IMF Staff Concludes Visit to Burundi

IMF News, October 1, 2022

Source details

Mission dates: September 26−30, 2022.
Press Release No. 22/328; press release dated October 1, 2022.
Mission led by Ms. Mame Astou Diouf, Mission Chief for Burundi.
Meetings: H.E. President Evariste Ndayishimiye; H.E. Prime Minister Gervais Ndirakobuca; delegation of the Parliament; H.E. Audace Niyonzima, Minister of Finance, Budget and Economic Planning (MFBPE); H.E. Mr. Ibrahim Uwizeye, Minister of Hydraulics, Energy and Mines; Mr. Dieudonné Murengerantwari, Governor of the Bank of the Republic of Burundi (BRB); Mr. Désiré Musharitse, First Vice-Governor of the BRB; Ms. Francine Inarukundo, Permanent Secretary of the MFBPE; other government and BRB officials; representatives of commercial banks, the private sector, non-governmental organizations, and the donor community.

Economic resilience and growth:
- "Burundi’s economy remains resilient despite headwinds from the effects of the war in Ukraine."
- Real GDP is projected to continue to grow in 2022 and beyond.
- Over the medium term, GDP growth is expected to strengthen as the effects of COVID-19 wane and ongoing investment projects and reforms start delivering the expected impact.
- Larger foreign financing resulting from Burundi’s reengagement with the international community would support GDP growth.
Risks to the outlook:
- Downside risks include uncertainties about the war in Ukraine and the end of the pandemic.

Inflation:
- Inflation increased to 19.6 percent at end-August 2022, driven by higher commodity (food and fuel) prices.
- Inflationary pressures from the war in Ukraine are persistent.
External position:
- Foreign exchange reserves fell to 1.6 months of imports at end-June 2022 from 2.2 months at end-2021.
- Current account deficit is projected to widen to 14.9 percent of GDP in 2022, mainly owing to higher fuel, consumer, and capital goods imports.
- The current account deficit, combined with unmatched FDIs and other external inflows, would continue to put pressure on FX reserves.

Fiscal outcomes:
- Fiscal deficit narrowed to 4.1 percent of GDP in 2021/22 (7.8 percent in 2020/21).
- Narrowing driven by a reduction in current spending, especially transfers, and strong revenue collection, notably higher income tax collection supported by recent revenue measures.
- Investment execution accelerated; public finances have been resilient despite the commodity price shock.
Policy choices and fiscal trade-offs:
- The government ensured a pass-through from global to local prices, including for regulated prices, thus containing subsidies.
- The government decided to forego certain taxes on petroleum products, contributing to a drop in tax revenue from these products.
- Public investment is projected to further increase in 2022/23 and over the medium term, leading to a higher fiscal deficit in 2022/23.
- Strong donor financing and the impact of recent revenue measures and reform plans to enhance public financial management and spending efficiency would help contain the fiscal deficit in the medium term.

Measures implemented to contain spillovers from the war in Ukraine:
- In the first half of 2022, the authorities used part of their SDR allocation (SDR 57 million) to alleviate import restrictions owing to limited FX availability.
- Began intervening in the fuel sector with direct fuel imports to circumvent fuel import bottlenecks.
- Lifted restrictions on the import of corn, seeds, flour, sugar, and cement to alleviate domestic shortages.
- Note: The mission cautioned that the unintended effects of such measures may require mitigation.

Monetary stance:
- Accommodative monetary policy has supported the economy during the shocks.
- "Caution is required as inflation has remained high and inflationary pressures from the war in Ukraine are persistent."
Exchange rate and FX-related vulnerabilities:
- Continued pressure on FX reserves and external sustainability challenges have worsened.
- The mission recommended a recalibrated exchange rate policy and a modernized monetary policy framework, while being attuned to FX-related financial sector vulnerabilities.

Multi-pronged policy recalibration called for, including:
- (i) Addressing inflationary pressures with a careful recalibration of the current accommodative monetary policy stance.
- (ii) A revenue-led fiscal consolidation and prudent borrowing to reduce debt vulnerabilities while creating fiscal space for development and social spending.
- (iii) A recalibrated exchange rate policy and modernized monetary policy framework, while being attuned to FX-related financial sector vulnerabilities.
Structural reforms:
- Accelerate implementation of reforms to alleviate bottlenecks to inclusive growth, including improving competitiveness and further enhancing the governance framework.
IMF support:
- The IMF remains committed to supporting the authorities, including through a Fund-supported program requested by the authorities at the end of the staff visit, macroeconomic surveillance, and capacity development.

IMF Press Release No. 22/328 (October 1, 2022).