Abstract
Economic growth in Burundi was mainly driven by services before the outbreak of the global health crisis. In 2019, this trend changed, and agriculture took the lead, 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.
Economic Growth, Fragility, And Non-Price Competitiveness1
A. Growth Dynamics
Economic growth in Burundi was mainly driven by services before the outbreak of the global health crisis. In 2019, this trend changed, and agriculture took the lead, 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.
Pre-COVID Drivers of Growth in Burundi
1. Burundi’s economic performance since 2000 has been highly unstable with a tendentially decreasing GDP growth rate. In the 2000s, the country started its economic recovery in the aftermath of multiple waves of civil war, genocide, and political instability. Real GDP growth rate increased from less than 2 percent in 2000 to an average of 5 percent between 2004 and 2014. GDP growth rate fell sharply in 2015 as the result of the economic recession arising from the political and security crisis of 2015 followed by the withdrawal of donor support, and sharp deterioration of living standards. The economy was recovering from this political crisis when it was impacted by the COVID-19 crisis.
2. Prior to the COVID-19 crisis, economic growth was mainly driven by services, 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.
3. 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.
Comparison Peer EAC Countries
4. The comparison of Burundi’s per capita real GDP with that of peer EAC countries including Rwanda, Tanzania, Kenya, South Soudan and Uganda shows that the country has the lowest per capita revenue and despite recurrent political, social and economic crises Burundi has gone through in past years, its per capita GDP has remained stable although tendentially decreasing in the last three years of the projection as real GDP has contracted in 2015 in the aftermath of the political crisis but also as the population growth rate had not declined (Figure 1).
Evolution of Real GDP per Capita, 2005–20
(Constant 2015 USD)
Citation: IMF Staff Country Reports 2022, 258; 10.5089/9798400219238.002.A001
Sources: World Bank WDI and IMF staff estimates.Evolution of Real GDP per Capita, 2005–20
(Constant 2015 USD)
Citation: IMF Staff Country Reports 2022, 258; 10.5089/9798400219238.002.A001
Sources: World Bank WDI and IMF staff estimates.Evolution of Real GDP per Capita, 2005–20
(Constant 2015 USD)
Citation: IMF Staff Country Reports 2022, 258; 10.5089/9798400219238.002.A001
Sources: World Bank WDI and IMF staff estimates.How the COVID-19 Impacted Growth Structure in Burundi
5. The outbreak of the COVID-19 crisis has led to a change in the Economic structure of the country. In 2019, 2020 and 2021, economic growth has become mainly driven by agriculture, although the performance of traditional mainstay of the sector 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. The outbreak of the Global Health Crisis in China impacted the service sector, where the production of hotels, restaurants, transportation companies declined sharply due to reduced business flows with trade partners. During 2019-2021, agriculture provided the largest contribution to overall growth due to above-average harvests and herd restocking.
Baseline Average Real GDP Growth and Sector
(Percent)
Citation: IMF Staff Country Reports 2022, 258; 10.5089/9798400219238.002.A001
Baseline Average Real GDP Growth and Sector
(Percent)
Citation: IMF Staff Country Reports 2022, 258; 10.5089/9798400219238.002.A001
Baseline Average Real GDP Growth and Sector
(Percent)
Citation: IMF Staff Country Reports 2022, 258; 10.5089/9798400219238.002.A001
Growth Accounting Decomposition
6. A growth decomposition shows that the bulk of Burundi’s growth pickup in the 2000s stems from improvements in the capital and Labor stocks. The increase in capital and labor stocks followed broadly improved macroeconomic policies and economic liberalization through the mid-2010s and the significant improvement in life expectancy at birth. Also, negative TFP growth weighed on GDP, in particular in the aftermath of the political crisis leading to negative GDP growth rate in 2015 and 2016. Thus, enhancing human and physical capital with well-conceived reforms and programs, and improving health conditions will promote private sector development, enhance productivity, and boost economic growth.
Growth Accounting, 2000–19
(Percent change over previous year)
Citation: IMF Staff Country Reports 2022, 258; 10.5089/9798400219238.002.A001
Sources: Penn World Tables, WEO, and IMF Staff CalculationsGrowth Accounting, 2000–19
(Percent change over previous year)
Citation: IMF Staff Country Reports 2022, 258; 10.5089/9798400219238.002.A001
Sources: Penn World Tables, WEO, and IMF Staff CalculationsGrowth Accounting, 2000–19
(Percent change over previous year)
Citation: IMF Staff Country Reports 2022, 258; 10.5089/9798400219238.002.A001
Sources: Penn World Tables, WEO, and IMF Staff CalculationsGrowth-Supporting Policies
Burundi has implemented several growth-enhancing policies to support economic activities, including during the COVID-19 pandemic.
7. Burundi’s 2018–27 development plan (Plan National de Développement, PND) In the aftermath of the 2015 crisis that has further fragilized the Burundian economy, the authorities have developed and adopted in 2018 a ten-year National development plan. The long-term objective of this plan is to restore the structural balances of the economy through: (i)The strengthening of food self-sufficiency and the diversification of export through the promotion of agro-industrial, commercial, and extractive businesses. (ii) The development of the energy and artisanal sectors, (iii) The construction and maintenance of growth support infrastructure; (iv) Improving access to basic social services, in particular education, health and social protection, (v) The continuation of environment protection and territory development; (vi)-Improving financial governance and decentralization; (vii) The development of regional and international partnership. A great emphasis is given to the primary and tertiary sectors by the authorities in their development plan as they see these sectors as of high growth potential for Burundi’s future. Also, reforms in the secondary sector are underway to make the government draw more resources from its mining and industrial sector
Agricultural Programs
8. 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
9. 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 Sector
10. 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.
B. Drivers of Fragility2
Burundi is considered as a fragile state as the country has gone through several years of armed conflicts that have led to important economic and human losses and thousands of displaced families. The country was isolated for years in terms of international relationships and is among the poorest countries in the world. However, local authorities are currently making substantive efforts to make the country move out of fragility.
Burundi’s State of Fragility
11. Burundi is considered a fragile state (FS) due to its political background, challenges in economic and public sector management, structural policies, and social inclusion and equity. Its average CPIA score was at 2.9 in 2019, well below the 3.2 threshold, reflecting the complex dimension of the country’s fragility. Compared to the average of Sub-Saharan African countries and peer fragile countries3, Burundi has a better score for structural policies and policies for social inclusion and equity and a worse score for economic management and public sector management and institutions.
Climate Shocks, Agriculture, and Real GDP, Growth, 2000–20
Citation: IMF Staff Country Reports 2022, 258; 10.5089/9798400219238.002.A001
Sources: EM-DAT; IMF WEO; and IMF Staff Calculations.Climate Shocks, Agriculture, and Real GDP, Growth, 2000–20
Citation: IMF Staff Country Reports 2022, 258; 10.5089/9798400219238.002.A001
Sources: EM-DAT; IMF WEO; and IMF Staff Calculations.Climate Shocks, Agriculture, and Real GDP, Growth, 2000–20
Citation: IMF Staff Country Reports 2022, 258; 10.5089/9798400219238.002.A001
Sources: EM-DAT; IMF WEO; and IMF Staff Calculations.12. The origins of Burundi’s fragility are historical, political, and institutional, leading to weak economic performance for the country. The country had gone through several ethnic wars and political instabilities for decades prior to the 2015 political crisis, which has further deteriorated the country’s economic, social, and humanitarian indicators. Specifically, the drivers of Burundi’s fragility can be classified as follows:
Historically, Burundi has gone through several waves of political instability and cycles of violence. For years, political power was contested between the two main ethnic groups in the country, the Hutu and the Tutsi with frequent clashes and coup d’états, leading to thousands of deaths, displaced families, and destruction of public infrastructure. In 2015, political violence resumed, leading to a further deterioration of economic, social, and humanitarian indicators in the country. The Arusha Peace and Reconciliation Agreement signed in August 2000 succeeded in bringing an end to a long episode of civil war between 1993 and 2003.
The Burundian economy is highly dependent on rain-fed agriculture and vulnerable to climate shocks. The agricultural sector, mainly fed by rain, contributes 30 percent of the country’s GDP, and employs around 90 percent of labor force. This heavy dependence on rain-fed agriculture increases the country’s humanitarian, social, and macroeconomic vulnerabilities to rising temperatures and extreme weather shocks. Climate change has increased the frequency and severity of floods and droughts in recent years, leading to food insecurity and increased poverty in certain regions.
Institutional and Governance weaknesses. Several years of civil war have considerably limited the extent to which civilian institutions could be developed. Public sector governance has been poor driven by corruption and patronage rather than meritocratic criteria. Corruption, abuses of the judicial system, lack of security and of access to the judicial system, and criminality are all major concerns arising from institutional and governance weaknesses (World Bank, 2018).
UN Conflict Resolution, Repatriation of Refugees, and the Authorities’ Efforts
13. The UN is playing a crucial role in the conflict resolution process in Burundi. During the civil unrest that erupted on April 26, 2015, in Bujumbura, more than 325,600 Burundian refugees fled the country, and some 82,100 Burundian refugees sought asylum in the local region (Kenya, Mozambique, Malawi, South Africa and Zambia)3. However, as part of the resolution process, as of November 2020, the United Nations High Commissioner for Refugees (UNHCR) has facilitated the return of 102,761 Burundians since the start of the voluntary repatriation process of Burundian refugees that begun since September 2017.
14. The government is taking steps to address possible human right violations. Burundi has been subject to human rights violation in recent years, according to the reports of most international human rights defense organizations. In 2020, Amnesty International published that unlawful killings, arbitrary arrests, enforced disappearances and sexual violence were carried out in Burundi, mainly against perceived political opponents. The Burundian government is making efforts to address this situation. ?More than 5,200 prisoners including human rights defenders have been released in March 2021, to unclog prisons and improve the conditions of detention of overcrowded prisons according to a presidential decree. The Government has made significant strides in the combat against human trafficking. Over the past year, the Government has significantly increased investigations and prosecutions of suspected trafficking offenses, convicted traffickers, and referred victims for assistance. The country has also institutionalized anti-trafficking training for law enforcement, prosecutors, and judicial officials.
15. More efforts are needed to move the country out of fragility. Focus on investing in the country’s long-term peacebuilding would be key. Transparency, social equity, the fight against corruption are all major actions needed to ensure political stabilization. Also, special attention should be devoted to building a stronger and more resilient economy. The development of the private sector is the stumbling block that will allow to create opportunities for sustainable and peaceful livelihoods for more Burundians. Taking measures to boost agricultural productivity while making it more resilient to climate shocks and climate change is also vital in this process.
Recent Security Improvements
16. Burundi has experienced security incidents in recent years leading the government to take security measures. Several grenade attacks occurred in the localities of Vugizo, Mutimbuzi District, Bujumbura Rural and many other strategic locations in Bujumbura such as the airport, involving several killings. Officials claimed that most of the attacks had a terrorist motive while some incidents were revendicated by rebel groups such as the Red Tabara with political motives: assailants tend to target security personnel, entertainment venues, and the residences of local nationals. The current government has put security at the top of its agenda, engaged in dialog with opposition groups, and intensified efforts to increase security in Bujumbura and main cities.
Standards of Living and Social Conditions
17. Living standards are challenging in Burundi (Staff Report Figure 6). 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 the 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.
18. 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.
19. Despite extensive efforts of the government to improve the health system, it is still fragile and not well positioned to handle large waves of the COVID pandemic. Before 2019, There were 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 shock4. However, the other households suffered a net income loss that may threaten hard-won improvements in living standards. Important efforts have been done in recent years to better equip the health system, to handle the global health crisis, however, even more is needed to improve the country’s sanitation system.
Adaptation to climate change
20. Adaptation to climate change has always been an important goal both for the population and the government. Traditionally, Burundian farmers and breeders have always tried to adapt to climate change through new practices, including (i) the culture of tubers (cassava, sweet potatoes) more resistant to extreme climates, (ii) sowing staggering to prevent climate related losses, (iii) the preservation of harvest in granaries to guard against lean seasons and guarantee food security at the family level, and (iv) the practice of transhumance for breeders. Many efforts of the government for reforestation programs have ended in failure especially during the waves of crises with more than 30.000 ha of forest destructed.5
21. Several climate change mitigation and mitigation plans have been elaborated, including:
The “Plan d’Action National d’Adaptation au changement climatique (PANA)” which aims to improve seasonal climate forecast for early warning signal, strengthen the management of existing protected areas and natural ecosystems and identify and promote drought-resistant forest species.
The “Plan d’Action pour la Gestion Integrée des Ressources en Eau (PAGIRE)” aiming at achieving the government vision for water sector by promoting and implementing a strategic framework based on legal and regulatory reforms the education of the population on water resource management.
The “ Stratégie Nationale et Plan d’Action en matière de diversité Biologique (SNPA-DB)” which main goal is to arouse the population awareness on the importance of the conservation of biological diversity and the sustainable use of biological resources as well as their integration in schools’ curricular.
C. Non-Price Competitiveness
Analysis of overall Macroeconomic Competitiveness measured by four selected pillars of the Global Competitiveness Index of the World Economic Forum including Infrastructure, Macroeconomic stability, product market and financial system, shows that Burundi ranks low in competitiveness. Identifying the basic bottlenecks is an important step to boost the country’s production and competitiveness.
Analysis of Burundi’s Competitiveness
22. After several years of instability in Burundi substantive efforts to improve competitiveness have been made. However, overall macroeconomic competitiveness is still lagging. The comparison of Burundi with peer countries including Rwanda, Tanzania, and sub- Saharan Africa, based on four indicators of Macroeconomic competitiveness selected among the main pillars of the Global Competitiveness Index (GCI) shows that Burundi is lagging behind all peer countries on all four indicators. The economy ranks low on infrastructure, macroeconomic stability, product market and financial system. With the lowest competitiveness scores (Figure 5), Burundi has to face the bottlenecks to its economy to be able to boost its overall macroeconomic performance.
Overall Macroeconomic Competitiveness in 2019
(Score out of 100; higher is better)
Citation: IMF Staff Country Reports 2022, 258; 10.5089/9798400219238.002.A001
Sources: World Economic Forum, 2019Overall Macroeconomic Competitiveness in 2019
(Score out of 100; higher is better)
Citation: IMF Staff Country Reports 2022, 258; 10.5089/9798400219238.002.A001
Sources: World Economic Forum, 2019Overall Macroeconomic Competitiveness in 2019
(Score out of 100; higher is better)
Citation: IMF Staff Country Reports 2022, 258; 10.5089/9798400219238.002.A001
Sources: World Economic Forum, 201923. Key bottlenecks to Burundi’s competitiveness, include climate shocks, energy and water constraints, and public management inefficiencies.
Climate shocks. Climate shocks are frequent in Burundi in forms of floods, river overflows, long droughts, and irregular rain seasons. Such natural disasters reduce crop yields, and intensify crop volatility, resulting in lower agriculture productivity. Higher temperatures induced by climate change could also reduce productivity including a fall in both labor supply and workers’ output. In addition, these effects will likely exacerbate poverty by the fact that the effects of climate change will disproportionally penalize farmers in developing countries that depend on producing staples for their livelihoods.
Energy. Burundi’s access to electricity is one of the lowest in Sub-Saharan Africa, even- though the country’s cost of generation is considered relatively low as compared to its neighboring countries. Furthermore, most of Burundi’s installed capacity, is mostly hydropower-based, and renewable energy potential is still to be tapped. The energy constraint is one of the main bottlenecks for growth and macroeconomic competitiveness for Burundi.
Water. Burundi’s economy relies on a rain-based agriculture. With the exacerbation of climate change these recent years in the region, the irregularity of rain seasons is increasingly leading to water shortages. And water shortage has proven to have an extremely negative effect on productivity not only in agriculture, but also for smelting, chemical and mining activities.
