Burundi’s economy remains resilient, although facing headwinds from the effects of the war in Ukraine. Real GDP is projected to continue to grow in 2022 and beyond. Inflationary pressures remain high, driven by rising food and energy prices; The current account deficit is projected to widen in 2022 mainly owing to a higher import bill for fuel, consumer, 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.

A team from the International Monetary Fund (IMF) led by Ms. Mame Astou Diouf, Mission Chief for Burundi, visited Burundi during September 26−30, 2022, to discuss recent macroeconomic and policy developments and engage with the new leadership at 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 held productive discussions with the authorities on recent macroeconomic and policy developments, and the authorities’ key policy priorities, including how to deal with persisting fuel shortages and food inflation.

“Burundi’s economy remains resilient despite headwinds from the effects of the war in Ukraine. Higher commodity (food and fuel) prices have increased inflation (19.6 percent at end-August 2022), while compounding the country’s vulnerable external position. Foreign exchange reserves have fallen to 1.6 months of imports at end-June 2022 from 2.2 months at end-2021, as the increased import bill is not matched by capital inflows. Fuel shortages persist, despite an increase in imported volume. Economic activity is nevertheless continuing 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 secondary sector activities, and services benefitting from the easing of travel restrictions.

“Over the medium term, GDP growth is expected to strengthen as the effects of COVID-19 wane and ongoing investment projects and reforms start delivering the expected impact. Larger foreign financing resulting from Burundi’s reengagement with the international community would support GDP growth. However, there are downside risks to this outlook, including because of uncertainties about the war in Ukraine and the end of the pandemic.

“Accommodative monetary policy has supported the economy during the 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 owing to higher fuel, consumer, and capital goods imports. The current account deficit, combined with unmatched FDIs and other external inflows would continue to put pressure on foreign exchange (FX) reserves.

“The fiscal deficit narrowed to 4.1 percent of GDP in 2021/22 (7.8 percent in 2020/21), thanks to a reduction in current spending, especially transfers, and strong revenue collection, notably higher income tax collection supported by recent revenue measures. Investment execution accelerated. Public finances have been resilient, despite the commodity price shock. The authorities have ensured a pass-through from global to local prices, including for regulated prices, thus containing subsidies. The government nevertheless decided to forego certain taxes on petroleum products, which has contributed to a drop in tax revenue from these products.

“Public investment is projected to further increase in 2022/23 and over the medium term, leading to a higher fiscal deficit in 2022/23. Strong donor financing and the impact of recent revenue measures and reform plans to enhance public financial management and spending efficiency would help contain the fiscal deficit in the medium term.

“The authorities implemented several measures to contain the spillovers from the war in Ukraine. In the first half of 2022, they used part of their SDR allocation (SDR 57 million) to alleviate import restrictions owing to limited FX availability. They started intervening in the fuel sector with direct fuel imports to circumvent fuel import bottlenecks and have lifted restrictions on the import of 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 social and development spending with the need to maintain macroeconomic stability and address debt vulnerabilities and the weak external position. A multi-pronged policy recalibration is critical, including (i) addressing inflationary pressures with a careful recalibration of the current accommodative monetary policy stance, (ii) a revenue-led fiscal consolidation and prudent borrowing to reduce debt vulnerabilities while creating fiscal space for development and social spending; and (iii) a recalibrated exchange rate policy and modernized monetary policy framework, while being attuned to FX-related financial sector vulnerabilities. An accelerated implementation of reforms to alleviate bottlenecks to inclusive growth, including improving competitiveness and further enhancing the governance framework will be key.

“The IMF remains committed to supporting the efforts of the Burundian 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 development.

“The mission met with H.E. President Evariste Ndayishimiye; H.E. Prime Minister Gervais Ndirakobuca; a delegation of the Parliament; H.E. Audace Niyonzima, Minister of Finance, Budget and Economic Planning (MFBPE); H.E. 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 Vice-Governor of the BRB; Ms. Francine Inarukundo, Permanent Secretary of the MFBPE. The mission also met with other officials of the government and the BRB, 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.