20220728-IMF-Burundi_2022_Article_IV_Consultation-Press_Release_Staff_Report_and_Statement_by_the_Executive_Director_for_Burundi_98页_2mb

BURUNDI: 2022 ARTICLE IV CONSULTATION SUMMARY

Core Content

The 2022 Article IV Consultation with Burundi, conducted by the International Monetary Fund (IMF), assessed the country's economic performance and outlook in the context of global shocks such as the COVID-19 pandemic and the war in Ukraine. The consultation marked Burundi's full reengagement with the IMF after a 2014 consultation, and the country had also reengaged with the international community following the lifting of U.S. and E.U. sanctions and the end of mandatory reporting by the U.N. Security Council.

Main Economic Developments

• Growth: Burundi's economy showed resilience to the pandemic and war shocks. Growth rebounded to 3.1% in 2021, primarily driven by the recovery in the services sector. It is projected to rise to 3.3% in 2022 and average 4.7% over 2023-27.
• Inflation: Inflation surged to 11% in 2022, up from 8.3% in 2021, due to rising import prices (especially food and fuel) and spillovers from the war in Ukraine. It is expected to decline starting in 2023.
• Fiscal Deficit: The fiscal deficit is projected to stabilize at 5% of GDP in 2021/22, down from 7.8% in 2020/21, though it remains a concern.
• Public Debt: Public debt is considered sustainable, but external debt distress is a high risk due to a weak external position and large parallel exchange rate premiums.
• External Imbalances: The current account deficit worsened to 13.4% of GDP in 2021, driven by increased imports. FX reserves were at 2.2 months of imports at the end of 2021, but remain below adequacy levels.

Key Challenges and Risks

• External Shocks: The war in Ukraine has exacerbated inflationary pressures and weakened the terms of trade, particularly for export commodities like tea and coffee.
• Domestic Vulnerabilities: FX shortages, weak governance, and limited fiscal space remain critical issues.
• Uncertainty: The duration and impact of the pandemic and the war in Ukraine pose significant downside risks.
• Fragility: Burundi continues to face multidimensional fragility, including political instability, weak institutions, and high poverty and inequality.

Main Policy Recommendations

• Fiscal Consolidation: Implement credible, revenue-led fiscal consolidation to reduce debt vulnerabilities while maintaining fiscal space for social and health spending.
• Exchange Rate Unification: Recalibrate exchange rate policy and modernize the monetary policy framework to address external imbalances and stabilize the currency.
• Monetary Policy: Adjust monetary policy to address inflationary pressures, reduce monetary financing, and enhance central bank independence.
• Reforms for Inclusive Growth: Unlock sustainable inclusive growth through competitiveness improvements, governance reforms, and measures to improve human capital and productivity.
• Transparency and Governance: Enhance transparency in the use of pandemic-related spending, align the AML/CFT framework with international standards, and implement measures to improve the accountability of public spending.

Support from International Community

• Burundi received five tranches of debt relief under the CCRT, totaling SDR 17.96 million, and benefited from the general SDR allocation of August 2021 (SDR 147.6 million or 6.3% of GDP) and a Rapid Credit Facility (RCF) disbursement of SDR 53.9 million (2.3% of GDP) in October 2021.
• The country also exchanged SDR 57 million (US$80 million) for U.S. dollars in 2022H1 to manage the spillovers from the war in Ukraine.

Key Data and Projections

• Real GDP Growth: Expected to rise from 1.8% in 2019 to 4.7% over 2023-27.
• GDP Deflator: Rose to 8.6% in 2022, with a projected decline in subsequent years.
• CPI: Increased to 11% in 2022, expected to decrease in 2023.
• Terms of Trade: Deteriorated to -4.2% in 2022, with a slow recovery expected.
• Exchange Rate Premium: The parallel exchange rate premium reached 62.5% in mid-2022.
• FX Reserves: At 2.2 months of imports at end-2021, with a projected decline in 2022.

Conclusion

The IMF Executive Board welcomed Burundi's efforts to reengage with the international community and noted the importance of continued reforms and fiscal discipline. They emphasized the need for a multi-pronged approach to address debt vulnerabilities, external imbalances, and domestic fragility to ensure sustainable and inclusive growth. The next Article IV consultation is expected to follow the standard 12-month cycle.