Burundi: Staff Report for the 2010 Article IV Consultation and Fourth Review Under the Three-Year Arrangement Under the Extended Credit Facility and Request for Modification of Performance Criteria

The global financial crisis has slowed the Burundian economy and a significant decline in inflation. Against the background of the East African Community (EAC) integration, the Article IV Consultation discussions focused on three fundamental themes. IMF staff and authorities agreed on the need to pursue appropriate growth-enhancing reforms. The authorities and staff agreed on the need to continue reforms of wages and employment to bring the wage bill down to sustainable levels. The fourth review was completed based on Burundi’s performance and the strength of the program.

Abstract

The global financial crisis has slowed the Burundian economy and a significant decline in inflation. Against the background of the East African Community (EAC) integration, the Article IV Consultation discussions focused on three fundamental themes. IMF staff and authorities agreed on the need to pursue appropriate growth-enhancing reforms. The authorities and staff agreed on the need to continue reforms of wages and employment to bring the wage bill down to sustainable levels. The fourth review was completed based on Burundi’s performance and the strength of the program.

Appendix I

Burundi Relations with the Fund

(as of May 31, 2010)

I. Membership Status: Joined: September 28, 1963 Article XIV

II. General Resources Account:

article image

III. SDR Department:

article image

IV. Outstanding Purchases and Loans:

article image

V. Latest Financial Arrangements:

article image

VI Projected Payments to Fund 1

(SDR Million; based on existing use of resources and present holdings of SDRs):

article image

VII. Safeguards Assessments

An update assessment of the Banque de la République du Burundi (BRB) was completed in June 2008 and found that since the previous assessment certain safeguards had been strengthened (e.g., external audits have been completed on a timelier basis and audited financial statements comply with IFRS and are published). However, the 2008 assessment also identified significant control weaknesses and recommended more robust controls over domestic disbursements to the government and its creditors, including contracting an external auditor to review such controls (Prior Actions for the approval of the arrangement). Other key safeguards recommendations include a system to monitor the status of audit and safeguards recommendations and issuing guidelines for investment operations. The authorities have already taken steps to implement these recommendations.

VIII. Exchange Arrangements

The exchange rate has been reclassified from floating to stabilized. The U.S. dollar is the intervention currency. On June 21, 2010, the official exchange rate was BIF 1230.4 to the dollar. In 2003 the central bank eliminated most remaining exchange restrictions on current international transactions and delegated authority to commercial banks to approve standard transactions. In early 2004, the surrender requirement was lowered to 50 percent and in early 2005 it was eliminated. The central bank has admitted foreign exchange bureaus to the weekly auctions. Most external arrears to bilateral and multilateral creditors were cleared by the end of 2005. In December 2006 the government published a new foreign exchange regulation that liberalized foreign exchange for current transactions and removed one multiple currency practice.

Burundi availed itself of the transitional arrangements of Article XIV when it joined the Fund in 1962 but no longer maintains any exchange restrictions or multiple currency practices that relate to that article. It does have one multiple currency practice that is inconsistent with Article VIII, Section 2(a): the exchange rate used for government transactions may differ by more than 2 percent from market exchange rates. Burundi maintains certain foreign exchange restrictions for security reasons and has notified the Fund of those restrictions pursuant to Decision 144-(52/51). The authorities have not requested, and staff does not propose, approval of the multiple currency practice.

IX. Article IV Consultation

In accordance with Decision 12794-(02/76), as amended by Decision 12854-(02/96), Burundi is on the 24-month Article IV cycle. The 2008 Article IV consultation was completed by the Executive Board on July 7, 2008, (IMF Country Report No. 08/282), along with the request of a new PRGF arrangement.

In concluding the 2008 consultation, Executive Directors acknowledged the commendable progress that Burundi made in implementing its first PRGF-supported program in a difficult postconflict environment. They agreed that fiscal sustainability in the face of a heavy debt burden will depend on broadening the revenue base and improving the composition of spending while financing the budget though grants and highly concessional external resources. Recognizing the recent acceleration of inflation deriving from rising international food and oil prices, Directors encouraged the monetary authorities to act to anchor inflation expectations and contain second-round effects of food and oil price shocks. Directors also saw the need to accelerate structural reforms, especially in the coffee sector, and welcomed Burundi’s membership in the East African Community.

X. Technical Assistance

article image
article image

XI. Implementation of HIPC Initiative:

article image

Assistance committed under the original framework is expressed in net present value (NPV) terms at the completion point, and assistance committed under the enhanced framework is expressed in NPV terms at the decision point Hence these two amounts cannot be added.

Under the enhanced framework, an additional disbursement is made at the completion point corresponding to interest income earned on the amount committed at the decision point but not disbursed during the interim.

XII. Resident Representative:

A part-time resident representative took up the post in May 2005 and an office with an administrative assistant opened in January 2006 in Bujumbura. Mr. Israel de la Piedra was the IMF’s resident representative to Burundi from May 2007 to May 2009. Mr. Koffi Yao, the newly appointed resident representative, assumed his duties in January 2010.

Appendix II Burundi

Joint World Bank—Imf Work Program, 2010–12

article image

Appendix III Burundi

Relations with the African Development Bank Group

(As of June 20, 2010)

Burundi has been a member of the African Development Bank (AfDB) Group since the group was founded in 1964. AfDB grant and loan operations with the country were interrupted by the outbreak of civil strife in 1993. On July 19, 2004, the AfDB Boards approved general policy guidelines to help postconflict countries clear their arrears and created a facility, the PCCF, initially funded with about SDR 100 million in AfDB funds, to provide financial assistance to qualifying countries. The policy guidelines call for a three-way burden-sharing formula among the country, donors, and the PCCF. On October 27, 2004, the AfDB Boards endorsed an arrears clearance proposal for Burundi whereby the balance of arrears was settled with the help of donors and the PCCF before the decision point for the enhanced HIPC Initiative.

On 21st April 2009, under the enhanced framework of the Heavily Indebted Poor Countries (HIPC) Initiative, the Board of Directors of AfDB approved AfDB’s share of the HIPC debt relief in an amount equivalent to USD 150,200,000 in Net Present Value (NPV) terms as of the end of 2004. The Board of Directors also approved Burundi’s qualification for debt relief under the Multilateral Debt Relief Initiative (MDRI), in an amount of US$ 15.38 million, (UA 10.48 million), in nominal terms.

In support of the Government’s economic and social program, the Board approved the Country Strategy Paper (CSP) in October 2008. The CSP covers the period 2008 to 2011 and focuses on 2 pillars of the CSLP namely, (i) support to effective government by improving economic governance and the functioning of key public sector institutions, and (ii) increase employment opportunities through developing infrastructure and targeted interventions in the agricultural sector. The Bank Group current portfolio of a total commitment of USD 113.67 million (77.1 million Unit of Account), comprises 10 ongoing operations, out of which 3 are regional in scope (one study and two road projects). The Bank Group intervenes actively in infrastructure (transport, water and sanitation, and energy), agriculture, governance and social sectors. The Bank Board of Directors recently approved a grant of 10 million UA for the third phase of Burundi’s Programme d’Appui aux Reformes Economic (PARE III).

A stepping stone towards reinforcing Burundi’s commitment to further its infrastructure development and economic integration was underpinned through an integrated analysis of transport, power, telecommunication and mining carried out by the Bank in collaboration with the Government of Burundi and other development partners. The study entitled “An Infrastructure Action Plan for Burundi: Accelerating Regional Integration”, which is aligned with both national objectives and regional infrastructure developments, is designed as a reference for policy dialogue between stakeholders. The following table provides an overview of AfDB’s current operations and pipeline in Burundi.

article image

Appendix IV

BURUNDI Statistical Issues

(As of June 20, 2010)

article image
article image

Burundi: Table of Common Indicators Required for Surveillance

(as of June 20, 2010)

article image

Any reserve assets that are pledged of otherwise encumbered should be specified separately. Also, data should comprise short-term liabilities linked to a foreign currency but settled by other means, as well as the notional values of financial derivatives to pay and to receive foreign currency, including those linked to a foreign currency but settled by other means.

Both market-based and officially determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

Foreign, domestic bank, and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds), and state and local governments.

Including currency and maturity composition.

Includes external gross financial asset and liability positions vis a vis nonresidents.

Daily (D), weekly (W), monthly (M), quarterly (Q), annually (A), irregular (I); and not available (NA).

1

When a member has financial obligations overdue for more than three months, the amount of such arrears will be shown in this section.

Burundi: 2010 Article IV Consultation and Fourth Review Under the Three-Year Arrangement Under the Extended Credit Facility and Request for Modification of Performance Criteria: Staff Report; Staff Supplement; Public Information Notice and Press Release on the Executive Board Discussion; and Statement by the Executive Director for Burundi
Author: International Monetary Fund