Burundi and the IMF
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The International Monetary Fund (IMF) today approved a credit of SDR 9.625 million (about US$13 million) in emergency post-conflict assistance for Burundi to support the government's reconstruction and economic recovery program in the aftermath of the August 2000 Peace and Reconciliation Agreement. The credit is available immediately.
Following the Executive Board's discussion of the request by Burundi, Eduardo Aninat, Deputy Managing Director and Acting Chairman, stated:
"Burundi has made significant progress in laying the basis for normalcy since the conclusion of the Arusha Peace and Reconciliation Agreement in August 2000. Notwithstanding sporadic hostilities, the recent opening of direct negotiations between the government and rebel forces, as well as other peace initiatives in the subregion, provide a basis for cautious optimism that a broad-based settlement could be reached. However, the authorities still face major challenges to reduce domestic and external imbalances, improve financial management, and reduce poverty.
"The Fund welcomes the adoption by the Burundi authorities of measures designed to restore financial stability, including through tighter fiscal management, a more active monetary policy, a liberalization of the foreign exchange auction market, and lower processing charges in the coffee sector. The mobilization of external assistance in the context of the authorities' program is expected to facilitate economic and financial reforms, and thus help consolidate the prospects for lasting peace and economic growth in Burundi.
"Further liberalization of the foreign exchange market, together with regular auctions of foreign exchange and a more active use of monetary policy instruments, should help narrow the differential between the official and parallel market exchange rates. Over time, it will be important for the Bank of the Republic of Burundi to improve its capacity to monitor and control bank liquidity, and develop more flexible monetary policy instruments.
"Subject to the establishment of a good record of performance under the authorities' program, the Fund stands ready to consider further assistance to Burundi under the post-conflict emergency assistance policy. Rapid progress in the implementation of the program would speed up the delivery of external assistance and lay the groundwork for a medium-term program that could be supported by the Fund under the Poverty Reduction and Growth Facility (PRGF) and a decision point under the Initiative for Heavily Indebted Poor Countries (HIPC Initiative)," Mr. Aninat said.
Recent Economic Developments
The authorities began addressing economic and financial issues through the implementation of a staff-monitored program (SMP) in the second half of 2001. The program's main objectives were to stabilize the macroeconomic situation, facilitate the mobilization of external assistance, and lay the groundwork for growth and poverty reduction. The implementation of the staff monitored program was however hampered by higher than envisaged military outlays and delays in appointing the government of national unity, and a consequent holding back of donor support. As a result, despite substantial humanitarian and project aid, a number of quantitative targets and structural measure were not met. Fiscal performance weakened in the latter part of 2001, mainly reflecting expenditure overruns.
The 2002-03 program aims at containing external imbalances within levels that can be financed by external grants and concessional loans. The external current account deficit (excluding grants) is projected to narrow in 2002, but would increase in 2003. This projection is predicated on an increase in gross national savings by 1 percentage point of GDP in 2002 and again in 2003, mainly reflecting a substantial improvement in the central government position.
The program is also underpinned by a cautious fiscal stance that will still allows essential social and security needs to be addressed. Fiscal management is to be coordinated with monetary and exchange rate policies, so as to contain inflationary pressures, improve competitiveness, and support growth.
Government revenue is projected to remain in the vicinity of 20 percent of GDP in 2002 and 2003. Total expenditure is programmed to decline in 2002 by 1 percentage point of GDP, and again slightly in 2003. Waning security outlays would allow larger allocations for social sectors. While remaining high overall, military expenditures is set to fall to 7 percent in 2002 and 5 ½ percent in 2003 from 8 percent of GDP in 2001.
Structural reforms will, in the short run, continue to be geared toward providing an enabling environment for national reconciliation and private sector development. In this regard, the authorities intend to set up a national commission to assist victims. Its mandate is key to economic and social recovery, and it could serve as an important vehicle to channel donor support. The government is also giving priority to labor-intensive projects under its public investment program to promote job creation.
Restoring profitability in the coffee sector is a key priority of the program. The authorities anticipate that a depreciated exchange rate will benefit export competitiveness, particularly for the coffee sector. Other structural reforms aiming at private sector development are expected to be formulated once normal conditions and business confidence have been restored.
Burundi joined the Fund on September 28, 1963, and its quota1 is SDR 77 million (about US$101 million). Its outstanding use of IMF financing currently totals SDR 0.64 million (about US$0.8 million).
1 A member's quota in the IMF determines, in particular, the amount of its subscription, its voting weight, its access to the IMF financing, and its allocation in SDRs.
IMF EXTERNAL RELATIONS DEPARTMENT