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Burundi: IMF earmarks $78m to the country of small GDP, but great potential

By Alain Faujas
Posted on Tuesday, 3 August 2021 22:19

The airport in Bujumbura, the economic capital of Burundi. Buena Vista Images/GettyImages

The IMF has just released $78m to support the Burundian economy, which has taken a beating over the past five years of political crisis and international sanctions. But if its new president continues to be open to the outside world, then the country may well be on its way to recovery.

The only thing we know about Burundi’s economy is that we don’t know much about it! Neither does the International Monetary Fund (IMF), which declared in July 2020 that “the absence of Article IV consultations since 2014 and data gaps undermine the IMF staff’s understanding of its economy and policies.”

It has been seven years since the country’s macroeconomic indicators were studied, which means that it will be difficult to accurately diagnose its state of health, even though the World Bank has maintained some macroeconomic monitoring.

The larger worldwide community had condemned the country’s oppressive stance towards its opposition, which led to its isolation since 2015. The resulting sanctions deprived it of vital aid that accounted for half of the government’s revenue.

The consequences of the Covid-19 pandemic further weakened an already struggling economy, leading its new president to seek assistance from the IMF. Following a virtual mission held from 23 June to 26 July 2021, the Fund decided to grant the country a $78m package under the Rapid Credit Facility (RCF) on 27 July.

A stifled economy

  • As Burundi only exports unprocessed products with low added value (coffee, tea), growth has stalled:
  • + 1.6% in 2018;
  • + 1.8% in 2019,
  • + 0.3% in 2020.

The World Bank forecasts a recovery of only + 2% in 2021 (see infograph below).

However, strong demographic growth (some 3.2% per year) overrides these worrying statistics and causes serious impoverishment among the population. The population’s GDP per capita has fallen by 16% in five years: it was down to $270 in 2020, almost three times less than that of neighbouring Rwanda. And more than 70% of Burundians live below the extreme poverty line ($1.90 per day).

Burundi is one of the world’s least developed countries. According to the African Development Bank (AfDB), youth unemployment stands at 65%. 80 megawatts (MW) is not considered enough for a population that requires 120 MW and so as a result, only 11% of its population has access to electricity.

Its financial inclusion rate is very low at 21.5%. The business climate is deteriorating year after year and a large proportion of the goods consumed in the country are imported, meaning there is a large trade deficit.

Without aid, foreign exchange reserves barely cover one month of imports. As Professor Léonidas Ndayizeye of the University of Burundi points out: “The scarcity of foreign currency for a country that is heavily dependent on imports stifles the economy and contributes to rising prices.” Everything rests on the state budget, which, since it is lacking in revenue, is forced to increase its deficit.

 

Isolationist devices

It was not possible to continue making the population pay for its leaders’ recklessness. As soon as there were signs that the government was opening up after Evariste Ndayishimiye became president in June 2020, donors began to open their wallets again.

  • Japan announced that it would be giving $30m to rehabilitate the port of Bujumbura.
  • To tackle the effects of the health and economic crisis, the World Bank has delivered a $5m Covid emergency programme and $54.6m in additional funding for the health system.
  • The IMF provided $25m.

These amounts are, according to the government, not enough to take care of all the country’s needs (social nets, health and communication infrastructure), which are estimated at $150m.

This clear resumption of aid and foreign investment presupposes that the government has removed its isolationist measures. One of them being that it refused to acknowledge the seriousness of the pandemic and thus expelled its World Health Organization (WHO) representative.

It was only after former president Pierre Nkurunziza’s death, which was caused by coronavirus, that the country realised it could no longer deny the reality of the situation. In his letter of intent to the IMF in 2020, Domitien Ndihokubwayo, minister of finance, budget and economic development cooperation, acknowledged that “Burundi has not been spared” from the virus.

Rwanda, Kenya, the UN and European Union (EU) are now willing to trade and provide aid to this suffering country, as long as it proves that it is not a threat on the international scene. Will the situation continue to improve?

Nothing has changed and the civil society elite is in exile.

Thierry Vircoulon, an associate researcher at the French Institute of International Relations (Ifri), has little faith that it will, as the members of government are the same generals as those under Nkurunziza.

“Nothing has changed and the civil society elite is in exile,” he says. “Burundi will receive a little more aid, but that will not help lift it out of its extreme poverty. It has nothing to offer except its mining sector, but given its governance, this is not looking good. Its nickel deposit remains a ‘white elephant’. The exploitation of its “rare earths” will not result in much. They will find it difficult to break out of their isolationism while in Tanzania’s shadow.”

Véronique Kabongo, Bujumbura’s World Bank resident, holds a different view.

“The 2015 crisis certainly resulted in significant imbalances that were exacerbated by the pandemic,” she says. “Despite government efforts to invest in maternal and child care, the country’s human development index remains below the African average. Half of the population is under 15 years old. Employment remains a challenge. The picture looks bleak, but it is possible to reverse this trend of poverty.”

Revisiting the 2004-2014 decade

She recalls that between 2004 and 2014, Burundi was introducing many reforms. It also had an average annual growth rate of 4% and was attracting investors due to its improved business climate.

“It is a small economy that has the potential to return to its 2004-2014 performance levels. In the hopes of achieving this, we have decided to increase our level of investment,” says Kabongo. “Our current portfolio is $713m for national projects and $188m for regional integration. We invest in education, health, social protection, energy, the environment, agriculture, as well as local and SME development.”

After his visit to Bujumbura in June 2021, the World Bank’s vice-president Hafez Ghanem decided that it would be best to focus on four priority areas in partnership with the country’s authorities.

  • First, to support the government’s desire to introduce reforms that will ensure the stability of the macroeconomic framework.
  • Secondly, to help ensure that Burundi’s citizens will have universal access to energy and digital technology by the end of the decade.
  • Thirdly, on the health front, to combat stunting in children aged 0-5 years, 54% of whom are growing “insufficiently”, one of the highest rates in the world.
  • And finally, to help empower women, in particular by ensuring they remain in school.

“We feel a new breath of life,” concludes Kabongo. “But challenges do remain, because not everyone is happy with the reforms.”

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