly quantitative targets have been set for 2008 (MEFP, Table 4). The BRB has made good progress addressing the issues raised in the safeguards assessment. The program is fully financed for 2007 and a residual financing gap for 2008 could be covered by disbursements under a successor PRGF arrangement in line with access norms—the authorities have expressed interest in a successor PRGF arrangement (Tables 68). Sustained donor support in the form of grants and highly concessional lending is critical to Burundi’s development efforts.

Table 6.External Financing Requirements and Sources, 2006–10(US$ millions)
20062007200820092010
ActualProjections
1. Gross financing requirements−382.6−414.0−468.1−1456.7−391.7
External current account deficit (exc. official transfers)−325.2−332.7−361.2−350.3−383.1
Debt amortization 1−39.7−48.1−35.8−1,022.5−1.4
Repayment of arrears0.8−0.4−48.00.00.0
Gross reserves accumulation (–)−18.4−32.6−22.9−37.7−7.2
IMF repurchases and repayments
Before HIPC/MDRI relief0.00.00.00.00.0
After HIPC/MDRI relief−0.1−0.2−0.2−46.20.0
2. Available financing332.2373.4386.81,423.8349.0
Foreign direct investment (net)32.011.012.015.07.1
Debt financing from private creditors (to private sector)3.02.11.68.40.5
Official creditors (to public sector) 2297.1360.3373.21,400.4341.3
Multilateral 1220.0262.6264.9250.2258.1
Of which: balance of payments financing 30.00.00.00.00.0
Bilateral41.458.268.781.283.3
To public sector41.458.268.781.283.3
Of which: balance of payments financing 30.00.00.00.00.0
HIPC and MDRI relief (including IMF)35.739.439.71,069.10.0
IMF 421.210.710.70.00.0
Other flows 529.229.952.00.00.0
Financing gap0.00.018.632.842.8
Sources: Burundi authorities, and IMF staff estimates and projections.

Excluding the IMF.

Includes both loans and grants.

Includes those transactions that are undertaken to finance a balance of payments deficit or an increase in reserves.

Includes HIPC/MDRI relief.

Includes all other net financial flows and errors and omissions.

Sources: Burundi authorities, and IMF staff estimates and projections.

Excluding the IMF.

Includes both loans and grants.

Includes those transactions that are undertaken to finance a balance of payments deficit or an increase in reserves.

Includes HIPC/MDRI relief.

Includes all other net financial flows and errors and omissions.

Table 7.Burundi: Indicators of Fund Credit, 2006–10
20062007200820092010
ActualsProjections
(SDR millions, unless otherwise indicated)
Fund credit outstanding (end of period) 1
SDR millions55.062.269.366.760.7
US$ millions82.793.5104.3100.391.3
Percent of quota71.480.790.086.678.8
Fund obligations0.10.81.03.77.1
Fund total charges and interests0.10.81.01.11.1
SDR periodic charges0.00.40.60.60.6
PRGF interest repayments (existing disbursements)0.10.30.30.30.3
PRGF interest repayments (projected disbursements)0.00.10.20.2
Fund total repayments/repurchases0.00.00.02.66.0
Existing disbursements0.00.00.02.66.0
Projected disbursements0.00.00.00.00.0
Fund credit outstanding as percent of:
Exports of goods and services86.7111.385.163.349.9
Gross official reserves63.157.155.944.739.4
Fund credit outstanding after HIPC/MDRI relief, as percent of:
Exports of goods and services84.963.249.8
Gross official reserves55.844.639.3
Fund obligations as percent of:
Exports of goods and services0.21.31.23.45.7
Gross official reserves0.10.70.82.44.5
(US$ millions)
Memorandum items:
Actual/projected PRGF disbursements21.010.510.50.00.0
Exports of goods and services95.484.0122.5158.4182.8
Gross international reserves131.0163.7186.6224.2231.5
HIPC and MDRI relief0.10.20.246.20.0
Sources: Burundi authorities, and IMF staff estimates and projections.

Projections are before HIPC and MDRI relief.

Sources: Burundi authorities, and IMF staff estimates and projections.

Projections are before HIPC and MDRI relief.

Table 8.Burundi: Schedule of PRGF Disbursements and Reviews, 2004–08
DateDisbursement (In millions of SDRs)Conditions
Executive Board consideration, January 23, 200426.40 1Executive Board approval; Disbursed.
January 19, 20057.15Completion of first review, based on observance of performance criteria at end-June 2004; Disbursed.
July 27, 20057.15Completion of second review, based on observance of performance criteria at end-December 2004; Disbursed.
July 14, 20067.15Completion of third review, based on observance of performance criteria at end-June 2005; Disbursed.
July 14, 20067.15Completion of fourth review, based on observance of performance criteria at end-December 2005; Disbursed. The third and fourth reviews were combined.
March 9, 20077.15Completion of fifth review, based on observance of the performance criteria at end-June 2006 and the structural performance criterion at end-September 2006. Disbursed.
January 2008 27.15Completion of sixth review, based on observance of the quantitative performance criteria at end-December 2006 and the structural performance criterion at end-June 2007.

Of which, SDR 19.25 million was for the early repayment of outstanding drawings under the Post-Conflict Emergency Assistance Policy.

The PRGF arrangement was extended until end September 2007 at the time of the third and fourth reviews and to January 22, 2008 on September 20, 2007.

Of which, SDR 19.25 million was for the early repayment of outstanding drawings under the Post-Conflict Emergency Assistance Policy.

The PRGF arrangement was extended until end September 2007 at the time of the third and fourth reviews and to January 22, 2008 on September 20, 2007.

20. Burundi is in debt distress. The DSA demonstrates that Burundi remains highly vulnerable to debt distress, even after full delivery of HIPC and MDRI relief, as key debt ratios are well above the country specific thresholds. At the HIPC CP, the NPV of debt would fall below the threshold of 100 percent of exports. However, Burundi would remain vulnerable to exogenous shocks, particularly those that result in lower growth. This argues in favor of a fiscal stance that is financed primarily with external grants, with only limited recourse to external loans entirely on highly concessional terms.

21. Risks to the program in a difficult post-conflict environment relate to a fragile political and security situation, limited institutional and implementation capacity and weak PFM. There is a continuing need to manage public expectations of a peace dividend, especially for public sector employees, and to reinforce PFM.

IV. Staff Appraisal

22. In a difficult post-conflict environment Burundi made uneven progress in late 2006 and 2007 on its PRGF-supported program. Political tensions during most of 2007 handicapped the passage of key economic legislation. The November announcement of an agreement to bring the major opposition parties into the government is a promising development.

23. The authorities responded appropriately to the governance incident, revenue underperformance, and spending pressures that pushed the program off track in mid-2007, bringing fiscal policy back on track in the third quarter. Budget management in the face of such shocks is difficult and compromises progress in implementing sustained pro-poor expenditure. The authorities must act with determination to strengthen PFM and stay vigilant to prevent incidents that undercut fiscal discipline. Staff encourages the authorities to maintain the revenue effort while carefully managing public expectations of a peace dividend, especially in the public sector.

24. The BRB is making progress with internal governance and efficiency and is encouraged to pursue a proactive policy. The managed-float exchange rate regime has been serving Burundi well so far. Monetary policy has in recent years been progressively strengthened. What is needed now is reinforced cooperation with the Ministry of Finance on liquidity forecasting. It is important that the BRB continue working to bolster the banking system, by improving supervision and raising bank capitalization norms.

25. Staff urges the authorities to proceed, in a transparent fashion, with preparations to privatize key productive sectors of the economy, especially the coffee sector. Timely structural reform, especially improvements in the business environment and privatization, are vital to attract private investment and spur economic growth. The increasing frequency of poor coffee harvests, primarily on account of a lack of investment and poor incentives for producers, underscores the importance of structural transformation of the economy.

26. Staff does not recommend approval of Burundi’s multiple currency practice and encourages the authorities to eliminate it as soon as possible. Debt-service payment procedures need to be improved to avoid external arrears.

27. The DSA shows Burundi to be in debt distress. Staff encourages the authorities to pursue a forceful and sustained reform effort, accelerate efforts to meet the CP triggers, reinforce debt management procedures and institutions, and strictly avoid recourse to any borrowing that is not highly concessional.

28. Staff calls on the authorities to strengthen implementation of Fund-provided TA recommendations on a timely basis and improve the quality of national statistics.

29. Staff recommends completion of the sixth review of the PRGF arrangement on the basis of the authorities’ commitment to sound macroeconomic policies and structural reform. Staff also recommends approval of the authorities’ request for waivers of the structural performance criterion, because corrective measures were taken, and on the accumulation of external arrears because it was temporary.

30. Staff welcomes the authorities’ intention to make public the staff report, the letter of intent, and the MEFP.

Appendix I—Burundi: Letter of Intent

Bujumbura, December 17, 2007

Mr. Dominique Strauss-Kahn

Managing Director

International Monetary Fund

Washington, D.C., 20431

Dear Mr. Strauss-Kahn,

1. On behalf of the authorities of the Republic of Burundi, we hereby transmit the attached memorandum of economic and financial policies (MEFP) for 2007 and 2008, within the program supported by the arrangement concluded between Burundi and the IMF in January 2004 under the Poverty Reduction and Growth Facility (PRGF). The attached technical memorandum of understanding (TMU) sets forth the terms and conditions for implementing the program, as well as the definitions and calculations of the criteria and objectives.

2. The quantitative performance criteria at end-December 2006 were observed (Table 1), except for a temporary accumulation of external payment arrears, for which we request a waiver. We also request a waiver for the nonobservance of the structural performance criterion on the establishment of a unified data file for computerized payroll management at the Ministry of Finance (end-June 2007) on the basis of corrective actions being undertaken as specified in the MEFP, ¶¶ 7 and 12 (Table 2). The census of all government employees (structural benchmark for end-June 2007) was launched on December 10, 2007. This postponement was due to significant delays in recruiting a consulting firm to conduct the work.

3. In support of the macroeconomic and financial objectives set for 2007-08, we hereby request completion of the sixth review under the PRGF and disbursement of SDR 7.15 million (9.3 percent of quota).

4. The economic and financial policies set forth in the MEFP should ensure that the objectives of the 2007 and 2008 program are met. However, the authorities are ready to take any further measures that may be necessary for the sound implementation of the program. Burundi will consult with the Managing Director on the adoption of such measures in advance of revisions to the policies contained in the MEFP, in accordance with the Fund’s policies on such consultations.

5. The quarterly quantitative performance criteria and indicative targets for 2006, 2007 and 2008 are shown in Tables 1, 3 and 4, respectively. The prior actions for the sixth review as well as the structural performance criterion and indicative benchmarks for 2007 are shown in Table 2.

6. We stand ready to provide the IMF Managing Director with all the necessary information he may request to monitor program implementation and achieve program objectives on schedule.

7. The Burundi authorities wish to make this letter, the attached MEFP, the TMU, as well as the staff report on the sixth review of the program under the PRGF arrangement, available to the public. We hereby authorize their publication and posting on the Fund’s website subsequent to Executive Board approval. We will do the same on the official websites of the Burundi government.

Sincerely yours,
/ s // s /
Clotilde NizigamaGaspard Sindayigaya
Minister of Finance, Economy, and

Development Cooperation
Governor, Bank of the Republic of Burundi
/ s /
Gabriel Ntisezerana
Second Vice-President, Republic

of Burundi

Attachment: Memorandum of Economic and Financial Policies (MEFP) for end 2007 and 2008 Technical Memorandum of Understanding (TMU)

Appendix I—Attachment I Burundi: Memorandum of Economic and Financial Policies for End–2007 and 2008

I. Introduction

1. This memorandum summarizes the government’s progress in implementing the economic program for 2006 and 2007, to September. It also sets out the authorities’ economic and financial policies for end-2007 and 2008. On the basis of the progress achieved and these policies, the authorities request Fund support through the completion of the sixth review under the Poverty Reduction and Growth Facility (PRGF) arrangement. The measures and objectives of the program are consistent with the Poverty Reduction Strategy Paper (PRSP) published in September 2006.

II. Recent Economic Developments and Performance Under the Program in 2006 and the First Nine Months of 2007

Performance in 2006

2. The program remained on track in 2006, despite a generalized delay in implementing structural reforms. Almost all the quantitative targets for December 2006, after adjustment, were observed (Table 1). The only exception was an accumulation of external payment arrears, which were cleared up in January 2007. Economic growth was satisfactory (5.1 percent) despite climatic vagaries. Coffee production rebounded sharply, to about 30,000 metric tons, and contributed greatly to the strong growth. However, agricultural food crops, excluding coffee, suffered from drought in the northern part of the country, and this was followed by flooding at the end of the year. The drought also depressed energy production (down 6.9 percent in 2006).

3. Fiscal performance in 2006 was consistent with program objectives. Faced with delays in the disbursement of external budgetary support, the government cut spending by nearly 3.5 percent of GDP. Consequently, the primary deficit (excluding grants) was well below the program limit (5.6 percent of GDP versus 8.9 percent). The overall budget deficit, on a commitment basis, including grants, exceeded the program objective (1.8 percent of GDP versus 0.4 percent). Revenues were in line with the program target (19.0 percent of GDP). A portion of domestic arrears prior to 2004 was cleared in cash (Fbu 4.7 billion). Bank credit to government remained well below the program’s adjusted limit.

4. Monetary policy was prudent, which allowed inflation to be contained in 2006. The monetary aggregates rose by 16.4 percent for M2 and by 18.3 percent for M3. These results are roughly in line with program projections. Thanks to prudent management, inflation (measured by the consumer price index) was contained at 9.3 percent by the end of the year, slightly higher than the 8.7 percent target. Credit to the economy continued to recover, rising by around 25 percent during 2006, driven by bank financing of the coffee crop and of business development. Interest rates continued on a gradual declining trend, assisted by the elimination of the 7 percent tax on bank transactions and lower benchmark rates set by the Bank of the Republic of Burundi (BRB).

5. Burundi’s external position remained consistent with program objectives, although the concentration of external aid disbursements toward the end of the year introduced some volatility. The Burundian economy maintained its competitiveness during 2006, with a 2.9 percent depreciation of the effective real exchange rate. Imports rose sharply (by 17 percent), primarily because of the demand for capital goods and intermediate goods. Exports rose only slightly (2.6 percent), and coffee exports, despite high production, stagnated because power outages slowed coffee milling severely. Foreign aid flows, which were concentrated in the last two months of the year, sparked a rapid appreciation in the exchange rate against the US dollar at the end of the year, after depreciating during the year. The Fbu/US$ exchange rate ended the year very close to its end-2005 value.

The first nine months of 2007

6. Overall, economic performance showed a modest deterioration during the first nine months of 2007. Inflation, which had declined to 2.2 percent at the end of June as a result of prudent monetary policy, rebounded to 11 percent at the end of September, primarily reflecting higher taxes and price adjustments. Economic growth slowed, following a drop in coffee production (to 7,000 metric tons). Fiscal policy was generally consistent with program objectives, except for a budgetary incident in April/May. Highly controversial payments totaling Fbu 17.3 billion were made to a Burundian oil company. These payments destabilized the budget, undermined the macroeconomic program, exposed public financial management (PFM) problems, and delayed disbursement of external budgetary support. To dampen the impact of rising world oil prices, the authorities reduced petroleum product taxes from 20 percent to 10 percent.

7. The schedule for implementing the structural reforms was delayed, in particular with respect to the coffee sector. Delays in the provision of technical assistance led to a delay in launching the census of all government employees, so that the end-June structural benchmark was missed. As a result the structural performance criterion at end June on the unified computerized payroll management data file, which was one of the key outputs of the census was also missed. Nevertheless, some reforms were implemented at the end of the period, in particular on public financial management. Work units were created in May to reform accounting, treasury management, and computerization of the Integrated Financial Management Information System (IFMIS). The HIPC expenditure monitoring committee was reestablished. Several treasury accounts, including off-budget accounts, were closed.

8. The anti-money laundering law, prepared with IMF technical assistance, was approved by the government and submitted to Parliament, and the new statistics law was promulgated on September 25, 2007. The accompanying regulatory texts to this law, incorporating a new institutional framework for the ISTEEBU and its employee statutes, were approved in November 2007. The National Statistics Development Strategy (SNDS) is now being finalized.

III. Program for End-2007 and 2008

A. Macroeconomic Objectives

9. The strategy for end-2007 and 2008 focuses on: (i) pursuing macroeconomic stabilization; (ii) strengthening public financial management; and (iii) implementing structural reforms. Growth should remain modest in 2007, at 3.6 percent, because of a very sharp drop in coffee production and delays with the structural reforms. For 2008, economic growth should pick up to around 6 percent, with a recovery of coffee production. Monetary policy will continue to rely on controlling reserve money under a managed floating exchange rate regime. Inflation is expected to remain under control at 8.7 percent in 2007, and 5.2 percent in 2008.

B. Public Finance

10. Budget policy for the remainder of 2007 seeks to restore balance following the INTERPETROL incident. The incident resulted not only in the loss of resources but also a delay in budgetary support. In the absence of corrective measures, the budget balance was thus disrupted. The government immediately launched legal action to recover unjustified payments. A security deposit of FBu 6 billion was obtained from INTERPETROL. The government also accelerated measures to strengthen PFM. It launched an independent external audit of cross-debts between the petroleum sector and the government. Until the audit is completed, no payment on these arrears will be made. The 2007 budget was maintained without revision, and non-priority expenditures were reduced (about 1.5 percent of GDP). Exceptional, and temporary, financing from the BRB was obtained through the issuance of treasury bills, repayment of which will come from disbursement of budget support expected at the end of the year. Taxes on sugar and beer were raised. Despite these measures, total revenues are likely to be lower than the program target, at around 18.1 percent of GDP, following the reduction in the petroleum products tax and an overestimate of revenue in the budget. The overall balance, on a cash basis, including grants, will show a deficit of 1.3 percent of GDP. External budgetary support is projected at US$90 million, most of which will be disbursed at the end of 2007. Domestic financing will be limited to FBu 21.6 billion (2.0 percent of GDP), of which FBu 13.7 billion (1.3 percent of GDP) is the clearance of domestic arrears. The remaining stock of domestic arrears (excluding the petroleum sector) was cleared in December through the issuance of five-year treasury bonds.

11. The 2008 budget seeks to maintain macroeconomic stability, while pursuing the reorientation of spending in favor of the social sectors. Revenues should reach 19.1 percent of GDP. Taxes on soft drinks and on petroleum products have been raised (by FBu 50 and to 12 percent, respectively). The government intends to restore the 20 percent tax rate on petroleum products gradually. The overall deficit on a commitment basis, including grants, will be kept at about 0.7 percent of GDP, without resort to domestic financing. The budget includes increases in civil service benefits for transportation, family allowances, and housing, and salary increases for high ranking government officials. No further salary or allowances increases for government employees will be granted in 2008 unless offset by savings obtained on the wage bill. It is essential for the budget sustainability that the census of government employees and the new phase of demobilization be completed in 2008. The 2008 budget includes some spending (including payment of the retroactive portion of the increase in allowances for civil servants) conditional upon recovery of the amounts involved in the INTERPETROL incident, and upon higher-than-projected financing resources (external budgetary support, debt relief, and receipts from privatization; see TMU, paragraph 14). Demobilization of the army and the police, achieved with MDRP project support, is essential for redirecting budgetary spending towards the social sectors.

12. The government will pursue measures to strengthen PFM, with stepped-up technical assistance from the IMF, the World Bank, and the European Union. It will also continue the progressive reallocation of spending from security towards poverty reduction. The government is determined to pursue the objectives set forth in its letter on demobilization, reinsertion, and reintegration (DDR) program policy sent to the World Bank in February 2004, and to reduce the size of the army and of the national police force, by implementing the DDR program. Therefore, the government has decided to launch a new phase of demobilization of the army and the police in 2007-08. Wage bill management will be further reinforced, inter alia, through the launching of an employee census, which will lead to the creation of a single wage data management file. Strengthening of the IFMIS will be pursued so that financial transactions can be accounted for in real time. Systems for treasury management, public accounting, and procurement will also be reinforced. For greater efficiency and transparency, a major step will be taken with the 2008 budget towards progressive reestablishment of a treasury single account.

13. A medium-term project to modernize taxation has been launched with technical support from the IMF and from the World Bank. A coherent tax reform strategy will be established by March 2008. Initially, the strategy will be based on strengthening of administrative capacity, especially by giving priority to the computerization of tax administration. Introduction of a value-added tax (VAT) is now a priority, with Burundi’s recent membership in the EAC and harmonization of import duties with those of other EAC countries. The impact of the phased introduction of the EAC trade and customs regime will be assessed in early 2008. The 2008 budget does not assume any tariff or regime changes for 2008.

MeasureTimetableStatus
Reform of public financial management and fiscal policy
For gradual reestablishment of the single Treasury account:
  • consolidate the ordinary budget account (BO) and the extraordinary capital budget account (BEI);

  • eliminate the HIPC sub accounts that have been opened in the name of public entities; and

  • transfer management of the HIPC account to the Government Cashier’s Office in the BRB as a sub account of the OTBU.

December 2007Prior action Points 2 and 3 were completed on October 11, 2007
Reiterate in the 2008 Budget Law:
  • the obligation to obtain the prior approval of the Minister of Finance for any third-party act that would have a fiscal impact (decision, convention, contract, etc.) and to register this with the Ministry, as a condition of validity (pursuant to Decree Law 1/171 December 10, 1971 amending the Public Accounting law).

  • the administrative, civil and criminal sanctions under the various legal codes applicable to managers of public funds,1 for violation of the rules and procedures governing public expenditure, which will be rigorously and diligently enforced.

  • the principles relating to expenditure procedures.

  • authorizations to open off-budget accounts, except project accounts and accounts for regularly budgeted funds, will be suspended, pending new legislative and regulatory provisions.



1 The managers of public funds are the ordonnateurs (who authorize payments), the administrateurs de crédit (who control budget appropriations) and the comptables (who make the payments).
December 2007
Ordinances of the Minister of Finance:
  • establishing an exhaustive list of the kinds of expenditures that may be made without a prior payment order (ordonnancement), and procedures for recording, regularizing and justifying them

  • specifying the provisions of article 52 of the Public Accounting law

  • concerning the status and prerogatives of the internal control office of the Ministry of Finance, and the duties of the office responsible for developing the IFMIS.

December 2007Prior action
  • Introduce accounting and budgetary procedures for recording, monitoring and clearing all expenditures that have been verified (liquidées) but for which a payment order has not been issued (non-ordonnancées) or which have not been paid (non-payées).

January 2008
  • Finalize the government’s public financial management reform strategy and action plan.

June 2008
  • Define the status and prepare the terms of reference for the Support Unit and equip it to guide the reform.

March 2008
  • Review the current draft organic law to specify the concepts, principles and responsibilities for those responsible for handling government revenues and expenditures, with technical assistance from the IMF and the World Bank.

December 2007
  • Approval of the organic law by the council of ministers and submission to Parliament for approval

March 2008
  • Prepare the budgeting and accounting procedures manuals based on the new organic law, distribute and publicize them, with ERSP technical support.

December 2008
  • Revise the public accounting law, in particular the articles concerning “off budget” accounts, namely articles 15 and 17 of the Law of March 19, 1964 on general public accounting regulations and Article 58 of Ministerial Ordinance 030-89 of June 23, 1969 on implementation measures.

2008
  • Improve the monthly treasury forecast so it can be used as a management tool.

2008
  • Reinforce the joint treasury management structures of the Ministry of Finance and the BRB created in 2007.

2007-08
  • Produce a quarterly TOFE for exhaustive and reliable tracking of government financial operations, based on the IFMIS with a one-month lag.

December 2008
Make budget execution more transparent by producing the following statements:
  • monthly monitoring tables based on IFMIS (allocations-commitments–verifications-payment orders–payments);

  • a reliable, complete and up-to-date monthly balance of the treasury accounts;

  • the daily treasury situation.

December 2008
  • Improve the monitoring of poverty reduction expenditures using the functional classification, based on the PRSP, in the IFMIS reports.

June 2008
Give priority to strengthening payroll management in 2007, with the support of the World Bank’s ERSP project, through:
  • a physical census of all government employees (civil servants, police, army) with the support of the World Bank (ERSP project) and other donors;

  • issuance of personal identity cards with photos and signatures;

  • put in place a central data file and single identification number for all government employees (teachers, civil servants, army and police);

2007-08

2008

4th quarter 2008
The launching of the census is a prior action.
  • Strengthen payroll monitoring in the IFMIS.

2007-08
  • Prepare for assumption of payroll management by the Ministry of Finance.

2008
  • Eliminate all remuneration or compensation in kind for government employees.

2007-08
  • Strengthen the financial control of public enterprises, in particular by implementing action plans to strengthen the Administrative and Portfolio Revenue Directorate in the Ministry of Finance and by establishing clear guidelines for the government’s representatives on public enterprise boards.

2007-08
  • Revise the private and public corporations code (1996) by establishing dual technical and financial oversight of public enterprises, with ERSP support.

2008-09
  • Launch an audit of cross-debts between the budget and the petroleum sector.

December 2007Prior action
  • Complete the audit of cross-debts and establish a settlement plan.

June 2008
  • Launch independent semi-annual financial and technical audits of the HIPC account and operations from 2005 to the end of 2007 (EU support).

December 2007Prior action
  • Improve the production, reliability, and regularity of the monthly reports on external public debt, including projections of debt service for the next three months.

2008
  • Reduce further the number of government accounts by (1) finalizing the grouping of accounts by public entity; and by (2) eliminating accounts opened in the name of public entities and administrative offices that do not have financial autonomy.

June 2008
  • Return to the BRB all donor-financed project accounts, in consultation with the donors.

2008
Reform of customs
  • Implement the new customs code

December 2007
Pursue the action plan for strengthening customs, based on the IMF technical assistance report of September 2006, in particular by:As of November 2006

2007-08
  • Strengthened monitoring and control of the SGS component in order to improve its effectiveness and yield.

2007-08
  • Use the risk evaluation system (PROFILER) in order to clear through the green channel at least 50 percent of import operations.

2007-08
  • Set up and utilize a system for selecting import consignments to be examined, using criteria determined by the import inspection system.

2007-08
  • An enhanced ex post monitoring system.

  • Assess the revenue impact of Burundi’s membership in the EAC, with technical support from the World Bank (ERSP project).

January 2008
Taxation
  • Adopt a strategy for modernizing taxation and harmonizing it with EAC zone countries, with IMF technical assistance

March 2008
  • Modernize and harmonize taxation with EAC countries. Revise the general taxation code.

2008-12
  • Implement the action plan for strengthening tax administration on the basis of the IMF technical assistance report of September 2006, with the technical and material support of donors.

2007-10
  • Prepare for replacing the transactions tax with a VAT, with IMF technical support:

  • -approve the draft law

  • -prepare the regulations and procedures

2008-09
  • Computerize the tax office

2008-09
  • Improve the efficiency of tax collection by replacing the tax current account (CCF) by a computer application that permits the secure monitoring of collection.

2007
  • Enforce the income tax law for Burundian employees in the international sector.

2007-08
  • Develop a legal and fiscal framework for the exploitation of natural resources in keeping with international best practices, with technical support from the World Bank and the IMF in conjunction with the new draft mining code.

2008
  • Eliminate all exemptions from indirect taxes and maintain time limits on tax exemptions in the investment code.

2007-08
  • Unify local and national revenue administrations and adopt an automatic revenue sharing formula.

2008-09

C. Monetary and Exchange Policy

14. The BRB will continue its prudent monetary management, with the principal objective of containing inflation. The growth of broad money is expected to be 14.9 percent for both M2 and M3 in 2007, significantly above nominal GDP growth (13.4 percent), reflecting the continued monetization of the economy. This trend should continue in 2008, with growth in the monetary aggregates of 15.8 percent (M2) and 16.0 percent (M3), for nominal GDP growth of 12.4 percent. Prudent and proactive management of foreign exchange reserves will continue within a managed floating exchange rate regime. Gross international reserves of the BRB should reach US$163.7 million at end-2007 (3.9 months of 2008 imports) and US$186.6 million at end-2008 (4.2 months of 2009 imports).

15. The BRB will continue to strengthen its internal capacities, with particular technical assistance from the IMF and the First Initiative. The BRB will focus primarily on three issues: (i) improving governance (a new charter, further development of the internal audit function, a communications policy, adoption of International Financial Reporting Standards, IFRS); (ii) strengthening of the financial sector (strengthening banking supervision, seeking solutions for restructuring certain banks, developing the monetary, financial, and exchange markets); and (iii) pursuing an active monetary policy that will rely increasingly on market mechanisms. In order to strengthen its capacity to implement monetary policy, in December 2007 the BRB will start the process of converting advances to the government into Treasury bonds, according to the June 2006 convention between the Ministry of Finance and the BRB.

MeasureTimetableStatus
Monetary policy
  • Prepare weekly updates of foreign exchange cash flow forecasts, in collaboration with the support unit in the Ministry of Finance.

2007-08
  • Prepare a strategy for developing economic forecasts

2008
  • Establish a training program in monetary and financial policy.

June 2008
  • Update the liquidity forecasting framework.

As of first quarter 2008
  • Vary the amount of interventions on the MED in light of reserve management and monetary policy objectives.

2007-08
  • Extend the compulsory reserves maintenance period to one month

November 2007
  • Introduce an overnight deposit facility at a suitably dissuasive rate.

As soon as the new statutes are promulgated
  • Launch an awareness and training campaign for officers of the BRB, the banks, and businesses, to pave the way for developing a secondary market for Treasury securities.

2008
Internal reforms and governance of the BRB
  • Reshape the internal structure of the BRB, with support from the FIRST Initiative.

2008
  • Computerize the BRB, in line with the action plan prepared by FIRST and BRB.

2008
  • Strengthen foreign exchange reserves management by:

    • adopting a new functional organization chart for the foreign banking operations office,

    • finalize the directives on foreign exchange reserve management, and

    • activate the foreign exchange reserves management committee.

March 2008
  • Adopt a communications policy for the BRB, targeted at financial markets.

March 2008
  • Continue implementing the reforms recommended by the external auditor and put in place procedures to monitor those reforms.

2007-08
  • Continue implementing the recommendations of the safeguards assessment.

2007-08
  • Promulgate the new charter of the BRB

March 2008Approval by council of ministers is a prior action
  • Strengthen the internal audit function and prepare a 2008 risk-based audit plan.

2007-08
  • Finalize internal audit procedures in an audit manual.

March 2008
  • Observe IFRS rules (train the units involved in applying these rules to the BRB accounts).

2007-08
  • Establish a national Financial Intelligence Unit in the Ministry of Finance to support the application of legal provisions for combating money laundering (AML), with technical support from the IMF.

2008Passage of AML law is a prior action
  • Adopt a code of ethics for all BRB employees.

June 2008
Development of the financial and foreign exchange markets
  • Move toward an interbank exchange market, in line with IMF technical assistance recommendations.

    • Open the central bank auction (MED) to sales of forex by banks

    • Widen spread for surrender of forex by banks

2008-10

June 2008

June 2008
  • Create a joint working group of the BRB and the Bankers’ Association and adopt an action plan for developing the monetary and financial markets.

March 2008
Financial sector
  • Strengthen banking supervision and prudential regulation, with IMF technical assistance

2007-08
  • Progressively raise the minimum bank capital requirement from FBu 1 billion :

    • 2.5 billion

    • 3.5 billion

    • 5.5 billion

January 1, 2008

January 1, 2009

January 1, 2010
The first two stages have already been announced. The third will be in December 2007.
  • Adopt a matrix of violations and fines.

January 2008
  • Revise the BRB circular on bank licensing.

2008
  • Revise the banking act and prepare a new bank chart of accounts consistent with IFRS accounting standards.

2008-09
  • Create a financial training structure in the Bankers’ Association, with support from the BRB.

2008-09
  • Continue the rehabilitation or closure of banks in difficulty.

2007-08
  • Reorganize the banking supervision office.

January 2008
  • Evaluate the conformity of the BRB’s supervisory mechanism with the 25 Basel principles

March 2008
  • Bring prudential regulations and norms into line with international standards and best practices.

September 2008
  • Arrange for an assessment of the financial sector by the World Bank and IMF (FSAP).

First half 2008
  • Prepare a legal framework governing payments systems

2008-09

D. Structural Reforms

16. The authorities have adopted a structural reform strategy based on three pillars: (i) improving the business climate and governance; (ii) opening the economy to international trade; and (iii) privatizing public assets in the productive sectors. Taken together, these reforms will allow Burundi to take full advantage of its membership in the EAC and, more generally, its integration in the world economy.

17. Efforts to improve the business climate are focused in particular on direct investment and trade development. In the context of investment promotion efforts, exemptions from indirect taxation will be avoided and tax advantages strictly controlled. The Government recognizes the importance of exploiting its natural resources on a rational and sustainable basis within a legal framework that guarantees transparency and protection of the environment. The authorities will seek technical assistance from the IMF and the World Bank to prepare a legal framework (including the taxation aspects) consistent with best international practices. The authorities are determined to liberalize business within the country, in order to develop sectors with growth potential.

18. The privatization process will be pursued transparently, with full respect for the rules of good governance. To facilitate the process, the government will consolidate its various holdings, when necessary. Particular attention will be paid to reforming the coffee sector, because of its potential impact on growth and poverty. The intent is to provide for competition at all levels of the industry, and to privatize it, so that producers will be free to exercise their profession and to attract private investment. There have been delays in implementing the November 2006 action plan, especially in the preparation of a privatization strategy for the washing stations and shelling mills and a proposed new legal, regulatory and institutional framework.

MeasureTimetableStatus
Privatization
  • Through SCEP, dismantle cross-shareholdings in the public sector and consolidate public-sector shares in the government’s hands.

2008
  • Promulgate the privatization law, with effective and transparent procedures.

March 2008
  • Through SCEP, privatize State assets in the banking sector, in close consultation with the BRB, to avoid further concentration in this sector.

2007-08
Coffee sector reform strategy
  • Reaffirm the principle of freedom of establishment and exercise (Law 100/012 ; Jan 2005) in the coffee sector, by abolishing the coffee brokering monopoly, revising the OCIBU regulations on direct sales.

December 2007
  • Remove all restrictions on direct coffee exports. A customs declaration will be sufficient for export.

September 2008
  • Confirm the exclusive role of the coffee sector reform committee in preparing reform strategies.

December 2007
  • Continue and reinforce the management of coffee marketing by the coffee reform monitoring committee in order to minimize delays, costs, financing requirements, and financial risks both for producers and for the government.

2007-08
  • Issue an international call for tenders for the 2007-08 coffee crop financing.

December 2007
  • Weekly monitoring of cash flow management, including that of the OCIBU Stabilization Fund for coffee crop financing.

2007-08
  • Collect payment arrears for prior crop years from SOGESTALs and mills.

2007-08
  • Prohibit the SOGESTALs from declaring or distributing dividends until their arrears have been cleared and debts repaid.

2007-08
  • Financial audit of the coffee sector’s 2005/06 crop year, with the support of the World Bank.

2007
  • Prepare a strategy for privatizing the 133 washing stations and the shelling factories.

March 2007Delayed. The study must be redone. Expected for June 2008.
  • Prohibit the SOGESTALs from building new washing stations.

2007-08
  • Prepare a legal, regulatory and institutional framework for the coffee industry (with support from the ERSP project).

March 2007Delayed. The study must be redone. Expected for September 2008.

E. Transparency, Good Governance, and National Statistics

19. In an effort to enhance transparency and allow the public to better understand and follow the economic reforms, the government and the BRB will publish ministerial orders, decrees, laws, decisions, as well as economic reform strategies and, in particular, the Memorandum on Economic and Financial Policies addressed to the IMF Managing Director, on the government, BRB, and REFES websites, which are kept up to date. The Audit Court will continue to strengthen its activities. The authorities are committed to continue their efforts to improve the quality of national statistics and, with support from AFRISTAT, intend to resume the regular production of the national accounts and improve the reliability and coverage of the consumer price index.

MeasureTimetableStatus
Transparency and good governance
  • Audit of government accounts by the Audit Court.

2007-08Audit of the 2006 accounts completed
  • Publish decisions, ordinances, decrees, laws, and reform strategies at official websites, including the Memorandum on Economic and Financial Policies, once it is approved by the IMF Executive Board.

2007-08
  • Create (with support from the ERSP project) a website that brings together all laws, regulations, ordinances, and implementing provisions, at the legislation unit of the Ministry of Justice.

2007February 2008
The business climate
  • Publish the Investment Climate Assessment produced with World Bank support.

March 2008
  • Prepare an action plan for improving the business climate.

June 2008
Statistics
  • Approve the National Statistical Development Strategy (SNDS) and implement the roadmap.

March 2008
  • Promulgate the statistics law.

First-quarter 2007Completed, Sept 2007
  • Adopt the implementing regulations for the new statistics law, which establish a new institutional framework for ISTEEBU and a new code for ISTEEBU employees.

March 2007Prior Action
  • Resume the regular production of national accounts and publish a series based on the methodology of the System of National Accounts 1993 (SNA93) for 1999-2005

2007
  • Update the metadata for participation in the IMF’s GDDS initiative.

March 2008
  • Expand the coverage of the CPI:

    • Expand the coverage of the new index to include the provinces for which data are already collected regularly;

    • Conduct a household consumption budget survey and a farm survey;

    • Update the weights of the items included in the CPI consumption basket, following the household consumption budget survey and the farm survey.





March 2007





2008





2008




Completed

F. Program Financing and Relations with Creditors

20. The external financing of the 2007 program, excluding projects, is estimated at US$147 million, and includes disbursements from the IMF under the existing PRGF arrangement (US$11 million); the World Bank (US$25 million under the second tranche of the ERSG); the European Union (US$2.5 million from the last variable tranche of the ninth FED and US$20.5 million in new support); bilateral donors (US$45 million); conventional debt relief on current maturities (US$4 million); and debt relief under the HIPC Initiative (US$39 million).

21. For 2008, external financing of the program, excluding projects, amounts to US$141 million, and includes disbursements from the IMF under the existing PRGF arrangement (US$11 million); the World Bank (US$25 million); the European Union (US$19 million in new support); the African Development Bank (US$11 million); bilateral donors (US$31 million), conventional debt relief as scheduled (US$4 million) and HIPC debt relief (US$40 million). A financing gap of US$19 million could be covered by a new PRGF arrangement (in line with access norms).

22. The authorities will continue their discussions with non-Paris Club creditors with a view to benefiting from debt relief on terms similar to those granted by bilateral creditors in the Paris Club. China canceled Burundi’s debt (US$13.7 million) in 2007.

G. Monitoring the PRSP

23. The authorities are continuing with the measures needed to reach the HIPC completion point. Capacities for monitoring the PRSP are being steadily reinforced, with support from the international community. The HIPC expenditures tracking committee has been reactivated. The government has called for tenders for independent semiannual financial and technical audits of the HIPC accountant operations, from 2005 to the end of 2007. Those reports will be published. In addition, budget tracking exercises for the education, health, and justice sectors, as well as a user assessment of the quality of services provided, are planned for June 2008.

H. Technical Assistance

24. Burundi has extensive technical assistance needs. The authorities will continue to work closely with its bilateral and multilateral partners, in particular through the ERSP project financed by the World Bank, the European Union, and bilateral donors, to strengthen the administrative capacity of Burundi’s institutions. IMF technical assistance will continue in the areas of tax policy and tax administration, public expenditure management, monetary and exchange policy, banking supervision, and economic statistics. This assistance will be reinforced through the AFRITAC center.

I. Program Monitoring

25. The authorities have strengthened the program’s monitoring through the establishment of an inter-ministerial monitoring committee at the second vice-presidency level, which will meet once a month and will be backed by a technical committee. The quarterly quantitative benchmarks for 2006 and outcomes at end-December 2006 are shown in Table 1. The prior actions for the sixth review, as well as the structural performance criterion and benchmarks for 2007, are shown in Table 2. The indicative quarterly quantitative performance criteria for 2007 and 2008 are shown in Tables 3 and 4. The definitions of the program’s performance targets, external assistance adjustors, and underlying assumptions, as well as Burundi’s reporting requirements, are described in the attached TMU. Burundi will avoid incurring overdue financial obligations to the Fund, and will not introduce new exchange restrictions or multiple currency practices. Nor will it conclude bilateral payments agreements inconsistent with Article VIII of the Fund’s Article of Agreement, or impose restrictions for balance of payments purposes. In addition, the authorities stand ready to adopt new financial or structural measures, in consultation with Fund staff, as necessary to ensure program success.

Table 1.Burundi: Performance Criteria and Indicative Targets for 2006(Fbu billions, unless otherwise indicated)
20052006
Dec.Mar.Jun.1Sep.1Dec.2
Act.Act.Prog.Prog.

Adj.
Act.Prog.Prog.

Adj.
Act.Prog.Prog.

Adj.
Act.
Performance targets
Net foreign assets of the BRB (floor; US$ millions)348.926.340.9−14.88.548.0−18.1−14.155.619.442.8
Net domestic assets of the BRB (ceiling)351.768.069.7125.488.462.8128.9113.158.694.863.5
Net domestic financing of the government (ceiling)348.52.914.269.97.536.789.819.222.959.121.3
External payments arrears of the government (ceiling; US$ millions)0.50.00.00.00.20.00.00.00.00.00.4
Short-term external debt of the government (ceiling; USS millions)50.00.00.00.00.00.00.00.00.00.00.0
Nonconcessional external debt contracted or guaranteed by the government or the BRB (ceiling; cumulative; USS millions)60.00.00.00.00.00.00.00.00.00.00.0
Indicative targets
Primary deficit of the government (ceiling; cumulative from beginning of calendar year)714.6−6.032.8−5.967.117.684.852.9
Government’s wage bill (ceiling; cumulative from beginning of calendar year)72.617.140.240.771.167.594.893.9
Adjustors
External nonproject financial assistance (USS millions)78
Cumulative from the beginning of the year3.963.37.674.98.8107.871.6
Of which:
EU0.012.50.012.50.017.013.1
World Bank0.035.00.035.00.060.035.1
AfDB0.00.00.011.00.011.011.0
France0.00.00.00.00.03.03.3
Belgium2.42.42.42.42.42.42.4
Netherlands0.010.00.010.00.010.00.0
Debt relief (current maturities, excluding HIPC)1.53.45.24.16.44.56.8
Net accumulation of domestic arrears during period0.00.00.00.00.013.00.00.0
Exchange rates
Fbu/USS (end-of-period)11001018100010281000105710001002
Fbu/USS (period average)10501006100310251000103810001044
USS/Euro (end-of-period)1.181.211.211.271.211.271.211.32
US$/SDR (end-of-period)1.431.441.441.481.441.481.441.49

Indicative targets.

Performance criteria.

The ceiling or the floor will be adjusted to accommodate 100 percent of any deviation from the projected disbursements of external nonproject financial assistance shown in the table. In case of a financing excess (shortfall), the floors on the net foreign assets of the central bank will be adjusted upward (downward), and the ceilings on the net domestic assets of the central bank and on the stock of net credit from the banking system to the government will be adjusted downward (upward). External financing will be converted to Burundi francs at the program end-period Fbu/US$ exchange rate.

The ceiling on net domestic financing of the government will be adjusted downward for any accumulation of domestic arrears as defined in the Technical Memorandum of Understanding (TMU).

Excluding short-term, import-related trade credits.

With a grant element of less than 50 percent.

As defined in the TMU and revised to reflect a reclassification of spending on the new police force from projects to recurrent expenditures.

Nonproject assistance includes debt relief on current maturities and net cash payments to clear arrears.

Indicative targets.

Performance criteria.

The ceiling or the floor will be adjusted to accommodate 100 percent of any deviation from the projected disbursements of external nonproject financial assistance shown in the table. In case of a financing excess (shortfall), the floors on the net foreign assets of the central bank will be adjusted upward (downward), and the ceilings on the net domestic assets of the central bank and on the stock of net credit from the banking system to the government will be adjusted downward (upward). External financing will be converted to Burundi francs at the program end-period Fbu/US$ exchange rate.

The ceiling on net domestic financing of the government will be adjusted downward for any accumulation of domestic arrears as defined in the Technical Memorandum of Understanding (TMU).

Excluding short-term, import-related trade credits.

With a grant element of less than 50 percent.

As defined in the TMU and revised to reflect a reclassification of spending on the new police force from projects to recurrent expenditures.

Nonproject assistance includes debt relief on current maturities and net cash payments to clear arrears.

Table 2.Burundi — Prior Actions for the Sixth Review under the PRGF, and Structural Performance Criteria and Benchmarks for 2007
MeasureTimetable (end

of month)
Status
Prior actions
Ministerial Orders of the Minister of Finance:
  • establishing an exhaustive list of the kinds of expenditures that may be made without a prior payment order (ordonnancement);

  • clarifying the provisions of article 52 of the Public Accounting law;

  • concerning the status and prerogatives of the internal control office of the Ministry of Finance, and the duties of the office responsible for developing the IFMIS.

  • Promulgate the 2008 budget law in conformity with the program discussed with the IMF.

  • Launch an external audit of HIPC expenditures

Done, December 6, 2007
  • Approve the implementing regulations for the statistics law

Done, November 27, 2007
  • Parliamentary passage of the anti-money laundering law

  • Launch an external audit of cross-debts between the petroleum sector and the budget.

Done, December 10, 2007
  • Launch the census operation of all government employees

Done, December 10, 2007
  • Approval by the council of ministers of the revised BRB charter and submit it to Parliament

Structural performance criterion
  • Introduce a single computerized file for payroll management in the Ministry of Finance

June 2007Delayed to mid-2008. Is based on the results of the census
Structural benchmarks
  • Begin the first risk-based audit of the BRB

March 2007Done, February 12, 2007
  • Conduct a census of all employees of the civil service, the police and the army.

June 2007Launch delayed to December 2007
Table 3.Burundi: Indicative Targets for 2007(Fbu billions, unless otherwise indicated)
20062007 1
Act.Mar.Jun.Sept.Dec.
Prog.

IMF

Country

Report

No.

07/1113
Prog.

Adj.
Act.Prog.

IMF

Country

Report

No.

07/1113
Prog.

Adj.
Act.Prog.

IMF

Country

Report

No.

07/1113
Prog.

Adj.
Prel.Prog.

IMF

Country

Report

No.

07/1113
Prog.

Adj.
Proj.
Performance targets
Net foreign assets of the BRB (floor; US$ millions)242.824.820.130.944.11.118.324.7−21.57.131.141.952.2
Net domestic assets of the BRB (ceiling)263.581.886.767.467.6111.989.589.5137.1103.285.274.165.2
Net domestic financing of the government (ceiling)2321.3−2.0−1.3−7.5−21.126.433.74.555.341.70.125.021.6
External payments arrears of the government (ceiling; US$ millions)0.40.00.00.00.00.00.00.00.00.50.00.00.0
Short-term external debt of the government (ceiling; US$ millions)40.00.00.00.00.00.00.00.00.00.00.00.00.0
Nonconcessional external debt contracted or guaranteed by the government or the BRB (ceiling; cumulative; US$ millions)50.00.00.00.00.00.00.00.00.00.00.00.00.0
Indicative targets
Primary deficit of the government (ceiling; cumulative from beginning of calendar year)652.95.76.726.732.856.344.668.359.5
Government’s wage bill (ceiling; cumulative from beginning of calendar year)93.928.325.559.156.790.485.2121.7112.2
Adjusters
External nonproject financial assistance (US$ millions)67
Cumulative from the beginning of the year71.615.711.057.414.463.217.086.096.8
Of which:
EU13.12.30.02.32.42.32.421.823.0
World Bank35.10.00.025.00.025.00.025.025.0
AfDB11.00.00.00.00.00.00.00.00.0
France3.32.60.02.60.02.60.02.62.7
Belgium2.40.00.00.00.00.01.62.67.1
Netherlands0.010.010.020.010.025.010.025.025.0
Norway0.00.00.06.00.06.00.06.010.0
Debt relief (current maturities, excluding HIPC)6.80.81.01.52.02.33.03.04.0
Net accumulation of domestic arrears during period0.00.04.20.0−3.20.0−3.20.0−36.0
Exchange rates
Fbu/US$ (end-of-period)100210301043103010891030111210301050
Fbu/US$ (period average)104410251034103010571030110110301104
US$/Euro (end-of-period)1.321.301.331.301.351.301.371.301.37
US$/SDR (end-of-period)1.491.511.511.501.521.501.531.501.54

Indicative targets.

The ceiling or the floor will be adjusted to accommodate 100 percent of any deviation from the projected disbursements of external nonproject financial assistance shown in the table, up to a maximum cumulative adjustment of US$ 50 million. In case of a financing excess (shortfall), the floors on the net foreign assets of the central bank will be adjusted upward (downward), and the ceilings on the net domestic assets of the central bank and on the stock of net credit from the banking system to the government will be adjusted downward (upward). External financing will be converted to Burundi francs at the program end-period Fbu/US$ exchange rate.

The ceiling on net domestic financing of the government will be adjusted downward (upward) for any accumulation (payment) of net domestic arrears as defined in the Technical Memorandum of Understanding (TMU).

Excluding short-term, import-related trade credits.

With a grant element of less than 50 percent.

As defined in the TMU and revised to reflect a reclassification of spending on the new police force from projects to recurrent expenditures.

Nonproject assistance includes debt relief on current maturities and net cash payments to clear arrears.

Indicative targets.

The ceiling or the floor will be adjusted to accommodate 100 percent of any deviation from the projected disbursements of external nonproject financial assistance shown in the table, up to a maximum cumulative adjustment of US$ 50 million. In case of a financing excess (shortfall), the floors on the net foreign assets of the central bank will be adjusted upward (downward), and the ceilings on the net domestic assets of the central bank and on the stock of net credit from the banking system to the government will be adjusted downward (upward). External financing will be converted to Burundi francs at the program end-period Fbu/US$ exchange rate.

The ceiling on net domestic financing of the government will be adjusted downward (upward) for any accumulation (payment) of net domestic arrears as defined in the Technical Memorandum of Understanding (TMU).

Excluding short-term, import-related trade credits.

With a grant element of less than 50 percent.

As defined in the TMU and revised to reflect a reclassification of spending on the new police force from projects to recurrent expenditures.

Nonproject assistance includes debt relief on current maturities and net cash payments to clear arrears.

Table 4.Burundi: Indicative Targets for 2008(Fbu billions, unless otherwise indicated)
20072008 1
Proj.Mar.Jun.Sep.Dec.
Proj.Proj.Proj.Proj.
Performance targets
Net foreign assets of the BRB (floor; US$ millions) 252.250.548.847.145.4
Net domestic assets of the BRB (ceiling) 265.280.390.172.082.3
Net domestic financing of the government (ceiling) 2321.614.021.7−4.90.0
External payments arrears of the government (ceiling; US$ millions)0.00.00.00.00.0
Short-term external debt of the government (ceiling; US$ millions) 40.00.00.00.00.0
Nonconcessional external debt contracted or guaranteed by the government or the BRB (ceiling; cumulative; US$ millions) 50.00.00.00.00.0
Indicative targets
Primary deficit of the government (ceiling; cumulative from beginning of calendar year) 659.57.435.154.063.6
Government’s wage bill (ceiling; cumulative from beginning of calendar year)112.231.063.595.2125.5
Adjustors
External nonproject financial assistance (US$ millions) 6
Cumulative from the beginning of the year96.81.025.778.190.7
Of which:
EU23.00.019.219.219.2
World Bank25.00.00.025.025.0
AfDB0.00.00.00.011.5
France2.70.00.02.72.7
Belgium7.10.04.54.54.5
Netherlands25.00.00.013.713.7
Norway10.00.00.010.010.0
Debt relief (current maturities, excluding HIPC)4.01.02.03.04.0
Net accumulation of domestic arrears during period0.00.00.00.00.0
Exchange rates
Fbu/US$ (end-of-period)1,0501,0601,0601,0601,060
Fbu/US$ (period average)1,1041,0581,0601,0601,060
US$/Euro (end-of-period)1.371.371.371.371.38
US$/SDR (end-of-period)1.541.541.541.541.54

Indicative targets.

The ceiling or the floor will be adjusted to accommodate 100 percent of any deviation from the projected disbursements of external nonproject financial assistance shown in the table, up to a maximum cumulative adjustment of US$ 50 million. In case of a financing excess (shortfall), the floors on the net foreign assets of the central bank will be adjusted upward (downward), and the ceilings on the net domestic assets of the central bank and on the stock of net credit from the banking system to the government will be adjusted downward (upward). External financing will be converted to Burundi francs at the program end-period Fbu/US$ exchange rate.

The ceiling on net domestic financing of the government will be adjusted downward (upward) for any accumulation (payment) of net domestic arrears as defined in the Technical Memorandum of Understanding (TMU).

Excluding short-term, import-related trade credits.

With a grant element of less than 50 percent.

As defined in the TMU.

Indicative targets.

The ceiling or the floor will be adjusted to accommodate 100 percent of any deviation from the projected disbursements of external nonproject financial assistance shown in the table, up to a maximum cumulative adjustment of US$ 50 million. In case of a financing excess (shortfall), the floors on the net foreign assets of the central bank will be adjusted upward (downward), and the ceilings on the net domestic assets of the central bank and on the stock of net credit from the banking system to the government will be adjusted downward (upward). External financing will be converted to Burundi francs at the program end-period Fbu/US$ exchange rate.

The ceiling on net domestic financing of the government will be adjusted downward (upward) for any accumulation (payment) of net domestic arrears as defined in the Technical Memorandum of Understanding (TMU).

Excluding short-term, import-related trade credits.

With a grant element of less than 50 percent.

As defined in the TMU.

26. The Burundian authorities hope to begin discussion early in 2008 on a new PRGF arrangement. The indicative quarterly quantitative performance criteria for 2007 and 2008 will serve as the basis of performance evaluation for this purpose.

Appendix I—Attachment II Burundi: Technical Memorandum of Understanding

1. This technical memorandum of understanding sets out the definitions of program variables to monitor the implementation of the program and the reporting requirements for the Government of Burundi and the Bank of the Republic of Burundi (BRB) for the remainder of 2007 and for 2008. It defines (i) the quantitative performance criteria, indicative targets, and applicable adjusters; and (ii) the key assumptions underlying the economic program for 2007 and 2008.

A. Quantitative Program Targets

Quantitative performance criteria and indicative targets

2. The quantitative performance criteria under the program as shown in Tables 1, 3 and 4 of the MEFP relate to end-September 2007 stocks, as follows:

  • net foreign assets of the BRB (floor);

  • net domestic assets of the BRB (ceiling);

  • net domestic financing of the government (ceiling);

  • external payments arrears of the government (ceiling);

  • the outstanding stock of short-term external debt (maturity of less than one year) of the government and the BRB (ceiling); and

  • new nonconcessional medium- and long-term external debt contracted or guaranteed by the government or the BRB (ceiling).

The quarterly targets on the above variables for 2007 and 2008 are indicative.

3. The quantitative indicative targets under the program, shown in Tables 3 and 4 of the MEFP, are as follows:

  • Primary budget balance (ceiling).

  • the Government’s wage bill.

Definitions and measurement

4. The net foreign assets of the BRB are defined as the difference between (i) gross official reserves (valued at market prices) and other claims; and (ii) foreign exchange liabilities to nonresident entities (including the use of Fund resources, but excluding the counterpart of SDR allocations). The gross official reserves of the BRB are defined as those foreign assets that are liquid and freely available to the central bank At end-September 2007, gross official reserves amounted to US$112.9 million. These amounts are valued in terms of US$ based on the end-September 2007 exchange rate. The net foreign assets of the BRB totaled FBu 7.6 billion, equivalent to US$6.8 million, at end-September 2007, broken down as follows:

Fbu billionsUS$ millions
Net foreign assets of the BRB7.66.8
Foreign assets128.5115.6
Official reserves125.5112.9
Foreign currency holdings4.03.6
Deposits with correspondents (excluding IMF)119.9107.9
SDR holdings0.20.1
Reserve position with the IMF0.60.6
Gold holdings0.80.7
Other claims3.12.8
Foreign liabilities121.0108.8
Liabilities vis-à-vis correspondents (excluding IMF)11.810.6
Counterpart of the use of IMF resources107.496.6
Other liabilities1.81.6

5. The net domestic assets of the BRB are defined as the difference between (i) reserve money, comprising currency in circulation, reserves of commercial banks, and other deposits held at the BRB, and (ii) net foreign assets of the BRB. Net domestic assets of the BRB totaled FBu 103.2 billion at end-September 2007, broken down as follows:

Fbu billions
Net domestic assets of the BRB103.2
Reserve money110.8
Currency in circulation78.7
Reserves of commercial banks29.8
Other non-bank deposits2.2
Minus: net foreign assets of the BRB7.6

Adjuster for changes in the compulsory reserves coefficients

6. The ceiling on net domestic assets of the BRB will be adjusted symmetrically for any change in the compulsory reserves coefficient applied to deposits in the commercial banks, by the amount of the new coefficient minus that stipulated in the program, multiplied by bank deposits subject to compulsory reserves. The rate stipulated in the program is currently 3 percent.

7. Net domestic financing of the government is defined as the change in (i) outstanding loans, advances, and other credit to the government from the BRB and all of Burundi’s commercial banks; (ii) the stock of all government securities held by the non-bank public denominated in Burundi francs, including that held by nonresidents; (iii) less government deposits held in the BRB or in Burundi’s commercial banks. The coverage of government is defined as central government and any other special funds or operations that are part of the budgetary process or have a direct impact on the government’s financial position. Net domestic financing of the government at end-September 2007 totaled FBu 182.5 billion, broken down as follows:

Fbu billions
Net domestic financing of the government182.5
Net banking credit to the government171.6
Central government183.6
Loans, advances and other credits229.9
BRB187.4
Commercial banks (including postal accounts)42.5
Deposits46.3
BRB35.7
Commercial banks (including postal accounts)10.6
Other administrations (net)−12.0
Non-bank financial institutions0.3
Treasury bonds and certificates0.3
Others10.6
Treasury certificates10.6

8. The stock of external payments arrears for program monitoring purposes is defined as the end-of-period amount of external debt service due and not paid, including contractual and late interest, for which a clearance agreement is not in place or for which arrears are not reschedulable. Arrears for which a clearance framework has been agreed with the creditor or which are subject to rescheduling or restructuring are not considered arrears for program monitoring purposes. Program arrears would include any debt service due under such agreements that have not been paid. The external payments arrears at end-September 2007 are broken down as follows, showing the actual stock under the heading “technical arrears”:

External payments arrearsProgram

definition
Technical arrears
(US$ millions)
Total0.045.4
Multilateral creditors0.00.5
International Development Association AfDB Group0.00.0
AfDB Group0.00.0
African Development Bank0.00.0
African Development Fund0.00.0
Nigeria Trust Fund0.00.0
International Monetary Fund0.00.0
European Union0.00.0
International Fund for Agricultural Development (IFAD)0.00.0
Arab Bank for Economic Development in Africa0.00.0
(BADEA)0.00.5
OPEC Fund0.00.0
Development Bank of the Great Lakes States (BDEGL)0.044.9
Bilateral and commercial creditors0.00.1
Paris Club0.00.0
French Cooperation Agency (AFD)0.00.0
Japan (FCEOM)0.00.1
Russia0.044.9
Other official bilateral0.01.9
Abu Dhabi Fund0.016.9
Kuwait Fund0.021.1
Saudi Arabia Fund0.05.0
Libyan Bank0.00.0
Commercial creditors0.00.0
AD Consultants0.00.0
Kreditanstalt für Wiederaufbau AMSAR0.00.0

9. The program includes a ceiling on new nonconcessional external debts contracted or guaranteed by the government and the BRB. This performance criterion applies to the contracting or guaranteeing by the central government, local governments, or the BRB of new nonconcessional external debt (as specified below) with an original maturity of more than one year, including commitments contracted or guaranteed for which value has not been received. The term “debt” shall be understood as defined in the Executive Board Decision No. 12274-(00/85) adopted August 24, 2000. Debt rescheduling and restructuring are excluded from the criterion. Included are financial leases and other instruments giving rise to external liabilities, contingent or otherwise, on nonconcessional terms. In determining the level of concessionality of these obligations, the definition of concessional borrowing shall apply. Concessional debt is defined as having a grant element of 50 percent or more. For loans with a maturity of at least 15 years, the 10-year average commercial interest reference rates (CIRRs) published by the OECD should be used as the discount rate for assessing the level of concessionality, while the 6-month average CIRRs should be used for loans with shorter maturities. To both the 10-year and the 6-month average CIRRs, the following margins should be added: 0.75 percent for repayment periods of less than 15 years; 1 percent for 15-19 years; 1.15 percent for 20-29 years; and 1.25 percent for 30 years or more. The performance criterion is defined to exclude the use of Fund resources and any Burundi franc-denominated treasury securities held by nonresidents.

10. The stock of short-term external debt, with a maturity of up to, or equal to, one year, owed by the central government is to remain at zero under the program. Normal import credits are excluded from this ceiling. Loans with an initial maturity, as recorded in the original loan agreement, of more than one year are considered medium-term or long-term loans. This performance criterion applies not only to debt, as defined in point No. 9 of the Guidelines on Performance Criteria with Respect to Foreign Debt, adopted August 24, 2000, but also to commitments contracted or guaranteed for which value has not been received (including leasing). Excluded from this performance criterion are rescheduling arrangements, borrowing from the Fund, and any Burundi franc-denominated treasury securities held by nonresidents. As of end-September 2007, the stock of short-term debt outstanding was nil.

Budget

11. Receipts from privatization are projected to be FBu 4.1 billion in 2008. One-half of receipts above the projected amount will be used to reduce domestic financing (see above).

12. The government’s primary fiscal balance is defined as the difference between total government revenue, excluding grants, on the one hand, and non-interest current government expenditure and domestically financed capital expenditure (including through the use of counterpart funds), on the other hand. The projected primary fiscal balance for 2007 is FBu -59.5 billion, and for 2008 FBu -63.6 billion, broken down as follows:

20072008
Primary budget balance−59.5−63.6
Total revenue192.9229.2
Minus:
Non-interest current expenditure223.0258.5
Domestically financed capital31.436.3
Net lending−2.0−2.0

13. The government’s wage bill is defined as total labor remunerations on a commitments basis for civil servants, contractual employees, police and military personnel of the government, including all allowances and bonuses. The government’s wage bill should be FBu 112.2 billion for 2007 and is projected at FBu 125.5 billion for 2008, broken down as follows:

20072008
Government wage bill112.2125.5
Civilian personnel65.877.7
Military personnel27.928.2
National Police Force18.519.6

14. Article 22 of the 2008 Budget Law establishes an expenditure contingency that can be committed only to the extent that additional resources are mobilized from the following areas: 1) recovery of amounts paid unjustifiably in the Interpetrol incident; 2) external budgetary support beyond the amounts assumed; 3) 50 percent of any excess in the proceeds of privatization over the amounts forecast; and 4) additional debt relief, in particular if the HIPC completion point is reached. However, overall revenue must be consistent with projections before additional expenditure commitments are made.

External financial assistance adjustor

15. The program provides for an asymmetrical adjustment to quantitative targets for the net foreign assets and net domestic assets of the BRB, and for net bank credit to the government, in the case of shortfalls between forecast and actual levels of external financial assistance.

16. External financial assistance (measured in US$) is defined to include the following: (i) non-project loans and grants to the budget (including payments made through the multi-donor trust fund managed by the World Bank for current debt service to multilaterals); (ii) debt relief on current maturities; minus (iii) any cash payments for external arrears clearance operations. Donor disbursements into blocked accounts for the purpose of clearing arrears will not be included as foreign assistance for program monitoring purposes. The assumptions for 2007 and 2008 are shown below:

Burundi: External Financing Adjustors of Performance Criteria and Indicative Targets Under the 2006 – 2008 Program(In millions of U.S. dollars)
200620072008
Dec.

Prog.
Mar.

Prog.
Jun.

Prog.
Sep.

Prog.
Dec.

Prog.
Mar.

Prog.
Jun.

Prog.
Sep.

Prog.
Dec.

Prog.
External nonproject financial assistance (cumulative from

the beginning of each calendar year)
107.811.014.417.096.81.025.778.190.7
Of which:
EU17.00.02.42.423.00.019.219.219.2
World Bank60.00.00.00.025.00.00.025.025.0
AfDB11.00.00.00.00.00.00.00.011.5
France3.00.00.00.02.70.00.02.72.7
Belgium2.40.00.01.67.10.04.54.54.5
Netherlands10.010.010.010.025.00.00.013.713.7
Norway0.00.00.00.010.00.00.010.010.0
Debt relief (current maturities, excluding HIPC)4.51.02.03.04.01.02.03.04.0
Sources: Burundi authorities; and Fund staff estimates.
Sources: Burundi authorities; and Fund staff estimates.

17. The ceiling or floor targets will be adjusted to accommodate 100 percent of any deviation from the projected cumulative external financial assistance. In case of a financing excess (shortfall), the floor on the stock of net foreign assets of the central bank will be adjusted upward (downward), and the ceilings on the stock of net domestic assets of the central bank and on the stock of net domestic financing to the government will be adjusted downward (upward). In the case of a financing shortfall the adjustment will be limited to a maximum of US$50 million. External financial assistance will be converted to Burundi francs using the program-specified FBu/US$ exchange rate.

Domestic payments arrears adjustor

18. The ceiling on net domestic financing of the government will also be adjusted to reflect 100 percent of any deviation from the projected net accumulation of domestic arrears, as measured by the accumulation of non-executed payment orders older than 30 days. In case of an increase (decline) in domestic arrears, the ceiling on the stock of net domestic financing to the government will be adjusted downward (upward).

B. Key program assumptions

19. The main program assumptions are drawn from the WEO projections of September

200620072008
Dec.Mar.Jun.Sep.Dec.Mar.Jun.Sep.Dec.
Average export prices
Coffee (US$ cents per pound)108.0121.1115.3113.0110.6114.0113.0110.0107.0
Tea (US$ per kg)239.6221.8194.7195.5188.0202.0193.0193.0192.0
Oil (US$ per barrel)68.357.266.173.077.876.575.374.573.8
End-period exchange rate
US$ / SDR1.501.511.521.531.541.541.541.541.54
US$ / Euro1.321.331.351.371.371.371.371.371.38
Fbu / US$1044.01042.61089.41111.61050.01060.01060.01060.01060.0

C. Provision of Information to IMF Staff

20. To facilitate the monitoring of program implementation, the authorities will prepare and forward to the IMF African Department a monthly progress report on the program, within five weeks of the end of each month, containing:

21. The following weekly data:

  • foreign exchange auction market (MED) transactions;

  • the balance sheet of the BRB (weekly statement) (BRB Research Department).

22. The following monthly data, with a maximum lag of four weeks:

  • a monitoring table (tableau de bord) containing the most recent weekly and monthly data on the main financial indicators (REFES);

  • a table on the foreign exchange cash flow (BRB Foreign Banking Operations Department);

  • the monetary survey, including the breakdown of the central bank and of commercial banks (BRB Research Department);

  • monthly exchange-rate data (official and parallel markets, end-of-month and monthly average) (BRB Research Department);

  • a detailed breakdown of government revenue (Ministry of Finance);

  • a detailed breakdown of government expenditure on a commitment basis, including pro-poor spending (Ministry of Finance);

  • a detailed breakdown of the servicing of domestic and external public debt, including amounts due and paid, in interest and principal, as well as the breakdown by creditor and any accumulation of arrears on domestic or external debt (Ministry of Finance);

  • a detailed breakdown of the stock of domestic payments arrears for the current fiscal year (Ministry of Finance);

  • the amount of new debts contracted or guaranteed by the government, including detailed information on the terms (such as currency denomination, interest rate, grace period, maturity) (Ministry of Finance);

  • actual disbursements of non-project financial assistance, including new loans and debt relief granted by Burundi’s external creditors (Ministry of Planning/Ministry of Finance); and

  • an update on the implementation of structural measures planned under the program, as described in Table 2 of the MEFP (REFES).

23. The following quarterly data, with a maximum lag of four weeks:

  • Progress reports on the BRB’s internal reforms, including each unit’s action plans for the coming month (Reform Monitoring Committee, BRB).

24. SP/REFES/Ministry of Finance, BRB will also provide the African Department of the IMF with any information that is deemed necessary to ensure effective monitoring of the program.

Delayed payments in 2006 to the OPEC Fund and the Arab Development Bank were cleared early in 2007.

The program baseline assumes the HIPC CP in 2009. For illustrative purposes the alternative scenario in the DSA assumes the HIPC CP is reached at end September 2008.

Consisting of an official exchange rate that can differ by more than 2 percent from market rates.

The impact of possible inadequate information on Burundi’s obligations under Article VIII, Section 5, including the application of the procedural framework for Article VIII, Section 5, will be addressed in the next Article IV consultation.

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