Abstract
KEY ISSUES Context: Corrective revenue measures helped keep the program on track and macroeconomic conditions improved in late 2014 following the decline in oil prices. Uncertainties related to the 2015 general elections weigh on the outlook. Program: The Executive Board approved the three-year arrangement under the Extended Credit Facility (ECF) on January 27, 2012, with a total access of 39 percent of quota (SDR 30 million). The fifth review was completed on August 25, 2014. For the sixth review, all performance criteria were observed, aided by the revenue measures taken in July to address the fiscal slippage that emerged earlier in 2014. Satisfactory progress has been made on structural reforms. The authorities have requested a one-year extension of the current ECF arrangement, which expires in March 2015, to enable provision of additional Fund resources via an augmentation of access by an amount equivalent to SDR 10 million (13 percent of quota). Outlook and risks: The macroeconomic outlook is broadly favorable, driven by continued public investment and a gradual recovery in agriculture; however, external vulnerabilities persist due to a protracted decline in coffee exports and high volatility of coffee prices. Under normal harvest conditions, inflation in 2015 is expected to remain in low single digits. Expenditure pressures in the context of the elections constitute a key risk to the fiscal outlook. Staff views: Staff supports the completion of the sixth review under the ECF and the authorities’ requests for an augmentation of access and extension of the current ECF arrangement through March 2016, which will be instrumental to catalyze donor support needed to address Burundi’s protracted balance-of-payments problem. Completion of the review will result in disbursement of an amount equivalent to SDR 5 million under the ECF arrangement.
The Executive Board of the International Monetary Fund (IMF) today completed the sixth review of Burundi’s economic performance under the program supported by an Extended Credit Facility (ECF) arrangement.1 The Board’s decision enables the immediate disbursement of SDR 5 million (about US$6.9 million), bringing total disbursements under the arrangement to SDR 30 million (about US$41.6 million).
In completing the sixth review, the Board also approved the authorities’ request for an extension of the current ECF arrangement to end March 2016 and an augmentation of access by SDR 10 million (about US$13.9 million or 13 percent of quota). The additional financing and time will help strengthen the management of public finances and consolidate the country’s economic reform program.
Burundi’s three-year ECF arrangement in the amount equivalent to SDR 30 million (about US$41.6 million) was approved by the Executive Board on January 27, 2012 (see Press Release No. 12/35).
At the conclusion of the Executive Board’s discussion, Mr. Mitsuhiro Furusawa, Acting Chair and Deputy Managing Director, issued the following statement:
“Progress under the ECF-supported program has been broadly satisfactory. Economic growth is estimated to have picked up slightly in 2014, while inflation declined markedly, aided by falling international fuel prices and prudent monetary policy. The near-term economic outlook remains challenging, and prudent policies will continue to be needed in the face of uncertainties in the external environment, and in the run-up to the 2015 national elections.
“The 2015 budget provides an adequate basis for fiscal policy in the current election year, and should be implemented with vigilance. Revenue slippages that emerged in early 2014 were addressed through corrective revenue measures, and are expected to have a lasting, positive impact on revenue performance. Strengthening tax administration and improving the coordination between tax policy design and its implementation will be critical to increasing the tax-to-GDP ratio on a sustainable basis.
“Public financial management should be strengthened, to enhance efficiency and mitigate fiscal risks. Efforts are needed to improve cash management by the Treasury and strengthen expenditure controls, while safeguarding pro-poor spending.
“Achieving debt sustainability will help anchor fiscal policy in the medium term. Burundi continues to be at a high risk of debt distress, and it will be important that any future borrowing be done on a concessional basis. Passage of the law on public debt, which would provide a legal framework for debt management, would be important. In this regard, better domestic debt management, notably by aligning the issuance of government securities with government’s financing needs, will help prevent recourse to central bank financing and the buildup of arrears.
“Underlying inflation has declined significantly in recent months and low international food and fuel prices will help keep inflation at bay. Nevertheless, it will be important for monetary policy to continue to focus on supporting a low-inflation environment. Financial stability should be strengthened through enhanced banking surveillance, and current plans to establish a credit bureau and a collateral registry.
“A strengthened pace of structural reforms is key to boosting Burundi’s external competitiveness, mobilize private sector investment, and lift Burundi’s growth potential. Efforts should focus on raising agricultural productivity; alleviating energy and other infrastructure bottlenecks; expanding credit access; and deepening regional integration.”
The Extended Credit Facility (ECF) is the IMF’s main tool for medium-term financial support to low-income countries. It provides for a higher level of access to financing, more concessional terms, enhanced flexibility in program design, and more focused, streamlined conditionality. Financing under ECF currently carries a zero interest rate, with a grace period of 5½ years, and a final maturity of 10 years.