IMF tips Burundi on better economy

In its latest consultative report to Burundi - Article IV, the Executive Boards of the IMF has called on government authorities in Burundi to broaden its revenue base and improve its expenditure while financing the budget through grants and highly concessional loans.

According to the board, the move would help the small East African country, to ensure fiscal sustainability given its choking debt burden. Today, the country shoulders are debt burden in excess of $1,5bn. In 2007, the IMF estimated Burundi's external debt to be 148% of its Gross Domestic Product valued at $1bn.

The fund also noted that improvements in governance, including through strengthened public financial management, will be critical for sustaining donor support. “It will be important to carefully manage public expectations of a peace dividend and to fully cost all social initiatives in the budget - with support from the international community,” the directors said in communiqué to the media on Friday. The government was urged to give high priority to enhancing its capacity to deliver social services to its people.

The recommendation to Burundi was issued on July 25, following the conclusion bilateral discussions between IMF members and political, economic and finance leaders, in Bujumbura, on July 7, 2008.

With regard to the recent acceleration of inflation deriving from rising international food and oil prices, directors encouraged the monetary authorities to act to anchor inflation expectations and contain second-round effects of food and oil price shocks. The government was lauded for its efforts geared towards food security but was encouraged to craft a concerted emergency response strategy to ensure that the countries poor do not suffer from the expected drought as food and oil prices soar.

They also observed that structural factors continue to be an obstacle to Burundi's competitiveness and growth. “They saw the need to accelerate structural reforms, especially in the coffee sector, and expedite adoption of the new investment code. Directors also welcomed Burundi's membership in the East African Community, which should spur structural reforms to improve the business environment,” the communiqué said.

Burundi's leaders were commended for making good progress in implementing the country's first Poverty Reduction and Growth Facility (PRGF) supported program in a difficult post-conflict environment. As a result of its good progress, earlier this month, IMF approved a three-year US$75,6m under the programme for Burundi, to support the implementation of the country's poverty reduction program and its efforts to consolidate macroeconomic stability. The PRGF is the IMF's loan facility for low-income countries carrying annual interest rate of 0,5% and are repayable over 10 years.

Assessing the impact of the government's recently signed cease-fire agreement with the country's rebels, the IMF said, “with continued improvements in the security situation, Burundi's medium-term economic outlook is positive.” Effective donor co-ordination and predictable financial support, as well as timely technical assistance, to peace talks were identified as crucial to ensuring that the country earns peace.