## _cr06311

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### Executive summary and political context
- Peace process initiated in August 2000 with the Arusha Accord concluded with the installation of a democratically elected government in August 2005.
- New government actions and outcomes:
  - Intensified efforts to resolve conflict with remaining rebel group (FNL).
  - Emphasized good governance and improved social services.
  - Initiated demobilization supported by the World Bank’s MDRP; almost 20,000 persons were demobilized after rebel movements were integrated into the armed forces and the new national police force.
  - U.N. Operation in Burundi mandate extended through July 2006 with planned phased withdrawal of peacekeeping troops through the end of 2006.
- Policy implication: improving security and reform momentum create a window to secure macroeconomic stability and relaunch structural reforms.

### Recent economic developments and program performance (2005)
- Growth and inflation:
  - Real growth in 2005: about 1 percent.
  - End-period inflation at year-end 2005: about 1 percent.
- Fiscal and revenue outcomes:
  - Revenue: 20 percent of GDP.
  - Primary deficit reduced to about half the program target.
  - Overall deficit after grants (commitments basis): 6.2 percent of GDP (target 0.2 percent of GDP).
- Program performance criteria:
  - All end-June and end-December 2005 quantitative performance criteria were met except for a temporary accumulation of external arrears in late 2005.
  - Structural performance criterion on installing IFMIS in the Ministry of Finance was missed (IFMIS became operational January 1, 2006); three structural benchmarks were missed, though measures subject to the PC and two benchmarks were implemented by early 2006.

### Fiscal policy, public financial management, and domestic arrears
- 2006 budget (initially adopted late 2005):
  - Revenues envisaged: 18.9 percent of GDP.
  - Spending envisaged: 40.8 percent of GDP.
- Key budget reforms and measures:
  - Removing distortionary taxes, lowering import duties, extending tax base, eliminating discretionary exemptions, bolstering expenditure management.
  - Abolition of levies on beer, soft drinks, and sugar in early 2006 caused revenue loss of 1.0 percent of GDP; necessitated revised budget and arrears clearance program.
- Domestic arrears:
  - External audit (December 2005) confirmed domestic arrears stock of about 3 percent of GDP.
  - Box 1 — Clearance of Domestic Arrears (key figures):
    - By end-2005, domestic budget arrears: 2.7 percent of 2005 GDP (FBu 25.7 billion).
    - Domestic arrears of public sector a year earlier: 5 percent of GDP (verified by external auditor).
    - In 2005, budget cleared FBu 3.8 billion of its own arrears; public enterprises’ arrears FBu 6 billion to be dealt with separately.
    - Council of Ministers approved arrears clearance strategy on May 26, 2006:
      - Individuals and corporations with arrears claims up to FBu 100 million will receive a cash payment upon signing a note liquidating their claim (total cash payment estimated at FBu 7.4 billion).
      - Creditors with arrears greater than FBu 100 million will receive a certificate recognizing their debt (FBu 18.3 billion). Certificates exchangeable for treasury bonds of 3–5 years maturity and may be used in the privatization program (launch set for September/October 2006).

### Monetary policy, financial sector, and liquidity management
- Central bank (BRB) actions and indicators:
  - BRB tightened monetary policy in 2005 and increased foreign exchange sales to control reserve money.
  - Weekly liquidity auctions introduced mid-April 2005.
  - Broad money expansion outpaced nominal GDP growth as economy remonetized.
  - Gross official reserves rose to 2.9 months of projected 2006 imports; gross official reserves at end-December 2005: US$112.7 million.
  - Credit to the economy declined by 9 percent in 2005; credit to government rose by 9 percent of beginning period broad money (targeted reduction was 10.5 percent).
  - Reserve requirements raised in late 2005 and early 2006; 7 percent tax on banking transactions eliminated.
  - Banking system vulnerabilities: nonperforming loans amounted to 19 percent of assets in 2005; four smaller banks in difficulty.
- 2006 monetary program projections and instruments:
  - Reserve money nominal anchor; reserve money growth reduced to 10 percent.
  - Introduce treasury bills by September 2006; launch auctions of negotiable treasury securities by BRB on government account (structural PC: September 2006).
  - Renewed commercial bank credit to private sector projected at 24 percent growth.
  - Broad money (M3) growth projected to be about 18 percent.

### External sector, exchange regime, and debt relief
- 2005 external accounts:
  - External current account deficit (including grants): 10.5 percent of GDP.
  - Exports, f.o.b., 2005: 7.1 percent of GDP; coffee: 5.1 percent of GDP.
  - Imports, f.o.b., 2005: -29.9 percent of GDP; petroleum products: -4.8 percent of GDP.
  - Real effective exchange rate: Burundi francs appreciated by 9.2 percent during 2005; appreciated against U.S. dollar by 10 percent in 2005.
  - Differential between official and parallel exchange rates declined to about 2 percent at end–2005 (other passages indicate about 3 percent).
- Debt relief:
  - Burundi reached enhanced HIPC decision point in August 2005 and received relief totaling US$7.4 million in 2005.
  - Scheduled debt service after Paris Club relief (2004) and HIPC fell from about 110 percent of exports in 2004 to 33.5 percent in 2005.
  - At HIPC completion point (possibly mid-2007), external debt service projected to drop from 109 percent of exports in 2004 to 11.1 percent in 2007.
  - With MDRI, Fund to provide upfront debt stock relief on Burundi’s outstanding debt to the Fund at end-2004 of SDR 26.4 million (US$39.5 million).

### Structural reform, privatization, and coffee sector
- 2005 structural reform assessment:
  - Progress uneven: advances in monetary, exchange regime, and fiscal administration; slow coffee sector reform and privatization program not launched in 2005.
  - Audit Court published first audit of 2004 government accounts in late 2005.
- 2006 reform agenda and privatization timetable:
  - Reactivate privatization agenda, especially coffee; initial focus on small-scale assets (coffee washing stations).
  - Strategy for sale of washing stations to be established by September 2006; launch tenders by October 2006.
  - Structural conditionality (Box 2 summary):
    - 2005: deepening coffee sector reform, initiating privatization, introducing efficient monetary instruments, progress on PFM including audit of domestic arrears.
    - 2006: clearing domestic arrears, reinforcing PFM, liberalizing coffee and other sectors, completing exchange liberalization, rehabilitating national statistics, making central bank independent, launching privatization strategy.

### PRSP, social priorities, and service delivery
- PRSP status:
  - Full PRSP in final stages of preparation; expected ready in mid-2006.
  - Authorities estimated three-year cost of PRSP at US$535 million (67 percent of 2005 GDP); donor conference planned Q4 2006.
- Social measures and outcomes:
  - Primary school fees abolished September 2005; primary school enrollment doubled since abolition.
  - On May 1, 2006, health care for expectant mothers and children under 5 made free.
  - Education targets and status:
    - Gross national enrollment rate in primary schools increased from 74 percent in 2003/04 to close to 100 percent in 2005/06 (noting other figure: from estimated 80 percent in 2003/04 to 85 percent in 2004/05 and close to 100 percent in 2005/06).
  - Health targets and status:
    - Immunization rate target: 85 percent in 2006 (from 75 percent in 2004); UNICEF report indicates vaccination rate reached 80 percent in 2005 and likely 90 percent in 2006.

### Medium-term outlook, projections, and scenarios
- Baseline macro projections:
  - Prospects for 2006: rebound in real growth to 6 percent and further reduction in inflation (period average about 3 percent).
  - Gross international reserves projected to rise to about 3.3 months of 2007 imports (US$145 million by end-2006).
  - Nominal GDP (selected series): 2004: 664.5; 2005: 799.4; 2006: 954.6; 2007: 1,045.4; 2015: 2,051.5; 2026: 5,008.3.
  - Real GDP growth projections (selected): 2006: 6.1; 2007: 6.6; 2008: 7.1; 2009: 6.7; long-term: 6.0 (2016–2026).
  - Inflation (period average): 2006: 2.5; 2007–2015: 4.0 (each year).
- Balance of payments medium-term scenario (selected figures):
  - Current account (excluding official transfers), in US$ millions:
    - 2004: -169.4; 2005: -274.3; 2006: -361.5; 2007: -395.4; 2015: -490.4.
  - Exports, f.o.b. (US$ millions):
    - 2004: 47.9; 2005: 57.1; 2006: 70.0; 2007: 83.9; 2015: 201.5.
  - Imports, f.o.b. (US$ millions):
    - 2004: -148.9; 2005: -238.7; 2006: -314.7; 2007: -363.8; 2015: -557.4.
- Financing needs and external nonproject financing:
  - External nonproject financing need for 2006: US$177 million.
  - Expected sources (2006):
    - IMF under PRGF: US$32 million.
    - World Bank under ERSG: US$60 million.
    - AfDB and ADF program grants and loans: US$11 million.
    - EU FED program: US$17 million.
    - Bilateral donors: US$16 million.
    - Traditional debt relief on current maturities: U$5 million.
    - HIPC Initiative: US$36 million.
- Financing gaps (2007–2015) from medium-term scenario:
  - 2007: 75.6; 2008: 88.1; 2009: 90.7; 2010: 101.0; 2011: 107.0; 2012: 119.6; 2013: 129.1; 2014: 128.6; 2015: 124.8 (all in US$ millions).

### Debt sustainability analysis (DSA) and vulnerabilities
- LIC DSA key outcomes:
  - Burundi viewed as vulnerable to shocks and remains in the high debt distress category for low-income countries.
  - Under baseline, the NPV of debt-to-exports ratio after enhanced HIPC assistance remains above indicative threshold for 2005–13; NPV of debt-to-exports (selected table values):
    - 2006 = 139.3; 2016 = 93.7; 2026 = 93.7; Average 2006–26 = 109.3.
  - Baseline assumptions include real growth average 6.5 percent in medium term and 6.0 percent long term; heavy grant financing and scaling up of investment.
- MDRI impact (selected values):
  - Combined HIPC and MDRI relief: US$921 million (HIPC US$848 million; MDRI US$73 million).
  - Box 2 — Baseline Debt Sustainability Indicators (selected):
    - NPV of debt to GDP (Threshold 30): 2006 = 16.6; Average 2006–26 = 17.7.
    - Debt service to exports (Threshold 15): 2006 = 8.3; Average 2006–26 = 5.1.
  - MDRI effect (average 2006–26):
    - NPV debt-to-GDP before/after MDRI: 17.7 / 14.1.
    - NPV debt-to-exports before/after MDRI: 109.3 / 87.3.
    - Debt service-to-exports before/after MDRI: 5.1 / 3.9.
- Stress tests and alternative scenarios:
  - Low-growth scenario: 2007–2016 growth only 4 percent per year for ten years then return to baseline; GDP per capita 25 percent lower in 2026 relative to baseline (and less than US$1 a day).
  - Higher coffee-price scenario: coffee price 25 percent higher than baseline for 2007–10; reduces early financing gaps and boosts investment and domestic savings.
  - Alternative borrowing scenario: borrowing at 2 percent higher interest rates during projection period raises NPV debt-to-GDP to 30 percent by 2026 (vs. 19 percent baseline), increasing debt distress risk.
- Policy implications:
  - Avoid nonconcessional borrowing after HIPC relief.
  - Emphasize export diversification, prudent fiscal/monetary policy, and highly concessional external financing.
  - Strengthen debt management capacity.

### Program monitoring, conditionality, and staff recommendations
- PRGF reviews and requests:
  - Staff recommends completion of third and fourth reviews under PRGF.
  - Authorities requested waivers of two performance criteria, modification of another, extension of PRGF arrangement by nine months to end-September 2007, and additional interim HIPC assistance (SDR 86,500 for July 28, 2006–July 27, 2007).
  - Specific waiver requests:
    - Waiver for nonobservance of structural PC (IFMIS installation end-October 2005) — IFMIS operational January 1, 2006.
    - Waiver for nonobservance of external arrears criterion end-December 2005; external arrears incurred in October and December 2005 cleared in March 2006.
- Prior actions and structural benchmarks (selected, many marked Done with dates):
  - Approve 2006 supplementary budget: Done; July 7, 2006.
  - Adopt council of ministers plan for clearing domestic arrears: Done; May 26, 2006.
  - Submit new customs code to parliament: Done; June 22, 2006.
  - Establish coffee sector coordination committee: Done; March 30, 2006.
  - Adopt action plans for rehabilitation of noncomplying banks: Done; effective June 12, 2006.
  - Structural PC for 2006: commence tendering of negotiable treasury securities in standard denominations managed by BRB: September 2006.
  - Structural benchmarks include submission of revised BRB Charter to National Assembly (September 2006), submit Anti-Money Laundering bill to National Assembly (September 2006), launch coffee privatization tenders (October 2006), and integrate payroll in IFMIS (December 2006).
- Reporting and safeguards:
  - Safeguards assessment of BRB completed January 2006; second annual external audit conducted; BRB to implement safeguards recommendations and submit revised charter to Parliament by September 2006.
  - Reporting requirements: monthly and weekly reporting to IMF staff with detailed monetary, fiscal, and arrears data.

### Staff appraisal and Executive Board guidance (selected)
- Staff assessment of 2005:
  - Commended progress under difficult post-conflict conditions.
  - All end-June and end-December 2005 quantitative criteria met except temporary external arrears.
  - Growth in 2005 lower than expected due to rain-fed agriculture variability; strong rebound expected in 2006.
- Policy priorities recommended by staff:
  - Implement structural reforms to stimulate private sector activity; launch privatization program; improve business climate.
  - Reduce size of security forces through demobilization to free resources for social sectors and infrastructure for MDGs.
  - Strengthen expenditure management, budget execution, financial control, and public procurement.
  - Continue BRB modernization and banking supervision strengthening.
  - Continue exchange regime liberalization and eliminate remaining exchange restrictions; support continuation of managed-float exchange rate regime.
  - Pursue comparable debt relief from non-Paris Club creditors.
  - Strengthen statistical system for monitoring.
- Executive Board recommendations summarized in staff report:
  - Completion of third and fourth PRGF reviews; approval of waivers and modification requested; extension of PRGF arrangement and additional interim HIPC assistance supported subject to satisfactory assurances from other creditors.

*Source: IMF staff report (excerpt) — _cr06311.*

### Executive Summary ......................................................................................................

### Executive Summary

### Political context and opportunity
- The peace process initiated in August 2000 with the Arusha Accord concluded with the installation of a democratically elected government in August 2005.
- The new government has intensified efforts to resolve the conflict with the remaining rebel group (FNL), emphasized good governance and improved social services, and initiated demobilization supported by the World Bank’s MDRP; almost 20,000 persons were demobilized after rebel movements were integrated into the armed forces and the new national police force.
- The U.N. Operation in Burundi mandate was extended through July 2006 with a planned phased withdrawal of peacekeeping troops through the end of 2006.
- Improving security conditions and a sustained momentum of reform suggest an improved medium-term macroeconomic outlook and a window of opportunity to secure macroeconomic stability and relaunch structural reforms.

### Recent economic developments and program performance (2005)
- Real growth in 2005 was about 1 percent, lower than program projections, largely because of a poor coffee harvest and worsening drought in the north.
- End-period inflation fell to about 1 percent at year-end 2005, well below the program target.
- Revenue remained buoyant at 20 percent of GDP, significantly above the program target, driven primarily by administrative reforms.
- Primary deficit was reduced to about half the program target.
- On a commitments basis, the overall deficit after grants was 6.2 percent of GDP, compared with the target of 0.2 percent of GDP, reflecting delays in disbursement of budget support by the World Bank and others.
- All end-June and end-December 2005 quantitative performance criteria were met except for a temporary accumulation of external arrears in late 2005.
- The structural performance criterion on installing a computerized financial management information system (IFMIS) in the Ministry of Finance was missed; three structural benchmarks were missed, though measures subject to the PC and two benchmarks were implemented by early 2006.

### Fiscal policy and public financial management
- The 2006 budget adopted in late 2005 envisaged revenues of 18.9 percent of GDP and spending of 40.8 percent of GDP.
- Budget reforms included removing distortionary taxes, lowering import duties, extending the tax base, eliminating discretionary exemptions, and bolstering expenditure management.
- Early 2006 abolition of levies on beer, soft drinks, and sugar (which had funded the war effort) resulted in a revenue loss of 1.0 percent of GDP and necessitated a revised budget and a program to clear domestic arrears.
- An external audit of domestic arrears completed in December 2005 confirmed a stock of about 3 percent of GDP; a strategy to clear these arrears in 2006 was approved by the council of ministers in early June.
- A partial IFMIS on expenditures was introduced in January 2006, combined with a new system of accounts introduced in 2005.

### Monetary policy, financial sector, and liquidity management
- The central bank (BRB) tightened monetary policy in 2005 and increased foreign exchange sales to gain greater control over reserve money.
- Weekly liquidity auctions were introduced in mid-April 2005 to partially sterilize the impact of foreign exchange reserve accumulation.
- Broad money expansion outpaced nominal GDP growth as the economy became remonetized following a turnaround in public confidence.
- International reserves rose substantially; gross official reserves rose to 2.9 months of projected 2006 imports.
- Credit to the economy declined by 9 percent in 2005; credit to the government rose by 9 percent of beginning period broad money (targeted reduction was 10.5 percent), owing to delays in disbursement of programmed budget support.
- The BRB raised reserve requirements in late 2005 and early 2006, eliminated a 7 percent tax on banking transactions (reducing the cost of financial intermediation), underwent its second annual external audit, and put in place an independent audit committee of the Board of Directors.
- The banking system remains segmented and underdeveloped; nonperforming loans amounted to 19 percent of assets in 2005, and four smaller banks are in difficulty.

### External sector and debt relief
- The external current account deficit (including grants) deteriorated to 10.5 percent of GDP in 2005 due to lower exports (poor coffee harvest) and higher imports, including petroleum products.
- Exports, f.o.b., were 7.1 percent of GDP in 2005; of which coffee was 5.1 percent of GDP. Imports, f.o.b., were -29.9 percent of GDP; of which petroleum products were -4.8 percent of GDP.
- Real effective exchange rate: the Burundi francs appreciated by 9.2 percent during 2005; the Burundi francs appreciated against the U.S. dollar by 10 percent in 2005 and stabilized in early 2006.
- The differential between the official and parallel exchange rates declined to about 2 percent at end–2005.
- Burundi reached the enhanced HIPC Initiative decision point in August 2005 and received relief totaling US$7.4 million in 2005.
- Scheduled debt service, after traditional Paris Club relief in 2004 and HIPC debt relief, fell from about 110 percent of exports in 2004 to 33.5 percent in 2005.
- Burundi has yet to secure debt relief from non-Paris Club bilateral creditors; arrears inadvertently accumulated to the OPEC Fund in late 2005 were cleared early in 2006.

### Structural reform, governance, and capacity
- Structural reform in 2005 was uneven: progress in monetary, exchange regime, and fiscal administration; reform of the coffee sector slowed in the second half of 2005 and the privatization program was not launched because the new authorities needed more time to take ownership of the reform strategy.
- Limited administrative capacity and delays in securing technical assistance impeded progress on privatization and the coffee sector.
- The Audit Court published its first audit of the 2004 government accounts in late 2005.
- The program incorporates strong fiscal reforms; introduction of treasury securities would further improve liquidity management; supervision of the financial sector is being strengthened; a privatization agenda, especially for coffee, is to begin in 2006.
- The managed floating exchange rate regime has served Burundi well and little remains to be done for Burundi to be in a position to accept its obligations under Article VIII, Sections 2, 3, and 4 of the Fund’s Articles of Agreement.

### Medium-term outlook, risks, and staff recommendations
- Prospects for 2006 are for a rebound in real growth to 6 percent and a further reduction in inflation.
- Risks to the program include regional insecurity, a still fragile domestic peace, and immature democratic institutions.
- Given the strength of the program and the demonstrated commitment of the authorities to reform, staff recommends:
  - Completion of the third and fourth reviews under the Poverty Reduction and Growth Facility (PRGF).
  - Support for Burundi’s requests for waivers of two performance criteria, modification of another, extension of the PRGF arrangement, and additional interim assistance from the Fund under the enhanced HIPC Initiative.

*Source: Executive Summary of IMF staff report.*

### 15.      The past decade of social conflict was very difficult for Burundi during which

### The past decade of social conflict was very difficult for Burundi during which

### Economic impact of conflict and blockades
- Economic effects of stalled structural reforms were increasingly felt during the past decade of social conflict.
- A political and economic blockade from 1996–99 by countries in the region after a military coup provoked an intensification of restrictions, including in the trade and the exchange systems.
- As a result: economic distortions intensified, public administration weakened, infrastructure deteriorated, living standards dropped sharply by the turn of the millennium, and the external debt burden became unsustainable.

### State role, public enterprises, and the coffee sector
- The state has long dominated Burundi’s economy; the formal private sector is very small.
- Poor performance of public enterprises in the productive sector, exacerbated by weak international commodity prices in the late 1990s, led to large financial losses, external and domestic payments arrears, and decapitalization of the key agricultural sector that employs a large majority of the population.
- By 2001/02, decapitalization of the coffee sector reached the point that sizeable bank credit, financed by directed credits from the central bank and guaranteed by the budget, was needed to finance crop marketing.
- The budget absorbed the large losses of the coffee sector throughout 2003–04, widening fiscal imbalances, accumulating nonperforming loans, and deteriorating the financial system.

### Initial reform progress (2002–2005)
- Programs supported by the Fund’s emergency post-conflict assistance policy in 2002–03 and subsequently under the PRGF unwound many restrictions on foreign trade, the financial sector, and the exchange system by end-2005.
- Top import tariff rate reduced from 100 percent in 2003 to 30 percent in January 2005.
- Simple average tariff: 35.0 percent in 2001; cut from 19.2 percent to 12.6 percent in the 2006 budget, with 99.8 percent of tariffs in four bands (5, 10, 15, and 30) and a few at 0 or 20 percent.
- The 6 percent import surcharge was eliminated and a 0.5 percent customs fee introduced on the c.i.f. value of imports.

### Challenges, objectives, and PRSP priorities
- Main challenges reflected in the interim and forthcoming full PRSP:
  - Launch the economy on a higher growth path.
  - Raise spending on social sectors and infrastructure.
  - Achieve the MDGs (noting it is unlikely all MDGs can be met by 2015, but significant progress is possible).
- Conditions for sustained recovery: political stability and improved security in Burundi and the Great Lakes region.
- Specific policy priorities listed:
  - Adopt a more market-oriented economic policy with appropriate regulation and a well-sequenced privatization strategy, starting with coffee (privatization of individual washing stations envisaged).
  - Improve administrative capacity and quality of public institutions, especially PFM, including the central bank and supervision of the financial sector.
  - Pursue prudent monetary and fiscal policies and contain public expectations of a large peace dividend.
  - Restructure public spending from the security sector to the social sectors to address deep social needs and progress toward the MDGs.
  - Improve infrastructure, governance, transparency, and the business environment to attract private investment.
  - Manage aid flows consistent with macroeconomic stability and maximize their effectiveness in reducing poverty.

### Authorities' stance
- Authorities agreed broadly with the lessons and challenges and indicated commitment to bringing the poorest into the recovery and improving basic social services to reduce poverty.

### Macroeconomic program for 2006: growth, inflation, and reserves
- Real GDP growth is projected to recover to 6 percent in 2006 (MEFP, paragraph 13).
- Average inflation is expected to decelerate further to about 3 percent (period average), despite pass-through of petroleum price increases.
- With clearance of domestic arrears and decline in nominal interest rates in early 2006, a further monetization of the economy is expected and bank credit to the economy is projected to rebound to support higher growth and investment.
- External current account deficit, including official transfers, is expected to deteriorate on account of a strong increase in foreign-financed projects.
- Gross international reserves would rise modestly to about 3.3 months of 2007 imports.

### Fiscal policy and reform (2006)
- Fiscal policy aims to create fiscal space to address urgent social needs consistent with macroeconomic stability.
- Fiscal measures include shifting expenditures from security to social services and poverty reduction, enhanced PFM, and clearing government’s domestic arrears.
- Bank credit to the government, net of government paper issued to clear domestic arrears (1.9 percent of GDP), would be limited to about 1 percent of beginning broad money stock.
- A revised 2006 budget will be promulgated before end-June to reflect changes since the initial budget (MEFP, paragraphs 14–16 and 19-20).
- The primary deficit would rise to about 9 percent of GDP, while the deficit (commitment basis, after grants), would decline to less than ½ percent of GDP.

Box 1 — Clearance of Domestic Arrears (key figures)
- By the end of 2005, domestic budget arrears totaled 2.7 percent of 2005 GDP (FBu 25.7 billion).
- Domestic arrears of the public sector had amounted to 5 percent of GDP a year earlier, as verified by an external auditor.
- In 2005, the budget cleared FBu 3.8 billion of its own arrears; public enterprises’ arrears (FBu 6 billion) and cross-debts with the petroleum sector to be dealt with separately.
- Council of Ministers approved an arrears clearance strategy on May 26, 2006 to be implemented in mid-2006:
  - Individuals and corporations with arrears claims up to FBu 100 million will receive a cash payment upon signing a note liquidating their claim (total cash payment estimated at FBu 7.4 billion).
  - Creditors with arrears greater than FBu 100 million will receive a certificate recognizing their debt (FBu 18.3 billion). These certificates will be exchangeable for treasury bonds of 3–5 years maturity and may be used in the privatization program, both set to be launched in September/October 2006.

### Revenue, expenditure, and PFM
- Revenue administration measures being implemented in 2006; overall revenue will decline by 1 percentage point of GDP to 19 percent as war levies are abolished.
- Expenditure projected to rise in 2006 to about 41.8 percent of GDP, mainly tracking an increase in pro-poor social spending.
- External debt relief under the enhanced HIPC Initiative helps enable the expenditure increase.
- The wage bill will rise to just under 10 percent of GDP as new teachers are hired and a salary increase is implemented.
- Spending on security (army and national police) will decline to 30 percent of primary outlays from 37 percent in 2005, as soldiers are demobilized, financed by the MDRP.
- Program includes spending of 1.2 percent of GDP for food and emergency aid for drought-affected populations and to compensate small depositors of a failed bank.
- PFM strengthening underway with Fund and World Bank technical assistance; wage bill to be incorporated into IFMIS in late 2006.

Additional contextual fiscal notes
- Primary school enrollment doubled since primary school fees were abolished in September 2005.
- On May 1, 2006, health care for expectant mothers and children under 5 years of age was made free.
- The increase of 15 percent in base salaries starting July 1, 2006 is the first since a 10 percent hike in July 2001; consumer prices rose by about 35 percent in the five years since the last general wage increase.

### Monetary policy and financial sector reforms
- Reserve money is the nominal anchor for monetary policy (MEFP, paragraphs 21–22).
- Central bank will use foreign exchange sales and liquidity auctions and introduce treasury bills by September 2006 to strengthen liquidity management.
- Velocity of broad money expected to decline as financial deepening strengthens; reserve money growth reduced to 10 percent.
- Renewed commercial bank credit to the private sector projected at 24 percent growth.
- Continued strong foreign exchange sales by the BRB may put upward pressure on the nominal exchange rate but are seen preferable to crowding out private investment.
- Strengthening financial sector supervision and BRB internal operations is urgent; program includes a prior action in this area.
- An anti-money laundering (AML/CFT) law has been prepared with Fund technical assistance; the central bank law will be revised to make the BRB independent.

### Exchange regime, trade policy, and external competitiveness
- Managed float exchange rate regime has served Burundi well; liberalization reduced parallel market exchange rate differential.
- BRB will limit interventions to achieve international reserves targets and limit short-term exchange rate volatility, consistent with the reserve money nominal anchor.
- Staff noted that despite recent appreciation, the real effective exchange rate remained well below (some 30 percent) the level in 2000; external competitiveness viewed as broadly adequate.
- Main impediments to external competitiveness are structural; priority is on structural reforms to improve the business climate and promote privatization.
- Authorities intend to join the East Africa Community (EAC) and adopt its common external tariff (rates of 0, 10, and 25 percent, with an average rate in line with Burundi’s present tariff).

### Exchange liberalization and Article VIII intentions
- In early 2006, Fund technical assistance found few remaining exchange restrictions on current international transactions; little remained to be done for Article VIII, Sections 2, 3, and 4 acceptance.
- Authorities intend to accept these obligations.
- Burundi eliminated an exchange restriction on limits on invisibles in May 2006 and expects to eliminate one remaining restriction on ex ante authorization of certain transactions and two remaining multiple currency practices (MCPs) shortly.

### External debt relief and program financing
- Authorities have sought debt relief comparable to the Paris Club agreement from non-Paris Club creditors and intensified donor technical assistance on debt management.
- Several multilaterals confirmed participation in the enhanced HIPC Initiative.
- At the HIPC completion point (possibly in mid-2007) external debt service would drop from 109 percent of exports in 2004 to 11.1 percent in 2007.
- With MDRI, the Fund will provide upfront debt stock relief on Burundi’s outstanding debt to the Fund at end-2004 of SDR 26.4 million (US$39.5 million).
- Authorities requested disbursement of additional interim HIPC assistance from the Fund in the amount of SDR 86,500 for July 28, 2006–July 27, 2007.
- The 2006 program is fully financed and depends heavily on external budget grants (12 percent of GDP, not including interim HIPC debt relief).
- Authorities created a committee to reinforce dialogue with donors.

### Structural reform and privatization agenda
- 2006 program aims to reactivate the privatization agenda, especially for coffee.
- Initial effort focuses on small-scale assets (coffee washing stations) with a graduated approach supported by the World Bank.
- Coffee reforms are vital for about 800,000 small rural producers and export performance (coffee accounted for some two-thirds of exports in 2004–06).
- A strategy for the sale of washing stations will be established by September 2006 based on a World Bank-financed technical study.
- Reforms aim to ensure producers operate freely, ensure competition, attract investment, and prevent state coffee marketing board (OCIBU) regulation from impeding investment.

Box 2 — Structural conditionality (summary)
- 2005 structural conditionality: deepening coffee sector reform, initiating privatization, introducing efficient monetary instruments, progress on PFM including audit of domestic arrears.
- 2006 structural conditionality: clearing domestic arrears, reinforcing PFM, liberalizing coffee and other sectors, completing exchange liberalization, rehabilitating national statistics, making the central bank independent, launching the privatization strategy.
- World Bank support under the proposed ERSG includes preparing a strategic privatization plan, improving public finances and treasury operations, and reforming the coffee, tea, and cotton sectors; launching privatization strategy; furthering expenditure management reforms (especially procurement); and improving the business environment.

*Source: IMF staff report content provided in the supplied PDF excerpt.*

### 33.      Some progress has been made on governance and transparency (MEFP,

### _cr06311 - 33.      Some progress has been made on governance and transparency (MEFP,

### Governance, transparency, and public financial management
- Some progress has been made on governance and transparency (MEFP, paragraphs 27-28), but the new institutions (e.g., the Audit Court) are untested, and much remains to be done.
- With Fund and World Bank technical assistance, weaknesses in PFM are being addressed.
- The authorities have moved strongly to address issues raised in the Fund’s safeguards assessment of the central bank (MEFP, paragraph 33).
- The BRB has begun to address issues identified in the safeguards assessment completed in January 2006; progress includes a second annual external audit and improvements in internal operations, but further modernization is needed (computerization of accounting, better internal auditing).
- Planned 2006 measures include clearing domestic arrears, introducing standardized and negotiable treasury securities, passing an anti-money laundering law, and revising the central bank law to give the BRB independence.

### PRSP, donor financing, and statistics
- The complete PRSP is in the final stages of preparation and is expected to be ready in mid-2006 (MEFP, paragraph 32).
- The authorities have estimated the three-year cost of implementing the PRSP at US$535 million (67 percent of 2005 GDP) and intend to mobilize financing at a donors’ conference planned for the fourth quarter of 2006.
- National statistical system weaknesses are acknowledged (MEFP, paragraphs 29–30); a national statistical development plan drafted with the World Bank and AFRISTAT will be implemented in 2006 with donor support.
- With Fund technical assistance, the balance of payments was converted to version five of the Balance of Payments Manual in early 2006.
- The authorities requested reinforced Fund technical assistance and a full-time resident representative; they expect the Fund’s new regional technical assistance center (AFRITAC-Centre) opening in Gabon in early 2007 will be of significant help.

### Medium-term macroeconomic outlook and projections
- Recovery assumptions: successful political transition, improving security, sustained reform momentum, higher aid inflows.
- Growth projections:
  - Economic growth is projected to rise to 6½–7 percent early in the period (2007–09).
  - Growth would then ease to a sustained rate of 6 percent.
  - Not until 2023 is GDP per capita (in current U.S. dollars) projected to reach the equivalent of US$1 a day.
- External current account (excluding current official transfers):
  - Would peak at about 38 percent of GDP in 2007.
  - Would thereafter decline gradually to 13 percent of GDP by 2026.
- Investment and savings:
  - As privatization takes effect, gross investment—especially from the private sector—would rise over the medium term.
  - Domestic savings would cease to be highly negative and begin providing resources for investment by 2017.
- Exports and reserves:
  - Exports projected to drive long-term growth as traditional sectors recover and new sectors emerge.
  - Foreign reserves would be maintained at just over four months of following-year imports.
- Financing gaps and debt relief:
  - Financing gaps of US$75–130 million through 2016 would begin tailing off to about US$80 million by 2025.
  - These amounts could be covered from 2007 in part by additional debt relief under the MDRI.

### Scenario analysis
- Low-growth scenario:
  - Starting in 2007, GDP growth would be only 4 percent a year for ten years before returning to the baseline rate.
  - Financial position would weaken considerably; external current account deficits and financing gaps are much larger in the outer years.
  - Investment would be somewhat lower; domestic savings would emerge only late in the period.
  - GDP per capita would be 25 percent lower (and less than US$1 a day) in 2026.
- Higher coffee-price scenario:
  - Assumes a selling price for coffee that is 25 percent higher than in the baseline from 2007 to 2010.
  - Assumes coffee sector investment would accelerate revenues.
  - Financing gaps would be significantly reduced early on and investment and domestic savings would be somewhat higher.

### Debt sustainability and vulnerabilities
- An updated LIC DSA prepared jointly by Fund and World Bank staff indicates Burundi is vulnerable to shocks and remains in the high debt distress category for low-income countries (Appendix VI).
- The external debt-to-exports ratio after enhanced HIPC assistance is projected to remain above the threshold for 2005–13.
- Stress tests show vulnerability to adverse developments, including borrowing on nonconcessional terms.
- The DSA underscores the need for a strong, sustained reform effort to encourage export diversification and support robust growth in exports and GDP; prudent debt management and highly concessional external financing are important.

### Program monitoring, safeguards, and risks
- Prior actions for completion of the third and fourth reviews aim to address slippages in structural reforms, including phasing in coffee sector reform (MEFP, paragraph 35, and Appendix I, Table 4).
- The quantitative performance criterion on bank credit to government was replaced by one on overall domestic financing to account for domestic arrears clearance and tradable security instruments.
- The authorities have requested a nine-month extension to the PRGF arrangement to complete the sixth review (Tables 10 and 11).
- Main program risks:
  - Security within the country is fragile; regional instability in the Great Lakes could have grave repercussions for Burundi.
  - Delays in structural reforms and improving social services could undermine public confidence; progress depends critically on early efforts to improve the business environment and start privatization.
  - Timely and adequate external financial support is critical; major delays in disbursement of program support would severely stress the budget and macroeconomic framework.

### Staff appraisal and policy recommendations
- Assessment of 2005:
  - Burundi made commendable progress in 2005 in implementing its PRGF-supported program despite a difficult post-conflict environment.
  - All end-June and end-December 2005 quantitative performance criteria were met, with one temporary exception.
  - Growth in 2005 was much lower than expected primarily because of the vagaries of rain-fed agriculture; a strong rebound is expected in 2006.
  - Inflation was significantly reduced in 2005 due to improved central bank policy and injection of official foreign exchange inflows into the exchange market.
- Policy priorities recommended by staff:
  - Resolutely implement structural reforms to stimulate private sector activity, notably by launching the privatization program and improving the business climate.
  - Continue to reduce the size of security forces through demobilization to free resources for social sectors and infrastructure needed to achieve the MDGs.
  - Strengthen expenditure management, budget execution, financial control, and public procurement with donor assistance.
  - Carefully manage public expectations of a peace dividend.
  - Continue BRB efforts to bolster banking supervision and modernize operations.
  - Continue liberalization of the exchange regime and eliminate remaining exchange restrictions; the staff supports continuation of the managed-float exchange rate regime.
  - Work with EAC partners on further tariff reform focused on reducing the highest rates.
  - Pursue agreement with non-Paris Club bilateral and other creditors that have not yet provided debt relief under the enhanced HIPC Initiative.
  - Strengthen the statistical system to improve monitoring of economic developments.
  - Reinforce governance and transparency practices, including through PFM reforms and progressive withdrawal of state intervention in the economy.
- Staff recommendation:
  - Given demonstrated commitment to reform and program strength, staff recommends completion of the third and fourth reviews under the PRGF; approval of the authorities’ request for waivers of two performance criteria and modification of another; extension of the PRGF arrangement; and extension of additional interim assistance under the enhanced HIPC Initiative. Satisfactory assurances from Burundi’s other creditors are in place for the extension of interim assistance.

*Source: _cr06311 - 33.      Some progress has been made on governance and transparency (MEFP,*

### 57.      The staff welcomes the authorities’ intention to make public the staff report,

### _cr06311 - 57.      The staff welcomes the authorities’ intention to make public the staff report,

### Publication and consultation cycle
- The staff welcomes the authorities’ intention to make public the staff report, the letter of intent, and the MEFP.
- Recommendation: the next Article IV consultation with Burundi be held on the 24-month consultation cycle in accordance with Decision No. 12794-(02/76) of July 2002, as amended by Decision No. 12854-(02/96) of September 12, 2002.

### Key macroeconomic indicators and projections (selected series as presented)
- Real GDP growth4.85.00.96.16.67.16.76.6
- GDP deflator8.315.316.64.83.64.34.34.3
- Consumer prices (period average)8.016.313.42.53.34.04.04.0
- Consumer prices (end of period)11.810.31.18.74.04.04.04.0
- Exports, f.o.b. (in U.S. dollars)27.544.419.322.519.912.512.813.3
- Imports, f.o.b. (in U.S. dollars)16.142.260.231.815.67.17.76.1
- Export volume -10.917.1-1.722.117.115.512.212.5
- Import volume 3.932.146.526.913.56.36.86.0
- Terms of trade (deterioration -) 28.114.510.9-3.30.6-3.3-0.30.7
- Real effective exchange rate (annual average; depreciation -)-2.8-1.19.6...............

### Central government fiscal framework (selected aggregates)
- Revenue8.09.917.15.515.714.414.111.3
- Total expenditure and net lending (commitment basis)29.618.98.826.210.49.811.810.4
- Noninterest current expenditure (excluding demobilization and elections)9.518.25.851.25.416.415.117.5
- Central government (percent of GDP):
  - Revenue (excluding grants)20.118.220.019.019.920.420.920.9
  - Total expenditure and net lending39.839.136.841.841.741.041.240.9
  - Primary budget balance (excluding foreign-financed projects)-3.5-3.5-1.7-8.9-6.2-6.2-6.2-6.8
  - Overall balance (commitment basis) Excluding grants-19.7-20.9-16.8-22.8-21.9-20.7-20.4-20.0
  - Overall balance (commitment basis) Including grants 1/-4.9-0.2-6.3-0.4-1.30.00.30.1
- Government saving and investment indicators:
  - Current account balance 2/-8.1-7.1-10.5-17.5-16.2-14.1-14.6-15.4
  - Gross investment13.311.910.816.118.620.220.620.9
  - Domestic saving-12.2...-23.5-21.8-19.2-16.3-14.9-12.9

### Budgetary details (2004–10, selected lines)
- Revenue (in billions of Burundi francs) 2007–2010: Rev.Prog.Prel.Original Prog. — Revenue146.9161.4172.1184.9181.5210.1240.4274.3305.3
- Tax revenue133.6147.0158.9174.1165.6192.5219.7249.2277.4
- Nontax revenue13.414.413.210.816.017.720.725.127.9
- Expenditure and net lending291.2346.3316.7399.4399.7441.1484.3541.7597.9
- Current expenditure163.2197.7200.6229.1252.1264.9292.5330.4372.2
- Salaries58.675.572.690.194.8104.5117.1129.9144.3
- Interest payments (due)24.533.732.026.427.528.928.031.432.7
- Project expenditure119.9108.284.3130.6129.6158.1178.4201.3225.7
- Overall balance (commitment basis)-144.3-184.8-144.6-214.5-218.2-231.0-243.9-267.4-292.6
  - (after grants) 1/-35.9-1.8-53.96.3-3.4-14.30.34.41.7

### Monetary sector and central bank accounts (selected aggregates)
- Monetary survey (levels in billions of Burundi francs; selected items)
  - Net foreign assets (M3 basis sample points) 38.0 18.9 60.0 62.3 23.1 55.7 53.7 51.2 76.9 69.7 43.5 53.6 53.8 59.9 66.4
  - Net domestic assets 210.2 189.0 229.0 226.7 200.9 225.9 227.9 184.9 220.3 227.4 256.7 204.1 289.5 277.1 284.8
  - Domestic credit 278.3 276.3 277.4 280.2 289.9 277.1 277.1 277.1 279.5 279.5 306.5 291.9 339.7 328.8 338.2
  - M3 248.2 ... 289.1 289.1 ... 281.6 281.6 ... 297.1 297.1 300.2 257.7 343.3 337.0 351.3
  - M2 202.7 207.9 241.3 241.3 224.0 238.7 238.7 236.1 256.4 256.4 259.1 253.3 301.7 295.0 308.9
- Memorandum monetary indicators:
  - Gross international reserves (in millions of U.S. dollars)67.2 87.0 92.4 89.6 89.5 94.8 94.8 125.3 112.7 112.7 90.2 88.1 119.9 127.0 145.0
  - M2 growth (12-month percent change)16.7 15.8 34.4 34.4 21.2 29.1 29.1 17.4 26.5 26.5 13.3 10.8 25.0 23.6 20.5
  - Reserve money (12-month percent change)37.2 3.3 13.9 13.9 9.5 24.5 24.5 -1.1 32.7 32.7 6.9 7.3 22.7 24.7 10.5
  - Exchange rate (Burundi francs per U.S. dollar; period average)1,100.91,105.61,076.8...............

### External sector, balance of payments, and external financing (selected items)
- Current account (including grants) ActualRev.prog.Prel. IMF Country Report No. 05/322: -54.0-56.8-84.0-166.8-245.4-249.1-272.9-310.0
  - Current account (excluding official transfers )-169.4-231.4-274.3-361.5-395.4-417.7-442.7-460.0
- Trade balance-101.1-134.0-181.6-244.7-279.9-295.2-313.2-324.6
  - Exports, f.o.b.47.969.157.170.083.994.4106.5120.7
    - Of which: coffee29.448.540.550.759.762.366.771.4
  - Imports, f.o.b.  -148.9-203.1-238.7-314.7-363.8-389.6-419.6-445.2
    - Of which: petroleum products -26.5-40.0-38.2-52.6-59.3-62.4-65.9-69.5
- Services (net)-60.6-77.4-89.4-110.4-109.5-117.3-124.0-129.2
- Income (net)-18.1-32.5-20.6-25.6-27.2-28.9-31.8-34.4
  - Of which: interest on public debt (including IMF charges) -9.9-12.6-11.4-12.8-12.2-12.7-14.3-15.7
- Current transfers (net)125.9187.1207.6213.9171.2192.2196.1178.1
  - Official (net)115.4174.6190.3194.7150.0168.6169.8150.0
  - Of which: program grants55.284.137.9103.40.00.00.00.0
- Capital account48.159.626.2131.2118.5135.0157.4172.2
  - Of which: HIPC relief0.016.07.435.739.440.145.348.1
- Financial account6.713.566.640.355.341.445.656.7
  - Direct investment10.01.515.08.020.023.026.530.4
  - Medium- and long-term official loans (net)11.527.737.70.22.8-2.8-8.1-5.8
- Overall balance11.00.422.24.7-71.6-72.6-69.9-81.2

### External debt, arrears, and debt-service (selected items)
- Stock of debt (before HIPC relief)1,384.11,533.01,426.01,457.91,471.31,468.51,456.61,441.2
- External payments arrears78.70.052.50.00.00.00.00.0
- External debt outstanding, scheduled debt service, and ratios (2004–07):
  - Existing medium-and long-term debt outstanding, excluding principal arrears1/1,384.11,426.01,457.91,471.3
  - Multilateral1,169.91,206.51,230.01,235.3
    - Of which: IMF41.083.188.899.0
  - Bilateral207.6215.7229.6242.2
    - Paris Club145.1151.8156.6161.3
  - External arrears outstanding83.455.50.00.0
  - Scheduled debt service: Interest9.911.412.813.0; Principal60.931.640.232.6
  - Memorandum: Scheduled debt service (in percent of exports of goods and services)111.447.246.530.2
  - Memorandum: Actual debt service (in percent of exports of goods and services)99.833.513.43.5
  - External debt outstanding (in percent of GDP)220.8185.3152.7140.7

### External financing and reserves (selected aggregates)
- Gross official reserves (end-of-period; in millions of U.S. dollars)67.2125.3112.7145.0158.9174.3191.3202.5
- Gross official reserves (in months of imports of the following year)2.26.42.93.33.43.43.53.6
- Debt-service ratio (scheduled; in percent of exports; before HIPC relief)109.262.247.246.532.830.029.929.0
- Debt-service ratio (actual; in percent of exports; after HIPC relief)99.853.333.513.43.93.83.64.3

*Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2006/_cr06311.pdf*

### 1. PRSP: Preparation of a full PRSP through a participatory process and its

### 1. PRSP: Preparation of a full PRSP through a participatory process and its satisfactory implementation for one year

### PRSP status and requirements
- Preparation of a full PRSP through a participatory process and its satisfactory implementation for one year, as evidenced by an Annual Progress Report that has been the subject of analysis in a Joint Staff Advisory Note.
- A full PRSP is in the final stages of preparation.

### Use of HIPC-related debt-service relief
- Use of budgetary savings from debt relief in accordance with the priorities identified at the decision point and in the PRSP, duly documented and discussed by a national Independent Oversight Committee on a semiannual basis.
- Budgetary allocations for priority spending targeting pro-poor activities and projects have increased markedly.

---

### Macroeconomic stability
- Maintenance of macroeconomic stability as evidenced by satisfactory performance under the PRGF-supported program.
- Macroeconomic developments in the past two years have been broadly in line with the program, which has remained on track.

---

### Public expenditure management
- Establishment of an integrated public expenditure computerized system that provides a budget monitoring and control system, in particular for poverty-related spending.
- Requirement: production of at least two quarterly budget execution reports based on the new unified budget nomenclature.
- Status: An integrated computerized expenditure management system was put in place in January 2006 using the new budget nomenclature. Quarterly budget execution reports will be produced from mid-2006.

---

### Governance measures and delivery of services in key sectors
- Completion for the education, health, and justice sectors of:
  - (i) a budget tracking exercise (budget monitoring) of public spending on the delivery of pro-poor services;
  - (ii) an evaluation by users of the quality of services provided;
  - (iii) an evaluation by providers of constraints to effective delivery of pro-poor services;
  - (iv) preparation of an action plan to address problems identified.
- Status: A technical team will be conducting an evaluation of services delivery by September 2006, with World Bank and Belgian technical assistance.

---

### Demobilization (DDR)
- Execution of the National DDR Program in line with the pace and final objectives set forth in the Letter of Demobilization Policy to the World Bank, dated 19 February, 2004.
- Status: The demobilization program is advancing well. Some 20,000 persons were demobilized in 2005 and another 5,000 are expected in 2006.

---

### Structural measures
- Tendering for sale the state holdings in a majority of coffee washing stations.
- Status: A study on the strategy for privatization is in process and the launch of tenders is programmed by end-October 2006.

---

### Social sectors — Education and Health
- Education targets:
  - Increase in the gross national enrollment rate in primary schools from 74 percent in 2003/04 to 77 percent in 2006; and from 16 percent in 2003/04 to 18 percent in 2006 in secondary schools, subject to the provision that the average increase in provinces with lower than average enrollment rates in 2004 must be higher than the increase in the national rate over the same time period.
- Education status:
  - The elimination of primary school fees in September 2005 resulted in a large increase in first grade enrollment.
  - Primary school enrollment rate rose from an estimated 80 percent in 2003/04 to 85 percent in 2004/05, to close to 100 percent in 2005/06.
  - Lower secondary education rate is estimated at 17 percent in 2004/05.
- Health targets:
  - Increase in the national immunization rate for children of less than one year of age from 75 percent in 2004 to 85 percent in 2006, subject to the provision that the average increase in provinces with lower-than-average immunization rates in 2004 must be higher than the increase in the national rate over the same time period.
- Health status:
  - A report by UNICEF indicates that the vaccination rate reached 80 percent in 2005 and would likely rise to 90 percent in 2006.

---

### Debt management
- Requirement: Production of monthly external debt reports, including projections for the upcoming three months, for at least six months before the completion point.
- Status: Little progress.

---

### Balance of Payments: Medium-Term Scenario and Sensitivity Analysis (selected figures and projections)

### Key projected series (selected years and indicators retained exactly as presented)
- Current account (excluding official transfers) (in millions of U.S. dollars):
  - 2004: -169.4
  - 2005: -274.3
  - 2006: -361.5
  - 2007: -395.4
  - 2008: -417.7
  - 2009: -442.7
  - 2010: -460.0
  - 2011: -463.0
  - 2012: -471.7
  - 2013: -485.3
  - 2014: -490.7
  - 2015: -490.4

- Trade balance (in millions of U.S. dollars):
  - 2004: -101.1
  - 2005: -181.6
  - 2006: -244.7
  - 2007: -279.9
  - 2008: -295.2
  - 2009: -313.2
  - 2010: -324.6
  - 2011: -324.5
  - 2012: -330.2
  - 2013: -344.4
  - 2014: -353.8
  - 2015: -355.9

- Exports, f.o.b. (in millions of U.S. dollars):
  - 2004: 47.9
  - 2005: 57.1
  - 2006: 70.0
  - 2007: 83.9
  - 2008: 94.4
  - 2009: 106.5
  - 2010: 120.7
  - 2011: 135.7
  - 2012: 147.9
  - 2013: 162.7
  - 2014: 180.2
  - 2015: 201.5

- Of which: coffee (in millions of U.S. dollars):
  - 2004: 29.4
  - 2005: 40.5
  - 2006: 50.7
  - 2007: 59.7
  - 2008: 62.3
  - 2009: 66.7
  - 2010: 71.4
  - 2011: 76.4
  - 2012: 80.8
  - 2013: 84.9
  - 2014: 88.8
  - 2015: 92.9

- Imports, f.o.b. (in millions of U.S. dollars):
  - 2004: -148.9
  - 2005: -238.7
  - 2006: -314.7
  - 2007: -363.8
  - 2008: -389.6
  - 2009: -419.6
  - 2010: -445.2
  - 2011: -460.2
  - 2012: -478.1
  - 2013: -507.1
  - 2014: -533.9
  - 2015: -557.4

- Services (net) (in millions of U.S. dollars):
  - 2004: -60.6
  - 2005: -89.4
  - 2006: -110.4
  - 2007: -109.5
  - 2008: -117.3
  - 2009: -124.0
  - 2010: -129.2
  - 2011: -132.4
  - 2012: -136.2
  - 2013: -135.8
  - 2014: -133.4
  - 2015: -132.2

- Current transfers (net) (in millions of U.S. dollars):
  - 2004: 125.9
  - 2005: 207.6
  - 2006: 213.9
  - 2007: 171.2
  - 2008: 192.2
  - 2009: 196.1
  - 2010: 178.1
  - 2011: 169.9
  - 2012: 156.7
  - 2013: 145.7
  - 2014: 138.8
  - 2015: 129.9

- Financing gap (in millions of U.S. dollars):
  - 2004–2006: 0.0 (2004), 0.0 (2005), 0.0 (2006)
  - 2007: 75.6
  - 2008: 88.1
  - 2009: 90.7
  - 2010: 101.0
  - 2011: 107.0
  - 2012: 119.6
  - 2013: 129.1
  - 2014: 128.6
  - 2015: 124.8

### Memorandum items (selected)
- Nominal GDP (in U.S. dollars):
  - 2004: 664.5
  - 2005: 799.4
  - 2006: 954.6
  - 2007: 1,045.4
  - 2008: 1,143.2
  - 2009: 1,246.5
  - 2010: 1,358.7
  - 2011: 1,478.0
  - 2012: 1,606.0
  - 2013: 1,743.4
  - 2014: 1,891.6
  - 2015: 2,051.5

- Real GDP growth rate:
  - 2004: 4.8
  - 2005: 0.9
  - 2006: 6.1
  - 2007: 6.6
  - 2008: 7.1
  - 2009: 6.7
  - 2010: 6.6
  - 2011: 6.4
  - 2012: 6.2
  - 2013: 6.1
  - 2014: 6.1
  - 2015: 6.0

- Inflation rate (period average; in percent):
  - 2004: 8.0
  - 2005: 13.4
  - 2006: 2.5
  - 2007: 3.3
  - 2008–2015: 4.0 (each year listed as 4.0)

- Gross official reserves (in millions of U.S. dollars):
  - 2004: 67.2
  - 2005: 112.7
  - 2006: 145.0
  - 2007: 158.9
  - 2008: 174.3
  - 2009: 191.3
  - 2010: 202.5
  - 2011: 214.4
  - 2012: 227.1
  - 2013: 240.0
  - 2014: 257.5
  - 2015: 273.8

### Sensitivity scenarios (selected outputs)
- Higher coffee prices (international prices assumed to be 25 percent higher than WEO baseline for 2007–10):
  - Impact on current account (excluding official transfers) in millions of U.S. dollars for 2004–2015 includes entries such as:
    - 2007: -380.5
    - 2008: -402.1
    - 2009: -405.2
  - Financing gap (in millions of U.S. dollars) shows non-zero entries from 2007 onward (examples: 2007: 60.6; 2008: 72.6; 2009: 53.2).

- Low-growth scenario (growth assumed to be 4 percent for 2007–17):
  - Current account (excluding official transfers) in millions of U.S. dollars shows larger deficits (examples: 2007: -396.0; 2008: -411.7).
  - Financing gap (in millions of U.S. dollars) correspondingly larger (examples: 2007: 76.2; 2008: 82.2; 2009: 78.3).

---

### Long-Term Macroeconomic Assumptions, 2004–26 (selected aggregates and averages)

### Key long-term projections (selected)
- Real GDP growth (percent change):
  - 2004–2015: pattern includes 4.8, 0.9, 6.1, 6.6, 7.1, 6.7, 6.6, 6.4, 6.2, 6.1, 6.1, 6.0
  - 2016–2026: projected at 6.0 for annual years shown

- Nominal GDP (millions of U.S. dollars) selected years:
  - 2016: 2,224.9
  - 2017: 2,412.9
  - 2018: 2,616.8
  - 2019: 2,838.0
  - 2020: 3,077.9
  - 2021: 3,338.0
  - 2022: 3,620.2
  - 2023: 3,926.1
  - 2024: 4,258.0
  - 2025: 4,618.0
  - 2026: 5,008.3

- GDP per capita (U.S. dollars) long-run:
  - 2006–16 and 2016–26 averages provided in table: e.g., 2006–16 average 1,522.2; 2016–26 average 3,449.0 (values presented as in the table).

- Composition of nominal GDP (percent):
  - Exports of goods and services increasing over time: examples include 2004: 9.6, 2005: 11.4, 2015: 15.8; long-term averages reflect higher export shares.
  - Imports of goods and services shares likewise detailed (examples: 2004: -33.9, 2005: -45.3, 2015: -39.6).

- Fiscal and savings indicators (selected):
  - Overall fiscal balance 1/:
    - 2004: -4.9
    - 2005: -6.3
    - 2006: -0.4
    - 2007: -1.3
    - 2008: 0.0
    - 2009: 0.3
    - Long-term averages shown near 0.2–0.3 in projections.
  - Revenues, excluding grants (in percent of GDP): 2004: 20.1; 2005: 20.0; 2006: 19.0; long-run values ~21.4 (table entries preserved).

### Sensitivity: higher coffee prices and low-growth (long-run variants)
- Higher coffee prices: GDP growth remains around projected rates (table shows 6.0 in long-run scenarios); impacts on per capita GDP and savings ratios are tabulated.
- Low-growth scenario: shows alternative GDP growth paths (examples: 2006–16 variant shows lower growth rates of 4.0 in some years) and related impacts on per capita GDP and investment-to-GDP ratios.

---

### Schedule of PRGF Disbursements and Reviews, 2004–07 (selected entries)
- Executive Board consideration, January 23, 2004 — Disbursement: 26.40 (In millions of SDRs). Executive Board approval; Disbursed.
- January 19, 2005 — Disbursement: 7.15. Completion of first review, based on observance of performance criteria at end-June 2004; Disbursed.
- July 27, 2005 — Disbursement: 7.15. Completion of second review, based on observance of performance criteria at end-December 2004; Disbursed.
- June 2006 — Disbursement: 7.15. Completion of third review, based on observance of performance criteria at end-June 2005.
- June 2006 — Disbursement: 7.15. Completion of fourth review, based on observance of performance criteria at end-December 2005.
- December 2006 — Disbursement: 7.15. Completion of fifth review, based on observance of the structural performance criterion at end-September 2006.
- June 2007 — Disbursement: (entry listed but amount not provided in extracted content).

*Source: _cr06311.*

### 7.15 Completion of sixth review, based on

### _cr06311 - 7.15 Completion of sixth review, based on

### Completion of sixth review and requests
- Completion of sixth review based on observance of performance criteria at end-December 2006.
- Request to conclude third and fourth reviews under the PRGF and disbursement of SDR 14.30 million (18.6 percent of quota).
- Request disbursement of additional interim HIPC assistance of SDR 86,500 to cover:
  - 50.5 percent of PRGF Trust Interest obligations falling due between July 28, 2006 and December 31, 2006.
  - 57.4 percent between January 1, 2007 and July 27, 2007.
- Request for waiver for nonobservance of structural PC (end-October 2005) regarding IFMIS installation (became operational on January 1, 2006).
- Request waiver for nonobservance of external arrears criterion for end-December 2005; external arrears incurred in October and December 2005 were cleared in March 2006.
- Request extension of the three-year PRGF arrangement by nine months until end-September 2007 to allow disbursement.

### Indicators of Fund credit (Table 11, Burundi: Indicators of Fund Credit, 2004–10)
- Fund credit outstanding (end of period), in millions of SDRs:
  - 2004: 26.44
  - 2005: 40.76
  - 2006 (Act.): 2.26
  - 2007 (Proj.): 9.36
  - 2008 (Proj.): 9.36
  - 2009 (Proj.): 6.76
  - 2010 (Proj.): 0.7
- Fund credit outstanding (end of period), in millions of U.S. dollars:
  - 2004: 41.05
  - 2005: 82.28
  - 2006 (Act.): 8.89
  - 2007 (Proj.): 9.09
  - 2008 (Proj.): 9.09
  - 2009 (Proj.): 5.38
  - 2010 (Proj.): 6.7
- Fund credit outstanding (end of period), in percent of quota:
  - 2004: 34.35
  - 2005: 2.98
  - 2006 (Act.): 0.79
  - 2007 (Proj.): 0.90
  - 2008 (Proj.): 0.90
  - 2009 (Proj.): 0.86
  - 2010 (Proj.): 78.8
- Fund obligations (annual):
  - 2004: 19.5
  - 2005: 0.3
  - 2006: 0.6
  - 2007: 0.7
  - 2008: 0.7
  - 2009: 3.3
  - 2010: 6.7
- Fund total charges and interests (annual):
  - 2004: 0.2
  - 2005: 0.3
  - 2006: 0.6
  - 2007: 0.7
  - 2008: 0.7
  - 2009: 0.7
  - 2010: 0.7
    - Existing drawings charges:
      - 2004: 0.2
      - 2005: 0.3
      - 2006: 0.6
      - 2007: 0.5
      - 2008: 0.5
      - 2009: 0.5
      - 2010: 0.5
    - Prospective drawings charges:
      - 2004: 0.0
      - 2005: 0.0
      - 2006: 0.2
      - 2007: 0.2
      - 2008: 0.2
      - 2009: 0.2
      - 2010: 0.2
- Fund total repayments/repurchases (annual):
  - 2004: 19.3
  - 2005: 0.0
  - 2006: 0.0
  - 2007: 0.0
  - 2008: 0.0
  - 2009: 2.6
  - 2010: 6.0
    - Existing drawings repayments:
      - 2004: 19.3
      - 2005: 0.0
      - 2006: 0.0
      - 2007: 0.0
      - 2008: 0.0
      - 2009: 2.6
      - 2010: 6.0
    - Prospective drawings repayments:
      - All years: 0.0
- Fund credit outstanding in percent of:
  - Exports of goods and services:
    - 2004: 64.4
    - 2005: 63.9
    - 2006: 77.9
    - 2007: 72.7
    - 2008: 64.7
    - 2009: 55.3
    - 2010: 44.5
  - Gross official reserves:
    - 2004: 61.0
    - 2005: 51.6
    - 2006: 61.3
    - 2007: 62.3
    - 2008: 56.8
    - 2009: 49.8
    - 2010: 42.8
- Fund obligations in percent of:
  - Exports of goods and services:
    - 2004: 30.6
    - 2005: 0.3
    - 2006: 0.5
    - 2007: 0.5
    - 2008: 0.5
    - 2009: 1.9
    - 2010: 3.4
  - Gross international reserves:
    - 2004: 29.0
    - 2005: 0.2
    - 2006: 0.4
    - 2007: 0.4
    - 2008: 0.4
    - 2009: 1.7
    - 2010: 3.3
- Memorandum items (in millions of U.S. dollars):
  - Exports of goods and services:
    - 2004: 63.6
    - 2005: 91.1
    - 2006: 114.0
    - 2007: 136.2
    - 2008: 153.0
    - 2009: 172.2
    - 2010: 194.8
  - Gross international reserves:
    - 2004: 67.2
    - 2005: 112.7
    - 2006: 145.0
    - 2007: 158.9
    - 2008: 174.3
    - 2009: 191.3
    - 2010: 202.5

### Political and economic background (selected points)
- Political transition completed in August 2005 with elections and formation of government; security situation improved.
- DDR progress: at end-2005, number of demobilized persons was some 20,000.
- Real GDP growth in 2005: about 1 percent.
- Coffee harvest: 2004: 38,000 metric tons; 2005: 7,000 metric tons.
- Food production fell by 1 percent in 2005 due to drought in the north.
- Burundi franc appreciation against the U.S. dollar since mid-2005: 10 percent.
- Inflation: slowdown to 1 percent at end-December 2005.
- External current account deficit, after grants, in 2005: about 10.5 percent of GDP.
- Real effective appreciation of the Burundi franc in 2005: 9.2 percent.
- Differential between parallel and official exchange rates stabilized at about 3 percent.

### Performance under the 2005 program
- All end-June 2005 quantitative performance criteria, after adjustments, were observed.
- End-September indicative targets observed.
- End-December 2005 criteria observed except for accumulation of external arrears to the OPEC Fund (cleared).
- Structural performance criterion IFMIS (end-October 2005) not observed; IFMIS became operational January 1, 2006.
- Three structural benchmarks in 2005 were not observed or were delayed.
- Fiscal 2005:
  - Revenues: FBu 172.1 billion, or 20 percent of GDP.
  - Total spending: about 36.8 percent of GDP.
  - Primary deficit: 1.7 percent of GDP.
  - Overall deficit on commitments basis, after grants: 6.3 percent of GDP (target 0.2 percent of GDP).
- Monetary and financial:
  - M3 expanded by 19.7 percent in 2005.
  - Nominal GDP growth: 17.6 percent.
  - International reserves rose by US$46 million in 2005 to reach US$113 million (equivalent of 3 months of 2006 imports).
  - Credit to the economy declined by 9 percent.
  - Required reserve ratio on domestic currency deposits raised from 5 percent to 7 percent in December 2005.
  - Required reserve ratio of 7 percent introduced for foreign currency deposits in January 2006.
- Structural reforms:
  - Audit Court published 2004 government accounts report on December 6, 2005.
  - New bankruptcy and liquidation laws approved November 2005; promulgated March 15, 2006.
  - Coffee sector: operating surplus FBu 19 billion in 2004/05 crop year; premium to producers FBu 30/kg. (equivalent to FBu 6.1 billion); inputs FBu 3.5 billion; finance for 2005/06 crop FBu 8.8 billion.
  - Government guarantee for bank credit to coffee sector abolished.

### 2006 program objectives and targets
- Macroeconomic objectives for 2006:
  - Real GDP growth target: 6 percent.
  - Inflation (period average) target: about 3 percent.
  - External current account deficit, after grants, projected: about 17.5 percent of GDP.
- Fiscal policy for 2006:
  - Revenues in initial 2006 Budget: 18.9 percent of GDP.
  - Overall spending in initial 2006 Budget: 40.8 percent of GDP.
  - Primary deficit in initial 2006 Budget: 6.2 percent of GDP.
  - Revised 2006 budget to be promulgated before end-June to reflect changes since December 31, 2005.
  - Revised total revenue projected: 19 percent of GDP (decline attributed to abolition of levies and excise duties).
  - Revised total expenditure: FBu 400 billion (41.8 percent of GDP).
  - Contingent spending in revised 2006 budget: 1.2 percent of GDP (FBu 11.5 billion).
  - Wage rise for government employees limited to a 15 percent increase in base pay with effect from July 1, 2006.
  - Share of security outlays trimmed from 34.8 percent of current expenditure in 2005 to 32.0 percent in 2006.
  - Overall deficit on a commitment basis, after grants, expected to decline to about 0.5 percent of GDP.
  - Poverty-related expenditure increase from about 33.6 percent of primary expenditure in 2005 to about 35.5 percent in 2006.
  - Project spending to rise to 13.5 percent of GDP, financed mostly by grants.
- Budgetary and tax measures included in the 2006 Budget:
  - Consolidation of extra budgetary funds, except road fund and national solidarity fund.
  - Budgetization of revenues of the national solidarity fund and introduction of ceilings on its spending.
  - Provision for regularization of civil servants’ salaries.
  - Elimination of the 7 percent transactions tax on banking transactions.
  - Deductibility of the transactions tax paid on investment goods for corporate tax purposes.
  - Revision of customs tariff schedule to reduce tariffs on primary products, and raise those at 0 percent to 5 percent.
  - Elimination of the service tax on imports (6 percent).
  - Introduction of an administrative fee for customs of 0.5 percent of the c.i.f. value of imports.
  - Elimination of exemptions on indirect taxes, except for diplomats, government, and NGOs.
  - Strengthening efforts to apply income tax to all local employees of international agencies.
- Additional measures and contingencies:
  - New regulation on import procedures introduced January 24, 2006.
  - Revision to contract with SGS signed February 7, giving SGS management of import declarations beginning April 3, 2006.
  - Transactions tax on petroleum products re-introduced in January 2006 (previously suspended in September 2005).
  - National commission for aid coordination (CNCA) created in December 2005; permanent secretariat created February 2006.
  - Partners’ Conference for Burundi on February 28, 2006: donors pledges of about US$70 millions; supplementary budget for 2006 anticipated.
  - Supplementary budget will set new ceilings for domestic debt to allow issuance of new treasury securities related to settlement of domestic arrears.
  - Two contingent expenditure measures tied to donor disbursement and BCD asset recovery:
    - Emergency food aid financed by reallocating domestically financed project expenditure; domestically financed project expenditure may be raised up to FBu 10 billion subject to donor compensation.
    - Additional spending from BCD liquidation proceeds only once recovery reaches FBu 1 billion, up to maximum new spending of FBu 1.5 billion.

*Source: _cr06311 - 7.15 Completion of sixth review, based on (IMF staff report and attached communications).*

### 17. The authorities are committed to further improving transparency and public finance

### 17. The authorities are committed to further improving transparency and public finance management

### Public finance management and IFMIS
- Interim computerized financial management system (IFMIS) for expenditures from the commitment to payment stage, with a direct link to the central bank, put in place in the Ministry of Finance with effect from January 1, 2006.
- IFMIS objectives:
  - Reinforce monitoring of budget execution, including of social outlays.
  - Produce real-time financial operations reports.
- Integrate civil service payroll into IFMIS by December 2006.
- Produce quarterly summary fiscal tables based on the IFMIS beginning with the end-June 2006 outcome (September 2006 timetable).

### Civil service management reforms (2006)
- World Bank (ERSP project) support to:
  - Put in place a central data file and a single identification number for all government employees (teachers, civil service, army, and police).
  - Conduct a physical census of employees.
  - Issue personal identity cards with photo and signature.
- Deadlines and actions:
  - Implement recommendations of the commission on civil service staffing. June 2006; Done
  - Regularization of civil servants’ salaries. 2006
  - Return payroll management to the Ministry of Finance. January 2007
  - Reinforce management of the civil service (second half of 2006) through the three measures above.

### Petroleum pricing and revenue measures
- Authorities committed to full pass through for domestic petroleum products reflecting movements on international markets.
- Automatic retail price adjustment mechanism to be put in place by June 2006.
- Action plans in customs, income tax, treasury, public accounting, and procurement to be implemented in 2006 to improve revenue and expenditure management.

### Treasury and arrears clearance
- Introduction of genuine treasury securities (standardized, tradable, and managed by the BRB) in 2006 in support of the clearance strategy for government arrears.
- Agreement between Ministry of Finance and BRB on creation of genuine treasury securities. May 2006; Done
- Adoption by the council of ministers of a strategy for clearing audited arrears (FBu 25.8 billion) consistent with the 2006 supplementary budget; implementation beginning in June 2006. May 2006; Done
  - Strategy to include settlement in part by cash and in part by certificates eligible in the treasury bond (2–5 years maturity) auctions and the privatization program.

### Fiscal and tax measures (selected)
- Abolish the mortgage registration fee of 3 percent. May 2006; Done
- Eliminate all exemptions from indirect taxes and maintain time limits on income tax exemptions in the investment code. June 2006
- Approval by the Minister of Finance of an action plan to strengthen the tax administration and prepare for introduction of the VAT. April 2006; Done
- Conduct joint Tax/Customs inspections. April 2006

### Customs administration reforms (2006)
- Key completed items:
  - Approval of action plan to strengthen and reform customs administration. March 2006; Done
  - Creation of pilot committee in Ministry of Finance and working group in Customs Directorate. March 2006; Done
  - Approval of memorandum of understanding to strengthen cooperation between tax and customs directorates. April 2006; Done
  - Submission to parliament of new customs code, reflecting IMF’s comments, with aim of putting into effect by end-June. May 2006; Done
  - Set up unit for submission of detailed customs declarations and manifests by remote data entry. March 2006; Done
  - Activate a green channel for customs clearance without physical inspection. June 2006; Done
- Targets and timetables:
  - Clear at least 50 percent of import operations through the green channel in the second half of 2006. Second half of 2006
  - Set up and begin using a sophisticated system for selecting import consignments to be examined. April 2006
  - Operationalize an enhanced ex post monitoring system. April 2006
  - Establish working group combining exemptions unit and ASYCUDA team. April 2006

### Monetary and exchange policies: objectives and projections
- Medium-term strategy: further liberalize exchange regime and effect a sustained reduction in inflation.
- BRB focus for 2006:
  - Slow monetary growth by containing banking system credit to the government and strengthening liquidity management (introduction of reserve requirements for foreign exchange deposits and negotiable treasury securities).
  - Introduce and manage on behalf of government a new series of standardized and negotiable treasury securities.
  - Reinforced banking supervision and restructuring weaker banks.
- Quantitative projections for 2006:
  - Credit to the private sector should increase by about 24 percent in 2006.
  - Broad money (M3) growth would be reduced to about 18 percent.
  - Gross international reserves of the BRB would increase further to US$145 million by end-2006, or about 3.3 months of 2007 imports.
- Operational and transparency measures:
  - Strengthen cooperation on budget cash flow forecasting (updated monthly).
  - Strengthen foreign reserves management, internal audit and control procedures, and computerize BRB accounting system.
  - Results of external audit of BRB’s accounts and all monetary and exchange policy decisions to be posted on BRB website.
  - Continue liberalization toward full convertibility of international current transactions in 2006.
  - BRB to limit interventions in the exchange market to those necessary to achieve foreign asset targets and limit short-term volatility.

### Monetary and exchange timetables (selected)
- Establish technical committee for treasury cash flow and liquidity management. March 2006; Done
- Launch auctions of new negotiable treasury securities by the BRB on the account of the government with IMF technical assistance. September 2006
- Introduce a license for money-changers. September 2006
- Abolish the DIP (Import and Payment Declaration). April 2006; Done
- Introduction of a 2 percent cap on the divergence of bids for foreign exchange in the Central Bank auction. May 2006; Done
- Preparation and publication of a single regulation on the exchange regime establishing full convertibility for current international transactions. June 2006
- Move toward an interbank exchange market. 2006
- Strengthen bank supervision with BRB approval of rehabilitation plans for noncomplying banks. May 2006; Done
- World Bank and IMF staff to conduct a joint study of the banking system. 2006

### Structural reforms and privatization
- Relaunch privatization program in 2006 with World Bank technical assistance in accordance with a transparent public tender procedure; aim to phase out government involvement in productive and financial sectors.
- Coffee sector reform (vital for some 800,000 small rural producers):
  - Establish governmental structures to manage sector reforms and minimize financial risks during transition.
  - Ensure STABEX-financed washing station rehabilitation project consistency with 2006 privatization plan; rehabilitated stations to be offered for sale without delay.
  - Ensure regulatory powers of OCIBU do not impede investment and that OCIBU minimizes costs and delays in marketing during transition.
  - Public information campaign on reforms.
- Coffee sector measures and timetables:
  - Establish committee for coordination and monitoring of coffee sector reform. Prior action. Done (March 30)
  - Monitor weekly cash flow management, including OCIBU stabilization fund for financing the 2006/07 harvest. 2006
  - Measures to ensure collection of advances still not repaid (FBu 3 billion) by the SOGESTALS on financing of the 2005/06 harvest. 2006
  - After covering operating costs of SOGESTALS, any surplus on coffee harvest earnings retained by OCIBU to clear arrears. 2006
  - Prohibition of SOGESTALS from declaring or paying dividends until debts and arrears paid. 2006
  - Financial audit of the coffee sector with World Bank support. 2006
  - Reform marketing committee of OCIBU to include representatives of all operators. March 2006; Done
  - Abolition of technical commissions of OCIBU. March 2006; Done
  - Preparation, with World Bank assistance, of privatization strategy for the 133 washing stations and the shelling mills. July 2006
  - Launch tenders for sale of washing stations based on study conclusions. October 2006
  - Adopt and implement new regulatory, legal, and institutional framework and restructure OCIBU in time for 2007/08 harvest. December 2006
- Privatization (selected timetables):
  - Strengthen capacity of State Privatization Agency (SCEP) with World Bank technical assistance to undertake financial valuations of enterprise (June 2006) and to assess offers to buy (September 2006).
  - Launch tenders for sale of specified government assets (residential properties (2), former factories CEDUCA, ICB, and UNICAFE, coffee roasting plant). September 2006
  - Launch tenders for sale of APB, OPHAVET, and UCAR. September 2006
  - Launch tenders for sale of public sector assets in EPB, BCC, and SIP. September 2006
  - SCEP to implement privatization of government assets in banking sector in close consultation with BRB to avoid further concentration and encourage mergers; authorities will seek IFC support. 2006

### Sector liberalization (selected)
- SOSUMO sugar wholesalers can operate freely with ministerial order of March 2006; authorities expect to liberalize sugar price in 2006.
- Seek technical assistance in 2006 to study liberalization of the petroleum sector.

### Transparency, good governance, and statistics
- Publication commitments:
  - Government and BRB to publish decrees, laws, decisions, economic reform strategies, and the Memorandum on Economic and Financial Policies on government, BRB, and REFES websites; keep them up to date. Starting March 2006
  - Strengthen budget and operations of Official Bulletin of Burundi (BOB).
  - Audit Court to continue to strengthen activities in 2006 and protect independence of magistrates.
- Anti-Money Laundering:
  - Draft AML law prepared with IMF technical comments.
  - Council of ministers to review text before end-June and submit to parliament before end-September 2006.
  - Authorities have requested continued TA from IMF for the application of the AML law.
  - Submit to parliament the Anti-Money Laundering law. September 2006
- Statistics: rehabilitation of ISTEEBU and GDDS participation
  - Authorities committed to implementing rehabilitation plan for ISTEEBU to regain capacity to compile national accounts interrupted since 1998 and to improve CPI quality.
  - Authorities to implement IMF statistics mission recommendations and include multi-sector plan for statistics in PRSP.
  - Participate in IMF’s GDDS initiative; initial metadata prepared and to be revised with IMF TA.
- Statistics timetables and actions:
  - Finalize, adopt, and include in the PRSP the development plan for national statistics prepared by IMF Statistics Mission of March 2006. April 2006
  - Publication of the development plan for national statistics on internet sites of relevant government agencies. May 2006
  - Establish an action plan to implement measures in the statistics development plan achievable with identified available resources. April 2006
  - Approval by council of ministers of new institutional framework for ISTEEBU and new code for ISTEEBU employees to allow uninterrupted production of principal macroeconomic indicators. May 2006
  - Restart regular production of national accounts and publish a series based on the 1993 national accounts system methodology (SNA93) for the period 1990-2005. May 2007
  - Update metadata for participation in IMF’s GDDS initiative. July 2006
  - Expand coverage of CPI:
    - Revise list of observation points for consumer prices in Bujumbura. September 2006
    - Expand coverage of new index to include provinces with regular data collection. March 2007
    - Update weights of items in consumption basket. June 2007

### Security sector and DDR/SSR
- DDR and SSR programs remain essential for public security and reducing security outlays to boost social and poverty reduction spending.
- Government committed to achieving objectives in Policy Letter to World Bank of February 2004 on Demobilization, Reinsertion and Reintegration.
- Reduce size of army and national police through DDR; seek volunteers in national police for demobilization.
- Conduct census of security forces by end-June 2006 with international technical assistance.
- Seek technical assistance in 2006 to assess appropriate size and composition of new police force, considering budget constraints and security imperatives.

### Social and pro-poor spending and HIPC relief
- External debt-service relief under enhanced HIPC Initiative will allow an increase in pro-poor budgetary spending.
- Additional expenditures identified in 2006 budget in consultation with World Bank and IMF staff and aligned with priorities in forthcoming full PRSP.
- Main sectors covered: health, education, infrastructure, agriculture, refugee and displaced person resettlement, economic reintegration of victims of conflict, and judicial reform.
- IFMIS implementation will assure monitoring of these expenditures.

*Source: _cr06311 - 17. The authorities are committed to further improving transparency and public finance management*

### 31. For 2006, the external nonproject financing need is estimated at US$177 million. This

### _cr06311 - 31. For 2006, the external nonproject financing need is estimated at US$177 million. This

### External nonproject financing need (2006)
- External nonproject financing need for 2006 is estimated at US$177 million.
- Expected sources and amounts covering this requirement:
  - IMF under the PRGF: US$32 million
  - World Bank under the ERSG: US$60 million
  - AfDB and ADF program grants and loans: US$11 million
  - EU FED program: US$17 million
  - Bilateral donors: US$16 million
  - Traditional debt relief on current maturities: U$5 million
  - HIPC Initiative: US$36 million

### Debt relief and external debt management
- Authorities have written to non-Paris Club creditors seeking debt relief on comparable terms to Paris Club bilaterals.
- Authorities have requested further technical assistance from donors to reinforce external debt management capacity.

### PRSP Process
- Participatory process for preparation of the full PRSP is almost completed.
- Local-level consultations with private and public stakeholders completed; sectoral consultations at national level launched in November 2005.
- Full PRSP expected to be finalized in mid-2006.
- Cost of priority programs identified in the full PRSP estimated at US$535 million; some financing remains to be identified.

### Safeguards and Technical Assistance (BRB)
- Safeguards assessment completed in January 2006.
- BRB commitments:
  - Improve financial reporting procedures and strengthen internal controls.
  - Adopt recommendations from external audit (August 2005) including adoption of International Financial Reporting Standards (IFRS).
  - Support revision of the BRB law to grant independence while ensuring accountability to Parliament.
- Schedule of BRB measures (selected):
  - Transmit internal audit report on program data for end-June and end-December 2005 to the IMF: May 2006. Done April 5.
  - Continue implementing auditor-recommended reforms: 2006.
  - Implement safeguards assessment recommendations: 2006.
  - Adopt internal audit methodology geared to risk management: May 2006.
  - Implement first annual internal audit plan after approval by independent audit committee: September 2006.
  - Submit revised BRB charter to Parliament to strengthen independence and legal base: September 2006.

### Technical assistance and capacity building
- Burundi has extensive technical assistance needs.
- IMF technical assistance provided in 2005 in:
  - Tax administration
  - Public expenditure management
  - Monetary and exchange rate policy
  - Banking supervision
  - National economic statistics
- Further IMF technical assistance planned in these areas in 2006.

### Program monitoring, reviews, and priorities
- Quantitative performance criteria for third and fourth reviews (end-June and end-December 2005) summarized in Table 1; structural criteria and benchmarks for 2005 in Table 2; 2006 quantitative performance criteria in Table 3.
- Program monitoring adjusted for introduction of tradable securities and arrears clearance exercise by substituting the PC on bank credit to government with one on overall domestic financing.
- Authorities will avoid incurring overdue financial obligations to the Fund and introducing measures inconsistent with Article VIII of the Fund’s Articles of Agreement.
- Fifth review under the PRGF scheduled to be completed by end-December 2006; assessed through indicative targets for end-June 2006 and a structural performance criterion. Focus areas for the fifth review:
  - Liquidation of domestic arrears of the budget
  - Progress in privatization of state assets
  - Strengthening public financial management
  - Introduction of reforms at the BRB
- Sixth review scheduled to be completed by end-June 2007.

### Selected quantitative performance and adjustor highlights (as reported)
- Net foreign assets of the BRB (floor) at end-December 2005: FBu 48.8 billion, equivalent to US$48.9 million.
- BRB foreign assets and liabilities at end-December 2005:
  - Foreign assets: FBu 114.3 billion = US$114.5 million
    - Official reserves: FBu 112.4 billion = US$112.7 million
      - Foreign currency holdings: FBu 3.6 billion = US$3.6 million
      - Deposits with correspondents (excluding IMF): FBu 107.4 billion = US$107.7 million
      - SDR holdings: FBu 0.3 billion = US$0.3 million
      - Reserve position with the IMF: FBu 0.5 billion = US$0.5 million
      - Gold holdings: FBu 0.5 billion = US$0.5 million
    - Other claims: FBu 1.9 billion = US$1.9 million
  - Foreign liabilities: FBu 65.5 billion = US$65.6 million
    - Liabilities vis-à-vis correspondents (excluding IMF): FBu 6.1 billion = US$6.2 million
    - Counterpart of the use of IMF resources: FBu 58.0 billion = US$58.2 million
    - Other liabilities: FBu 1.3 billion = US$1.3 million

### Prior actions and structural benchmarks for 2006 (selected, status)
- Prior actions completed (dates provided):
  - Approve the 2006 supplementary budget: Done; July 7, 2006
  - Adoption by council of ministers of plan for clearing domestic arrears: Done; May 26, 2006
  - Submit new customs code to parliament: Done; June 22, 2006
  - Establish coffee sector coordination committee: Done; March 30, 2006
  - Abolish technical commissions of OCIBU: Done; 15 May 2006
  - Reform marketing committee of OCIBU: Done; 30 March 2006
  - Ministry of Commerce order abolishing list of SOSUMO sugar wholesalers: Done; March 21, 2006 by Order 750/270
  - Put into effect new regulation on import procedures of January 24, 2006: Done; effective 3 April 2006
  - Transmit BRB internal audit report on program data for end-June and end-December 2005 to IMF: Done; effective 5 April 2006
  - Adopt action plans for rehabilitation of noncomplying banks: Done; effective 12 June 2006
- Structural performance criterion for 2006:
  - Commence tendering of negotiable treasury securities in standard denominations managed by the BRB for the account of the government: September 2006
- Structural benchmarks (timetables):
  - Adopt and publish single exchange system regulation: June 2006
  - Approve new institutional framework for ISTEEBU and new employee code: June 2006
  - Adopt and include IMF-prepared development plan for statistics in PRSP: June 2006
  - Submit revised BRB Charter to National Assembly establishing central bank independence: September 2006
  - Submit draft Anti-Money Laundering bill incorporating IMF comments to National Assembly: September 2006
  - Launch coffee sector privatization program by issuing tenders: October 2006
  - Integrate payroll in IFMIS: December 2006

*Source: _cr06311 - 31. For 2006, the external nonproject financing need is estimated at US$177 million. This*

### 6.      The gross official reserves of the BRB are defined as those foreign assets that are

### _cr06311 - 6.      The gross official reserves of the BRB are defined as those foreign assets that are

### Gross official reserves and monetary accounts
- Gross official reserves of the BRB are defined as those foreign assets that are liquid and freely available to the central bank.
- At end-December 2005, gross official reserves stood at US$112.7 million.
- Net domestic assets of the BRB (difference between reserve money and net foreign assets of the BRB) totaled FBu 51.7 billion at end-December 2005, broken down as follows:
  - Net domestic assets of the BRB: 51.7 (In billions of Burundi francs)
  - Reserve money: 100.5
    - Currency in circulation: 67.9
    - Reserves of commercial banks: 30.9
    - Other nonbank deposits: 1.7
  - Minus: net foreign assets of the BRB: 48.8

### Net domestic financing of the government (end-December 2005)
- Net domestic financing of the government definition: sum of (i) loans, advances, and other credit to the government from the BRB and all of Burundi’s commercial banks; (ii) change in outstanding stock of all government securities held by the nonbank public denominated in Burundi francs, including that held by nonresidents; (iii) less government deposits held in the BRB or Burundi’s commercial banks at those institutions.
- Coverage of government: central government and any other special funds or operations that are part of the budgetary process or have a direct impact on the government’s financial position.
- Net domestic financing of the government at end-December 2005 totaled FBu 135.8 billion, broken down as follows (In millions of Burundi francs):
  - Total: 135.8
  - Net banking credit to the government: 123.0
  - Central government: 136.3
  - Loans, advances and other credits: 173.6
    - BRB: 154.4
    - Commercial banks: 19.3
  - Deposits: 37.4
    - BRB: 35.6
    - Commercial banks: 1.8
  - Other administrations (net): -13.2
  - Nonbank financial institutions: 0.5
  - Treasury bonds and certificates: 0.5
  - Others: 12.3
    - Postal accounts: 2.2
    - Treasury certificates: 10.1

### External payments arrears (definition and end-December 2005 stock)
- Definition for program monitoring: end-of-period amount of external debt service due and not paid, including contractual and late interest, for which a clearance agreement is not in place or for which arrears are not reschedulable. Arrears with a clearance framework or subject to rescheduling/restructuring are not considered arrears for program monitoring purposes. Program arrears include any debt service due under such agreements that have not been paid.
- External payments arrears at end-December 2005, showing actual stock under “technical arrears” (In billions of Burundi francs):
  - Total: Program definition 0 ; Technical arrears 52.5
  - Multilateral: 0 ; 9.1
    - International Development Association: 0 ; 0.0
    - AfDB Group: 0 ; 0.0
      - African Development Bank: 0 ; 0.0
      - African Development Fund: 0 ; 0.0
      - Nigeria Trust Fund: 0 ; 0.0
    - International Monetary Fund: 0 ; 0.0
    - European Union: 0 ; 0.0
    - International Fund for Agricultural Development (IFAD): 0 ; 0.0
    - Arab Bank for Economic Development in Africa (BADEA): 0 ; 0.0
    - OPEC Fund: 0 ; 8.4
    - Development Bank of the Great Lakes States (BDEGL): 0 ; 0.7
  - Bilateral and commercial: 0 ; 43.4
    - Paris Club: 0 ; 0.0
      - French Cooperation Agency (AFD): 0 ; 0.0
      - Japan (FCEOM): 0 ; 0.0
      - Russia: 0 ; 0.0
    - Other official bilateral: 0 ; 42.9
      - Abu Dhabi Fund: 0 ; 2.5
      - Kuwait Fund: 0 ; 18.4
      - Saudi Arabia Fund: 0 ; 16.6
      - Libyan Bank: 0 ; 5.4
    - Commercial: 0 ; 0.5
      - AD Consultants: 0 ; 0.0
      - Kreditanstalt für Wiederaufbau AMSAR: 0 ; 0.5

### Domestic arrears of government and clearance strategy
- Domestic arrears of the government amounted to FBu 35.7 billion as of end-2004, of which FBu 4.2 billion was to state enterprises. Total was identified by the Ministry of Finance and audited by an external auditor.
- In 2005, the budget cleared FBu 3.8 billion of these arrears.
- Outstanding balance to be cleared by end-June 2006: FBu 25.7 billion, with the following strategy:
  - An official government decision will establish total amount of arrears and modalities for settlement.
  - All individuals and corporations holding arrears claims will receive a cash payment of FBu 100 million upon signing a note liquidating their claim (total cash payment estimated at FBu 7.4 billion).
  - For creditors with validated arrears greater than FBu 100 million, a certificate recognizing these debts will be issued for the nominal value of the remaining arrears (FBu 18.3 billion). These certificates:
    - Will not earn interest.
    - Will be freely exchangeable for treasury bonds of about 3–5 years maturity, auctioned by the BRB on behalf of the government treasury.
    - Can be used (100 percent of nominal value) in the privatization program to settle winning offers to buy.
  - Payments arrears of public enterprises and cross-debts of the petroleum sector are excluded from this settlement process and will be dealt with separately.

### Limits on external borrowing and short-term debt
- Performance criterion: ceiling on new nonconcessional external debts contracted or guaranteed by the government and the BRB precludes contracting any such debt.
  - Applies to central government, local governments, or the BRB for new nonconcessional external debt with original maturity of more than one year, including commitments contracted or guaranteed for which value has not been received.
  - Debt definition: as in Executive Board Decision No. 12274-(00/85) adopted August 24, 2000.
  - Debt rescheduling and restructuring are excluded from the criterion.
  - Included instruments: financial leases and other instruments giving rise to external liabilities, contingent or otherwise, on nonconcessional terms.
  - Concessional debt defined as having a grant element of 50 percent or more.
  - Discount rates for assessing concessionality:
    - For loans with maturity of at least 15 years: 10-year average CIRRs published by the OECD.
    - For loans with shorter maturities: 6-month average CIRRs.
    - Margins added to CIRRs: 0.75 percent for repayment periods of less than 15 years; 1 percent for 15-19 years; 1.15 percent for 20-29 years; 1.25 percent for 30 years or more.
  - Exclusions from performance criterion: use of Fund resources and any Burundi franc-denominated treasury securities held by nonresidents.
- Stock of short-term external debt (maturity up to, or equal to, one year) owed by the government is to remain at zero under the program. Normal import credits are excluded.
  - Loans with initial maturity > one year are medium-term or long-term.
  - As of end-December 2005, stock of short-term debt outstanding was nil, as was nonconcessional medium- and long-term debt contracted during the year.

### Privatization receipts and fiscal balances
- Receipts from privatization during 2005 totaled FBu 0.4 billion.
- 2006 program projects receipts on the order of FBu 3.6 billion.
  - 50 percent of receipts over and above the projected amount will be used to reduce the domestic borrowing requirement.
  - Any privatization receipts over and above this amount will be used to reduce domestic debt.
- Government primary fiscal balance definition: total government revenue, excluding grants, minus noninterest current government expenditure and domestically financed capital expenditure (including use of counterpart funds).
  - Primary fiscal balance:
    - 2005: FBu -14.6 billion
    - 2006 target: FBu -84.8 billion
  - 2005/2006 breakdown (FBu):
    - Total revenue: 172.1 (2005) ; 181.5 (2006)
    - Minus noninterest current expenditure: 168.6 (2005) ; 224.6 (2006)
    - Domestically financed capital expenditure: 19.5 (2005) ; 43.7 (2006)
    - Net lending: -1.4 (2005) ; -2.0 (2006)

### Government wage bill
- Definition: total labor remunerations on a commitments basis for civil servants, contractual employees, and military personnel of the government, including all allowances and bonuses.
- Government wage bill:
  - 2005: FBu 72.6 billion
  - 2006 target: FBu 94.8 billion
  - Breakdown:
    - Civilian personnel: 41.9 (2005) ; 56.9 (2006)
    - Military personnel: 24.0 (2005) ; 21.6 (2006)
    - National Police Force: 6.7 (2005) ; 16.2 (2006)

### External financial assistance adjustor and definitions
- Program provides a symmetrical adjustor for shortfalls or excesses in external financial assistance applied to quantitative targets for:
  - Net foreign assets and net domestic assets of the BRB.
  - Net bank credit to the government.
- External financial assistance (measured in U.S. dollars) definition:
  - Includes: (i) nonproject loans and grants to the budget (including payments made through the multi-donor trust fund managed by the World Bank for current debt service to multilaterals); (ii) debt relief on current maturities;
  - Minus: (iii) any cash payments for external arrears clearance operations.
  - Disbursements into blocked accounts by donors for purpose of clearing arrears will not be included as foreign assistance for program monitoring purposes.
- Assumptions for 2006 (External nonproject financial assistance, cumulative, In millions of U.S. dollars, cumulated):
  - Mar. Prog.: 0.2
  - Jun. Prog.: 63.3
  - Sep. Prog.: 74.9
  - Dec. Prog.: 107.8
  - Of which by donor (cumulative prog. at Mar./Jun./Sep./Dec.):
    - EU: 0.0 / 12.5 / 12.5 / 17.0
    - World Bank: 0.0 / 35.0 / 35.0 / 60.0
    - AfDB: 0.0 / 0.0 / 11.0 / 11.0
    - France: 0.0 / 0.0 / 0.0 / 3.0
    - Belgium: 0.0 / 2.4 / 2.4 / 2.4
    - UK: 0.0 / 0.0 / 0.0 / 0.0
    - Netherlands: 0.0 / 10.0 / 10.0 / 10.0
    - Other: 0.0 / 0.0 / 0.0 / 0.0
  - Debt relief (current maturities, excluding HIPC): 0.2 / 3.4 / 4.1 / 4.5
  - Multidonor Trust Fund disbursements (World Bank): 0.0 / 0.0 / 0.0 / 0.0
- Adjustment mechanics:
  - Ceiling/floor targets will be adjusted to accommodate 100 percent of any deviation from projected cumulative external financial assistance.
  - In case of financing excess (shortfall):
    - Floor on stock of net foreign assets of central bank adjusted upward (downward).
    - Ceilings on stock of net domestic assets of central bank and on stock of net credit from banking system to government adjusted downward (upward).
  - External financial assistance will be converted to Burundi francs using program end-period FBu/US$ exchange rate.

### Domestic payments arrears adjustor
- Ceiling on net credit to the government from the banking system will be adjusted to reflect 100 percent of any deviation from projected net accumulation of fiscal arrears (measured by accumulation of nonexecuted payment orders older than 30 days).
  - In case of increase (decline) in fiscal arrears, ceiling on stock of net credit from banking system to government adjusted downward (upward).

### Key program assumptions (from WEO projections of November 2004)
- Average export prices (2005 and 2006 quarterly values):
  - Coffee (cents per pound):
    - 2005: 114.3
    - Q1: 112.2
    - Q2: 111.9
    - Q3: 114.0
    - 2006: 116.0
  - Tea (dollars per kg.):
    - 2005: 204.8
    - Q1: 197.3
    - Q2: 203.2
    - Q3: 215.2
    - 2006: 203.8
  - Petroleum (US$ per barrel):
    - 2005: 53.4
    - Q1: 58.5
    - Q2: 61.5
    - Q3: 62.3
    - 2006: 62.0
- End of period exchange rates:
  - Dollar per SDR exchange rate: 1.43 (2005), Q1: 1.43, Q2: 1.43, Q3: 1.43, 2006: 1.43
  - Dollar per Euro exchange rate: 1.18 (2005), Q1: 1.18, Q2: 1.18, Q3: 1.18, 2006: 1.18
  - Burundi francs per U. S. dollar exchange rate:
    - 2005 end of period: 997.8
    - Q1: 1,000.0
    - Q2: 1,000.0
    - Q3: 1,000.0
    - 2006 end of period: 1,000.0

### Provision of information to IMF staff (reporting requirements)
- Monthly report: Burundi government will prepare a monthly report within five weeks of the end of each month to be sent to IMF staff.
- Monitoring committee staff (technical bureau of SP/REFES) will forward required data to the African Department of the IMF by facsimile or electronic mail.
- Weekly data to include:
  - Monitoring table (tableau de bord) with most recent weekly and monthly data on main financial indicators (REFES).
  - Table on foreign exchange cash flow (BRB Foreign Banking Operations Department).
  - Foreign exchange auction market (MED) transactions.
  - Balance sheet of the BRB (weekly statement) (BRB Research Department).
- Monthly data to include:
  - Monetary survey, including breakdown of central bank and commercial banks (BRB Research Dept.).
  - Financial position of government vis-à-vis banking system (BRB Research Department).
  - Detailed breakdown of government revenue (Ministry of Finance).
  - Detailed breakdown of government expenditure on a commitment basis (Ministry of Finance).
  - Detailed breakdown of government wage bill on a commitment basis (Ministry of Finance).
  - Detailed information on government social spending, particularly health and education (Ministry of Finance).
  - Detailed breakdown of servicing of domestic and external public debt, including amounts due and paid, interest and principal, creditor breakdown, and any accumulation of arrears (Ministry of Finance).
  - Detailed breakdown of stock of domestic payments arrears and cumulative flows from January 1, 2004; accumulation of new arrears defined as difference between commitments and actual payments (cash basis, as reported in cash statement summary—Reddition des comptes) (Ministry of Finance).
  - Amount of new debts contracted or guaranteed by the government, including terms (currency denomination, interest rate, grace period, maturity) (Ministry of Finance).
  - Actual disbursements of nonproject financial assistance, including new loans and debt relief granted by Burundi’s external creditors (Plan/Ministry of Finance).
  - Update on implementation of structural measures planned under the program, as described in the MEFP (REFES).
- SP/REFES/Ministry of Finance, BRB will provide the African Department of the IMF with any information deemed necessary for effective monitoring.

### Burundi: Relations with the Fund (As of May 31, 2006)
- Membership Status: Joined: September 28, 1963; Article XIV
- General Resources Account (SDR Million / %Quota):
  - Quota: 77.00 / 100.00
  - Fund holdings of currency: 76.64 / 99.53
  - Reserve Position: 0.36 / 0.47
- SDR Department (SDR Million / %Allocation):
  - Net cumulative allocation: 13.70 / 100.00
  - Holdings: 0.02 / 0.14
- Outstanding Purchases and Loans (SDR Million / %Quota):
  - PRGF Arrangements: 40.70 / 52.86
- Latest Financial Arrangements:
  - PRGF: Approval Date Jan. 23, 2004 ; Expiration Date Jan. 22, 2007 ; Amount Approved (SDR Million) 69.30 ; Amount Drawn (SDR Million) 40.70
  - ESAF: Approval Date Nov. 13, 1991 ; Expiration Date Nov. 12, 1994 ; Amount Approved 42.70 ; Amount Drawn 17.21
  - SAF: Approval Date Aug. 8, 1986 ; Expiration Date Aug. 7, 1989 ; Amount Approved 29.89 ; Amount Drawn 29.89
- Projected Payments to Fund (SDR million; based on existing use of resources and present holdings of SDRs):
  - 2006–2010 Principal: 0.00 (2006) ; 0.00 (2007) ; 0.00 (2008) ; 2.64 (2009) ; 6.00 (2010)
  - Charges/Interest: 0.45 (2006) ; 0.70 (2007) ; 0.70 (2008) ; 0.69 (2009) ; 0.66 (2010)
  - Total: 0.45 (2006) ; 0.70 (2007) ; 0.70 (2008) ; 3.33 (2009) ; 6.66 (2010)
- Safeguards Assessments:
  - Under the Fund’s safeguards assessment policy, the Banque de la République du Burundi (BRB) is subject to a full safeguards assessment with respect to the PRGF arrangement approved on January 23, 2004. The safeguards assessment was completed on January 18.

*Source: Burundi authorities; and Fund staff estimates.*

### 2006. The assessment identified several vulnerabilities, in particular in the legal and control

### _cr06311 - 2006. The assessment identified several vulnerabilities, in particular in the legal and control

### Exchange Arrangements
- Regime: Burundi maintains a managed float exchange regime. The U.S. dollar is the intervention currency.
- Exchange rate: On May 31, 2006, the exchange rate was FBu 1,030.26 to the U.S. dollar.
- Reforms and liberalization chronology:
  - Mid-2000: authorities began reversing heavy restrictions from the 1996-99 embargo by introducing weekly foreign exchange auctions.
  - 2002: central bank eliminated the positive list of eligible imports, implemented a single, competitive settlement exchange rate for each weekly auction, and reduced the full surrender requirement for coffee, tea, and cotton exports to 70 percent.
  - 2003: central bank eliminated most remaining exchange restrictions on current international transactions and delegated authority to commercial banks to approve standard transactions.
  - Early 2004: surrender requirement lowered to 50 percent.
  - Early 2005: surrender requirement eliminated.
  - Central bank admitted foreign exchange bureaus to the weekly auctions.
  - Most external payments arrears to bilateral and multilateral creditors were cleared by end-2005.
- Fund obligations and inconsistencies:
  - Historical: Burundi availed itself of the transitional arrangements of Article XIV when it joined the Fund in 1962.
  - Current status: no longer maintains exchange restrictions or multiple currency practices under Article XIV.
  - Inconsistencies with Article VIII:
    - Two multiple currency practices inconsistent with Article VIII, Section 3, arising from or in connection with the current Dutch auction system.
    - One exchange restriction inconsistent with Article VIII, Section 2(a), resulting from the authorization process applied to certain current international transactions.
  - Specifics of the multiple currency practices:
    - No mechanism limits potential variation of winning bids from differentiating from each other by more than 2 percent.
    - The exchange rate used for government transactions may differ by more than 2 percent from market exchange rates.
  - Specifics of the exchange restriction:
    - Central bank has discretion to refuse to authorize the sale of foreign exchange for reasons other than in connection with verifying the bona fide nature of the transaction.
  - Security-related restrictions: Burundi maintains certain restrictions for security reasons and has notified those restrictions to the Fund pursuant to Decision 144-(52/51).
  - Recent and expected eliminations:
    - An exchange restriction was eliminated on May 30, 2006.
    - It is understood that the authorities will eliminate a remaining one on ex ante approval of certain transactions and two multiple currency practices shortly.
  - Approvals: The authorities have not requested, and staff does not propose, approval of the multiple currency practices.

### Article IV Consultation
- Consultation cycle: Burundi is on the 24-month cycle.
- 2003 consultation: discussions conducted in Addis Ababa and Bujumbura during October 14-29, 2003.
- Staff report: Country Report No. 04/41; Executive Board discussion on January 23, 2004, alongside consideration of a request for a three-year arrangement under the Poverty Reduction and Growth Facility (PRGF).
- Executive Directors' observations:
  - Welcomed progress in advancing the peace process since the Arusha Agreement in 2000.
  - Commended strong implementation of post-conflict economic program in 2003.
  - Noted formidable challenges: reducing heavy external debt burden, absorbing a large number of refugees and internally displaced persons, demobilizing combatants.
  - Emphasized critical importance of coffee sector reform.

### Technical Assistance (selected entries)
- 2006 (Mar.) STA mission to prepare the metadata and medium-term action plan
- 2006 (Mar.) MFD/LEG joint Article VIII mission
- 2006 (Jan.) LEG AML/CFT legislative drafting mission
- 2006 (Jan.) Monetary operations/FOREX/banking supervision mission
- 2005 (Dec.) STA balance of payments statistics (external debt accounting) mission
- 2005-06 MFD resident expert on monetary operations and money markets
- 2005 (Oct.) FIN safeguard assessment second step mission
- 2005 (Oct.) FAD public financial management mission
- 2005 (Oct.) FAD customs administration mission
- 2005 (Oct.) MFD expert on monetary operations mission
- 2004–05 Extended visits by MFD expert on liquidity management
- 2004 (Nov.) STA multisector mission
- 2004 (Nov.) MFD multitopic mission
- 2004 FAD public accounting system, three visits by peripatetic adviser

### Implementation of HIPC Initiative
I. Commitment of HIPC assistance Framework
- Decision point date: August 2005
- Assistance committed by all creditors (US$ million) 1/: 826.00
- Of which:
  - IMF assistance (US$ million): 27.84
  - (SDR equivalent in millions): 19.26
- Completion point date: Floating

II. Disbursement of IMF assistance (SDR million)
- Assistance disbursed to the member: 0.09
- Interim assistance: 0.09
- Completion point balance: --
- Additional disbursement of interest income 2/: --
- Total disbursements: 0.09

Footnotes (text preserved from source):
- 1/ Assistance committed under the original framework is expressed in net present value (NPV) terms at the completion point, and assistance committed under the enhanced framework is expressed in NPV terms at the decision point. Hence these two amounts can not be added.
- 2/ Under the enhanced framework, an additional disbursement is made at the completion point corresponding to interest income earned on the amount committed at the decision point but not disbursed during the interim period.

### Resident Representative
- Mr. Lars-Holger Engstrom took up the post of Resident Representative in May 2005 in addition to his posting as Resident Representative to Rwanda.
- An office with an administrative assistant started operating in January 2006 in Bujumbura.

### Burundi: Relations with the World Bank Group (As of May 8, 2006)
A. Partnership in Burundi’s Development Strategy
- Political transition and milestones:
  - Arusha peace agreement: August 2000.
  - Post-transition constitution approved by national referendum: February 2005.
  - Communal and parliamentary elections: June and July (year not restated).
  - President elected by Parliament: August 19 (year not restated).
  - Post-transition Government took office: September 1, 2005.
- PRSP process:
  - Interim PRSP (I-PRSP) completed in November 2003; discussed by World Bank and IMF Boards in January 2004.
  - Full PRSP formulation launched in May 2004 under the Head of State; expected to be completed by mid-2006.
  - Consultations: community participatory and inclusive consultations completed; provincial reports available; sectoral and thematic consultations completed in November 2005.
  - Full PRSP expected to be approved by the government during the second quarter of 2006.
- Debt relief and budgetary developments:
  - Access to debt relief under the enhanced HIPC Initiative in August 2005, which will reduce debt by over 90 percent in NPV terms, and scheduled debt service by some US$30-40 million per year for the next thirty years.
  - Interim Strategy Note (ISN) for FY 2006-07 approved by Bank Board on May 3, 2005.
  - Pro-poor expenditures increased from 33.6 percent of total primary expenditure in 2005 to 35.5 percent in 2006 revised budget law soon to be approved by the Parliament.
  - Military wage bill-to-GDP ratio: about 3.5 percent in 2002 (a peak) to about 2.8 percent in 2005 and 2.3 percent in 2006 revised budget law.
  - Civilian wage bill: increased from 3.5 percent in 2000 to 6.0 percent in 2006 budget law.

B. IMF-World Bank Collaboration in Specific Areas
- Coordination highlights:
  - Close collaboration on assistance strategies and policy advice for I-PRSP implementation.
  - Joint focus on structural conditionalities, especially coffee sector reforms.
  - Bank leads policy dialogue on key structural reforms; Fund leads macroeconomic and financial policy dialogue (fiscal, monetary, exchange regime).
  - Joint contribution to the Diagnostic Study for the Integrated Trade Framework.
  - Intensified collaboration in 2005 on the preparation of the full PRSP and the HIPC Decision Point Document jointly prepared by Bank and Fund staff.

C. World Bank Group Strategy
- ISN FY 2006-07 core strategic elements:
  - (a) improved security, social stability, and service delivery;
  - (b) debt relief, economic growth, and diversification.
- Governance and institutional strengthening: cross-cutting issues.
- Preliminary ISN funding needs: US$170 million for the two years in grant form.
- Additional financing: US$30.6 million equivalent approved on January 5, 2005 for Public Works and Employment Creation project.
- Planned operations:
  - FY06: Post Conflict Transitional Economic Rehabilitation Grant.
  - FY07: Education Sector project; Community Rehabilitation project.
  - FY08-09 (possible): Multi-Sector Infrastructure Rehabilitation; new Health; Economic Rehabilitation Grant; possibly Private Sector Development projects.
- Demobilization, Reinsertion, and Reintegration Program (DRRP):
  - DRRP is within MDRP framework; supported with an IDA grant (US$33 million) and two MDTF grants (US$45.5 million).
  - Demobilization progress: 19,739 ex-combatants demobilized to date; all child soldiers demobilized.
  - Disarmament of former militia fighters: 10,988 of an estimated 29,427 disarmed and received severance payments.
  - Government commitment: limit size of integrated armed forces to 25,000 by 2007.
  - Reintegration assistance: proceeding too slowly to date; efforts under way to scale up and accelerate support.

- Economic Rehabilitation Credit (ERC):
  - Amount: US$54 million.
  - Disbursements: US$20 million disbursed during 2002; US$20 million in April 2003; final floating tranche released in January 2005.
  - Purpose: support economic recovery through balance of payments support; counterpart funds from ERC foreign exchange auctions used to finance government development programs.
  - Project closed: end-December 2005.
- New Economic Reform Support Grant (ERSG): under preparation, expected to be discussed by the Board early in the third quarter of 2006; aims to support interim PRSP in four areas:
  - (i) improving public expenditure management and their impact on the poor;
  - (ii) reforming cash crop sectors (coffee, tea, and cotton);
  - (iii) reviving the private sector;
  - (iv) reforming public enterprises through State divestiture and private/public partnerships.

### Active IDA Portfolio (As of May 8, 2006) — summary table entries (In millions of U.S. dollars, unless otherwise indicated)
- Health & Population II
  - Approval Fiscal Year: 1995
  - Closing Date: 6/30/06
  - Net Commitment: 30.80
  - Of which: Grants: 9.50
  - Un-disbursed: 3.46
  - Disbursed in Fiscal Year 06: 3.32
- BURSAP II (including supplemental)
  - Approval Fiscal Year: 2000
  - Closing Date: 6/30/06
  - Net Commitment: 26.20
  - Of which: Grants: 14.00
  - Un-disbursed: 0.0
  - Disbursed in Fiscal Year 06: 6.85
- Regional Trade Facilitation
  - Approval Fiscal Year: 2001
  - Closing Date: 06/30/11
  - Net Commitment: 15.00
  - Of which: Grants: 0.00
  - Un-disbursed: 5.22
  - Disbursed in Fiscal Year 06: 1.76
- Public Works and Employment Creation (including additional)
  - Approval Fiscal Year: 2001
  - Closing Date: 12/31/07
  - Net Commitment: 70.60
  - Of which: Grants: 30.60
  - Un-disbursed: 27.46
  - Disbursed in Fiscal Year 06: 7.98
- HIV/AIDS and Orphans
  - Approval Fiscal Year: 2002
  - Closing Date: 12/31/06
  - Net Commitment: 36.00
  - Of which: Grants: 0.00
  - Un-disbursed: 7.57
  - Disbursed in Fiscal Year 06: 8.46
- Economic Management Support
  - Approval Fiscal Year: 2004
  - Closing Date: 07/31/09
  - Net Commitment: 26.00
  - Of which: Grants: 0.00
  - Un-disbursed: 23.22
  - Disbursed in Fiscal Year 06: 1.05
- Road Sector Development
  - Approval Fiscal Year: 2004
  - Closing Date: 12/31/09
  - Net Commitment: 51.40
  - Of which: Grants: 0.00
  - Un-disbursed: 43.40
  - Disbursed in Fiscal Year 06: 5.49
- Demobilization and Reintegration
  - Approval Fiscal Year: 2004
  - Closing Date: 12/31/08
  - Net Commitment: 33.00
  - Of which: Grants: 33.00
  - Un-disbursed: 20.64
  - Disbursed in Fiscal Year 06: 1.19
- Agriculture Rehabilitation and Sustainable Land Management
  - Approval Fiscal Year: 2005
  - Closing Date: 10/31/10
  - Net Commitment: 35.00
  - Of which: Grants: 35.00
  - Un-disbursed: 26.52
  - Disbursed in Fiscal Year 06: 4.23
- Agriculture Rehabilitation and Support
  - Approval Fiscal Year: 2005
  - Closing Date: 10/31/10
  - Net Commitment: 5.00
  - Of which: Grants: 5.00
  - Un-disbursed: 3.73
  - Disbursed in Fiscal Year 06: 0.90
- Portfolio totals noted: current IDA portfolio consists of ten projects for a total commitment of US$329 million and an undisbursed amount of about US$161.22 million.

### IFC
- Membership: Burundi is a member of IFC since 1975.
- IFC holdings and proposals:
  - IFC holds a US$1 million equity portion in Verreries du Burundi (glass), which is not sellable owing to the poor performance of this public enterprise.
  - Requests: IFC have also been requested to provide to the Burundi private sector a term loan of U.S. dollars 741,000 for two projects in agriculture and fisheries (AEF Florex and AEF V & F Export).
  - Prospects improving with peaceful end of transition.
  - IFC mission: conducted in January 2005 to discuss possible IFC interventions: (i) support to privatization program; (ii) potential investment in Banque de Crédit de Bujumbura (BCB).

### MIGA
- Membership: Burundi became a member of MIGA in March 1998.
- Active projects: currently, there are no active projects in MIGA’s pipeline for Burundi.
- Historical contract: one contract with Mauritius Telecom for US$0.9 million signed in the third quarter of FY03.
- Outstanding portfolio: one contract of guarantee in the infrastructure sector, with a gross exposure of US$0.9 million, and a net exposure of US$0.8 million.

*Prepared by World Bank staff (contact details preserved in source).*

### 1993. On July 19, 2004, the AfDB Boards approved general policy guidelines to assist post-

### 1993. On July 19, 2004, the AfDB Boards approved general policy guidelines to assist post-

### AfDB arrears clearance policy and HIPC status
- On July 19, 2004, the AfDB Boards approved general policy guidelines to assist post-conflict countries to clear their arrears and created a facility, the PCCF, initially funded with about SDR 100 million in AfDB funds, to provide financial assistance to qualifying post-conflict countries.
- The policy guidelines call for a three-way burden-sharing formula among the country, donors, and the PCCF.
- On October 27, 2004, the AfDB Boards endorsed a specific arrears clearance proposal for Burundi whereby the balance of arrears was settled with the help of donors and the PCCF before the Decision Point under the enhanced HIPC Initiative.
- On November 24, 2005, the Boards of Directors of the African Development Bank (ADB) and the African Development Fund (ADF) agreed that Burundi had effectively met the conditions and reached the decision point under the enhanced framework of the Heavily Indebted Poor Countries (HIPC) Initiative.
- The Bank Group’s share of debt relief will amount to US$149.35 million in present value terms (US$226.01 million in nominal terms), which is equivalent to about 21 percent of the multilateral creditors’ assistance, and about 18 percent of total assistance from all creditors.
- This amount will save up to 90 percent of Burundi’s debt-service obligations annually until February 2043.

### AfDB lending, grants, and project approvals (selected actions and amounts)
- AfDB staff prepared to resume lending operations (under its FAD 9 allocation) following the lifting of sanctions in October 2004.
- On July 7, 2004, the Bank Group approved a grant of SDR 2.13 million to finance training of civil servants and procurement of equipment for institutions in charge of economic management and the civil society.
- A structural adjustment credit totaling SDR 6.72 million, in one tranche, accompanied by a further grant of SDR 1.5 million for institutional support, was approved by the Board on December 2004.
- A multi-sector project, totaling SDR 9.8 million, was also approved on December 2004.
- Under its FAD 10 allocation, the Bank Group approved in December 2005 a grant of SDR 12 millions to finance rural water infrastructure rehabilitation and, in March 2006, a SDR 9 million to finance the watershed management project.
- One more grant is under preparation: SDR 7.3 million to finance economic reforms and governance support program.

### African Development Bank Operations in Burundi — outstanding loans (In millions of SDRs)
- African Development Bank: Outstanding loans 0.0; Past-due obligations 0
- African Development Fund: Outstanding loans 147.30; Past-due obligations 0
- Nigerian Trust Fund: Outstanding loans 0.17; Past-due obligations 0
- Total: Outstanding loans 147.47; Past-due obligations 0

### Statistical issues and capacity constraints
- Overall: Data provision to the Fund is now broadly adequate for surveillance purposes, but shortcomings in the national accounts, government finance, and balance of payments statistics hinder monitoring of economic developments.
- STA mission (Nov-Dec 2004) findings: staffing shortages, insufficient funding, and lack of equipment hamper production and dissemination of macroeconomic statistics; poor coordination among institutions responsible for compilation of statistics.
- GDDS participation: Authorities indicated interest in Feb. 2005. A STA mission in March 2006 assisted in preparing metadata and, with the World Bank and donors, helped develop a medium-term statistical development action plan. Burundi is expected to become a GDDS participant in July 2006.

#### Real sector
- National accounts: Last compiled for 1998. Since 1998, annual national accounts estimates reported to the Fund are derived from a macroeconomic projection model maintained by the Ministry of Finance.
- Agriculture source data: Extremely weak.
- CPI: Compiled monthly with coverage limited to the capital city; weights based on a 1991 household expenditure survey.
- No producer price indices; employment data out of date.

#### Government finance
- Government finance statistics compiled by the Banque de la République du Burundi (BRB) using source data from the Ministry of Finance.
- Ministries seldom maintain computerized ledgers, preventing establishment of balances and other accounting controls.
- Limited accounting information on extra-budgetary units; absence of detailed information on revenue and expenditure reduces transparency.
- Problems recording arrears on external debt and current expenditure financed by foreign grants cause significant discrepancies between the balance of revenue and expenditure and financing estimates.
- An interim public financial management system was implemented in 2005 and the Ministry of Finance intends to produce government accounts based on the new system.
- Government finance statistics transactions data up to the fourth quarter of 2004 have been reported in the International Finance Statistics, with government debt figures reported to the second quarter of 2005.
- No data have been reported for publication in the Government Finance Statistics Yearbook since 1999.

#### Monetary accounts
- Institutional coverage deficiencies: data on credit and savings cooperatives are not collected; sectoral classification of public entities and financial corporations in the BRB’s accounts does not reflect current methodology; other depository corporations report monthly balance sheets using outdated formats.
- Constraints: insufficient computer equipment and staff at BRB mean only a few principal recommendations of previous technical assistance missions fully implemented.
- Progress: BRB is well advanced in submitting monetary statistics using the new Standardized Report Forms (SRFs). Second provisional submissions of SRFs covering January 2005 through March 2006 signal commitment to adopt the Monetary and Financial Statistics Manual methodology.

#### Balance of payments
- Annual balance of payments and international investment position statistics compiled according to BPM4 on the basis of limited information.
- Merchandise trade statistics derived from customs data, with no adjustments for unrecorded international trade flows such as gifts in kind not passing through the banking system.
- Treatment issue: exports of nonmonetary gold appear in customs statistics although gold is neither produced locally nor recorded in imports.
- Services data: collected mostly through bank settlement reports and appear to be insufficient. Income estimates almost exclusively derived from monthly bank settlement reports. Accuracy of source data for services and income is not routinely assessed against other sources.
- December 2005 mission assisted the BRB in improving information from bank reports, and in preparing and launching surveys for services, income, current and capital transfers, enterprise investment and external debt.
- The mission assisted BRB in converting the published data of Burundi’s 2004 balance of payments into a detailed and documented BPM5 presentation. BRB is expected soon to begin compiling balance of payments statistics according to BPM5.

### Table of Common Indicators Required for Surveillance (As of May 31, 2006) — selected entries (dates preserved)
- International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Date of latest observation Dec. 2005; Date received Feb. 2006; Frequency of Data: M; Frequency of Reporting: M; Frequency of Publication: M
- Reserve/Base Money: Date of latest observation Mar. 2006; Date received May. 2006; Frequency: M M M
- Broad Money: Mar. 2006; May. 2006; M M M
- Central Bank Balance Sheet: Mar. 2006; May. 2006; M M M
- Consolidated Balance Sheet of the Banking System: Mar. 2006; May. 2006; M M M
- Interest Rates: Apr. 2006; May. 2006; M M M
- Consumer Price Index: Feb. 2005; May. 2006; M M M
- Revenue, Expenditure, Balance and Composition of Financing — Central Government: Sep. 2005; Nov. 2005; Q Q Q
- External Current Account Balance: 2004; Nov. 2005; A A A
- Exports and Imports of Goods and Services: Nov. 05; Dec. 05; M M M
- GDP/GNP: 1998; Sep. 2003; A A A
- Gross External Debt: Oct. 2005; Dec. 2005; M M A

### Debt Sustainability Analysis for Low-Income Countries Framework (LIC DSA) — summary findings
- The LIC DSA assesses Burundi’s external and public debt dynamics using the forward-looking framework for low-income countries.
- Key result: Burundi remains at high risk of debt distress, even after full delivery of debt relief under the HIPC Initiative. Assuming additional debt relief under MDRI, the risk would ease but still remain elevated.
- Three key differences from the July 2005 decision point analysis:
  1. Baseline assumes substantial scaling up of aid inflows, larger current account deficits and primary fiscal deficits, financed mainly with additional grants and concessional loans in the medium term.
  2. Real growth: average 6.5 percent in the medium term and 6 percent in the long term, about 1 percent higher than decision point baseline.
  3. HIPC completion point expected in mid-2007, one year later than assumed at decision point.

#### Baseline scenario (selected projections and assumptions)
- Medium-term growth: 6.5 percent per annum sustained by export volume increases and financing in grants or highly concessional borrowing.
- Public investment: average 10.7 percent of GDP in 2006-16, financed through aid inflows, HIPC debt relief and strong tax revenue performance.
- Gross external financing: average 12 percent of GDP per annum (about US$175 million) over 2006-16 (compared with 13 percent (US$175 million) in 2005 LIC DSA), with grant financing about 90 percent of total external financing.
- 2016-26: total external financing decreases to 3 percent of GDP per annum on average, with the grant share about 80 percent.
- Gross investment and national savings: rise to about 22 and 10 percent of GDP, respectively, by 2026.
- Current account deficit: projected to widen initially and average 15 percent of GDP in 2006–16, then decline to 12 percent in 2026.
- Overall fiscal balance: projected to remain close to zero throughout the period.

Box 1 — Main Assumptions (exact text-preserved figures)
- Real GDP growth averages 6.0 percent over 2006–26.
- CPI inflation (end-period) projected to rise from 1.1 percent in 2005 to 8.7 percent in 2006, and subsequently to stabilize at 4 percent from 2007 and remain at that level through 2026.
- Revenues, excluding grants, assumed to rise gradually from 20 percent of GDP in 2005 to 21.6 percent of GDP by 2026.
- Gross official external financing expected to decline from 25.2 percent of GDP in 2006 to 16.8 percent in 2007 and then gradually decline over 2008-26 to 1.0 percent of GDP in 2026.
- Official financing: program financing would be only grants in 2007-15 (excluding the IMF), 50 percent grants and 50 percent loans on IDA or comparable terms during 2016–26. Project loans assumed entirely at concessional rates on IDA or comparable terms. Financing gap only partially covered by MDRI assistance.
- Export receipts expected to increase sharply in 2006-07 and then rise more gradually at 10-12 percent per annum in 2008-26. In volume terms, export growth would average 11.5 percent a year over the projection period. Exports of goods and services would rise from 11.9 percent of GDP in 2006 to 20.8 percent in 2026.
- Imports of goods and services projected to average 50 percent of GDP in 2006–07 and decline to 34 percent of GDP in 2026. In volume terms, imports would rise on average by 5.5 percent a year from 2008 onward.

#### External debt sustainability assessment — key outcomes and indicators
- All debt ratios assume Burundi will reach the enhanced HIPC completion point in mid-2007 and be eligible for MDRI relief.
- Under the baseline, even after full delivery of HIPC assistance, Burundi faces considerable risk of debt distress. The NPV of debt-to-exports ratio remains above the indicative threshold for a considerable period before falling below it in 2013 and decreasing to 76 percent by 2026.
- Other external debt burden indicators remain below thresholds during the projection period, but the NPV of debt-to-exports signals long-term concern.

Box 2 — Summary of Baseline Debt Sustainability Indicators (preserved table values)
- Indicative Thresholds and values:
  - NPV of debt to GDP (Threshold 30): 2006 = 16.6; 2016 = 15.3; 2026 = 19.5; Average 2006-26 = 17.7
  - NPV of debt to exports (Threshold 100): 2006 = 139.3; 2016 = 93.7; 2026 = 93.7; Average 2006-26 = 109.3
  - NPV of debt to revenue (Threshold 200): 2006 = 90.2; 2016 = 72.0; 2026 = 72.2; Average 2006-26 = 82.4
  - Debt service to exports (Threshold 15): 2006 = 8.3; 2016 = 4.0; 2026 = 4.2; Average 2006-26 = 5.1
  - Debt service to revenue (Threshold 25): 2006 = 8.2; 2016 = 6.9; 2026 = 6.0; Average 2006-26 = 7.4
- All indicators refer to the NPV of public and publicly guaranteed external debt and assume full delivery of HIPC relief.

#### Recent debt stock and trajectory (preserved figures)
- At end-2005, Burundi’s stock of public and publicly guaranteed (PPG) external debt was US$1,427 million, US$43 million higher than at end-2004.
- Simulating full delivery of HIPC assistance immediately, debt would amount to US$101 million at end-2005 in NPV terms, corresponding to 12.6 percent of GDP and 110.9 percent of exports.
- The ratio of debt service to exports in 2005 was 47.1 percent (reflecting interim relief provided by creditors in 2005).
- Debt sustainability indicators projected to worsen considerably in 2006 because of expected new borrowing of US$72 million (US$43 million in NPV terms), but to trend down steadily after 2006 until 2010, after which they remain broadly stable.
- Projected external public debt-service average about 5.1 percent of exports during 2006-26.
- NPV of debt-to-exports declines from 139.3 percent at end-2006 to 93.7 percent in 2026.
- Ratio of NPV of debt to GDP projected to decline to 13.4 percent in 2014, before rising to about 20 percent in 2026; indicators remain below country-specific threshold.

*Source: IMF staff report text as provided.*

### 7.      Alternative scenarios indicate that less concessional borrowing substantially

### _cr06311 - 7.      Alternative scenarios indicate that less concessional borrowing substantially

### Alternative borrowing scenarios and debt distress risk
- An alternative scenario assumes borrowing at 2 percent higher interest rates during the projection period.
- Under this scenario:
  - The NPV of debt-to-GDP ratio reaches 30 percent by 2026, compared to 19 percent in the baseline.
  - The NPV of debt-to-exports ratio remains above the policy-dependent threshold (see Table 2 and Figure 1 in source).
- Implications:
  - Borrowing at less concessional terms after the reduction of the external debt burden and availability of grant financing by IDA and other donors would considerably increase the risk of debt distress for Burundi.
  - Recommendation: Burundi should avoid nonconcessional borrowing after HIPC relief.
  - Recommendation: Creditors should align their lending with the borrower’s debt sustainability situation.

### Stress tests and vulnerability to adverse developments
- Stress tests assuming lower GDP and export growth produce considerable deterioration in debt sustainability indicators.
- Specific results:
  - When all main parameters determining debt dynamics are assumed to be one-half standard deviation below their respective historical averages during 2006-07 (the most extreme test in Figure 1, Panel 1), the NPV of debt-to-GDP ratio shows a sizeable increase relative to the baseline.
  - When exports grow at the historical average minus one standard deviation (most extreme test in Figure 1, Panels 2 and 3):
    - Significant increases in the NPV of external debt-to-exports and debt service-to-exports ratios are observed.
    - The debt-service-to-exports ratio rises above the threshold during 2011–15, before declining slightly below the threshold, indicating considerable risk to external liquidity in the event of sustained macroeconomic underperformance.

### Fiscal sustainability analysis — baseline projections and assumptions
- Baseline macroeconomic scenario assumptions (Table 3 and Figure 2):
  - Strong revenue performance.
  - Financing of reconstruction and poverty reduction primarily with grants in the medium to long term.
  - Revenues as a percentage of GDP rise from 20 percent in 2005 to 22 percent in 2026.
  - Borrowing decreases from 7.5 percent of GDP in 2006 to 3.4 percent of GDP on average between 2007 and 2026.
- Projected public debt burden indicators:
  - The NPV of debt-to-revenue ratio is projected to drop from 90 percent in 2006 to 72 percent in 2026.
  - The debt service-to-revenue ratio is projected to decline from 8 percent in 2006 to 6 percent in 2026.
- Alternative scenarios and bound tests:
  - A lower growth scenario assuming long-term growth at 5.5 percent (one-half percentage point less than the baseline) indicates the NPV of debt-to-GDP ratio would exceed the policy-dependent threshold.
  - If ambitious scaling-up of investment expenditure does not translate into the projected GDP growth, investment may not be affordable or sustainable given the high level of grant financing assumed in the baseline.
  - Other stress tests indicating increased debt distress risk:
    - A 30 percent real depreciation (most extreme stress test).
    - A one-off increase of debt-creating flows by 10 percent of GDP.
    - A recession with GDP growth equal to the historical average minus one standard deviation in 2007–08.

### Impact of full delivery of debt relief under MDRI
- Eligibility and expected relief:
  - Burundi would be eligible for debt relief under MDRI from the IMF, IDA, and the AfDF after reaching the completion point.
  - With the HIPC completion point expected in June 2007, combined HIPC and MDRI debt relief is US$921 million:
    - HIPC Initiative debt relief: US$848 million.
    - MDRI debt relief: US$73 million.
  - Under the HIPC Initiative, Burundi was assessed to be eligible for debt relief equivalent to 91.5 percent of the NPV of debt outstanding at end-2004.
  - The additional effect of MDRI is estimated to be modest, representing an average debt service saving of US$2.5 million dollars in 2007-23 or about one percent of exports.
  - A one-year delay in reaching the completion point would imply losing US$2.7 million in additional multilateral debt service relief, beyond HIPC.
- Assumptions on timing (as presented in source):
  - Completion point expected in June 2007.
  - Expected MDRI implementation date for IDA in July 2007.
  - Expected MDRI implementation date for AfDF in Jan. 2008.
- Quantitative impact on baseline (Text Table 2; MDRI estimates assume completion point in June 2007):
  - NPV of debt-to-GDP ratio: average 2006–26
    - Before MDRI: 17.7
    - After MDRI: 14.1
  - NPV of debt-to-exports ratio: average 2006–26
    - Before MDRI: 109.3
    - After MDRI: 87.3
  - Debt service-to-exports ratio: average 2006–26
    - Before MDRI: 5.1
    - After MDRI: 3.9
- Additional implications:
  - If IDA and AfDF reduce gross annual allocations by the amount of debt-service relief provided and other donors maintain total future borrowing as in the baseline, MDRI would modestly lower debt burden indicators.
  - The ratio of the NPV of external debt to exports would be 30 percentage points lower than in the baseline and would fall below the policy-dependent threshold in 2010, three years earlier than in the baseline.
  - If lower financing from IDA and the AfDF were not compensated by additional resources from other donors, debt burden indicators would decrease further.

### Conclusion and policy implications
- Projection and risk classification:
  - Burundi’s NPV of external debt-to-exports ratio after enhanced HIPC assistance is projected to remain above its indicative threshold over the period 2005-13.
  - The DSA indicates that adverse shocks would significantly affect debt sustainability indicators.
  - Conclusion: Burundi is viewed as being at high risk of debt distress.
- Fiscal versus external perspectives:
  - Fiscal sustainability indicators for total (domestic and external) debt suggest a more robust position, reflecting a strong domestic revenue effort.
  - External debt indicators indicate a potentially binding foreign exchange constraint.
- Policy emphasis:
  - Particular attention should be given to exports as the driver of overall growth.

*Source: IMF staff analysis as presented in the supplied content unit.*

### 16.      The DSA indicates that in order for Burundi to lower its high debt stock ratios with

### _cr06311 - 16.      The DSA indicates that in order for Burundi to lower its high debt stock ratios with

### Key findings from the DSA
- To lower high debt stock ratios with respect to exports and maintain other debt indicators below thresholds, emphasis is needed on four aspects of future economic performance:
  - Implement a strong and sustained reform effort, especially to develop a diversified export base, to support robust growth in exports and GDP.
  - Implement prudent fiscal and monetary policies to ensure fiscal discipline and macroeconomic stability.
  - Ensure future financing needs are in the form of grants and highly concessional loans, except in limited justifiable cases in outer years, together with prudent debt management.
  - Strengthen policies and institutions to raise the indicative debt thresholds for the risk of debt distress.

### Scenario and stress-test results (figures and tables referenced)
- Figures illustrate indicators of public and publicly guaranteed external debt under alternative scenarios, 2006–26:
  - NPV of debt-to-GDP ratio, NPV of debt-to-exports ratio, and Debt service-to-exports ratio are shown for:
    - Baseline
    - Most extreme stress test
    - Thresholds
    - Less grant scenario
- Fiscal indicators of public debt under alternative scenarios, 2006–26 (Figure 2) show:
  - Baseline, Lower growth, Most extreme stress test, and Threshold for:
    - NPV of debt-to-GDP ratio
    - NPV of debt-to-revenue ratio (Revenue including grants)
    - Debt service-to-revenue ratio
  - Note: Most extreme stress test is the test that yields highest ratio in 2016.

### Representative historical and projection statistics (selected exact values from tables)
- External and public debt stocks and flows
  - External debt (nominal) series excerpts: 208.3; 178.5; 156.5; 34.7; 34.2; 33.2; 32.1; 30.5; 28.7; 35.5
  - Of which: public and publicly guaranteed (PPG): 208.3; 178.5; 156.5; 34.7; 34.2; 33.2; 32.1; 30.5; 28.7; 35.5
  - Change in external debt: -18.8; -29.8; -22.0; -121.8; -0.5; -1.0; -1.1; -1.6; 4.4; -1.2
  - Identified net debt-creating flows: -17.1; -26.5; 7.6; 4.9; 9.8; 10.4; 11.1; 10.7; 15.2; 8.8
- Current account and trade (selected entries)
  - Noninterest current account deficit series includes: 6.6; 9.1; 4.2; 3.1; 17.0; 16.0; 13.8; 14.4; 15.2; 14.8; 15.2; 19.0; 12.1; 14.8
  - Deficit in balance of goods and services: 24.3; 33.9; 37.2; 37.3; 36.1; 35.1; 33.4; 30.9; 22.8; 13.2
  - Exports series excerpt: 9.6; 11.4; 11.9; 13.0; 13.4; 13.8; 14.3; 14.8; 16.4; 20.8
  - Imports series excerpt: 33.9; 45.3; 49.1; 50.3; 49.5; 48.9; 47.7; 45.7; 39.1; 34.0
  - Net current transfers (negative = inflow): -17.4; -23.8; -10.2; 7.3; -20.4; -21.6; -22.5; -20.9; -18.5; -16.4; -20.0; -3.7; -0.7; -5.0
- Endogenous debt dynamics components (selected values)
  - Endogenous debt dynamics: -22.3; -33.7; -8.6; -9.2; -2.0; -1.9; -1.8; -1.7; -1.2; -1.8
  - Contribution from nominal interest rate: 1.5; 1.4; 0.5; 0.2; 0.2; 0.2; 0.2; 0.2; 0.1; 0.2
  - Contribution from real GDP growth: -9.8; -1.6; -9.1; -9.5; -2.2; -2.1; -2.0; -1.9; -1.4; -2.0
  - Contribution from price and exchange rate changes: -13.9; -33.6
- Residual and exceptional financing
  - Residual (3-4): -1.7; -3.3; -29.6; -126.6; -10.4; -11.4; -12.2; -12.3; -10.8; -10.0
  - Of which: exceptional financing: -16.0; -19.8; -3.3; -115.7; -3.3; -3.1; -3.3; -3.4; -2.2; -0.9
  - Of which: capital grants: -7.4; -3.3; -8.5; -10.7; -11.9; -12.8; -12.8; -12.1; -9.6; -5.2
- NPV and debt-service metrics (selected values)
  - NPV of external debt (percent of GDP or exports where indicated): 10.7; 16.6; 17.8; 17.9; 17.8; 17.4; 16.5; 15.3; 19.5
  - In percent of exports: 93.6; 139.3; 136.9; 133.9; 128.5; 121.3; 111.4; 93.7; 93.7
  - Debt service-to-exports ratio (in percent): 109.2; 47.1; 8.3; 3.9; 3.8; 3.6; 4.3; 7.7; 4.0; 4.2
  - Total gross financing need (billions of U.S. dollars) series excerpt: 103.5; 100.6; 163.7; 152.6; 140.9; 159.5; 184.4; 200.3; 378.9; 575.6
- Key macroeconomic assumptions (selected exact values)
  - Real GDP growth (in percent) series excerpt: 4.8; 0.9; 1.6; 2.5; 6.1; 6.6; 7.1; 6.7; 6.6; 6.4; 6.6; 6.0; 6.0; 6.1
  - GDP deflator in US dollar terms (change in percent) series excerpt: 6.5; 19.2; -1.9; 11.4; 12.6; 2.7; 2.1; 2.2; 2.2; 2.3; 4.0; 2.3; 2.3; 2.3
  - Effective interest rate (percent): 0.7; 0.8; 1.0; 0.2; 0.3; 0.2; 0.8; 0.6; 0.6; 0.6; 0.5; 0.6; 0.7; 0.7
  - Growth of exports of G&S (US dollar terms, in percent) series excerpt: 27.1; 43.4; 11.8; 38.0; 24.9; 19.5; 12.3; 1; 2.6; 13.2; 12.3; 15.8; 12.4; 11.5; 11.0
  - Growth of imports of G&S (US dollar terms, in percent) series excerpt: 36.8; 60.7; 14.7; 25.1; 29.6; 12.1; 7.6; 7.8; 6.4; 4.2; 11.3; 7.2; 7.4; 6.4
  - Grant element of new public sector borrowing (in percent) series excerpt: 40.0; 45.3; 51.1; 51.1; 51.1; 51.1; 48.3; 55.7; 54.5; 54.0
  - Memorandum nominal GDP (billions of US dollars) series excerpt: 664.5; 799.4; 954.6; 1045.4; 1; 143.2; 1246.5; 1358.7; 1478.0; 2224.9; 5008.3

### Public sector debt framework (selected exact values)
- Public sector debt (percent of GDP) and related dynamics
  - Public sector debt: 232.2; 185.6; 176.9; 54.4; 51.8; 49.1; 46.3; 43.3; 36.5; 38.6
  - Of which: foreign-currency denominated: 209.9; 165.4; 156.2; 35.1; 34.6; 33.5; 32.4; 30.8; 29.0; 35.9
  - Change in public sector debt: -15.3; -46.6; -8.6; -122.6; -2.6; -2.8; -2.7; -3.0; 3.6; -1.5
  - Identified debt-creating flows: -37.7; -66.3; -21.2; -122.1; -0.7; -1.2; -1.1; -1.1; 0.3; -3.3
  - Primary deficit series excerpt: 1.6; 1.3; 2.2; 2.7; -2.5; 5.8; 5.3; 4.2; 4.4; 4.1; 3.6; 3.6; -0.4; 2.2
  - Revenue and grants: 34.9; 31.7; 41.4; 33.2; 33.3; 34.3; 33.6; 33.4; 32.0; 31.0
  - Of which: grants: 14.8; 11.7; 22.4; 13.3; 13.0; 13.4; 12.7; 12.4; 10.9; 9.4
  - Primary (noninterest) expenditure: 36.5; 33.1; 38.9; 39.0; 38.7; 38.5; 38.0; 37.5; 35.6; 30.6
  - Automatic debt dynamics: -23.1; -49.3; -15.4; -11.0; -2.6; -2.2; -2.1; -1.8; -1.0; -2.0
  - NPV of public sector debt: 36.1; 30.1; 37.4; 37.3; 35.4; 33.4; 31.5; 29.2; 23.1; 22.4
  - NPV of public sector debt-to-revenue ratio (in percent): 103.4; 94.9; 90.2; 112.5; 106.1; 97.5; 93.8; 87.7; 72.0; 72.2
  - Debt service-to-revenue ratio (in percent): 35.3; 24.2; 8.2; 9.1; 7.9; 7.9; 7.9; 9.4; 6.9; 6.0
  - Gross financing need (percent of GDP) 2/ series excerpt: 13.9; 9.0; 0.9; 8.8; 8.0; 6.9; 7.0; 7.3; 5.8; 1.5

### Policy recommendations (explicit from DSA)
- Implement a strong and sustained reform effort to diversify exports and support robust export and GDP growth.
- Maintain prudent fiscal and monetary policies to ensure fiscal discipline and macroeconomic stability.
- Pursue grants and highly concessional loans for future financing needs, with limited nonconcessional borrowing only in justified outer-year cases, combined with prudent debt management.
- Strengthen policies and institutions to raise indicative debt thresholds and reduce risk of debt distress.

*Source: Staff projections and simulations; Burundi: External Debt Sustainability Framework and Public Sector Debt Sustainability Framework (selected tables and figures).*

### 16. Maternal mortality ratio (modeled estimate, per 100,000 live births)......1,000.0............

### _cr06311 - 16. Maternal mortality ratio (modeled estimate, per 100,000 live births)......1,000.0............

### Key health indicators and MDG-related statistics
- Maternal mortality ratio (modeled estimate, per 100,000 live births): 1,000.0
- Proportion of births attended by skilled health personnel (% of total): 25.2
- HIV prevalence among females (percent ages 15-24): 11.0...6.06.0...
- Contraceptive prevalence rate (percent of women ages 15-49): 16.0
- Number of children orphaned by HIV/AIDS: 170,000...200,000200,000...
- Incidence of tuberculosis (per 100,000 people): 119.9216.3315.0330.3345.6342.9...
- Tuberculosis cases detected under DOTS (percent): ...20.135.229.930.728.9...
- Forest area (percent of total land area): 9.4...3.78.0.........
- Nationally protected areas (percent of total land area): ...5.55.75.75.7...
- CO2 emissions (metric tons per capita): 0.00.00.00.00.0......
- Access to improved water source (percent of population): 69.0...78.079.079.0...84.5
- Access to improved sanitation (percent of population): 44.0......36.036.0......
- Fixed line and mobile telephones (per 1,000 people): 1.52.97.410.612.512.5...
- Personal computers (per 1,000 people): ......0.70.71.84.7...

### MDG targets highlighted
- Goal 6, Target 7: Halt by 2015, and begin to reverse, the spread of HIV/AIDS
- Goal 6, Target 8: Halt by 2015, and begin to reverse, the incidence of malaria and other major diseases
- Goal 7, Target 9: Integrate the principles of sustainable development into policies and programs. Reverse the loss of environmental resources
- Goal 7, Target 10: Halve by 2015 proportion of people without access to safe drinking water
- Goal 7, Target 11: Achieve by 2020 significant improvement for at least 100 million slum dwellers worldwide
- Goal 8, Target 16: Develop and implement strategies for productive work for youth.
- Goal 8, Target 17: Provide access to affordable essential drugs
- Goal 8, Target 18: Make available new technologies, especially information and communications

### Program performance, macroeconomic outlook, and reforms (IMF staff assessment)
- Program status through end-March 2006: remained on track; preliminary information suggests end-March outcome was consistent with projected targets.
- Inflation developments:
  - Annual inflation fluctuated around zero in the first four months of 2006.
  - Inflation rose to about 5 percent at end-May 2006 due to a sharp rise in administered petroleum product prices in May.
- Coffee sector: A good crop being harvested; for the first time in many years coffee marketing is being financed by private entrepreneurs and commercial banks (without state guarantee).
- Budget: Revised 2006 budget consistent with the program approved by Parliament and signed into law on July 7, 2006.
- Foreign exchange regime: One of two remaining multiple currency practices (MCPs) eliminated; adoption and publication of a single exchange system regulation delayed but final draft expected shortly.
- PRSP and statistics:
  - A final draft of the complete PRSP has been produced; includes development plan to rehabilitate the national statistical base.
  - New institutional framework and employee code for ISTEEBU approved by the Council of Ministers on June 1, 2006; to be submitted to Parliament.

### Executive Board findings and recommendations
- Commended progress in implementing PRGF-supported program in a difficult post-conflict environment.
- Noted lower growth in 2005 (about 1 percent) but expected recovery to 6 percent in 2006 reflecting service sector vigor and strong rebound in coffee output.
- Urged resolute implementation of structural reforms, with emphasis on:
  - Refocusing spending on social sectors and infrastructure to help achieve the MDGs.
  - Reactivating the privatization agenda, especially for the coffee sector.
  - Strengthening public expenditure management, budget execution, financial control, and public procurement practices.
  - Managing public expectations of a peace dividend and fully costing social initiatives in the budget.
  - Strengthening banking supervision and modernizing central bank operations.
  - Clearing domestic arrears and introducing standardized and negotiable treasury securities in 2006.
  - Seeking debt relief from non-Paris Club creditors on terms comparable to Paris Club relief.
  - Continued access to grant financing and donor coordination for macroeconomic stability and capacity building.
  - Strengthening statistical capacity to improve monitoring of economic developments.

### Selected macroeconomic projections and indicators (IMF staff data and projections)
- GDP at constant prices: 2002: 4.4; 2003: -1.2; 2004: 4.8; 2005: 0.9; 2006: 6.1
- Consumer prices (period average): 2002: -1.3; 2003: 10.7; 2004: 8.0; 2005: 13.4; 2006: 2.5
- Exports, f.o.b (in millions of U.S. dollars): 2002: 31.0; 2003: 37.5; 2004: 47.9; 2005: 57.1; 2006: 70.0
- Imports, f.o.b (in millions of U.S. dollars): 2002: -107.2; 2003: -128.3; 2004: -148.9; 2005: -238.7; 2006: -314.7
- Current account balance, excluding official transfers (in millions of U.S. dollars): 2002: -109.8; 2003: -125.6; 2004: -169.4; 2005: -274.1; 2006: -361.5
- Current account balance (in percent of GDP): -17.5 -21.1 -25.5 -34.3 -37.9
- Overall balance (in percent of GDP): -17.7 -17.1 11.0 22.1 4.7
- Gross official reserves (in millions of U.S. dollars): 60.1 68.9 67.2 112.7 145.0
- Gross official reserves (in months of imports, c.i.f): 5.8 3.6 2.2 2.9 3.3
- Change in real effective exchange rate (in percent): 1/   -15.1   -18.8   -2.8   9.6   ...
- Fiscal revenue (excluding grants, percent of GDP): 20.3 21.1 20.1 20.0 19.0
- Total expenditure and net lending (percent of GDP): 25.9 34.9 39.8 36.8 41.8
- Primary budget balance 2/ (percent of GDP): 2.2 -0.8 -3.5 -1.7 -8.9
- Overall budget balance 2/ (percent of GDP): -5.7 -13.8 -19.7 -16.8 -22.8
- Overall budget balance including grants (percent of GDP): -1.4 -5.9 -4.9 -6.2 -0.4
- Change in broad money (M2) (in percent): 27.0 23.3 16.7 26.5 20.5
- Interest rate (twelve-month deposit rate, in percent): 12.0 12.6 13.2 14.0 ...

*Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2006/_cr06311.pdf*

### 0.5 percent and are repayable over 10 years with a 5 ½-year grace period on principal payments.

### Statement by Peter J. Ngumbullu, Executive Director for Burundi and Dieudonne Nintunze, Advisor to Executive Director — July 14, 2006

### Introduction
- Authorities express appreciation to staff, Management and Executive Directors for constructive engagement and continued support.
- Commitment to implement measures agreed under the economic reform agenda.
- Political transition completed with establishment of a new democratically elected Government and Parliament since August 2005, creating a favorable environment for deepening structural reforms and sustaining economic recovery.

### Recent economic developments and performance under the program
- Progress achieved despite complex post-conflict environment and exogenous shocks, including drought and high oil prices.
- Macroeconomic outcomes in 2005:
  - GDP growth was lower than projected due to drought effects on agriculture production.
  - Inflation fell to 1 percent end-December.
  - Fiscal primary deficit was contained to half the program target.
  - International reserves reached higher levels.
- Fiscal performance in 2005:
  - Government revenue exceeded the program target by 1.8 percent of GDP.
  - Poverty-related expenditure level as defined in the I-PRSP was 7.3 percent of GDP in 2005.
  - Overall budget deficit was wider than targeted due to delays in disbursement of programmed external budgetary support.
- Monetary and exchange rate policy developments in 2005:
  - Bank of the Republic of Burundi (BRB) tightened monetary policy.
  - Weekly liquidity auctions launched in April 2005 continued.
  - Reserve requirements were raised.
  - Abolition of the tax on banking transactions in late 2005 reduced cost of financial intermediation.
- Central bank governance and supervision:
  - First external audit completed in June 2005; second annual external audit conducted.
  - Independent audit committee of the Boards of Directors operationalized.
  - Strengthened prudential norms and banking supervision.
  - Exchange regime liberalization measures: ceilings for the invisibles raised in June 2005 and converted into indicative limits.
  - Foreign exchange auctions improved; differential between official and parallel market rates practically eliminated.
- Structural reforms:
  - Governance and transparency reforms: Audit Court published first audit of the 2004 government accounts in December 2005 and carried out specific audits and investigations.
  - New bankruptcy and liquidation law approved by Parliament in November 2005.
- Privatization program:
  - Decelerated in second half of 2005; reasons include delayed technical assistance and need for government consultations.
  - Coffee Marketing Board (OCIBU) realized an operating surplus of FBu 19 billion or about 2.2 percent of GDP; more than 32 percent redistributed to farmers, and 46 percent reserved for financing of the 2005/06 crop.
  - Government guarantee for bank credit to the coffee sector abolished.
- Program implementation:
  - All end-June and end-December 2005 quantitative performance criteria met, except a temporary accumulation of external arrears in late 2005 which have been cleared.
  - Structural performance criterion for October 2005 on installation of a computerized financial management information system (IFMIS) in the Ministry of Finance was made operational in January 2006.
  - Most structural benchmarks implemented (some with minor delays); credible corrective measures initiated where needed.
  - All ten prior actions implemented in a timely manner.
- Authorities request:
  - Completion of the third and fourth reviews and approval of associated waivers.
  - Extension of the PRGF arrangement.
  - Additional interim assistance under the HIPC initiative.

### Macroeconomic program for 2006, challenges and medium-term outlook
- Authorities recognize risks and challenges: post-conflict reconstruction and rehabilitation needs, need to diversify sources of growth and exports, reduce widespread poverty, and make progress toward the MDGs.
- Policy stance for 2006 and medium term:
  - Prudent macroeconomic policies to contain inflationary pressures.
  - Address infrastructure bottlenecks and improve delivery of social services to enhance productivity.
  - Step up implementation of structural reform agenda to accelerate and sustain growth.
  - Finalizing full PRSP based on extensive consultations; implementation expected to address challenges.
- Projections and expectations:
  - Authorities expect economic growth to recover at above 6 percent in 2006, and to continue growing at about the same rate over the medium term.
  - Inflation is projected to continue declining to low single digit levels.
- Financing and support:
  - Successful implementation requires timely and predictable concessional financing and capacity building from development partners, including the Fund.

### Fiscal Policy
- Objective: achieve fiscal sustainability in the medium term in support of the low inflation target.
- Action plan of fiscal reforms (with Fund and World Bank TA) includes:
  - Modernizing tax and customs administration.
  - Strengthening public expenditure management.
  - Further improvements in transparency of public finance operations.
- IFMIS:
  - Establishment of IFMIS in Ministry of Finance; will be extended progressively to line Ministries (as reflected in the MEFP matrix pages 49-50, attachment I of the staff report).
- Fiscal space:
  - Continued improvements in revenue collection, public expenditure restructuring, and external debt relief under HIPC will help create fiscal space for urgent social needs.
  - 2006 budget includes additional expenditures reflecting I-PRSP priorities, allocated from interim debt relief and identified in consultation with World Bank and IMF staff.
  - Poverty-reducing expenditures projected to rise significantly in 2006 following:
    - Abolition of school fees at primary education level since September 2005.
    - Abolition of maternity charges and health care fees for children under 5 years old since January 2006.
- Domestic arrears:
  - Authorities determined to clear audited domestic arrears in 2006 to strengthen private sector and banking system confidence, noting these arrears reflect largely nonperforming assets in the banking sector.

### Monetary and exchange rate policies
- BRB commitments and measures:
  - Sustain monetary stance to further reduce inflation.
  - Strengthen liquidity management, including introduction of reserve requirements for foreign exchange deposits in early 2006.
  - Continue improving foreign exchange sales and liquidity auctions.
  - Introduce and manage on behalf of the government new standardized and negotiable treasury securities.
  - Reinforce banking supervision and restructuring.
  - Expectation these measures will slow monetary growth while reviving credit to the private sector.
- Exchange regime:
  - Deeply liberalized in recent years; BRB committed to implement remaining measures to achieve full convertibility in international current transactions as soon as possible.
  - Managed floating exchange rate regime to continue.
  - BRB interventions to be limited to achieving foreign assets targets consistent with the reserve money nominal anchor and containing short-term exchange rate volatility.

### Structural reforms
- Objective: build a friendly business environment to promote private sector-led growth.
- Reform priorities (as detailed in the MEFP matrix pages 53-55, attachment I of the staff report):
  - Further progress in good governance and transparency.
  - Improvements in regulatory and legal framework for doing business.
  - Reforms in key productive sectors, including restructuring of State Owned Enterprises (SOEs).
- Coffee sector privatization:
  - Authorities will establish an appropriate reform action plan with World Bank technical assistance.
  - Objective: ensure a competitive market structure at all levels of the coffee sector and that farmers operate freely.
  - Anticipated outcome: attract investment and private financing in the coffee sector.

### Debt sustainability and the HIPC initiative
- Updated external debt sustainability assessment using the new low-income country debt sustainability framework (DSF) indicates:
  - Burundi’s external debt will remain unsustainable even after full use of HIPC assistance.
  - NPV of debt-to-exports ratio remains above the 100 percent indicative threshold for a long period (2005-13).
  - NPV of debt-to-exports is not expected to decrease to 76 percent before 2026 under the baseline scenario (assumptions described in Box 1, page 87, staff report, appendix VI).
  - Additional debt relief under MDRI would moderately reduce the risk of debt distress.
- Given financing requirements for post-conflict reconstruction and poverty reduction and high risks to the baseline projection, authorities welcome exceptional efforts by the international community, including raising further interim relief.
- Authorities are implementing triggers for reaching the completion point under the HIPC Initiative, have developed a national debt management strategy, and are strengthening external debt management capacity.

### Conclusion
- Burundi achieved remarkable progress in implementing its economic program following political transition, despite a difficult post-conflict environment.
- Major challenges remain:
  - More than half of the population living in extreme poverty.
  - Need to diversify the economic base and invest in productivity-enhancing infrastructure to attain higher growth.
- Administrative capacity weakened by long conflict; authorities welcome TA provided and call for continued support from development partners including the IMF.
- Authorities request a full time IMF Resident Representative and reinforced TA to help implement reforms, deliver social services, and meet the MDGs.

*Statement by Peter J. Ngumbullu, Executive Director for Burundi and Dieudonne Nintunze, Advisor to Executive Director — July 14, 2006*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2006/_cr06311.pdf_