This paper assesses Burundi’s 2002 Article IV Consultation and a Request for Post-Conflict Emergency Assistance. Implementation of a Staff-Monitored Program in 2001 was hampered by continued instability and a consequent holding back of donor support. Fiscal performance weakened in the latter part of 2001, mainly reflecting expenditure overruns. The external current account deficit also worsened, and the overall balance of payments was financed by a drawdown of official reserves and a buildup of external debt arrears. The program for the remainder of 2002 and the first half of 2003 focuses on key short-term stabilization measures.

Abstract

This paper assesses Burundi’s 2002 Article IV Consultation and a Request for Post-Conflict Emergency Assistance. Implementation of a Staff-Monitored Program in 2001 was hampered by continued instability and a consequent holding back of donor support. Fiscal performance weakened in the latter part of 2001, mainly reflecting expenditure overruns. The external current account deficit also worsened, and the overall balance of payments was financed by a drawdown of official reserves and a buildup of external debt arrears. The program for the remainder of 2002 and the first half of 2003 focuses on key short-term stabilization measures.

The following information has become available since the issuance of the staff report (EBS/02/174) on September 24, 2002. It does not change the thrust of the staff appraisal.

Negotiations on a cease-fire continued throughout most of September, but appeared to run into difficulties in the latter part of the month. Preliminary agreement was reached with one faction of the CNDD-FDD (Conseil national pour la défense de la démocratic - Forces pour la défense de la démocratie) and one faction of the Palipehutu-FNL (Parti pour la libération du peuple hutu - Forces nationales pour la liberation), but progress in the discussions with the other rebel factions remained elusive. Following a two-week suspension, cease-fire negotiations resumed on October 7, 2002 in the context of a heads of state regional summit in Dar es Salaam (Tanzania).

Recent data on developments through August 2002 suggest no significant change in macroeconomic trends. In particular, prices continued to decline in July-August, and the 12-month change in consumer prices was -1.9 percent through August 2002, compared with -2.1 percent through June. It is likely that inflation picked up in September as a result of the exchange rate depreciation of end-August and the increase in the prices of petroleum products (by 8-9 percent), which the authorities implemented on September 10, 2002.

The Bank of the Republic of Burundi (BRB) has been conducting weekly foreign exchange auctions (except on one occasion in early September, because of a lack of funds). Following the initial depreciation, the exchange rate has remained broadly stable at about FBu 1,070 per U.S. dollar, compared with FBu 885 in mid-August. The exchange rate differential with the parallel market has also remained broadly constant at 20 percent (in foreign currency terms), compared with some 30 percent in mid-August. The BRB expects the exchange rate differential to narrow further once it steps up sales on the auction market, following the disbursement of external assistance. The first tranche (US$20 million) of the World Bank’s Economic Recovery Credit (approved on August 29) is due to be released soon, once the loan agreement has been ratified by Burundi’s National Assembly.