Press Release: IMF Completes First Review Under Burundi's PRGF Arrangement and Approves US$10.9 Million Disbursement
January 19, 2005
The Executive Board of the International Monetary Fund (IMF) today completed the first review of Burundi's economic performance under an SDR 69.3 million (about US$105.6 million) Poverty Reduction and Growth Facility (PRGF) arrangement (see Press Release No. 04/13), and approved the disbursement of an amount equivalent to SDR 7.15 million (about US$10.9 million), which will bring the total disbursements under the PRGF arrangement to SDR 33.55 million (about US$51.1 million). The Executive Board of the IMF approved a three-year arrangement under the PRGF for Burundi on January 23, 2004 to support the country's economic reform program through January 2007.
In completing the first review, the Executive Board granted Burundi's request for waivers of nonobservance of performance criterion pertaining to external payments arrears, the establishment of a new auditing court; and the adoption of weekly liquidation auctions.
"Burundi has made a good start in implementing its PRGF-supported program, against the backdrop of a difficult political environment. Encouragingly, the demobilization process has begun and the security situation has improved. Macroeconomic developments in 2004 were broadly on track, with somewhat higher-than-expected real growth, but overall program performance was mixed owing to fiscal slippages and delays in implementing structural reforms. Notwithstanding these broadly positive developments, Burundi faces enormous challenges, including the need to complete the political transition and the demobilization of armed combatants, to secure debt relief, and to address widespread poverty and work to meet the Millennium Development Goals.
"Fiscal slippages in 2004 reflected the adverse fiscal effects of the surge in petroleum prices and higher spending associated with the peace process, but also the need to cover higher coffee sector losses from budgetary resources—underscoring the urgency of implementing the coffee reform strategy. The increase in donor-supported project spending is welcome.
"The 2005 budget envisages a reduction in the primary fiscal deficit and a further increase in social spending. Savings from reduced military spending are to be redirected to urgent social needs. Appropriate and timely donor support will be vital to ensure that this effort moves ahead without destabilizing public finances. Measures are also being taken to strengthen the management of public finances, notably through a new budget and accounts code and improved wage bill management.
"The Bank of the Republic of Burundi is strengthening its monetary instruments and its supervision of the banking sector, building on the improvements made in 2004. Reflecting recent reform steps, the differential between the official and parallel exchange rates has fallen to historic lows. In mid-January 2005, the remaining foreign exchange surrender requirement was eliminated. The authorities are proceeding with further liberalization of the exchange and trade systems.
"Based on a preliminary debt sustainability analysis, jointly undertaken by IMF and World Bank staff, Burundi's external debt burden at end-2003 is unsustainable after traditional debt relief. It is likewise expected that the country's debt situation will be shown to have been unsustainable, after traditional debt relief, at end-2004. On this basis, Burundi is likely to qualify for assistance under the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative and could reach its HIPC decision point by mid-2005, provided its macroeconomic program, supported by the PRGF arrangement, remains on track as evidenced by completion of the second program review. Given Burundi's heavy debt burden, it is important that external financial assistance be in the form of grants and/or highly concessional loans," Mr. Carstens said.
The PRGF is the IMF's concessional facility for low-income countries. PRGF-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners and articulated in a PRSP. This is intended to ensure that PRGF-supported programs are consistent with a comprehensive framework to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5 ½-year grace period on principal payments.