Burundi‘s economy recovered moderately in 2021 and is expected to strengthen further in 2022, despite the effects of the war in Ukraine. In the medium term, Burundi will continue to grapple with the challenges of balancing priority social, development and COVID-19 related spending with external and debt sustainability; the current account deficit widened in 2021 and is expected to widen further in 2022, due to higher oil prices due to the crisis in Europe, although mitigated by higher exports supported by a rise in gold prices. The fiscal deficit is projected to narrow considerably in fiscal year 2021/22. Revenue collection would continue to strengthen, boosted by the effects of recent revenue measures, while spending would remain contained.
An International Monetary Fund (IMF) team led by Ms. Mame Astou Diouf, Chief of Mission for Burundi, held virtual discussions from February 24 to March 16, 2022 for the 2022 Article IV Consultation. of the mission, Ms. Diouf issued the following statement:
“IMF staff had productive discussions with the authorities on recent economic developments, the outlook, and macroeconomic policies in response to the COVID-19 pandemic, the effects of the war in Ukraine, and to maintain macroeconomic stability in Burundi.
“Real GDP growth increased to 2.4 percent in 2021, driven by a recovery in primary and tertiary sector activities, which benefited from the relaxation of social distancing measures and travel restrictions. Agricultural production was supported by improvements in input supply, including the timely availability of fertilizers and better quality crops. The secondary sector saw weaker growth than in 2020 due to a slowdown in mining activities due to contract renegotiations. The economic recovery should strengthen further with GDP growth projected at 3.6 percent in 2022 buoyed by all sectors, though held back by the war in Ukraine.
“In the medium term, GDP growth is expected to increase as the effects of COVID-19 subside and the investment projects and reforms underway begin to generate the expected impact. GDP growth projections are subject to upside potential due to potentially larger effects of ongoing government initiatives and reforms to support the resilience of the economy and potentially larger external financing as a result of Burundi’s re-entry into the community. international. However, the macroeconomic framework is exposed to downside risks stemming from uncertainties about the geopolitical situation in Europe, the end of the pandemic and the risks of natural disasters in Burundi.
“Inflation increased to 8.3% in 2021 (compared to 7.5% in 2020), driven by rising food prices. It could accelerate to 9.2 percent in 2022, driven by rising commodity prices, including oil prices, triggered by the crisis in Europe. However, imported inflation could be lower than projected, tempered by the prospects of a bumper agricultural harvest in 2022 that would reduce food prices, possibly the stronger effects of the regulation of the prices of strategic products and initiatives of ongoing import substitution.
“The fiscal deficit is projected at 4.6% in 2021/22 (vs. 7.9% in 2020/21) driven by improved revenue collection, increased subsidies, partly due to subsidies for the COVID-19 vaccine, and a decrease in current spending. Public investment is expected to rebound, marking a recovery after a slowdown due to the pandemic. However, the fiscal deficit is expected to widen in 2022/23 driven by a further increase in public investment, offsetting the expected rebound in revenues and subsidies.
“The current account deficit widened in 2021 due to both a drop in exports (coffee and mining products) and an increase in imports driven by COVID-related needs for intermediate goods and imports. External financial flows, including disbursement under Rapid Credit and the IMF’s general SDR allocation in August 2021 have pushed Burundi’s foreign exchange reserves to within 2.1 months of possible imports at the end of December 2021. Despite a increase in gold exports, the current account deficit is expected to widen further in 2022, due to rising commodity prices, including oil prices.
“The Bank of the Republic of Burundi (BRB) has implemented since 2019 several measures to support the banking sector, including increased provision of liquidity and long-term resources. Credit to the private sector showed dynamism in 2021, driven by favorable refinancing conditions granted to banks, interest rate discount schemes, as well as the creation of new banks (dedicated to housing, youth and women). ). The banking system remains generally resilient, with financial stability indicators comfortably above regulatory requirements (except those related to foreign exchange reserves) and non-performing loans around 4.1% in September 2021. However, the number of restructured loans is not insignificant.
“In the medium term, Burundi will continue to grapple with the challenges of balancing priority spending for social safety nets, economic recovery and development, and COVID-19 related spending with external and debt sustainability. Macroeconomic policies will focus in particular on: (i) a prudent fiscal policy that protects priority spending and supports growth; (ii) monetary and financial policies aimed at promoting price and financial sector stability; (iii) a prudent rebalancing of macroeconomic policies to restore external sustainability and increase foreign exchange reserve coverage to more comfortable levels; (iv) alleviate growth bottlenecks through structural reforms to improve competitiveness; and (v) further strengthen governance, reflecting the commitments made by the government to ensure sound governance of COVID-related spending by preparing semi-annual audited reports on this spending, seeking to identify beneficial ownership of companies. that will be awarded the COVID-19. related contracts, and the publication of audited budget execution reports.
“The mission met with HE Dr. Domitien Ndihokubwayo, Minister of Finance, Budget and Economic Planning (MFBPE); Mr. Jean Ciza, Governor of the Bank of the Republic of Burundi (BRB); Mr. Audace Niyonzima, First Deputy Governor of the BRB; Ms. Christine Niragira, Permanent Secretary of the MFBPE. The mission also met with other government and BRB officials, as well as representatives of commercial banks, non-governmental organizations and the donor community.
“The mission would like to take this opportunity to thank the Burundian authorities for their cooperation and availability, as well as for the fruitful and open discussions.”