Burundi and the IMF

Press Release: IMF Approves US$13 Million in Emergency Post-Conflict Assistance for Burundi

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Burundi—Letter of Intent, Memorandum of Economic and Financial Policies, and Technical Memorandum of Understanding

Bujumbura, September 19, 2002

The following item is a Letter of Intent of the government of Burundi, which describes the policies that Burundi intends to implement in the context of its request for financial support from the IMF. The document, which is the property of Burundi, is being made available on the IMF website by agreement with the member as a service to users of the IMF website.

Mr. Horst Köhler
Managing Director
International Monetary Fund
Washington, D.C. 20431

Dear Mr. Köhler,

1. Burundi endured from 1993 onward a period of civil war that resulted in widespread loss of human life, major displacements of population, and the destruction of part of the productive infrastructure. Following the conclusion in August 2000 of the Peace and Reconciliation Agreement in Arusha (Tanzania), the national unity government appointed in November 2001 undertook to establish conditions conducive to lasting peace. Despite the government's efforts and the mediation of foreign partners, it has not yet been possible to conclude a cease-fire agreement. Negotiations are under way, with the facilitation of several African countries and the international community, to conclude such an agreement as soon as possible.

2. The implementation of the Peace and Reconciliation Agreement is taking place against a background of serious economic difficulties, in particular those posed by a sharp fall in the terms of trade. The drop in world coffee prices has resulted in a major contraction in foreign exchange earnings, while foreign assistance has remained at modest levels, well below the amounts Burundi used to receive in the early 1990s.

3. The Burundi government's program for 2002-03 is summarized in the attached memorandum. This program aims, on the one hand, to address the immediate needs of security, humanitarian aid, and the rehabilitation of basic infrastructure, and, on the other hand, to improve the macroeconomic environment to promote a resumption of stable economic growth. Major elements of the economic and financial program include the strengthening of fiscal policy, the launch of major reforms of the exchange system and efforts to normalize relations with external creditors.

4. In support of this program, the government of Burundi requests a drawing from the IMF under the emergency post-conflict assistance policy in an amount equivalent to SDR 9.625 million (12.5 percent of quota). As program implementation proceeds during the next few months, the government plans to request further support from the IMF, in the same amount, by early 2003. Satisfactory implementation of the program would in turn open the way for adopting a medium-term program aimed at reducing poverty and promoting strong and sustainable economic growth, which could be supported by an arrangement under the Poverty Reduction and Growth Facility (PRGF).

5. The government believes that the economic and financial policies presented in the attached Memorandum are adequate to address the difficulties faced by Burundi and achieve the objectives of the program. In any event, it will consult with IMF staff on the adoption of additional measures, should this prove to be necessary in the course of the program period. In addition, the government will report to IMF staff all information necessary to monitor program developments.

Sincerely yours,

/ s /

Édouard Kadigiri
Minister of Finance

/ s /

Grégoire Banyiyezako
Governor, Bank of the Republic of Burundi

Memorandum of Economic and Financial Policies for 2002-03
Technical Memorandum of Understanding

Memorandum of Economic and Financial Policies for 2002-03

September 19, 2002

Use the free Adobe Acrobat Reader to view Tables 1-4 (PDF 92 KB).

I. Introduction

1. After a difficult period of internal armed conflict during 1993-2000, the signing of the Arusha Peace and Reconciliation Agreement on August 28, 2000 opened the way for a normalization of the situation in Burundi. Despite the absence so far of a cease-fire agreement, the setting up of institutions and the adoption of multiple measures envisaged in the Arusha agreement are under way. Thus, the National Assembly and the Transition Senate, established in December 2001 and February 2002, respectively, comprise representatives from nearly all signatories of the agreement; in addition, several commissions were set up with the participation of the various parties concerned. The resumption in August 2002, of cease-fire negotiations with the participation of all major parties in the conflict opened encouraging prospects for the consolidation of the peace process.

2. The economic difficulties stemming from the conflict have been aggravated by the drop in the terms of trade, resulting especially from the fall of world coffee prices (the main foreign exchange earner), which have more than halved since 1999. Since 1992, GDP per capita has fallen by almost 30 percent in real terms, and social conditions have seriously deteriorated. It is estimated that two-thirds of the population lives in absolute poverty, including more than one million Burundians internally displaced or in refugee camps in neighboring countries. In addition, the spread of HIV/AIDS, which already affects 12 percent of the population, has strained the national health system while the deterioration of the national education system has caused an increase in illiteracy. Against this difficult background, humanitarian assistance from the international community remains crucial to improve living conditions in support of the implementation of the Arusha agreement.

3. The government of Burundi is aware of the challenges ahead, and is determined to implement the measures required to strengthen economic policies and lay the groundwork for a resumption of sustainable growth. To this end, it requests the support of the international community to ensure the consolidation of proper conditions for peace and economic recovery.

II. Recent Economic Developments

4. The implementation during the second half of 2001 of a staff-monitored program was hampered by the continuation of hostilities and political uncertainties resulting from delays in appointing a government of national unity, which did not take place until November 2001. Notwithstanding substantial humanitarian aid and the resumption of project aid, these developments prevented the disbursement of program assistance, as had been envisaged at the donors' roundtables in Paris in December 2000 and Geneva in December 2001. Thus, the low level of external support aggravated the external payments difficulties caused by the fall in coffee prices. In this very difficult environment, and despite the governments' efforts, performance relative to program objectives was broadly unsatisfactory. Most of the quantitative indicators for end-September and end-December 2001 were not observed (Table 1); however, six of the nine structural targets were implemented (Table 2).

5. Economic activity began to recover in 2001, with real GDP growing by 2.1 percent despite a major reduction in coffee output. This recovery continued during the first half of 2002, buoyed in particular by the initial resettlement of refugees and the reconstruction projects under way. Coffee output doubled from the level of the 2001/02 crop year while the increase in subsistence agriculture dampened the pressures on prices. Despite the depreciation in the Burundi franc, the 12-month rate of inflation excluding foodstuffs fell from 24 percent in June 2001 to 15 percent in December 2001 and to less than 2 percent in June 2002. The external current account deficit (excluding grants) widened slightly to 16.2 percent of GDP in 2001, mainly owing to the fall in coffee export revenue (of 32 percent, in dollar terms). While world prices for arabica coffee were on the order of US$1.10 per pound in 1999, prices for the 2001/02 crop year have averaged US$0.50 per pound.

6. The fiscal situation was kept under control during the first half of 2001 but deteriorated toward the end of the year. Government revenues remained below target as regards both taxes on domestic activity and international trade, although they remained relatively high overall (at about 20 percent of GDP). Expenditures exceeded the projections, owing to additional needs to ensure national defense and security, and to cover the deficit of the coffee sector. As a result, the primary budget surplus (excluding externally financed investment) was relatively low, at the equivalent of 1.1 percent of GDP in 2001, compared with 2.7 percent in 2000 and a program objective of 4.1 percent. Given the low level of external budgetary support, and despite bank financing in excess of program targets, the government was unable to service its external debt as planned, and it accumulated arrears totaling about US$23 million.

7. In 2001, the Bank of the Republic of Burundi (BRB) extended large advances to the government while bank refinancing fell. The BRB's net domestic assets rose by FBu 10 billion, equivalent to 27 percent of base money at end-2001. Meanwhile, net foreign assets declined by approximately the same amount, equivalent to US$9.5 million, and net official reserves fell to less than six weeks of imports at end-2001. During the first half of 2002, central bank credit to the government continued to increase, and bank refinancing rose even faster in response to the financing needs of the coffee sector, which, in turn, led to a further decline in net foreign assets on the order of US$10 million.

8. Following the unification of the foreign exchange market in July 2000, the BRB began sporadic sales of foreign exchange on the auction market (marché des enchères en devises). Available resources, however, were insufficient to satisfy demand, and the central bank had to resort to administrative measures to contain pressures on the exchange rate. The depreciation of the Burundi franc vis-à-vis the U.S. dollar was about 11 percent (in local currency terms) in 2001 and another 2 percent in the first half of 2002. During this period, the parallel market premium remained generally at 30-35 percent, but it rose to 40 percent in July 2002.

III. Objectives and Strategies of the 2002-03 Post-Conflict Program

9. To address Burundi's economic and financial difficulties and establish the basis for a significant improvement in living conditions, the government has prepared a program for 2002-03, for which it is requesting IMF support under its emergency post-conflict assistance policy. The program's main objectives are to (a) address the urgent needs for humanitarian assistance and the implementation of the peace process; (b) ensure a minimal functioning of basic infrastructure; (c) strengthen the institutions that are essential for economic activity; and (d) pursue economic liberalization to increase efficiency, stimulate supply, and promote growth and welfare.

10. The government's objectives stem from the political and social choices underscored in the Arusha agreement. These objectives include political pluralism, democracy, and social peace; the withdrawal by the state from competitive sectors; and free markets. The implementation of this program requires determined support from the international community, not only as regards the mediation with the parties that have not yet joined the Arusha agreement and the monitoring of the implementation of the agreement, but also the provision of humanitarian and financial aid required to achieve program objectives. In this context, the government maintains a close dialogue with its international partners: (a) political and security issues are addressed in cooperation with the countries in the subregion, and with the support of the African Union and the UN; (b) humanitarian aid is coordinated with the specialized UN agencies, the European Union, bilateral donors, and nongovernmental organizations; and (c) economic and financial assistance is led jointly by Belgium and France, in coordination with the staffs of the IMF and the World Bank, and in collaboration with the European Union and United Nations Development Program (UNDP).

11. To achieve its economic recovery objectives, the government will aim at (a) restoring macroeconomic equilibrium; (b) improving economic policy instruments, notably by introducing reforms in the areas of monetary and exchange rate policies; (c) strengthening the management of public finances, so as to steer expenditure toward the social sectors, especially primary education and basic health care; (d) improving the business climate and fostering the agricultural sector; (e) rehabilitating and developing basic infrastructure; (f) fighting poverty through job creation, especially for the young; and (g) promoting economic diversification and integration in the subregion. Progress in these areas has been achieved under the SMP and will be consolidated under the program for 2002-03.

12. Continued growth in 2002 is expected to result in an increase of real GDP of 3.6 percent, owing mainly to favorable weather conditions. With the resumption of investment and the improvement in the global environment, growth could accelerate in 2003 to 5 percent. The external current account deficit (excluding official grants) would narrow slightly to 15.7 percent of GDP in 2002 (against 16.2 percent in 2001), taking into account the doubling of coffee output and good prospects for tea output. However, the return of coffee production to more normal levels and higher imports should translate into an increase in the external current account deficit to 19.4 percent of GDP in 2003. The government aims at keeping the average inflation rate at about 8 percent in 2002 and 2003 through an appropriate monetary policy. The 12-month rate of inflation is projected to fall to 5 percent at end-2003.

13. In the short run, the main program objectives are to bring the budget deficit under control, initiate the normalization of relations with foreign creditors, and improve monetary and exchange rate management. The implementation of flexible and rational policies is expected to improve the allocation of available resources while allowing the reconstitution of the BRB's foreign exchange reserves. To achieve the restoration of a sound macroeconomic and financial framework, Burundi will continue to need foreign assistance on a large scale to fund its development plans.

A. Fiscal Policy

14. The 2002-03 program envisages the allocation of resources to address the needs for emergency humanitarian assistance, reconstruction, and reintegration, taking into account financial constraints. The program provides for the full servicing of nonreschedulable debt, while comprehensive efforts to normalize relations with all creditors will be undertaken at a subsequent stage. In addition, fiscal management should support the central bank's policies, so as to contain inflationary pressures and reestablish confidence among economic agents.

15. The program's objectives are in line with the projections of the revised 2002 budget adopted by the National Assembly on August 27, 2002. The primary budget surplus (excluding foreign-financed investment) is projected to increase from 1.1 percent of GDP in 2001 to 1.8 percent in 2002 and 3.2 percent in 2003. To this end, the decline in revenue collections relative to GDP (19.6 percent in 2002, compared with 20.0 percent in 2001) will be offset by a reduction in primary expenditure. For 2003, revenue would increase while expenditure would stabilize relative to GDP. The overall deficit, on a commitment basis, excluding grants, would narrow from 6.8 percent of GDP in 2001 to 6.2 percent in 2002 and 5.6 percent in 2003. Inclusive of grants, the deficit would decline even more in view of the expected recovery in budgetary assistance.

16. Aggregate government revenue remains high, despite the impoverishment of the population and the reduced level of economic activity. The relative decline in collections during 2002 reflects mainly the slowdown in imports in the second quarter, following the shortage in foreign exchange, as well as lower collection of beer excise taxes. The government is pursuing its efforts to improve the performance of revenue collection agencies. In particular, a large-taxpayers' unit is being set up at the tax directorate, with IMF technical assistance and financial support from the French development agency. For 2003, the government will initiate a reduction in customs tariffs in preparation for the adoption of the common external tariff of COMESA (the Common Market for Eastern and Southern Africa) and will eliminate all export taxes. The impact of these measures should be more than offset by a widening of the tax base and improvements in customs administration.

17. Budget expenditure in 2002 takes into account the costs of setting up the transition institutions (namely, the Senate and the expanded National Assembly), increases in health and education outlays, and other current expenditure in connection with the reintegration of refugees. Salary levels in the civil service have remained unchanged, but the wage bill has increased as a result of new hiring for education, health, and the judiciary. The larger military wage bill reflects an increase in operations allowances, especially during the first half of the year. In addition, the government had to make a one-time outlay to settle a commercial dispute with foreign investors, following a 1999 arbitration by the ICSID (International Center for Settlement of Investment Disputes). Transfers and subsidies take into account the losses of the coffee sector in the 2001/02 crop year, which were also supported by refinancing of crop credits by the BRB. In view of these developments, the government has decided to reduce expenditure on other goods and services, so as to limit the increase in primary expenditure to 6½ percent. Adherence to this target will be ensured through the setting of monthly ceilings on expenditure commitments, under the direct authority of the Minister of Finance.

18. For 2003, primary expenditures are projected to increase by 7½ percent, a level that is below the projected rate of inflation. Following the government's commitment to raise civil service salaries, in particular to improve teachers' remunerations, this objective implies substantial reductions in other expenditures. Such reductions will be made possible by lower military spending-provided a cease-fire agreement is concluded shortly-and reduced transfers and subsidies (made possible in particular by the nonrecurrence of legal settlement expenses and a balancing of the accounts of the coffee sector).

19. Public investment is projected to increase steadily, rising from 6.0 percent of GDP in 2001 to 6.5 percent in 2002 and 8 percent in 2003. Most of the financing will be provided by donors, in line with the commitments made at the Paris and Geneva roundtables in December 2000 and December 2001, respectively. The public investment program will give priority to labor-intensive projects to rehabilitate and rebuild social and economic infrastructure, and will emphasize rural development and poverty alleviation.

20. The government plans to settle nonreschedulable debt-service arrears during the program period, subject to the availability of external assistance. On the basis of existing commitments, available projected resources will not suffice to clear the stock of arrears outstanding at end-June 2002 (which totaled about US$129 million). However, if additional resources were to become available, notably through the trust fund set up by the World Bank, the government will give priority to the settlement of arrears vis-à-vis multilateral creditors. As soon as possible, and in any event before concluding an IMF-supported program under the Poverty Reduction and Growth Facility (PRGF), Burundi will adopt an appropriate strategy to clear all nonreschedulable arrears.

21. In order to support the tightening of monetary policy, the government will seek to mobilize sufficient resources to start reimbursing its bank debt, in particular to the BRB. The program's objective is to reduce net bank credit to the government by FBu 4 billion in 2002, or the equivalent of 3.6 percent of end-2001 broad money. In addition, in collaboration with the BRB and IMF staffs, the government will look into options for improving procedures for the issuance of treasury bills, in order to avail itself of a more effective instrument to address short-term liquidity needs.

B. Monetary and Exchange Rate Policies

22. The BRB's monetary policy will remain governed by the objectives of maintaining a low rate of inflation and an adequate level of foreign exchange reserves, which require inter alia currency stability. However, considering the persistent weakness of coffee export prices, the BRB is prepared to adopt a more flexible exchange rate policy to preserve competitiveness. In addition, the BRB will implement a sufficiently restrictive monetary policy so as to avoid situations of excess liquidity and contain inflationary pressures.

23. The BRB's room for maneuver was severely curtailed in 2001 and the first half of 2002 by the pressures from the fiscal deficit and the financing needs of the coffee sector. The adoption of a stricter fiscal policy and the elimination of the deficit of the coffee sector should allow the BRB to strengthen its control over monetary aggregates. In the short run, the BRB will raise its discount rate and, if necessary, lower its refinance ceilings to ensure sufficiently tight liquidity conditions. At a later stage, the BRB intends to adopt more flexible intervention procedures through the use of indirect instruments; this implies the development of an interbank money market and auctions of treasury bills, as well as more frequent adjustments of the discount rate.

24. The soundness of the banking system has been broadly preserved and all of Burundi' seven banks generally observe key prudential requirements (in terms of solvency, liquidity, and the term structure of assets and liabilities). The current ratio of required reserves is 7.5 percent on all deposits, but could be gradually reduced as indirect monetary policy instruments are introduced. The BRB wishes to benefit from IMF technical assistance to develop its monetary programming capacity and strengthen its effectiveness in the area of bank supervision.

25. Improving the functioning of the foreign exchange auction markets is of key importance, both to ensure a better allocation of available resources and to replenish foreign exchange reserves. To allow unimpeded market access for all foreign exchange demand arising from merchandise imports and related services (freight and insurance), the BRB issued on August 28, 2002 a decision eliminating all discriminatory merchandise and related services restrictions that had been in effect for the last two years. Thus, there now remain only limits on certain services, as well as prior authorizations on capital transfers. In addition, the BRB will henceforth hold regular weekly foreign currency auctions without pre-imposed ceilings on bids. The regulations governing the auction market will be fully revised by December 2002, in close collaboration with IMF staff. The new regulations will include a provision lowering the surrender requirement for coffee, tea, and cotton to 70 percent (compared with 100 percent at present), as is the case for other export earnings. These measures, along with the resumption of foreign assistance, are expected to lead to a convergence between the official and parallel market exchange rates.

C. Structural Reforms

26. The government plans to resume and accelerate the implementation of structural reforms, which has been interrupted by the civil war. To that end, priority will be given to liberalizing external trade, strengthening budget-auditing mechanisms, privatizing public enterprises, reforming the civil service, and implementing poverty reduction measures.

27. Burundi's external position remains highly vulnerable, owing to the deterioration in economic conditions during the 1990s and low coffee prices. Nevertheless, the external position is expected to improve gradually as a result of the envisaged liberalization of the exchange system and mobilization of external assistance, which will allow implementation of major reforms conducive to improved resource allocation. The government eliminated, several years ago, all quantitative restrictions on imports and exerts no control a priori over import decisions (other than for public health and security reasons). As part of the reforms agreed under COMESA, the government will lower import tariffs (which at present are levied at five rates ranging from 10 percent to 100 percent) in 2003, ahead of the adoption of the common external tariff in January 2004. Moreover, all export duties will be eliminated as part of the 2003 budget law, including the 31 percent tax on coffee exports, which has not been enforced since the 1998/99 crop year.

28. Enhancing transparency and control over public finances are key government objectives in the context of its economic and financial policies. At present, there is neither an external budget audit mechanism nor procedures to account for the execution of budget laws to parliament. In accordance with the Arusha agreement, the government plans to set up an auditing court (Cour des comptes), which would be independent from the executive and legislative branches. To this end, a draft law will be submitted to the National Assembly by March 2003. In the meantime, budgetary control-including defense and security budgets-will continue to be exercised by the auditing services of the Ministry of Finance (Inspection des finances).

29. The government has prepared a program of public enterprise privatization, and plans to withdraw gradually from the coffee and tea sectors. However, given the current situation, it is difficult to find private partners willing to invest and develop production activities in Burundi. In these circumstances, the privatization program will be implemented gradually, as economic and security conditions normalize.

30. The drop in world coffee prices over the last five years poses a major challenge to Burundi. Unlike previous price fluctuations, the current low prices may well be long lasting. At any rate, the government intends to avoid subsidizing producer prices and will re-evaluate its policies in the cash crop sectors. The objective is to reduce costs, inter alia, by reorienting marginal producers, reducing charges for washing and hulling, and lowering the margins retained by OCIBU (Burundi's Coffee Board) and exporters. To this end, the government has adopted a regulation to limit the allowable margins of OCIBU and other intermediaries below what had been initially proposed by OCIBU, while the BRB's recent exchange rate depreciation has helped restore the competitiveness of Burundi's coffee exports.

31. Controlling the government's wage bill involves monitoring closely the civil service roster and payroll, which at present are entirely under the purview of the Ministry of Civil Service. The government plans to launch in 2003 a civil service census, while developing a new payroll management system at the Ministry of Finance with technical and financial assistance from donors. In addition, the government will launch a civil service reform and will reintegrate individuals presently exiled or internally displaced. A first stage of this reform entails the elaboration of an interim technical census and control procedures to verify the civil service roster, for which financial assistance is being sought from the European Union. Pending the finalization of this operation, new recruitments have been limited to the health, education, and justice sectors, and to the transition institutions.

32. The government has also prepared a series of labor-intensive projects to promote job creation to be implemented with external financial assistance mainly from the World Bank and Belgium. As envisaged in the Arusha agreement, the government will set up by end-2002 a national commission to assist victims (Commission nationale de réhabilitation des sinistrés-CNRS). Also, work is under way on an interim poverty reduction strategy paper (I-PRSP) and workshops have been held in most districts to ensure a broad consultation of the population. The government expects to finalize in early 2003 its I-PRSP, which would provide a basis for preparing a medium-term program that could be supported by the IMF under the PRGF.

D. Technical Assistance

33. Burundi has vast technical assistance needs in the areas of public administration, policy design, and the compilation of statistics. The government plans to secure support in this respect from multilateral institutions and bilateral partners. As indicated above, priorities include the operation of revenue collection agencies and control over the civil service roster and the wage bill, as well as monetary policy, foreign exchange and exchange rate management, and bank supervision by the BRB. Assistance will also be necessary to improve the statistical apparatus, notably as regards the national accounts, balance of payments, and social indicators.

IV. Program Financing

34. On the basis of program projections for 2002, external financing needs are estimated at US$208 million while available resources are US$158 million. Uses of resources take into account the accumulation of arrears already recorded during the first half of 2002, while available funds include program disbursements (from the EU's `STABEX' commodities stabilization fund) recorded in the first half of 2002. Thus, there remains a financing gap of US$50 million. For 2003, the financing gap is projected at US$183 million, including the amounts needed to settle all external arrears.

35. The financing gap for 2002 is expected to be covered by program support from the World Bank under an Economic Recovery Credit (ERC); the trust fund to service external debt; the European Union; and bilateral donors, including Belgium and France; and a drawing under the IMF's emergency post-conflict assistance policy. The government intends to continue discussions with international partners to mobilize additional financing to speed up the settlement of nonreschedulable external arrears. The financing gap for 2003 is expected to be covered by program assistance, debt rescheduling, and the further use of Fund resources.

V. Prior Actions and Program Monitoring

36. Table 3 summarizes the prior actions and performance indicators under the 2002-03 program. The quantitative performance indicators for program monitoring are presented in Table 4. The definitions of these performance indicators are provided in the attached technical memorandum of understanding.


Technical Memorandum of Understanding

1. This technical memorandum of understanding (TMU) sets out the terms and conditions for monitoring the implementation of the program and the reporting requirements for the government of Burundi. It defines (a) the quantitative and structural performance indicators; (b) the adjusters for the quantitative indicators; and (c) the key assumptions used in formulating the economic program for 2002-03, as set out in the memorandum of economic and financial policies (MEFP) of the government of Burundi annexed to the letter of September 19, 2002 from the Minister of Finance and the Governor of the Bank of the Republic of Burundi (BRB) to the Managing Director of the International Monetary Fund.

2. Program monitoring will be based on an assessment of the observance of the quantitative and structural performance indicators.

A. Structural Indicators

3. The structural indicators listed in Table 3 of Annex I are the following:

(a) holding of regular weekly foreign exchange auctions at the BRB-the BRB will report each week the results of the sessions, including the amounts transacted, exchange rates, and any unmet demands for foreign exchange;

(b) issuance by the BRB of regulations for the foreign exchange auction market (to include, in particular, the elimination of limits on bidding rates and the setting of the surrender requirement at 70 percent for all exports);

(c) setting up of the national commission to assist victims (Commission nationale de réhabilitation des sinistrés-CNRS), which will entail the adoption of relevant regulations and the nomination of the key members of the commission; and

(d) submission to the National Assembly of a draft law for a new auditing court (Cour des comptes).

B. Quantitative Indicators and Adjuster

Quantitative indicators

4. Quantitative indicators under the program are set on the basis of cumulative flows from January 1 of each calendar year or the basis of end-of-period stocks, and are set out in Table 4 as follows:

(a) a ceiling on the cumulative change in central government financing, defined as the sum of the following flows: official program assistance grants (excluding project grants) minus interest on external debt, plus net accumulation of domestic and external arrears, plus other net domestic and external budget financing (excluding project loans, but including gap financing for the projections);

(b) a ceiling on the end-period stock of net domestic assets of the BRB;

(c) a ceiling on the end-period stock of the central government's external payments arrears;

(d) a ceiling on the outstanding stock of short-term (maturity of less than one year) external debt of the central government and the BRB;

(e) a ceiling on the new nonconcessional medium- and long-term external debt contracted or guaranteed by the government or the BRB; and

(f) a floor on the end-period stock of net international reserves of the BRB.

5. The program includes an adjuster for the first, second, and sixth quantitative indicators, as specified in footnote 2 of Table 4, Annex I and explained in paragraph 11 below.

Definition and computation

6. Total financing of the central government is measured in accordance with accounting practices of the BRB and the Burundi Treasury, following the IMF format and taking into account residual gap financing for program projections. For the period January 1-June 30, 2002, such financing totaled FBu 1.6 billion, broken down as follows:

Financing of the Central Government

Central government financing (in billions of Burundi francs)


External financing, net


Grants, excluding projects grants (budgetary grants)


Loans, excluding project loans (budgetary loans)


Interest payments on external debt


Principal due on external debt


Net accumulation of interest arrears on external debt


Net accumulation of principal arrears on external debt


Debt relief (on current maturities and arrears)


Domestic financing, net


Bank financing, net


Bank of the Republic of Burundi (BRB), net


Commercial banks, net


Nonbank financing


Net accumulation of domestic arrears


7. The net domestic assets of the BRB are defined as the difference between (a) the amount of reserve money, comprising currency in circulation, reserves of commercial banks and other deposits held at the BRB, and (b) the amount of net foreign assets of the BRB (see below). Net domestic assets of the BRB totaled FBu 41.3 billion at end-June 2002 and are broken down as follows:

Net Domestic Assets of the BRB

Net domestic assets of the BRB (in billions of Burundi francs)


Reserve money


Currency in circulation


Reserves of commercial banks


Other deposits


Minus: net foreign assets of the BRB


8. The stock of external payments arrears corresponds to the amount at the end of period of external debt service due and not paid, including contractual and late interest. The government's external payment arrears were estimated at US$129.1 million at end-June 2002, broken down as follows:

External Payments Arrears

External payments arrears (in millions of U.S. dollars)




African Development Bank


African Development Fund


International Fund for Agriculture development


Arab Bank for Economic Development in Africa


Arab League


European Investment Bank


European Union


International Development Association






French Cooperation Agency (AFD)


Japan (FCEOM)


Abu Dhabi Fund for Development


Kuwait Fund for Arab Economic Development


Saudi Fund for Development


Other creditors


AD Consultants


Kreditanstalt für Wiedesaufban (KfW)/AMSAR


9. Indicators relating to external debt are ceilings on the stock of short-term external debt owed by the central government and the BRB, with a maturity of up to one year (one year included). This quantitative indicator does not cover normal import credits. Ceilings are also set on new nonconcessional external debts contracted or guaranteed by the government. Medium- and long-term loans have an initial maturity, as recorded in the original loan agreement, of more than one year. This performance criterion applies not only to debt, as defined in point No. 9 of the Guidelines on Performance Criteria with Respect to Foreign Debt, adopted August 24, 2000, but also to commitments contracted or guaranteed for which value has not been received (including leasing). Excluded from this performance criterion are rescheduling arrangements and borrowing from the Fund. The concessional nature of debt will be ascertained on the basis of the commercial interest reference rates (CIRRs), as laid out by the Organization for Economic Cooperation and Development (OECD). A debt is said to be concessional if, on the date of its initial disbursement, the ratio between the present value of the debt, computed on the basis of reference interest rates, on the one hand, and the face value of the debt, on the other hand, is less than 50 percent (equivalent to a grant element of at least 50 percent).

10. The net foreign assets of the BRB are defined as the difference between (a) foreign exchange assets and gold holdings (valued at market prices), and (b) foreign exchange liabilities to nonresident entities (including the use of Fund resources, but excluding the counterpart of SDR allocations). These amounts are valued in terms of U.S. dollars based on end-of-period exchange rates. The net foreign assets of the BRB totaled FBu 5.0 billion at end-June 2002, broken down as follows:

Net Foreign Assets of the BRB

Net foreign assets of the BRB (in billions of Burundi francs)


Foreign assets


Deposits with correspondents (excluding IMF)


SDR holdings


Reserve position with the IMF


Gold holdings


Cash on hand


Foreign liabilities


Liabilities vis-à-vis correspondents (excluding IMF)


Use of IMF resources


Other liabilities


Adjusting mechanism

11. The program provides for a symmetrical adjuster (upward and downward) that applies to quantitative indicators on aggregate government financing, the net domestic assets of the BRB, and the net foreign assets of the BRB, based on deviations (excess or shortfall) on nonproject external financing (namely, budgetary support, measured in terms of U.S. dollars, as indicated as a memorandum item in Table 4). In case of a positive deviation (or, respectively, negative) of nonproject external financing, the ceiling on aggregate government financing will be raised (lowered), the ceiling on the net domestic assets of the BRB will be lowered (raised), and the floor on the net foreign assets of the BRB will be raised (lowered) by an amount equivalent to 50 percent of the recorded deviation. External financing will be converted in terms of Burundi francs on a quarterly basis, using the average official exchange rate.

Key Program Assumptions

12. The main program assumptions are as follows:

Main Program Assumptions



Average export prices

Coffee (U.S. cents per pound)



Tea (U.S. dollars per kilogram)



U.S. dollars per SDR exchange rate

Annual average



End of period



U.S. dollars per euro exchange rate

Annual average



End of period



D. Provision of Information to IMF Staff

13. To facilitate the monitoring of program implementation, the Burundi government will prepare within five weeks from the end of each month a monthly report that will be sent to IMF staff. In addition, the staff of the monitoring committee (the technical bureau of the Secrétariat Permanent de Suivi des Réformes Économiques et Sociales-SP/REFES) will forward each month to the African Department of the IMF, by facsimile or electronic mail, the data required for program monitoring. These data will include, in particular, the following:

(a) the monetary survey, comprising the position of the central bank and of commercial banks;

(b) the financial position of the government vis-à-vis the banking system;

(c) a detailed breakdown of government revenue;

(d) a detailed breakdown of government expenditure on a commitment basis;

(e) a detailed breakdown of the servicing of domestic and external public debt, including amounts due and paid, in interest and principal, as well as the detail by creditor and any accumulation of arrears on domestic or external debt;

(f) a detailed breakdown of the stock of domestic payments arrears and cumulative flows from January 1, 2002 onward; the accumulation of new arrears is defined as the difference between commitments and actual payments (on a cash basis, as reported in the cash statement summary-Reddition des comptes);

(g) the amount of new debts contracted or guaranteed by the government, including detailed information on its conditions (such as currency denomination, interest rate, grace period, and maturity);

(h) actual disbursements of nonproject financial assistance, including new loans and debt relief granted by Burundi's external creditors;

(i) the weekly balance sheet of the BRB and the outcome of weekly foreign exchange auctions, including the allocated amounts and exchange rate levels, as well as the level of buying and selling exchange rates used by commercial banks and those observed on the parallel market;

(j) indicators and other statistical data to allow an evaluation of macroeconomic developments, such as the consumer price index, and indices of manufacturing output, merchandise imports and exports (volume and value), with a breakdown by main categories; and

(k) an update on the implementation of structural measures planned under the program, as summarized in Table 3 of Annex I.

14. The SP/REFES will also provide the African Department of the IMF with any information that is deemed necessary to ensure the effective monitoring of the program.