Public Information Notice: IMF Concludes Article IV Consultation with Burundi

January 28, 1999

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

On January 8, 1999, the Executive Board concluded the Article IV consultation with Burundi1.


Economic and financial developments in Burundi during 1997-98 took place in an environment of a steadily improving security situation and steps taken toward national reconciliation aimed at ending the now five-year old civil conflict. On January 23, 1999, the economic sanctions that had been imposed on Burundi by neighboring states in 1996 were suspended.

In 1997 there was a reversal of the four-year decline in overall economic activity (of a cumulative 22 percent), and the pickup in activity strengthened in 1998, with growth in real GDP estimated at 4½ percent. Moreover, the rate of consumer price inflation decelerated to an estimated 17 percent in 1998 from 31 percent in 1997. However, government revenue fell further from 15½ percent of GDP in 1996 to an estimated 12½ percent in 1998, while foreign grants declined to less than 3 percent of GDP. Thus, despite a further reduction in total government expenditure from 28 percent of GDP in 1996 to an estimated 19 1/3 percent in 1998, the overall deficit (on a commitment basis and including grants) was 5 1/3 percent of GDP in 1997 and is estimated at 4 1/4 percent in 1998. Excluding grants, the deficit was 8½ percent of GDP in 1997 and is estimated at 7 percent in 1998. The financing requirements of the government continued to be met largely by domestic bank borrowing and an accumulation of domestic and external payments arrears.

The expansion in bank credit to the government in 1997 was equivalent to 20 1/3 percent of beginning-of-period broad money supply, and, in 1998, it was estimated at the equivalent of 6 percent of the end-December 1997 broad money supply. In addition, in 1998 credit to the private sector is estimated to have increased by the equivalent of some 20 2/3 percent of beginning-of-period broad money supply. Over the past two years, the Bank of the Republic of Burundi has taken only minimal action to contain the expansion in credit, raising its refinancing rate in November 1997 from 10 percent to 12 percent. Real interest rates have remained negative, and there are relatively large spreads between bank lending and deposit rates. Moreover, the proportion of nonperforming loans is a source of concern.

External sector developments during 1997-98 were marked by a continuing decline in Burundi’s foreign reserves and a further accumulation of payments arrears, notwithstanding a still unsustainably low level of imports: export earnings from coffee were particularly depressed in 1998; official transfers were only about one-third of their historic average; program loans were nil; and there was another particularly large private capital outflow in 1997. By end-September 1998, Burundi’s gross official foreign reserves had fallen to some US$75 million and amounted to just over one-third of their end-1995 level.

In response to these adverse developments, the authorities have made more frequent adjustments in the exchange rate of the Burundi franc, and the Bank of the Republic of Burundi has reimposed a number of restrictions on current payments and transfers. Moreover, Burundi, whose stock of external debt and debt–service burden in 1998 are estimated at about 123 percent of GDP and 58 percent of exports of goods and services, respectively, has been accumulating arrears vis-à-vis its bilateral and multilateral creditors (excluding the Fund, the World Bank, the African Development Bank, and the International Fund for Agricultural Development); these arrears are estimated at US$70 million at end-1998.

Executive Board Assessment

Executive Directors welcomed the reversal of the four-year decline in Burundi’s overall economic activity and the recent marked deceleration in the rate of inflation as positive developments that reflected an improving security situation and the steps taken toward national reconciliation. Directors recognized that Burundi’s ability to move to a path of sustained economic growth with domestic and external viability would require a peaceful resolution of the ongoing civil conflict, the lifting of economic sanctions imposed by neighboring states, and the resumption of full-fledged donor support. They nevertheless expressed concern about the increasingly unsustainable fiscal position, the serious erosion in the foreign exchange position, the reimposition of exchange restrictions on current payments and transfers, and the buildup of payment arrears. They urged the authorities to pursue, to the extent possible in the present difficult circumstances, wide-ranging policy adjustments and reforms aimed at providing lasting improvements in the country’s economic, financial, and social situation.

Directors stressed the need to gain control over and reduce the fiscal deficit. To this end, the authorities would need to expand the tax base, adjust some tax rates, further improve tax and customs administration, and significantly reduce tax exemptions, while containing the government wage bill and nonpriority outlays on goods and services. They emphasized, in particular, that military spending should be curtailed as the security situation improved, so as to make room for much-needed outlays on health and education. At the same time, the transparency of governmental financial operations should be enhanced by fully accounting for all extrabudgetary revenue and expenditure.

As a necessary complement to strengthened fiscal policies, Directors encouraged the authorities to restore the independence of monetary policy, with the aim, inter alia, of promoting positive real interest rates and reducing inflation. This would require a substantial reduction in bank financing of the fiscal deficit; a significant increase in the central bank refinancing rate; strict enforcement of required reserve ratios and the penalty rate for nonadherence; and a curtailment of the unlimited access of commercial banks to central bank refinancing. A few Directors cautioned that the needed tightening of monetary policy should be carried out in such a way as to protect the recovery in economic activity. In view of the relatively high level of nonperforming loans in the financial sector, Directors stressed the need for tightening supervision, by requiring regular audits and observance of prudential ratios, and establishing provisioning requirements and adequate capital bases.

Directors commended the authorities on their recent management of a flexible exchange rate policy, and urged them to support it with strengthened fiscal and monetary policies and structural reforms, so as to safeguard Burundi’s competitiveness. Directors encouraged the authorities to reduce the present high import tariff levels, rescind the recent increase in the coffee export tax, and establish a time frame for the removal of the restrictions on current transactions as soon as possible. They also encouraged a strengthening of trade relations with neighboring countries in the context of the Cross-Border Initiative. Directors considered it particularly important for Burundi to continue to service fully its debt to major multilateral creditors and to regularize its relations with other external creditors.

Noting the limited progress in effecting structural reforms, Directors suggested that priority be given to a far-reaching liberalization of the coffee sector, which could include the privatization of some of its operations, and to the reform of loss-making public enterprises, including through the establishment or strengthening of existing performance contracts, which could enhance prospects for later privatization.

Directors encouraged the authorities to work closely with Fund staff to lay the basis for eventual Fund financial support, but they stressed that emergency post-conflict assistance would require, in addition to sufficiently stable security and political conditions, a minimum institutional and administrative capacity for policy planning and implementation, a demonstration of the authorities’ commitment to adjustment policies, and a concerted effort to provide sufficient resources on the part of the international donor community.

Burundi: Selected Economic and Financial Indicators, 1994–98

1994 1995 1996 1997 1998
Est. Est.

(Annual percentage change)
Domestic economy
GDP at constant market prices -3.7 -7.3 -8.4 0.4 4.5
Consumer prices (period average) 14.9 19.4 26.2 31.1 17.0
(In millions of U.S. dollars)1
External economy
Exports, f.o.b. 80.7 112.5 40.1 87.3 49.3
Imports, f.o.b. -172.6 -175.6 -100.0 -97.9 -102.6
Current account (including official transfers) -18.6 -4.9 -39.6 8.6 -33.3
(in percent of GDP) -2.0 -0.5 -4.4 0.9 -3.4
Overall balance 43.8 2.4 -83.0 -31.3 -25.3
Gross official reserves 213.9 215.3 144.7 117.3 108.2
(in months of imports, c.i.f.) 8.2 7.8 10.8 9.6 8.6
Change in real effective exchange rate (in percent)2 7.2 5.6 2.5 18.9
(In percent of GDP)1
Financial variables
Revenue and grants 20.5 21.3 17.8 16.8 15.2
Total expenditure and net lending 24.8 26.1 27.9 22.2 19.4
Current primary fiscal balance 1.9 0.7 -2.4 -1.6 -1.0
Overall fiscal balance
Including grants -4.3 -4.9 -10.1 -5.4 -4.2
Excluding grants -6.7 -8.5 -12.4 -8.5 -6.9
Change in broad money (in percent) 35.0 -4.5 14.4 10.4 12.2
Interest rate (in percent)3 10.1 9.5 9.1 9.3 9.6

Sources: Burundi authorities; and IMF staff estimates.

1Unless otherwise indicated.
2Bilateral trade-weighted period averages; a negative sign signifies a depreciation.
3Twelve-month deposit rate.

1Under 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 directors, and this summary is transmitted to the country's authorities. In this PIN, the main features of the Board's discussion are described.


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