Burundi’s economy remains resilient, although it faces headwinds from the effects of the war in Ukraine. Real GDP is expected to continue growing in 2022 and beyond. Inflationary pressures remain high, driven by rising food and energy prices; The current account deficit is expected to widen in 2022, mainly due to a higher import bill for fuels, consumer goods and capital goods. Foreign exchange reserves fell.; The fiscal deficit is estimated to have narrowed in 2021/22, due to lower current spending, especially transfers, and strong revenue collection, supported by revenue measures.
A team from the International Monetary Fund (IMF) led by Ms. Mame Astou Diouf, Chief of Mission for Burundi, visited Burundi from September 26 to 30, 2022 to discuss recent macroeconomic and political developments and engage with the new management of the Ministry of Finance, Budget and Economic Planning and the central bank (Banque de la République du Burundi). At the end of the mission, Ms. Diouf made the following statement:
“Staff had fruitful discussions with the authorities on recent macroeconomic and political developments, as well as the authorities’ key policy priorities, including how to address persistent fuel shortages and food inflation.
“Burundian’s economy remains resilient despite headwinds from the effects of the war in Ukraine. Rising commodity prices (food and fuel) increased inflation (19.6% at end-August 2022), while increasing the vulnerability of the country’s external position. Foreign exchange reserves fell to 1.6 months of imports at the end of June 2022 against 2.2 months at the end of 2021, the increase in the import bill not being offset by capital inflows. Fuel shortages persist, despite an increase in imported volume. Economic activity nevertheless continues to recover from the COVID-19 shock, with agricultural production supported by government efforts to improve farmers’ access to fertilizers and better quality seeds, public investment projects boosting activities in the secondary sector and services benefiting from travel facilitation. limitations.
“Over the medium term, GDP growth is expected to strengthen as the effects of COVID-19 fade and ongoing investment projects and reforms begin to deliver the expected impact. Greater foreign funding resulting from Burundi’s re-engagement with the international community would support GDP growth. However, there are downside risks to this outlook, notably due to uncertainties regarding the war in Ukraine and the end of the pandemic.
“Accommodative monetary policy has supported the economy during the shocks. However, caution is warranted as inflation has remained high and inflationary pressures from the war in Ukraine persist.
“External sustainability challenges have worsened and the current account deficit is expected to widen to 14.9% of GDP in 2022, mainly due to higher imports of fuel, consumer goods and household goods. equipment. The current account deficit, combined with record FDI and other external inflows, would continue to put pressure on foreign exchange (FX) reserves.
“The budget deficit narrowed to 4.1% of GDP in 2021/22 (7.8% in 2020/21), thanks to a reduction in current expenditure, in particular transfers, and strong revenue collection , including an increase in income tax collection supported by recent tax measures. Investment execution has accelerated. Public finances held up well, despite the commodity price shock. The authorities ensured a pass-through from world prices to local prices, including for regulated prices, thus limiting subsidies. The government nevertheless decided to waive certain taxes on petroleum products, which contributed to a drop in tax revenue on these products.
“Public investment is expected to increase further in 2022/23 and in the medium term, leading to a larger 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 over the medium term.
“The authorities have implemented several measures to contain the fallout from 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 started intervening in the fuel sector with direct fuel imports to circumvent fuel import bottlenecks and lifted restrictions on the import of corn, seeds, flour, sugar and cement to alleviate national shortages. However, the unintended effects of these measures may require mitigation measures.
“Going forward, Burundi will continue to face the challenges of balancing priority social and development spending with the need to maintain macroeconomic stability and address debt vulnerabilities and a weak external position. . Policy recalibration on several fronts is essential, including (i) tackling inflationary pressures with a cautious recalibration of the current accommodative monetary policy stance, (ii) revenue-oriented fiscal consolidation and prudent borrowing to reducing debt vulnerabilities while creating fiscal space for development and social spending; and (iii) a recalibrated exchange rate policy and a modernized monetary policy framework, while taking into account exchange-related financial sector vulnerabilities. Accelerated implementation of reforms aimed at reducing barriers to inclusive growth, including by improving competitiveness and further strengthening the governance framework, will be essential.
“The IMF remains committed to supporting the Burundian authorities’ efforts for a prosperous future, including through an IMF-supported program requested by the authorities at the end of the staff visit, macroeconomic surveillance, and capacity building. .
“The mission met HE President Evariste Ndayishimiye; HE Prime Minister Gervais Ndirakobuca; a delegation from Parliament; HE Audace Niyonzima, Minister of Finance, Budget and Economic Planning (MFBPE); HE 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; 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 takes this opportunity to warmly thank the Burundian authorities for their hospitality, their cooperation and their fruitful and open exchanges.
Distributed by APO Group on behalf of the International Monetary Fund (IMF).