IMF Executive Board Completes Fifth Review Under Extended Credit Facility Arrangement, Approves US$7.6 Million Disbursement, and Concludes 2014 Article IV Consultation with BurundiPress Release No. 14/395
August 25, 2014
On August 25, 2014, the Executive Board of the International Monetary Fund (IMF) completed the fifth review of Burundi’s economic performance under a three-year program supported by the IMF’s Extended Credit Facility (ECF) arrangement, and also concluded the 2014 Article IV Consultation1 with Burundi. The completion of the fifth review enables the immediate release of an amount equivalent to SDR 5 million (about US$7.6 million), bringing total disbursements under the arrangement to an amount equivalent to SDR 25 million (about US$38.1 million).
In completing the fifth review, the Executive Board also approved the authorities’ requests for a modification of performance criteria and indicative targets for September–December 2014 for net foreign assets and net domestic assets of the central bank and net domestic financing of the government, as well as for gross fiscal revenue and reserve money.
The three-year ECF arrangement in the amount equivalent to SDR 30 million (about US$ 45.7 million) was approved by the Executive Board on January 27, 2012 (see Press Release 12/35).
Following the Executive Board's discussion on Burundi, Mr. Naoyuki Shinohara, Deputy Managing Director and Acting Chair issued the following statement:
“Burundi has made satisfactory progress under the ECF-supported program. Economic growth is expected to pick up to about 4.7 percent in 2014, while inflation has been declining aided by moderating international food and fuel prices and stable monetary conditions. However, the medium-term economic outlook remains difficult, with downside risks arising from political uncertainties ahead of the 2015 elections, vulnerabilities to external shocks given Burundi’s narrow export base, and the large influx of refugees.
“Revenue slippages that emerged in the first quarter of the year were addressed through corrective measures which formed the basis for a revised budget that was adopted by parliament. Sustaining revenue mobilization, enhancing tax administration, and rationalizing discretionary exemptions are critical to the success of the economic program.
“Monetary policy should continue to focus on stabilizing inflation expectations. While underlying inflation has declined in recent months, a potential fiscal deterioration financed by recourse to central bank financing could reignite inflation and reverse recent gains.
“Debt sustainability remains the anchor underpinning medium-term fiscal policy. Burundi continues to be at high risk of debt distress, therefore, it is important to rely mainly on grants and highly concessional loans. The new debt law will provide an overarching framework for effective public debt management and policy.”
The Executive Board also completed the 2014 Article IV consultation.
The economic recovery continues to gain momentum in the aftermath of the recent food and fuel shocks. In 2013, real Gross Domestic Product (GDP) growth picked up to an estimated 4.5 percent, underpinned by the agriculture and construction sectors as well as the implementation of major infrastructure projects. Inflation decelerated to 8 percent at year end, supported by favorable international food and fuel prices, fiscal consolidation, and stable monetary conditions. The implementation of swift corrective measures in mid-2013 helped remedy revenue slippages and, together with a relative containment of expenditure, helped contain the overall deficit at 1.6 percent of GDP in line with the authorities’ economic program supported by the ECF. Gross international reserves stood at 3.4 months of imports at end-2013.
The macroeconomic outlook is expected to improve in 2014 and in the medium term but remains subject to various risks. Real GDP growth is projected to improve slightly to 4.7 percent in 2014 and is expected to improve further over the medium term on the back of solid agricultural and construction activity, including the implementation of large hydroelectric projects. Deeper integration with the East African Community (EAC) is expected to spur investment in the tourism, wholesale and retail sectors, as well as in finance and telecommunications. Inflation should stabilize to single digits over the medium term in line with lower projected international food and fuel prices. The fiscal position is expected to improve over the medium term on the backdrop of durable revenue-enhancing measures and prudent spending policy. The current account deficit is projected to narrow to about 17 percent of GDP in 2014, as coffee exports rebound, and improve over the medium term reflecting higher exports and moderate growth in imports following earlier surges associated with humanitarian assistance. Greater exchange rate flexibility would help shore up international reserves to more comfortable levels. Key risks to the outlook include: (1) a deterioration of the political and security situation; (2) a further decline in donor support; (3) a worsening in the terms of trade; and (4) a protracted period of slower growth in advanced and emerging economies.
Executive Board Assessment1
Executive Directors noted that performance under the ECF had been satisfactory under challenging circumstances. Directors welcomed the adoption of corrective measures to address revenue shortfalls and to bolster revenues over the medium term.
Directors agreed that sustaining revenue mobilization efforts are critical to the success of the program. They underscored the need to step up revenue collection in order to respond to contingencies in the run-up to the 2015 Presidential elections, safeguard pro-poor spending, and to address the rising demand for public services from a rapidly growing population. They welcomed efforts to reform tax exemptions to mitigate the erosion of the revenue base while simplifying procedures associated with doing business.
Directors underscored the need to strengthen public financial and debt management to mitigate fiscal risks. They welcomed the progress made in implementing the public financial management strategy and encouraged the authorities to address outstanding weaknesses. To preserve debt sustainability, Burundi should continue to rely mainly on grants and highly concessional loans in light of its high risk of debt distress.
Directors stressed that monetary policy should continue to focus on stabilizing inflation expectations and welcomed the notable deceleration of inflation in recent months. Going forward, they encouraged the authorities to enhancing monetary transmission mechanism.
Directors noted that the exchange rate remains an important tool in facilitating external adjustment, enhancing external competitiveness and safeguarding foreign reserves.
Directors underscored the importance of deeper structural reforms to foster stronger and sustainable growth and to reduce poverty. They highlighted that reforms priorities should focus on improving competitiveness and the business climate, and addressing infrastructure gaps, including increasing energy supply. Directors concurred that enhancing financial intermediation, while maintaining financial stability, will be critical to facilitate credit to the private sector and support growth.
Directors encouraged the authorities to accelerate and expand efforts to increase data coverage and improve quality, to better inform policy making.