## _cr1228

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### Executive summary — key findings and staff recommendation
- Headline inflation rose from 4.1 at end-2010 to 13.3 percent (y-o-y) in October 2011.
- Real GDP growth in 2011 is projected at 4.2 percent.
- Program performance under the current ECF arrangement was satisfactory:
  - All quantitative indicative targets for end-June 2011 and all performance criteria for end-September 2011 were met.
  - End-November structural benchmarks related to financial safeguards and to the strengthening of expenditure commitment controls were met.
- Major risks to program success: a decline in donor support and a deterioration in the security situation.
- Staff recommends completion of the seventh and last review under the current ECF arrangement and approval of a new three-year ECF arrangement.

### I. Background and recent program performance
- Post-conflict progress: establishment of the Office of the Ombudsman and the Human Rights Commission; security remains fragile with sporadic violence and refugee inflows.
- EPA findings: progress in revenue mobilization, several PFM reforms, increased Central Bank autonomy; slower progress in the coffee sector.
- Fund-supported programs catalyzed a surge in aid that stimulated domestic demand but increased vulnerability to uncertain foreign assistance.
- Program implementation (end-2011):
  - Overall implementation described as satisfactory; all quantitative PCs at end-September met.
  - Central bank recruited an international auditor in July 2011; special audit report submitted in November 2011.
  - Ministry of Finance adopted procedures in November 2011 to enhance expenditure commitment comptrollers.

### II. Recent macroeconomic developments
- Growth and inflation:
  - Real GDP growth in 2011 projected at 4.2 percent, below earlier projections due to weaker aggregate demand and electricity shortages.
  - Headline inflation rose from 4.1 at end-2010 to 13.3 percent (y-o-y) in October 2011; consumer prices could reach 14.3 percent at year-end.
- Fiscal outcomes:
  - Overall deficit in 2011 projected at 2.5 percent of GDP, or 0.5 percent of GDP lower than programmed.
  - Revenue collection through end-October 2011 was about 34 percent higher than same period in 2010.
  - Revenue overperformance more than offset a shortfall of 1 percent of GDP in budget support.
- Monetary and external:
  - Inter-bank rates increased by 630 basis points since February 2011 to 10.8 percent through October 2011.
  - Currency depreciated by about 5 percent in the year through October 2011; official reserves fallen to 4.4 months of imports.
  - Monetary tightening implemented to counter second-round effects of food and fuel shocks.

### III. Proposed new ECF arrangement (2012–14) — objectives and core priorities
- Program design principles:
  - Draws on EPA lessons and PRSP-II objectives; emphasizes greater exchange rate flexibility, rebuilding fiscal buffers, safeguarding debt sustainability, and alleviating growth bottlenecks.
- Alignment with PRSP-II pillars: rule of law/good governance/gender equality; economic transformation for growth and job creation; improved access and quality of basic services; environmental management and sustainable development.
- Core program priorities:
  - increase revenue mobilization;
  - strengthen public financial and debt management policies;
  - achieve greater exchange rate flexibility;
  - improve the business climate, including aligning income and excise taxes with East African Community guidelines.
- Staff recommendation: new three-year ECF to consolidate quick wins and support social safety nets in health and education.

### IV. Medium-term macroeconomic outlook and risks
- Projections:
  - Real GDP growth expected to rise gradually, supported by agriculture, construction, tourism, improved electricity supply; long-term average growth expected to be about 6.7 percent.
  - Inflation expected to decline gradually to single digits as a result of monetary tightening.
  - Growth projected to reach 6.0 percent in 2014; growth should accelerate to 4.8 percent in 2012.
- Reserves and external:
  - Program aims to maintain foreign exchange reserves at around 4½ months of imports.
  - External current account deficit expected to stand at 9.1 percent of GDP in 2014.
- Key risks:
  - Elevated risks stem from security and external environment: Euro Area debt crisis, reduced donor support, supply shocks raising oil prices.

### V. Fiscal policy, revenue mobilization, and debt management
- Fiscal anchor and debt sustainability:
  - Fiscal anchor: zero limit on nonconcessional external public borrowing; gradually declining path for domestic debt to GDP to reduce total debt in PV terms.
  - Burundi remains at high risk of debt distress.
- 2012 fiscal projections and specifics:
  - The 2012 overall deficit is projected to widen to 3½ percent of GDP.
  - The higher deficit reflects a decline in program grants of 2.8 percent of GDP, partially offset by increased revenue and spending cuts.
  - Increased capital spending includes the Kabu 16 hydroelectric plant (0.5 percent of GDP in 2012).
  - Revenues excluding grants projected to increase by about ¾ percentage point to 16.2 percent of GDP in 2012.
  - Total expenditure about 35.6 of GDP (BIF 1198.1 billion) in 2012.
- Revenue mobilization and BRA reforms:
  - Revenues excluding grants increased by 1.9 percent of GDP between 2009 and 2011 after BRA became operational in H2 2010.
  - Major BRA reforms include: petroleum import regulations, taxpayers registry, computerization of BRA offices, risk-based controls, VAT law amendment, revised regime for small taxpayers.
  - Authorities committed to align income and excise taxes with EAC guidelines and streamline tax exemptions.
- Wage bill and public employment:
  - Wage bill projected at about 8.3 percent of GDP in 2012, 0.4 percent lower than in 2011.
  - 2012 budget envisages recruitment only in priority sectors (health and education); zero net hiring in non-priority sectors.
- Debt management actions:
  - Government will implement a medium-term debt strategy based on DeMPA; objective to lower risk of debt distress from high to moderate.
  - Staff cautions continued reliance on grants and highly concessional loans; exceptional modification allowed ratification of EXIM Bank of India loan with grant element about 32 percent for Kabu 16.

### VI. Debt sustainability analysis — key indicators and scenarios
- Assessment: Burundi continues to face a high risk of external debt distress.
- Selected numeric indicators (PV of debt-to-exports; sample series as presented):
  - PV of debt-to-exports: 150.8, 174.4, 162.1, 167.2, 170.0, 171.0, 169.4, 108.1, 88.9 (selected projection values).
  - PV of PPG external debt (US$ millions, selected): 272.2, 306.3, 346.4, 396.7, 442.6, 455.2, 463.6, 544.5, 1164.5.
  - Debt service-to-exports (percent, selected): 1.4, 3.5, 5.7, 7.2, 9.5, 12.0, 12.2, 7.9, 3.9.
- Stress tests:
  - Two debt indicators breach thresholds under alternative scenarios.
  - Scenario B2 (export value growth shock) produces the most severe breaches (PV of debt-to-exports rises markedly).
- Staff policy advice:
  - Continue to rely on grants and highly concessional loans; strengthen debt management; intensify structural reforms to diversify exports and reduce infrastructure bottlenecks; improve tax administration.

### VII. Monetary policy, exchange rate, and financial sector reforms
- Monetary policy focus: anchor inflation expectations and reduce inflation amid elevated international food and oil prices; central bank stands ready to tighten policy by increasing deposit auction interest rates.
- Liquidity management: close BRB-Ministry of Finance collaboration; Cash Flow Management Committee to meet regularly.
- Exchange rate policy:
  - Greater exchange rate flexibility to absorb terms-of-trade shocks.
  - Planned change from daily to weekly foreign exchange auctions to facilitate inter-bank market development and better reference rate calculation.
  - De jure arrangement: “floating”; de facto: “stabilized”.
- Financial sector and safeguards:
  - Central bank addressing banking vulnerabilities; new banking law and payments system legislation expected in 2012.
  - Bank supervision strengthened via on-site inspections and risk-based procedures.
  - Special audit of BRB domestic disbursements and transfers to continue through 2012; international auditor to monitor implementation of audit recommendations.

### VIII. Electricity sector and REGIDESO reforms (Box 1 highlights)
- Supply and demand:
  - Demand estimated at 52 MW versus supply of 30MW; supply deficit varies between 13 MW to 23.5 MW seasonally.
  - Seven hydro plants combined capacity about 28.7 MW plus a 5.5MW thermal generator.
  - Less than two percent of households have access to electricity; average household consumption 23 kWh/per capita per year.
- Planned projects:
  - Kabu 16: 20MW project envisaged and could be developed in next 3 years.
  - Regional projects: Rusumo, Mpanda, and Rusizi expected later.
  - Studies suggest up to 300MW hydropower potential.
- REGIDESO reforms:
  - Strengthen financial management and cost recovery; tariff adjustments and fuel cost pass-through; increase revenue base from 50 percent to about 80 percent in 2012 via pre-paid cards and metering; independent auditor recruited for five-year performance contract.

### IX. Structural reforms to relax growth constraints
- Priority reforms:
  - Improve business climate; re-launch privatization (coffee washing stations, hotels, bank equity); structural reforms in electricity and coffee sectors.
- Coffee sector:
  - Coffee produced by about 800,000 households and accounted for 70 percent of export revenues (3.3 percent of GDP) in 2011.
  - Potential capacity up to 60,000 tons of fully washed coffee in peak years (compared to 15,000 tons in 2011).
  - Second privatization round to sell 104 washing stations scheduled to start in 2012; privatization to permit local producers to buy a 25 percent stake.
- Business climate:
  - Doing Business ranking improved by 8 positions (from 177th to 169th in “Doing Business 2012”) through investor protection reforms; further reforms identified with the World Bank (Company Code amendments, reducing lags in building permits, property transfers, business creation).

### X. Program modalities, financing, monitoring, and reporting
- Proposed three-year ECF arrangement:
  - Access to SDR 30 million (39 percent of quota); disbursement in seven installments.
  - Proposed arrangement to enter into effect after current arrangement expires at end of January 2012, with semi-annual reviews.
  - Proposed program aims to maintain reserves around 4½ months of imports.
- Monitoring:
  - Performance criteria and indicative targets at specified dates (end-March 2012, end-June 2012, end-September 2012, end-December 2012); structural benchmarks in critical areas.
  - Quantitative PCs include net foreign assets of BRB (floor); net domestic assets of BRB (ceiling); net domestic financing of government (ceiling); external payment arrears (ceiling, continuous); stock of short-term external debt (ceiling, continuous); new nonconcessional medium- and long-term external debt (ceiling, continuous).
  - Indicative targets include accumulation of domestic arrears (ceiling); pro-poor spending (floor); reserve money (ceiling).
- Reporting requirements:
  - Monthly reporting within six weeks: REFES monitoring table, foreign exchange cash flow, monetary survey, exchange-rate data, detailed government revenue and commitment-basis expenditure including pro-poor spending, debt servicing breakdowns, stock of domestic payment arrears, new debts contracted/guaranteed, actual disbursements of nonproject assistance, structural measures implementation updates.
  - Quarterly progress reports on BRB internal reforms.

### XI. Program risks and mitigating measures
- Principal risks:
  - Decline in donor support requiring abrupt fiscal adjustment.
  - Worsening security situation.
  - External shocks: higher oil prices; Euro Area crisis reducing donor support.
- Mitigating factors:
  - Reforms that improved revenue mobilization.
  - Nation-building and institutional reforms supporting resilience.
- Contingency:
  - In case of budget support shortfalls, further fiscal consolidation and reprioritization of spending would be warranted.

### XII. Statistical capacity and data issues
- Statistical weaknesses:
  - National accounts production interrupted in 1993; GDP rebasing for 2005–08 carried out with AfDB technical assistance.
  - Nominal GDP revised upward by about 36 percent over 2005–08.
  - Low statistical capacity limits policymaking; consumer price index basket based on 1991 survey covering only the capital city.
- Planned improvements:
  - ISTEEBU to recruit and deploy more staff; review CPI composition based on nationwide household survey to be rolled out in mid-2012.
  - Revised GDP figures for 2009 and 2010 planned for release in 2012.
- Data adequacy: serious shortcomings in national accounts, government finance, and balance of payments; participation in GDDS not in place.

*Source: Executive Summary and selected sections from IMF Country Report content unit _cr1228.*

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

### _cr1228 - Executive Summary

### Executive summary: key findings and staff recommendation
- Macroeconomic performance weakened owing to food and fuel shocks: headline inflation rose from 4.1 at end-2010 to 13.3 percent (y-o-y) in October 2011.
- Real GDP growth in 2011 is projected at 4.2 percent.
- Program performance under the current ECF arrangement was satisfactory:
  - All quantitative indicative targets for end-June 2011 and all performance criteria for end-September 2011 were met.
  - End-November structural benchmarks related to financial safeguards and to the strengthening of expenditure commitment controls were met.
- Major risks to program success: a decline in donor support and a deterioration in the security situation.
- Staff recommends completion of the seventh and last review under the current ECF arrangement and approval of a new three-year ECF arrangement.

*Source: Executive Summary (IMF Country Report content unit _cr1228).*

### I. Background
- Burundi is emerging from more than a decade of civil conflict; nation-building progress includes establishment of the Office of the Ombudsman and the Human Rights Commission.
- Security remains fragile with sporadic politically-motivated violence and periodic refugee inflows.
- An Ex-Post Assessment (EPA) of IMF engagement noted progress in:
  - revenue mobilization (notable increase),
  - several public financial management reforms,
  - increased autonomy of the Central Bank.
- Progress was slower in other areas, notably the coffee sector.
- Fund-supported programs catalyzed a massive surge in aid that stimulated domestic demand but left the public sector vulnerable to uncertain foreign assistance.

### II. Recent developments and program implementation
- Growth and inflation:
  - Real GDP growth in 2011 projected at 4.2 percent, below earlier projections because of weaker aggregate demand and persistent electricity shortages.
  - Headline inflation rose from 4.1 at end-2010 to 13.3 percent (y-o-y) in October 2011, partly due to rising food and fuel prices.
- Fiscal outcomes:
  - Overall deficit in 2011 projected at 2.5 percent of GDP, or 0.5 percent of GDP lower than programmed.
  - Revenue collection through end-October 2011 was about 34 percent higher than in the same period in 2010, reflecting improvements in revenue administration and non-tax revenue collection.
  - Revenue overperformance more than offset a shortfall of 1 percent of GDP in budget support; current spending was kept in line with program projections.
- Monetary and external sector:
  - Monetary conditions tightened through October 2011: inter-bank rates increased by 630 basis points since February 2011 to 10.8 percent.
  - The currency depreciated by about 5 percent in the year through October 2011 due to a shortfall in foreign exchange inflows.
- Program implementation:
  - All quantitative indicative targets and performance criteria noted above met.
  - Central bank recruited an international auditor in July 2011; special audit report submitted in November 2011.
  - Ministry of Finance adopted procedures in November 2011 to enhance expenditure commitment comptrollers.

### III. Proposed new ECF arrangement—policies going forward
- Program design principles:
  - Draws on EPA lessons and objectives in PRSP-II.
  - Recognizes need for greater exchange rate flexibility, rebuilding fiscal buffers, and safeguarding debt sustainability.
  - Aims to transform the economy for sustained growth and job creation by alleviating bottlenecks to growth.
- Program alignment:
  - The new ECF will coincide with PRSP-II launch; PRSP-II focuses on: (i) rule of law, good governance and gender equality; (ii) economic transformation for growth and job creation; (iii) improved access and quality of basic services and national solidarity; (iv) environmental management and sustainable development.
  - The program dovetails with initiatives from development partners (World Bank, AfDB, bilateral donors, PBC).
- Core program priorities:
  - increase revenue mobilization;
  - strengthen public financial and debt management policies;
  - achieve greater exchange rate flexibility;
  - improve the business climate, including aligning income and excise taxes with East African Community guidelines.
- Staff recommendation:
  - A new arrangement would consolidate quick wins from previous arrangements and support social safety net programs in health and education.

A. Macroeconomic outlook
- Medium-term outlook:
  - Real GDP growth is projected to rise gradually, driven by agricultural, construction, tourism sectors, and improved electricity supply.
  - Inflation is expected to decline gradually to single digits as a result of monetary tightening.
  - Privatization in the coffee sector and sales of government assets (hotels and equity in banks) expected to stimulate activity.
- Risks:
  - Elevated and stem mostly from security and external environment: Euro Area debt crisis could generate trade spillovers and reduce donor support; supply shocks could raise oil prices, increasing inflationary and budgetary pressures.

B. Fiscal policy and related reforms
- Fiscal anchor and debt sustainability:
  - Need to achieve debt sustainability will anchor medium-term fiscal policy.
  - Fiscal anchor in the proposed program: a zero limit on non concessional external public borrowing and a gradually declining path for domestic debt to GDP, facilitating a reduction of total debt to GDP in PV terms.
- Revenues and spending:
  - Revenues projected to increase due to revenue administration and tax policy reforms broadening the revenue base.
  - Total expenditure as a share of GDP set to decline, reflecting lower grants.
  - Composition of spending to shift toward capital spending through containment of current expenditures.
- 2012 projections and specific items:
  - The 2012 overall deficit is projected to widen to 3½ percent of GDP.
  - The higher deficit reflects a decline in program grants of 2.8 percent of GDP, only partially offset by increased revenue and spending cuts.
  - Increased capital spending includes the Kabu 16 hydroelectric plant (0.5 percent of GDP in 2012).
  - Revenues excluding grants are projected to increase by about ¾ percentage point to 16.2 percent of GDP.
  - Current spending—excluding programs financed by earmarked grants—would decrease by 0.8 percent of GDP.

### IV. Monetary policy, exchange rate policy, and financial sector issues (summary of recent actions)
- Monetary tightening has been implemented in response to second-round effects of the food and fuel shock.
- Interest rates have risen appropriately; policy rates have moved in line with regional trends.
- Banking and financial safeguards:
  - Central bank audit and enhanced oversight measures have been advanced as part of structural benchmarks.

### V. Other macro-critical reforms—relaxing constraints to growth
- Program emphasizes removing regulations that constrain private sector development.
- Re-launching privatization (coffee sector, hotels, bank equity) seen as a channel to reinvigorate activity.
- Improving electricity supply (including Kabu 16) expected to support growth.

### VI. Program risks and mitigating factors
- Principal risks:
  - Decline in donor support that could require abrupt fiscal adjustment.
  - Worsening security situation.
- Mitigating factors:
  - Reforms that improved revenue mobilization.
  - Nation-building efforts and institutional reforms that support resilience.

*Source: Executive Summary (IMF Country Report content unit _cr1228).*

### 14.      Over the medium-term, progress in revenue mobilization will be a key priority

### 14.      Over the medium-term, progress in revenue mobilization will be a key priority

### Revenue mobilization and tax administration
- Revenues excluding grants increased by 1.9 percent of GDP between 2009 and 2011 following the creation of the Burundi Revenue Authority (BRA) which became operational in the second half of 2010.
- Major ongoing BRA reforms (to be completed or strengthened) include:
  - adopting revised regulations and procedures for petroleum imports;
  - completing a comprehensive registry of taxpayers;
  - completing computerization and connection between BRA offices;
  - implementing risk-based controls;
  - amending the VAT law;
  - revising the taxation regime for small taxpayers.
- Authorities committed to tax policy reforms to:
  - align income and excise taxes with EAC harmonization guidelines;
  - broaden the tax base by streamlining the tax exemptions regime.
- Objective: reduce aid dependency and cover urgent needs in infrastructure and increasing social demands (MEFP, ¶28).

### Public financial management (PFM) and donor support
- Consolidating past PFM reforms is critical to improve governance, fiscal transparency, and secure future donor support (MEFP, ¶35).
- The new PFM organic law approved in 2008 introduced innovations for medium-term implementation.
- Reforms envisaged in the PFM organic law for 2013-2016 include:
  - program budgeting;
  - decentralization of payment authorization;
  - moving towards risk-based controls;
  - implementation of modified accrual accounting.
- Key steps toward these medium-term reforms include:
  - a decree on budget governance;
  - a new budget classification;
  - clarifying rules for the treasury single account;
  - reorganization of the Ministry of Finance;
  - auditing the IT system.
- Authorities planned to complete ongoing PFM reforms in 2012, including:
  - implementation of management performance contracts with public companies (e.g., REGIDESO);
  - adoption of a new PFM strategy during the first quarter of 2012.
- Note: decline in foreign grants partly reflects the disbursement in late-2011 of grants envisaged for 2012 (¶4).

### Wage bill and public sector employment
- The 2012 budget envisages recruitment only in priority sectors of health and education.
- The wage bill is projected to be contained to about 8.3 percent of GDP in 2012, 0.4 percent lower than in 2011.
- Policies to keep the wage bill sustainable:
  - zero net hiring in non-priority sectors;
  - containment of nominal wage increases.
- Risk: wage demands by critical technical staff could jeopardize control of the wage bill if not addressed in a comprehensive public sector reform.

### Debt management and debt sustainability
- Burundi is assessed as still at high risk of debt distress; prudent debt management is imperative (MEFP, ¶26).
- Government will implement a medium-term debt strategy based on results of the Debt Management Assessment Performance (DeMPA) to be conducted by the World Bank.
- Goal: improve debt management capacity to lower risk of debt distress from high to moderate.
- Updated debt sustainability assessment (DSA) findings:
  - Burundi remains at high risk of debt distress, similar to scenarios developed a year ago.
  - Ratios of PV of debt to exports and debt service to exports are projected to remain above relevant thresholds even under baseline scenarios.
  - Other external debt indicators are projected to remain below their indicative thresholds, reflecting an upward revision to GDP (which affects debt and debt service to GDP ratios, Box 3).
- Debt sustainability outlook depends on:
  - sustained fiscal consolidation;
  - sustained economic growth.

### Monetary policy, exchange rate policy, and financial sector
- Monetary policy focus:
  - anchoring inflation expectations;
  - reducing inflation amid elevated international food and oil prices and rising core inflation.
- Authorities stand ready to tighten monetary policy by increasing the interest rate on deposit auctions.
- Liquidity management:
  - Close collaboration between central bank and Ministry of Finance is essential (MEFP, ¶26).
  - The Cash Flow Management Committee will meet regularly to provide timely information on how government cash outlays affect reserve money and foreign exchange market operations.
- Exchange rate policy:
  - Greater exchange rate flexibility to absorb terms-of-trade shocks (MEFP ¶25).
  - Planned measures (per IMF technical assistance):
    - change foreign exchange auctions from daily to weekly to facilitate development of an inter-bank market;
    - improve organization of the foreign exchange market and calculation of the reference exchange rate to better reflect market conditions.
  - De facto exchange rate arrangement classified as “stabilized” and de jure exchange rate is “floating” (footnote).
- Financial sector reforms and supervision:
  - Central bank addressing banking vulnerabilities drawing on recently adopted financial sector strategy (MEFP ¶37).
  - New banking law and payments system legislation prepared with World Bank assistance expected to be approved in 2012.
  - Modernized payments system expected to improve regional integration and deepen financial intermediation.
  - Banking supervision strengthened through on-site inspections in accordance with risk-based supervision procedures (Table 9).
- Safeguards and audits:
  - Special audit of domestic disbursements and transfers executed by BRB on behalf of the government or creditors will continue through 2012.
  - Government will recruit an international auditor to:
    - monitor implementation of 2011 special audit recommendations;
    - verify on a test basis controls on important domestic disbursements and transfers executed from July 2011 through March 2012;
    - evaluate adoption of the new decree replacing RGCP 1964 as the referential procedures governing public expenditures disbursements.
  - A safeguards assessment mission from the IMF is expected and an updated safeguards report to be finalized before the first review of the proposed ECF arrangement.

### Electricity sector challenges and REGIDESO reforms (Box 1)
- Energy deficit and supply:
  - Demand estimated at 52 MW versus supply of 30MW.
  - Current supply deficit varies between 13 MW to 23.5 MW, seasonally.
  - Electricity supply generated mostly by seven hydroelectric plants combined capacity about 28.7 MW, plus a 5.5MW thermal generator.
  - Less than two percent of households have access to electricity; average household consumption 23 kWh/per capita per year.
- Planned projects and potential:
  - Kabu 16 hydroelectric plant: 20MW project envisaged and could be developed in the next 3 years.
  - Regional projects: Rusumo, Mpanda, and Rusizi expected to come on line later.
  - Studies suggest up to 300MW hydropower potential if fully leveraged.
  - REGIDESO may source thermal power at costs three times higher than hydro.
- REGIDESO financial and managerial reforms (with World Bank assistance):
  - Strengthen financial management and cost recovery to limit budget transfers.
  - Tariff adjustments reflective of operational costs; fuel cost pass-through mechanism.
  - Increase revenue base from 50 percent for both public and private subscribers to about 80 percent in 2012 via pre-paid cards and metering systems.
  - Independent auditor recruited to oversee implementation of a five-year performance contract between REGIDESO and the government as part of restructuring and recapitalization.

### Other growth-enhancing reforms
- Priority reforms to maximize medium-term growth (MEFP ¶33 and ¶38):
  - improve the business climate;
  - structural reforms in the electricity and coffee sectors;
  - re-launch privatization of coffee washing stations with World Bank assistance (commenced in late 2011).
- Coffee sector (Box 2) highlights:
  - Coffee produced by about 800,000 households and accounted for 70 percent of export revenues (3.3 percent of GDP) in 2011.
  - Potential export capacity: up to 60,000 tons of fully washed coffee during peak years (compared to 15,000 tons in 2011) with productivity improvements.
  - Sector currently constrained by incomplete restructuring; only 13 of 117 offered washing stations were sold during the 2009 round.
  - Second round of privatizations to sell 104 coffee washing stations through international bidding scheduled to start in 2012.
  - Privatization process to permit local producers to buy a 25 percent stake; joint ventures between foreign and local firms envisaged.
  - Additional reforms include repealing the 30-year lease convention between corporations managing washing stations and the State Coffee Board, and streamlining the regulatory framework to improve efficiency.
- Business environment improvements:
  - Burundi improved its Doing Business ranking by 8 positions in 2012 Doing Business Report, largely via investor protection reforms, but remains low overall.
  - Reforms identified with the World Bank include amendments to the “Company Code” and measures to reduce lags in procedures for:
    - obtaining a building permit;
    - transferring property;
    - creating a business.

### Statistical capacity
- Low statistical capacity limits policymaking (MEFP ¶46).
- National accounts production halted in 1993 and resumed recently with revised GDP for 2005–08 in line with SNA 93 (Box 3).
- Plans:
  - national Statistical Agency to recruit and deploy more staff across ministries;
  - review the consumer price index basket based on the nationwide household survey to be rolled out in mid-2012.

### Program modalities, financing, and risks
- Proposed three-year ECF arrangement:
  - access to SDR 30 million (39 percent of quota);
  - disbursement in seven installments (Table 7);
  - aim to maintain foreign exchange reserves at around 4½ months of imports.
  - Proposed arrangement to enter into effect after current arrangement expires at end of January 2012, with semi-annual reviews.
- Program monitoring:
  - evaluated based on performance criteria at end-March 2012 and end-September 2012, continuous PCs, and indicative targets for end-June 2012 and end-December 2012 (MEFP, Table I.2);
  - structural benchmarks in critical areas for program success (MEFP, Table I.4);
  - PCs and indicative targets defined in the Technical Memorandum of Understanding (TMU).
- Burundi’s capacity to repay the Fund considered adequate; risk of debt distress assessed as high due to narrow export base, yet outstanding and prospective obligations to the Fund do not pose apparent solvency or liquidity risks when measured relative to official reserves or exports of goods and services (Table 6).
- Nonconcessional borrowing:
  - Ceiling on nonconcessional borrowing raised on an exceptional basis in 2011 to accommodate a key infrastructure investment.
  - On October 21, the IMF Executive Board approved modification allowing the government to ratify a loan with a grant element of about 32 percent for construction of a hydroelectric plant.
  - Staff emphasized continued reliance on grants and highly concessional loans and inclusion of the electricity company in coverage of external debt.
- Program risks:
  - Internal risks: potential slippages in the security situation; failure to implement program reforms.
  - External risks: worsening global environment; uncertainty in donor flows; supply shocks leading to higher oil prices.
  - In case of shortfalls in budget support, further fiscal consolidation and reprioritization of spending would be warranted.

*Source: _cr1228 - 14.      Over the medium-term, progress in revenue mobilization will be a key priority*

### Box 3: Revision of Burundi’s 2005–08 National Accounts

### Box 3: Revision of Burundi’s 2005–08 National Accounts

### Background
- Production of reliable GDP statistics was interrupted by the civil conflict; GDP levels were estimated based on 1998 estimates and revised annually based on the UN’s System of National Accounts 1993.
- The revision of the accounts for the 2005–08 period was carried out with technical assistance by the African Development Bank.

### Main revisions and implications
- Nominal GDP was revised upward by about 36 percent over 2005–08.
- Implication: the IMF Country Report 11/199 was rebased on authorities' revision of GDP for the 2005–08 period and rebased GDP deflator on 2005 expenditure composition (as noted in tables and memorandum items).

### Planned follow-up and methodological improvements
- In 2012, the national statistical agency (ISTEBU) plans to:
  - Release revised GDP figures for 2009 and 2010.
  - Review the composition of the CPI based on a household survey.
    - The household survey will enable ISTEBU to rebase its CPI on a more current consumption basket.
    - The survey will enable ISTEBU to extend the geographical coverage of the CPI basket.

*Source: IMF staff report excerpt – Box 3: Revision of Burundi’s 2005–08 National Accounts*

### 2.      The government has just completed implementation of the second three-year arrangement

### 2.      The government has just completed implementation of the second three-year arrangement (2008–11) supported by the Extended Credit Facility

### Program request and financing
- The government requests completion of the seventh review and the eighth and final ECF disbursement of an amount equivalent to SDR 5.0 million.
- The government requests IMF financial support under the Extended Credit Facility for an amount of SDR 30 million, equivalent to 39 percent of its quota, with a first disbursement of SDR 1 million on approval of the program by the IMF Executive Board.
- The attached documents: Memorandum on Economic and Financial Policies (MEFP) and Technical Memorandum of Understanding (TMU).

### Macroeconomic context and objectives of the 2012–14 program
- External environment described as unfavorable: global economic crisis and rising food and energy prices; additional uncertainty from the sovereign debt crisis in the euro zone.
- The 2012–14 program aims to:
  - further improve fiscal revenue collection;
  - strengthen fiscal management and develop a debt management policy;
  - allow greater exchange rate flexibility.
- The program will also help to improve the business climate and strengthen structural reforms in the medium term to increase competitiveness.
- Priorities are consistent with the new second-generation Poverty Reduction and Growth Strategy Paper (PRSP-II).

### Recent economic developments (highlights)
- Economic growth projected at 4.2 percent in 2011.
- Consumer prices: growth in the overall index of consumer prices estimated at 13.3 percent at end-October, and could reach 14.3 percent at year-end.
- Monetary conditions: much weaker broad money growth due to a sharp fall in net foreign assets; Central Bank raised the interest rate on the marginal lending facility and stands ready to further tighten policy if needed.
- Fiscal revenues: revenue collected at end-September 2011 grew by around 34 percent at end-October (compared with the same period in 2010).
- Wage bill: expected to stand at BIF 278.6 billion compared with a budget forecast of BIF 272.8 billion, including repayment of salary arrears.
- Domestically funded capital expenditure: BIF 97 billion, i.e. 76 percent of the rate of execution.
- External sector:
  - Current account balance estimated at 12.5 percent of GDP.
  - Burundian franc depreciation of 3.8 percent since the start of the year.
  - Official reserves fallen to 4.4 months of imports.

### Program implementation results (end-2011)
- Overall implementation of the program described as satisfactory.
- All quantitative performance criteria at end-September were met.
- Specific compliance:
  - The government has not contracted or guaranteed long-term external debt on nonconcessional terms; nor contracted or guaranteed short-term external debt.
  - All programmed structural benchmarks were achieved.
- Notable debt-related note: modification of the zero cap on nonconcessional external debt to ratify the loan from EXIM Bank of India (US$80 million) for the Kabu 16 hydroelectric plant; the loan has a grant element of 31.6 percent.

### Public financial management and revenue administration
- Draft Decree on the General Regulation on Public Budget Management signed by the President of the Republic.
- Budget guidelines for the 2012 Budget Law prepared in line with a medium-term expenditure framework (MTEF) over three years.
- Donor-financed basket fund (BF) created in the education sector.
- Customs and revenue measures: taxpayer awareness campaign; simplified customs clearance procedures; petroleum product import controls at SEP and INTERPETROL; expansion of ASYCUDA++; planned installation of RADDEX for EAC-level customs accounting.
- Burundi Revenue Authority (BRA) operational; tax on transactions replaced by VAT; unique tax identification number in general use; computerization of BRA operations under way.

### Structural reforms and financial sector
- Business climate reforms yielded improvement in "Doing Business" ranking from 177th to 169th (gain of 8 positions between "Doing Business 2011" and "Doing Business 2012").
- Central Bank actions:
  - Introduced repo operations in April 2011.
  - Prepared a draft law on the payment system to ensure finality and protection of compensation rights and financial guarantees.
  - Plans to modernize payment system: RTGS and electronic clearing.
  - Preparation of the Financial Market Development Plan continuing with partner support.
- Bank supervision and regulation:
  - IMF technical assistance to train inspectors in risk-based supervision; draft banking law prepared.
  - Draft regulation on remote banking and money transfers by mobile phone drawn up.
  - Revision of decree governing microfinance activities in progress.
  - Commercial banks submitting simulated financial statements using IFRS as of end-December 2011; final migration to IFRS reporting scheduled for June 2012.
  - All commercial banks and financial institutions in compliance with the minimum capital requirement of 10 billion and 6 billion, respectively.

### Lessons learned
- Two PRGF/ECF three-year arrangements implemented satisfactorily since the end of the conflict, contributing to reviving economic activity, improving economic governance, consolidating peace, and reducing poverty.
- Macroeconomic stability largely maintained despite external shocks; GDP per capita downward trend reversed.
- Unpredictability and timing of budget support from development partners caused cash-flow difficulties in budget execution; recent donor shifts toward project grants may exacerbate this issue.
- Significant progress in public financial management: adoption and implementation of the 2008 organic budget law; strengthened Integrated Public Financial Management System; implementation of single treasury account; adoption of a new public procurement code; introduction of a new economic classification in the 2010 budget.
- Revenue administration modernization yielded a sharp increase in revenue collection.

### Challenges
- Growth insufficient: GDP growth rate "barely above 4 percent"; wealth creation insufficient to significantly reduce poverty, estimated at 67 percent of the population.
- Primary sector growth modest despite employing more than 97 percent of the population.
- Inflationary pressures controlled but prices remain relatively high due to external shocks.
- Unpredictability of external aid complicates public financial management; need to advocate reforms for more effective public spending—harmonization of strategic choices, program approach, use of MTEF, and stronger monitoring and evaluation.
- Opportunity and requirements from EAC accession:
  - Accession offers access to a larger market and solutions to landlocked and small-economy constraints.
  - To benefit, government will continue reforms to respect EAC convergence criteria and improve business climate by simplifying taxation and regulation.
- Central Bank modernization and supervision reforms ongoing; implementation of recommendations from the 2008 safeguards assessment continuing.

*Memorandum on Economic and Financial Policies (MEFP), Bujumbura, December 19, 2011.*

### 22.      In the wake of the euro zone's economic and financial crisis, Burundi is faced with a

### 22.      In the wake of the euro zone's economic and financial crisis, Burundi is faced with a

### Program objectives and fiscal strategy
- The new economic and financial program (2012-14) aims at: (i) further improving fiscal revenue collection; (ii) strengthening public financial management and developing a debt management policy; (iii) permitting greater exchange rate flexibility; and (iv) improving the business climate.
- Actions seek to consolidate gains in macroeconomic stability from previous programs and to assist the government to continue its poverty reduction policy within the PRSP-II, preparation of which is expected to be completed by end-2011.
- The government intends to strengthen capacity to mobilize domestic resources and control expenditure given vulnerability from heavy reliance on external aid and its unpredictable disbursement.

### Growth, inflation, and external sector outlook
- Economic growth is projected to reach 6.0 percent in 2014, supported by improved productivity, diversification of agricultural activity, and increased investment in the electricity and tourism sectors.
- Slower inflation should bring price rises down to single figures as a result of a prudent demand policy.
- Exports of coffee and other agricultural products should increase strongly and offset the expected increase in imports, in particular petroleum products.
- The external current account deficit is expected to improve and stand at 9.1 percent of GDP in 2014.
- Downside risks: security situation; external environment with high petroleum products prices (likely to persist) affecting inflation and budget execution; euro zone crisis increasing uncertainties around budget support.

### Fiscal revenue and expenditure targets
- Tax revenues should increase from 14.4 percent of GDP in 2011 to around 15.6 percent of GDP in the medium term via: expansion of the tax base, reinforcement of tax and customs authorities, control of exemptions, and anti-evasion measures.
- The government plans to contain or even reduce current expenditure in proportion to GDP to create fiscal space for improving the composition of government expenditure in favor of infrastructure and social expenditure.
- Total revenue (excluding grants) is projected to be 16.2 of GDP in 2012, an increase of 0.7 of GDP compared with 2011.
- Total expenditure will represent approximately 35.6 of GDP, or BIF 1198.1 billion.
- Overall deficit projected to be 3.5 percent of GDP in 2012.
- Budget support should be down to 2.6 percent of GDP in 2012, which is half of what was forecast in 2011.

### Exchange rate and monetary operations
- The government plans a more flexible exchange rate policy combined with prudent fiscal and monetary policies to limit global crisis effects.
- The central bank, with IMF staff, will strengthen foreign exchange operations by calculating a daily reference exchange rate and shifting from daily uniform price auctions of foreign currency–symmetrical foreign exchange auctions market (MESD)–to bi-weekly uniform price foreign exchange auctions.

### Public debt management and borrowing policy
- Government intends to build debt management capacities within the Ministry of Finance and Economic Development and Planning with technical and financial assistance from development partners.
- Envisages creation of a high level committee to coordinate public debt management with macroeconomic objectives.
- Will undertake a capacity assessment of debt management in cooperation with the World Bank (DeMPA) and develop an action plan following the evaluation.
- Financing of needs to be in the form of grants or external debt on highly concessional terms (a grant element of at least 50 percent).
- Government plans to contain the volume of debt within limits compatible with repayment capacity.
- Requests for special exemptions on external loans deviating from 50 percent concessionality would be subject to prior IMF approval.
- For internal debt, the government will reinforce coordination between monetary and fiscal policy and use the treasury cash flow plan as the main tool in active treasury management.

### 2012 macroeconomic projections and reserves
- During 2012, growth should accelerate to 4.8 percent with a slightly declining—albeit relatively high—inflation rate.
- The external current account deficit may increase due to higher imports of petroleum products for thermal electricity production under the Pivotech project.
- Official reserves are expected to stabilize at around 4.5 months’ imports.

### Revenue measures and tax reforms for 2012
- Revenue measures include consolidation of administrative reforms, anti-evasion measures, expansion of the tax base, and control of exemptions.
- Specific initiatives: Income Tax law to eliminate inconsistencies between exemptions under the Tax Code and those under the Investment Code; stabilization of taxation on petroleum products; revision of the Excise Duties Code; creation of a one-stop shop at the border with Tanzania to facilitate movement of goods.
- Government will take all measures to contain expenditure within the budgetary ceiling; current expenditure to be kept under control and capital expenditure cut sharply owing to the steep fall in budget support.

### Governance, social sector, and public services
- National Strategy on Good Governance and Combating Corruption adopted on October 20, 2011, with objectives: (i) establish a culture of accountability; (ii) improve transparency in government management; (iii) strengthen the rule of law; and (iv) improve government performance. Implementation requires technical and financial donor support.
- INTERPETROL: case before the Supreme Court; BIF 6 billion belonging to INTERPETROL, taken as security, will remain in escrow with the central bank.
- Health sector: continuation of free health care for children under 5 and care for women in childbirth; build additional infrastructure and recruit medical staff.
- Education sector: continuation of free primary schooling; build classrooms and recruit teachers to reduce pupil-to-teacher ratio.
- Agriculture: national investment plan for agriculture and livestock adopted in 2011 with strategic priorities: (i) sustainable increase in production and food security; (ii) professionalization of producers and promotion of innovation; (iii) development of agri-business subsectors, including livestock and fisheries; and (iv) institution-building.
- Tourism: National Strategy for the Sustainable Development of Tourism adopted to promote the sector, attract private investors, identify and develop tourist sites, reorganize tours, and promote partnerships with tour operators. Privatization of Novotel Hotel and concession award for the Source du Nil Hotel noted.

### Structural reforms and public financial management
- Continued reform of public financial management following the Decree on the General Regulation on Public Budget Management with implementing regulations to be introduced.
- Planned measures include adoption of Decree on fiscal governance, presentation and implementation of the 2012 Budget Law in accordance with the new budget nomenclature, order on expenditure commitment comptrollers, and preparation of a manual for them with trial deployment in two pilot ministries at end-September 2012.
- The government will examine creation of basket funds in other sectors (health and statistics) with development partners to limit effects of reduction in budget support.

### Financial sector and inclusion reforms
- Ministry of Finance and central bank to set up a unit to coordinate and monitor the financial sector strategy and action plan with functions: monitor and evaluate implementation using performance indicators; serve as interface for stakeholders and donors; support mobilization of resources; launch information campaigns. Supervision by a steering committee.
- Central bank continuing projects to computerize and modernize payments system.
- National survey on financial inclusion planned to assess demand for financial services, satisfaction, and to design strategies to expand access for the poor.

### Sector-specific reforms: coffee and energy
- Coffee sector: relaunch washing station privatization program; ensure coffee growers can purchase reserved shares (25 percent of capital); draft call for tenders for sale of remaining 104 washing stations launched; private sector to play leading role.
- Energy sector strategy: two-pronged approach to address electricity shortages and distribution network deficiencies:
  - Improve REGIDESO financial situation by increasing electricity prices and guaranteeing transparency in pricing; extend prepaid system to all 45,000 customers including public sector; reforms supported by World Bank under a performance plan.
  - Increase production capacity by promoting private operators via public-private partnerships; government guaranteed contract for REGIDESO to purchase electricity with PIVOTECH and raised a loan from EXIMBANK of India for hydroelectric dam (Kabu 16) to be managed by REGIDESO.
- To limit fiscal risks from PIVOTECH and Kabu 16:
  - REGIDESO will regularly replenish a dedicated payment account sufficient to cover invoices from PIVOTECH.
  - Concessionality requirement of any new debt should be extended to REGIDESO to account for potential budget risks from the electricity sector.
  - Continue implementation of the performance plan in the REGIDESO reorganization and recapitalization program supported by the World Bank.

### Petroleum supply and pricing
- Government adopted an automatic pricing mechanism based on a formula agreed with sector partners to avoid supply disruptions and price surges.
- Implementation difficulties due to volatility of world prices and delays in updating some parameters of the formula; government plans to review these questions with all parties, including development partners.

### Legal, regulatory, and business climate reforms
- Recent progress in legal/regulatory framework:
  - Promulgation of the new Code governing private and semi-public companies in May 2011.
  - Preparation of the Law on bankruptcy and bankruptcy protection for companies in distress.
  - Preparation of 10 draft implementing provisions.
  - Preparation of a decree implementing the Competition Law.
  - Setting up an Advisory Committee to update the Law on the free trade zone to comply with EAC regulations.
  - Forwarding to the Senate the draft law amending Law 1/03 of February 19, 2009 organizing privatization of semi-public companies, services and works.
- Business climate improvements: reduction in procedures and the number of days needed to start a business and grant a construction permit.
- Government plans to: (i) support entrepreneurship, particularly for young people and women; (ii) continue modernization of legal framework and business law and harmonize tax legislation with EAC members; and (iii) launch public-private partnerships.

### Growth and Poverty Reduction Strategy Paper (PRSP)
- PRSP builds on PRSP-I results and consultations in first half of 2011; aims to consolidate peace and revive economic growth to create jobs and incomes, especially for youth.
- New strategy addresses: (i) demographic pressure on resources; (ii) inefficiency of agricultural production systems; (iii) need to improve performance of public expenditure, including aid; (iv) weak private sector development; (v) persistent energy deficits; and (vi) limited capacity to steer development.
- PRSP strategic pillars:
  - Strengthening of the Rule of Law, Consolidation of Good Governance, and Promotion of Gender Equality;
  - Transformation of the Burundian Economy to Achieve Growth that is Strong and Creates Jobs;
  - Improvement in the Accessibility and Quality of Basic Services and Strengthening of National Solidarity; and
  - Management of Land and the Environment in Harmony with Sustainable Development.
- Draft document has taken development partners' comments into account; preparations for the macroeconomic framework and the medium-term expenditure framework are under way. Debriefing in the Policy Forum and forwarding to the Bretton Woods institutions could take place before end-2011.

*IMF staff report content (text as provided).*

### 46.      The statistical system is one of the weak links in the Burundian economic

### _cr1228 - 46.      The statistical system is one of the weak links in the Burundian economic

### Statistical system and reforms
- The statistical system is identified as "one of the weak links in the Burundian economic development program."
- Government actions:
  - Developed a National Statistics Development Strategy covering the period 2010-2014.
  - Set up a national statistical data council chaired by the second Vice-President.
  - Plans to rectify financial and organizational problems affecting ISTEEBU and to improve the collection and dissemination of statistical data.
  - Plans to reinforce statistical services of sectoral ministries and establish close cooperation with development partners to obtain financial and technical support for reform implementation.

### Program monitoring framework
- The program supported by the Extended Credit Facility (ECF) will be monitored using:
  - Performance criteria (quantitative performance criteria).
  - Indicative targets.
  - Structural benchmarks (see Tables I.2 and I.4 referenced).
- Reporting and definitions: information to be reported to the IMF and definitions of relevant variables are in the attached Technical Memorandum of Understanding (TMU).
- Program implementation, achievement of targets, and attainment of performance criteria to be examined during the first review.
- Government commits to adopt any new financial or structural measures necessary to ensure program success, in consultation with IMF staff.

### Quantitative performance criteria (as defined in TMU)
- Performance criteria listed in the program:
  - net foreign assets of the BRB (floor);
  - net domestic assets of the BRB (ceiling);
  - net domestic financing of the government (ceiling);
  - external payment arrears of the government (ceiling, continuous);
  - stock of short-term external debt (maturity of less than one year) of the government and the BRB (ceiling, continuous);
  - new nonconcessional medium- and long-term external debt contracted or guaranteed by the government or the BRB (ceiling, continuous).

### Quantitative indicative targets (as defined in TMU)
- Indicative targets listed in the program:
  - accumulation of domestic arrears (ceiling);
  - pro-poor spending (floor);
  - reserve money (ceiling).

### Key definitions and measurement rules (selected)
- Net foreign assets of the BRB:
  - Defined as the difference between (i) gross official reserves (valued at market prices) and other claims; and (ii) foreign exchange liabilities to nonresident entities (including the use of Fund resources, and liabilities arising from the use of any SDR allocation).
  - Gross official reserves are those foreign assets that are liquid and freely available to the BRB.
- Net domestic assets of the BRB:
  - Defined as the difference between (i) reserve money (currency in circulation, reserves of commercial banks, and other deposits held at the BRB) and (ii) net foreign assets of the BRB.
- Net domestic financing of the government:
  - Defined as the change in (i) outstanding loans, advances, and other credit to the government from the BRB and all of Burundi’s commercial banks; (ii) plus the 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 in Burundi’s commercial banks.
  - 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.
- External payment arrears:
  - Defined as end-of-period amount of external debt service due and not paid within the creditor-defined grace period, including contractual and late interest, for which a clearance agreement is not in place or for which arrears are not reschedulable. Amounts in dispute are not considered arrears.
- New nonconcessional external debt:
  - Applies to contracting or guaranteeing by government, local governments, the BRB and REGIDESO of new nonconcessional external debt with original maturity of one year or more, including commitments contracted or guaranteed for which value has not been received (including leases).
  - Concessional debt defined as having a grant element of 50 percent or more.
  - For concessionality calculations, discount rates: 10-year average CIRRs for loans with maturity at least 15 years; 6-month average CIRRs for shorter maturities; 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; and 1.25 percent for 30 years or more.
  - Exclusions: rescheduling arrangements, borrowings from the IMF, and any Burundi franc-denominated treasury securities held by nonresidents.
  - A ceiling of US$ 80 million is set forth in Table I.2 and is to be used exclusively for the line of credit contracted by the government of Burundi with the Export Import Bank of India for the financing of the Kabu 16 hydroelectric plant.
- Short-term external debt:
  - Performance criterion requires the stock of short-term external debt (maturity less than one year) owed by the government to remain at zero under the program.
  - Normal import credits are excluded from this ceiling.
- Pro-poor spending:
  - Definition based on three criteria: (i) social character of spending (administrative classification, includes “social services” and parts of “general services” and “economic services” with social component); (ii) consistency with one of the four PRSP pillars; and (iii) pro-poor investment spending, financed by donors.
- Accumulation of domestic arrears:
  - Measured by accumulation of non-executed payment orders older than 60 days.

### Adjusters for external financial assistance and compulsory reserves
- Compulsory reserves adjuster:
  - The ceiling on net domestic assets of the BRB will be adjusted symmetrically for any change in the compulsory reserves coefficient applied to deposits in commercial banks by the amount of the new coefficient minus that stipulated in the program, multiplied by bank deposits subject to compulsory reserves.
  - The rate stipulated in the program is currently 3 percent.
- External financial assistance adjustors:
  - Financing excess up to US$40 million: may be spent on PRSP expenditure priorities; the floor on the stock of net foreign assets of the BRB will be adjusted upward, and the ceilings on net domestic assets of the BRB and on net domestic financing to the government will be adjusted downward to accommodate 100 percent of any financing excess above US$40 million.
  - Financing shortfall up to a maximum of US$40 million: the floor on the stock of net foreign assets of the BRB will be adjusted downward, and the ceilings on net domestic assets of the BRB and on net domestic financing to the government will be adjusted upward to accommodate the shortfall.
  - External financial assistance will be converted to Burundi francs using the program-specified BIF/US$ exchange rate: program exchange rate for end-December 2011 is 1307.0 and at end-March 2012 is 1311.8.
- Definition of external financial assistance (measured in US$):
  - (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);
  - plus (ii) debt relief on current maturities;
  - minus (iii) any cash payments for external arrears clearance operations.
  - Donor disbursements into blocked accounts for the purpose of clearing arrears will not be considered foreign assistance for program monitoring purposes.

### Structural benchmarks (selected highlights)
- 2011 benchmarks (examples and status):
  - Approval by the cabinet of the general regulation on public budget management (RGGFP): target March 31, 2011 — Met with delay.
  - Prepare and adopt procedures for the expenditure commitment comptrollers consistent with the RGGFP: target November 30, 2011 — Met.
  - Adoption by the cabinet of the financial sector reform strategy: target March 31, 2011 — Met with delay.
  - Recruit an international auditor to monitor implementation of Deloitte's 2010 special audit recommendations and verify controls on significant domestic disbursements and transfers executed by the Central Bank on behalf of the government during the first half of 2011: target June 30, 2011 — Met with delay.
  - Submit report on special audits of controls on important domestic disbursements and transfers that took place in the first half of 2011: target November 30, 2011 — Met.
- 2012 benchmarks (selected):
  - Adopt decree on budget governance: target June 30, 2012 — rationale: will facilitate realigning current regulation with organic law.
  - Deploy expenditure commitment controllers in the ministries of health and agriculture: target September 30, 2012 — rationale: improve budget discipline in line ministries.
  - Approve plan for reorganization of Ministry of Finance and Plan: target September 30, 2012 — rationale: current allocation of administrative resources is not well-suited for medium-term reforms included in the budget organic law.
  - Prepare report quantifying foregone revenue by tax exemptions and identifying legal texts for removal of exemptions to align with Fund TA: target September 30, 2012 — rationale: quantify fiscal cost of tax exemptions and align tax exemptions with other EAC countries.
  - Undertake an assessment of debt management by the World Bank and develop an action plan to improve capacity: target September 30, 2012.
  - Central Bank and Treasury safeguard measures: recruit an international auditor to monitor implementation of recommendations in GPO Deloitte’s 2011 special audit report and verify controls on significant domestic disbursements and transfers for period July 2011 through March 2012, and evaluate implementation of the new decree on management of public expenditures: target March 31, 2012.
  - Submit report on special audits for period July 2011 through March 2012: target June 30, 2012.

### Reporting requirements to IMF staff (selected)
- Authorities will prepare and forward to the IMF African Department a monthly progress report on the program, within six weeks of the end of each month, containing weekly data including:
  - foreign exchange auction market (MESD) transactions;
  - the balance sheet of the BRB (weekly statement) (BRB Research Department).

*Source: Burundi authorities; IMF staff estimates and projections; Technical Memorandum of Understanding (Attachment II), Bujumbura, November 23, 2011.*

### 18.      The following monthly data, with a maximum lag of six weeks:

### 18. The following monthly data, with a maximum lag of six weeks

### Monthly reporting requirements
- A monitoring table (tableau de bord) containing the most recent weekly and monthly data on the main financial indicators (REFES).
- A table on foreign exchange cash flow (BRB Foreign Banking Operations Department).
- The monetary survey, including the breakdown of the BRB and of commercial banks (BRB Research Department).
- Monthly exchange-rate data (official and parallel markets, end-of-month and monthly average) (BRB Research Department).
- A detailed breakdown of government revenue (Ministry of Finance).
- A detailed breakdown of government expenditure on a commitment basis, including pro-poor spending (Ministry of Finance).
- A detailed breakdown of the servicing of domestic and external public debt, including amounts due and paid, on interest and principal, as well as the breakdown by creditor and any accumulation of arrears on domestic or external debt (Ministry of Finance).
- A detailed breakdown of the stock of domestic payment arrears for the current fiscal year (Ministry of Finance).
- The amount of new debts contracted or guaranteed by the government, including detailed information on the terms (such as 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 (Ministry of Finance).
- An update on the implementation of structural measures planned under the program (REFES).

### Quarterly reporting requirement
- Progress reports on the BRB’s internal reforms, including each unit’s action plans for the coming month (Reform Monitoring Committee, BRB), with a maximum lag of six weeks.

### Additional information provision
- SP/REFES/Ministry of Finance and BRB will also provide the IMF African Department with any information that is deemed necessary to ensure effective monitoring of the program.

---

### Burundi: Relations with the Fund (As of October 31, 2011)

### Membership and accounts
- Membership status: Joined: September 28, 1963; Article XIV.
- Quota: 77.00 (SDR Million) — 100.00 percent of quota.
- Fund holdings of currency (Exchange Rate): 76.64 (SDR Million) — 99.53 percent of quota.
- Reserve Tranche Position: 0.36 (SDR Million) — 0.47 percent of quota.
- SDR Department net cumulative allocation: 73.85 (SDR Million) — 100.00 percent allocation.
- SDR Department holdings: 85.00 (SDR Million) — 115.10 percent.

### Outstanding purchases and loans
- ECF Arrangements outstanding: 82.96 (SDR Million) — 107.74 percent of quota.

### Latest financial arrangements (dates and amounts)
- ECF: Jul 07, 2008 — Jan 31, 2012 — Amount Approved (SDR Million) 51.20 — Amount Drawn (SDR Million) 46.20.
- ECF: Jan 23, 2004 — Jan 22, 2008 — Amount Approved (SDR Million) 69.30 — Amount Drawn (SDR Million) 69.30.
- ECF: Nov 13, 1991 — Nov 12, 1994 — Amount Approved (SDR Million) 42.70 — Amount Drawn (SDR Million) 17.21.
- Note: Formerly PRGF.

### Projected payments to Fund (SDR Million; based on existing use of resources and present holdings of SDRs)
- Forthcoming 2011 Principal: 5.01; Charges/Interest: 0.20; Total: 5.21.
- Forthcoming 2012 Principal: 6.73; Charges/Interest: 0.19; Total: 6.92.
- Forthcoming 2013 Principal: 10.56; Charges/Interest: 0.16; Total: 10.72.
- Forthcoming 2014 Principal: 12.49; Charges/Interest: 0.13; Total: 12.62.
- Note: When a member has overdue financial obligations outstanding for more than three months, the amount of such arrears will be shown in this section.

### Safeguards assessments
- Update assessment of the Banque de la République du Burundi (BRB) completed in June 2008.
- Findings: certain safeguards strengthened (e.g., external audits timelier; audited financial statements comply with IFRS and are published).
- Identified significant control weaknesses; recommended more robust controls over domestic disbursements to the government and its creditors, including contracting an external auditor to review such controls (Prior Actions for the approval of the arrangement).
- Other recommendations: system to monitor audit and safeguards recommendations; issuing guidelines for investment operations.
- Authorities have taken steps to implement these recommendations.

### Exchange arrangements
- De jure arrangement: floating.
- De facto arrangement: stabilized arrangement against the dollar.
- Intervention currency: US dollar.
- Official exchange rate on September 30, 2011: BIF 1271.7 to the US dollar.
- Historical and regulatory notes:
  - 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 weekly auctions.
  - Most external arrears to bilateral and multilateral creditors cleared by end-2005.
  - December 2006: Foreign Exchange Regulation of 2006 liberalized access to foreign exchange for current transactions and removed one multiple currency practice.
  - June 2010: Exchange Regulation of 2010 replaced the 2006 regulation; became operational in July 2010.
- Burundi availed itself of transitional arrangements of Article XIV since joining in 1962 but no longer maintains exchange restrictions or multiple currency practices that relate to that article.
- One multiple currency practice inconsistent with Article VIII, Section 2(a): the exchange rate used for government transactions differ by more than 2 percent from market exchange rates.
- Burundi maintains certain foreign exchange restrictions for security reasons and has notified the Fund pursuant to Decision 144-(52/51).
- Burundi modified the 2010 foreign exchange regulation on March 3, 2011; consequently the two foreign exchange restrictions mentioned in Country Report No. 11/104 relating to (i) a tax clearance requirement for certain current international transactions and (ii) limitations on availability of foreign exchange for payments and transfers for current international transactions based on noncompliance with unrelated obligations are no longer in place.

### Article IV Consultation
- Burundi is on the 24-month Article IV cycle in accordance with Decision No. 14747-(10/96), adopted September 28, 2010.
- The 2008 Article IV consultation was completed by the Executive Board on July 23, 2010 (IMF Country Report No. 10/313), along with the fourth review of the ECF arrangement.
- Executive Directors’ concluding views (2010):
  - Acknowledged commendable progress implementing first ECF-supported program in a difficult postconflict environment.
  - Fiscal sustainability given heavy debt burden depends on broadening the revenue base and improving composition of spending while financing the budget through grants and highly concessional external resources.
  - Encouraged continued efforts to reform the financial sector by improving banking supervision and addressing weaknesses, notably concentration risk.
  - Saw need to accelerate structural reforms, especially in the coffee sector.
  - Welcomed Burundi’s membership in the East African Community.

### Technical assistance (selected missions and dates)
- December 2011 AFRITAC mission on PFM reform.
- October 2011 AFRITAC mission on PFM reform.
- July 2011 STA mission on Balance of Payments statistics.
- March 2011 FAD mission on implementing the organic budget law.
- January 2011 MCM mission on Foreign exchange operations.
- September 2010 FAD mission on implementing the organic budget law.
- November 2010 MCM mission on monetary operations.
- April 2010 MCM mission on monetary operations.
- November 2009 AFRITAC mission on VAT implementation.
- June 2009 MCM multitopic mission.
- March 2009 MCM mission on monetary operations; MCM mission on foreign exchange; MCM mission on internal audit; MCM mission on reserve management.
- February 2009 AFRITAC mission on banking regulation and supervision; February 2009 FAD PSIA mission on fuel pricing policy and social protection.
- January 2009 MCM FSAP mission.
- December 2008 AFRITAC mission on fiscal administration; December 2008 MCM multitopic mission; December 2008 MCM mission on internal audit.
- August 2008 MCM mission on organizational, human resources, and communication reforms.
- July 2008 MCM mission on foreign exchange.
- June 2008 AFRITAC mission on banking regulation and supervision.
- Oct 2008 FAD mission for installation of a PFM resident advisor.
- December 2007 AFRITAC statistics mission on national accounts and consumer price index.
- November/December 2007 STA monetary and financial statistics mission.
- November 2007 AFRITAC mission on building capacity in banking supervision.
- November 2007 FAD Tax policy mission.
- November 2007 STA monetary statistics mission.
- September 2007 MCM multitopic mission.
- September 2007 AFRITAC mission on tax revenue administration.
- September 2007 AFRITAC mission on building the capacity of the central bank.
- September 2007 FAD public financial management mission.
- July 2007 AFRITAC PFM mission on payroll control.
- June 2007 AFRITAC PFM mission on treasury operation and control.
- June 2007 MCM technical assistance mission.
- June 2007 AFRITAC mission on building debt management capacity.
- March 2007 FAD resident expert on public accounting.
- December 2006 FAD public expenditure management mission.
- November 2006 MCM banking supervision mission.
- September 2006 FAD customs and tax administration mission.
- April 2006 MCM foreign exchange reserve management mission.
- March 2006 STA mission to prepare the metadata and medium-term action plan.
- March 2006 MCM/LEG joint Article VIII mission.
- January 2006 LEG AML/CFT legislative drafting mission.

### Implementation of HIPC Initiative (Enhanced)
- Commitment of HIPC assistance framework:
  - Decision point date: Aug 2005.
  - Assistance committed by all creditors (US$ million): 832.6.
  - Of which: IMF assistance (US$ million): 27.87.
  - (SDR equivalent in millions): 19.28.
  - Completion point date: Jan. 2009.
- Disbursement of IMF assistance (SDR million):
  - Assistance disbursed to the member: 19.28.
  - Interim assistance: 0.26.
  - Completion point balance: 19.02.
  - Additional disbursement of interest income: 3.07.
  - Total disbursements: 22.35.
- Notes:
  - Assistance committed under the original framework expressed in NPV terms at the completion point; under the enhanced framework expressed in NPV terms at the decision point. Hence the two amounts cannot be added.
  - 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.

### Resident Representative
- A part-time resident representative took up the post in Oct 2005 and an office with an administrative assistant opened in January 2006 in Bujumbura.
- Mr. Koffi Yao has been the resident representative since January 2010.

---

### II. Burundi: Joint World Bank–IMF Work Program, 2011–13 (excerpt)

### Selected IMF and Bank products and timing (provisional)
- Bank work program entries include:
  - Public Expenditure Review — February 2012 (identification); June 2012 (Main mission).
  - Public Expenditure Review Policy Note — Dec. 2010 – Jan. 2011 (Identification); June 2011 (pre-appraisal); September 2011 (appraisal).
  - ERSG-5 (Budget support) — January-February 2012 (identification); April 2012 (pre-appraisal); May 2012 (appraisal).
  - ERSG-6 (Budget support) — November 2011 (Identification); May 2012 (main mission).
  - Diagnostic Trade Integration Study - Update (DTIS) — September 2012; May 2012; December 2011; August 2012; June 2012 (various mission phases noted).
- IMF work program: (heading present in source; detailed IMF entries appear in the complete program).

*Source: IMF staff report text as provided in the content unit.*

### 1.     Seventh     ECF

### _cr1228 - 1.     Seventh     ECF review

### III. BURUNDI: RELATIONS WITH THE AFRICAN DEVELOPMENT BANK GROUP (As of December 6, 2011)
- Membership and arrears history:
  - Burundi has been a member of the African Development Bank (AfDB) Group since 1964.
  - AfDB grant and loan operations were interrupted by civil strife in 1993.
  - PCCF initially funded with about SDR 100 million to assist postconflict arrears clearance.
  - AfDB approved arrears clearance proposal for Burundi on October 27, 2004.
- Debt relief and approvals:
  - On April 21, 2009, AfDB approved AfDB’s share of HIPC debt relief equivalent to USD 150,200,000 in Net Present Value (NPV) terms as of the end of 2004.
  - AfDB approved Burundi’s qualification for MDRI in an amount of US$ 15.38 million, (UA 10.48 million), in nominal terms.
- Country Strategy Paper (CSP) and operations:
  - CSP approved October 2008 covering 2008 to 2011 focusing on two pillars aligned with CSLP: (i) support to effective government (economic governance and public sector institutions), and (ii) increase employment opportunities via infrastructure and targeted agricultural interventions.
  - CSP Mid-Term Review and Country Portfolio Review presented to CODE on 30th of November 2010 and confirmed relevance of the pillars.
  - Bank Group intervenes in infrastructure (transport, water and sanitation, and energy), agriculture, governance and social sectors.
  - Ongoing portfolio comprises seven (7) national operations for a total UA 112.23 million.
    - Road sector accounts for 58.9% of the portfolio.
    - Social sector accounts for 17.7% of the portfolio.
  - Six (6) active multinational operations for UA 117.7 million, mostly in the road sector (70.1%).
  - The amount of 7 million UA for the fourth phase of Burundi’s “Programme d’Appui aux Réformes Economiques” (PARE IV) has been fully disbursed in 2011.
- 2012–2016 CSP and planned support:
  - 2012-2016 CSP to be presented to the Board on January 11th, 2012.
  - Proposed strategy: selectivity with two complementary pillars: (i) strengthening state institutions and (ii) infrastructure improvements to promote inclusive growth and development.
  - Planned support includes infrastructure projects (mainly transport and energy); a two-tranche GBS PARE V amounting of UA 12 million for the period 2012-2013; and capacity building.
- AfDB current operations and pipeline (amounts in million UA):
  - Agriculture:
    - Watershed Development Project 9.00
    - Lake Tanganyika Integrated Management Project 4.96
    - Bugesera PPF Studies 0.32
  - Energy:
    - Electricity Infrastructure Rehabilitation/ Expansion 7.32
  - Water and Sanitation:
    - Water Infrastructure Rehabilitation/ Expansion 12
  - Social Sector:
    - Multisector Reintegration Project 9.81
    - Employment Creation Project 10.00
    - Multi Sector Governance Structure Support Project 1.5
    - Economic Reform Support Programme III 10
  - Multinational:
    - Bugesera Multinational Project 15.02
    - Kicukiro (Rwanda) – Kirundo (Burundi) Road 14.9
    - Isaka-Kigali Railway Feasibility Study Phase II 0.57
    - Nyamitanga-Ntendezi-Mwityazo Road 49.38
    - NELSAP Interconnection 5.05
  - Totals:
    - Total (Public Sector only) 64.91
    - Total (Public and Multinational) 159.95

### IV. BURUNDI: STATISTICAL ISSUES (As of December 6, 2011)
- Assessment of data adequacy for surveillance:
  - General: Data provision has serious shortcomings that significantly hamper surveillance.
    - Most serious shortcomings affect national accounts, government finance, and balance of payments statistics.
    - Causes: insufficient funding, staffing shortages, lack of equipment, and coordination difficulties among responsible institutions.
- Real sector statistics:
  - Serious deficiencies hamper economic analysis and management.
  - National accounts:
    - Compiled infrequently by ISTEEBU.
    - Source data on agriculture (the most important economic activity) is inadequate.
    - High degree of uncertainty regarding estimates of level and growth rate of GDP, components of expenditure, and all ratios to GDP.
    - Annual national accounts estimates provided to the Fund are derived from a macroeconomic projection model and certain base year estimates for 1998 and 2005 (not compiled annually).
    - Since 2007 ISTEEBU has started improvements with AFRITAC assistance.
    - National accounts now established on the basis of SNA 1993 (partially) using ERETES software with 2005 as base year.
    - Compilation of GDP estimates for the years 2007 and 2008 is under progress.
    - Data on non-financial corporations is a major area of concern.
  - Prices and labor:
    - Monthly consumer price index uses expenditure weights from a 1991 household expenditure survey and covers only the capital city.
    - No producer price indices compiled.
    - Limited labor market statistics available.
- Government finance statistics:
  - Benefited from technical assistance by World Bank and Fiscal Affairs Department and STA training.
  - Weaknesses persist in coverage, accuracy, consistency, and timeliness.
  - Burundi accepted to participate in the GFS module under the Enhanced Data Dissemination Initiative – EDDI.
    - Main objective: improve quality and dissemination of fiscal statistics using GFSM 2001 guidelines.
    - Support consists mainly of a series of technical assistance missions over the next 3 to 5 years.
    - First mission scheduled April 2011.
- Monetary and financial statistics:
  - Compiled following IMF’s Monetary and Financial Statistics Manual (2000) and are broadly adequate.
  - Transactions with the IMF are reflected incorrectly—the amount of loans received from IMF differs from IMF records, misrepresenting foreign liabilities of the central bank; resolution pending.
  - Payment system causes one-day lags between central bank and ODC records affecting other items (net) (OIN) in the Depository Corporations survey.
  - Liabilities of three banks in liquidation are shown in the central bank balance sheet but not included in the summary of ODC data.
- External sector statistics:
  - Annual balance of payments and international investment position statistics compiled by BRB according to BPM5.
  - Severe coverage and measurement difficulties create high uncertainty.
    - Significant unrecorded imports and exports (particularly coffee and tea).
    - Accuracy of source data for services and income not routinely assessed against other sources.
    - Capital and financial account measurement relies on International Transaction Reporting System known to have incomplete coverage.
  - Further actions required to improve accuracy and reliability.
- Data Standards and Quality:
  - Burundi does not participate in the General Data Dissemination System (GDDS).
  - No data ROSC is available.
- Reporting to STA:
  - Summary government finance transactions data reported for IFS publication.
  - BRB completed migration to Standardized Report Forms for monetary statistics submission to the Fund; detailed monetary statistics published in IFS.
  - Balance of payments and international investment position data published in IFS and the Balance of Payments Yearbook.
- Table of Common Indicators Required for Surveillance (As of December 6, 2011) — selected entries:
  - Exchange Rates: Date of Latest Observation: Current; Date Received: Current; Frequency: D/M/M
  - International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Date of Latest Observation: Dec. 2010; Date Received: Oct 2011; Frequency: M
  - Reserve/Base Money: Nov. 2011; Date Received: Nov 2011; Frequency: M
  - Broad Money: Nov. 2011; Date Received: Nov 2011; Frequency: M
  - Central Bank Balance Sheet: Nov. 2010; Date Received: Nov 2011; Frequency: M
  - Consolidated Balance Sheet of the Banking System: Nov. 2010; Date Received: Nov 2011; Frequency: M
  - Interest Rates: Oct. 2011; Date Received: Nov 2011; Frequency: M
  - Consumer Price Index: Oct. 2011; Date Received: Oct. 2011; Frequency: M
  - Revenue, Expenditure, Balance and Composition of Financing—General Government: NA (frequency and reporting NA)
  - Revenue, Expenditure, Balance and Composition of Financing—Central Government: Nov. 2011; Date Received: Nov 2011; Frequency: Q
  - External Current Account Balance: 2010; Date Received: Nov2011; Frequency: A
  - Exports and Imports of Goods and Services: 2010; Date Received: Nov 2011; Frequency: M
  - GDP/GNP: 2008; Date Received: Nov 2011; Frequency: A
  - Gross External Debt: 2010; Date Received: Nov 2011; Frequency: M
  - International Investment Position: 2010; Date Received: Oct 2011; Frequency: A

### Joint IMF/World Bank Debt Sustainability Analysis 2011 — Key Findings and Background
- Overall assessment:
  - Given its narrow export base and low capacity of government institutions, Burundi’s risk of external debt distress remain high, unchanged from the 2010 debt sustainability assessment.
  - The present value (PV) of debt-to-exports ratio exceeds the policy dependent threshold in the medium-term.
  - Alternative scenarios and stress tests suggest that two debt indicators will breach indicative thresholds.
  - Public DSA suggests Burundi is in a position to service its public and publicly guaranteed debt, but lower growth would considerably deteriorate debt indicators.
  - Policy prescription: continue prudent borrowing policies and accelerate structural reforms for private sector led growth, particularly in infrastructure and export diversification, to mitigate risks to debt sustainability.
- Background and recent evolution:
  - 2010 LIC DSA concluded Burundi would continue to face a high risk of debt distress.
  - PV of debt-to-exports exceeded country-specific policy-dependent threshold by a wide margin throughout the projection period in 2010 DSA.
  - Under alternative scenarios and stress tests in 2010, all but one debt indicator exceeded country-specific debt burden thresholds.
- Policy performance:
  - Burundi is a weak policy performer under the DSF:
    - World Bank CPIA averaged 3.07 during 2008–10 (scale 1 to 6).
    - A score below 3.25 corresponds to poor policy performance under the LIC DSF.
- Stock of external public and publicly guaranteed (PPG) debt:
  - Declined significantly since 2008 due to HIPC and MDRI debt relief.
  - Nominal external PPG debt amounted to US$455 million or 22 percent of GDP in 2010.
  - PV of debt-to-exports ratio stood at 150.8 percent.
  - About 90 percent of outstanding nominal external PPG debt owed to multilateral creditors; bilateral creditors accounted for the remainder.
  - Efforts to secure HIPC Initiative debt relief from all creditors are continuing.
    - Agreements signed with BADEA, the EU, and the OFID Fund; negotiations ongoing with IFAD.
    - Among non-Paris Club creditors, agreements signed with Kuwait, Libya, Saudi Arabia and the UAE.
    - The People’s Republic of China cancelled all of its claims during the interim period.
    - Terms of some signed agreements were less favorable than those envisaged under the HIPC Initiative.
- Composition of public debt (2010 snapshot):
  - Total Debt: 1,518 (Millions of US dollars) — Percent of GDP: 98 — Percent of Total: 100.0
  - Multilateral: 1,313 — Percent of GDP: 84 — Percent of Total: 86.5
  - Bilateral: 205 — Percent of GDP: 13 — Percent of Total: 13.5
  - Paris club: 15 — Percent of GDP: 1 — Percent of Total: 1.0
  - Non-Paris club: 53 — Percent of GDP: 3 — Percent of Total: 3.5
  - Commercial: 0 — Percent of GDP: 0 — Percent of Total: 0.0
- Domestic debt:
  - About 40 percent of Burundi’s total public debt held by domestic creditors in 2010.
  - Domestic debt represented about 15 percent of GDP in 2010, up from 11.5 percent in 2008.
  - Main reason for increasing domestic debt share: cancellation of external public debt from HIPC and MDRI relief.
  - Most domestic public debt owed to the central bank and used to finance government treasury needs.
- Macroeconomic outlook context:
  - Inflation in 2010 was significantly below previously projected levels due to lower food and oil prices.
  - Fiscal deficit below initial projections due to improved revenue performance and donor support despite a rise in total public expenditure in an elections year.
  - External current account deficit narrowed less than expected due to negative terms of trade shock from lower coffee export prices; coffee accounts for about 70 percent of total exports.

*Source: _cr1228 - 1.     Seventh     ECF.*

### 6.      Provided the security situation continues

### 6.      Provided the security situation continues

### Medium- and long-term outlook
- Real GDP growth is expected to average 6.7 percent over the long term, contingent upon continued consolidation of peace and security, a stable macroeconomic environment, and steadfast implementation of structural reforms in areas including public sector governance, business environment, and leveraging Burundi’s integration to the East African Community (EAC).
- Total investment is expected to average about 18 percent of GDP over the medium-term.
- Fiscal policy will be supportive of economic growth and poverty reduction, while safeguarding debt sustainability. The fiscal deficit is expected to gradually decline during the later years.
- Revenue mobilization, reinforced by ongoing reforms being implemented by Burundi Revenue Authority, will lead to a gradual increase in government revenues, while expenditure will gradually decline to more sustainable levels.
- Exports of goods and services will be driven by investments in key export sectors over the medium term (coffee, tea, sugar, horticulture, and tourism).
- The external current account deficit, including grants, will decline over time, despite lower donor support. Financing will continue to be in the form of grants and highly concessional loans.

### Key macroeconomic outcomes (Text Table 2, 2009–10)
- Real GDP growth: 3.5 3.5 3.9 3.8
- Consumer prices (end of period): 4.6 4.6 8.0 4.1
- Revenue (excluding grants): 13.6    13.6 13.5 14.6
- Total expenditure and net lending: 28.8    32.2 36.5 37.3
- Overall balance (Cash basis, after non-HIPC grants): -3.8 -3.8 -3.7 -3.3
- Current account balance: -10.6  -11.5 -6.6 -9.9
- Gross official reserves, end of period (US$ million): 323.0  323.0 310.7   332.0
- Gross official reserves in months of imports of the following year: 6.5 5.0 6.0 4.8
- Sources: Burundian authorities and Fund staff estimates. (Annual percentage change)

### Investment priorities and structural reforms
- Investment spending critical to higher growth: infrastructure renovation (power, transport, communications) and export-generating activities (tourism, mining).
- Key short- to medium-term projects: development of domestic hydroelectric potential (Kaganuzi, Mpanda, Kabu 16) and provision of adequate power lines with necessary substations to all provincial capitals.
- Rehabilitation and maintenance of national highways and community and rural road networks to reduce infrastructure gap.
- Implement fundamental structural reforms to facilitate private investment, including improving the business regulatory environment and increasing competition.
- Potential for significant medium- and long-term growth if mining sector investments materialize.

### Rebasing of national accounts (Box 1)
- Rebased national accounts for 2005–08 adopted November 2011: improved data sources, base year change from 1986 to 2005, updated compilation methodologies (1993 UN System of National Accounts).
- Under new data, nominal national incomes revised up by an average of 36 percent during 2005–08.
- Average real growth rate for these years is about 1.5 percentage point higher than earlier estimated.
- Gross national income per capita is estimated to have reached US$ 245 in 2010.
- National account data for 2009 and 2010 is planned to be released in 2012.

### Main macroeconomic assumptions, 2011–31 (Box 2)
- Real GDP growth: expected to accelerate to 6 percent over the medium term; average growth over the projection period expected to be about 6.7 percent (compared with an average of 4.1 percent during 2008–10).
- Total investment: expected to average about 18 percent of GDP over the medium term.
- Inflation: assumed to decline gradually and stabilize at about 6 percent over the long term (in line with EAC convergence criterion).
- Primary deficit: expected to average 2.3 percent of GDP over the medium term and then decline by 1 percentage point over the longer term.
- Revenues, excluding grants: projected to stabilize at about 17 percent of GDP over the end of the projection period.
- Primary expenditure: expected to gradually decline to about 30 percent of GDP by 2016.
- Public investment: expected to gradually decline to about 8 percent of GDP on average over the projection period; private investment to rise.
- Exports of goods and services: projected to increase by an average of 7.6 percent over the medium term and by 11.1 percent over the longer term; exports of goods in volume terms projected to stabilize at about 7.5 percent over the medium term before gradually declining to about 6 percent in later years.
- Imports of goods and services: will accelerate from an average of about 5 percent over the medium term to about 8 percent over the longer term.
- Current account deficit, including grants: expected to stay around 10 percent of GDP over the medium term, subsequently deteriorate as official transfers wane, before declining gradually to about 7.5 percent at the end of the projection period.
- Excluding transfers, the current account deficit: expected to decline from 30 percent of GDP in 2011 to about 12 percent at the end of the projection period.
- External financing: reliance largely on grants and highly concessional loans; grant support assumed to decline from 24 percent of GDP in 2011 to about 13.4 percent in 2016; loans assumed to decline from about 3 percent of GDP in 2010 to about 1 percent in later years.
- New borrowing (excluding EXIM Bank of India for Kabu 16): assumed exclusively on highly concessional terms with a grant element of 50 percent until 2017; from 2018 onward one-third of new financing assumed on less concessional terms (35 percent grant element).

### External DSA: baseline and risks
- Under the baseline scenario, there is a breach of the PV of debt-to-exports indicative threshold: PV of debt-to-exports ratio remains above the 100 percent threshold over the medium-term and declines below its threshold toward the end of the projection period.
- Other indicators remain below policy-dependent thresholds throughout the projection period: PV of debt-to-GDP, PV of debt-to-revenues, debt service to exports, and debt service to revenues.
- Text Table 3 (Summary of Baseline External Debt Sustainability Indicators, percent):
  - Indicative Threshold
  - 2011 2021 2031 Average 2011-31
  - PV of debt to GDP 3013.97.46.59.1
  - PV of debt to exports 100174.4108.188.9123.2
  - PV of debt to revenue 20086.852.453.362.5
  - Debt service to exports 153.57.93.96.9
  - Debt service to revenues 251.73.82.43.4
  - Source: Burundian authorities; Bank-Fund staff estimates and projections.

### Alternative scenarios, stress tests, and vulnerabilities
- The narrow export base is the most significant factor of vulnerability to debt sustainability.
- The most severe breach of the PV of debt-to-exports threshold occurs under a decline in export value growth (Table 2, test B2): PV of debt-to-exports ratio at the end of the projection period is higher by about 78 percentage points compared to the baseline.
- New borrowing at higher interest rates (Table 2, scenario A2) leads to a protracted deterioration in PV of debt-to-exports ratio versus baseline, underscoring the need for continued reliance on grants and highly concessional financing.
- Historical scenario (Table 2, scenario A1) suggests sizable and protracted deterioration of PV of debt-to-exports ratio; results should be interpreted with caution given Burundi’s history of conflict.
- Combination stress test (Table 2, scenario B5) and historical exports stress test (Table 2, scenario B2) show the debt service to exports indicative threshold can be breached by a small margin in the medium-term.
- PV of debt to GDP, PV of debt to revenue, and debt service to revenue ratios are not breached under alternative scenarios and stress tests.

### Staff assessment and authorities' response
- Staff view: Burundi faces a high risk of debt distress due to breach of PV of debt-to-exports threshold under the baseline and likely breaches under less favorable scenarios.
- Authorities broadly share staff’s assessment: committed to rely on highly concessional loans and grants, advance structural reforms to boost export capacity, and request a Debt Management Performance Assessment (DeMPA) technical assistance to prepare a medium term debt strategy (MTDS).

### Public DSA
- Public debt indicators expected to gradually improve under the baseline scenario, driven by a decline in the public sector borrowing requirement reflecting widening of the revenue base and gradual decline in government spending in the post-reconstruction period.
- Ratios of PV of public debt to GDP and public debt to revenues remain low due to reliance on grants and highly concessional loans.
- Alternative scenarios and stress tests show public debt indicators can worsen rapidly, especially with absence of fiscal consolidation and lower economic growth.
- Under the scenario of lower GDP growth (Table 4, scenario A3), PV of-debt-to revenues ratio at the end of the projection period worsens substantially compared to baseline.
- Debt service to revenue ratio not significantly affected by alternative scenarios because additional borrowing is expected to be on highly concessional terms.
- Preparation of a medium-term debt strategy will be essential for anchoring fiscal policy.

*Source: IMF staff report text (section 6 and associated boxes and tables).*

### 16.      Burundi will continue to face a high risk of debt distress. The PV of external debt-

### 16.      Burundi will continue to face a high risk of debt distress. The PV of external debt-

### Debt outlook and key projections
- The PV of external debt-to-exports ratio:
  - will exceed the country-specific debt burden threshold in the medium-term
  - is expected to be just below its threshold towards the end of the projection period
- PV of external debt (selected projection values shown in source table):
  - 13.5, 13.9, 14.1, 14.5, 14.6, 13.1, 11.7, 7.4, 6.5 (PV of external debt in percent of GDP series)
- PV of external debt in percent of exports (selected projection values shown in source table):
  - 150.8, 174.4, 162.1, 167.2, 170.0, 171.0, 169.4, 108.1, 88.9
- PV of PPG external debt (in millions of U.S. dollars, selected values):
  - 272.2, 306.3, 346.4, 396.7, 442.6, 455.2, 463.6, 544.5, 1164.5
- PV of PPG external debt (in percent of GDP + remittances, selected values):
  - 13.5, 13.9, 14.1, 14.5, 14.6, 13.1, 11.7, 7.4, 6.5
- Debt service-to-exports ratio (in percent, selected annual values):
  - 1.4, 3.5, 5.7, 7.2, 9.5, 12.0, 12.2, 7.9, 3.9
- Debt service-to-revenue ratio (in percent, selected annual values):
  - 0.9, 1.7, 3.0, 3.7, 4.9, 5.8, 5.4, 3.8, 2.4

### Risks, stress tests, and scenario results
- Under alternative scenarios and stress tests:
  - two debt indicators exceed the country-specific debt burden thresholds
- Selected scenario outputs (PV of debt-to-exports ratio, baseline and stress outcomes, selected years):
  - Baseline: 174, 162, 167, 170, 171, 169, 108, 89
  - A1 (historical averages): 174, 154, 178, 198, 232, 263, 300, 252
  - A2 (less favorable loan terms): 174, 165, 179, 188, 196, 202, 150, 144
  - B2 (export value growth shock): 174, 243, 362, 360, 363, 363, 230, 167
  - B5 (combination shocks): 174, 245, 342, 335, 338, 339, 214, 136
- Most extreme stress tests (as identified in figure notes):
  - In figure b: Combination shock
  - In figure c: Exports shock
  - In figure d: Combination shock
  - In figure e: Exports shock
  - In figure f: Combination shock

### Identified debt-creating flows and fiscal dynamics (selected figures)
- External debt (nominal) series (percent of GDP, selected year values):
  - 101.6, 20.7, 22.5, 22.6, 22.5, 22.7, 22.6, 20.4, 18.3, 12.1, 10.6
- Change in external debt (selected values):
  - -17.6, -80.9, 1.8, 0.1, -0.1, 0.2, -0.2, -2.1, -2.1, -0.8, 0.1
- Identified net debt-creating flows (selected values):
  - -29.8, -10.8, 0.4, 0.2, 1.0, -2.5, -2.6, -3.6, -2.8, -1.6, -1.8
- Non-interest current account deficit (selected percent of GDP values):
  - 1.2, 11.0, 9.8, 6.3, 6.3, 12.4, 11.9, 9.1, 9.0, 10.7, 11.2, 10.8, 7.5, 9.3
- Exports (growth of exports of G&S in US dollar terms, in percent, selected values):
  - 55.4, -22.6, 52.7, 16.1, 29.6, 0.2, 20.3, 10.1, 10.6, 2.0, 2.2, 7.6, 11.7, 9.0, 11.1
- Imports (growth of imports of G&S in US dollar terms, in percent, selected values):
  - 31.7, 22.7, 5.8, 21.7, 27.2, 7.0, 1.2, -2.7, 7.2, 10.2, 8.5, 5.2, 15.4, 4.1, 8.2
- Grant element of new public sector borrowing (in percent, selected projection values):
  - 40.8, 38.2, 35.5, 35.8, 47.4, 51.4, 41.5, 45.9, 45.9, 46.3
- Government revenues (excluding grants, in percent of GDP, selected values):
  - 13.9, 13.6, 14.6, 16.0, 16.5, 16.7, 16.5, 16.0, 15.6, 14.1, 12.2, 13.5

### Financing, aid, and grant-equivalent financing
- Aid flows (in Millions of U.S. dollars, selected values):
  - 38937.4, 17681.6, 37360.9, 552.1, 438.5, 467.1, 496.2, 510.2, 562.3, 888.2, 1815.4
- Of which, Grants (in Millions of U.S. dollars, selected values):
  - 438.0, 1205.1, 460.9, 524.2, 405.5, 432.1, 458.2, 465.9, 513.4, 833.0, 1699.2
- Of which, Concessional loans (in Millions of U.S. dollars, selected values):
  - 38499.3, 16476.6, 36900.0, 27.9, 33.0, 35.0, 38.0, 44.2, 48.9, 55.2, 116.2
- Grant-equivalent financing (in percent of GDP, selected projection values):
  - 24.0, 17.2, 16.7, 15.8, 13.9, 13.4, 11.7, 9.8, 11.1
- Grant-equivalent financing (in percent of external financing, selected projection values):
  - 94.9, 91.5, 89.6, 89.9, 94.7, 95.8, 95.1, 95.0, 95.1

### Macroeconomic assumptions (selected)
- Real GDP growth (in percent, selected values):
  - 5.0, 3.5, 3.8, 3.8, 1.2, 4.2, 4.8, 5.0, 6.0, 5.8, 5.9, 5.3, 6.1, 7.9, 6.7
- GDP deflator in US dollar terms (change in percent, selected values):
  - 16.2, 12.7, 7.5, 6.8, 12.9, 7.7, 5.3, 5.0, 5.7, 7.8, 7.3, 6.5, 6.0, -1.0, 3.7
- Effective interest rate (percent, selected values):
  - 0.7, 0.6, 0.3, 0.8, 0.2, 0.1, 0.4, 0.5, 0.6, 0.5, 0.5, 0.4, 0.6, 0.7, 0.7
- Nominal GDP (Millions of US dollars, selected values):
  - 1556.1, 1814.7, 2024.0, 2271.4, 2506.7, 2763.3, 3095.2, 3527.7, 4007.7, 7464.2, 18199.8

### Policy recommendations and staff advice
- To mitigate risks to debt sustainability, staffs encourage the authorities to:
  - continue to rely on grants and highly concessional loans to meet financing needs
  - further strengthen debt management
- Additional staff recommendations:
  - intensify structural reforms to diversify the export base
  - address existing infrastructure bottlenecks that hinder growth
  - encourage private sector development by improving the business environment
  - continue efforts to improve tax administration and widen the tax base to reduce reliance on foreign financing

### Contextual note
- The caveat concerning the suitability of the historical scenario in a country marred by conflict applies.

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

### 1.      My Burundian authorities have persevered with prudent macroeconomic policies and

### _cr1228 - 1.      My Burundian authorities have persevered with prudent macroeconomic policies and

### Recent economic and policy developments
- Authorities report perseverance with prudent macroeconomic policies and deepened structural reforms despite a challenging external environment.
- Authorities expect impacts of protracted global economic uncertainties on economic growth and balance of payments to be contained and reversed in the medium term as appropriate measures are implemented and external and internal environment improves, while agreeing with staff that the challenging external and internal environment and a narrow export base pose considerable risks to growth going forward.
- Program performance:
  - All quantitative indicative targets for end-June 2011 and all performance criteria for end-September were met.
  - All end-November structural benchmarks related to financial safeguards and strengthening of expenditure commitment controls were met.
  - Authorities request Directors’ support in concluding the seventh and final review under the ECF, and request approval of a new three-year Arrangement under the ECF.
- Growth and inflation:
  - Growth was weaker in 2011 than earlier forecast due to high fuel and food prices and declining donor aid flows.
  - Inflation spiked from lower single digits by end-2010 to lower double digits in 2011.
- Fiscal and public financial management:
  - Overall expenditure has remained within program targets.
  - Progress made improving the expenditure circuit to strengthen planning, execution, and transparency of expenditure.
  - Adoption of the new organic budget law is ongoing.
  - A decree on the General Regulation on Public Budget Management will allow greater transparency in budget execution.
  - Improvement of government cash flow, implementation of the single treasury account, and adoption and implementation of a new public procurement code will further strengthen budget execution.
  - Revenue gains owing to improved administrative capacity of the Burundi Revenue Authority (BRA) and greater centralization of government revenue.
- Monetary and financial sector:
  - Monetary policy framework remained prudent; central bank autonomy strengthened and interest rates raised to rein in inflation.
  - Central bank stands ready to further tighten monetary policy if inflationary pressures persist.
  - Supervision of financial institutions improved; measures to strengthen financial safeguards continue in accordance with recommendations of the safeguards assessment update completed by IMF staff in June 2008.
- External sector:
  - External balances weakened due to deterioration in the terms of trade, poor coffee harvests, and late disbursements by development partners.
  - Official reserves fell to 4.4 months of import cover.

### Policy framework and reforms going forward — Fiscal policy and reforms
- Fiscal stance:
  - Fiscal framework to balance supporting economic growth and macroeconomic stability.
  - Current expenditure as a percentage of GDP will be consolidated further while maintaining tempo for priority sectors in line with PRSP II.
  - Spending will continue to target basic social services: education, health, public access to water, electricity and roads, explicitly creating fiscal space to improve composition of government expenditure in favor of infrastructure and social expenditure.
- Revenue mobilization:
  - Authorities aim to moderate heavy reliance on external aid by strengthening capacity to mobilize domestic resources.
  - Objective to raise the ratio of tax revenues to GDP from the current 14.4 percent to 16.2 percent in 2012.
  - Measures include expanding the tax base, reinforcing operations of tax and customs authorities, controlling and rationalizing tax expenditures, and forcefully implementing anti-evasion measures.
- Debt management:
  - Mindful of high risk of debt distress, aim to limit debt-creating domestic financing and enhance mobilization of concessional external financing.
  - Recognize limits of concessional financing and will consult the Fund when the need and opportunity for non-concessional financing arise.
  - Commitment to strengthen debt management capacities within the Ministry of Finance with help from development partners.
  - Plan to create a high-level committee to coordinate public debt management processes and ensure consistency with macroeconomic objectives.

### Policy framework and reforms going forward — Monetary policy
- Objectives and instruments:
  - Anchor monetary policy on low and stable inflation.
  - Bolster open market operations, maintain a flexible exchange rate, rely substantially on foreign exchange sales for sterilization, and improve liquidity forecasting.
  - Aim to streamline the current level of credit to the private sector.

### Policy framework and reforms going forward — Financial sector reforms
- Central bank actions:
  - Continue strengthening supervisory and regulatory services to financial institutions to broaden access to financial services.
  - Build on modernization of infrastructure and legal framework for payment systems.
  - Strengthen internal control and risk management systems and align open market operations with best practices.
- Market development:
  - Adopt and implement a financial market development strategy.

### Policy framework and reforms going forward — Other structural reforms
- Investment climate and business regulation:
  - Implemented measures: modernizing the investment code, the trade code, and the law on managing company bankruptcy; establishing the Investment Promotion Agency; adopting and implementing the Public and Private Partnership framework.
  - Reformed four Doing Business indicators: creation of enterprises, property transfer, protection of investments, and payment of taxes.
  - Result: improvement in Doing Business ranking from 177th to 169th between “Doing Business 2011” and “Doing Business 2012”.
- Sectoral and regional reforms:
  - Pursue deeper reforms in the coffee sector and privatization of public enterprises.
  - Persevere with trade reforms and deepen EAC regional integration framework.
  - To benefit from EAC integration protocols, pursue reforms to achieve EAC convergence criteria and improve business climate through simplifying taxation and regulation.

### The New ECF arrangement
- Program design and objectives:
  - Proposed new program for 2012-14 builds on success of previous engagement with the Fund as delineated in the EPA and on objectives under PRSP-II, emphasizing transformation of the Burundian economy for sustained growth and job creation by alleviating key bottlenecks to growth.
  - Authorities reaffirm commitment to implement EPA recommendations within the context of the new arrangement, including greater exchange rate flexibility to absorb terms-of-trade shocks, rebuilding fiscal buffers, and safeguarding debt sustainability.
- Expected benefits:
  - New ECF arrangement to help enhance capacity to mobilize internal revenues, strengthen public financial and debt management policies, achieve greater exchange rate flexibility, and improve the business climate.
  - Will help consolidate quick wins secured under previous arrangements.
- Financing request:
  - Given continued weakening of external balances, authorities request a new ECF arrangement that meets their financing needs and welcome Directors’ support.

### Conclusion
- Authorities view macroeconomic fundamentals and commitment to sound policies as underlying strengths of the Burundian economy despite external challenges.
- Implementation of the ECF-supported program has been very strong with impressive end-June and end-September program performance.
- Authorities recognize remaining internal challenges and growing external challenges and have maintained an appropriate mix of fiscal and monetary policies while deepening structural reforms to support growth and macroeconomic stability.
- Authorities are confident continued engagement with the Fund and support of development partners will enable achievement of development goals.

*Source: _cr1228 - 1.      My Burundian authorities have persevered with prudent macroeconomic policies and*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr1228.pdf_