## _cr11315

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---

### Request to modify nonconcessional debt zero limit
- The Burundian authorities request a modification of the zero limit on nonconcessional external debt in the country’s arrangement under the Extended Credit Facility (ECF).
- Purpose: to accommodate a US$80 million line of credit contracted by the government of Burundi with the Export Import Bank of India to finance the Kabu 16 hydroelectric plant located at the Kaburantwa River.
- The line of credit has a grant element of 31.6 percent, which is below the 50 percent level required under the arrangement for a line of credit to be considered concessional.

### Attempts to reach concessional threshold and donor responses
- Authorities sought to increase the grant element of the financing for the hydroelectric plant to 50 percent but were unsuccessful.
- At the time of the Sixth Review under the ECF, completed on July 13, 2011 (IMF Country Report No. 11/199), the authorities indicated they would not ratify the line of credit unless terms could be modified to reach the required 50 percent grant element.
- Attempts to change the terms of the line of credit or to obtain additional grants from donors tied to the line of credit as a package failed:
  - The African Development Bank could not provide additional resources.
  - The World Bank and European Union responded unfavorably because their concessional support was already fully allocated to ongoing priority projects.

### World Bank assessment and project economics
- The World Bank has indicated that the project is economically viable and that the authorities are implementing measures to strengthen the financial operations of the electricity company (REGIDESO).
- Project impacts and economics cited by the World Bank:
  - The project would increase Burundi’s generation capacity by 36 percent.
  - Cash flow generated from sales should be sufficient to service the debt.
  - The estimated economic internal rate of return of the project is 33 percent.
  - (Footnote) The obligor is the government of Burundi rather than the state-owned electricity company.

### Electricity company reforms and safeguards
- REGIDESO is undertaking reforms proposed by the World Bank to strengthen financial management and limit budget transfer risks:
  - Series of tariff adjustments reflective of operational costs.
  - Implementation of a fuel cost pass-through mechanism.
  - Increase in the revenue base (through pre-paid cards and metering systems) from 50 percent for both public and private subscribers to about 80 percent in 2012.
- An independent auditor has been recruited to oversee the implementation of a five-year performance contract between the electricity company and the government as part of the World Bank’s supported restructuring and recapitalization of the electricity company.
- Staff will discuss with the authorities arrangements for funds to be transferred from REGIDESO to the budget for repayment of the line of credit.
- Staff will collaborate with the World Bank in developing safeguards to be introduced at the time of the next review.

*Source: attached letter and related staff note as described in IMF Country Report No. 11/199.*

### Staff assessment and recommendation
- Staff supports the authorities’ request for a modification of the zero nonconcessional external debt performance criterion.
- Staff’s assessment of the capacity to repay the Fund would not be materially affected by this change to the program.
- Staff considers that the benefits of the hydroelectric plant outweigh the additional risk arising from the proposed line of credit.
- Ring-fencing this operation as an exceptional case is critical given Burundi’s high risk of debt distress that is in part due to a narrow export base.
- The technical memorandum of understanding (TMU) would be modified to include the REGIDESO electricity company in the coverage of new nonconcessional external debt to underscore close monitoring of potential fiscal liabilities emanating from the electricity sector.

### Debt sustainability analysis findings (as presented)
- On the basis of debt sustainability analysis done at the time of the Sixth Review (IMF Country Report No. 11/199) the present value (PV) of external debt-to-exports ratio and debt service-to exports ratio would increase initially, but would not result in a significant and persistent increase in debt vulnerabilities (Figures 1–2; Tables 1–4).
- All other external indicators would remain below indicative thresholds.
- While a line of credit with a 50 percent grant element would have been preferable, the current line of credit has a 31.6 percent grant element and is the only financing option available to the authorities at present.
- The line of credit would help Burundi increase its electricity generation capacity significantly, identified by donors and businesses as the major constraint to growth.

### Planned modifications and monitoring
- The TMU will be modified to include REGIDESO in the coverage of new nonconcessional external debt.
- The proposed modification of the Technical Memorandum of Understanding and Table I.2 of the Memorandum of Economic and Financial Policies are set out in Attachments I and II, respectively.
- Paragraph 9 of the Technical Memorandum of Understanding will be modified to (inter alia) specify coverage of the ceiling on new nonconcessional external debt, inclusion of debt contracted or guaranteed by government, local governments, the BRB or REGIDESO, treatment of state-owned enterprise debt if government guaranteed, definition of concessional debt (grant element of 50 percent or more), and methods for calculating PV and concessionality including use of CIRRs and specified margins for discounting.

### Key quantitative indicators and projections (selected exact figures from tables)
- Grant element of current Exim line of credit: 31.6 percent.
- PV of external debt-to-exports (examples from projections): 192.6; 183.6; 251.3; 226.3; 243.1; 246.2; 292.1; 204.4; 124.5.
- PV of PPG external debt (in percent of exports): 192.6; 183.6; 251.3; 226.3; 243.1; 246.2; 292.1; 204.4; 124.5.
- Debt service-to-exports ratio (selected): 6.8; -3.3; 1.7; 1.1; 6.8; 8.0; 10.4; 14.3; 19.3; 10.4; 6.1.
- PPG debt service-to-revenue ratio (selected): 3.1; -1.6; 0.7; 0.5; 2.8; 3.3; 3.8; 4.9; 5.3; 3.3; 2.4.
- Total gross financing need (Millions of U.S. dollars, selected): 76.3; 8.0; 62.2; 8.4; 80.4; 84.7; 69.1; 65.7; 144.8; 183.3; 151.7.

### Key macroeconomic assumptions (selected exact values)
- Real GDP growth (in percent): 3.6; 4.5; 3.5; 2.7; 2.4; 3.9; 4.2; 4.8; 5.0; 5.0; 5.0; 4.7; 5.0; 5.0; 5.0.
- GDP deflator in US dollar terms (change in percent): 2.4; 14.3; 10.4; 2.9; 10.8; 7.8; 7.0; 9.6; 5.8; 3.9; 1.7; 6.0; 1.5; 1.3; 1.4.
- Effective interest rate (percent): 0.3; -0.4; 0.1; 0.5; 0.7; 0.2; 0.6; 0.7; 0.7; 0.7; 0.7; 0.6; 0.7; 0.7; 0.7.
- Growth of exports of G&S (US dollar terms, in percent): -10.2; 26.0; -7.2; 6.9; 22.6; 26.8; 5.5; 20.7; -1.7; 2.4; -14.0; 6.6; 10.8; 8.3; 9.4.
- Growth of imports of G&S (US dollar terms, in percent): 5.5; 48.2; -8.5; 19.8; 20.6; 20.5; 7.2; -0.2; 0.0; -4.5; 2.1; 4.2; 3.2; 1.5; 2.7.
- Grant element of new public sector borrowing (in percent) (selected): 40.8; 29.7; 46.2; 50.8; 50.8; 50.8; 44.8; 50.8; 50.8; 50.8.

### Memorandum items (selected exact figures)
- Nominal GDP (Millions of US dollars): 975.1; 1164.7; 1330.4; 1488.9; 1660.8; 1907.2; 2118.5; 2312.2; 2470.0; 3381.6; 6288.5.
- PV of PPG external debt (Millions of US dollars, selected): 188.2; 227.3; 323.5; 349.6; 367.9; 381.4; 392.2; 439.4; 643.2.
- Gross remittances (Millions of US dollars, selected): 29.2; 94.3; 69.4; 76.0; 83.2; 92.2; 96.8; 101.7; 106.8; 146.3; 237.5.

### Policy and procedural actions
- The line of credit (with a 31.6 percent grant element) is acknowledged as the only available financing option; staff recommends ring-fencing as an exceptional case and close monitoring.
- The TMU and Table I.2 of the Memorandum of Economic and Financial Policies will be modified to reflect inclusion of REGIDESO and to define treatment and calculation methods for concessionality and coverage of nonconcessional external debt.

*Sources: Burundian authorities and staff estimates and projections.*

### Lending terms and exclusions
- Interest/fee rates by repayment period:
  - 0.75 percent for repayment periods of less than 15 years;
  - 1 percent for 15–19 years;
  - 1.15 percent for 20–29 years; and
  - 1.25 percent for 30 years or more.
- The performance criterion is defined to exclude:
  - the use of Fund resources; and
  - any Burundi franc-denominated treasury securities held by nonresidents.
- A ceiling of U.S$ 80 million is set forth in Table I.2, to be used exclusively for the line of credit contracted by the government of Burundi with the Export Import Bank of India for financing the Kabu 16 hydroelectric plant.

### Performance criteria (selected rows and exact reported values)
- Net foreign assets of the BRB (floor; US$ million): 84.6; 58.3; 37.2; 84.9; 50.0; 26.1; 70.3.
- Net domestic assets of the BRB (ceiling) (BIF billion, unless otherwise indicated): 105.6; 101.9; 129.1; 86.4; 148.9; 190.7; 143.6.
- Net domestic financing of the government (ceiling): 36.0; 36.2; 63.4; -8.7; 65.2; 96.1; 46.6.
- External payments arrears of the government (ceiling; US$ million): 0.0; 0.0; 0.0; 0.0; 0.0; 0.0.
- Short-term external debt of the government (ceiling; US$ million): 0.0; 0.0; 0.0; 0.0; 0.0; 0.0.
- Nonconcessional external debt contracted or guaranteed by the government or the BRB (ceiling; US$ million): 0.0; 0.0; 0.0; 0.0; 0.0; 80.0.

### Indicative targets and memorandum items (selected rows and exact reported values)
- Accumulation of domestic arrears (ceiling; cumulative from beginning of calendar year): 0.0; 0.0; 0.0; 0.0; 0.0; 0.0.
- Reserve money (ceiling): 209.8; 176.9; 193.9; 213.5; 224.9; 235.5.
- Pro-poor spending (floor; cumulative from beginning of calendar year): 323.8; 74.6; 64.8; 125.7; 192.2; 372.6.
- Memorandum item: External nonproject financial assistance (US$ million; cumulative from beginning of calendar year): 101.3; 46.8; 25.7; 54.9; 54.9; 145.2.

### Notes and annotations from the source table
- Sources: Burundi authorities; and IMF staff estimates and projections.
- Footnotes and qualifiers included in the table:
  - 1 Indicative targets.
  - 3 Continuous performance criterion.
  - 4 See definitions in TMU.
  - 5 This $80 million is limited to the line of credit agreement between the government of Burundi and the Export Import Bank of India to finance the Kabu 16 hydro-electric plant.
  - 2 The ceiling or the floor will be adjusted as indicated in the TMU.

*Source: Attachment II. Table I.2. Burundi: Performance Criteria and Indicative Targets for 2011 (from the supplied IMF content).*

### 1.  In the attached letter, the Burundian authorities request a modification of the

### _cr11315 - 1.  In the attached letter, the Burundian authorities request a modification of the

### Request to modify nonconcessional debt zero limit
- The Burundian authorities request a modification of the zero limit on nonconcessional external debt in the country’s arrangement under the Extended Credit Facility (ECF).
- Purpose: to accommodate a US$80 million line of credit contracted by the government of Burundi with the Export Import Bank of India to finance the Kabu 16 hydroelectric plant located at the Kaburantwa River.
- The line of credit has a grant element of 31.6 percent, which is below the 50 percent level required under the arrangement for a line of credit to be considered concessional.

### Attempts to reach concessional threshold and donor responses
- Authorities sought to increase the grant element of the financing for the hydroelectric plant to 50 percent but were unsuccessful.
- At the time of the Sixth Review under the ECF, completed on July 13, 2011 (IMF Country Report No. 11/199), the authorities indicated they would not ratify the line of credit unless terms could be modified to reach the required 50 percent grant element.
- Attempts to change the terms of the line of credit or to obtain additional grants from donors tied to the line of credit as a package failed:
  - The African Development Bank could not provide additional resources.
  - The World Bank and European Union responded unfavorably because their concessional support was already fully allocated to ongoing priority projects.

### World Bank assessment and project economics
- The World Bank has indicated that the project is economically viable and that the authorities are implementing measures to strengthen the financial operations of the electricity company (REGIDESO).
- Project impacts and economics cited by the World Bank:
  - The project would increase Burundi’s generation capacity by 36 percent.
  - Cash flow generated from sales should be sufficient to service the debt.
  - The estimated economic internal rate of return of the project is 33 percent.
  - (Footnote) The obligor is the government of Burundi rather than the state-owned electricity company.

### Electricity company reforms and safeguards
- REGIDESO is undertaking reforms proposed by the World Bank to strengthen financial management and limit budget transfer risks:
  - Series of tariff adjustments reflective of operational costs.
  - Implementation of a fuel cost pass-through mechanism.
  - Increase in the revenue base (through pre-paid cards and metering systems) from 50 percent for both public and private subscribers to about 80 percent in 2012.
- An independent auditor has been recruited to oversee the implementation of a five-year performance contract between the electricity company and the government as part of the World Bank’s supported restructuring and recapitalization of the electricity company.
- Staff will discuss with the authorities arrangements for funds to be transferred from REGIDESO to the budget for repayment of the line of credit.
- Staff will collaborate with the World Bank in developing safeguards to be introduced at the time of the next review.

*Source: attached letter and related staff note as described in IMF Country Report No. 11/199.*

### 4. Staff supports the authorities’ request for a modification of the zero

### 4. Staff supports the authorities’ request for a modification of the zero 

### Staff assessment and recommendation
- Staff supports the authorities’ request for a modification of the zero nonconcessional external debt performance criterion.
- Staff’s assessment of the capacity to repay the Fund would not be materially affected by this change to the program.
- Staff considers that the benefits of the hydroelectric plant outweigh the additional risk arising from the proposed line of credit.
- Ring-fencing this operation as an exceptional case is critical given Burundi’s high risk of debt distress that is in part due to a narrow export base.
- The technical memorandum of understanding (TMU) would be modified to include the REGIDESO electricity company in the coverage of new nonconcessional external debt to underscore close monitoring of potential fiscal liabilities emanating from the electricity sector.

### Debt sustainability analysis findings (as presented)
- On the basis of debt sustainability analysis done at the time of the Sixth Review (IMF Country Report No. 11/199) the present value (PV) of external debt-to-exports ratio and debt service-to exports ratio would increase initially, but would not result in a significant and persistent increase in debt vulnerabilities (Figures 1–2; Tables 1–4).
- All other external indicators would remain below indicative thresholds.
- While a line of credit with a 50 percent grant element would have been preferable, the current line of credit has a 31.6 percent grant element and is the only financing option available to the authorities at present.
- The line of credit would help Burundi increase its electricity generation capacity significantly, identified by donors and businesses as the major constraint to growth.

### Project-specific details and economic assumptions cited
- Projected unit economics: project US$0.055/kWh compared to the price at which the electricity could be sold, US$0.33/kWh.
- Real GDP growth under the project: would average 6 percent during 2014–30, 1 percentage point higher relative to the baseline.
- Exports under the project: assumed to increase by an annual average of 7.5 percent in volume terms during 2014–30, compared to 6.1 percent under the baseline.

### Planned modifications and monitoring
- The TMU will be modified to include REGIDESO in the coverage of new nonconcessional external debt.
- The proposed modification of the Technical Memorandum of Understanding and Table I.2 of the Memorandum of Economic and Financial Policies are set out in Attachments I and II, respectively.
- Paragraph 9 of the Technical Memorandum of Understanding will be modified to (inter alia) specify coverage of the ceiling on new nonconcessional external debt, inclusion of debt contracted or guaranteed by government, local governments, the BRB or REGIDESO, treatment of state-owned enterprise debt if government guaranteed, definition of concessional debt (grant element of 50 percent or more), and methods for calculating PV and concessionality including use of CIRRs and specified margins for discounting.

### Key quantitative indicators and projections (selected exact figures from tables)
- Grant element of current Exim line of credit: 31.6 percent (noted in Figures).
- PV of external debt-to-exports (examples from projections): 192.6; 183.6; 251.3; 226.3; 243.1; 246.2; 292.1; 204.4; 124.5 (values as shown in table rows).
- PV of PPG external debt (in percent of exports): 192.6; 183.6; 251.3; 226.3; 243.1; 246.2; 292.1; 204.4; 124.5.
- Debt service-to-exports ratio (selected): 6.8; -3.3; 1.7; 1.1; 6.8; 8.0; 10.4; 14.3; 19.3; 10.4; 6.1.
- PPG debt service-to-revenue ratio (selected): 3.1; -1.6; 0.7; 0.5; 2.8; 3.3; 3.8; 4.9; 5.3; 3.3; 2.4.
- Total gross financing need (Millions of U.S. dollars, selected): 76.3; 8.0; 62.2; 8.4; 80.4; 84.7; 69.1; 65.7; 144.8; 183.3; 151.7.
- Key macroeconomic assumptions (selected exact values):
  - Real GDP growth (in percent): 3.6; 4.5; 3.5; 2.7; 2.4; 3.9; 4.2; 4.8; 5.0; 5.0; 5.0; 4.7; 5.0; 5.0; 5.0.
  - GDP deflator in US dollar terms (change in percent): 2.4; 14.3; 10.4; 2.9; 10.8; 7.8; 7.0; 9.6; 5.8; 3.9; 1.7; 6.0; 1.5; 1.3; 1.4.
  - Effective interest rate (percent): 0.3; -0.4; 0.1; 0.5; 0.7; 0.2; 0.6; 0.7; 0.7; 0.7; 0.7; 0.6; 0.7; 0.7; 0.7.
  - Growth of exports of G&S (US dollar terms, in percent): -10.2; 26.0; -7.2; 6.9; 22.6; 26.8; 5.5; 20.7; -1.7; 2.4; -14.0; 6.6; 10.8; 8.3; 9.4.
  - Growth of imports of G&S (US dollar terms, in percent): 5.5; 48.2; -8.5; 19.8; 20.6; 20.5; 7.2; -0.2; 0.0; -4.5; 2.1; 4.2; 3.2; 1.5; 2.7.
  - Grant element of new public sector borrowing (in percent) (selected): 40.8; 29.7; 46.2; 50.8; 50.8; 50.8; 44.8; 50.8; 50.8; 50.8.
- Memorandum items (selected exact figures):
  - Nominal GDP (Millions of US dollars): 975.1; 1164.7; 1330.4; 1488.9; 1660.8; 1907.2; 2118.5; 2312.2; 2470.0; 3381.6; 6288.5.
  - PV of PPG external debt (Millions of US dollars, selected): 188.2; 227.3; 323.5; 349.6; 367.9; 381.4; 392.2; 439.4; 643.2.
  - Gross remittances (Millions of US dollars, selected): 29.2; 94.3; 69.4; 76.0; 83.2; 92.2; 96.8; 101.7; 106.8; 146.3; 237.5.

### Policy and procedural actions
- The line of credit (with a 31.6 percent grant element) is acknowledged as the only available financing option; staff recommends ring-fencing as an exceptional case and close monitoring.
- The TMU and Table I.2 of the Memorandum of Economic and Financial Policies will be modified to reflect inclusion of REGIDESO and to define treatment and calculation methods for concessionality and coverage of nonconcessional external debt.

*Sources: Burundian authorities and staff estimates and projections.*

### 0.75 percent for repayment periods of less than 15 years; 1 percent for 15–19 years;

### _cr11315 - 0.75 percent for repayment periods of less than 15 years; 1 percent for 15–19 years;

### Lending terms and exclusions
- Interest/fee rates by repayment period:
  - 0.75 percent for repayment periods of less than 15 years;
  - 1 percent for 15–19 years;
  - 1.15 percent for 20–29 years; and
  - 1.25 percent for 30 years or more.
- The performance criterion is defined to exclude:
  - the use of Fund resources; and
  - any Burundi franc-denominated treasury securities held by nonresidents.
- A ceiling of U.S$ 80 million is set forth in Table I.2, to be used exclusively for the line of credit contracted by the government of Burundi with the Export Import Bank of India for financing the Kabu 16 hydroelectric plant.

### Performance criteria (selected rows and exact reported values)
- Net foreign assets of the BRB (floor; US$ million):
  - 84.6, 58.3, 37.2, 84.9, 50.0, 26.1, 70.3
- Net domestic assets of the BRB (ceiling) (BIF billion, unless otherwise indicated):
  - 105.6, 101.9, 129.1, 86.4, 148.9, 190.7, 143.6
- Net domestic financing of the government (ceiling):
  - 36.0, 36.2, 63.4, -8.7, 65.2, 96.1, 46.6
- External payments arrears of the government (ceiling; US$ million):
  - 0.0, 0.0, 0.0, 0.0, 0.0, 0.0
- Short-term external debt of the government (ceiling; US$ million):
  - 0.0, 0.0, 0.0, 0.0, 0.0, 0.0
- Nonconcessional external debt contracted or guaranteed by the government or the BRB (ceiling; US$ million):
  - 0.0, 0.0, 0.0, 0.0, 0.0, 80.0

### Indicative targets and memorandum items (selected rows and exact reported values)
- Accumulation of domestic arrears (ceiling; cumulative from beginning of calendar year):
  - 0.0, 0.0, 0.0, 0.0, 0.0, 0.0
- Reserve money (ceiling):
  - 209.8, 176.9, 193.9, 213.5, 224.9, 235.5
- Pro-poor spending (floor; cumulative from beginning of calendar year):
  - 323.8, 74.6, 64.8, 125.7, 192.2, 372.6
- Memorandum item: External nonproject financial assistance (US$ million; cumulative from beginning of calendar year):
  - 101.3, 46.8, 25.7, 54.9, 54.9, 145.2

### Notes and annotations from the source table
- Sources: Burundi authorities; and IMF staff estimates and projections.
- Footnotes and qualifiers included in the table:
  - 1 Indicative targets.
  - 3 Continuous performance criterion.
  - 4 See definitions in TMU.
  - 5 This $80 million is limited to the line of credit agreement between the government of Burundi and the Export Import Bank of India to finance the Kabu 16 hydro-electric plant.
  - 2 The ceiling or the floor will be adjusted as indicated in the TMU.

*Source: Attachment II. Table I.2. Burundi: Performance Criteria and Indicative Targets for 2011 (from the supplied IMF content).*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2011/_cr11315.pdf_