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Burundi: Fourth Review Under the Extended Credit Facility Arrangement

Author(s):
International Monetary Fund. African Dept.
Published Date:
March 2014
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Recent Developments and Program Implementation

1. The socio-political context remains delicate. Efforts by parliament to amend the constitution, including facilitating a third term by the incumbent president has been perceived by the opposition and civil society as a potential breach of the 2000 Arusha Peace agreement. Despite relief efforts by the international community in easing the impact of the repatriation of some 48,000 refugees from neighboring countries, conflicts over land are emerging in one of the world’s most densely populated countries (MEFP ¶2). The reintegration of these refugees, in addition to providing relief to those associated with the conflict in Eastern Congo continues to strain the provision of public services and add to existing unemployment pressures.

2. The economic recovery continues to gain momentum in the aftermath of the food and fuel shocks (Figures 13 and Tables 15).

Figure 1.Burundi: Recent Developments, 2008–14

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

Figure 2.Burundi: Monetary Developments, 2008–14

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

Figure 3.Burundi: Fiscal Developments, 2009–13

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

Table 1.Burundi: Selected Economic and Financial Indicators, 2011–16
201120122013201420152016
Prog.1Prel.Prog.1Est.Prog.1Proj.Proj.
(Annual percentage change)
National income and prices
Real GDP growth4.24.04.04.54.54.74.74.85.0
GDP deflator14.715.416.411.911.77.88.16.65.5
Consumer prices (period average)9.717.918.09.07.97.07.06.05.5
Consumer prices (end of period)14.911.812.010.58.84.65.96.05.0
External sector
Exports, f.o.b. (US$)22.54.78.6−21.3−35.612.415.29.56.4
Imports, f.o.b. (US$)7.97.314.8−16.32.46.31.75.27.9
Terms of trade (deterioration = -)−9.0−17.9−20.6−14.9−17.6−0.4−2.42.7−0.9
(Change in percent of beginning of period M2, unless otherwise indicated)
Money and credit
Net foreign assets−12.1−6.5−5.33.14.36.96.1
Domestic credit30.712.315.215.68.519.517.8
Government8.04.91.90.90.93.13.1
Private sector24.16.99.915.58.416.414.7
Money and quasi-money (M2)6.17.310.916.916.712.913.2
Reserve money (12–month growth rate)0.626.513.719.718.515.515.8
(Percent of GDP)
General government
Revenue and grants35.933.031.428.430.027.627.427.527.9
Of which: Tax and nontax revenue15.314.814.513.013.213.113.213.313.3
Total expenditure39.834.635.130.131.930.129.029.429.7
Net lending (+) / borrowing (-)−3.9−1.7−3.7−1.7−1.9−2.5−1.6−1.9−1.8
External sector
Current account balance−14.7−16.3−18.5−16.0−23.0−16.5−21.3−21.2−20.1
Overall balance of payments−1.6−1.10.50.00.0−0.60.0−0.3−0.3
Savings-investment balance−14.7−16.3−18.5−16.0−23.0−16.5−21.3−21.2−20.1
Private−10.8−14.7−14.8−14.3−21.1−14.0−19.8−19.2−18.3
Public−3.9−1.7−3.7−1.7−1.9−2.5−1.6−1.9−1.8
External sector
Gross official reserves (US$ million)296269309324326356355391426
Months of imports3.33.33.33.83.54.03.63.73.9
Memorandum item:
GDP at current market prices (BIF billion)299035663621416942274708478553445923
Nominal GDP per Capita (US Dollars)256270267294305315328346365
Sources: Burundi authorities; and IMF staff estimates and projections.

IMF Country Report 13/64.

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

IMF Country Report 13/64.

Table 2.Burundi: Central Government Operations, 2011–16
201120122013201420152016
Prog.Prel.Prog.Est.Prog.BudgetProj.Proj.
(BIF billion)
Revenue and grants1,072.01,175.71,136.91,185.21,266.41,300.31,319.11,311.11,467.41,655.1
Tax revenue424.1492.0491.8494.4518.3562.1573.4580.2650.3723.1
Taxes on income, profits, and capital gains131.0156.2155.9151.3163.9170.8167.6167.2188.6211.1
Taxes on goods & services248.6285.9286.2299.9303.7342.0351.9359.1401.5445.1
Taxes on international trade & transactions44.549.949.743.250.749.353.953.960.366.8
Nontax revenue 132.935.534.949.039.755.360.953.059.265.6
Grants615.0648.2610.2641.8708.4682.9684.8677.8757.9866.5
Program support115.0114.075.3133.9134.198.1100.8101.2108.3125.8
Project support325.9321.4321.8307.3400.1386.1405.2401.1486.9555.2
Other grants and transfers 2174.1212.8213.1200.6174.2198.6178.8175.6162.7185.6
Total expenditure1,189.51,235.01,269.81,256.71,347.11,417.31,393.31,385.91,571.11,759.0
Expense726.3792.3792.2818.5811.5880.4868.2868.1899.8998.7
Compensation of employees258.2283.8282.2303.3297.4324.0322.3322.3354.6386.7
Regularization of compensation arrears 322.06.06.00.00.00.00.00.00.00.0
Purchases/use of goods & services97.999.0103.8106.9113.9107.4108.4108.4123.3139.2
Subsidies and Social benefits140.0159.3163.2188.1182.5190.2191.4191.0213.3236.4
Interest25.533.126.736.035.246.041.040.945.950.8
Of which: Domestic22.029.423.329.329.839.234.834.838.241.9
Other expense182.6211.0210.4184.0182.6212.8205.1205.4162.7185.6
Of which: Domestically financed8.612.211.313.09.114.211.411.40.00.0
Net acquisition of nonfinancial assets463.2442.8477.6438.2535.6536.9525.1517.9671.3760.3
Of which: Domestically financed104.799.691.1103.796.092.193.993.9126.4145.4
Net lending (+) / borrowing (-)−117.4−59.3−132.9−71.5−80.7−117.0−74.2−74.9−103.7−103.8
Errors and omissions17.00.0−0.60.00.00.00.00.00.00.0
Net acquisition of financial assets 4−11.4−16.5−0.1−8.6−2.6−3.0−3.0−3.0−4.0−4.0
Deposits−10.4−4.69.0−1.00.0−1.00.00.0−2.0−2.0
Policy lending0.0−1.0−1.0−1.00.0−1.00.00.0−1.0−1.0
Shares and other equity−1.0−10.9−8.1−6.6−2.6−1.0−3.0−3.0−1.0−1.0
Net incurrence of liabilities89.142.9133.562.978.184.371.171.886.083.2
Domestic60.726.875.232.247.541.640.241.245.650.8
Foreign28.416.058.230.630.642.830.930.640.432.4
Financing gap0.00.00.00.00.029.70.00.113.716.6
Revenue and grants1,072.01,175.71,136.91,185.21,266.41,300.31,319.11,311.11,467.41,655.1
Total expenditure1,189.51,235.01,269.81,256.71,347.11,417.31,393.31,385.91,571.11,759.0
Of which: Compensation of employees258.2283.8282.2303.3297.4324.0322.3322.3354.6386.7
Memorandum items:
Net domestic financing71.134.666.333.347.542.640.241.247.652.8
Domestic primary deficit−174.3−132.3−130.9−171.7−140.8−110.4−93.1−93.8−108.1−119.1
Propoor expenditure371.5398.0353.7368.7381.9435.4449.6522.1597.3
Public debt 539.735.635.231.331.329.629.628.226.6
Of which: Domestic debt15.011.614.413.313.112.612.412.011.7
GDP at current market prices (BIF billion)2,9903,5663,6214,1694,2274,7084,7854,7855,3445,923
Sources: Burundi authorities; and IMF staff estimates and projections.

Sale of fixed capital assets included in nontax revenue rather than under expenditure.

Includes reimbursement for the Africa Mission to Somalia (AMISOM Fund).

Compensation due to the repayment of wage arrears and arrears in payments to ONATEL.

A negative sign denotes a reduction of financial assets.

As a percent of GDP.

201120122013201420152016
Est.Prog.Prog.Prog.Prel.Prog.Est.Prog.BudgetProj.Proj.
(Percent of GDP, unless otherwise indicated)
Revenue and grants35.932.130.833.031.428.430.027.627.627.427.527.9
Tax revenue14.215.114.113.813.611.912.311.912.012.112.212.2
Taxes on income, profits, and capital gains4.45.04.84.44.33.63.93.63.53.53.53.6
Taxes on goods & services8.38.67.88.07.97.27.27.37.47.57.57.5
Taxes on international trade & transactions1.51.41.41.41.41.01.21.01.11.11.11.1
Nontax revenue11.11.11.01.01.01.20.91.21.31.11.11.1
Grants20.615.915.718.216.915.416.814.514.314.214.214.6
Program support3.82.63.13.22.13.23.22.12.12.12.02.1
Project support10.98.48.09.08.97.49.58.28.58.49.19.4
Other grants and transfers25.84.84.76.05.94.84.14.23.73.73.03.1
Total expenditure39.835.633.634.635.130.131.930.129.129.029.429.7
Expense24.321.520.922.221.919.619.218.718.118.116.816.9
Compensation of employees8.68.38.18.07.87.37.06.96.76.76.66.5
Regularization of compensation arrears 30.70.00.20.20.20.00.00.00.00.00.00.0
Purchases/use of goods & services3.32.92.82.82.92.62.72.32.32.32.32.4
Subsidies and Social benefits4.74.84.64.54.54.54.34.04.04.04.04.0
Interest0.91.01.00.90.70.90.81.00.90.90.90.9
Of which: Domestic0.70.90.80.80.60.70.70.80.70.70.70.7
Other expense6.14.54.35.95.84.44.34.54.34.33.03.1
Of which: Domestically financed0.30.40.40.30.30.30.20.30.20.20.00.0
Net acquisition of nonfinancial assets15.514.112.712.413.210.512.711.411.010.812.612.8
Of which: Domestically financed3.53.73.02.82.52.52.32.02.02.02.42.5
Net lending (+) / borrowing (-)−3.9−3.5−2.7−1.7−3.7−1.7−1.9−2.5−1.6−1.6−1.9−1.8
Errors and omissions0.60.00.00.00.00.00.00.00.00.00.00.0
Net acquisition of financial assets4−0.4−1.0−1.2−0.50.0−0.2−0.1−0.1−0.1−0.1−0.1−0.1
Deposits−0.3−0.8−0.8−0.10.20.00.00.00.00.00.00.0
Policy lending0.00.00.00.00.00.00.00.00.00.00.00.0
Shares and other equity0.0−0.2−0.4−0.3−0.2−0.2−0.10.0−0.1−0.10.00.0
Net incurrence of liabilities3.02.51.51.23.71.51.81.81.51.51.61.4
Domestic2.01.00.20.82.10.81.10.90.80.90.90.9
Foreign0.91.51.40.41.60.70.70.90.60.60.70.5
Financing gap0.00.00.00.00.00.00.00.60.00.00.30.3
Memorandum items:
Net domestic financing2.41.81.01.01.80.81.10.90.80.90.90.9
Domestic primary deficit−5.8−3.9−3.9−3.7−3.6−4.1−3.3−2.3−1.9−2.0−2.0−2.0
Propoor expenditure12.411.811.211.29.88.89.09.29.49.49.810.1
Public debt39.735.635.635.235.231.331.329.629.628.226.6
of which: domestic debt15.013.111.613.214.413.313.112.612.412.011.7
GDP at current market prices (BIF billion)2,9903,3673,5663,5663,6214,1694,2274,7084,7854,7855,3445,923
Sources: Burundi authorities; and IMF staff estimates and projections.

Sale of fixed capital assets included in nontax revenue rather than under expenditure.

Includes reimbursement for the Africa Mission to Somalia (AMISOM Fund).

Compensation due to the repayment of wage arrears and arrears in payments to ONATEL.

A negative sign denotes a reduction of financial assets.

As a percent of GDP.

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

Sale of fixed capital assets included in nontax revenue rather than under expenditure.

Includes reimbursement for the Africa Mission to Somalia (AMISOM Fund).

Compensation due to the repayment of wage arrears and arrears in payments to ONATEL.

A negative sign denotes a reduction of financial assets.

As a percent of GDP.

Table 3.Burundi: Monetary Survey, 2011–14
2011201220132014
Prog.1Act.Prog.1Est.Prog.1Proj.
(BIF billion)
Net foreign assets63.319.528.050.259.7110.4112.9
Central bank26.214.114.026.835.780.081.9
Deposit money banks37.15.414.023.424.030.431.0
Net domestic assets771.1879.9916.91049.91043.51184.71188.6
Domestic credit887.2969.6989.31105.31052.51274.71207.5
Net claims on the government342.4375.2354.9362.3361.7389.6388.6
Of which: on the treasury355.9387.3403.1409.9409.9437.1436.8
Credit to the economy544.8594.4634.4743.0690.8885.1818.8
Other items, net (assets = +)−116.1−89.7−72.4−55.4−9.0−89.9−18.8
M3834.4899.4944.91100.11103.11295.11301.5
Foreign currency deposits162.2178.2199.7233.5233.1316.6316.6
M2672.1721.2745.2866.6870.0978.6984.9
Currency in circulation153.2177.0173.9206.0203.4242.2239.9
Local currency deposits518.9544.2571.3660.6666.6736.4745.0
Demand deposits331.8353.8366.5421.2427.5466.0474.3
Quasi-money187.1190.5204.8239.5239.1270.4270.7
Change as a percentage of beginning period M2
Net foreign assets−12.1−6.5−5.33.14.36.96.1
Central bank−12.3−1.8−1.81.72.96.15.3
Deposit money banks0.2−4.7−3.41.31.30.80.8
Net domestic assets19.916.221.718.417.015.616.7
Domestic credit30.712.315.215.68.519.517.8
Net claims on the government8.04.91.90.90.93.13.1
Credit to the economy22.87.413.314.67.616.414.7
Of which: private sector24.16.99.915.58.416.414.7
M37.89.716.421.521.222.522.8
Foreign currency deposits1.72.45.64.64.59.69.6
M26.17.310.916.916.712.913.2
Currency in circulation2.23.53.14.34.04.24.2
Local currency deposits3.93.87.812.612.88.79.0
Demand deposits−1.53.35.27.98.25.25.4
Quasi-money5.40.52.64.74.63.63.6
Memorandum items:
Reserve money (12–month percent change)0.626.513.719.718.515.515.8
Velocity (GDP/M2; end of period)4.44.94.94.84.94.84.9
Sources: Burundi authorities; IMF staff estimates and projections.

IMF Country Report 13/64.

Sources: Burundi authorities; IMF staff estimates and projections.

IMF Country Report 13/64.

Table 4.Burundi: Central Bank Accounts, 2011–14
2011201220132014
Dec.Mar.JuneSep.Dec.Mar.Jun.Sep.Dec.Mar.Jun.
Est.Proj.
(BIF billion)
Net foreign assets26.216.95.528.114.011.217.320.835.740.753.1
Assets411.5418.0401.2431.6483.8455.4426.6458.2509.1538.3550.5
Liabilities385.4401.1395.8403.5469.8444.1409.3437.4473.4497.7497.4
Net domestic assets185.1176.5219.4191.6231.3236.9261.7254.3213.8216.6229.7
Domestic credit299.3273.9352.6303.3344.5334.8341.9334.3256.9259.7272.8
Net claims on the government266.5213.7228.6233.1315.4297.6311.9303.4241.3250.4263.4
Other credit32.860.2124.070.222.337.336.736.715.69.49.4
Other items, net (assets = +)−114.2−97.4−133.3−111.7−113.2−97.9−80.2−79.9−43.1−43.1−43.1
Reserve money211.2193.4224.8219.8245.3248.2279.0275.1249.5257.3282.8
Currency in circulation153.2147.4170.5162.9173.9166.9180.4175.4203.4202.0222.0
Bank reserves34.922.927.80.039.945.857.065.767.068.570.3
Cash in vault16.918.120.754.424.422.325.425.6−15.718.619.9
Other nonbank deposits6.25.05.92.67.213.216.38.4−5.2−31.7−29.5
Memorandum items:
Net foreign assets of BRB (US$ million)19.212.13.819.19.17.311.213.523.225.033.1
Sources: Burundi authorities; and IMF staff estimates and projections.
Sources: Burundi authorities; and IMF staff estimates and projections.
Table 5.Burundi: Balance of Payments, 2011–16
201120122013201420152016
Prog.Prel.Prog.Est.Prog.Proj.Proj.
(US$ million)
Current account−322.8−386.9−433.3−423.3−632.2−478.2−643.7−689.5−707.1
(excluding official transfers)−603.4−652.6−756.0−657.4−849.3−684.3−843.5−880.1−898.0
Trade balance−647.7−697.9−751.5−636.0−820.6−669.7−823.1−861.7−931.1
Exports, f.o.b.124.0129.8134.7106.086.8119.299.9109.4116.4
Of which: coffee75.677.770.041.223.549.934.038.840.1
Imports, f.o.b.−771.7−827.7−886.2−742.0−907.4−788.9−923.0−971.1−1047.5
Of which: petroleum products−164.0−172.2−143.3−146.1−193.7−146.3−196.7−193.9−194.9
Services (net)−99.3−103.4−118.7−135.3−152.8−132.8−149.0−153.8−109.8
Income (net)−19.0−16.3−9.0−11.7−10.8−10.1−9.2−8.6−7.3
Current transfers (net)443.1430.7446.0359.7352.2334.3337.6334.5341.1
Of which: official (net)280.6265.6322.7234.0217.2206.1199.8190.7190.9
Capital account 1258.4223.1223.1187.9257.7231.0250.9295.1327.0
Financial account151.7137.1181.2235.4374.5229.3392.7386.0370.3
Direct investment3.42.60.668.068.071.471.475.078.7
Other investment148.3134.5180.6167.4306.5157.9321.3311.0291.6
Assets−46.8−21.6−48.7−38.9−44.1−80.8−62.7−71.8−70.2
Liabilities195.2156.1229.3206.3350.6238.7383.9382.8361.8
Errors and omissions−122.60.039.70.00.00.00.00.00.0
Overall balance−35.3−26.810.7−0.10.0−17.9−0.2−8.4−9.9
Financing (increase in assets = −)35.326.8−10.70.10.00.10.10.10.1
Of which: change in official reserves36.726.2−13.2−14.9−17.4−32.4−28.8−36.4−34.4
Fund Purchases and loans20.415.415.415.115.215.215.37.70.0
Financing gap0.00.00.00.00.017.80.08.39.8
(Percent of GDP, unless otherwise indicated)
Memorandum items:
Current account−14.7−16.3−18.5−16.0−23.0−16.5−21.3−21.2−20.1
Gross official reserves
US$ million296269309324326356355391.4425.8
Months of imports3.33.33.33.83.54.03.63.73.9
PV of external debt (percent of exports of GS)196187187226226220220212209
Government external debt (percent of GDP)242121191918181716
Coffee price (US cents per lb)273188188138134133124134131
Oil (US$/barrel)104105105102104981019591
Nominal GDP (US$ million)2,1962,3722,3422,6432,7432,8983,0153,2573,521
Sources: Burundi authorities; and IMF staff estimates and projections.

Based on preliminary information provided by donors.

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

Based on preliminary information provided by donors.

  • Economic activity has picked up. Growth is expected to improve at about 4.5 percent in 2013 and 4.7 percent in 2014, underpinned by the agriculture and construction sectors as well as the implementation of major infrastructure projects, including fiber optics, hydropower, and roads. There are also signs of uptick in tourist arrivals, although data coverage remains spotty. Exports fell sharply by an estimated 35.5 percent, largely reflecting the decline in coffee exports, while imports rose by about 2.5 percent, in part reflecting the impact of humanitarian aid. Reflecting these developments, the current account deficit increased to an estimated 23 percent of GDP compared to 18.5 percent in 2012. This deficit is financed by foreign direct investment, project grants and concessional loans. Headline inflation declined from its peak of 25 percent (y-o-y) in March 2012 to about 9 percent (y-o-y) at end-2013.

  • The implementation of swift corrective measures in July 2013 in response to revenue slippages was instrumental in putting the program back on track. Revenue collections, which also benefitted from the pickup in economic activity, increased by about 6 percent (y-o-y) at end-2013, outperforming program targets and placing the 2014 budget on a sounder footing.1 Expenditures were broadly contained.

  • Monetary conditions and the exchange rate remain stable. With the improvement in liquidity conditions, the central bank reduced its policy rate by about 100 basis points since May to 10.7 percent in September. Growth in broad money increased to about 19.5 percent (y-o-y) at end-October while growth in credit to the private sector remained subdued at about 6 percent (y-o-y), in part reflecting the stickiness of lending rates. The banking sector remains adequately capitalized and profitable although nonperforming loans (NPLs) have picked up (Table 8). The Burundi franc has remained stable since a sharp depreciation in early 2013.

Table 6.Burundi: Indicators of Capacity to Repay the Fund, 2013–25
2013201420152016201720182019202020212022202320242025
Projections
Fund obligations based on existing credit
(SDR million)
Principal3.210.612.513.012.012.511.38.66.03.41.50.00.0
Charges and interest0.00.00.20.20.10.10.10.00.00.00.00.00.0
Fund obligations based on existing and prospective credit
(SDR million)
Principal3.210.612.513.012.012.511.811.19.06.44.52.50.5
Charges and interest0.00.00.20.20.20.10.10.10.00.00.00.00.0
Total obligations based on existing and prospective credit
SDR million3.210.612.713.212.212.611.911.29.06.44.52.50.5
Percent of exports of goods and services3.49.911.08.47.26.85.85.03.72.41.50.80.1
Percent of debt service119.453.855.748.747.547.042.343.937.929.121.713.82.8
Percent of gross official reserves1.54.55.04.83.73.63.12.82.11.40.80.40.1
Percent of GDP0.20.50.60.60.50.50.40.40.30.20.10.1
Percent of quota4.113.716.517.115.816.415.414.511.78.35.93.20.6
Outstanding Fund credit
SDR million94.894.286.773.861.849.337.626.417.511.16.64.13.6
Percent of exports of goods and services101.388.675.047.236.726.618.511.87.14.12.21.21.0
Percent of debt service1582.8480.1380.2272.9241.5184.1134.0103.673.450.031.522.419.6
Percent of gross official reserves44.040.534.126.819.014.09.86.64.12.41.20.70.6
Percent of GDP5.24.84.13.22.51.91.30.90.50.30.20.10.1
Percent of quota123.1122.4112.795.880.264.048.834.322.714.48.55.34.6
Net use of Fund credit (SDR million)6.8−0.6−7.5−13.0−12.0−12.5−11.8−11.1−9.0−6.4−4.5−2.5−0.5
Disbursements10.010.05.0−-−-−-−-−-−-−-−-−-−-
Repayments and repurchases3.210.612.513.012.012.511.811.19.06.44.52.50.5
Memorandum items:
Exports of goods and services (US$ million)141.7162.5177.9242.2262.3288.2316.8348.1383.6423.1465.5512.4564.8
Debt service (US$ million)24.630.035.141.939.841.743.739.737.134.432.428.228.2
Gross official reserves (US$ million)326355391426506548597627665705839908984
Nominal GDP ((US$ million)2,743.33,015.23,256.53,521.23,810.14,134.94,482.64,842.35,247.35,679.56,166.26,693.77,286.0
Quota (SDR, million)77.077.077.077.077.077.077.077.077.077.077.077.077.0
Source: IMF staff estimates and projections.

Total debt service includes IMF repurchases and repayments.

Source: IMF staff estimates and projections.

Total debt service includes IMF repurchases and repayments.

Table 7.Burundi: Tentative Schedule of ECF Disbursements and Reviews, 2012–15
DateDisbursement (SDR million)Percent of quotaConditions
January 27, 20121.001.3Executive Board approval.
July 15, 20124.005.2Completion of first review, based on observance of performance criteria at end-March 2012.
January 15, 20135.006.5Completion of second review, based on observance of performance criteria at end-September 2012.
September 15, 20135.006.5Completion of third review, based on observance of performance criteria at end-March 2013.
January 15, 20145.006.5Completion of fourth review, based on observance of performance criteria at end-September 2013.
July 15, 20145.006.5Completion of fifth review, based on observance of performance criteria at end-March 2014.
January 15, 20155.006.5Completion of sixth review, based on observance of performance criteria at end-September 2014.
Total for the ECF arrangement30.0039.0
Source: IMF staff estimates.
Source: IMF staff estimates.
Table 8.Burundi: Banking Systems Soundness Indicators, 2009–13(percent, unless otherwise indicated)
2009201020112011201120112012201220122012201320132013
Dec.DecMarJunSeptDecMarJunSepDec.Mar.JunSep
Capital Requirement
Capital requirement over weighted assets (solvency ratio)19.119.721.720.720.019.819.818.919.720.221.121.819.9
Core capital (Tier 1 capital) over weighted assets15.516.918.918.117.617.317.316.617.518.018.919.617.8
Quality of assets
Nonperforming loans (percent of total gross loans granted)13.010.08.87.67.37.78.17.38.08.79.610.19.9
Provisions (percent of nonperforming loans)88.787.690.590.681.983.376.783.178.077.872.874.578.8
Nonperforming loans net of provisions (percent of capital)5.44.32.82.65.04.97.15.06.77.19.48.77.3
Large exposures (percent of capital)28.228.625.827.321.723.520.823.420.822.923.822.423.3
Profitability rates
Return on assets2.62.51.01.92.93.20.71.11.51.50.30.81.2
Return on equity capital22.821.86.713.220.323.04.68.010.210.52.05.07.6
Net interest (percent of gross results)207.0191.3168.3164.8165.7175.6176.9184.9192.7197.8204.1275.786.9
Costs excluding interest (percent of gross outturn)172.3143.4101.4100.0121.4114.0128.6112.1153.7241.0199.1248.777.7
Liquidity
Liquid assets (percent of all loans granted)91.490.577.755.849.559.556.045.826.752.652.552.858.0
Liquid assets (percent of short-term commitments)168.8153.5133.091.279.493.188.670.874.285.5103.986.690.4
Source: Burundi authorities.
Source: Burundi authorities.

3. Program implementation has been satisfactory. Most end-June indicative targets were met with the exception of pro-poor spending. At end-September, all performance criteria and indicative targets were observed, including the indicative target on pro-poor expenditure (MEFP, Table Satisfactory progress was made in the implementation of structural reforms (MEFP, Table I-2). The streamlining of customs procedures at three recently established border posts with Rwanda and Tanzania is expected to ease transportation bottlenecks and lower costs of doing business (end-September benchmark). Progress was made in implementing treasury and financial safeguards’ recommendations with the establishment of a coordination committee between the central bank and the ministry of finance.

Outlook and Risks

4. The macroeconomic outlook remains difficult, and external vulnerabilities persist in the context of lower international coffee prices and the narrow export base. Economic activity is projected to improve further in 2014, while the inflation outlook, absent poor harvests, remains favorable, owing to lower projected international food and fuel prices. Policy reversals of recently adopted measures, expenditure pressures in the run-up to the 2015 elections, and slippages in the implementation of structural reforms would jeopardize the macroeconomic outlook.

Box. Burundi: Impact of Elections on Program Implementation

Expansionary fiscal policies tend to increase preceding electoral cycles. This phenomenon is known as “political business cycles” and seems to be more frequent in new democracies, where voters are relatively more inexperienced with electoral politics or lack voice and representation in curbing expansionary fiscal policies (Brender and Drazen, 2005).1

Fiscal policy in Burundi remained prudent during recent elections. Since the signature of the Arusha Peace Accord in 2000, Burundi has undertaken two elections, in 2005 and 2010, respectively. Despite being a young democracy coupled with an uncertain political environment, macroeconomic developments in general and fiscal policy in particular were mostly on track during both elections.

Total spending was lower than programmed in both 2005 and 2010. Current spending remained broadly in line with the program, reflecting the authorities’ ability to contain strong pressures to increase wages. Capital spending was reduced through lower-than-programmed domestically financed projects. However, available financing was higher in 2010 relative to 2005. In particular, budget support was higher in 2010 compared to 2005 when shortfalls were partly offset by recourse to domestic financing.

Fast forward to the 2015 elections. Risks to the outlook are accentuated by lower projected budget support (by three percentage points of GDP) relative to 2010 and are compounded by the large influx of refugees who have increased demand for public services and land. Policy-induced fiscal slippages have lowered the medium-term path for revenues relative to what was originally envisaged under the program, thus constraining the authorities’ ability to respond to contingencies.

Total Expenditures and Total Financing in 2005 and 2010 elections

Sources: Burundi authorities; and IMF Staff calculations and estimates.1/ Brender, A. and A. Drazen, 2005. “Political budget cycles in new versus established democracies, “Journal of Monetary Economics, vol. 52(7), pp. 1271–1295.

Policy Discussions

Discussions focused on reinvigorating program implementation after the difficulties in completing the third review under the ECF arrangement.

A. Recommitting to Revenue Mobilization

5. The implementation of swift corrective measures adopted in July in response to policy-induced revenue slippages, were instrumental in putting the program back on track (Country Report No. 13/288). Owing to a rebound in revenue performance (¶2),2 the overall deficit in 2013 is expected to remain broadly in line with the program (MEFP ¶7). The recently introduced floor on revenue collections helped to guide the authorities in complying with the revenue pillar under the program. While there has been sustained effort in covering a greater share of domestically financed spending since the inception of the Burundi Revenue Authority (BRA) (Text Figure 1), Burundi’s fiscal framework remains risky. Staff emphasized that Burundi’s fiscal position is likely to remain structurally weak over the medium term in the absence of new revenue measures and the country’s heavy reliance on donor support (about 50 percent of the total budget).

Text Figure 1:Spending-to-Revenue Ratio, 2009—13

(in percent)

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

6. The 2014 budget that was adopted last December is broadly in line with the program. Relative to the program (Country Report No. 13/288), the fiscal stance is stronger as indicated by a lower domestic primary balance.3 Hence, the overall deficit is lower by about 1 percentage point of GDP owing to higher-than-expected revenues in 2013 and a containment of spending. However, staff encouraged the authorities to build fiscal buffers to address potential election-related spending pressures or to supplement the international community’s contributions to refugee-related costs. Contingency measures include the sale of telecoms licenses, collection of arrears from large- and medium-sized tax payers. Additional donor support could also help in building buffers (MEFP ¶22). Staff stressed the need to rein in spending pressures arising from weaknesses in controlling transportation costs and that transfers to hospitals associated with the health care program should be respected to avoid the buildup in arrears to suppliers and to safeguard adequate service delivery (MEFP ¶24 and ¶25).

7. Enhanced revenue mobilization is critical to the success of the program in light of declining budget support and recent policy-induced revenue slippages. The decline in budget support from 5 percent of GDP in 2010 to a projected 2 percent of GDP in 2014, in part reflecting austerity conditions in traditional donor countries and more stringent governance-based conditionality, has induced a sharp fiscal adjustment (Figures 1 and 3, and Table 2b). This development has been compounded by revenue losses of about 1½ percent of GDP relative to end-2012. While corrective measures have helped to improve the fiscal outlook in the short term, further efforts are needed to strengthen revenue collections. In this connection, staff urged the authorities to implement recent technical assistance (TA) recommendations on revenue administration geared toward strengthening compliance, reinforcing the tax administration’s capacity to manage large and medium-sized taxpayers, and the collection of tax arrears (MEFP ¶10). Staff also underscored the importance of rationalizing discretionary exemptions reinforcing tax administration, and adopting a more sustainable petroleum pricing formula to help buttress fiscal revenues over the medium term.4 To this end, staff encouraged the authorities to develop policies governing exemptions based on TA recommendations, revise the investment code, and to discuss the basis for a new excise law (benchmark September 2014).

B. Strengthening Public Financial Management (PFM) Reforms

8. The implementation of the public financial management (PFM) strategy developed in 2012 is encouraging. Progress in budget execution includes (i) the preparation and adoption of a manual for budget execution instituting the rationalized chain of expenditures (CRD); (ii) the adoption of a ministerial ordinance officially instituting the CRD; and (iii) the nomination of commitment controllers in three pilot ministries representing 40 percent of total budget expenditure (MEFP ¶10).5

9. Nevertheless, efforts to remedy remaining weaknesses in key areas need to be stepped up. Expenditure control, accounting, budget preparation and execution, and treasury cash flow continue to constrain the effectiveness of economic policies and program implementation. Thirteen expenditure controllers, including those in the three pilot ministries, have been nominated and trained. However, their effectiveness is constrained by inadequate resources and shortcomings in the Integrated Financial Management and Information System (IFMIS) that impede connectivity by ministries. Staff encouraged the authorities to continue working with key donors involved in the reform to explore ways to enhance connectivity to the IFMIS as these efforts are critical to mitigate past lapses in expenditure controls that resulted in extra-budgetary spending (MEFP ¶33). The role of the treasury committee has been strengthened through regularized meetings between the central bank and the ministry of finance and a treasury cash flow plan is in place. However, delays in budget support or policy slippages frequently result in recourse to central bank financing. Staff underscored that better alignment of the treasury cash flow and commitment plans would help mitigate repetitive past under-execution of pro-poor spending targets.

C. Safeguarding Debt Sustainability

10. Preserving debt sustainability continues to anchor medium-term fiscal policy. An update of the debt sustainability analysis (DSA) using the 5 percent discount rate in line with the recent Board decision shows some improvements. Due to Burundi’s narrow export base,6 two indicators still breach the threshold in the baseline scenario, and the assessment of high risk of debt distress remains. However, the present value (PV) of external debt-to-GDP and debt-to-government revenue ratios have improved and are now below their relevant thresholds (Figures 1 and 2 and Tables 14 of the DSA7).8 The DSA suggests that Burundi has limited borrowing space, and underscores that loans should continue to be highly concessional. The authorities have begun to produce a quarterly report on domestic and external debt with a view to improving budget and cash management. Fund TA is planned in early 2014 and will assist in finalizing a draft debt law that would provide an overarching legal framework (end-March 2014 benchmark), (MEFP ¶11). In addition, the TA regional center (AFRITAC) envisages in its regional assistance plan for 2014–15 TA missions to enhance the debt management capacity of the debt unit and to train relevant local staff on debt risk analysis and portfolio composition. Regarding public-private partnerships (PPP), the International Finance Corporation of the World Bank is assisting the authorities in developing a legal framework governing this type of financing arrangement.

D. Maintaining price stability and facilitating external adjustment

11. The authorities agreed to continue to gear monetary policy toward stabilizing inflation expectations (MEFP ¶29). Following a period of monetary tightening in response to external shocks, the central bank lowered its policy rate slightly, permitting credit to the private sector to expand. The projected decline in international food and fuel prices should contribute to an easing of inflationary pressures. However, policy slippages and recourse to central bank financing may reverse recent gains. The authorities indicated that if inflationary pressures pose no threat to economic activity, they could consider the possibility of gradually easing monetary policy. However in the event of higher inflationary pressures, policy tightening could be effected through available tools, including deposit auctions, the required reserve ratio, and the issuance of Treasury bills. Staff cautioned that further changes in the monetary stance to support growth should proceed gradually until the decline in inflation becomes sustained.

12. Exchange rate flexibility is essential for adjusting to shocks while safeguarding international reserves (MEFP ¶30). Greater exchange rate flexibility helped the economy to weather the impact of recent shocks. However, the authorities were concerned that the country’s shallow foreign exchange market could lead to significant exchange rate volatility, as lumpy transactions or very few participants could cause undesirable movements in the exchange rate. They also expressed concern about upside inflation risks associated with exchange rate depreciation given the relatively high import content of the CPI basket. The authorities reiterated their commitment to a managed float exchange rate regime in the context of the East African Community (EAC) integration efforts. They highlighted the efforts being made to promote the development of the interbank foreign exchange market. At the same time, they indicated that the central bank’s interventions in the foreign exchange market will continue to aim at smoothing exchange rate volatility.

E. Safeguarding Financial Sector Soundness

13. Domestic liquidity conditions improved following severe shortages in 2012. In recent months, the repatriation of coffee export revenues, donor inflows, and the entry of regional banks with access to cross-border financing, contributed to an improvement in liquidity conditions.9 As a result, overall liquidity ratios have improved, mostly driven by larger banks (Table 8). The participation of regional banks has given renewed impetus to the government securities market. The government’s timely repayment of debt service has helped commercial banks channel financing to productive sectors. The banking sector remains adequately capitalized and profitable although NPLs have picked up reflecting the adverse impact of recent food and fuel shocks. Weaknesses in the legal system concerning creditor rights are another contributing factor.

14. The central bank took appropriate measures to safeguard the soundness of the financial system. Based on recommendations of recent IMF TA, the authorities took measures including, (i) more frequent reporting to the central bank on rolled-over loans ; (ii) the harmonization of the definition of NPLs in line with international standards; and (iii) calculation of liquidity ratios based on local currency deposits (currently the ratio includes foreign deposits). The authorities also envisage a change in the legal framework to allow the central bank to swiftly intervene in troubled banks to prevent and to contain emerging crises. To enhance the supervision of the banking sector, the central bank has: (i) restructured its banking supervision department to incorporate the financial stability function; (ii) developed the methodology and detailed manual of risk-based supervision and is in the process of finalizing its draft circular; and (iii) stepped up surveillance of pan-African banks through the conduct of joint inspections with home-country supervisors. The central bank is also in the process of completing the migration to the International Financial Reporting System (IFRS) (MEFP ¶13) and continues to pursue the implementation of safeguard measures (MEFP ¶15).

F. Other Macro-Critical Reforms

15. Burundi’s economy remains highly vulnerable to shocks, due to its narrow export base and dependence on donors support. Owing to the limited export base, the trade balance is structurally skewed towards imports, which have contributed to widening and persistent current account deficits that are financed through concessional borrowing from multilateral and bilateral creditors. Over the medium term, structural reforms to diversify the economy and reduce Burundi’s vulnerability to shocks will be crucial for sustained growth and poverty reduction. While reiterating their commitment to reforms, the authorities noted that greater program flexibility of the 50 percent grant element under the debt limits policy would allow borrowing to finance electricity and other vital infrastructure projects to improve the balance of payments and growth outlook.

Text Figure 2:Doing Business Global Ranking

Note. 2013 rankings out of 185 countries; 2014 rankings out of 189 countries.

Source: World Bank Doing Business 2014.

16. Notable progress was made in a few areas. The recent adoption of a privatization law will add impetus to the third round of bids for the 76 remaining coffee washing stations which should help in boosting coffee exports over the medium term.10 Despite the expansion in electricity supply (the main constraint to growth) by 15MW to 55MW since 2012, less than 5percent of the population has access to electricity. Large hydroelectric projects that could help address the energy deficit and foster the emergence of non-traditional exports are not expected to come on stream before 2017. Continued improvements in the business environment11 that build on recent reforms including the establishment of one-stop-shops for starting a business, securing construction permits and registering property are critical to attracting foreign direct investment. Burundi’s adherence to the EAC’s monetary union protocol augurs well for buttressing macroeconomic stability through the harmonization of monetary and fiscal policies, fostering trade and investment, and enhancing employment opportunities.

Program Issues

17. The program is on track. Performance criteria and indicative targets at end-September were met. Satisfactory structural reform progress has also been made so far. The authorities reiterated their commitment to step up efforts to complete the planned reforms.

18. Burundi’s capacity to repay the Fund is adequate. Obligations to the Fund based on existing and prospective credit, measured in relation to official reserves or exports of goods and services, do not show solvency or liquidity risks (Table 6).

Text Table 1.Structural Measures: Fourth Review Under the ECF Arrangement
MeasuresImplementation DateStatusObjective
Prepare an expedited customs clearance procedure and establish 3 one-stop border posts.September 30, 2013MetReduce fraud and increase customs revenue.
Put in place a monitoring framework and calendar of regular meetings of the coordination committee of the Ministry of Finance and the central bank regarding the implementation of monetary and fiscal policy and the recommendations concerning public financial management, including from the special audit of large disbursements on behalf of the government processed by the BRB during June 30, 2011-March 31, 2012.September 30, 2013MetImplement a monitoring framework to ensure that the safeguard recommendations are met.
Source: Burundi authorities; and IMF staff.
Source: Burundi authorities; and IMF staff.
Text Table 2.Structural Measures: Fifth and Sixth Reviews Under the ECF Arrangement
MeasuresImplementation DateBenchmark for ReviewObjective
Public financial management
Prepare an audit of arrears on extra-budgetary expenditure (not committed and without payment order) in prior years (to be performed by an independent auditor, for example the Audit Office or IGE [State Inspectorate General]); and adopt a payment plan.March 30, 20145thIdentify and verify the amounts actually due and disputed invoices.
Put in place a rationalized spending chain with pilots in the Ministries of agriculture, education and health, and nominate 10 expenditure controllers in 10 ministries.June 30, 20145thEnsure timely and accurate reconciliation between government accounts and the accuracy of revenues collected.
Implement a program to unify the current data base of civil servants with that form the 2008 census.September 30, 20146thReinforce the Ministry of Finance’s management of salaries.
Put in place an interface between the revenue authority (OBR) and the Ministry of Finance.December 30, 20146thImprove budget execution.
Tax policy/Revenue administration
Submit a law on excise taxes in line with IMF Technical Assistance.September 30, 20146thProvide an umbrella legal framework clearly spelling out the purpose and scope of the law.
Debt management
Submit a new law on debt management to parliament.March 30, 20145thEstablish a legal framework governing public debt.
Source: Burundi authorities; and IMF staff.
Source: Burundi authorities; and IMF staff.

Staff Appraisal

19. The economic recovery continues to gain momentum. Growth picked up on the back of solid agricultural and construction activity, along with improvements in the tourism sector. Looking ahead prospects for growth and inflation in 2014 appear favorable.

20. Performance under the ECF arrangement was satisfactory. All program PCs were observed. Swift corrective measures were instrumental in placing the fiscal outlook on a sounder footing.

21. A re-commitment to revenue mobilization is critical to the success of the program in light of declining budget support and recent policy-induced revenue slippages. With increasing pressure on public expenditures to address social and economic needs and the lack of flexibility in the composition of expenditure, revenue collection should be stepped up to create additional fiscal space for financing public investments critical to growth and poverty reduction. While measures adopted in the revised 2013 budget have improved the fiscal outlook in the short term, further efforts are needed to strengthen revenue collections. These include rationalizing discretionary exemptions reinforcing tax administration, and adopting a more sustainable petroleum pricing formula to help buttress fiscal revenues over the medium term.

22. Improving public financial management is crucial for enhancing the quality of spending and facilitating implementation of prudent fiscal policies. While notable progress has been made in recent months, weaknesses in expenditure control, accounting, budget preparation and execution, and treasury cash flow management continue to constrain the effectiveness of economic policies and program implementation. The authorities’ reiteration of their commitment to the reforms, in addition to continued TA, dovetailed with support from the long-term PFM advisor, are critical to ensuring their successful implementation.

23. Burundi remains at high risk of debt distress, underscoring the importance of reinforcing debt management. Staff urges the authorities to continue to rely on concessional loans and grants, and to pursue prudent fiscal policy to avoid unsustainable debt dynamics and recourse to central bank financing. The authorities are also encouraged to expedite the finalization of a debt law governing the contracting of debt. The public debt law will also frame the country’s debt management strategy.

24. Monetary policy should continue to be geared toward stabilizing inflation expectations. Although inflation has declined significantly, further changes in the monetary stance to support growth should proceed gradually until the decline in inflation becomes sustained. Staff encourages the central bank to step up efforts to improve liquidity forecasting, promote the interbank market, and to enhance the effectiveness of monetary operations.

25. Greater exchange rate flexibility will be an important tool in rebalancing the policy mix. Staff encourages the authorities to continue pursuing efforts to develop the interbank foreign exchange market to ensure more effective price discovery and to stand ready to intervene in the event of excessive exchange rate volatility.

26. An uncertain external environment coupled with the influx of refugees and pre-election year uncertainty pose the greatest downside risks. Staff encourages the authorities to build additional fiscal space to respond to these contingencies in the run-up to 2015 elections. Strong policy commitments under the program will be needed to safeguard macroeconomic stability during this period.

27. Staff supports the completion of the fourth review of the ECF arrangement, based on satisfactory performance and the authorities’ forward-looking policy commitments.

Appendix I. Letter of Intent

Bujumbura, February 6, 2014

Ms. Christine Lagarde

Managing Director

International Monetary Fund

Washington, D.C., 20431

Dear Ms. Lagarde:

On January 27, 2012, the Executive Board of the International Monetary Fund (IMF) approved a new three-year arrangement under the Extended Credit Facility (ECF) in favor of the Republic of Burundi. This arrangement is intended to support our medium-term program and to strengthen macroeconomic stability, expedite growth, and reduce poverty. Under this arrangement, the government of Burundi and an IMF mission recently assessed implementation of the program as part of the fourth review of the arrangement. This review focused on the implementation of the program during the period from April 1st, 2013 to September 30, 2013, as well as on the economic and financial prospects and measures to be implemented in 2014.

Burundi faces a particularly difficult environment, marked by the massive influx of refugees from the eastern part of the Democratic Republic of the Congo, and those expelled from Tanzania and Uganda. These influxes put additional pressures on public finances in a context where they were already weakened by declining budget support and high tax expenditures coming from tax exemptions. However, significant efforts have been made to mobilize revenue, which are now covering an increasing share of budgetary spending.

Measures aiming to strengthen tax administration helped mitigate the effects of these shocks on domestic revenues to a level higher than programmed, thus contributing to the successful implementation of the program at end-September 2013. All performance criteria and indicative targets have been observed, including the indicative target on pro-poor expenditures, which were shielded from the compression of expenditures and delays in the disbursement of budget support. However, the Government remains firmly committed to implement the program and preserve the sustainability of public finances and debt, while boosting economic growth. Furthermore, the government intends to maintain prudent budgetary and monetary policies to anchor inflationary expectations.

In light of the appreciable progress in implementing the program supported by the ECF arrangement, the government is requesting completion of the fourth review, setting of new performance and indicative criteria for September 2014, as well as the fifth disbursement of SDR 5 million under the ECF arrangement.

The government is convinced that the policies defined in this MEFP are sufficient for the attainment of the program objectives and are consistent with the orientations of the second-generation Poverty Reduction and Growth Strategy Paper (PRSP-II). It also stands ready to adopt any additional measures that may be required for this purpose. The government will consult with the IMF in advance of the adoption of such measures and/or of revisions to the policies contained in the MEFP, in accordance with the IMF’s policies on such consultations.

The government will provide the IMF with the necessary information to ensure the implementation and regular monitoring of the program. That information as well as arrangements for monitoring implementation of the program and the performance criteria, quantitative targets, and structural benchmarks are detailed in the Technical Memorandum of Understanding, which is also attached to this letter. We expect the fifth review based on the end-March 2014 performance criteria to be completed by the latest July 31, 2014, and the sixth review based on the September 2014 performance criteria to be completed by the latest January 31, 2015.

The Burundi authorities wish to make this letter available to the public, along with the attached Memorandum of Economic and Financial Policies (MEFP) and Technical Memorandum of Understanding (TMU), as well as the IMF staff report on this fourth [sic] review. We therefore authorize their publication and posting on the IMF website, subject to Executive Board approval. These documents will also be posted on the official websites of the Burundian government.

Sincerely yours,

/s//s/
Tabu Abdallah MANIRAKIZAJean CIZA
Minister of Finance andGovernor, Bank of the Republic of Burundi
Economic Development Planning
/s/
Gervais RUFYIKIRI
Second Vice-President, Republic of Burundi
  • Attachments: Memorandum of Economic and Financial Policies (MEFP)

  • Technical Memorandum of Understanding (TMU)

Attachment I. Amendments to the Memorandum of Economic and Financial Policies

February 6, 2014

I. Introduction

1. Burundi’s economic and financial program, supported by the International Monetary Fund (IMF) under the Extended Credit Facility (ECF), aims to consolidate economic and political gains, promote inclusive economic growth, contain inflation, and strengthen policies designed to combat endemic poverty in rural and urban areas. This Memorandum supplements the December 2011, July 2012, January 2013, and August 2013 MEFPs. It reports on implementation of the program’s quantitative targets and structural benchmarks through end-September 2013 and defines the economic policies and reforms the government intends to implement in 2014 to achieve the objectives of its economic and financial program. The program measures and objectives are consistent with the Poverty Reduction and Growth Strategy Paper (PRSP-II).

2. Burundi continues to be vulnerable to the lingering effects of external shocks associated with commodity prices and recurrent slippages in tax revenue collection. The social situation has weakened further with the massive influx of refugees, weighing on budget expenditure and exacerbating political tensions. The combined effects of these shocks and the country’s social fragility threaten to derail the significant progress made thus far. Moreover, because the country’s tax base is narrow, the worsening terms of trade and markedly lower levels of direct budgetary support cannot be wholly offset by the increased mobilization of domestic resources. Consequently, Burundi still needs technical and financial support from technical and financial partners to complete the transformation of its economy and strengthen its political institutions.

3. The Burundi development partners’ conference held in Geneva in October 2012 provided a forum for the government to apprise its partners of the great strides Burundi has made, particularly with regard to good governance, peace consolidation, and improved public access to social services. In order to give greater substance to the promises made during the Geneva conference, the government organized two sectoral conferences in July and October 2013. The targeted sectors are in line with the pillars of the PRSP-II and pertain to (i) transport infrastructure, information and communication technologies (ICT), (ii) energy, (iii) private-sector and tourism development, (iv) governance, rule of law and gender, (v) education, (vi) health, and (vii) environment, water and sanitation. Despite this progress, the government is aware that much remains to be done in these areas. The authorities have therefore requested political support and additional resources to promote sustainable economic growth, curb unemployment, and reduce endemic poverty.

II. Economic Developments and Implementation of the Economic Program in 2013

4. Macroeconomic developments are largely in line with program projections. GDP growth is expected to improve modestly from 4 percent in 2012 to 4.5 percent in 2013, likely as a result of investments in infrastructure, particularly transport and hydroelectric dams. Inflation, however, is moderating slowly owing to the lingering effects of rising food and fuel prices, and weak agricultural production over the past year.

5. The external current account (including transfers) deteriorated markedly, reaching a deficit of approximately 23 percent of GDP compared to 18.5 percent in 2012, despite slight mitigation of the effects of terms of trade deterioration in previous years. Imports rose by about 2.5 percent, while exports fell sharply by more than 35.5 percent, largely reflecting the decline in coffee exports. Gross official reserves crept up to the equivalent of 3.5 months of imports in 2013.

6. Monetary policy remained prudent in 2013. The Bank of the Republic of Burundi (BRB) thus kept its refinancing rate indexed to the interest rate of 13-week treasury paper (bons du Trésor) plus 3 percentage points. The required reserve ratio was maintained at 3 percent and money market interventions were limited. The average refinancing rate for this period was 11.7 percent. The BRB kept the required reserve ratio at 3 percent and limited its interventions in the money market. Monetary and credit growth in the private sector was moderate at around 17 and 9 percent, respectively. Monetary policy witnessed an innovation with the creation of a Monetary Policy Committee that publishes quarterly reports, together with a monetary policy statement, announcing the monetary authority’s future intentions to the public. The goal is to enhance the transparency and credibility of monetary policy. In response to the steep depreciation in the Burundi franc at end-2012 and in early 2013, the BRB intervened in the foreign exchange market, adopted a foreign exchange regulation easing policy by eliminating restrictions on cash withdrawals from foreign exchange accounts, encouraged banks to supply the interbank market with foreign exchange, continues to monitor liquidity conditions and stands ready to intervene depending on market conditions.

7. With respect to public finances, domestic resource mobilization improved significantly following the implementation of corrective actions designed to offset revenue losses posted in the first half of the year. Tax revenue is expected to reach about FBu 556 billion at end-December 2013, up 3 percent compared to 2012. This good revenue performance is largely due to improved economic activity, as evidenced by the surge in the value added tax (VAT) and the gradual reinstatement of taxes on petroleum products. Expenditure was brought down to fit into the available resource envelope. Thus, the overall deficit should be in line with projections in 2013. At end-December 2013, the overall budget deficit (cash basis, non-HIPC grants included) is estimated at 2 percent of GDP. The tax burden decline to 12.9 percent of GDP, primarily as a result of the further elimination of excise duties on petroleum products in the first half of the year.

8. The downward trend of the wage bill relative to GDP continued. It was 7 percent of GDP in 2013, down 0.8 percentage points of GDP compared to 2012. The roll-out of payroll software (OPEN PRH) made it possible to expunge ghost workers from the payroll. The new OPEN PRH system considerably reduces pay processing times, thereby minimizing payment arrears. Broader access will guarantee better control over payroll, which is one of the government’s largest budget items.

9. Program implementation is satisfactory overall. By end-September 2013, all the quantitative performance criteria had been met. All indicative targets were also reached, including, for the first time, that of pro-poor expenditure. Significant progress has also been made in implementing structural measures.

10. Progress in the area of public finances continues to be consolidated. In addition to three expenditure commitment controllers (contrôleurs des engagements de dépenses—CED) in the ministries of education, health, and agriculture, the government has assigned ten others in other sectoral ministries; thus, 74 percent of the budget is covered by the rationalized expenditure chain (chaîne rationalisée de la dépense). The expenditures of ministries without CEDs will be managed by a central CED. However, in order for the CEDs to be fully functional, their capacities will need to be strengthened and the Integrated Government Finance Management System (Système d’Information Intégré pour la Gestion des Finances Publiques–SIGEFI) will need to be reconfigured to take account of the decentralization of the expenditure chain. The audit on outstanding arrears, estimated at FBu 90 billion and attributable to extrabudgetary spending on a vehicle fleet and goods and services for the army, and education and health, is underway. An arrears clearance plan will also be developed once the audit office has examined all supporting documents to confirm the final amount of the arrears. The cash-flow management committee has been bolstered, but its work is hampered by the unpredictability of budget grant disbursements. Lastly, the law amending the VAT and the law establishing the tax procedures code have been enacted. The government is continuing its efforts to make a lasting impact on revenue. In addition to strengthening the administrative capacity of the Burundi Revenue Authority (OBR) and its campaign to raise taxpayer awareness, the government intends to make the process of moving goods with Tanzania and Rwanda smoother by creating one-stop border posts, thereby boosting foreign trade.

11. Efforts to improve debt management continue. Two successive World Bank missions developed, jointly with Burundian authorities, an action plan for implementing debt management reforms in response to the results of the Debt Management Performance Assessment (DeMPA). This means that the government publishes a quarterly report on public debt every three months, along with a portfolio analysis. These publications are available on the Ministry of Finance website. A third IMF mission is expected to visit Bujumbura in April to help finalize the new law on debt. As part of the restructuring of the Ministry of Finance and Planning for Economic Development (Ministère de Finances et de la Planification pour le Développement Economique—MFPDE), a modern unit in charge of debt management was created.

12. In the context of the financial system reform, the Central Bank is continuing to implement projects designed to modernize the financial sector, one of the components of the Financial Sector Development Project. To this end, the Central Bank will: (1) strengthen supervision of banks, non-bank financial institutions, and microfinance institutions; (2) modernize payment systems (ACH/RTGS, electronic banking, and central securities depository) through enhanced IT infrastructure; and (3) implement an automated banking system as well as the legal and institutional framework of the payment system. Significant progress has been made on all aspects of financial sector modernization, particularly the legal framework. In fact, the draft law on the national payment system went to the Council of Ministers on April 4, 2012. It was returned to the Office of the Second Vice President of the Republic for corrections and amendments. Discussions are ongoing to analyze the legal text on payment systems as a law rather than a decree. Lastly, the legal framework will be complemented by the implementation of participation agreements to be signed by all participants.

13. In the area of bank supervision, guidelines on business continuity management were adopted and transmitted by the BRB to the banking sector with strict instructions that they be implemented by no later than June 30, 2014. The bank supervision unit was restructured to include the financial stability function. Preparation of the risk-based supervision methodology and the detailed risk-based supervision manual as well as the attendant draft circular are being finalized. Final migration by commercial banks towards adopting the International Financial Reporting System (IFRS) is being completed. Quality control of reporting and any adjustments needed will be carried out on the basis of the first three monthly reports. With a view to aligning bank supervision practices and assessing the probable risk of systemic pan-African bank crises (Ecobank Burundi, FinBank, DTB Burundi, KCB Bank Burundi, and CRDB Bank Burundi), BRB supervisors have already participated in joint inspection missions with supervisors from the Central Bank of Kenya during on-site inspections of the KCB and DTB, the parent companies of KCB Bank Burundi and DTB Burundi, respectively. Further, in December 2012, supervisors from the Central Bank of Nigeria were accompanied by supervisors from the BRB in conducting an inspection mission of FinBank, a subsidiary of Access Bank.

14. Observations made by the IMF and the National Bank of Belgium were incorporated into the amended draft banking law, which was circulated to the profession for comment. This law will also constitute a legal framework for microfinance activities, the National Postal Administration (Régie Nationale des Postes), and payment services (including mobile and electronic banking). A draft regulation on payment systems and another on commercial agents in bank operations and payment services are being finalized to expand the payment systems legal framework. A draft proposed to amend the decree governing microfinance institutions has been developed. These three instruments will be published following the enactment of the amended banking law from which they emanate.

15. In accordance with the recommendations concerning safeguards, the BRB continues to submit a report on reserve management to its Board of Directors on a quarterly basis. To this end, a schedule of regular meetings between the central bank and the ministry of finance has been prepared to ensure gradual implementation of the recommended safeguards.

16. In the coffee sector, the government plans to pursue its program of privatizing washing stations, 41 of which were sold to domestic and international private investors in two bidding procedures, while ensuring that coffee growers have access to reserved shares in keeping with the government’s commitment (25 percent of the capital). Following the adoption by Parliament of the law governing privatization, the 76 remaining washing stations will be subject to a new bidding process in 2014 once their values have been reviewed. The government recognizes the preponderant role the private sector should play in the coffee sector as part of its strategy to boost production and minimize the cyclical effects of coffee production.

17. Government reforms to make the business climate more appealing to private investors continue. Substantial progress has been made in eliminating constraints related to: (i) business start-ups; (ii) the issuance of building permits; (iii) property transfers; and (iv) regional trade, which thus no longer pose an obstacle to entrepreneurship. Owing to government’s efforts to improve the business climate, Burundi is ranked among the 29 most reform-oriented countries in the Doing Business 2014 report, rising 37 spots from 177th to 140th in the 2011 and 2014 rankings, respectively.

III. Economic and Political Outlook for 2014

A. Macroeconomic framework

18. The uncertainties weighing on the global economy pose a major challenge for program implementation. Factors such as the slowdown in global economic activity—especially in Europe, Burundi’s strategic partner, where economic growth remains weak—, the return of refugees from neighboring countries, and sociopolitical tensions in the sub-region, particularly the Democratic Republic of the Congo (DRC), all pose downside risks with the potential to affect the level of economic activity, external accounts, and public finances in Burundi.

19. Despite these risks, GDP growth is estimated to climb to 4.7 percent in 2014 compared to 4.5 percent in 2013. This recovery is likely to be driven primarily by the secondary and tertiary sectors. Moreover, the start of construction on the hydroelectric dam (Kabu 16) in 2013 and work on the road projects financed through Japanese cooperation and the African Development Bank (AfDB) should support this growth. Agricultural exports, however, are expected to rebound, owing to the cyclical nature of coffee production. Inflation is expected to decline to 7 percent in 2014. The current account deficit in the balance of payments should improve moderately to 21.4 percent of GDP, a decline of more than 4.9 percentage points of GDP compared to the program projection, and an improvement of 1.6 percentage points of GDP compared to 2013, due mainly to a rebound in coffee export revenue. Official foreign reserves are expected to rise slightly to 3.6 months of imports, a reflection of the BRB’s limited intervention in the foreign exchange market.

B. Fiscal policy

20. The aim of fiscal policy is to support growth and improve the composition of expenditure with a view to mitigating the effects of shocks on the most vulnerable segments of the population. Total government revenue and expenditure are expected to reach 27.6 percent and 29 percent of GDP, respectively, as a result of expenditure controls and improved revenue collection. The overall fiscal balance deficit (cash basis, including grants) should be contained at 1.6 percent of GDP. Pro-poor expenditure will therefore continue its upward trend to around 9.5 percent of GDP, without jeopardizing fiscal consolidation, and the wage bill will be under control.

21. Total budget revenue (excluding grants) is estimated to be FBu 627.3 billion compared to FBu 558 billion in 2013. This revenue growth will likely be the result of enhanced administrative reforms put in place in previous years, notably those to broaden the tax base, combat fraud and tax evasion, and minimize exemptions. Other initiatives will also boost revenue collection, particularly the introduction of a 10-percent tax on the remuneration of political representatives, the gradual expansion of the use of the tax identification number (TIN), including in the informal sector, and the effects of the excise tax on beer and wine. The creation of one-stop border posts should facilitate regional trade and, in so doing, boost customs revenue. Lastly, the law on the VAT has been enacted. It aims to broaden the tax base, while reducing the size of the informal sector in the economy. The government will also be seeking IMF technical assistance in drafting an excise code and restructuring the tax exemption system in order to strengthen domestic revenue collection.

22. To meet unforeseen pre-election requirements, the government undertakes to keep such revenue as may potentially be generated through the renewal of telecommunication licenses and the collection of tax arrears from large- and medium-size businesses. Furthermore, a review of the investment code, taking account of the recommendations expected to come out of the joint IMF, IFC, and World Bank mission scheduled in early 2014, is intended to curb the granting of exemptions with the aim of replenishing the Treasury account.

23. Total expenditure in 2014 could rise by 3.4 percent to FBu 1,393.3 billion. This increase, following the 6-percent growth expected in 2013, reflects the need to strengthen economic and social infrastructure. The wage bill is projected to be FBu 322.3 billion, or 6.7 percent of GDP, in response to the human resource requirements in the key sectors of education, health, and agriculture. Overall, domestically-financed capital expenditure is expected to increase to FBu 93.9 billion, or approximately 2.0 percent of GDP, as in 2013.

24. In order to reduce government spending on the management of its vehicle fleet, the government decided to adopt the zero vehicle fleet (Charroi zéro) policy. Despite difficulties in implementing this policy, the government will give top priority to capping the cost of the policy with a view to making the necessary resources available to meet the financing requirements of social sectors.

25. In the health sector, the government will continue its policy of free health care for children under five and care for women in childbirth. Additional infrastructure investments are planned to meet the growing demand for health services. The government will continue to give priority to the hiring of medical personnel in a context of wage bill stabilization. These measures will contribute to higher quality medical care. The health insurance program, which gives vulnerable segments of the population access to health services, is seeing growing success. In order to sustain it, the government intends to focus on its financing by placing sufficient appropriations in the government budget so that adequate resources can be transferred to hospitals to cover the cost of procedures under the health card program. The necessary decisions will have been made to keep public finances balanced at the level agreed to under the program.

26. In the education sector, the government also intends to continue the program of free primary school tuition and extend it to include higher education, and to expand the number of school cafeterias providing free meals to students. It plans to build new classrooms and hire teachers in order to reduce the teacher-student ratio.

27. In the agricultural sector, the government, in close collaboration with technical and financial partners, plans to combat the high cost of living and eliminate food insecurity. Accordingly, the government has put in place a program encouraging the use of fertilizer by rural producers. The purpose of this program is to achieve significant increases in agricultural productivity, thereby contributing to the fulfillment of objectives under the National Agricultural and Livestock Investment Plan (Plan National d’investissement Agricole et de l’Elevage).

28. The government is committed to maintaining a prudent debt policy to avoid over indebtedness and therefore intends to request funds in the form of grants or highly concessional loans with a grant element of at least 50 percent, sufficient to cover its financing requirements.

C. Monetary and exchange rate policies

29. Monetary policy will continue to be guided by the pursuit of price stability. The BRB will carefully monitor the growth of inflation and will continue to improve its capacity to forecast this macroeconomic indicator. If inflationary pressures pose no threat to economic activity, the BRB, in consultation with Fund staff, will weigh the possibility of gradually easing monetary policy to provide the economy with the resources needed to function without reigniting inflationary pressures. To that end, the BRB has requested technical assistance from the IMF in order to build its capacity to design and implement monetary policy, including identifying instruments that increase the effectiveness of interest rates and other BRB signals.

30. To enhance the effectiveness of the exchange rate policy, the BRB has decided to pursue an active market-making policy for the foreign exchange interbank market and will continue to reduce the frequency and amounts of its interventions in the foreign exchange market to maintain official reserves. In the context of the recently signed monetary union protocol of the East African Community, the central bank remains committed to pursuing a floating exchange rate regime.

31. The BRB is aware of the great importance of monitoring the financial system to bolster its soundness. To that end, it requested technical assistance from the IMF’s Monetary and Capital Markets Department. Fund support came in the form of short-term missions and will culminate in the assignment of a resident advisor on bank supervision to the BRB. This mission should significantly reinforce the financial system monitoring mechanism, particularly the BRB’s bank supervision unit.

D. Structural measures

32. The government continued to consolidate progress in public financial management reforms. Accordingly, it issued the decree on the appointment and legal status of the Receiver General of the OBR, establishing the scope of his responsibility and relationships with the senior government accounting officer (new structural benchmark). The Commissioner General of the OBR also assumes the Receiver General’s functions. The government is aware of the need to adapt the responsibility of the senior government accountant granted to the Commissioner General of the OBR, and intends to conform gradually. The government has decided to provide the OBR with the resources it needs to conduct its missions, increasing the OBR’s allocation to 3 percent of collected revenue. With respect to the tax on incoming calls, the government has opted to clear the share of proceeds from this tax, accruing to the government budget, from the transit account into the account of the Receiver General of the OBR, now responsible for clearing it into the treasury single account.

33. In the context of strengthening public financial management, the government has decided, with support from such partners as the AfDB and the Netherlands, and in close consultation with World Bank and Fund staff, to modernize the SIGEFI. This modernization should eventually secure the entire expenditure chain, from the establishment of budget appropriations to the payment of the expenditure from the Public Treasury. The new system should allow the Budget and Treasury to issue statements of expenditure incurred and balances of authorized expenditure and outstanding payments. The SIGEFI should be interconnected with other expenditure chains, particularly the salaries and wages of government officials, and the IT system for monitoring revenue. This integration should help the Treasury establish its balances.

IV. Poverty Reduction and Growth Strategy Paper

34. The PRSP-II, which is a key component of the effort to consolidate peace and kick-start economic growth, is structured around four strategic pillars: (i) strengthening of the rule of law, consolidation of good governance, and promotion of gender equality; (ii) transformation of the Burundian economy to achieve sustained, job-creating growth; (iii) improvement in the accessibility and quality of basic services and strengthening of national solidarity; and (iv) management of land and the environment in keeping with sustainable development principles.

35. To mobilize the political support and resources necessary to finance the priority action program contained in the PRSP-II, the government organized two sectoral conferences in Bujumbura in July and October 2013, following the donor conference in Geneva in October 2012. The government plans to implement the reforms provided for in the PRSP-II to facilitate disbursement of the commitments made in Geneva and thus mobilize all the resources required for effective implementation of the PRSP-II.

36. The government has completed the first report on the progress in implementing priority programs recommend by the PRSP-II. The report conveys the main actions taken in 2012 and points out the challenges to which special attention will need to be paid in order to achieve better performance.

37. To ensure that reliable socioeconomic indicators are regularly available, the government is determined to strengthen its data collection units. All ministries were therefore instructed to set up statistical departments responsible primarily for updating quick result indicators.

38. In addition, the government launched a national survey on household living conditions in December 2013 with a view to updating the household basket and achieving national consumer price index (CPI) coverage. This survey comprises five modules and should be finished in March 2014.

39. In addition, the government launched a national survey on household living conditions with a view to updating the household basket and achieving national CPI coverage.

V. Program Monitoring

40. “Semiannual reviews of the program by the IMF Executive Board will continue based on the quantitative performance criteria and indicative targets, and structural benchmarks set out in tables I.1 and I.2. These indicators are defined in the attached Technical Memorandum of Understanding (TMU). The half-yearly reviews will be based on the data at end-March and end-September. The fifth program review will be based on the performance criteria for end-March 2014. To ensure the program’s success, the authorities will take all the steps necessary to meet the quantitative targets and structural benchmarks agreed to with Fund staff.”

Table I.1.Burundi: Performance Criteria and Indicative Targets, 2013—14(BIF billion, unless otherwise indicated)
20132014
Sep.Dec.1Mar.Jun.1Sep.Dec.1
Prog.Prog.,

with adj.
Prel.StatusRev.

Prog.
Proj.Proj.Proj.Proj.Proj.
Performance criteria
Net foreign assets of the BRB (floor; US$ million) 231.921.150.2Met17.023.225.033.124.451.6
Net domestic assets of the BRB (ceiling) 2264.8254.3Met225.2213.8216.6229.7239.2201.4
Net domestic financing of the government (ceiling) 242.052.728.6Met33.347.510.721.332.042.7
External payments arrears of the government (ceiling; US$ million) 30.00.0Met0.00.00.00.00.00.0
Short-term external debt of the government (ceiling; US$ million) 3, 40.00.0Met0.00.00.00.00.00.0
Nonconcessional external debt contracted or guaranteed by the government or the BRB (ceiling; US$ million, cumulative from beginning of the program) 3, 4, 528.028.0Met28.028.028.028.028.028.0
Indicative targets
Gross fiscal revenue (excluding grants, floor, cumulative from beginning of calendar year)380.2414.0Met536.4551.0151.8267.6442.9626.2
Accumulation of domestic arrears (ceiling; cumulative from beginning of calendar year)0.00.0Met0.00.00.00.00.00.0
Reserve money (ceiling)313.7275.2Met252.0249.5257.3282.8277.8283.3
Pro-poor spending (floor; cumulative from beginning of calendar year)190.0196.6Met270.034.5118.7189.2303.6
Sources: Burundi authorities; and IMF staff estimates and projections.

Indicative targets.

The ceiling or the floor will be adjusted as indicated in the TMU.

Continuous performance criterion.

See definitions in TMU.

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

Indicative targets.

The ceiling or the floor will be adjusted as indicated in the TMU.

Continuous performance criterion.

See definitions in TMU.

Table I.2.Burundi: Structural Benchmarks for 2013–14
Proposed measuresDatesStatusObjective
Public financial management

Adopt a decree on the appointment and legal status of the Commissioner of the Burundian Revenue Office.
March 30, 2013Met with delay.Clarify the division of responsibilities between the commissioner of the OBR and the senior government accountant (pursuant to the Organic Budget Law and Article 6 governing the OBR).
Prepare an audit of arrears on extra-budgetary expenditure (not committed and without payment order) in prior years (to be performed by an independent auditor, for example the Audit Office or IGE [State Inspectorate General]); and adopt a payment plan.June 30, 2013 New date proposed for end-March 2014Not met.Identify and verify the amounts actually due and disputed invoices. Seventeen magistrates from the Court of Auditors have been nominated and six staff from the Ministry of finance assigned to facilitate the audit.
Implement a monthly cash flow plan in line with commitment plans.March 30, 2013Met.Improve budget execution management and avoid end-period arrears.
Put in place a rationalized spending chain with pilots in the Ministries of agriculture, education, and health, and nominate 10 expenditure controllers in ten ministries.June 30, 2014Ensure timely and accurate reconciliation between government accounts and the accuracy of revenues collected.
Implement a program to unify the current data base of civil servants with that form the 2008 census.September 30, 2014Reinforce the Ministry of Finance’s management of salaries.
Put in place an interface between the revenue authority (OBR) and the Ministry of Finance.December 31, 2014Improve budget execution.
Tax policy
Submit a law on the VAT to parliament.June 30, 2013Met with delay. Law approved on July 24.Establish legal framework governing the collection of VAT.
Debt management
Prepare a quarterly report on domestic debt forecasting with a view to improving budget and cash management.March 30, 2013Met.Make debt management a key element of the government’s budgetary process and of cash requirements planning in line with World Bank recommendations.
Submit a new law on debt management to parliament.December 31, 2013. New date March 31, 2014Technical assistance now planned for November 2013.Establish a legal framework governing public debt.
Central bank and Treasury safeguard measures
Each quarter, submit a report on reserve operations to the General Council of the BRB.March 30, 2013MetImprove BRB Board of Directors supervision of reserves management.
Put in place a monitoring framework and calendar of regular meetings of the coordination committee of the Ministry of Finance and the central bank regarding the implementation of monetary and fiscal policy and the recommendations concerning public financial management, including from the special audit of large disbursements on behalf of the government processed by the BRB during June 30, 2011-March 31, 2012.September 30, 2013MetImplement a monitoring framework to ensure that the safeguard recommendations are met.
Attachment II. Amendments to the Technical Memorandum of Understanding

1. This technical memorandum of understanding covers the agreements on monitoring implementation of the program supported by the Extended Credit Facility (ECF) Arrangement. It sets out the definitions of program variables to monitor implementation of the program and the reporting requirements for the government of Burundi and the Bank of the Republic of Burundi (BRB). It defines quantitative performance criteria, indicative targets, and applicable adjustors.

Quantitative Program Targets

A. Quantitative performance criteria and indicative targets

2. The quantitative performance criteria for the program as shown in the MEFP are as follows:

  • net foreign assets of the BRB (floor);

  • net domestic assets of the BRB (ceiling);

  • net domestic financing of the government (ceiling);

  • external payment arrears of the government (ceiling, continuous);

  • stock of short-term external debt (maturity of less than one year) of the government (ceiling, continuous); and new nonconcessional external debt contracted or guaranteed by the government or the BRB (ceiling, continuous).

3. The quantitative indicative targets for the program, shown in the MEFP, are as follows:

  • gross fiscal revenue (floor);

  • accumulation of domestic arrears (ceiling);

  • reserve money (ceiling), and

  • pro-poor spending (floor).

B. 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, and liabilities arising from the use of any SDR allocation). The gross official reserves of the BRB are defined as those foreign assets that are liquid and freely available to the BRB.

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.

6. The government’s gross fiscal revenue is defined as the revenue appearing in the TOFE and includes all tax and non-tax revenue in the national budget, before deduction of tax refunds generated during the year, particularly accumulated VAT credits.

C. Adjustor for changes in the compulsory reserves coefficients

7. 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 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.

8. 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) plus the stock of all government securities held by the nonbank 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.

9. The stock of external payment arrears of the government for program monitoring purposes is defined as the end-of-period amount of external debt service due and not paid within the grace period defined by a creditor, including contractual and late interest, for which a clearance agreement is not in place or for which arrears are not reschedulable. For arrears to exist, a creditor must claim payment of amounts due and not paid. Amounts in dispute are not considered arrears. 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.

D. Definition of debt

10. The program includes a ceiling on new nonconcessional external debt contracted or guaranteed by the government or the BRB. For the purpose of this program, external debt is defined as all debt contracted in a currency other than the Burundian Franc. This performance criterion applies to the contracting or guaranteeing by the government, local governments, the BRB and REGIDESO of new nonconcessional external debt (as specified below) with an original maturity of one year or more, including commitments contracted or guaranteed for which value has not been received (including leases). 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. Debt contracted by state-owned enterprises is included in the overall ceiling, if guaranteed by the government.

11. For program purposes, the definition of debt is set out in Executive Board Decision No. 12274, Point 9, as revised on August 31, 2009 (Decision No. 14416-(09/91)).

  • a) For the purpose of this guideline, the term “debt” will be understood to mean a current, i.e., not contingent, liability, created under a contractual arrangement through the provision of value in the form of assets (including currency) or services, and which requires the obligor to make one or more payments in the form of assets (including currency) or services, at some future point(s) in time; these payments will discharge the principal and/or interest liabilities incurred under the contract. Debts can take a number of forms, the primary ones being as follows:

12. (i) loans, i.e., advances of money to the obligor by the lender made on the basis of an undertaking that the obligor will repay the funds in the future (including deposits, bonds, debentures, commercial loans and buyers’ credits) and temporary exchanges of assets that are equivalent to fully collateralized loans under which the obligor is required to repay the funds, and usually pay interest, by repurchasing the collateral from the buyer in the future (such as repurchase agreements and official swap arrangements);

13. (ii) suppliers’ credits, i.e., contracts where the supplier permits the obligor to defer payments until sometime after the date on which the goods are delivered or services are provided; and

14. (iii) leases, i.e., arrangements under which property is provided which the lessee has the right to use for one or more specified period(s) of time that are usually shorter than the total expected service life of the property, while the lessor retains the title to the property. For the purpose of the guideline, the debt is the present value (at the inception of the lease) of all lease payments expected to be made during the period of the agreement excluding those payments that cover the operation, repair or maintenance of the property.

  • b) Under the definition of debt set out in point 9 (a) above, arrears, penalties, and judicially awarded damages arising from the failure to make payment under a contractual obligation that constitutes debt are debt. Failure to make payment on an obligation that is not considered debt under this definition (e.g., payment on delivery) will not give rise to debt.

15. The grant element of debt is the difference between the present value (PV) of debt and its nominal value, expressed as a percentage of the nominal value of the debt. The PV of debt at the time of contracting is calculated by discounting the future stream of payments of debt service due on this debt. The calculation of concessionality will take into account all aspects of the loan agreement, including maturity, grace period, payment schedule, upfront commissions, and management fees. The discount rate used for this purpose is 5 percent.

16. The stock of short-term external debt with a maturity of less than one year owed by the government is to remain at zero under the program. 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. Normal import credits are excluded from this ceiling. Loans with an initial maturity, as recorded in the original loan agreement, of one year or more 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 leases). Excluded from this performance criterion are rescheduling arrangements, borrowing from the IMF, and any Burundi franc-denominated treasury securities held by nonresidents. As of September 2007, the stock of short-term debt outstanding was nil.

17. Consistent with the PRSP, the authorities’ definition of pro-poor spending is based on three criteria: (i) social character of spending, based on the administrative classification of spending (this includes “social services” spending and part of “general services” and “economic services” spending if it has a social character component); (ii) consistency with one of the four PRSP pillars; and (iii) pro-poor investment spending, financed by donors.

18. The accumulation of domestic arrears is measured by the accumulation of non-executed payment orders older than 60 days.

E. External financial assistance adjustor

19. The program provides for adjusters to allow higher than expected external assistance to be spent (with a cap) and shortfall of external assistance to be financed domestically (with a cap).

20. Any financing excess up to US$40 million will be spent on expenditure priorities defined in the PRSP. The floor on the stock of net foreign assets of the BRB will be adjusted upward, and the ceilings on the net domestic assets of the BRB and on net domestic financing to the government will be adjusted downward to accommodate 100 percent of any financing excess above US$40 million.

21. The floor on the stock of net foreign assets of the BRB will be adjusted downward, and the ceilings on the net domestic assets of the BRB and on net domestic financing to the government will be adjusted upward to accommodate a financing shortfall up to a maximum of US$40 million. External financial assistance will be converted to Burundi francs using the program-specified BIF/US$ exchange rate. The program exchange rate for end-March 2014 is 1624.55.

22. External financial assistance (measured in US$) is defined to include the following: (i) nonproject 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); plus (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 considered foreign assistance for program monitoring purposes.

F. Provision of Information to IMF Staff

23. 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 six weeks of the end of each month, containing the following weekly data:

  • foreign exchange auction market (MESD) transactions;

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

24. The following monthly data, with a maximum lag of six weeks:

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

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

  • the monetary survey, including the breakdown of the BRB 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, on 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 payment 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 nonproject financial assistance, including new loans and debt relief granted by Burundi’s external creditors (Ministry of Finance); and

  • an update on the implementation of structural measures planned under the program (REFES).

25. The following quarterly data, with a maximum lag of six weeks:

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

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

The good revenue performance was mainly due to an increase in fuel taxes, which has been implemented gradually since June and was formalized in a new fuel retail price structure in September 2013.

Notwithstanding the nominal increase in revenues, they decline in terms of GDP relative to end-2012.

The domestic primary balance, a measure of domestic fiscal effort, for 2013 in Country Report No. 13/288 was -3.3 percent of GDP compared with -2.2 percent of GDP in the adopted budget. The domestic primary balance is defined as revenues minus domestically-financed expenditures.

In line with FAD advice, staff has advocated a system of upper and lower price bands that balance the objectives of reducing price volatility at the pump and safeguarding revenue collections.

The three ministries comprise of agriculture, education, and health.

Coffee and tea account for about 80 percent of exports.

Burundi: Fourth Review Under the Three-Year Arrangement Under the Extended Credit Facility—Debt Sustainability Analysis Update, January 2014.

The staff discussed with the authorities the changes to concessionality calculation and the related changes to the TMU reflecting the Board’s decision on uniform discount rates. Discrepancies arose between source data in the DSA and BOP tables and will be addressed in the next report and through ongoing technical assistance to strengthen data coverage.

In 2012, two of the East African Community’s largest banks, Kenya Commercial Bank (KCB) and Tanzania’s CRDB opened branches.

41 coffee washing stations were sold during two previous bids.

Doing Business indicators should be interpreted with caution due to a limited number of respondents, a limited geographical coverage, and standardized assumptions on business constraints and information availability.

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