Abstract
76The new Burundi administration came into power following elections in May 2020 and announced as its priorities, fighting COVID-19, fighting corruption, and revitalizing agriculture and youth employment (World Bank Burundi Overview, October 2021). The COVID-19 pandemic has presented significant socio-economic challenges to the new government, adding to previous fiscal and balance of payments difficulties. The administration is therefore re-engaging the international community to help bring the pandemic under control, curb rising poverty, and unlock the country’s agricultural and mineral potential (including rare earth minerals) with the goal of working to realize the objectives of the 2018–27 National Development Plan (PND). The authorities have intensified efforts to fight the pandemic through a combination of decisive health and macroeconomic policy response measures. They request RCF support to help implement their national COVID-19 response plan. The urgent and significant fiscal and external financing gaps created by the health crisis underline the need for this emergency financing to bolster the fight against the pandemic.
The new Burundi administration came into power following elections in May 2020 and announced as its priorities, fighting COVID-19, fighting corruption, and revitalizing agriculture and youth employment (World Bank Burundi Overview, October 2021). The COVID-19 pandemic has presented significant socio-economic challenges to the new government, adding to previous fiscal and balance of payments difficulties. The administration is therefore re-engaging the international community to help bring the pandemic under control, curb rising poverty, and unlock the country’s agricultural and mineral potential (including rare earth minerals) with the goal of working to realize the objectives of the 2018–27 National Development Plan (PND). The authorities have intensified efforts to fight the pandemic through a combination of decisive health and macroeconomic policy response measures. They request RCF support to help implement their national COVID-19 response plan. The urgent and significant fiscal and external financing gaps created by the health crisis underline the need for this emergency financing to bolster the fight against the pandemic.
1. Our Burundian authorities appreciate the constructive discussions held with Fund staff and broadly agree with policy priorities and key recommendations in the staff report.
2. The Burundian economy has been adversely affected by the COVID-19 pandemic, with the risk of resurgence of virus mutations, remaining a concern due to very low vaccination rates with the new administration having recently begun vaccinations upon receipt of a small shipment of vaccines. The pandemic interrupted a nascent recovery with a marked contraction of economic activity in 2020, and clouded growth prospects in 2021. Already sizable and urgent fiscal and balance of payments financing needs could worsen further, absent external support. Against this backdrop, the Burundian authorities seek emergency financing under the Rapid Credit Facility (RCF) in the amount of SDR 53.9 million (equivalent to 35 percent of quota). This support is essential to bolster efforts aimed at moderating the socio-economic fallout from the pandemic. The capacity to repay the Fund is assessed as adequate, while public debt is assessed as sustainable. Given the significant risks to the outlook, the authorities hope the IMF support will catalyze complementary financing, to help them close the financing gap and better stabilize the economy.
3. As reflected in their letter of intent, the authorities are committed to the transparent and accountable use of pandemic-related resources. They have already prepared a report on COVID-19 spending during 2020/21, which is being audited by the “Cour des Comptes”. Moving forward, they will prepare bi-annual reports on COVID-19 spending and publish them on the Ministry of Finance website. The authorities are also committed to collecting and publishing information on the ultimate beneficial ownership of companies awarded COVID-19 related contracts. Furthermore, they are well on course to fulfill commitments under the CCRT debt relief audit.
Impact of COVID-19 pandemic
4. Since the first case of coronavirus was reported on March 31, 2020, case counts continue to grow. By mid-July 2021, the number of new cases has surpassed 1,000 cases per week. As of October 14, 2021, the number of recorded cases had reached 19,513, with 14 fatalities. Risks from the pandemic remain elevated with resurgence and more virulent waves affecting neighboring countries.
5. Economic activity across key productive sectors was also negatively affected by restrictive measures adopted to contain the spread of the COVID-19 virus. Economic activity contracted by 1 percent in 2020 due to the slowdown in secondary sectors and in services such as hospitality, commerce and transportation, which were impacted by travel restrictions and supply chain disruptions. At the same time, inflation has risen rapidly from an average -0.7 percent in 2019 to 7.3 percent in 2020, driven by rising food prices prompted by the pandemic. The rise in food prices impacts the poor disproportionately and threatens food security, even as higher inflation in general worsens living standards and social outcomes.
6. While the authorities appreciate the support received in 2020/21from the IMF’s CCRT and to a lesser extent the World Bank; and from the Exim Bank of China and the Kuwait Fund under the G20’s DSSI debt service relief, sizable financing gaps remain. Fiscal imbalances are expected to persist in FY 2021/22, in the context of increased sanitary and social spending needs for vulnerable households, and the high cost of vaccine imports. The fiscal financing gap for 2021/22 is estimated at 3.2 percent of GDP. The current account deficit is also estimated to remain sizeable in FY2021/22, reflecting subdued export performance in the context of the rising fuel prices and fuel import bills, alongside rising import needs including vaccines, therapeutics, personal protective equipment, and other COVID-related goods. Against this backdrop, the balance of payment needs for 2021/22 are estimated at 4.4 percent of GDP. While the general SDR allocation provided some policy space and much-needed relief, the external financing gap remains large and could lead to economic disruption if not addressed.
Pandemic Response Measures
7. The newly elected administration developed a robust national COVID-19 response plan, and a national multi-sectoral COVID-19 steering committee oversees the overall coordination and implementation of the national response. Various containment measures were taken, including closing all ports of entry, the Bujumbura airport and land border crossings from March to November 2020 and March to January 11, 2021 respectively. There has also been organization of mass screening campaigns against COVID-19, and the adoption of barrier measures against COVID-19. The authorities have also started vaccinations, using the 500,000 doses of Sinopharm they have received. Meanwhile, they have also applied to the Global Alliance for Vaccination and Immunization (GAVI) to access the COVID-19 Vaccine Access Facility (COVAX).
8. The authorities have also taken measures to strengthen the capacity of the health system and social protection. They allocated US$150 million (4.7 percent of GDP) as part of their COVID-19 response plan to intensify the fight against pandemic. Of this amount, US$58 million is apportioned to the Contingency Plan for implementation of sanitary measures. Actions included implementing hygiene measures to protect the population against COVID-19 and increase water supply, activating a reception center for public health emergencies and the COVID-19 coordination mechanism, hiring additional doctors and nurses, and equipping specialized laboratories with COVID-19 diagnostic equipment, test kits and reagents. The authorities also implemented measures to protect and train health personnel on COVID-19 protocols.
9. For the budget year 2021/22, fiscal policy was calibrated to accommodate increased spending to limit the spread of the virus and mitigate its economic and social impact, while preserving debt sustainability. To contain economic scarring and help support sustainable and inclusive growth, the authorities increased spending on women, youth, people with disabilities, and victims of natural disasters. Furthermore, they plan to spend an additional 2.2 percent of GDP under the recently adopted vaccination strategy.
10. The central bank, Banque de la Republique de Burundi (BRB) has maintained an accommodative monetary policy stance to support the recovery. BRB has also ensured adequate liquidity in the banking sector and created a new refinancing window for banks extending long-term loans to high-growth priority sectors. The BRB also allowed greater flexibility in loan restructuring procedures and time-bound extensions of loan maturities to affected borrowers, especially in the trade sector.
Medium-term Policy Measures
11. Beyond 2021/22, the authorities plan to implement growth-friendly fiscal consolidation to help bring public debt onto a downward trajectory. This includes a combination of revenue mobilization and expenditure management measures. On the monetary policy front, the BRB will continue to monitor inflation risks, informing the duration of its accommodative stance which at this time is needed to support the very weak recovery. In addition, the authorities are working closely with Fund staff to develop a roadmap for an orderly transition to a more flexible exchange rate regime, and to reduce the parallel market premium. The BRB stands ready to recalibrate liquidity provisions and its policy stance as needed, and will monitor the financial sector to identify emerging vulnerabilities, while gradually tightening the implementation of forbearance policies to contain any potential risks.
12. In line with the authorities 2018–27 Development Plan (PND), the authorities aim to address key structural weaknesses with the goal of enhancing export diversification, while facilitating infrastructure development, improving access to social safety nets and public services, and improving governance to enhance inclusive and durable growth.
Conclusion
13. Our authorities remain committed to implementing policies geared to ensure macroeconomic stability and support a durable recovery. They are confident that support from the Fund will help catalyse additional donor support to help alleviate strains on the economy and address attendant financing needs. They look forward to Executive Directors’ support and approval of the RCF as a critical step in their re-engagement efforts. They have resumed data provision to the Fund and committed to Article IV consultations and Safeguards Assessment missions in the foreseeable future. Further, they plan to strengthen coordination between various agencies for more effective management of economic policies to support the economic recovery. They also look forward to further Fund engagement and technical support.