Background

Real GDP growth is estimated to have increased to 4.2 percent in 2011. After decelerating to 15 percent (y-o-y) toward end-2011, headline inflation rose sharply in March 2012 to 24.5 percent (y-o-y) owing to a rise in rents, utility tariffs, and higher food prices. It has since eased slightly to 22.7 percent in May 2012.

Growth in broad money decelerated to about 4.7 percent (y-o-y) in April 2012 following tighter monetary conditions as policy rates rose by 350 basis points to 14 percent in May 2012. Credit to the private sector after peaking at 40 percent at end-2011 slowed to 28 percent (y-o-y) at end-April 2012 in the face of tighter liquidity conditions. Banks were able to sustain credit growth despite a decline in deposits, in part through a drawdown in excess reserves.

While revenues and expenditure were broadly in line with the program, the deficit in 2011 was higher than expected due to the late disbursement of the World Bank budget support operation. Revenues through end-May 2012 were lower than expected by (0.5 percent of GDP), owing to a fall in collections of excise taxes and the granting of exemptions. To limit the impact of inflation on the poor, the government eliminated taxes on food products on May 1 until end-2012.

Executive Board Assessment

Executive Directors commended the Burundian authorities for progress in implementing their Fund-supported economic program in a difficult post-conflict environment. However, Directors considered that the external and internal risks weighing on the outlook called for a faster pace of fiscal and structural reforms, and encouraged the authorities to persist in their prudent approach to macroeconomic management.

Directors agreed that continued progress in implementing revenue reforms is essential in light of recent fiscal slippages and the decline in donor assistance. In particular, they encouraged the authorities to widen the tax base, strengthen revenue administration, and overhaul the fuel pricing mechanism. Directors commended the authorities for taking sizable corrective fiscal measures to keep the program on track but stressed the need to better align spending priorities in view of resource constraints.

Directors emphasized the importance of pursuing public financial management reforms in order to foster greater transparency and accountability, and to strengthen institutional capacity. They also noted that, despite improvements in the budget framework, significant gaps remain in debt management and Burundi remains vulnerable to debt distress. In this context, continued reliance on grants and highly concessional loans remains a priority.

Directors considered that additional monetary policy tightening will be warranted if inflationary pressures do not subside in the period ahead. They called for further monitoring of risks to the financial sector stemming from rising interest rates and an unfavorable external environment.

Directors acknowledged that greater exchange rate flexibility has helped the economy adjust to external shocks. They underscored the need to further enhance Burundi's competitiveness by strengthening the business climate, improving the electricity supply, and reducing transportation costs.

Directors concurred that Burundi's statistical base still suffers from shortcomings that hamper policy design and evaluation. In particular, they encouraged the authorities to improve capacity in the preparation of national accounts, balance of payments data, and consumer price indices.

Burundi: Selected Economic and Financial Indicators, 2010–15

2010 2011 2012 2013 2014 2015

Prel. Proj.

(Annual percentage change)

National income and prices

Real GDP growth

3.8 4.2 4.2 4.5 5.1 5.5

GDP deflator

12.3 14.3 15.2 11.1 7.2 5.8

Consumer prices (period average)

6.4 9.7 19.6 6.4 7.4 6.3

Consumer prices (end of period)

4.1 14.9 14.7 8.4 6.1 6.4

External sector

Exports, f.o.b. (US$)

48.0 22.5 3.1 0.2 -1.0 9.3

Imports, f.o.b. (US$)

105.3 3.7 -2.9 3.5 1.2 3.7

Export volume

16.4 0.4 30.4 5.4 -3.9 14.8

Import volume

145.1 -22.6 0.8 7.9 2.8 4.6

Terms of trade (deterioration = –)

51.7 -8.9 -17.9 -1.0 4.6 -4.0

(Change in percent of beginning of period M2,

unless otherwise indicated)

Money and credit

Net foreign assets

-5.4 -12.1 -0.6 6.1 -0.8 7.6

Domestic credit

25.1 30.7 28.6 14.6 23.3 11.4

Government

7.4 8.0 5.4 2.6 2.2 2.2

Private sector

17.0 24.1 23.3 12.5 21.1 9.1

Money and quasi-money (M2)

19.4 6.1 18.4 16.1 12.7 11.6

Reserve money (12–month growth rate)

5.7 0.6 28.1 9.3 16.4 13.3

(Percent of GDP)

General government

Revenue and grants

37.3 36.1 30.8 30.4 29.9 28.6

Tax and nontax revenue

14.6 15.4 15.1 15.5 15.6 15.6

Total expenditure

41.0 40.0 33.6 34.9 34.8 32.5

Net lending (+) / borrowing (-)

-3.6 -4.0 -2.7 -4.6 -4.9 -3.9

External sector

Current account balance

-9.4 -12.3 -11.6 -11.0 -10.8 -11.1

Overall balance of payments

0.7 -1.6 -0.3 -0.3 -2.2 -0.9

(Percent of GDP)

Savings-investment balance

-9.4 -12.3 -11.6 -11.0 -10.8 -11.1

Private

-5.8 -8.3 -8.8 -6.5 -5.9 -7.2

Public

-3.6 -4.0 -2.7 -4.6 -4.9 -3.9

External sector

Gross official reserves (US$ million)

332 296 288 319 308 342

Months of imports

4.4 4.0 3.8 4.2 3.9 4.7

Debt-service to exports ratio (percent)

1.4 3.3 3.8 7.2 10.6 13.1

Memorandum item:

Nominal Exchange rate (BIF/USD)

1231 1261 … … … …

GDP at current market prices (BIF billion)

2495 2971 3566 4138 4663 5203

Nominal GDP per Capita (US Dollars)

242 255 289 311 332 349

Sources: Burundi authorities; IMF staff estimates and projections.

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. 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.