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Author:
International Monetary Fund. African Dept.
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Publication Date:
29 Jul 2022
eISBN:
9798400219122
ISBN:
9798400219122
Language:
English
Keywords:
Recalibrating exchange rate policy; Burundian authorities; balance of payments pressure; Burundi's economy; response plan; COVID-19; Multiple currency practices; Southern Africa; East Africa; Global
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IMF Country Report No. 22/257

Abstract

IMF Country Report No. 22/257

Copyright Page

IMF Country Report No. 22/257

BURUNDI

2022 ARTICLE IV CONSULTATION—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR BURUNDI

July 2022

In the context of the Article IV Consultation, the following documents have been released and are included in this package:

  • A Press Release including a statement by the Chair of the Executive Board.

  • The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on July 20, 2022, following virtual discussions with the officials of Burundi that were held from February 24–March 17, 2022, with follow-up discussions on May 27, 2022, and June 1, 2022, on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on July 7, 2022.

  • A Debt Sustainability Analysis prepared by the staffs of the IMF and the International Development Association (IDA).

  • An Informational Annex prepared by the IMF Staff.

  • A Statement by the Executive Director for Burundi.

The documents listed below have been or will be separately released.

Selected Issues

The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.

Copies of this report are available to the public from

International Monetary Fund • Publication Services

PO Box 92780 • Washington, D.C. 20090

Telephone: (202) 623–7430 • Fax: (202) 623–7201

E-mail: publications@imf.org Web: http://www.imf.org

Price: $18.00 per printed copy

International Monetary Fund

Washington, D.C.

© 2022 International Monetary Fund

Press Release

PR22/275

IMF Executive Board Concludes 2022 Article IV Consultation with Burundi

FOR IMMEDIATE RELEASE

Washington, DC – July 21, 2022: The Executive Board of the International Monetary Fund (IMF) concluded the 2022 Article IV consultation1 with Burundi on July 20, 2022.

Burundi’s economy continues to navigate the challenging headwinds presented by the COVID-19 pandemic and the impact of the war in Ukraine. Prior to the pandemic, the country was recovering from an economic and political crisis following late President Nkurunziza’s decision to run for a third term in 2015. The war in Ukraine has disrupted the recovery momentum, with the associated higher import prices (food and fuel) and lower export prices (tea and coffee) and supply chain bottlenecks amplifying inflation pressures and external sustainability challenges. At the same time, the country is benefiting from the positive effects of the recent reengagement with the international community, the lifting of E.U. and U.S. sanctions at end 2021/early 2022, and ending of mandatory reporting by the U.N. Security Council. The 2022 Article IV Consultation seals the full reengagement with the IMF—the last Consultation was concluded in 2014.

Growth is expected to pick up to 3.3 percent in 2022, slightly strengthening from 3.1 percent in 2021, and average about 4.7 percent over 2023–27 (Table 1), benefitting from ongoing investment, plans to further scale up public investment, and ongoing reforms under the Plan National de Development (PND). Downside risks are notable, stemming from uncertainty around the duration and impact of the pandemic and spillovers from the war in Ukraine. These risks are however partly offset by significant upside risks linked to the recent announcement of grants to help Burundi cope with the external shocks, the full potential of the reengagement with the international community, and the end of mining contract negotiations, which would alleviate balance of payment pressures and boost economic growth. Inflation is expected to rise to double digits in 2022, and subsequently subside. The fiscal deficit would level off at around 5 percent of GDP in 2021/22, lower than during the peak of the pandemic (7.8 percent of GDP in 2020/21).

Burundi’s public debt is sustainable; however, the risk of external debt distress is high. External imbalances are large, with reserve coverage below adequacy levels and a large parallel exchange rate market premium.

Executive Board Assessment2

Executive Directors agreed with the thrust of the staff appraisal. They welcomed the authorities’ policy response to the COVID-19 pandemic and steps taken to address the spillovers from the war in Ukraine, including inflationary pressures. Directors highlighted that growth is expected to continue to strengthen, subject to important risks. They underscored the need for an ambitious and broad-based set of policies to address debt vulnerabilities and external imbalances and for reforms to address the roots of fragility, unlock bottlenecks, and ensure inclusive growth. Directors emphasized the importance of durable political and social stability and welcomed the authorities’ efforts to reengage with the international community.

Directors welcomed Burundi’s commitment to revenue-led fiscal consolidation and prudent borrowing, noting that while debt remains sustainable, the risk of external debt distress is high. They underscored the need to enhance domestic revenue mobilization through digitalization and measures to widen the tax base. Directors welcomed the focus on protecting priority COVID-19-related investment and social spending, including on health and education. They emphasized the importance of rationalizing spending and strengthening public financial management.

Directors highlighted the weak external position and stressed the need for measures to address external imbalances and rebuild reserves. In this context, they saw merit in using the SDR allocation primarily to bolster reserves. Directors underlined the importance of modernizing the monetary policy framework, and welcomed the authorities’ commitment to design a reform strategy to unify the official and parallel market exchange rates, supported by Fund capacity development. Noting the ongoing inflationary pressures and rapid credit growth, Directors underscored the need for a well-timed recalibration of the monetary policy stance and for steps to reduce monetary financing and strengthen the independence of the central bank. They recommended remaining vigilant to financial sector risks and adjusting policy as needed.

Directors called for reforms to address fragility, enhance competitiveness, and strengthen governance. They emphasized the need for measures to improve human capital, enhance productivity, and reduce the vulnerability to climate-related shocks. Directors encouraged measures to ensure transparency on the use of COVID-19-related spending. They stressed the importance of collecting and publishing information on the ultimate beneficial ownership of companies that were awarded COVID-related contracts. Directors called for steps to align the AML/CFT framework with international standards and for quick implementation of requirements to gain full membership in the Eastern and Southern Africa Anti-Money Laundering Group.

It is expected that the next Article IV consultation with Burundi will be held on the standard 12-month cycle.

Table 1.

Burundi: Selected Economic Indicators, 2019–27

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

A statistical adjustment (15 percent) was applied to credit growth to account for the reclassification of a bank—the Urban Housing Promotion Fund became the Burundi Housing Bank in 2021 and is now covered in the monetary survey.

Fiscal year values (July-June) starting in 2019 (i.e. 2019 is FY 2018/19). Includes Covid-related fiscal measures starting in FY2020/21.

Includes vaccine donations (starting in FY2021/22) and the grant for the IMF debt service falling due from October 16, 2021 to April 13, 2022 under the CCRT. Starting with FY2022/23, grants also include project grants from the US and the EU. Grants averaged 17.7 percent of GDP per year during 2010–14, before the 2015 political crisis.

Title page

BURUNDI

STAFF REPORT FOR THE 2022 ARTICLE IV CONSULTATION

July 7, 2022

EXECUTIVE SUMMARY

Context. Burundi’s economy has shown resilience to the COVID-19 and Ukraine war shocks. Prior to the pandemic, the economy was recovering from the political and security crisis that followed late President Nkurunziza’s decision to run for a third term in 2015, with growth close to 2 percent in 2019. Difficult macroeconomic policy challenges persisted, nevertheless. The pandemic has taken a toll on the post-conflict fragile country, but COVID-19 contagion remained fairly contained and growth was positive. The war in Ukraine is compounding the adverse effects of the pandemic, with deteriorating terms of trade and the resulting domestic inflation threatening already-challenging living standards. Sanctions from the U.S. and E.U.—legacy of the 2015 crisis—have now been lifted. The U.N. Security Council ended mandatory reporting in Burundi and the country has reengaged with the international community. The 2022 Article IV consultation seals the full reengagement with the IMF—the last one was concluded in 2014.

Outlook and risks. Growth is expected to strengthen somewhat in 2022, to 3.3 percent, although dampened by inward spillovers of the war in Ukraine, which has compounded nascent domestic fuel shortages and transportation disruptions. Growth would continue recovering over the medium term, supported by ongoing investment plans and reforms. Inflation would reach 11 percent in 2022, driven by increases in domestic pump and transportation prices under the impulse of global prices. It would recede starting in 2023. Both upside and downside risks to the outlook are significant. On the upside, recent announcements of in-kind grants from Japan and Russia and an expected equity disbursement from a newly signed mining contract would alleviate balance of payments pressures and support growth. Higher donor financing reflecting Burundi’s full reengagement with the international community would significantly alleviate foreign exchange (FX) shortages and improve growth prospects. On the downside, external risks stem from the uncertainty around the intensity and the end of the pandemic and the war in Ukraine and key domestic risks are related to potential delays in implementing policies that underpin the baseline and slower reform progress.

Policy recommendations. Burundi is at high risk of debt distress; and debt is assessed as sustainable contingent on fiscal adjustment and robust export and growth performance. External imbalances have been exacerbated by the pandemic and inward spillovers from the war in Ukraine, with FX reserves coverage below adequacy levels and a large parallel exchange rate market premium (62.5 percent at mid-June 2022). In light of debt vulnerabilities and the weak external position, a multi-pronged policy recalibration is critical, including:

  • Implementing credible revenue-led fiscal consolidation and prudent borrowing to reduce debt vulnerabilities while creating fiscal space to continue executing the authorities’ COVID-19 response plan; catering to social spending needs, while ensuring efficient targeting; and scaling up priority investment to support exit from fragility.

  • Recalibrating exchange rate policy and modernizing the monetary policy framework (MPF), while being attuned to FX-related financial sector vulnerabilities to ensure external sustainability. The MPF objective is price stability, using monetary aggregate targeting. Ongoing capacity development is supporting the authorities’ plan to design a post-unification exchange rate policy and the associated MPF. Although the financial sector remains healthy and exposure to currency mismatches appears limited, it is important to remain vigilant by implementing forward-looking supervision.

  • Calibrating the timing of deferring accommodative monetary policy to address inflationary pressures. This includes preparing to recalibrate supportive monetary policy measures, including liquidity provisions to banks, and wind down the use of the special refinancing windows created during the pandemic with timely signaling to the market. Reducing direct and indirect monetary financing would also help stem inflationary pressures and contain further exchange rate depreciation.

  • Implementing reforms to alleviate bottlenecks to inclusive growth, including improving competitiveness, continuing to prepare audited COVID-19 spending reports, and further enhancing the broader governance framework.

Approved By

Costas Christou (AFR) and Anna Ilyina (SPR)

The mission team comprised of Mame Astou Diouf (head), Jacques Bouhga-Hagbe, Mouhamadou Moustapha Ly, Sotima Jocelyn Koussere (all AFR), and Nikhil Patel (RES). Kristina Miggiani, Nouria El Mehdi, Ron Snipeliski (all LEG), and Pornpinun Chantapacdepong (MCM) attended some meetings. FAD, LEG, MCM, and STA staff participated in outreach meetings. Assistance was provided by Belyse Kwizera and Sydney Munezero (Burundi office), Sandrine Ourigou, Cecilia Prado, Rohan Ahluwalia, and Jorge Guzman (all AFR). Virtual discussions were held during February 24–March 17, 2022, with follow-up discussions on May 27, 2022, and June 1, 2022. The mission met with the Burundian authorities led by Minister of Finance, Budget, and Economic Planification Dr. Domitien Ndihokubwayo and Central Bank Governor Jean Ciza. Staff met with the Chamber of Commerce and Industry, the mining sector regulator, commercial banks and microfinance institutions, nongovernmental organizations, as well as representatives of the civil society and donors. Ms. Ita Mannathoko and Mr. Tamsir Cham (OED) participated in the discussions.

Contents

  • CONTEXT

  • RECENT MACROECONOMIC DEVELOPMENTS

  • OUTLOOK AND RISKS

  • POLICY PRIORITIES

  • CREATING FISCAL SPACE FOR PRIORITY SPENDING

  • ENROUTE FOR EXCHANGE RATE UNIFICATION

  • MONETARY POLICY CHALLENGES AND FRAMEWORK

  • UNLOCKING SUSTAINABLE INCLUSIVE GROWTH

  • OTHER ISSUES

  • STAFF APPRAISAL

  • FIGURES

  • 1. Recent Developments, 2014–22

  • 2. Recent Monetary Developments, 2011–21

  • 3. Fiscal Developments, 2014–21

  • 4. Banking Sector Key Indicators and Trends, 2011–21

  • 5. Growth Developments, 2000–26

  • 6. Selected Social Indicators, 2010–20

  • TABLES

  • 1. Selected Economic Indicators, 2019–27

  • 2a. Central Government Operations, 2019–27 (BIF billion)

  • 2b. Central Government Operations, 2019–27 (Percent of GDP)

  • 3. Monetary Survey, 2019–27

  • 4. Central Bank Accounts, 2019–27

  • 5a. Balance of Payments, 2019–27 (US$ Million)

  • 5b. Balance of Payments, 2019–27 (Percent of GDP)

  • 6. Banking System Soundness Indicators, 2019–21

  • 7. Indicators of Capacity to Repay the Fund, 2019–27

  • 8. Sustainable Development Indicators

  • ANNEXES

  • I. The COVID-19 Pandemic and Authorities’ Response

  • II. External Sector Assessment

  • III. Risk Assessment Matrix

  • IV. Capacity Development Strategy

1

Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

2

At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm.

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Cover IMF Staff Country Reports
Burundi: 2022 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Burundi
Author:
International Monetary Fund. African Dept.
Volume/Issue:
Volume 2022: Issue 257
Publisher:
International Monetary Fund
ISBN:
9798400219122
ISSN:
1934-7685
Pages:
98
DOI:
https://doi.org/10.5089/9798400219122.002