Real GDP is projected to continue growing in 2022 and beyond.
Inflationary pressures remain elevated, driven by rising food and energy prices; The current account deficit is expected to widen in 2022, mainly due to higher import bills for fuels, consumer goods, and capital goods.
Foreign exchange reserves have fallen.; The fiscal deficit is estimated to have narrowed in 2021/22, driven by lower current spending, especially transfers, and strong revenue collection, supported by revenue measures.
An International Monetary Fund (IMF) team led by Ms. Mame Astou Diouf, Chief of Mission for Burundi, visited Burundi from September 26-30, 2022 to discuss recent macroeconomic and policy developments and engage with new leadership in the Ministry of Finance, Budget and Economic Planning and the central bank (Bank of the Republic of Burundi).
At the end of the mission, Ms. Diouf issued the following statement: “IMF staff had productive discussions with the authorities on recent macroeconomic and policy developments and the authorities’ key policy priorities, including how to address the persistent fuel shortages and food inflation.
“Burundi’s economy remains resilient despite headwinds from the effects of the war in Ukraine.
Higher commodity prices (food and fuel) have increased inflation (19.6% at the end of August 2022), while aggravating the country’s vulnerable external position.
Foreign exchange reserves have fallen to 1.6 months of imports at the end of June 2022 from 2.2 months at the end of 2021, as the increase in the import bill is not matched by capital inflows.
Fuel shortages persist, despite an increase in imported volume.
However, economic activity continues to recover from the impact of COVID-19, with agricultural production supported by government efforts to improve farmers’ access to better quality fertilizers and seeds, public investment projects boosting activities of the secondary sector and services that benefit from travel facilitation.
restrictions “In the medium term, GDP growth is expected to strengthen as the effects of COVID-19 diminish and the investment projects and reforms underway begin to generate the expected impact.
Increased foreign financing resulting from Burundi’s reintegration into the international community would support GDP growth.
However, there are downside risks to this outlook, including due to uncertainties about the war in Ukraine and the end of the pandemic.
“Accommodative monetary policy has supported the economy during shocks.
However, caution is required as inflation has remained high and inflationary pressures from the war in Ukraine are persistent.
“External sustainability challenges have worsened, and the current account deficit is projected to widen to 14.9 percent of GDP in 2022, mainly due to higher imports of fuels, consumer goods, and capital goods.
The current account deficit, combined with record FDI and other external inflows, would continue to put pressure on foreign exchange (FX) reserves.
“The fiscal deficit was reduced to 4.1% of GDP in 2021/22 (7.8% in 2020/21), thanks to a reduction in current spending, especially transfers, and strong revenue collection, in particular a higher income tax collection supported by recent revenue measures.
The execution of investments was accelerated.
Public finances have been resilient, despite the shock to commodity prices.
The authorities have ensured a transfer of global prices to local ones, even for regulated prices, thus containing subsidies.
However, the government decided to waive certain taxes on petroleum products, which has contributed to a drop in tax revenues from these products.
“Public investment is projected to increase further in 2022/23 and in the medium term, leading to a higher fiscal deficit in 2022/23.
Strong donor funding and the impact of recent revenue measures and reform plans to improve public financial management and spending efficiency would help contain the fiscal deficit in the medium term.
“The authorities implemented various measures to contain the secondary effects of the war in Ukraine.
In the first half of 2022, they used part of their SDR allocation (SDR 57 million) to ease import restrictions due to limited foreign exchange availability.
They began to intervene in the fuel sector with direct fuel imports to circumvent fuel import bottlenecks and lifted import restrictions on corn, seeds, flour, sugar, and cement to alleviate domestic shortages.
However, the unintended effects of such measures may require mitigation.
“Going forward, Burundi will continue to grapple with the challenges of balancing priority development and social spending with the need to maintain macroeconomic stability and address debt vulnerabilities and weak external position.
A multi-pronged policy recalibration is essential, including (i) addressing inflationary pressures with a careful recalibration of the current accommodative monetary policy stance, (ii) revenue-driven fiscal consolidation and prudent borrowing to reduce vulnerabilities debt while creating fiscal space for development and social spending; and (iii) a recalibrated exchange rate policy and modernized monetary policy framework, while attuned to exchange rate-related vulnerabilities in the financial sector.
Accelerated implementation of reforms to alleviate inclusive growth bottlenecks, including improving competitiveness and improving the governance framework, will be key.
“The IMF remains committed to supporting the efforts of the Burundi authorities for a prosperous future, including through a Fund-supported program requested by the authorities at the end of the staff visit, macroeconomic surveillance, and capacity building.
“The mission met with HE President Evariste Ndayishimiye; HE Prime Minister Gervais Ndirakobuca; a delegation from Parliament; HE Audace Niyonzima, Minister of Finance, Budget and Economic Planning (MFBPE); the Hon. 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 Deputy Governor of the BRB; Mrs. Francine Inarukundo, Permanent Secretary of the MFBPE.
The mission also met with other government and BRB officials, as well as representatives of commercial banks, the private sector, non-governmental organizations and the donor community.
“The mission would like to take this opportunity to warmly thank the Burundian authorities for their hospitality and for their cooperation and fruitful and open discussions.