## 1bdiea2022001

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### Context
- Burundi’s economy showed resilience to the COVID-19 and Ukraine war shocks.
- Pre-pandemic growth: 1.8 percent in 2019 (recovery from 2015 crisis).
- Pandemic slowed recovery but growth remained positive; reengagement with international community resumed (last Article IV concluded in 2014; 2022 Article IV marks full reengagement).

### Recent macroeconomic developments
- Growth and inflation
  - Output growth: 1.8 percent in 2019; 0.3 percent in 2020; 3.1 percent in 2021.
  - Inflation: averaged -0.7 percent in 2019; 7.3 percent in 2020; 8.3 percent in 2021; year-on-year inflation 11.9 percent in May 2022.
  - Food price pressure: wheat flour prices rose +25 percent in December 2021.
  - Domestic pump prices raised twice in 2022Q1 (20 percent in total); transportation fees increased by 30 percent.
- External sector
  - Current account deficit: 11.6 percent of GDP in 2019; 10.2 percent in 2020; 13.4 percent of GDP in 2021.
  - FX reserves: 1.3 months of imports at end-2019; 0.6 month in March 2021; 2.2 months of imports at end-2021.
  - Parallel exchange rate market premium: 62.5 percent at mid-June 2022.
  - Real effective exchange rate misalignment: 68.6 percent (ESA, Annex II).
  - Export price developments in 2022: tea -12 percent; coffee -1 percent; gold +1.1 percent.
  - Authorities exchanged SDR 57 million (US$ 80 million) of their SDR allocation for U.S. dollars in 2022H1.
- Fiscal sector
  - Fiscal deficit: 6.2 percent of GDP in 2018/19; 7.8 percent in 2020/21; projected 5 percent of GDP in 2021/22 (July−June).
  - Revenue: projected 18.8 percent of GDP in 2021/22 (18.5 percent in 2020/21).
  - Spending: projected 28.8 percent of GDP in 2021/22 (24.2 percent of GDP in the budget).
  - Staff estimates US$ 42 million (1.3 percent of GDP) spent on COVID response by end-December 2021; vaccine donations expected to boost grants.
  - Financing mix: government securities issuances, central bank on-lending of accessed SDR allocation, and external financing.
- Monetary and financial sectors
  - Nonperforming loans (NPLs): 4.1 percent at end-September 2021 (regulatory forbearance and large restructurings noted).
  - Private credit growth: 44.8 percent at end-2021 (15 percent statistical adjustment applied).
  - Banking sector: two new banks created targeting youth and women.

### Outlook and risks
- Growth projections
  - Growth projected at 3.3 percent in 2022; strengthening progressively to around 4.6 percent over the medium term.
  - Drivers: stronger terms of trade, higher agricultural and mining production, buoyant services, capital projects, use of SDR allocation to scale up public investment, completion of World Bank and AfDB projects during 2022–25.
  - Outlook contingent on pickup in vaccinations, durable political stability, and reengagement with international community.
- Inflation and external outlook
  - Inflation projected to reach 11 percent in 2022 and recede starting in 2023.
  - Share of tradable goods in CPI estimated at 42 percent; pre-war inflation projection was 5.5 percent.
  - Current account balance (baseline): -14.4 percent of GDP in 2022; -14.0 percent in 2023; -13.3 percent in 2024.
  - Gross international reserves (including financing needs): US$ 263.3 million in 2022 (2.1 months of imports); projected US$ 243.7 million in 2023 (1.9 months).
- Risks
  - Upside: in-kind grants from Japan and Russia; expected equity disbursement from mining contract (equity deposit US$ 500 million noted in agreement on March 29, 2022); higher donor financing; a noted new financing agreement with the U.S. (US$ 400 million over five years).
  - Downside: pandemic and war in Ukraine uncertainties; deteriorating terms of trade; potential policy implementation delays; slower reform progress.

### Policy recommendations and priorities
- Debt and external sustainability
  - Burundi at high risk of debt distress; debt assessed as sustainable contingent on fiscal adjustment and robust export and growth performance.
  - External imbalances exacerbated by pandemic and Ukraine war spillovers; FX reserves below adequacy and large parallel ER market premium (62.5 percent mid-June 2022).
- Fiscal policy
  - Implement credible revenue-led fiscal consolidation and prudent borrowing to reduce debt vulnerabilities while preserving COVID-19 response and priority spending.
  - Protect social spending, ensure efficient targeting, and scale up priority investment to support exit from fragility.
- Exchange rate and monetary policy
  - Recalibrate exchange rate policy and modernize the monetary policy framework (MPF); MPF objective should be price stability using monetary aggregate targeting.
  - Consider ER unification (instant or gradual) with complementary tighter monetary policy, strengthened supervision, prudent external debt management, fiscal consolidation, and exit from monetary financing.
- Monetary operations and inflation management
  - Wind down long-term refinancing window and other pandemic-era liquidity measures with timely market signaling; calibrate timing to address inflationary pressures.
  - Reduce direct and indirect monetary financing to help stem inflationary pressures and contain further exchange rate depreciation.
- Structural reforms
  - Implement reforms to improve competitiveness, complete audited COVID-19 spending reports, and enhance governance frameworks.

### External outlook and current account (detailed)
- CA deficit projected to widen to 14.4 percent of GDP in 2022 due to deteriorating terms of trade, vaccine and COVID-19 imports, and easing of import restrictions following RCF disbursement and SDR allocation.
- Export volumes expected to recover with mining contract completion and a vibrant food industry; CA deficit projected to narrow beyond 2022 as terms of trade and transfers improve.
- Without ER and FX market reforms, FX reserves would drop to 2.1 months of imports in 2022 and decrease further absent significant inflows.

### Debt sustainability and vulnerabilities (detailed)
- Public debt: 66.6 percent of GDP at end-2021 (public debt at 66.5 percent of GDP cited elsewhere in report).
- Key debt risks:
  - Large domestic debt stock and liquidity constraints servicing external liabilities.
  - Large parallel ER market premium amplifying imbalances.
  - Delays in exchange rate reform, fiscal consolidation, structural reforms, unclear arrears, and prolonged COVID-19 or Ukraine war impacts.
- Risk mitigants:
  - Strong remittances and prospects for higher FX inflows including grants and concessional loans.
  - SDR allocation of SDR 147.6 million (equivalent to 6.3 percent of 2021 GDP) could mitigate vulnerabilities if efficiently used.
- DSA outcomes:
  - Risk of external debt distress: High.
  - Overall risk of debt distress: High.
  - One external debt burden indicator breaches its threshold under the baseline (external debt service-to-exports breaches in 2027–29 when RCF repayments start).

### Exchange rate unification approaches (staff analysis)
- Instant unification
  - Official ER instantly depreciates to alleviate FX market distortions.
  - Advantages: eliminates distortions, simpler communication, fiscal benefits, higher credibility.
  - Risks: disruptive if currency mismatches exist, could trigger domestic inflation spikes and hamper external debt servicing.
- Gradual unification
  - Official ER gradually decreases via rule or discretionary path to equilibrium.
  - Advantages: smoother adjustment; time to design post-unification MP framework.
  - Risks: costly in FX reserves, transition risks (speculative attacks, shocks to equilibrium ER), credibility risks if prolonged, scope for rent seeking.
- Complementary policies: tighter monetary policy, stronger regulation/supervision, prudent external debt management, fiscal consolidation, exit from monetary financing, careful post-unification regime (possibly a managed float), and clear communication.

### Monetary policy framework and financial sector
- MP framework: quantitative targeting of monetary aggregates; objective price stability.
- Pandemic-era liquidity support:
  - BRB increased liquidity provisions: +16 percent in 2020 vs 2019.
  - Long-term refinancing window: 5 years, renewable once, at 2 percent subsidized interest; recipient banks required to lend to priority sectors at max 8 percent rate and up to 10-year maturities.
  - These measures boosted credit but reduced efficacy of regular MP instruments and weakened overnight rate transmission.
- Staff guidance:
  - Prepare to wind down long-term refinancing window with market signaling; move MP framework toward interest-rate-based tools and eventual inflation targeting per EAC directive.
  - Avoid new direct private sector financing instruments; reduce monetary financing; deepen interbank market and strengthen communication.
- Financial sector indicators:
  - 14 commercial banks; total assets 60 percent of GDP; credit to private sector >20 percent of GDP.
  - Capital ratios around 20 percent.
  - NPLs concentrated: trade 27.1 percent; real estate 15.7 percent; transportation 12.8 percent.
  - Reported NPLs low partly due to write-offs and restructurings.

### Growth, fragility, and structural reform priorities
- Fragility indicators:
  - Average CPIA score 2.9 in 2019 (below 3.2 fragility threshold).
  - Poverty rate 85 percent in 2020.
- Competitiveness constraints: low electricity access, unsafe drinking water exposure, low digitalization, dominant SOEs, lack of collateral/credit bureaus, skill mismatches, climate shocks.
- Recommended reforms:
  - Enhance human capital and health.
  - Support physical capital accumulation and productivity.
  - Strengthen governance and tackle corruption; implement PND reform agenda.

### COVID-19 pandemic and authorities’ response (Annex I)
- COVID-19 timeline and testing
  - First case: March 31, 2020.
  - As of June 14, 2022: 42,330 cases and 15 deaths.
  - Testing: less than 3 percent of population tested as of June 12, 2022.
  - Weekly confirmed cases: avg 20/week in 2020; avg 371/week Jan–Jun 2021; >1,000/week in 2H2021; peak >5,000 cases in last week of December 2021; ~446/week since early 2022.
- Government response and spending
  - Pandemic response plan estimated at about US$ 150 million (4.5 percent of 2021 GDP); sanitary measures estimated US$ 58 million (1.7 percent of 2021 GDP).
  - Authorities spent 1.1 percent of GDP in 2020/21 on the response; staff estimates cumulative US$ 36.7 million (1.1 percent of GDP) spent by end-December 2021.
  - Travel restrictions, subsidized soap and water, additional health staff, tax holidays for affected businesses, and a new refinancing window for banks lending to priority sectors.
- Vaccination
  - Vaccination started end-October 2021 (~100 people/day).
  - As of June 5, 2022: 13,811 people (0.1 percent of population) fully vaccinated.
  - Vaccine donations in 2021: 500,000 Sinopharm doses from China; 302,400 Johnson and Johnson doses through AVAT (AVAT expected to donate total 2.4 million J&J doses).
  - Vaccination donations would cover 21 percent of the population (US$ 1.8 million for each percentage point of covered population).

### Capacity development strategy (Annex IV)
- Near-term CD priorities:
  - Strengthen fiscal operations and policy design (revenue administration, tax policy, PFM, expenditure efficiency).
  - Support transition to unified ER and coherent post-unification MP framework.
  - Foster financial sector stability and strengthen supervisory frameworks.
  - Strengthen data transparency via e-GDDS and improve timeliness/quality of fiscal, external, and national accounts statistics.
  - Reduce corruption vulnerabilities and governance weaknesses.
- Recent CD activities: AFRITAC-Centre missions on customs and tax administration; STA and AFRISTAT support for GDP rebasing (new base year 2016, rebased estimates planned for publication by end-2022); BRB supervisory and IFRS 9 CD; planned FAD diagnostic missions and long-term fiscal expert placement.

### Debt dynamics, projections, and fiscal prospects
- Public debt and composition
  - Total public debt: 66.0 percent of GDP at end-2020 rising to 66.6 percent of GDP at end-2021.
  - Domestic debt: Total Debt 2,850.4 BIF (48.2 percent of GDP) in 2020; 3,063.2 BIF (46.3 percent of GDP) in 2021.
  - External debt: 538.7 million US$ (17.7 percent of GDP) in 2020; 667.3 million US$ (20.2 percent of GDP) in 2021.
  - IMF exposure increased: IMF loan 26.0 million US$ (0.9 percent of GDP) in 2020; 94.8 million US$ (2.9 percent of GDP) in 2021.
  - Outstanding external debt grant element: 29.2 percent at end-2021.
- Fiscal projections and composition
  - Staff expects 2022/23 fiscal deficit to widen to 7.4 percent of GDP (higher capital outlays partly offset by improved tax revenue and grants).
  - Revenue projected to improve by 0.7 percent of GDP to 19.5 percent of GDP in 2022/23.
  - Expenditure projected to rise to 36.7 percent of GDP in 2022/23.
  - On-lending of half of SDR allocation in 2022/23 (2.6 percent of GDP) and remainder in 2023/24 and 2024/25 projected.
  - Under current policies, gradual consolidation would narrow fiscal deficit to about 2 percent of GDP over medium term and public debt decline to about 55 percent of GDP; staff recommends more ambitious consolidation to bring PV debt-to-GDP closer to 35 percent benchmark.
- Medium-to-long term macro forecasts (Box 1)
  - Growth: 3.3 percent in 2022; around 5.1 percent by 2025; stabilize around 4 percent over medium term.
  - Inflation: 11 percent in 2022; around 4 percent in medium term.
  - Fiscal path: revenues up from 16.7 percent of GDP in FY2020/21 to above 18 percent long term; grants ~8 percent of GDP per year during 2022–27; current spending decline from 23.2 percent of GDP to about 16.6 percent long term.
  - Public debt: projected peak 67.7 percent of GDP in 2023 and decline to 49.9 percent of GDP by end-2032 (staff projection).
  - Current account deficit: from 13.4 percent of GDP in 2021 to about 8 percent in the long term.
- Sensitivity and stress-test findings
  - External vulnerabilities: most damaging shocks from exports, non-debt flows, and exchange rate.
  - PV of public debt-to-GDP breaches benchmark under baseline and remains above benchmark through projection horizon; exchange rate, commodity prices and GDP growth shocks substantially worsen public debt metrics.
  - Contingent liabilities assumed about 11.1 percent of GDP (including central bank external loan residual US$ 5 million (0.14 percent of GDP) and potential domestic arrears 4.1 percent of GDP).

### Data, safeguards, and Article VIII issues
- Data adequacy: broadly adequate for surveillance with improvements since 2014; GDP rebasing ongoing (base year 2016) with publication planned by end-2022.
- Safeguards: updated safeguards assessment ongoing (first since 2012).
- Article VIII considerations: staff discussed measures potentially constituting exchange restrictions and multiple currency practices (surrender requirement, FX allocation prioritization, limits on FX availability); further information to be collected for assessment.

### Staff appraisal (summary)
- Economy rebounding from 2015 crisis, COVID-19, and war in Ukraine; growth positive and accelerating in 2021 but vaccination remains low.
- 2022 outlook: growth 3.3 percent; inflation 11 percent.
- Public debt 66.5 percent of GDP at end-2021; debt sustainable with high risk of debt distress.
- External position weak: FX reserves 2.2 months of imports at end-2021 and projected to weaken.
- Policy priorities: recalibrate fiscal, ER, monetary, and financial policy mix; ambitious DRM-based fiscal consolidation while protecting priority spending; prepare to wind down special refinancing window with market signaling; accelerate structural reforms and transparency/audit of COVID-19 spending.
- Administrative note: next Article IV consultation expected on standard 12-month cycle.

*International Monetary Fund — Burundi: 2022 Article IV Consultation Executive Summary*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Context
- Burundi’s economy showed resilience to the COVID-19 and Ukraine war shocks.
- Prior to the pandemic, growth was close to 2 percent in 2019 amid a recovery from the 2015 political and security crisis following late President Nkurunziza’s decision to run for a third term.
- The pandemic slowed the recovery but COVID-19 contagion remained fairly contained; growth was positive.
- The war in Ukraine compounded adverse effects, with deteriorating terms of trade and resulting domestic inflation threatening living standards.
- Sanctions from the U.S. and E.U.—legacy of the 2015 crisis—have been lifted. The U.N. Security Council ended mandatory reporting in Burundi and the country reengaged with the international community.
- The 2022 Article IV consultation marks full reengagement with the IMF—the last Article IV was concluded in 2014.

### Recent macroeconomic developments
- Growth and inflation
  - Output growth: 1.8 percent in 2019; slowed to 0.3 percent in 2020; rebounded to 3.1 percent in 2021.
  - Inflation: averaged -0.7 percent in 2019; 7.3 percent in 2020; 8.3 percent in 2021. Year-on-year inflation stood at 11.9 percent in May 2022.
  - Food price pressures: wheat flour prices rose +25 percent in December 2021.
  - Recent domestic price adjustments: domestic pump prices raised twice in 2022Q1 (20 percent in total); transportation fees increased by 30 percent.
- External sector
  - Current account (CA) deficit: 11.6 percent of GDP in 2019; 10.2 percent in 2020; widened to 13.4 percent of GDP in 2021.
  - FX reserves: 1.3 months of imports at end-2019; 0.6 month in March 2021; 2.2 months of imports at end-2021.
  - Parallel exchange rate market premium: 62.5 percent at mid-June 2022.
  - Real effective exchange rate misalignment: 68.6 percent (ESA, Annex II).
  - Export developments: tea prices -12 percent in 2022; coffee prices -1 percent in 2022; gold prices +1.1 percent in 2022.
  - Authorities exchanged a total of SDR 57 million (US$ 80 million) of their SDR allocation for U.S. dollars in 2022H1.
- Fiscal sector
  - Fiscal deficit: 6.2 percent of GDP in 2018/19; 7.8 percent in 2020/21; projected to narrow to 5 percent of GDP in 2021/22 (July−June).
  - Revenue collection: projected at 18.8 percent of GDP in 2021/22 (18.5 percent in 2020/21).
  - Spending: projected at 28.8 percent of GDP in 2021/22 (24.2 percent of GDP in the budget).
  - Vaccine donations expected to boost grants; COVID-related spending not itemized; staff estimates about US$ 42 million (1.3 percent of GDP) spent on the COVID response plan by end-December 2021.
  - Financing of the deficit: government securities issuances, central bank on-lending to the government of the accessed SDR allocation, and external financing.
- Monetary and financial sectors
  - Nonperforming loans (NPLs): 4.1 percent at end-September 2021 (noting regulatory forbearance and large loan restructurings).
  - Private credit growth: 44.8 percent at end-2021 (a 15 percent statistical adjustment was applied to account for a bank reclassification).
  - Credit growth supported by BRB direct lending, government guarantees to para-public projects, and favorable refinancing terms.
  - Two new banks created to target youth and women.

### Outlook and risks
- Growth projections
  - Growth is projected at 3.3 percent in 2022, strengthening progressively to around 4.6 percent over the medium term.
  - Growth drivers: stronger terms of trade, higher agricultural and mining production, buoyant services activities, capital projects, ongoing structural reforms, planned use of the SDR allocation to scale up public investment, and completion of several World Bank and AfDB projects during 2022–25.
  - The outlook is contingent on a pickup in vaccinations, durable political stability, and reengagement with the international community.
- Inflation and external outlook
  - Inflation is projected to reach 11 percent in 2022 and recede starting in 2023.
  - The share of tradable goods in the CPI is estimated at 42 percent; pre-war inflation projection was 5.5 percent.
  - CA balance (baseline projections): -14.4 percent of GDP in 2022; -14.0 percent in 2023; -13.3 percent in 2024.
  - Gross international reserves (including financing needs): US$ 263.3 million in 2022 (2.1 months of imports); projected US$ 243.7 million in 2023 (1.9 months).
- Risks
  - Upside risks: in-kind grants announced by Japan and Russia; expected equity disbursement from a newly signed mining contract; higher donor financing reflecting full reengagement could alleviate FX shortages and support growth; a new financing agreement with the U.S. (US$ 400 million over five years) noted.
  - Downside risks: uncertainty around the intensity and end of the pandemic and the war in Ukraine; deteriorating terms of trade; potential delays in implementing policies underpinning the baseline; slower reform progress.

### Policy recommendations and priorities
- Debt and external sustainability
  - Burundi is at high risk of debt distress; debt is assessed as sustainable contingent on fiscal adjustment and robust export and growth performance.
  - External imbalances have been exacerbated by the pandemic and inward spillovers from the war in Ukraine; FX reserves coverage remains below adequacy levels and the parallel ER market premium is large (62.5 percent at mid-June 2022).
- Fiscal policy
  - Implement credible revenue-led fiscal consolidation and prudent borrowing to reduce debt vulnerabilities while creating fiscal space to continue executing the authorities’ COVID-19 response plan.
  - Protect and cater to social spending needs, ensure efficient targeting, and scale up priority investment to support exit from fragility.
- Exchange rate and monetary policy
  - Recalibrate exchange rate policy and modernize the monetary policy framework (MPF), with attention to FX-related financial sector vulnerabilities to ensure external sustainability.
  - MPF objective should be price stability, using monetary aggregate targeting. Ongoing capacity development is supporting the authorities’ plan to design a post-unification exchange rate policy and the associated MPF.
  - Remain vigilant on financial sector stability and implement forward-looking supervision despite currently limited exposure to currency mismatches.
- Monetary operations and inflation management
  - Calibrate the timing of deferring accommodative monetary policy to address inflationary pressures.
  - Prepare to recalibrate supportive monetary policy measures, including liquidity provisions to banks, and wind down the use of special refinancing windows created during the pandemic with timely market signaling.
  - Reduce direct and indirect monetary financing to help stem inflationary pressures and contain further exchange rate depreciation.
- Structural reforms
  - Implement reforms to alleviate bottlenecks to inclusive growth, including improving competitiveness, continuing to prepare audited COVID-19 spending reports, and further enhancing the broader governance framework.

*International Monetary Fund — Burundi: 2022 Article IV Consultation Executive Summary*

### 10.      External imbalances are projected to persist. The CA deficit would widen significantly in

### 1bdiea2022001 - 10.      External imbalances are projected to persist. The CA deficit would widen significantly in

### External outlook and current account (CA)
- CA deficit projected to widen significantly in 2022 to 14.4 percent of GDP, driven by:
  - deteriorating terms of trade;
  - vaccines and other COVID-19 related imports;
  - easing of import restrictions as the RCF disbursement and SDR allocation improved FX availability.
- Export volumes expected to recover due to the end of mining contract negotiations and a vibrant food industry.
- Beyond 2022, CA deficit projected to narrow as terms of trade improve slightly and current transfers strengthen.
- Capital and financial account dynamics mainly reflect donor inflows, though official inflow projections are conservative relative to reengagement prospects.
- In the absence of ER and FX market reforms, FX reserves would drop to 2.1 months of imports in 2022 and further decrease afterwards without significant inflows.

### Debt sustainability and vulnerabilities
- Burundi assessed at high risk of external and overall debt distress; debt assessed as sustainable contingent on fiscal adjustment, and robust export and growth (debt sustainability analysis).
- Public debt stood at 66.6 percent of GDP at end-2021.
- Key debt risks:
  - large stock of domestic debt and liquidity constraints to service external liabilities;
  - large parallel ER market premium that heightens imbalances and debt sustainability risks;
  - long delays in exchange rate reform could widen the ER market premium and amplify imbalances;
  - delays in fiscal consolidation, slow structural reforms, persistent information gap on arrears, and lingering COVID-19 or war-in-Ukraine effects would heighten vulnerabilities.
- Risk mitigation factors:
  - strong and resilient remittances;
  - prospects of higher FX inflows, including increased grants and concessional loans.
- A large ER depreciation would worsen near-term debt vulnerabilities, while being beneficial after the initial shock given limited external debt.

### Upside and downside risks (summary)
- Upside risks:
  - In-kind grants recently announced from Japan (fuel) and Russia (fuel, fertilizers, medicines, and health equipment).
  - Expected equity disbursement from a newly signed mining contract (nickel); on March 29, 2022, an agreement included an equity deposit of US$ 500 million.
  - Higher yield of recent revenue measures could increase fiscal space and improve debt dynamics.
  - Potentially larger-than-projected external financing from the international community—grants averaged 17.7 percent of GDP per year during 2010−14 compared to 8.6 percent assumed in the baseline medium-term projections.
  - Highly concessional long-term external financing could substitute for more expensive domestic financing and reduce debt vulnerabilities.
- Downside risks:
  - Domestic policy slippages, delays in implementing baseline policies, natural disasters, deterioration in political and security situation.
  - External uncertainties: stronger/longer spillovers from the war in Ukraine, de-anchoring of inflation expectations, rising energy and food prices, weak global demand, and investor confidence shocks from COVID-19 variants.

### Authorities’ views (select positions)
- Authorities broadly agreed with staff’s macro projections but were more optimistic on growth due to ongoing reforms.
- Authorities acknowledged higher imported inflation, but expect limited impact due to fuel price regulation and import substitution policy.
- Authorities reiterated commitment to DRM and prudent borrowing; welcomed CD offers and viewed digitalization and mining reforms as key to revenue gains.
- Authorities cautioned against potential inflationary impact of sharp ER depreciation on vulnerable populations and stressed ER unification would be facilitated by higher donor support.

### Policy priorities and fiscal framework
- Policy priorities focused on:
  - creating fiscal space to cope with COVID-19 and the war in Ukraine while accommodating development spending and attending to debt vulnerabilities;
  - restoring external sustainability and strengthening the monetary policy framework while containing inflation;
  - fostering financial stability;
  - sustaining inclusive growth and reducing fragility via fiscal governance reforms.
- Staff described the required policy mix as balancing priority spending needs with addressing debt and external vulnerabilities.

### Fiscal projections, measures, and recommendations
- Staff expects the 2022/23 fiscal deficit to widen to 7.4 percent of GDP, reflecting predominantly higher capital outlays, partly offset by improved tax revenue and grants.
- Staff projections and fiscal details:
  - Revenue projected to improve by 0.7 percent of GDP to 19.5 percent of GDP, mainly driven by VAT collections and planned measures.
  - Expenditure projected to rise in 2022/23 to 36.7 percent of GDP, mainly driven by public investments financed by project grants and the SDR allocation.
  - The deficit should be largely financed by domestic resources, including on-lending of the accessed SDR allocation, and foreign financing.
  - Staff projects on-lending of half of the SDR allocation in 2022/23 (2.6 percent of GDP) and the remainder in 2023/24 and 2024/25.
  - Under current policies, gradual fiscal consolidation would narrow the fiscal deficit to about 2 percent of GDP over the medium term and public debt would decline to about 55 percent of GDP.
  - Staff recommended a more ambitious medium-term consolidation to bring the PV of debt-to-GDP ratio closer to the indicative benchmark of 35 percent of GDP.
- Recommended revenue and expenditure actions:
  - Stronger DRM: improve compliance via digitalization, widen tax base, accelerate implementation of new measures, create a unique taxpayer identification number, strengthen dividend collection from public enterprises and excise taxes.
  - Spending rationalization and recalibration: shift spending mix towards investment with careful selection of high-return projects; continue multi-year procurement and payment planning.
  - Use part of expected fiscal space for appropriately targeted social programs (SIP) and measures to mitigate adverse impacts of revenue measures; expand social safety nets and fund existing social programs.
  - Document and assess tax expenditures; consider reducing exemptions, especially large exemptions for donors, NGOs, and private investors.

### Exchange rate (ER) unification and external sustainability
- External vulnerabilities include a weak external position, large CA deficit, FX reserves below adequacy levels, and significant REER misalignment.
- BRB FX management practices noted:
  - exporters required to surrender all export proceeds at the official ER;
  - BRB is sole seller in the FX interbank market;
  - FX allocations to commercial banks directed to priority imports;
  - anecdotal evidence of uneven FX allocation across banks.
- Staff stressed ER unification and rebuilding FX buffers as essential for external sustainability. Two approaches presented:
  - Instant unification:
    - Official ER instantly depreciates to a level alleviating FX market distortions (based on REER misalignment and parallel market premium).
    - Advantages: instantly eliminates distortions, easier communication, fiscal benefits, higher credibility.
    - Disadvantages/risks: potentially disruptive if currency mismatches exist; sharp depreciation could trigger domestic inflation spikes and hamper external debt servicing.
  - Gradual unification:
    - Official ER gradually decreases following a rule or discretionary path to equilibrium within a short period.
    - Advantages: smoother adjustment for economic agents; time to design post-unification MP framework and strengthen a monetary anchor.
    - Disadvantages/risks: costly in FX reserves; transition risks include speculative attacks, shocks to equilibrium ER, credibility issues if transition too long, scope for rent seeking and stalling.
- Complementary policies to ER unification include tighter monetary policy, strengthened financial regulation and supervision, prudent external debt management, fiscal consolidation, exit from monetary financing, and careful design of a post-unification ER regime (possibly a managed float).
- Staff recommended clear supportive communication and coordination of ER unification with FX reserve coverage and the global environment; country-specific practical considerations and political economy constraints will guide the choice.

*Source: IMF staff calculations and staff assessment (Burundi Article IV consultation).*

### 31.      BRB’s MP framework is elaborate, albeit in need of improvement. The overarching

### 1bdiea2022001 - 31. BRB’s MP framework is elaborate, albeit in need of improvement.

### Monetary policy framework and recent conduct
- Overarching objective: price stability achieved through quantitative targeting of monetary aggregates and other instruments (SIP).
- Statutory advances officially discontinued in 2017; indirect monetary financing has surged since the pandemic.
- Budget mainly financed through government securities.
- Interbank market: functions relatively well, with little segmentation but low transaction volume.
- Efficiency of monetary policy (MP) transmission and impact on inflation management is limited.
- Liquidity support during the pandemic:
  - BRB increased liquidity provisions: +16 percent in 2020 compared to 2019.
  - Created a refinancing window providing long-term liquidity to banks: 5 years, renewable once, at subsidized interest rate of 2 percent.
  - Banks receiving long-term liquidity required to lend to priority sectors at a maximum rate of 8 percent and maturity of up to 10 years.
  - Long-term refinancing window decreased the buoyancy of the regular 7-day refinancing window.
  - Efficiency of the overnight interest rate remains limited.

### Effects, risks, and calibration of pandemic-era measures
- Measures supported banks’ health and boosted credit, but had unintended effects on MP transmission.
- Staff concerns and guidance:
  - Considering ongoing inflationary pressures and rapid credit growth, BRB should prepare to wind down the long-term refinancing window and carefully calibrate exit from other measures.
  - Timely signaling should be given to the market before unwinding the new refinancing window.
  - Cautious forward-looking monetary policy making is warranted because inflation is mostly driven by volatile supply factors, which might limit MP efficacy.
  - Staff acknowledges positive impact of MP measures on credit growth and the opportunity costs of prematurely deferring accommodative monetary policy given limited fiscal space.
- Policy stance suggested:
  - Move the MP framework toward using interest rates to support plans for exchange rate (ER) unification and transition toward Eastern African Community (EAC) directive to adopt inflation targeting (IT) in the future.
  - Advised against direct private sector financing and creating new instruments to finance the economy; recommended reducing monetary financing to help prepare for ER unification.
  - Strengthen regular MP instruments, including interest rate transmission, deepen the interbank market, and design an efficient communication framework.
  - Build on upcoming CD to strengthen domestic and FX-related liquidity forecasting and macro-modeling.

### Authorities’ views on MP
- Authorities concurred on need to modernize MP framework and strengthen interest rate link.
- Emphasized new window supported banking sector and credit to underserved sectors (agriculture and industry) and contributed to resilience during the pandemic.
- Acknowledged difficulty in calibrating timing to unwind MP support; used to have regular public communications and will consider revamping communication strategy.
- Noted technical preparations to transition to an IT framework as per EAC directives are advanced.

### Financial sector status and supervisory advice
- Banking sector:
  - 14 commercial banks with total assets amounting to 60 percent of GDP.
  - Credit to the private sector exceeding 20 percent of GDP.
  - Capital ratios of around 20 percent, higher than regulatory requirement.
  - Net open FX positions are negligible.
- Nonperforming loans (NPLs):
  - Concentrated in specific sectors: trade 27.1 percent, real estate 15.7 percent, transportation 12.8 percent.
  - Low reported level is partly due to write-offs and increased loan restructurings (a bank can restructure a loan up to three times; a fourth restructuring requires the BRB’s agreement).
- Staff advice:
  - Adopt a forward-looking approach to supervision to detect emerging tensions.
- Authorities’ view:
  - Agree on importance of strengthening supervisory frameworks and financial stability assessments.
  - Do not foresee major financial stability issues related to ER unification and FX market liberalization.
  - Look forward to continued CD to improve regulatory and supervisory frameworks.

### Growth, fragility, and structural reform priorities
- Fragility and social outcomes:
  - Average CPIA score was 2.9 in 2019, below the 3.2 threshold for fragility.
  - Poverty rate stood at 85 percent in 2020.
  - Pandemic worsened social outcomes: poverty, inequality, employment, and gender issues.
- Competitiveness constraints (SIP):
  - Low electricity access and exposure to unsafe drinking water.
  - Low digitalization and productivity, limited competition due to dominant SOEs, lack of collateral and credit bureaus, and skill mismatches.
  - Climate shocks (droughts, floods) cause growth swings.
  - Growth decomposition: mainly driven by higher capital and labor; negative productivity growth weighed on growth, especially in 2015 and 2016.
- Recommended reform agenda:
  - Enhance human capital and health conditions.
  - Support physical capital accumulation and enhance productivity to promote private sector development and growth.
  - Strengthen governance and tackle corruption; Fund offered CD for a Governance Diagnostic Assessment.
  - Accelerate implementation of PND reform agenda.

### Transparency, procurement, AML/CFT, and audit commitments
- Work ongoing on transparency and audit of COVID-19 and SDR allocation spending related to CCRT and RCF disbursement.
  - Authorities accelerated preparation of budget review laws (Loi de Règlements) for 2016 onwards to meet CCRT commitment to produce the 2020/21 report—the deadline of March 2022 was only slightly passed.
  - First COVID-19 spending report prepared in mid-August 2021, covering spending up to August 10, 2021—this report was to be audited by the Court of Auditors and published; audit report delayed by backlog of budget execution reports.
  - The first COVID-19 spending report covered spending from December 24, 2020, to August 10, 2021 and amounted to 0.4 percent of GDP; its audit started in April due to backlog but the Court of Auditors later published audit reports covering 2016−2021.
  - Authorities committed to collecting information on ultimate beneficial ownership (BO) of companies awarded COVID-related contracts starting end-December 2021.
- Procurement and AML/CFT:
  - 2018 procurement law requires publishing procurement plans by end-February each year and auctioning public contracts (SIP); BO information was not being collected at the time.
  - Staff discussed targeted legal drafting assistance on secondary legislation to enhance procurement transparency and accountability (Financial Action Task Force recommendation).
  - Burundi’s AML/CFT framework needs alignment with international standards and the newly setup financial intelligence unit should be made fully operational.
  - Staff advises fast implementation of steps required for full membership in the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG)—a FATF-style regional body.
  - An update of the 2012 PEFA assessment is planned in 2022.

### Fiscal, external, and macro outlook (key figures and risks)
- Public debt and external buffers:
  - Public debt at 66.5 percent of GDP at end-2021.
  - FX reserve coverage at 2.2 months of imports at end-2021.
- 2022 outlook and shocks:
  - Growth for 2022 set to increase to 3.3 percent.
  - Inflation in 2022 projected to reach 11 percent.
  - Spillovers from war in Ukraine compound pandemic effects via trade disruptions, higher food and fuel import prices, and lower export receipts.
  - Large parallel ER market premium noted.
- Policy priorities:
  - A recalibrated fiscal, exchange rate, monetary, and financial policy mix is necessary to address vulnerabilities from the twin shocks.
  - Ambitious fiscal consolidation underpinned by domestic revenue mobilization (DRM) critical to address debt vulnerabilities while protecting priority COVID-related, social, and investment spending.
  - Staff welcome decision to allow domestic price adjustments and near-term budget focus on health, social, and infrastructure spending.
  - Further DRM steps: digitalization, tax base widening, and improvements in compliance.
  - Shift spending mix toward investment while protecting social spending to support growth and exit from fragility.
  - Staff welcome authorities’ plan to unify official and parallel ER market in the medium term, building on IMF CD; choice between gradual vs instant approach depends on FX buffers, financial sector vulnerabilities, post-unification ER and monetary policy framework, and political economy.
  - Supportive reforms needed: tighter MP, FX market liberalization, and growth-supportive reforms.

### Data, safeguards, and Article VIII considerations
- Data adequacy:
  - Data assessed broadly adequate for surveillance with notable improvements since 2014 supported by CD (accuracy, timeliness, coverage).
  - BOP data broadened; staff baseline macroframework reflects official national accounts data from 2020 (Annex V and IA).
  - Authorities initiated steps toward adopting e-GDDS standards; a CD strategy was elaborated—key priorities include DRM, PFM, monetary and ER policy, and statistics (including GDP rebasing).
- Safeguards: an updated safeguards assessment is ongoing (IA)—first since 2012.
- Article VIII issues:
  - Since 2014 Article IV consultation, authorities introduced important changes to FX system.
  - Staff discussed measures potentially constituting exchange restrictions and multiple currency practices (MCPs) inconsistent with Article VIII, sections 2(a), 3, and 4: surrender requirement, prioritization of FX allocation, and limits on FX availability for certain transactions.
  - Staff will collect further information, mainly from market participants, to conduct further assessment.

### Staff appraisal (summary points)
- Burundi’s economy is rebounding from three shocks: the 2015 political and security crisis, the COVID-19 health shock, and the war in Ukraine.
- Recovery has shown resilience to the pandemic with output growth remaining positive and accelerating in 2021; vaccination remains low.
- Spillovers from the war in Ukraine threaten the nascent recovery; outlook for 2022: growth 3.3 percent, inflation 11 percent.
- Debt sustainability: public debt 66.5 percent of GDP at end-2021 and expected to decrease gradually over the medium term; debt sustainable with high risk of debt distress.
- External position: weak with FX reserves at 2.2 months of imports at end-2021 and projected to further weaken.
- Policy recommendations emphasized:
  - Recalibrate policy mix (fiscal, ER, monetary, financial).
  - Ambitious fiscal consolidation underpinned by DRM while protecting priority spending.
  - Prepare to wind down special refinancing window with timely market signaling and recalibrate temporary measures, mindful of opportunity costs given limited fiscal space.
  - Accelerate structural reforms to address fragility, enhance competitiveness and governance, and implement the PND reform agenda.
  - Continue transparency and audit efforts on COVID-19 spending and collect BO information for COVID-related contracts.
- Administrative note: next Article IV consultation expected on the standard 12-month cycle.

*Source: IMF staff report excerpt (1bdiea2022001).*

### Annex I. The COVID-19 Pandemic and The Authorities’ Response

### Annex I. The COVID-19 Pandemic and The Authorities’ Response

### The pandemic
- First COVID-19 case reported on March 31, 2020.
- As of June 14, 2022: 42,330 cases and 15 deaths reported.
- Testing coverage: less than 3 percent of the population tested as of June 12, 2022.
- Weekly confirmed cases trajectory:
  - Average of 20 cases per week in 2020.
  - Average of 371 cases per week during January–June 2021.
  - New cases surpassed 1,000 cases per week in the second half of 2021.
  - Peak of more than 5,000 cases during the last week of December 2021.
  - About 446 cases per week since early 2022.
- Two large-scale testing campaigns conducted: July 6–October 6, 2020, and January 11–February 11, 2021.
- The number of cases is likely underestimated due to weak testing capacity.

### Government response (measures and spending)
- Travel and movement restrictions:
  - Bujumbura airport closed from March to November 2020.
  - Land and sea borders to passengers closed on January 11, 2021; new restrictions for passengers arriving at Bujumbura airport.
  - In September 2021, a fine of about US$ 50 for not wearing a mask in public places and public transportation in Bujumbura was introduced; the fine has been removed and masks are no longer mandatory.
- Pandemic response plan:
  - Response plan estimated at about US$ 150 million (4.5 percent of 2021 GDP).
  - Sanitary measures estimated at US$ 58 million (1.7 percent of 2021 GDP).
  - Authorities promoted preventative measures and limited the use of social distancing to minimize adverse economic effects.
  - Subsidies and health measures: subsidized the price of soap during June−September 2020 and subsidizing water for standpipes, up to 50 percent; hired additional doctors and nurses; granted tax holidays to affected businesses.
- Fiscal outturn and plans:
  - As part of the response plan of 4.5 percent of GDP, the authorities spent 1.1 percent of GDP in 2020/21 (including sanitary and non-sanitary measures).
  - They plan to spend about 1 percent of GDP in 2021/22 (excluding vaccines).
  - Staff estimates that a cumulated US$ 36.7 million (1.1 percent of GDP) has been spent on this plan at end-December 2021.
- Financial sector measures:
  - The central bank increased flexibility in loan restructuring with targeted and time-bound extensions of loan maturities to hard-hit borrowers.
  - A new refinancing window opened for banks extending long-term loans to high-growth priority sectors.

### Vaccination
- Vaccination started at end-October 2021 with about 100 people vaccinated per day on average.
- As of June 5, 2022: 13,811 people (0.1 percent of the population) were fully vaccinated.
- Vaccine donations received in 2021:
  - 500,000 doses of Sinopharm vaccine from China.
  - 302,400 Johnson and Johnson vaccine doses through the African Vaccine Acquisition Trust (AVAT), which is expected to donate a total of 2.4 million doses of this vaccine to Burundi.

### Urgent needs
- Strengthen diagnostic capacity:
  - Rapid testing and molecular analysis machines to identify variants of the virus.
- Improve logistics to contain imported cases and community transmission:
  - Vehicles and associated consumables.
  - Construction of travelers’ paths to reduce contamination.

### Donor support
- Financial and debt-relief support to date:
  - World Bank grant: US$5 million.
  - IMF CCRT debt relief through April 2022: SDR 17.96 million.
  - Debt service relief from Exim Bank of China and the Kuwait Fund under the G20 DSSI: US$ 0.93 million.

### Governance and oversight
- Institutional arrangements:
  - A technical committee for the response to the COVID-19 pandemic was set up.
  - A single fiduciary fund, with an account opened at the BRB, was established to centralize donor funding.
- Audit and transparency:
  - The first COVID-19 report covering operations from the fiduciary fund was transmitted in August 2021 to the Court of Auditors, which started its audit in April 2022.
  - Authorities indicated delays in auditing the COVID-19 report were due to a backlog of audits of government financial statements, which were completed in mid-January 2022.

*Source: Annex I. The COVID-19 Pandemic and The Authorities’ Response (1bdiea2022001)*

### Annex IV. Capacity Development Strategy

### Annex IV. Capacity Development Strategy

### A. Capacity Development Strategy — Near-term focus and priority areas
- Near-term CD would focus on:
  - strengthening fiscal operations and policy design;
  - supporting the transition to a unified exchange rate (ER), coherent ER policy, and efficient post-unification monetary policy framework;
  - fostering financial sector stability;
  - strengthening data transparency by implementing the enhanced General Data Dissemination System (e-GDDS);
  - improving data timeliness and quality, especially fiscal, external and national accounts statistics; and
  - reducing corruption vulnerabilities and corresponding governance weaknesses.
- Priority areas:
  i. Fiscal operations and policy design:
    - Revenue administration: strengthening of core functions and modernization, including through digitalization;
    - Tax policy: general review of the tax system, including mining taxation, to rationalize, enhance efficiency, and simplify while proposing areas to strengthen collection and widen the tax base;
    - Public finance management (PFM): strengthening of the budget process (preparation, formulation, execution, reporting and auditing); introduction of medium-term budgeting; strengthening of the PFM framework to facilitate identification and follow up of pending bills and arrears; strengthening of public investment management, cash management and the operationalization of the Treasury Single Account (TSA); and strengthening of the macroeconomic projection model and fiscal risks analysis;
    - Expenditure policy: enhance spending composition and efficiency.
  ii. Exchange rate policy:
    - Unification of the official and parallel exchange rates;
    - Transition to an appropriate post-unification ER policy and FX intervention policy;
    - FX market reform: liberalization, setting up an auctioning system.
  iii. Monetary policy:
    - Transition to an appropriate post-unification monetary policy framework (MPF);
    - Strengthening monetary policy (MP) efficiency, including the design and use of standards MP instruments and elaborating a communication strategy;
    - Preparing for the Eastern African Community (EAC)’s medium-term goal of a price-based MPF.
  iv. Financial sector stability:
    - Strengthening the supervisory frameworks (for banks and non-banks);
    - Regulatory framework: transition to new standards.
  v. Debt management:
    - Improving the quality of debt data;
    - Building capacity to undertake a comprehensive analysis of the existing debt portfolio in terms of cost and risk;
    - Enhancing debt monitoring and reporting;
    - Domestic market development and strengthening of cash management;
    - Elaboration of a medium-term debt strategy addressing all relevant dimensions, including maturity, investor’s base, currency composition, cost optimization.
  vi. Statistics:
    - implementing the e-GDDS recommendations and publishing macroeconomic and financial data essential for surveillance and policy analysis through a National Summary Data Page (NSDP);
    - improving the timeliness, quality, and coverage of national accounts, external sector statistics, government finance statistics and fiscal reporting, financial soundness indicators, monetary and financial statistics, debt statistics (including debt of publicly-owned enterprises, the local government, and the private sector), as well as the reporting of contingent liabilities.
  vii. Governance:
    - Strengthening the Legal and Organizational Framework for addressing corruption based upon an identification of anticorruption priorities;
    - Improving the effectiveness of the AML/CFT framework in line with international standards.

### B. Recent CD Activities — Summary by area
- Revenue Administration:
  - Recent CD missions mainly from AFRITAC-Centre (AFC) supporting customs and tax administrations.
  - Customs CD: strengthen audit and control programs against smuggling, customs valuation procedures and risk-based controls; recent activities include a regional seminar (January 2020) and missions (December 2019, October 2020, November 2021).
  - Tax administration CD: strengthen integrity of the tax base and taxpayer registry, audit and control programs, management of tax arrears, institutional management and governance modernization; regional seminar (January 2020) and a remote mission (October–November 2020) to assess COVID-19 measures, propose revenue safeguard measures, and support digitization (innovative tools for reporting and payment).
  - FAD and AFC diagnostic mission originally scheduled April 28–May 17, 2022 postponed to September 2022; will review revenue administration, tax policy, PFM, and debt management.
  - FAD plans to station a long-term fiscal expert in Burundi in the fall of 2022.
- Tax Policy:
  - No recent Fund CD mission; FAD is considering a diagnostic mission on the tax system at the authorities’ request, potentially in FY2022/23.
- Public Financial Management:
  - Recent AFC-led CD aimed to: (i) improve budget preparation (detail, credibility, policy basis); (ii) strengthen legal and institutional PFM framework; (iii) strengthen identification, tracking and management of fiscal risks; (iv) improve management of assets and liabilities; (v) improve coverage and quality of financial reports.
  - Delivery mainly via regional seminars (May, June, August, December 2019; February, March 2020); program budgeting support mission (January 2022).
  - FAD and AFC planning diagnostic mission for April 28–May 17, 2022 at authorities’ request.
- Debt Management:
  - A CD mission to strengthen public debt reporting practices is planned in FY2023.
- Financial supervision and stability:
  - BRB has received several AFC-conducted CD missions on financial supervision and stability.
  - Focus on strengthening BRB capacities: financial supervision, risk and vulnerability assessment, aligning regulations with Basel 3.
  - December 2020 mission: methodological guidance on on-site control of operational risk management frameworks.
  - March 2021 mission: methodological guidance on on-site control of the accounting function and data-quality frameworks.
  - March–April 2022 mission: tools for BRB supervisors to perform risk-based on-site inspections assessing credit risk management frameworks.
  - CD on IFRS 9 implementation (February 22 - March 19, 2021) to upgrade prudential requirements on credit classification and provisioning of expected credit losses.
  - AFC mission Jan–Mar 2022: draft Internal Capital Adequacy Assessment Process (ICAAP) regulation and methodological tool for supervisors; training on Basel II Pillar 2, ICAAP, and stress testing guidelines.
- Statistics:
  - National Accounts:
    - STA mission in July 2021 to ISTEEBU; GDP rebasing exercise ongoing with AFRISTAT technical assistance and World Bank financial support.
    - ISTEEBU plans to publish rebased GDP estimates for both 2016 (new base year) and 2017 by end-2022.
    - July 2021 mission reviewed preliminary rebased GDP estimates for new base year (2016) compliant with the System of National Accounts 2008 (2008 SNA); recommendations to improve supply and use tables (SUT); training in backcasting for 2005–2015 estimates.
    - AFC missions: October 2020 and May 2021 on GDP rebasing methodology and quarterly national accounts development.
  - CPI and price statistics: TA provided by the East African Community; mission October 18–November 05, 2021 assisted ISTEEBU with updating CPI weights.
  - Government Finance Statistics (GFS): regional AFC GFS webinar April 19–23, 2021; GFS TA/training mission June 14–25, 2021 to support adoption of GFSM2014; GFS TA mission January–February 2022 to facilitate implementation.
  - e-GDDS: remote mission March/April 2022 to assist implementation and publish data through an NSDP.

### Debt Sustainability — Key findings and vulnerability metrics
- Joint Bank-Fund Debt Sustainability Analysis (DSA) outcomes:
  - Risk of external debt distress: High
  - Overall risk of debt distress: High
  - Granularity in the risk rating: Sustainable
  - Application of judgment: No
  - Assessment date shown: July 7, 2022
- Staff assessment and drivers:
  - Burundi is at high risk of external and overall debt distress.
  - One external debt burden indicator (the ratio of external debt service to exports) breaches its threshold under the baseline.
  - External debt indicators under the baseline fall below benchmarks in the medium term.
  - The PV of the public debt-to-GDP ratio under the baseline breaches the benchmark significantly and protractedly and remains above the benchmark until the end of the horizon, implying high overall public debt distress risk; however, the indicator is on a declining trend.
  - Stress tests: largest deterioration in external debt burden indicators result from shocks to exports and exchange rate (exchange rate shock triggers deterioration for one year); largest deteriorations in overall debt burden indicators result from shocks to GDP growth, commodity prices, and exchange rate (exchange rate effects recede by mid-long term).
  - Staff assesses debt as sustainable based on authorities’ commitment to fiscal consolidation (unwinding of COVID-related spending), moderate improvement in revenue collection, expectations of stronger donor financing, and a positive macroeconomic outlook including robust exports and GDP growth.
  - GDP rebasing, which will likely raise GDP estimates and improve public debt ratios (already declining), is an additional mitigating factor.
  - Risks: delays in fiscal consolidation, delays in structural reforms (including exchange rate unification and greater exchange rate flexibility), lack of up-to-date information on arrears, a prolonged COVID-19 shock or a war in Ukraine would heighten vulnerabilities.
  - Public debt is especially vulnerable to shocks to the exchange rate, non-debt creating flows, commodity prices, exports, and GDP growth.
  - Further grants and concessional loans to finance high-return projects would be beneficial as donor operations scale up.
- Public debt coverage and contingent liabilities:
  - Public debt coverage includes external and domestic debt of the central government; data limitations prevent expanding coverage to other general government entities or SOEs.
  - Contingent liability stress test accounts include:
    - External loan contracted by the central bank in December 2019: $40 million (3-year maturity), remaining balance of US$ 5 million (0.14 percent of GDP) at end-2021.
    - Potential domestic arrears assumed to amount to 4.1 percent of GDP at end-2021.
    - Contingent liabilities on SOEs’ debt set at default value of 2 percent of GDP to cover fiscal risks from weak reporting and domestic arrears.
    - Commercial banks’ liabilities about 71 percent of GDP at end-2021; commercial banks appear well capitalized with improving returns on assets and declining NPLs (about 1 percent of GDP at end-September 2021).
    - Contingent liabilities from financial markets set at default value of 5 percent of GDP (about 7 percent of Burundi’s commercial banks’ liabilities) to account for potential support to the financial system.
    - Overall, total contingent liabilities are assumed at about 11.1 percent of GDP.
- Historical debt developments:
  - Burundi received HIPC and MDRI debt relief in 2009, lowering external debt from 134 percent of GDP at end-2008 to 27 percent of GDP at end-2009.
  - Public debt increased somewhat in 2021 as the increase in external debt more than offset the decline in domestic debt.
  - Domestic debt fell from 48.2 percent of GDP in 2020 to 46.3 percent of GDP at end 2021.

*Annex IV. Capacity Development Strategy — Source: IMF staff report content provided.*

### 17.7 percent of GDP at end-2020 to 20.2 percent of GDP at end-2021 mainly because of an IMF loan (Rapid

### 1bdiea2022001 - 17.7 percent of GDP at end-2020 to 20.2 percent of GDP at end-2021 mainly because of an IMF loan (Rapid

### Public debt levels and composition
- Total public debt rose from 66 percent of GDP at end-2020 to 66.6 percent of GDP at end-2021.
- Central government and central bank coverage noted; other elements of general government not captured under main public debt definition assessed at 1.0 percent of GDP; SoE's debt (guaranteed and not guaranteed) default shock set at 2 percent of GDP; PPPs counted as 35 percent of PPP stock (0.0); financial market shock default value 5 percent of GDP (5.0).
- Domestic debt stock (selected items, nominal BIF billion and percent of GDP):
  - Total Debt: 2,850.4 BIF (48.2 percent of GDP) in 2020; 3,063.2 BIF (46.3 percent of GDP) in 2021.
  - BRB: 894.7 BIF (15.1 percent of GDP) in 2020; 901.5 BIF (13.6 percent of GDP) in 2021.
  - Restructured loans: 708.3 BIF (12.0 percent of GDP) in 2020; 691.0 BIF (10.4 percent of GDP) in 2021.
  - Loans for subsidized fertilizers: 150.0 BIF (2.5 percent of GDP) in 2020; 113.3 BIF (1.7 percent of GDP) in 2021.
  - Commercial banks: 1,735.4 BIF (29.4 percent of GDP) in 2020; 1,914.0 BIF (28.9 percent of GDP) in 2021.
  - Bonds and treasury bills (commercial sector): 1,547.4 BIF (26.2 percent of GDP) in 2020; 1,710.1 BIF (25.9 percent of GDP) in 2021.
  - Obligations sur titrisation: 67.3 BIF (1.1 percent of GDP) in 2020; 105.9 BIF (1.6 percent of GDP) in 2021.

### External debt and creditors
- Total external debt (nominal, Millions of US dollars and percent of GDP):
  - Total Debt: 538.7 million (17.7 percent of GDP) in 2020; 667.3 million (20.2 percent of GDP) in 2021.
  - Multilateral: 377.9 million (12.4 percent of GDP) in 2020; 477.5 million (14.5 percent of GDP) in 2021.
  - World Bank (IDA): 135.3 million (4.5 percent of GDP) in 2020; 132.2 million (4.0 percent of GDP) in 2021.
  - IMF: 26.0 million (0.9 percent of GDP) in 2020; 94.8 million (2.9 percent of GDP) in 2021.
  - Bilateral: 160.8 million (5.3 percent of GDP) in 2020; 189.8 million (5.8 percent of GDP) in 2021.
  - Libya outstanding debt: US$ 4.64 million at end-2021 (0.14 percent of GDP) not being serviced owing to ongoing negotiations.
- Burundi’s outstanding external debt at end-2021 retains a grant element of 29.2 percent.
- Debt service status: Burundi is current on servicing external debt (except the debt to Libya) and government securities. Stock of domestic arrears is unknown; domestic arrears accumulated from 2005 to 2017 (about BIF 230 billion or about 4 percent of 2020 GDP) were cleared through cash payments and securitization.

### Recent drivers of debt dynamics
- Public debt increase reflects economic difficulties since 2015 and COVID-19 impact.
- Donor aid fell from 8.9 percent of GDP over 2014 to 2.4 percent of GDP over 2016 following the 2015 crisis.
- Fiscal deficits averaged 6.5 percent of GDP a year during 2015–19.
- Fiscal deficits: 6 percent of GDP in FY 2019/20 (July–June) and 7.8 percent of GDP in FY2020/21.
- Deficits financed mainly by borrowing from the central bank and commercial banks, with occasional accumulation of domestic arrears. No identified external arrears (except Libya case).
- Specific deviation: a central bank loan contracted in 2019 to replenish reserves accounted for 0.14 percent of GDP at end-2021; contingent liabilities include possible domestic arrears since 2018 not yet identified or recognized (4 percent of GDP).

### Macroeconomic forecasts and key projections
- Baseline projects GDP growth to recover to 3.3 percent in 2022, conditioned on pickup in vaccination, political stability, reengagement with international community, and sustained although limited external financing flows.
- Medium-term growth: around 5 percent in the medium term supported by services, agricultural and manufacturing production, and investment.
- Inflation projected to rise to 11 percent in 2022.
- External accounts: current account deficit expected to widen in 2022 due to (i) higher import prices from the war in Ukraine, (ii) vaccines and other COVID-19 related needs, and (iii) easing of import restrictions after RCF disbursement and SDR allocation improved FX availability.
- Vaccination donations would cover 21 percent of the population (US$ 1.8 million for each percentage point of the covered population).
- FX reserves projected at 2.1 months of imports in 2022 and would decrease afterwards partly owing to import content of investment projects.

### Changes since the 2021 DSA and scenario notes
- Real GDP growth revised downward for 2022 and 2023 by 0.9 and 0.6 percentage points respectively versus the 2021 DSA.
- Fiscal projections:
  - Revenue projections broadly in line with 2021 DSA; project grants higher in medium term due to inclusion of vaccine grants in FY2022 and project grants from US and EU starting FY2023.
  - Public investment higher in FY2022–25 mainly due to SDR allocation and RCF loan supporting increased domestically-financed investment.
  - Primary fiscal balance expected to rise from an annual average of -2.4 percent of GDP during 2020–25 to an annual average of -0.3 percent of GDP during 2026–41.
  - Baseline assumes significant fiscal adjustment starting in FY2025 as COVID-19 spending pressures subside, FY2022–24 investment program completes, revenue collection improves, budget support increases, and subsidies remain contained.
- External sector:
  - Non-interest current account balance path more favorable than 2021 DSA due to downward revisions in imports projections starting in 2022.
  - Export growth expected to recover in 2022 and remain strong medium/long term driven by traditional exports (coffee and tea) and mining expansion, especially gold.

### Financing composition and assumptions
- Domestic borrowing projected to finance most of declining fiscal deficit going forward; net external borrowing to substantially increase starting in 2028.
- In 2021, multilateral and regional lenders accounted for 82.4 percent of external borrowing mainly because of the RCF loan from the IMF; projected to fall to around 51–57 percent during 2022–27 before rising to about 90 percent starting in 2028 when World Bank financing assumed on credit terms.
- Projected multilateral loan maturities vary between 20 and 38 years; grant elements vary between 27.5 percent and 53.7 percent.
- Non-Paris Club bilateral lending assumed to continue with maturities 20 to 30 years and grant elements between 29.8 percent and 49.4 percent.
- Domestic financing instruments assumed: central bank lending (mainly the SDR allocation), treasury bills and bonds with maturities <1 year to >7 years and interest rates varying from 2 to about 8.5 percent.
- Projected domestic financing share of fiscal deficit declines from about 68 percent to about 51 percent by FY2032 as net external borrowing picks up starting FY2028.

*Sources: Burundian authorities; and Bank-Fund staff estimates and projections.*

### Box 1. Medium-to-Long Term Macroeconomic Forecasts

### Box 1. Medium-to-Long Term Macroeconomic Forecasts

### Growth outlook
- Growth is expected to peak at around 5.1 percent in the medium-term and settle at around 4 percent in the long-term.
- Growth projections:
  - 3.3 percent in 2022 (3.1 percent in 2021).
  - Around 5.1 percent by 2025.
  - Progressively stabilize around 4 percent over the medium term.
- Drivers and structural factors:
  - Implementation of delayed growth-enhancing projects and sectors targeted under the National Development Plan 2018–2027 (NDP) benefiting from additional investment, more skilled labor, and favorable business conditions.
  - Support from export diversification, infrastructure development, improved access to social safety nets and public services, and better governance (NDP objectives).
  - Support from relatively stable terms of trade, higher production in agriculture, mining and services sectors, and capital projects.
  - Primary sector continues to provide a stable basis for growth but will be overtaken by tertiary and secondary sectors.
  - Manufacturing production will be boosted by ongoing import substitution policies (expansion of cement and fertilizer factories) and food and beverage production increases, financed by strong private sector credit, BRB’s special refinancing measures and newly created banks.

### Inflation outlook
- Inflation projections:
  - Rise to 11 percent in 2022, pushed by increased prices of imported food and fuel reflecting effects of the war in Ukraine.
  - Annual inflation expected to be around 4 percent in the medium term.
- Determinants:
  - Inflation will continue to be heavily determined by agriculture—food items represent 45 percent of the basket.
  - Containment expected due to price regulations and FX allocation policy limiting imported inflation.

### Fiscal outlook and public finances
- Baseline assumes fiscal consolidation with objectives to:
  - Rein in the increase of public debt beyond its already high level.
  - Rein in money growth while strengthening the domestic banking system’s ability to provide credit to the private sector.
- Revenue and grants:
  - Tax revenue expected to rise from 16.7 percent of GDP in FY2020/21 to above 18 percent of GDP in the long term, driven by better revenue collection from income taxes and taxes on goods and services, including VAT on imports.
  - Grants projected at about 8 percent of GDP per year on average during 2022–27 (from a level of 4.7 percent of GDP in FY2020/21), then fall to about 2 percent of GDP in the long term.
  - The DSA assumes World Bank financing on credit terms from 2028.
- Spending:
  - Current spending projected to drop from 23.2 percent of GDP in FY2020/21 to about 16.6 percent of GDP in the long term, reflecting containment of subsidies and transfers and unwinding of COVID-related spending.
  - Capital spending projected to decline from about 8 percent of GDP in FY2020/21 to about 6 percent of GDP in the long term, reflecting decline in foreign project support.
- Fiscal balance and debt:
  - Fiscal balance improves from a deficit of about 7.8 percent of GDP in FY2020/21 to a deficit of 3.2 percent of GDP in 2031/32 and further improvement in the much longer term.
  - Public debt projected to peak in 2023 at 67.7 percent of GDP and start declining thereafter.
  - Staff projections: public debt relative to GDP expected to peak at end 2023 and reach 49.9 percent of GDP by end-2032 (compare 2021 DSA projections: peak at 70.8 percent of GDP at end-2021 and decline to 38.6 percent of GDP by end-2032).

- Specific assumptions and notes:
  - Baseline assumes central bank advances to the government equal to half of the SDR allocation in FY2023 (2.8 percent of GDP) and the remainder of the SDR allocation in 2024 (about 3 percent of GDP), included in domestic debt and reimbursed over time with interest rate varying between 2 and 6 percent.
  - Staff projections include immediate impact of the Burundi–Tanzania railway agreement signed on January 16, 2022, to build a $900 Million (26.2 percent of Burundi 2022 GDP) railway: assumed government spending of BIF 200 billion (2.5 percent of GDP) in FY2023 and BIF 100 billion (1.1 percent of GDP) in FY2024 on this project. The DSA does not assume further Burundi financing tied to this project.

### External sector and current account
- Current account deficit dynamics:
  - Trade deficit projected to decline from 21.6 percent of GDP in 2021 to about 12.5 percent of GDP in the long term.
  - Transfers projected to decline from 14.1 percent of GDP in 2021 to about 7 percent of GDP in the long term.
  - Current account deficit projected to decline from 13.4 percent of GDP in 2021 to about 8 percent of GDP in the long term.
- Financing:
  - Financed mainly with project grants averaging about 8 percent of GDP per year in the medium term and about 2 percent of GDP per year in the long term, and public and private sector borrowing (including trade credits) averaging about 4.5 percent of GDP per year during 2022–42.
  - Burundi’s large current account deficits have been financed mainly by project grants, public sector borrowing, and private non-FDI inflows, largely trade credits; FDI inflows have been modest.
- Residuals and measurement:
  - Large residuals for external debt in Table 1 and Figure 3 mostly due to external debt being only central government external debt; current account deficit also financed with private borrowing and unidentified private flows not captured in external debt.

### Realism tools, debt sensitivity, and consistency checks
- External debt sensitivity:
  - Realism tools highlight sensitivity of external debt to the current account deficit, mainly due to weak exports. Projected external debt indicators broadly similar to 2021 DSA.
- Public debt sensitivity:
  - Realism tools highlight sensitivity of total public debt to the primary fiscal deficit and GDP growth.
- Fiscal adjustment realism:
  - Projected fiscal adjustment over the next three years is in the normal range for low-income countries and reflects winding down of COVID-related spending and scaling up of public investment.
  - Consistency checks suggest projected growth impact of public spending is consistent with realistic fiscal multipliers (tool limitations: not well suited to account for pandemic impact).
  - Increase in public investment will support projected growth, slightly more than in the 2021 DSA; private investment will contribute positively but less than in the 2021 DSA.

### Risks: upside and downside scenarios
- Upside risks:
  - Recently announced mining sector developments and emergency grants, and donor support reaching full post-reengagement potential could boost growth and strengthen the BOP.
  - Higher yield from recent revenue measures (Text Table 7) would increase fiscal space and may improve debt dynamics.
  - Potential larger external financing from the international community (not built into the baseline), reflecting lifting of U.S. and E.U. sanctions and full reengagement.
  - Disbursements of grants and project loans, especially from AfDB, could be larger than staff projections if project implementation accelerates.
  - Highly concessional long-term external financing substituting for more expensive domestic financing would reduce borrowing cost and debt vulnerabilities and likely accompany an ambitious reform agenda.
  - Further flexibility in exchange rate management and other reforms to support structural change and enhance competitiveness would improve the outlook.
  - Specific upside items noted: in-kind grants from Japan (fuel) and Russia (fuel, fertilizers, medicines, and health equipment), and an equity disbursement from a mining contract signed on March 29, 2022—press reports noted contract includes an equity deposit of US$500 million (not yet made).
- Downside risks:
  - Domestic: delays in implementing domestic policies underpinning the baseline, including modest fiscal consolidation, imprudent monetary policy, slow implementation of governance and growth-enhancing reforms under the NDP, and weak regulatory and supervisory frameworks for financial stability.
  - A longer muddle-through exchange rate policy stance would amplify macroeconomic imbalances and raise risks to long-term growth.
  - External: stronger and longer spillovers from the war in Ukraine, end of the pandemic uncertainties, natural disasters leading to higher domestic inflation, deterioration of political and security situation (spillovers from the war in Ukraine and domestic risks), rising energy and food prices and borrowing costs following monetary policy tightening by major central banks, weak global demand and investor confidence due to COVID-19 variants.

### Disbursement projections (selected figures from staff vs. authorities, 2022–32)
- Loans (Projects) projected disbursements (staff) and potential disbursements (authorities) examples (annual values shown in sequence 2022–2032 in Table):
  - Projected disbursements (staff) for Loans (Projects): 1.0, 0.9, 0.8, 0.7, 0.7, 0.6, 3.0, 2.6, 2.4, 2.2, 2.1
  - Potential disbursements (authorities) for Loans (Projects): 2.2, 1.5, 1.0, 0.1, -, -, -, -, -, -, -
- Grants (Projects) projected disbursements (staff) (2022–2032): 10.2, 10.6, 8.3, 8.0, 7.8, 7.3, 3.9, 3.6, 3.4, 3.3, 3.2
  - Of which: IDA: 6.4, 6.3, 3.9, 3.7, 3.6, 2.9, -, -, -, -, -
  - Of which: AfDB: 0.9, 0.8, 0.8, 0.8, 0.8, 0.8, 0.8, 0.8, 0.8, 0.8, 0.8
  - Of which: IMF (CCRT grants): 0.1, -, -, -, -, -, -, -, -, -, -
  - Of which: Others (incl. US and EU): 2.8, 3.4, 3.6, 3.5, 3.4, 3.6, 3.1, 2.8, 2.6, 2.5, 2.4

- Memorandum items (selected):
  - GDP at current market prices in billions of Burundi Francs (2022–2032): 7,416.0, 8,305.0, 9,316.2, 10,457.3, 11,620.3, 12,867.6, 14,215.1, 15,675.0, 17,249.2, 19,002.8, 20,918.7
  - GDP at current market prices in billions of US$ (2022–2032): 3.6, 4.0, 4.3, 4.7, 5.1, 5.5, 5.9, 6.3, 6.7, 7.2, 7.7

### Country classification and stress tests
- Debt-carrying capacity:
  - Burundi’s debt-carrying capacity classified as weak (as in the 2021 DSA).
  - Composite indicator (CI) is 2.06, based on April 2022 WEO data and 2020 CPIA scores.
- Applicable external debt thresholds under weak debt-carrying capacity:
  - PV of debt-to-GDP ratio: 30 percent.
  - PV of debt-to-exports ratio: 140 percent.
  - Debt service-to-exports ratio: 10 percent.
  - Debt service-to-revenue ratio: 14 percent.
  - Benchmark for PV of total public debt: 35 percent of GDP.
- Stress test settings:
  - Standard settings used except for contingent liabilities and exchange rate depreciation stress tests.
  - Contingent liabilities stress test accounts for a recent loan contracted by the central bank that the government guarantees but will still be serviced by the central bank and potential domestic arrears accumulated since 2018.
  - Exchange rate stress test assumes a real depreciation of 70 percent in 2023 to close the real exchange rate overvaluation.

*Source: IMF staff Box 1. Medium-to-Long Term Macroeconomic Forecasts (from provided content).*

### 19.      Burundi’s risk of external debt distress is high. One indicator breaches its respective threshold

### Burundi’s risk of external debt distress is high. One indicator breaches its respective threshold

### Key findings on external debt sustainability
- Risk assessment: Burundi is at high risk of external debt distress; one indicator breaches its respective threshold under the baseline.
- PV of external debt-to-GDP:
  - Values (selected projection years): 13.3, 12.4, 11.5, 10.6, 10.0, 9.1, 10.0, 9.2 (series from the External DSA table).
  - Remains below its threshold under the baseline and shock scenario.
- External debt service-to-exports:
  - Ratios (2019–2032 series excerpt): 8.7, 8.5, 8.2, 8.3, 10.0, 9.8, 9.2, 8.7, 11.1, 6.9, 6.7.
  - Breaches its threshold in 2027–29 when repayment of the 2021 RCF loan starts; drops below the threshold starting in 2030.
- Gross external financing need (Million of U.S. dollars):
  - Selected values: 371.0, 325.4, 456.9, 537.9, 577.3, 595.9, 545.8, 550.4, 574.8, 693.1, 1201.2.

### Vulnerabilities identified by stress tests (external)
- Most damaging shocks:
  - Exports shock: would result in large and protracted breaches of thresholds for two debt burden ratios.
  - Non-debt flows (including transfers and FDI): significant vulnerability.
  - Exchange rate shock: a large one-time depreciation commensurate to the parallel exchange rate premium would sharply increase the PV of external debt-to-GDP in the near term (though it would remain below its sustainability threshold), with substantial improvement in the longer term.
- The most extreme stress test is defined as the test that yields the highest ratio on or before the tenth year of the projection period.

### Public debt sustainability: signals from the model
- Overall risk: Burundi’s overall risk of debt distress is high.
- PV of public debt-to-GDP:
  - The PV of the public debt-to-GDP ratio breaches its threshold under the baseline.
  - The breach narrows in the forecast but remains above the threshold throughout the projection horizon.
  - The decline below the 35 percent benchmark after 2032 is predicated on sustained growth and fiscal consolidation assumed in the baseline.
- Public debt vulnerability to shocks:
  - Exchange rate, commodity prices and GDP growth shocks notably increase the PV of public debt-to-GDP.
  - A standard shock to commodity prices or growth, or a large exchange rate shock (commensurate to the parallel exchange rate premium) would leave the PV of public debt-to-GDP well above the 35 percent benchmark for a significant portion of the projection horizon; shock on growth or commodity prices could push it beyond the horizon.
  - A large exchange rate shock would sharply increase the ratio in the near term, but in the longer term the ratio would improve substantially, reaching the threshold of 35 percent by 2032 in that scenario.

### Conclusion: risk rating and policy-relevant implications
- DSA conclusion: High risk of external and overall debt distress based on mechanical risk signals for external and overall public debt burden indicators; staff applies no judgment override.
- Principal near-term vulnerabilities:
  - External: shocks to exports, non-debt flows, and the exchange rate.
  - Public debt: shocks to commodity prices and growth, as well as the exchange rate.
- Policy directions to address vulnerabilities:
  - Reforms to boost resilience, exports, and growth performance.
  - Normalization of relations with donors and associated increases in financial support to reduce near-term pressures and the need for fiscal adjustment.
  - Relaxing FX access limitations as part of broader reforms to alleviate growth bottlenecks and improve the debt-to-GDP path.

### Staff assessment of sustainability and mitigating factors
- Staff assesses Burundi’s debt as sustainable conditional on:
  - Authorities’ commitment to re-engagement with the international community.
  - Fiscal consolidation.
  - Expectations of donor financing.
  - A positive macroeconomic outlook including robust exports and GDP growth.
  - Rebasing of GDP, which could raise GDP estimates and improve public debt ratios.
- Mitigating factors and caveats:
  - Although overall debt service to revenue ratio and gross financing needs remain high in the near term, roll-over risks are limited given the large share of domestic debt.
  - Given the country’s good track record in servicing its debt, there is a high likelihood Burundi will be able to meet current and future obligations.
  - Sustained remittance inflows lower effective risks associated with external debt liquidity indicators (Text Figure 2).
  - Prospects for a more ambitious reform agenda, notably in relaxing FX access limitations, would help alleviate growth bottlenecks and improve the debt-to-GDP path.
- Specific numeric mitigation: SDR allocation of SDR 147.6 million equivalent to 6.3 percent of 2021 GDP would, if efficiently used, help mitigate debt vulnerabilities.

### Risks to the assessment
- Significant risks include:
  - Domestic policy slippages and external environment shocks.
  - Large parallel ER market premium and a prolonged muddle-through exchange rate policy that could increase the premium and amplify imbalances.
  - Delays in fiscal consolidation.
  - Slow implementation of structural reforms to enhance competitiveness, boost exports and growth.
  - Information gaps on arrears.
  - Heightened effects of the COVID-19 pandemic or war in Ukraine.
- Stronger GDP growth supported by prospects of stronger donor financing and efficient use of the 2021 SDR allocation (SDR 147.6 million equivalent to 6.3 percent of 2021 GDP) would mitigate debt vulnerabilities.

*Source: IMF staff Debt Sustainability Analysis for Burundi (external and public DSA excerpts).*

### 5. Depreciation8101077999881

### 5. Depreciation8101077999881

### Sensitivity Analysis — Key Scenarios and Thresholds
- Threshold1010101010101010101010
- Baseline45554555543
- A. Alternative Scenarios
  - A1. Key variables at their historical averages in 2022-2032 2/45555666665
- B. Bound Tests
  - B1. Real GDP growth45655666554
  - B2. Primary balance45554555543
  - B3. Exports45554655554
  - B4. Other flows 3/45555665565
  - B5. Depreciation4101077988871
  - B6. Combination of B1-B5811131211141313121410
- C. Tailored Tests
  - C1. Combined contingent liabilities810109911111010107
  - C2. Natural disastern.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.
  - C3. Commodity price81010991110101097
  - C4. Market Financingn.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.

### Table 4: Sensitivity Analysis for Key Indicators of Public Debt, 2022–32 (selected series)
- Baseline (sequence as reported): 6163615754515048474543
- A. Alternative Scenarios
  - A1. Key variables at their historical averages in 2022-2032 2/6164666869706969696869
- B. Bound Tests (selected rows)
  - B1. Real GDP growth6169777676757677777778
  - B2. Primary balance6165656158545351494746
  - B3. Exports6164636057535250494745
  - B4. Other flows 3/6167696562585755535149
  - B5. Depreciation6183767166615448433835
  - B6. Combination of B1-B56160615754514947464442
- C. Tailored Tests (selected rows)
  - C1. Combined contingent liabilities6173716763605856545150
  - C3. Commodity price6165686970717374767778
- TOTAL public debt benchmark3535353535353535353535

### Projections — Selected Series (as reported)
- Baseline (sequence with spacing preserved from source):
  - Baseline51         47         66         55         64         56         68         67         66         65         60
- A. Alternative Scenarios
  - A1. Key variables at their historical averages in 2022-2032 2/51         48         68         60         72         70         91         90         91         89         83
- B. Bound Tests (selected)
  - B1. Real GDP growth51         50         76         66         80         77         98         101       104       107       104
  - B2. Primary balance51         47         68         58         68         62         72         71         70         69         63
  - B5. Depreciation51         46         66         54         62         55         66         65         64         62         54
- C. Tailored Tests (selected)
  - C1. Combined contingent liabilities51         47         78         60         85         68         75         82         78         73         70
  - C3. Commodity price51         47         69         62         76         77         96         101       106       109       108

### Drivers of Debt Dynamics — Baseline Scenario (Figure 3 summary)
- Figures distinguish contributions to changes in:
  - Gross Nominal PPG External Debt and Gross Nominal Public Debt (in percent of GDP; DSA vintages)
  - Debt-creating flows (percent of GDP)
  - Unexpected Changes in Debt (past 5 years, percent of GDP)
- Drivers listed graphically include:
  - Residual; Price and exchange rate; Real GDP growth; Nominal interest rate; Current account + FDI; Change in PPG debt; Other debt-creating flows; Real exchange rate depreciation; Real interest rate; Primary deficit; Contribution of unexpected changes
- Distribution across LICs 2/ shown with interquartile range (25–75), median, and contribution of unexpected changes

### Realism Tools — Figure 4 highlights
- Fiscal Adjustment and Possible Growth Paths:
  - Bars: annual projected fiscal adjustment (right-hand side scale)
  - Lines: possible real GDP growth paths under different fiscal multipliers (left-hand side scale)
  - Baseline and multipliers = 0.2, 0.4, 0.6, 0.8 shown
- Contribution to Real GDP growth (percent, 5-year average)
- Public and Private Investment Rates: historical and projected (Prev. DSA vs. Curr. DSA) and contributions of government capital
- 3-Year Adjustment in Primary Balance (Percentage points of GDP) distribution:
  - Projected 3-yr adjustment; note: "3-year PB adjustment greater than 2.5 percentage points of GDP in approx. top quartile"

### Relations with the IMF and Financial Commitments (selected facts)
- Membership Status: Joined: 9/28/1963; Acceptance Article VIII: No
- Quota: 154.00 SDR Million (100.00 percent quota)
- Fund Holdings of currency (Exchange Rate): 144.14 (93.60)
- Reserve Tranche Position: 9.90 (6.43)
- SDR Department net cumulative allocation: 221.45 (100.00); Holdings 96.85 (43.74)
- Outstanding Purchases and Loans: RCF Loans 53.90 (35.00); ECF Arrangements 10.40 (6.75)
- Latest Financial Commitments — Arrangements (selected):
  - ECF Jan 27, 2012–Mar 31, 2016 Amount Approved 40.00; Amount Drawn 30.00 (SDR Million)
  - RCF Oct 25, 2021; Date Drawn/Expired Oct 27, 2021; Amount Approved 53.90; Amount Drawn 53.90 (SDR Million)
- Projected Payments to Fund (SDR Million; based on existing use of resources and present holdings of SDRs):
  - 2022 Principal 2.90; Charges/Interest 0.38; Total 3.28
  - 2023 Principal 4.50; Charges/Interest 0.79; Total 5.29
  - 2024 Principal 2.50; Charges/Interest 0.79; Total 3.29
  - 2025 Principal 0.50; Charges/Interest 0.78; Total 1.28
  - 2026 Principal (blank); Charges/Interest 0.79; Total 0.79

### Debt Relief and CCR Trust disbursements
- HIPC Initiative: Decision point date Aug 2005; Assistance committed by all creditors (US$ Million) 832.60; IMF assistance (US$ million) 27.87 (SDR equivalent 19.28); Completion point date Jan 2009
- Disbursement of IMF Assistance (SDR Million): Assistance disbursed to the member 19.28; Interim assistance 0.26; Completion point balance 19.02; Additional disbursement of interest income 3.07; Total disbursements 22.35
- MDRI-eligible debt (SDR Million) 26.40; Financed by: MDRI Trust 9.01; Remaining HIPC resources 17.39
- Catastrophe Containment Relief (CCR) Trust disbursements (Date of Catastrophe N/A):
  - Jul 20, 2020 Amount Committed 5.48; Amount Disbursed 5.48
  - Oct 02, 2020 Amount Committed 4.82; Amount Disbursed 4.82
  - Apr 01, 2021 Amount Committed 4.16; Amount Disbursed 4.16
  - Dec 15, 2021 Amount Committed 3.50; Amount Disbursed 3.50

### Statistical Issues — Data adequacy and weaknesses (as of June 30, 2022)
- General: Data is assessed broadly adequate for surveillance, with significant improvements since the 2014 Article IV Consultation; shortcomings persist in national accounts, balance of payments, and government finance statistics (GFS), notably coverage of local government and contingent liabilities.
- National accounts:
  - Annual GDP estimates base year 2005 compiled by ISTEEBU using 1993 SNA.
  - Rebasing to 2016 and adoption of 2008 SNA underway; first rebased NA data expected to be published by end-2022.
  - Latest finalized annual NA data used in staff’s macroframework are for 2020; dissemination lag about a year.
  - Backcasted GDP series for 2006–15 to be completed by June 2023 once 2016 SUT finalized.
- Price statistics:
  - Monthly CPI produced for main cities and national aggregate; current weights based on the 2008 household expenditure survey; CPI weights update expected by end-2022.
- Government finance statistics (GFS):
  - TOFE produced using GFSM1986 rather than GFSM 2014, contributing to discrepancies (about 2 percent of GDP in FY2019/20 and FY2020/21) recorded as “accounts payable.”
  - GFS coverage excludes other central government units and local governments.
- Monetary and financial statistics (MFS):
  - Compiled by BRB following IMF manuals; monthly balance sheet data reported and broadly adequate.
- External sector statistics:
  - BOP and IIP compiled according to BPM6; remittances coverage improved since 2019 but still underestimated; IIP last published in 2018.
- Data Standards:
  - Burundi participates in the IMF Enhanced General Data Dissemination System (e-GDDS) since August 9, 2011; an e-GDDS mission occurred in March/April 2022 to assist NSDP launch.
- Reporting to STA:
  - Monthly and quarterly GFS not reported; last reported annual GFS was for 2013. Monetary and Financial Statistics published in IFS. BOP and IIP data published in IFS and the Balance of Payments Yearbook.

*Sources: Country authorities; and staff estimates and projections.*

### Introduction

### 1bdiea2022001 - Introduction

### Engagement, objectives, and authorities' priorities
- Authorities appreciate open engagement with staff during the Article IV consultation and broadly share staff’s assessment.
- Authorities’ priorities:
  - Maintaining macroeconomic stability and safeguarding external and debt sustainability.
  - Domestic resource mobilization and prudent borrowing for growth.
  - Tackling COVID-19 impacts, strengthening health services, revitalizing the agricultural sector, youth employability, and bolstering the fight against corruption.
  - Implementation of a public investment plan under the national development strategy to boost growth, reduce debt vulnerabilities, and attract foreign investment and FX inflows.
  - Expediting program budgeting to better align public spending with government objectives.
- Authorities note progress on reforms in the 2018–27 development plan (Plan National de Dẻveloppement) focused on export diversification, infrastructure, social safety nets, public services, and governance.
- Authorities have implemented guidance and TA recommendations and seek Executive Directors’ support in completing the Article IV review.

### Recent economic developments and outlook
- Real GDP:
  - Estimated recovery to 3.1 percent in 2021.
  - Staff projection of 3.3 percent in 2022, driven mainly by a recovery in services as travel and border restrictions ease.
  - Medium-term growth projected at 4.6 percent or more, supported by stronger terms of trade, higher agricultural and mining production, and full resumption of service sector activities.
- Downside risks: new COVID variants, prolonged war in Ukraine, and financial tightening in advanced economies.
- Inflation:
  - Averaged 8.3 percent in 2021.
  - Reached 11.9 percent in May 2022.
  - Drivers: climate impacts on harvests fueling food prices, pandemic-induced supply chain disruptions, and rising commodity import prices (including effects of the war in Ukraine).
- Current account and external flows:
  - Current account deficit projected to deteriorate in 2022 compared to 2021 due to worsening terms of trade, but expected to improve over the medium term as exports rebound, particularly coffee.
  - Improved relations with the European Union, United States, and international community, and re-engagement with the IMF expected to facilitate resumption of foreign financial resource inflows.
  - Remittance inflows remain strong.
  - With the general SDR allocation, international reserves doubled in months of import cover in 2021, relative to 2020.
- COVID-19 response and vaccination:
  - Vaccination campaign started late; at least six vaccination cites are up and running.
  - Nationwide vaccination plan approved to gradually extend vaccination to 102 sites nationwide.
  - Vaccine supply challenges have waned; 2.4 million doses of Johnson and Johnson expected, which—coupled with the authorities’ campaign—should significantly increase vaccination rates.
  - COVID-19 risks remain a concern though the situation stabilized early 2022 after a major wave linked to the omicron variant in December 2021.

### Fiscal policy and debt sustainability
- Revenue mobilization:
  - Revenue collection projected to improve to 19.5 percent of GDP, benefitting from improved VAT collections, international trade taxes, and project grants following the lifting of sanctions.
  - Higher-than-expected revenue performance in 2022 benefited from new tax measures including taxes on income, profits, and capital gains; taxes on goods and services; international trade and transactions; and strong VAT and non-tax revenue.
  - Authorities seek capacity development support and expect digitalization (electronic billing and digital payment systems) to increase VAT collections.
  - Authorities aim to increase mining revenues through ongoing mining sector reform and widen the tax base by capturing informal sector activities and land transactions/ownership.
  - Additional revenue measures in the 2022/23 budget: introduction of a road fee in the fuel price structure, excise tax on cigarettes, lump sum levies on products such as soap and drinks, and clarification of the discharge tax concept applying to about 25 products with regulated prices.
- Expenditure and PFM:
  - Authorities continue to rationalize spending and strengthen public financial management to enhance spending efficiency.
  - Hiring freeze in the public sector, except in defense and security, health, and education.
  - Budget laws introduced multi-year procurement and payment plans to strengthen investment management.
  - On streamlining tax expenditures, authorities note many associated tax exemptions are linked to donor and international rules, constraining their room for maneuver.
- Debt outlook:
  - Public debt assessed as sustainable; authorities committed to placing it on a sustained downward trajectory.
  - Authorities have sought technical assistance for more effective arrears management.
  - Prudent borrowing for productive investments is emphasized to boost growth and support debt sustainability.

### Exchange rate, monetary policy, and financial sector
- Exchange rate policy:
  - Concern about the amplifying impact on debt ratios of a potential large exchange rate depreciation, including issues arising from a parallel market premium triggered by past donor support shocks.
  - Authorities are designing exchange rate reforms and unification that avoid amplifying vulnerabilities and instability.
  - Authorities value technical discussions with staff on cross-country experiences of exchange rate unification, post-unification regimes, monetary policy frameworks, fiscal–monetary coordination, and socio-economic implications.
  - Authorities note exchange rate unification will need substantive donor support to work.
- Monetary policy:
  - Central Bank recognizes the importance of well-timed recalibration of the monetary policy stance amid rising inflationary pressures and is exploring this.
  - Accommodative measures provided liquidity to commercial banks to lend to priority sectors (coffee, fertilizer, maize) supporting production during the pandemic.
  - Planned liquidity tightening to signal winding down of the long-term refinancing window and careful calibration of exit from other accommodative measures.
  - Supply-side measures to contain food inflation include boosting agricultural production to increase food supply.
  - Plans to modernize the monetary policy framework and strengthen the interest rate link; technical preparations underway to transition to an inflation targeting framework, to complement exchange rate unification plans.
  - Reforms to deepen the interbank market, reintroduce more efficient monetary policy communication, and build capacity for domestic and foreign exchange liquidity forecasting and macro-modeling with Fund-supported capacity development.
- Financial sector and AML/CFT:
  - Banking sector remains sound, well capitalized, with ample liquidity.
  - Nonperforming loans (NPLs) dropped to 4.1 percent as at end-September 2021, reflecting write-offs and loan restructurings; NPLs concentrated in sectors most impacted by COVID-19.
  - Authorities strengthening supervisory capacity, enhancing regulatory and supervisory frameworks, and conducting financial stability assessments.
  - Reforms underway to enhance digitalization and payment systems to enable greater payment efficiency and support financial inclusion.
  - Authorities strengthening Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) framework, plan to operationalize a financial intelligence unit, and are working to meet full membership requirements for the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG).

### Structural reforms and governance
- Reforms underway to:
  - Improve governance, enhance competitiveness, boost digitalization, and build human and physical capital.
  - Improve the business environment and promote private sector participation.
  - Address skills mismatches in the labor market and create employment opportunities to reduce poverty and inequality.
- Climate and resilience:
  - Given macro-criticality of climate change and vulnerability to drought and floods, authorities are exploring avenues to build resilience and minimize climate-related business and welfare risks for youth and women.
- Financial inclusion initiatives:
  - Two new banks operational: the Women Development Bank and Youth Bank to boost agriculture.
- Transparency and COVID-19 spending:
  - In line with RCF commitments, authorities prepared the first COVID-19 spending report covering spending up to August 10, 2021.
  - Bi-annual COVID-19 spending reports, audited by the Court of Auditors, are published on the ministry’s website within three months of the end of each semester.
  - Authorities conducting an overall audit of COVID-19 related spending and compiling information on beneficial owners of COVID-related contracts.
- Statistics and data improvements:
  - Support received on statistics; work continues on National Accounts for 2020 and beyond.
  - Migration and rebasing of the National Accounts is planned.
  - Steps initiated towards adopting e-GDDS standards with Fund support.
  - CPI rebasing project benefited from TA from AFRITAC East.

### Conclusion
- Authorities continue to pursue reforms essential for stability, recovery, and medium-term growth despite a very challenging environment.
- Fund support has helped stabilize the economy in the wake of the pandemic and contributed to capacity development for effective implementation of policies.
- Authorities view Fund support as an important complement to their reform agenda and national economic objectives.

*Source: 1bdiea2022001 - Introduction*

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_Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1bdiea2022001.pdf_