Burundi: Request for Disbursement Under the Rapid Credit Facility—Press Release; Staff Report; and Statement by the Executive Director for Burundi
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International Monetary Fund. African Dept.
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Publication Date:
12 Nov 2021
eISBN:
9781557755476
ISBN:
9781557755476
Language:
English
Keywords:
financial support; Burundi authorities; response plan; excl. financing; international community; COVID-19; Debt service
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51. Burundi is a post-conflict country subject to several mutually reinforcing sources of fragility. Institutional weaknesses and economic fragility persist, with low implementation capacity, sporadic violence outbreaks, weak judicial and governance systems, high poverty and inequality, and high vulnerability to natural disasters. The country fell into deep recession following late President Nkurunziza’s decision to run for a third term in 2015 (Figures 1 and 2), which triggered a political and security crisis, withdrawal of donor support, and sharp deterioration of living standards. Burundi’s 2018–27 development plan (Plan National de Developpement, PND) aims to address key weaknesses through export diversification, infrastructure development, improved access to social safety nets and public services, and better governance. Security conditions have significantly improved, although risks persist (Annex I).

Abstract

51. Burundi is a post-conflict country subject to several mutually reinforcing sources of fragility. Institutional weaknesses and economic fragility persist, with low implementation capacity, sporadic violence outbreaks, weak judicial and governance systems, high poverty and inequality, and high vulnerability to natural disasters. The country fell into deep recession following late President Nkurunziza’s decision to run for a third term in 2015 (Figures 1 and 2), which triggered a political and security crisis, withdrawal of donor support, and sharp deterioration of living standards. Burundi’s 2018–27 development plan (Plan National de Developpement, PND) aims to address key weaknesses through export diversification, infrastructure development, improved access to social safety nets and public services, and better governance. Security conditions have significantly improved, although risks persist (Annex I).

Context

1. Burundi is a post-conflict country subject to several mutually reinforcing sources of fragility. Institutional weaknesses and economic fragility persist, with low implementation capacity, sporadic violence outbreaks, weak judicial and governance systems, high poverty and inequality, and high vulnerability to natural disasters. The country fell into deep recession following late President Nkurunziza’s decision to run for a third term in 2015 (Figures 1 and 2), which triggered a political and security crisis, withdrawal of donor support, and sharp deterioration of living standards. Burundi’s 2018–27 development plan (Plan National de Developpement, PND) aims to address key weaknesses through export diversification, infrastructure development, improved access to social safety nets and public services, and better governance. Security conditions have significantly improved, although risks persist (Annex I).

2. Prior to the COVID-19 pandemic, Burundi’s economy was recovering although grappling with difficult policy challenges, legacy of the 2015 crisis. Growth was positive though weak at 1.8 percent in 2019, driven mostly by the agricultural sector (Annex II). Inflation averaged -0.7 percent as food prices fell with abundant agricultural production. The current account (CA) deficit was stable, at 11.6 percent of GDP, supported by gold exports, remittances, and official transfers. Fiscal performance had improved with revenue collection steadily increasing, providing space for stronger public investment. The fiscal deficit however remained large, at 6.2 percent of GDP in 2018/19, although relatively contained in view of the country’s large investment and social spending needs. Foreign exchange (FX) reserves were anemic (1.3 months of imports at end-2019). The central bank’s (Banque de la Republlque de Burundi or BRB) management of the exchange rate (ER) and FX allocation were restrictive, giving rise to a large parallel market premium.

3. The pandemic has created significant fiscal and balance of payments (BOP) financing needs, both of which require urgent attention, against the backdrop of an intensifying COVID-19 spread, weak testing capacity, and limited fiscal space to purchase COVID-19 vaccines (Box 1). The authorities’ response plan, including urgent spending needs to curb the disease spread and support the vulnerable population, and expected vaccine costs have created a fiscal financing gap in 2021/22 (3.2 percent of GDP). The BOP financing needs are large in 2021 (4.4 percent of GDP), reflecting sizeable COVID-related imports and the need to rebuild FX reserves.

4. Following the May 2020 presidential elections, the new administration has taken steps to improve relations with the international community, including the Fund. President Evariste Ndayishimiye, representing the incumbent ruling party, secured 71 percent of the vote in the May 2020 elections, succeeding the late President Nkurunziza who passed away in June 2020. Engagement has improved under the new government and the authorities have resumed data provision to the Fund. The authorities have agreed to resume Article IV consultations1 and have requested a disbursement under the RCF to help them address their immediate and urgent financing needs

Burundi: The Authorities’ Response to the Covid-19 Pandemic

The pandemic: The first COVID-19 case in Burundi was reported on March 31, 2020. As of September 22, 2021, 16356 cases and 12 deaths have been reported. New cases have surpassed 1,000 cases per week since mid-July 2021 (up from an average of 20 cases per week in 2020 and an average of 371 cases per week during January-June 2021, see Box 1 Figure 1). Two large-scale testing campaigns were conducted during July 6–October 6, 2020 and January 11–February 11, 2021. The number of cases is likely underestimated as testing capacity remains weak with only about 2.8 percent of the population tested as of September 29, 2021 (Box 1 Figure 2).

Box 1 Figure 1.
Box 1 Figure 1.

New COVID-19 Cases in Burundi

Citation: IMF Staff Country Reports 2021, 242; 10.5089/9781557755476.002.A001

Source: Our World in Data testing database
Box 2 Figure 2.
Box 2 Figure 2.

COVID-19 Case and Testing1

Citation: IMF Staff Country Reports 2021, 242; 10.5089/9781557755476.002.A001

1 Test rate data unavailable for TanzaniaSource: Worldometer, September 27, 2021

Government response:

  • Bujumbura airport was closed from March to November 2020. On January 11, 2021, the authorities closed land and sea borders to passengers, and imposed new restrictions to passengers arriving at the Bujumbura airport. In September 2021, the authorities introduced a fine of about US$ 50 for not wearing a mask in public places and public transportation in Bujumbura.

  • The authorities have developed a pandemic response plan — focusing on strengthening the health care system, the social safety net, and parts of the road network to facilitate access to sick people. The response plan is estimated at about US$ 150 million (4.7 percent of GDP), of which sanitary measures costing US$ 58 million (1.8 percent of GDP). The authorities have promoted soft preventative measures but have limited the use of social distancing to minimize adverse economic effects. They subsidized the price of soap during June-September 2020 and are subsidizing water for standpipes, up to 50 percent. They also hired additional doctors and nurses and have granted tax holidays to affected businesses.

  • As part of the response plan of 4.7 percent of GDP, the authorities spent 0.8 percent of GDP in 2020/21 (Box 1 Table), including sanitary and non-sanitary measures. They are planning to spend 1.1 percent of GDP in 2021/22.

  • The central bank increased flexibility in loan restructuring with targeted and time-bound extensions of loan maturities to hard-hit borrowers. A new refinancing window has also been opened for banks extending long-term loans to high-growth priority sectors.

Box 1 Table.

Burundi: Covid-19 Spending 1

article image
Source. Authorities

Excludes spending on vaccination. Total Covid-related spending could be higher in reality but not separable from other budget lines due to data limitations.

For FY2020/21, it is spending up to February 2021.

Vaccination. Burundi is preparing a vaccination strategy and has completed the Global Alliance for Vaccination and Immunization (GAVI) form. It is also exploring the Vaccine Global Access Facility (COVAX).

Urgent needs. Stronger diagnostic capacity is warranted (rapid testing and molecular analysis machines to identify variants of the virus), as well as better logistics (vehicles and the associated consumables and construction of travelers’ paths to reduce contamination) to contain imported cases and community transmission.

Donor support. So far, financial support has included a grant from the World Bank (US$5 million) and the fiscal space created by IMF CCRT debt relief (SDR 14.46 million) and debt service relief from Exim Bank of China and the Kuwait Fund (US$ 0.5 million) under the G20 Debt Service Suspension Initiative (DSSI).

Governance. A technical committee for the response to the COVID-19 pandemic has been set up by decree. A single fiduciary fund, with an account opened at the BRB, has also been set up to centralize donor funding.

Macroeconomic Impact of the Covid-19 Pandemic

5. The Covid-19 pandemic has had a significant adverse impact on the Burundian economy (Box 1).

  • Growth and Inflation. Real GDP is estimated to have contracted by one percent in 2020 (compared to growth of 2.1 percent projected pre-COVID), mainly owing to a sharp slowdown in services (-6.1 percent). The primary sector was resilient, with steady growth in subsistence agriculture. The secondary sector was hampered by supply chain issues while public investment supported construction activity. The tertiary sector (hospitality; commerce, and transportation) were heavily impacted by travel and border restrictions and disruptions of supply chains in trading partner countries. The contraction was partially cushioned by an expansion in public services, notably healthcare, and modest growth in financial services due to newly created banks to support farmers, women, and young entrepreneurs. The pandemic threatens to deteriorate already weak living standards and reverse recent improvements (Box 2). Average inflation turned positive in 2020 at 7.3 percent, driven by rising food prices.

  • External sector. The CA deficit shrank slightly to 10.4 percent of GDP in 2020, mainly due to lower international fuel prices, countercyclical workers’ remittances,2 and lower imports growth due to FX rationing. Exports decreased sharply, reflecting partly the closure of Burundi’s international airport and lockdown measures in trading partner countries, which disrupted coffee and tea exports. The financial and capital accounts deteriorated significantly owing to lower investment flows. As a result, official reserves were below one month of imports prior to the SDR allocation (0.6 months of imports at end-March 2021) and the parallel ER market premium had increased further. The new SDR allocation to Burundi amounting SDR 147.6 million (about 6.6 percent of GDP), effective on August 23, 2021, helped rebuild reserves buffers.

  • Monetary and financial sectors. The banking system appears broadly resilient. However, while NPLs are just 4.8 percent at end-March 2021, loan restructurings have increased, which could mask vulnerabilities. Private credit growth (21.6 percent at end-2020) has been supported by monetary policy (para. 21).

Text Figure 1.
Text Figure 1.

Burundi: Pre-and Post-COVID 2020 Real GDP Growth Projections (percent) and Sector Contributions (percentage points)

Citation: IMF Staff Country Reports 2021, 242; 10.5089/9781557755476.002.A001

Sources: Authorities and IMF staff estimates.

Burundi: Standards of Living and Social Conditions

Living standards are challenging in Burundi (see Figure below). GDP per employed person was low though rising until 2014 and started declining sharply in the aftermath of the 2015 political crisis. Burundi’s population is mainly rural (87 percent of total population in 2020) and reliant on subsistence agriculture). Access to adequate farmland is increasingly important due to high population growth (3.1 percent in 2020), fueled by a high fertility rate (5.4 births per woman in 2020) and refugee inflows (3 percent of the population in 2020). As a result, food insecurity and malnutrition are present, particularly among children, as shrinking and overworked household plots have become less productive. This is compounded by poor access to clean drinking water (in 2017, only 61 percent of the population had such access). Given high fertility rate and an average life expectancy of around 61 years, the average population age is low; in 2020, over 45 percent of the population was under 15 years old, resulting in a high dependency ratio.

uA001fig01

Figure. Selected Social Indicators

Citation: IMF Staff Country Reports 2021, 242; 10.5089/9781557755476.002.A001

Sources: WHO, World Bank,UN data and Unicef.

Health and education performance have improved, and unemployment rates have slightly declined over the years. Infant and maternal mortality rates have fallen sharply (for infants, from 70 to 42 per 1000 live births between 2010 and 2020), and school enrolment rates have greatly improved, especially for females; a literacy rate of around 90 percent places Burundi in the top 20 of the 54 African countries. However, the shares of expenditures on health and education in GDP have fallen since 2010.

But the health system is fragile and not well positioned to handle the COVID pandemic. There is less than 1 hospital bed per 1000 people (WHO recommended ratio: 3 per 1000), and less than one doctor per 10,000 people (WHO recommended ratio: 1 per 1000). In addition, as of 2017, only 53 percent of the population had at least limited access to basic sanitation facilities. Households benefitting from social programs and the government’s social safety net were more resilient to the COVID-19 shock1 However, the other households suffered a net income loss that may threaten hard-won improvements in living standards.

1 UNICEF 2020, “Global Annual Results Report 2020” and UNICEF, 2020 “UNICEF’S Social Protection Response To COVID-19 Strengthening social protection systems before, during and after crises”.

6. Budget execution was under pressure in 2020/21, partly due to COVID-related spending. Revenue collection, at 18.9 percent of GDP in 2020/21, exceeded the budget target (by 1.2 percentage point of GDP). This performance was supported by buoyant taxes on goods and services, mainly VAT on imports, and taxes on income and international trade. It compensated for above-target spending driven by COVID-related sanitary and non-sanitary expenditures (0.8 percent of GDP), which were unforeseen at the time of the budget preparation. Higher current spending reflected partly COVID-related subsidies and transfers (hiring of doctors and nurses and implementation of the authorities’ sanitary plan, see Box 1 Table), administrative changes in ministries following the 2020 general elections, and interest payments.3 Capital spending was under-executed, mostly owing to a shortfall of project grants. The fiscal deficit reached 6.9 percent of GDP, compared with a budget target of 2.5 percent of GDP, mainly financed by domestic borrowing (7.6 percent of GDP). Anecdotal evidence suggests a buildup of pending bills in 2020/21, which are being audited and will be securitized as per the law, if verified. Public debt at end-2020 was 67 percent of GDP.

Outlook and Risks

7. Growth is expected to gradually strengthen over the medium term, reflecting Burundi’s access to COVID-19 vaccines, execution of investment plans, and continued reforms (Text Table 1, Text Figure 2). The baseline growth outlook is predicated on a pickup in vaccination, durable political stability, and initial reengagement with the international community, with sustained although still limited external financing flows. Growth would increase to around 5 percent over the medium term, supported by stronger services activities, agricultural and manufacturing4 production, and capital projects. Several projects are ongoing and close to being finalized or planned under the World Bank and the AfDB project portfolio5 and will result in increased productive capacity. The sustained investment, continued reforms (Text Table 2 and Annex II), and impact of the SDR allocation in alleviating imports rationing will support GDP growth and mitigate the effects of the projected fiscal consolidation (mainly unwinding COVID-related spending). These areas of growth drivers are consistent with the PND. Growth will also be supported by a more peaceful and stable political environment than prior to the COVID shock, addressing governance and corruption vulnerabilities, and building on successful elections. Based on these assumptions, staff assesses Burundi’s debt sustainable, but at high risk of debt distress (DSA Appendix II and para. 26 and 27) with heavy reliance on domestic financing worsening domestic debt dynamics. Inflation is expected to remain contained.

Text Figure 2.
Text Figure 2.

Burundi: Analysis of the Growth Outlook

Citation: IMF Staff Country Reports 2021, 242; 10.5089/9781557755476.002.A001

Sources: Authorities and IMF staff estimates and projections.
Text Table 1.

Burundi: Key Macroeconomic Indicators, 2020–26

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

Fiscal year values (July-June) starting in 2019 (i.e. 2019 is FY 2018/19). Includes the grant for the IMF debt service falling due from October 16, 2021 to April 13, 2022, which is subject to the availability of resources under the CCRT.

Annual financing needs to reach the reserve target of three months of imports, assuming that the financing gap of year n-1 is filled.

Text Table 2.

Burundi: Selected Reforms in support of Growth and Exports

article image
Sources: Plan National de Développement (PND, 2018–27) and Plan National d’Investissement Agricole (PNIA, 2016–2020)

8. Burundi is facing a large external financing gap in 2021 (US$ 139.5 million or 4.4 percent of GDP) and beyond. The CA deficit is expected to significantly widen in 2021, driven by higher imports owing to (i) larger volume from COVID-related needs and easing of imports restrictions as the SDR allocation supports additional FX availability (Box 3) and (ii) worsening terms of trade owing to increases in import prices, especially petroleum. Export volumes will recover mildly in 2022 with mining exploitation restarting following the end of contract negotiations and gradually afterwards, as supportive reforms yield results (Text Table 2), global demand remains timid, and transport disruptions start easing. Additional external financing is needed to cover the urgent BOP financing needs.

9. The outlook is subject to considerable upside potential conditional on a full reengagement with the international community, as well as notable downside risks (Annex I). On the upside, first, a full reengagement with the international community (not built into the baseline), would significantly boost external financing, thus increasing the fiscal space for public investment and reserves coverage. This would ease restrictions on FX allocations and imports rationing, alleviating two significant impediments to growth in Burundi. Higher access to highly concessional long-term external financing would substitute for more expensive domestic financing, thus reducing borrowing cost and debt vulnerabilities. Furthermore, a full reengagement would likely be accompanied by a much more ambitious reform agenda supportive of a structural change of the economy, which would further boost growth. The upcoming Article IV consultation will be an opportunity for in-depth policy discussions and send a strong signal to the donor community of Burundi’s reengagement intentions. Second, a speedy conclusion of the negotiations with the mining companies would also strengthen growth prospects. Last, further flexibility in the exchange rate management6 would enhance competitiveness, boost investors’ confidence, and improve fiscal space—thanks to additional resources from the higher local value of external financing and taxes on international trade. On the downside, in addition to data deficiencies, risks include natural disasters; a deterioration of the political and security situation (domestic risks); a weak global demand and investor confidence owing to uncontrolled Covid 19 local outbreaks and delays in vaccination, including in Burundi; and social, political, and geopolitical instability.

The Parallel Foreign Exchange Market in Burundi

Burundi has for many years grappled with exchange rate misalignments. In the 2000s, the parallel FX market premium reached 54.9 percent following the tightening of restrictions on FX market participation. The authorities succeeded in lowering the premium to 1.5 percent by 2006 through ambitious exchange rate policy reforms, including reinstating FX bureaus and auctions and allowing several rounds of double-digit ER depreciation.

Text Box 3.
Text Box 3.

Burundi: Official and Parallel Market Exchange Rates (BIF per US$), 2015–21

Citation: IMF Staff Country Reports 2021, 242; 10.5089/9781557755476.002.A001

Sources: Authorities and IMF staff calculations.

The parallel FX market premium has been increasing since the 2015 crisis from 9.5 percent in January 2015 to 28.2 percent in January 2016 and to 74.3 percent in May 20211. The market is anecdotally sizeable, estimated at 50 percent of FX volume transactions.

The resurgence of the parallel FX market can be traced to both political factors and external shocks. This reflects the withdrawal of donor support in 2015 and inconsistent domestic policies—monetization of fiscal deficits, loss of competitiveness, and restricted FX market participation. Other structural factors such as large trade deficits (11.3 percent of GDP on average in 2015–20) and unfavorable terms of trade shocks also put pressures on reserves.

The authorities’ policy response has been to tighten control over the FX market The BRB discretionarily allocates FX to imports deemed essential (including medical goods, key food staples, chemicals, and oil). Consequently, more importers utilize the parallel market (35 percent of imports as of December 2020), which is illegal by law, leading to a higher FX premium. Moreover, exports of coffee, tea, and minerals are exclusively validated by the BRB and exporters must keep accounts at the central bank where their exports proceeds are surrendered, and the equivalent domestic currency amount is wired into their local accounts. In addition, in February 2020, the BRB took the decision to close all the private FX trading bureaus to the exception of commercial banks and, in 2020, it became the only official seller of gold—the BRB buys all the local gold production and sells it discretionarily. Such restrictions have increased incentives for illegal trade. The authorities have also undertaken a small amount of nonconcessional borrowing to help bolster reserves and provide for essential imports.2

1 The official ER against the US dollar is computed daily by the BRB as a weighted average of FX transactions between banks and clients during the previous day. Banks may trade within a band of +/- 2.5 percent of the official rate. 2 The BRB contracted in December 2019 a loan of US$40 million from AFREXIM bank (3-year maturity).

Policy Issues

Key policy issues include: (i) measures to limit the spread of COVID-19 and mitigate its economic and social impacts, using best governance practices while containing debt vulnerabilities; (ii) policies to restore external sustainability; and (iii) fostering financial stability. Discussions of long-term policy challenges, including supporting pro-poor growth with prudent fiscal policy, reforms, debt and external sustainability, and further transparency and governance, will be further covered during the upcoming Article IV consultation.

A. Fiscal Policy Response to the COVID-19 Pandemic

10. The authorities prepared in June 2020 a COVID-19 response plan to limit the disease spread and cushion its macroeconomic and social impacts (Box 1). A technical committee led by the Minister of Interior has been established to coordinate the government’s response to the pandemic and an account opened at the BRB to centralize donor funding. The authorities’ response plan was costed at US$150 million including a sanitary plan of US$58 million (1.8 percent of GDP) and two COVID mass testing campaigns. Other measures under the response plan include infrastructure investment to improve public health capacity and access to health facilities. Mitigation measures to cushion the macroeconomic and social impacts of COVID-19 have been timid, partly owing to limited availability of financing in 2020/21.

11. The authorities plan to accommodate additional COVID-related measures in 2021/22 to decisively curb the virus spread (Box 1). They plan to accommodate COVID spending of 1.1 percent of GDP (BIF 70.4 billion) in 2021/22. In addition, as the authorities’ vaccination strategy gets firmed up, staff projects that additional spending of 2.2 percent of GDP will be required, including for imports and administrative cost. Other COVID-related spending identified by the authorities’ response plan are also awaiting financing to be executed. To this end, the 2021/22 budget envisages increased social spending, including expanding programs for women, the youth, people with disabilities, and natural disaster victims.

12. Revenue collection is expected to strengthen further, bolstered by the full-year implementation of measures taken during 2020/21 and new actions introduced in the 2021/22 budget. Measures included strengthening mining tax collection, initiating the revision of tax laws and exemption eligibility, and centralizing the collection of nontax revenue at the Office Burundais des Recettes. A minimum tax based on turnover (one percent) tax was also introduced for all sectors. The authorities noted that the tax relief granted to companies under duress had little impact on revenue because the main taxpayers experienced limited disruptions. The 2021/22 budget also introduced several measures, including: (i) a new tax on mobile phone megabits (18 percent of the cost); (ii) removal of exemptions (income tax and VAT) on companies’ sales; (iii) an anti-pollution tax on imported used vehicles; and (iv) the widening of the rental tax base to include land leases. Nontax measures include introduction of an annual flat-rate road charge and fees on issuances of exemption certificates and changes to tax declarations. The ongoing computerization of revenue collection should also help widen the tax base.

13. Staff projects a fiscal deficit of 6.3 percent of GDP in 2021/22, still elevated owing to COVID-related spending pressures (Text Table 3). Revenue collection would increase to 19.3 percent of GDP, reflecting partly a conservative estimate of the impact of revenue measures (0.3 percentage point of GDP). Current spending is projected at 21.2 percent of GDP, partly reflecting vaccination cost—not planned under the 2021/22 budget—and other COVID spending. The authorities plan to accelerate implementation of their response plan (an envelope of 1.1 percent of GDP is planned under the budget), the execution of which was delayed in 2020/21 owing to financing constraints. However, staff projects higher COVID spending needs than planned under the 2021/22 budget, including the cost of importing and administering COVID-19 vaccines.7 In addition, more sanitary measures could be required as the virus spread is still strong and new COVID-19 variants intensify challenges. Staff also projects an increase in interest payments, consistent with debt service modalities (Table 2a). Domestically financed investment will strengthen compared to 2020/21, reflecting recent improvement in execution capacity,8 but remain lower than the budget targets. Strong prospects for grants will help contain the deficit (which will however be higher than the budget target of 2.3 percent of GDP).

Text Table 3.

Burundi: Fiscal Changes Since the Covid-19 Pandemic

(in percent of GDP unless otherwise indicated)

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

Covid spending envisaged in the FY2021/22 bu dget (BIF 70.4 billion or 1.07 percent of GDP) is not itemized in the budget but is included in some current and investment spending lines such as transfers to hospitals.

14. A fiscal financing gap of 3.2 percent of GDP is projected in 2021/22 (Text Table 3). The 2021/22 deficit will be mainly financed through domestic borrowing and foreign loans. A fiscal financing gap will emerge, which will be partly filled by the proposed RCF disbursement (to be on-lent to the government to help finance COVID spending, including vaccine purchase and logistical costs). Other donor financing, notably possible financing from the World Bank and USAID to help cover the vaccine purchase cost could help fill the remaining gap, while the SDR allocation will help build reserve coverage to less precarious levels (currently projected at 2.5 months of imports in 2021).

15. All COVID-related spending will be reflected in the budget execution reports and new spending should be executed within the budget. COVID-related spending in 2020/21 was mostly executed off-budget, using the COVID Fund (Box 1), to accelerate spending execution and support the emergency response. The authorities committed to exhaustively reporting COVID outlays in the 2020/21 budget review report (Loi des Règlements), consistent with their regular procedures (para. 18 and 19). Using usual budget procedures would facilitate monitoring the execution of COVID spending.

16. There are a few options for closing the estimated 2021/22 fiscal financing gap, while preserving debt sustainability. Options include revenue mobilization efforts, including further containing exemptions (BIF 18 billion in 2020/21); spending rationalization, including reallocations from non-priority sectors to priority and pro-growth spending and capacity building to better estimate interest payments; and re-engagement with the international community, which should boost grants and concessional financing and help maintain debt sustainability. The 2021/22 budget also plans to securitize existing domestic arrears.9 Beyond 2021/22, fiscal consolidation efforts will be supported by (i) continued efforts of domestic revenue mobilization, including the ongoing computerization of the administration, widening of the tax base, digitalization of revenue collection, and improvements in compliance; (ii) lower spending, as the COVID crisis wanes and planning and implementation capacity improves, increasing spending efficiency (both current and investment spending); and (iii) somewhat higher program grants as the reengagement with donors accelerates.

B. Governance and Transparency

17. Strong transparency and governance of COVID spending is envisaged, leveraging existing governance institutions (Box 4). The authorities prepared an annual report on COVID spending executed during 2020/21, which was sent to the “Cour des Comptes” (CC) in August 2021 for audit. Moving forward, the Ministry of Finance will prepare bi-annual reports on COVID spending, starting with spending at end-December 2021, that will be audited by the “Inspection Générale de l’Etat” (IGE) and the “Cour des Comptes” (CC) and published on the ministry’s website within three months of the end of each semester. The authorities are also committed to collecting information on the ultimate beneficiary ownership (BO) of companies that will be awarded COVID-related contracts starting in end-December 2021 using their current framework. Staff proposes targeted capacity development (CD) to assess the regulatory and legal provisions on BO information and support collection of the BO information, in the event it is not currently available to the authorities. Staff emphasized the importance of publishing the beneficial ownership information online once collected, to ensure the effectiveness of the authorities’ commitment to transparency.10 The government is on track to fulfill commitments under the CCRT debt relief—audit by the CC of COVID spending execution and publication within 9 months of the end of the FY2020/21 (by end-March 2022).

Governance Institutions in Burundi

Burundi’s fiscal governance system comprises internal and external audit institutions. Internal audits (accounting, administrative, technical, and physical) are conducted by the internal control department (Inspection Générale) of each public entity to ensure regularity, optimization of resources, improvement of performance, protection of assets, reliability of information and compliance of decisions with policies and rules. External audits are conducted by the “Inspection Générale de l’Etat (IGE)”, which is under the supervision of the President’s Office, and the external auditing court “Cour des Comptes (CC)”, which is independent. These two institutions help address potential conflicts of interest that may impede the efficiency of internal audits:

  • The IGE. It has several missions, including inspection and control over the operation and management of public services, institutions and bodies and private companies or associations subject to its control (decree n ° 100/09 of January 15, 2010). The IGE’s mission also covers all legal institutions and associations benefiting from financial assistance or guarantees from public entities, and it can carry out checks on companies and private associations deemed to be strategic for the government. The IGE’s reports are submitted to the President’s Office, which decides of their publication.

  • The Cour des Comptes. It is the supreme control and audit institution in Burundi’s institutional governance architecture (Law n° 1/002 of March 31, 2004). It is independent of the executive and reports to the national parliament which it assists in monitoring public fund management. The Auditors of the CC can examine and certify public accounts, audit the overall management of resources, recommend changes in the system and monitor the implementation of these recommendations.

Beyond these two institutions, there are two other anti-corruption institutions. The anti-corruption court (Cour Anti-Corruption or CAC) is in charge of designing policies for the prevention and repression of corruption and related offenses and the anti-corruption police (Brigade Spéciale Anti-Corruption or BSAC) is in charge of combating corruption and other organized crimes using an interdisciplinary approach integrating intelligence, investigations and prosecutions.

C. External Sustainability

18. The recent SDR allocation provided much-needed FX cushion and an opportunity to gradually ease FX allocation restrictions. The authorities intend to use most of their allocation to increase reserves above their recent critically low levels. Building on the additional cushion, the authorities plan to partially ease restrictions of FX allocation, notably for commodity imports, which will alleviate their bottleneck effects of growth and reduce the FX parallel market premium. They also plan to use part of the SDR allocation in the future to fill the remaining fiscal financing gap, in the absence of additional financing.

19. Burundi’s critical external financing needs have been exacerbated by the COVID-19 pandemic (Text Table 4). COVID-driven BOP developments, including higher medical good imports, lower exports owing to supply chain disruptions, and slower investment flows have increased the BOP financing needs. The external financing gap is estimated at US$ 139.5 million in 2021 and beyond. Absent additional external financing, FX reserves would remain below adequacy levels, including in the medium term.11

20. The authorities consider strengthening external sustainability as a policy priority. External stability will require a multi-pronged policy package with adequate sequencing and clear communication. Staff advised on preparation of a roadmap that will guide the transition towards greater ER flexibility and offered CD support. The roadmap would include a mix of (i) greater flexibility in ER management, which could be gradual, (ii) reforms to alleviate FX market distortions and support moving towards a market-based FX allocation system, and (iii) clarifying the monetary policy framework. The authorities welcomed the prospects of further informal technical discussions on these policy reforms and agreed to an assessment of exchange restrictions under the Article VIII, in the context of the next Article IV consultation.

Text Table 4.

Burundi: Projected External Financing Requirements, 2020–22

(in millions of US dollars, unless otherwise indicated)

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

Build of reserves includes SDR allocation in 2021 and increase to 3 months of goods and services over the medium term

Including build up of reserves, repayment to the IMF net of CCRT grants and DSSI

Annual financing needs to reach the reserve target of three months of imports, assuming that the financing gap of year n -1 is filled.

D. Monetary Policy and Financial Sector Issues

21. Monetary policy and regulatory approaches have remained accommodative to support the economy through the pandemic. The BRB has maintained an accommodative monetary policy since 2020 through different channels:

  • Liquidity provision and framework. The BRB ensured adequate liquidity provision to banks accessing its seven-day refinancing window—liquidity provided in 2020 was about 16 percent higher than in 2019—and created a new refinancing window for banks providing loans to priority sectors.

  • Forbearance. The BRB also increased the flexibility of loan restructuring procedures and allowed for a fourth restructuring, subject to its approval. Only four banks have benefitted from this measure owing to stringent scrutiny and required fees. The BRB has also allowed banks to renegotiate interest rates for debtors struggling to repay especially for the trade sector.

22. The financial sector has proven resilient and the BRB continues to monitor closely vulnerabilities. The BRB’s measures have supported liquidity in the financial sector during the pandemic and contained loan portfolio deterioration. Although NPLs have been stable, they are predominantly concentrated in some sectors including business, housing, transport, and health. In addition, loan restructuring could mask vulnerabilities—one third of loans in commerce have been restructured. A forward-looking approach to supervision would be useful to detect emerging tensions.

23. The BRB stands ready to adjust monetary and financial sector policies contingent on macroeconomic conditions and financial sector vulnerabilities. Adequate policy calibration will be essential as inflation in Burundi is mostly driven by supply disruptions (which could last longer than expected) and the related strength of monetary transmission unclear. The BRB is ready to recalibrate liquidity provisions and is monitoring loan restructurings to identify emerging vulnerabilities. It also continues tight implementation of forbearance policies to contain potential risks.

Access and Capacity to Repay the Fund

24. The authorities are requesting a purchase under the exogenous shock window of the Rapid Credit Facility of 35 percent of quota (equivalent to SDR 53.9 million) to cope with the impact of the COVID-19 pandemic. The pandemic has exacerbated Burundi’s BOP financing needs and created a fiscal financing gap, both of which require urgent attention, against the backdrop of the ongoing second COVID-19 wave and the urgent need to enhance access to vaccines. The authorities’ COVID response plan identified some urgent spending needs, most of which have been postponed to 2021/22 owing to financing constraints in 2020/21. In addition, it is essential to provide room for vaccination cost to ensure timely implementation of the vaccination strategy, when ready. Support is also needed for the most vulnerable population—the poverty rate was 85 percent in 2020. The RCF will be disbursed to the BRB and on-lent to the government to provide financing for COVID-related spending. Disbursement under an RCF would help cushion the COVID-19 effects on FX reserves as well.

25. The authorities are actively seeking additional support from development partners. The RCF purchase would meet about 55 percent of the 2021 BOP financing needs (4.4 percent of GDP). Beyond donor financing already disbursed or committed for 2021 (a total of 9.1 percent of GDP, a large part of which is from the World Bank, the African Development Bank, and EXIM Bank India), additional external financing would be needed to meet the remaining BOP financing needs. Prospects for availability of financing for vaccine purchase are positive but contingent on the authorities’ request (notably from the World Bank and USAID).

26. Staff assesses Burundi’s debt as sustainable based on the authorities’ commitment to fiscal consolidation and reengagement with international community (DSA, Appendix II). The DSA shows that the country is at high risk of external and overall public debt distress. Key risks stem from the large stock of domestic debt and elevated overall debt service-to-revenue ratio, as well as liquidity constraints to service external debt liabilities. Risks to external debt service are however mitigated by strong and resilient remittances flows—Text Figure 3 shows that the ratio of external debt service to exports and remittances is much lower than when remittances are not accounted for. With a positive economic outlook, expected fiscal adjustment, and given the country’s good track record in servicing its debt, there is a high likelihood that Burundi will be able to meet all its current and future obligations. In addition, the SDR allocation (SDR 147.6 million, equivalent to 6.6 percent of GDP), prospects of stronger external financing, including through donor grants and concessional loans, and upside risks to the export profile as key structural reforms to liberalize exports and enhance competitiveness are implemented, further mitigate the liquidity risk. This assessment is subject to significant risks (Annex 1, para. 10) including weak information on debt of public enterprises.

Text Figure 3.
Text Figure 3.

Burundi: Ratios of External Debt Service to Exports and to Exports and Remittances

Citation: IMF Staff Country Reports 2021, 242; 10.5089/9781557755476.002.A001

Sources: Country authorities; and staff estimates and projections.

27. The authorities concurred that debt is sustainable but viewed staff projections as being overly conservative. They underscored that under the baseline, long-term exports growth does not account for the implementation of the PND and reforms. They discussed several ongoing reforms that would boost growth and reduce Burundi’s trade deficit, including imports substitution policies to reduce bottlenecks induced by the limited FX availability. They also underscored their good track record in servicing debt and commitment to debt sustainability.

28. Burundi’s capacity to repay the Fund is assessed as adequate, but subject to risks (Table 7). The RCF disbursement would result in Fund exposure to Burundi of about 3 percent of GDP at end-2021 (or 28 percent of international reserves). A narrow export base and below-adequacy norms FX reserves pose risks to the capacity to repay. However, the authorities’ excellent track record of servicing debt to the Fund, modest external debt, the SDR allocation, and improved prospects for reengaging with donors are expected to help mitigate risks. Further support under the CCRT will also lower near-term risks.

29. The authorities have committed to undergo a safeguards assessment, which would need to be completed before the Executive Board approval of any subsequent arrangement. The last safeguards assessment was in 2012 and the authorities published the BRB’s audited FY2019/20 financial statements. In accordance with the safeguards assessments policy, a Memorandum of Understanding has been signed between the BRB and the government to establish the responsibilities for servicing financial obligations to the IMF.

Staff Appraisal

30. Burundi’s economy has been adversely impacted by the COVID-19 pandemic and is facing stronger headwinds from the intensifying COVID spread. Real GDP is estimated to have contracted by about one percent in 2020, with the tertiary sector severely impacted by travel and border restrictions and disruptions of supply chains in trading partner countries. The ongoing COVID wave poses a threat to the fragile economic recovery and could further deteriorate living conditions of the vulnerable population. Measures needed to address the pandemic, including the cost of importing and administering vaccines, and the associated external shocks have induced a fiscal financing gaps in 2021/22 (3.2 percent of GDP) and an external financing gap in 2021 (4.4 percent of GDP).

31. Staff welcomes the authorities’ efforts to curb the COVID-19 virus spread and commitment to balancing debt and external sustainability and the country’s important COVID spending, development, and social needs. Staff welcomes the authorities’ plan to scale up the implementation of their response plan, ramping up testing capacity and continuing sanitary measures, and efforts to broaden social programs to further support women, the youth, disabled people, and natural disaster victims. Staff commends the authorities’ domestic revenue mobilization efforts, which will support debt sustainability and provide space for priority spending. Staff welcome the authorities’ commitment to strengthen fiscal governance of COVID spending, preparing execution reports that will be audited and published, and their efforts to collect the ultimate beneficiary ownership information of companied awarded COVID-related contracts. Staff welcome the BRB’s plan to adjust monetary and financial policies in response to macroeconomic conditions and potentially emerging financial sector vulnerabilities and gradually address balance of payments challenges, leveraging prospective stronger inflows of external financing.

32. Burundi meets the conditions for financing under the RCF. The pandemic has created immediate and urgent BOP and spending needs. Moreover, discussions for a multi-year UCT program would take a long time due to the need for the authorities to elaborate a comprehensive, prioritized medium-term reform strategy in an environment of weak capacity. Thus, the proposed RCF disbursement is part of a multi-step engagement process, catering to the immediate and urgent financing needs. As next steps, the authorities are committed to holding an Article IV consultation mission, which will be an opportunity to assist the authorities in developing their broader macro and structural reform agenda including to support debt and external sustainability. IMF financial engagement is expected to play a catalytic role in securing much-needed external grants and concessional financing.

33. Staff supports the authorities’ request for a disbursement of SDR 53.9 million (equivalent to 35 percent of quota) under the exogenous shock window of the Rapid Credit Facility. Staff’s support is based on the immediate and urgent balance of payments needs generated by the COVID-induced exogenous shock, which has exacerbated external sustainability challenges, and the authorities’ existing and prospective policies in response to this external shock and the balance of payments difficulties. Staff supports that the disbursement be on-lent for budget support to provide space for the interventions needed to mitigate the severe socio-economic impact of the pandemic and allow a more gradual policy adjustment than otherwise necessary. While risks to the outlook are titled to the downside, Burundi debt is assessed to be sustainable but at high risk of distress. Burundi’s capacity to repay the Fund remains adequate.

Figure 1.
Figure 1.

Burundi: Recent Developments, 2014–21

Citation: IMF Staff Country Reports 2021, 242; 10.5089/9781557755476.002.A001

Sources: Burundi authorities; and IMF staff estimates and projections.
Figure 2.
Figure 2.

Burundi: Recent Monetary Developments, 2014–21

Citation: IMF Staff Country Reports 2021, 242; 10.5089/9781557755476.002.A001

1/ The headline inflation include all the components of the CPI basket.Sources: Burundi authorities; and IMF staff estimates and projections.
Table 1.

Burundi: Selected Economic Indicators, 2018–26

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

Fiscal year values (July-June) starting in 2019 (i.e. 2019 is FY 2018/19). Includes Covid-related fiscal measures starting in FY2020/21. The stock of debt is at the end of the calendar year. Values for all the non-fiscal sectors are in calendar years.

Includes the grant for the IMF debt service falling due from October 16, 2021 to April 13, 2022, which is subject to the availability of resources under the CCRT.

Table 2a.

Burundi: Central Government Operations, 2018–261

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

Fiscal year values (July-June). Includes Covid-related fiscal measures starting in FY2020/21.

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

Includes the grant for the IMF debt service falling due from October 16, 2021 to April 13, 2022, which is subject to the availability of resources under the CCRT.

Includes unforeseen spending and spending not properly classified due to lack of proper reconciliation between the Ministry in charge of Finance and the Central Bank. Covid spending envisaged in the FY2021/22 budget (BIF 70.4 billion or 1.07 percent of GDP) is not itemized in the budget but is included in some current and investment spending lines such as transfers to hospitals.

A negative sign denotes a reduction of financial assets.

Table 2b.

Burundi: Central Government Operations, 2018–261

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

Fiscal year values (July-June). Includes Covid-related fiscal measures starting in FY2020/21.

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

Includes the grant for the IMF debt service falling due from October 16, 2021 to April 13, 2022, which is subject to the availability of resources under the CCRT.

Includes unforeseen spending and spending not properly classified due to lack of proper reconciliation between the Ministry in charge of Finance and the Central Bank. Covid spending envisaged in the FY2021/22 budget (BIF 70.4 billion or 1.07 percent of GDP) is not itemized in the budget but is included in some current and investment spending lines such as transfers to hospitals.

A negative sign denotes a reduction of financial assets.

Table 3.

Burundi: Monetary Survey, 2018–26

(BIF Billion)

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Sources: Burundi authorities; IMF staff estimates and projections.

Projections assuming that the unidentified BOP financing is filled.

Table 4.

Burundi: Central Bank Accounts, 2018–26

(BIF Billion)

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Sources: Burundi authorities; IMF staff estimates and projections.

Projections assuming that the unidentified BOP financing is filled.

Table 5a.

Burundi: Balance of Payments, 2018–26

(US$ Million)

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

Based on preliminary information provided by donors.

Includes prospective IMF disbursements and CCRT grants.

Given large uncertainties on private flows in the BOP, other investments are projected so that the BOP balance is zero in the medium to long term, which stabilizes the level of reserves in nominal terms in the absence of additional external financing.

Annual financing needs to reach the reserve target of three months of imports, assuming that the financing gap of year n-1 is filled.

Gap between the reserve target of three months of imports and actual reserves (i.e. when the gaps of the previous years are not filled).

Table 5b.

Burundi: Balance of Payments, 2018–26

(Percent of GDP)

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

Based on preliminary information provided by donors.

Includes prospective IMF disbursements and CCRT grants.

Given large uncertainties on private flows in the BOP, other investments are projected so that the BOP balance is zero in the medium to long term, which stabilizes the level of reserves in nominal terms in the absence of additional external financing.

Annual financing needs to reach the reserve target of three months of imports, assuming that the financing gap of year n-1 is filled.

Table 6.

Burundi: Banking System Soundness Indicators, 2018–21

(percent, unless otherwise indicated)

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Source: Burundi authorities.
Table 7.

Burundi: Indicators of Capacity to Repay the Fund, 2018–31

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Sources: IMF staff estimates and projections.

Total debt service includes IMF repurchases and repayments.

Annex I. Risk Assessment Matrix1

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Annex II. Growth Dynamics in Burundi

Economic growth in Burundi was mainly driven by agriculture in 2019, although the performance of traditional mainstay of agriculture has been unstable over the years, affected by conflicts. However, Burundi has implemented several growth-enhancing policies over recent years to support economic activities, including during the COVID-19 pandemic.

A. Pre-COVID Drivers of Growth

1. Economic growth in Burundi was mainly driven by agriculture in 2019, although the performance of traditional mainstay of agriculture has been unstable over the years, affected by conflicts. Dominant subsistence agriculture, coffee and tea, forestry, livestock and fishing all endured several years of retrenchment prior to 2010, influenced by factors including population displacement and poor harvests. It picked up during 2010–14, but the political crisis in 2015 caused renewed civil unrest, stymying growth once again as significant numbers of people fled the country. In 2019 agriculture provided the largest contribution to overall growth due to above-average harvests and herd restocking.

uA001fig02

Burundi: Baseline Average Real GDP Growth (Percent) and Sector Contributions1/

(Percentage point)

Citation: IMF Staff Country Reports 2021, 242; 10.5089/9781557755476.002.A001

Sources. Authorities and IMF staff estimates and projections.1/ Contribution of net taxes on products not shown.

2. The contribution of secondary sector has been mixed and did not provide the dominant impulse to GDP in any recent historical period. With the extraction and utilities industries remaining very small, manufacturing and construction dominated the sector. Both expanded strongly during the initial return to peacetime from 2005–2009, but slowed down quickly from 2010 onwards, with construction sharply contracting during 2015–2018. Manufacturing recovered during 2019, though construction provided a further drag on growth.

3. Services have been the main contributor to growth, except in 2019, cushioning weaknesses in other sectors during the years of conflict, though its impulse has been dwindling over time. From 2005–2009, government expenditure surged, in part through donor support, while banking and insurance saw renewed demand following the return to political stability. Public services continued to drive growth during 2010–2014, with a notable expansion in education provision, but from 2015–2018, government expenditures began to stall; by 2019, public services and already weak market services almost flatlined. The COVID-19 pandemic exacerbated this downward trend.

B. Growth-Supporting Policies in Burundi

4. Burundi has implemented several growth-enhancing policies to support economic activities, including during the COVID-19 pandemic.

• Agricultural Programs. The agricultural sector contributes on average 39.7 percent of GDP, employing 84 percent of the labor force. The Plan National d’Investissement Agricole (PNIA, 2016–2020) has supported agricultural production, through several measures, many of which are still being implemented and expected to support agricultural production and cash crop exports over the medium term. These measures include:

  • Production. (i) utilization of better-quality seeds; (ii) better access to fertilizers and at lower costs (iii) better global-to-local price transmission, which has increased producer prices and provided incentives to agricultural production; (iv) gradual production mechanization and modernization; (v) professional training, (vi) expansion of land utilization for agricultural production; and (vi) increased financing, including for women.

  • Coffee sector. The Government has been implementing deep reforms to reorganize the coffee sector to support exports, including centralizing coffee sales and nationalizing part of the exports process. The BRB extended a loan to the Government in 2020 to invest in boosting productive capacity which is expected to increase production and reduce waste, which will boost exported coffee volumes in 2021 and beyond.

  • Fertilizers. The BRB also extended a loan to expand the production capacity of a fertilizer firm, which was guaranteed by the Treasury.

• Import Substitution. Burundi’s imports have increased over the years leading to a deteriorating trade balance and increasing FX needs. The PND aims to reduce import dependence by boosting the domestic production of goods and services with the modernization and diversification of agricultural production, increased electricity supply (new power plants), and support to agrobusiness industries.

• Banking. The Banking Act of 2003 has been updated with banking activities now governed by a new legal framework (Law n°1/17 of August 22, 2017). This reform aims to increase credit provision to the economy and improve banking system regulation. Only institutions that are subject to the banking rules, namely banks, microfinance institutions, and financial institutions can grant credit and it is prohibited for any natural or legal person, other than a reporting institution, to carry out credit transactions. The Banking Act also leverages the digital technology to transform the banking and financial sector with online and mobile banking.

Appendix I. Letter of Intent

October 5, 2021

Ms. Kristalina Georgieva

Managing Director

International Monetary Fund

Washington D.C. 20431

Dear Ms. Georgieva:

1. The purpose of this letter of intent is to request financial assistance from the International Monetary Fund (IMF) under the Rapid Credit Facility (RCF) to support the efforts of the government of Burundi in managing the COVID-19 pandemic and limiting its economic and social impact. The government of Burundi would like to take this opportunity to thanks sincerely the IMF for the three tranches of debt relief approved to date under the Catastrophe Containment and Relief Trust (CCRT) to help with managing the pandemic, amounting a total of SDR 14.46 million.

2. In order to significantly mitigate the socio-economic impacts of the COVID-19, the Government had to mobilize additional resources and reallocate other resources towards the fight against COVID-19. The Government’s COVID response plan is estimated at US$ 150 million, including a sanitary Contingency Plan for a cost of approximately US$ 58 million. Actions carried out by the Government have focused in particular on (i) the implementation of hygiene measures to protect the population against COVID-19 (notably subsidizing soaps and water); (ii) the activation of a reception center for public health emergencies and of the COVID-19 coordination mechanism; (iii) equipping specialized laboratories with COVID-19 diagnostic equipment, test kits and reagents; and (iv) protecting and training health personnel to COVID-19 protocols. The Government is also strongly committed to maintaining and strengthening measures to curb the spread of the pandemic, in particular (i) strengthening the national committee against COVID-19 and the scientific committee, (ii) coordination with neighboring countries to fight against the pandemic, and (iii) strengthening measures to control the COVID-19 spread.

3. The Burundian economy has been negatively impacted by the global health crisis. The latter has affected performance in almost all sectors, economic activity in particular, and hence economic growth, but also the budget, the financial sector, and the balance of payments.

4. In terms of economic activity, while growth was initially projected at 4.1 percent in 2020 before the occurrence of COVID, it is finally projected at -0.5 percent in 2020, mainly due to the slowdown of the tertiary sector. This decline would have been worse if it had not been for the resilience of the primary sector which recorded good subsistence agricultural production in 2020. This branch of activity, which represents more than 80 percent of the value added of the primary sector has benefited from favorable climatic conditions and reforms initiated in the agricultural sector by the Government, more specifically grouping farmers into cooperatives, supervising farmers, subsidizing chemical fertilizers, and distributing agricultural inputs such as corn and beans.

5. The social sector has been a focal area of our response to the pandemic. The social protection measures comprise mainly four projects, namely (i) the framework project for the reintegration of victims of disasters, (ii) the project to support the production of mobility devices for disabled people, (iii) the project to support the socio-economic empowerment of women in Burundi as well as (iv) the Merankabandi social safety net project. During the COVID-19 pandemic, the Government redirected a significant funds to the social sector as well as to supporting vulnerable people in order to mitigate the economic harm linked to the pandemic. In the health sector, various projects have been implemented, including (i) networking laboratories within the East African Community, (ii) the population resilience support program (TWITEHO AMAGARA MEZA), (iii) the project relative to early childhood and demographic control (NKURIZA), (iv) the health sector development support project (KIRA) as well as (v) the national contingency plan for the preparation and response to the COVID-19 pandemic. The education sector has benefited from two main projects: the school rehabilitation and equipment project and the project to support the improvement of learning at the start of schooling (PAADESCO-SHISHIKARA). In addition, two banks were created, namely the Women’s Bank and the Youth Bank, which are currently operational.

6. The pandemic has also affected the budget and related operations. Indeed, as the Government has placed great attention on the management of the pandemic, current expenditure increased in 2020, compared to the previous year, while capital spending was under-executed. Despite the overperformance of revenue mobilization, including tax revenue, higher spending owing to the pandemic led to a deterioration of the overall budget deficit. This situation also caused a significant increase in the total public debt, especially domestic debt.

7. Regarding the balance of payments, the current account improved slightly in 2020 compared to 2019 despite the increase in the goods trade balance deficit, led by the increase in COVID-related imports. Workers’ remittances increased in 2020 compared to the previous year, supporting the current account. The balance of the capital account increased slightly, following the increase in the receipt of grants for projects. Similarly, the balance of the financial account improved slightly, reflecting the decrease in the deficit in other investments, especially trade credits.

8. The Burundian economy’s external position is fragile insofar as the level of international reserves is relatively low. Net international reserves are negative and deteriorated in 2020, compared to the previous year. Official reserves fell from 3.4 percent of GDP to 2.8 percent of GDP between 2019 and 2020. At end-December 2020, these official reserves represented 1.1 months of the imports of goods and services of 2019. They fell to 0.8 month of imports of goods and services of 2020 in May 2021, lower than the convergence criteria of the East African Community (minimum of 4.5 months of imports) and have since been bolstered by the new SDR allocation (SDR 147.6 million, equivalent to US$ 211 million).

9. For the 2021/22 budget, the Government of Burundi plans to accommodate the expenses necessary to continue to deal with the COVID-19 pandemic. An initial envelope of BIF 70.4 billion has been allocated for further execution of our COVID-19 response plan. The 2021/22 budget, moreover, prioritized spending that has a visible impact on the socio-economic development of Burundi, in accordance with the National Development Plan 2018–2027 and the Peace Capitalization Program -Social Stability – and Promotion of Economic Growth (PNCP-SS-PCE), which will help support sustainable and inclusive growth. In addition to peace and reconciliation, the PNCP-SS-PCE places a very particular emphasis on the strategic sectors which are (i) agriculture and livestock, (ii) public health, (iii) industrialization, (iv) economic and social infrastructure as well as (v) employment of young people and social protection of the vulnerable. As for the monetary and exchange rate policies, which are conducted in the constraining context of limited international reserves, the reengagement with the IMF will contribute to creating a space to support the efforts of the Bank of the Republic of Burundi in this area.

10. As part of the economic recovery and the pursuit of macroeconomic balances in the medium term, strong coordination between the various instruments for the management of economic policies will be emphasized, in particular those of fiscal policy, monetary policy and sectoral policies compatible with the plans and orientations of the Government. From this perspective, collaboration with key technical and financial partners, including with the IMF, in particular through its financial and policy support and technical assistance, is of great importance. The reforms already underway in the rational management of public finances will have to continue and the recommendations and contributions of the IMF will be considered with interest. We also welcome further informal technical discussions with IMF experts on policies to resolve the country’s balance of payments difficulties.

11. This letter motivates a disbursement under the rapid credit facility for Burundi to support the initiatives being taken by the Government of Burundi to deal with the pandemic and support the resilience of the Burundian economy. Moreover, the facility will support Burundi’s economic and financial policies in favor of macroeconomic stability and sustained and inclusive growth. In addition, the Government of Burundi renews it commitment to hosting an IMF Article IV consultation mission as soon as feasible.

12. Similarly, to the CCRT debt relief following COVID-19, the Government of Burundi reiterates its firm commitment to guarantee transparency in the use of the RCF resources and will allow easy access to monitoring and evaluation bodies in relation to the management of the funds. Semi-annual reports on the execution of these resources will be produced and sent to the Court of Auditors for audit with a copy to the IMF within one month after the end of each semester and the audited reports will be published on the website (www.finances. gov.bi) of the Ministry of Finance, Budget and Economic Planning within three months after each semester. We will collect information about the ultimate beneficiary ownership of companies that will be awarded COVID-related contracts starting in end-December 2021.

13. In strict compliance with the commitments resulting from disbursement under the RCF, the Government of Burundi reassures the IMF of its desire to maintain macroeconomic balances and debt sustainability through a prudent fiscal policy, monetary and financial policies contingent to current economic conditions, and reforms conducive to balanced, sustained, and stable growth with the view of reducing poverty and preserving macroeconomic stability. The Government also intends to further strengthen technical and financial cooperation with key donors.

14. In this context and given the urgent need for balance of payments financing that the country is facing due to the pandemic, Burundi is requesting emergency financing from the IMF under the Rapid Credit Facility (RCF) of SDR 53.9 million or the equivalent of 35 percent of our quota. We request that the funds be disbursed as direct budget support to the national treasury account at the BRB. In view of this, a memorandum of understanding was signed between the National Treasury and the BRB on their respective responsibilities for servicing their financial obligations to the IMF. These disbursements will help close our expected fiscal financing gap and provide a cushion to our international reserves in 2021. We hope that the IMF’s participation in Burundi’s response to this emergency will act as a catalyst for additional financing from other development partners.

15. Burundi will continue to comply with the provisions of the IMF’s Articles of Agreement, including those related to the imposition of new restrictions or the intensification of existing restrictions on payment and transfer arrangements for current international transactions as well as bilateral payments under the framework of Article VIII, and will implement public policies within this framework and do not intend to introduce measures or policies that would compound Burundi’s balance of payments difficulties. We intend to consult with the IMF before introducing such new or revised measures or policies.

16. In the context of the implementation of the IMF safeguards policy, we commit to continue providing IMF staff with the BRB’s external audit reports and the most recent management letters. We also pledge to host a safeguards assessment mission as soon as possible and to implement IMF staff’s recommendations in this area.

17. We authorize the IMF to publish this letter of intent, the staff report for the RCF disbursement request, and the accompanying debt sustainability analysis.

Yours sincerely,

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1

The last Article IV consultation was completed in 2014.

2

Following an STA technical assistance mission in January 2020, the coverage of remittances from 2019 onwards was broadened to capture transfers made through money transfer agencies. However, remittances are still likely underestimated as the BRB’s regulatory changes to apply the official ER to remittances gave rise to stronger informal flows. Major contributors are migrants in Canada, the U.S., Belgium, and Sweden.

3

Higher interest payments reflect mainly underbudgeting following recent discrepancies between domestic debt figures used for budget planning purposes and actual domestic debt payments from the debt unit.

4

Manufacturing production will be boosted by ongoing imports substitution policies (expansion of cement and fertilizer factories) and food and beverage production increases, supported by the BRB’s refinancing measures.

5

Prospects of successful implementation are very strong. Several hydroelectric dam projects are in train with European, Chinese and IDP financing, while construction of a solar project financed by the World Bank began this year (total cost of $600 million). Three of these projects could start production by 2022 and three others will be finalized during 2023–25. Power line and road projects are being funded by the AfDB ($100 million).

6

The de jure exchange rate arrangement of Burundi is floating, and its de facto exchange rate arrangement is classified as a crawl-like.

7

Vaccines cost is estimated on average at $1.8 million for each percentage point of the Burundian population. Based on this estimate, mass vaccination would entail spending of 2.1 percent of GDP, assuming that 16 percent of the population are vaccinated under the COVAX initiative (free of charge) and 40 percent of the population by the government. This would cover Burundi’s adult population and part of its younger population (12+ years). Half of the vaccines would be imported during H2 of 2021 and the other half during H1 of 2022. This estimation is subject to uncertainty, as the landscape of vaccine availability evolves.

8

Starting in 2021/22, domestically-financed investment is projected to be larger than in recent past, adding to pressures on the fiscal deficit—reflecting recent improvement in investment execution.

9

The authorities set up a committee for the securitization of government arrears in March 2018. Domestic arrears accumulated from 2005 to 2017 (about BIF 230 billion or about 4 percent of 2020 GDP) were cleared through cash payments and securitization.

10

Public procurement plans (until 2017) are published on the website of the Public Procurement Regulatory Authority (http://www.armp.bi/). Beneficiaries of procurement contracts are not published.

11

The ARA metric for Burundi is estimated between 2.5 to 5 months of imports, depending on assumptions of ER policy, with the lower bound reflecting a fully floating ER.

1

The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path. The relative likelihood is the staff’s subjective assessment of the risks surrounding the baseline (“low” is meant to indicate a probability below 10 percent, “medium” a probability between 10 and 30 percent, and “high” a probability between 30 and 50 percent). The RAM reflects staff views on the source of risks and overall level of concern as of the time of discussions with the authorities. Non-mutually exclusive risks may interact and materialize jointly. The conjunctural shocks and scenario highlight risks that may materialize over a shorter horizon (between 12 to 18 months) given the current baseline. Structural risks are those that are likely to remain salient over a longer horizon.

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Cover IMF Staff Country Reports
Burundi: Request for Disbursement Under the Rapid Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for Burundi
Author:
International Monetary Fund. African Dept.
Volume/Issue:
Volume 2021: Issue 242
Publisher:
International Monetary Fund
ISBN:
9781557755476
ISSN:
1934-7685
Pages:
81
DOI:
https://doi.org/10.5089/9781557755476.002
  • <sup><xref rid="RA001fig01" ref-type="fig">Box 1 Figure 1.</xref></sup>
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    Box 1 Figure 1.

    New COVID-19 Cases in Burundi

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    Box 2 Figure 2.

    COVID-19 Case and Testing1

  • <sup>Text Figure 1.</sup>
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    Text Figure 1.

    Burundi: Pre-and Post-COVID 2020 Real GDP Growth Projections (percent) and Sector Contributions (percentage points)

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    Figure. Selected Social Indicators

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    Text Figure 2.

    Burundi: Analysis of the Growth Outlook

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    Text Box 3.

    Burundi: Official and Parallel Market Exchange Rates (BIF per US$), 2015–21

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    Text Figure 3.

    Burundi: Ratios of External Debt Service to Exports and to Exports and Remittances

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    View in gallery
    Figure 1.

    Burundi: Recent Developments, 2014–21

  • <sup><xref rid="RA001fig08" ref-type="fig">Figure 2.</xref></sup>
    View in gallery
    Figure 2.

    Burundi: Recent Monetary Developments, 2014–21

  • View in gallery

    Burundi: Baseline Average Real GDP Growth (Percent) and Sector Contributions1/

    (Percentage point)

Box 1 Figure 1.

New COVID-19 Cases in Burundi
Box 2 Figure 2.

COVID-19 Case and Testing1
Text Figure 1.

Burundi: Pre-and Post-COVID 2020 Real GDP Growth Projections (percent) and Sector Contributions (percentage points)

Figure. Selected Social Indicators
Text Figure 2.

Burundi: Analysis of the Growth Outlook
Text Box 3.

Burundi: Official and Parallel Market Exchange Rates (BIF per US$), 2015–21
Text Figure 3.

Burundi: Ratios of External Debt Service to Exports and to Exports and Remittances
Figure 1.

Burundi: Recent Developments, 2014–21
Figure 2.

Burundi: Recent Monetary Developments, 2014–21

Burundi: Baseline Average Real GDP Growth (Percent) and Sector Contributions1/

(Percentage point)