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© 2005 International Monetary Fund

February 2005

IMF Country Report No. 05/55

Burundi: First Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility and Request for Waiver of Performance Criteria—Staff Report; Staff Statement; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Burundi

In the context of the first review under the three-year arrangement under the Poverty Reduction and Growth Facility with Burundi, and request for a waiver of performance criteria, the following documents have been released and are included in this package:

  • the staff report for the first review under the three-year arrangement under the Poverty Reduction and Growth Facility and request for waiver of performance criteria, prepared by a staff team of the IMF, following discussions that ended on November 17, 2004, with the officials of Burundi on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on December 21, 2004. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF.

  • a staff statement of January 19, 2005 updating information on recent developments.

  • a Press Release summarizing the views of the Executive Board as expressed during its January 19, 2005 discussion of the staff report that completed the request and review.

  • a statement by the Executive Director for Burundi.

The documents listed below have been separately released.

  • Letter of Intent sent to the IMF by the authorities of Burundi*

  • Memorandum of Economic and Financial Policies by the authorities of Burundi*

  • Technical Memorandum of Understanding*

  • *Also included in the Staff Report

The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.

To assist the IMF in evaluating the publication policy, reader comments are invited and may be sent by e-mail to publicationpolicy@imf.org.

Copies of this report are available to the public from

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INTERNATIONAL MONETARY FUND

BURUNDI

First Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility and Request for Waiver of Performance Criteria

Prepared by the African Department (In consultation with other Departments)

Approved by Juan Carlos Di Tata and Martin Fetherston

December 21, 2004

Arrangement: A three-year PRGF arrangement for SDR 69.30 million (90 percent of quota) was approved by the Executive Board on January 23, 2004. Burundi drew SDR 26.40 million (34.3 percent of quota) upon approval, of which SDR 19.25 million was used for the early repayment of the two drawings under the Fund’s emergency post-conflict assistance policy. SDR 7.15 million (9.3 percent of quota) would be available upon completion of the first review.

Program discussions: Staff teams visited Bujumbura in August-September 2004 and November 2004 for discussions on the first review under the PRGF arrangement. Staff met with President Ndayizeye; newly appointed Vice-President Ngenzebuhoro; former Vice-President Kadege; State Minister for Good Governance, Privatization and State Inspection Nkurunziza; Minister of Finance Gahungu; Minister of Commerce and Industry Minani; and Central Bank Governor Toyi, as well as other senior officials. The staff also met with donors and representatives of the international community, including Ms. McAskie, special representative of the UN Secretary-General in Burundi.

Staff team: The staff team included Messrs. Mathieu (head), Lopes, Schulte (all AFR), and Dicks-Mireaux and Sdralevich (PDR). Mr. Nintunze, advisor to the Executive Director for Burundi and Messrs. Sow, Nelson, and Toto-Same of the World Bank also participated in the discussions.

Burundi continues to avail itself of the transitional arrangements under Article XIV of the Fund’s Articles of Agreement, although it does not maintain any restrictions subject to Article XIV.

Contents

  • Executive Summary

  • I. Introduction

  • II. Recent Developments

    • A. The Peace Process

    • B. Performance Under the Program

  • III. Policy Discussions and the Revised Program for 2004-05

    • A. Macroeconomic Objectives

    • B. Fiscal Policy

    • C. Monetary, Financial Sector, and Exchange Rate Policies

    • D. Structural Reforms

    • E. Program Financing

    • F. Program Monitoring

  • IV. Medium-Term Outlook and Capacity to Repay the Fund

  • V. Safeguards, Technical Assistance, and Program Risks

  • VI. Staff Appraisal

  • Tables

  • 1. Projected Payments Obligations to the Fund and Indicators of Fund Credit, 2004-08

  • 2. Selected Economic and Financial Indicators, 2002-07

  • 3. Central Government Operations, 2003-05

  • 4. Monetary Survey and Central Bank Accounts, 2003-05

  • 5. Balance of Payments, 2002-07

  • 6. Structural Reform in 2004 and 2005

  • 7. External Financing Requirements and Sources, 2003-06

  • 8. Schedule of PRGF Disbursements and Reviews, 2004-07

  • 9. Balance of Payments, Medium-Term Scenario and Sensitivity Analysis, 2004-23

  • Figures

  • 1. Economic and Financial Indicators, 1999-2005

  • 2. Exchange Rate Developments

  • Boxes

  • 1. Key Steps in Burundi’s Peace and Reconciliation Process

  • 2: Military Integration and the DDR and SSR Programs

  • 3. Structural Conditionality

  • 4. Paris Club Rescheduling

  • Appendices

  • I. Letter of Intent

    • Attachment I: Memorandum of Economic and Financial Policies for 2004-05

    • Attachment II: Technical Memorandum of Understanding

  • II. Relations with the Fund

  • III. Relations with the World Bank Group

  • IV. Relations with the African Development Bank Group

  • V. Millennium Development Goals

Executive Summary

Within a difficult political environment, the Burundian authorities have started to implement the financial and structural reform program supported by the PRGF arrangement. Macroeconomic developments in 2004 have been broadly on track with program objectives. Real GDP growth will exceed the program target owing to a strong rebound in coffee production, and progress has been made in reducing inflation, notwithstanding the impact of surging world petroleum prices.

Performance relative to the program’s quantitative and structural performance criteria has, however, been mixed. Fiscal slippages emerged following the surge in petroleum pries and higher spending needs associated with the peace process and the domestically financed counterpart to much higher-than-expected project spending. Significant transfers to cover continued coffee sector losses underscore the urgency of implementing the coffee reform strategy, which is also crucial to sustain the economic recovery. Structural reforms lagged somewhat, reflecting limited administrative capacity and the complex political environment, but the pace of implementation has intensified recently.

Important progress has been made in pursuing peace and reconciliation and initiating the multiyear demobilization effort and security (DDR/SSR) programs. The security situation has remained relatively calm and the political transition has gained momentum. The continued timely support of the international community is vital to ensuring a successful transition to democracy and to implementing the DDR/SSR effort without destabilizing public finances.

The program for 2005 includes several structural measures critical for successful macroeconomic stabilization and for moving toward the MDGs. These include reinforcing administrative capacity and public financial management, which remain weak by regional standards, strengthening monetary instruments and financial sector supervision, and further liberalizing the trade and exchange regimes.

Burundi has made considerable progress in normalizing relations with international creditors, including through a concessional flow rescheduling from Paris Club creditors and the clearance of remaining arrears to multilaterals. Nevertheless, the external debt burden remains unsustainable after traditional debt relief and will require substantial debt relief under the enhanced HIPC Initiative, as described in the preliminary HIPC document.

Notwithstanding the progress that has been made, large challenges remain. These include the need to complete the political transition to democracy, demobilize armed combatants, and address widespread deep poverty. In light of the progress achieved in 2004 in stabilizing the macroeconomic situation and pursuing structural reforms, the staff recommends the completion of the first review under the PRGF arrangement and supports the authorities’ request for waivers for the nonobservance of an end-June quantitative performance criterion and two structural performance criteria.

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January 19, 2005

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Press Release No. 05/9

FOR IMMEDIATE RELEASE

January 19, 2005

International Monetary Fund

Washington, D.C. 20431 USA

Burundi: First Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility and Request for Waiver of Performance Criteria: First Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility and Request for Waiver of Performance Criteria
Author: International Monetary Fund