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BURUNDI Fifth Review Under the Arrangement Under the Poverty Reduction and Growth Facility (PRGF) and Request for Waiver of a Performance Criterion—Informational Annex

Author(s):
International Monetary Fund
Published Date:
March 2007
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IV. Burundi: Relations with the Fund

(As of December 31, 2006)

I. Membership Status: Joined: September 28, 1963; Article XIV

II. General Resources Account:

SDR Million%Quota
Quota77.00100.00
Fund holdings of currency76.6499.53
Reserve Position0.360.47

III. SDR Department:

SDR Million%Allocation
Net cumulative allocation13.70100.00
Holdings0.221.58

IV. Outstanding Purchases and Loans:

SDR Million%Quota
PRGF Arrangements55.0071.43

V. Latest Financial Arrangements:

TypeDate of

Arrangement
Expiration

Date
Amount

Approved

(SDR Million)
Amount Drawn

(SDR Million)
PRGFJan 23, 2004Sep 30, 200769.3055.00
PRGFNov 13, 1991Nov 12, 199442.7017.21
SAFAug 08, 1986Aug 07, 198929.8929.89

VI. Projected Payments to Fund (without HIPC Assistance) (SDR Million; based on existing use of resources and present holdings of SDRs):

Forthcoming
20072008200920102011
Principal2.646.008.14
Charges/Interest0.820.830.820.790.75
Total0.820.833.466.798.89

Projected Payments to Fund: (with Board-approved HIPC Assistance) (SDR Million; based on existing use of resources and present holdings of SDRs):

Forthcoming
20072008200920102011
Principal2.646.008.14
Charges/Interest0.780.830.820.790.75
Total0.780.833.466.798.89

VII. Safeguards Assessments

Under the Fund’s safeguards assessment policy, the Banque de la République du Burundi (BRB) is subject to a full safeguards assessment with respect to the PRGF arrangement approved on January 23, 2004. The safeguards assessment was completed on January 18, 2006. The assessment identified several vulnerabilities, in particular in the legal and control areas, including the management of foreign reserves, and the internal audit function.

VIII. Exchange Arrangements

Burundi maintains a managed float exchange regime. The U.S. dollar is the intervention currency. On December 29, 2006, the exchange rate was FBu 1002.5 to the U.S. dollar. In 2003, the central bank eliminated most remaining exchange restrictions on current international transactions and delegated authority to the commercial banks to approve standard transactions. In early 2004, the surrender requirement was lowered to 50 percent and eliminated in early 2005. The central bank admitted foreign exchange bureaus to the weekly auctions. Most external payments arrears to bilateral and multilateral creditors were cleared by end-2005. In December 2006, the government published a new foreign exchange regulation, which liberalized foreign exchange for current transactions and removed one multiple currency practice.

Burundi availed itself of the transitional arrangements of Article XIV when it joined the Fund in 1962, but no longer maintains exchange restrictions or multiple currency practices under Article XIV. Burundi maintains one multiple currency practice inconsistent with Article VIII, Section 2(a): the exchange rate used for government transactions takes place at a rate that may differ by more than 2 percent from market exchange rates. Burundi maintains certain foreign exchange restrictions for security reasons, and has notified those restrictions to the Fund pursuant to Decision 144-(52/51). The authorities have not requested, and staff does not propose, approval of the multiple currency practice.

IX. Article IV Consultation

Burundi is on the 24-month cycle. The 2006 Article IV consultation discussions were conducted in Bujumbura during the period March 1–18, 2006. The Executive Board discussed the staff report (IMF Country Report No. 6/311) on July 14, 2006, along with the consideration of the third and fourth reviews under the Poverty Reduction and Growth Facility (PRGF). On that occasion, Executive Directors welcomed the commendable progress that Burundi made in 2005 in implementing its PRGF-supported program in a difficult post-conflict environment. They welcome the progress made on the enhanced HIPC Initiative completion point triggers but emphasized the need for the authorities to pay particular attention to reinforcing government’s capacity to deliver social services. They noted the need to reinforce good governance and transparency practices, including public financial management and through the progressive withdrawal of state intervention in the economy.

X. Technical Assistance

2006 (Dec.)FAD public expenditure management mission
2006 (Nov.)MCM banking supervision mission
2006 (Sep.)FAD customs and tax administration mission
2006 (Apr.)MCM foreign exchange reserve management mission
2006 (Mar.)STA mission to prepare the metadata and medium-term action plan
2006 (Mar.)MFD/LEG joint Article VIII mission
2006 (Jan.)LEG AML/CFT legislative drafting mission
2006 (Jan.)Monetary operations/FOREX/banking supervision mission
2005 (Dec.)STA balance of payments statistics (external debt accounting) mission
2005-06MFD resident expert on monetary operations and money markets
2005 (Oct.)FIN safeguard assessment second step mission
2005 (Oct.)FAD public financial management mission
2005 (Oct.)FAD customs administration mission
2005 (Oct.)MFD expert on monetary operations mission
2004-05Extended visits by MFD expert on liquidity management
2004 (Nov.)STA multisector mission
2004 (Nov.)MFD multitopic mission
2004FAD public accounting system, three visits by peripatetic adviser.

XI. Implementation of HIPC Initiative:

Enhanced

Framework
I. Commitment of HIPC assistance
Decision point dateAug 2005
Assistance committed by all creditors (US$ Million) 1/826.00
Of which: IMF assistance (US$ million)27.84
(SDR equivalent in millions)19.26
Completion point dateFloating
II. Disbursement of IMF assistance (SDR Million)
Assistance disbursed to the member0.17
Interim assistance0.17
Completion point balance
Additional disbursement of interest income 2/
Total disbursements0.17

Assistance committed under the original framework is expressed in net present value (NPV) terms at the completion point, and assistance committed under the enhanced framework is expressed in NPV terms at the decision point. Hence these two amounts can not be added.

Under the enhanced framework, an additional disbursement is made at the completion point corresponding to interest income earned on the amount committed at the decision point but not disbursed during the interim period.

Assistance committed under the original framework is expressed in net present value (NPV) terms at the completion point, and assistance committed under the enhanced framework is expressed in NPV terms at the decision point. Hence these two amounts can not be added.

Under the enhanced framework, an additional disbursement is made at the completion point corresponding to interest income earned on the amount committed at the decision point but not disbursed during the interim period.

XII. Resident Representative

Mr. Lars-Holger Engström took up the post of Resident Representative in May 2005 in addition to his posting as Resident Representative to Rwanda. An office with an administrative assistant started operating in January 2006 in Bujumbura.

V. Burundi: Relations with the World Bank Group

(As of February 7, 2006)

A. Partnership in Burundi’s Development Strategy

Following the establishment of a transitional government in 2002, a new constitution that provides for appropriate ethnic checks and balances was approved in February 2005. Presidential and parliamentary elections were held in August 2005 and a democratically elected government took office in September 2005. In September 2006, a cease-fire accord was reached with the last holdout rebel movement, the FNL-PALIPEHUTU faction. Demobilization and socio-economic reintegration of most FNL combatants is expected to begin during the first quarter of 2007. The peace process has attracted considerable attention and Burundi is one of the pilots for the recently created UN Peace Building Commission.

The preparation of the full PRSP was launched in May 2004 under the leadership of the Head of State. The PRSP builds upon the I-PRSP discussed by the Boards of the IDA and the Fund in January 2004, and was completed and published in September 2006. The strategy focuses on four main priority areas: (i) improved governance and security; (ii) equitable and sustainable growth; (iii) developing human capital by improving the quality of social services; and (iv) reinforcing the fight against HIV/AIDS. The full PRSP, which is expected to be discussed at the IDA and IMF Boards in March 2007, benefited from broad and inclusive consultations with all stakeholders at the national, provincial and communal levels.

B. Bank-Fund Collaboration in Specific Areas

The Bank and Fund teams have been closely coordinating their assistance strategies and policy advice related to the government’s implementation of the I-PRSP. There is also good cooperation in the policy dialogue on structural issues, in particular crucial reforms in the coffee sector. The Bank is leading the policy dialogue on structural aspects of the reform program. The Fund is leading the dialogue on macroeconomic and financial issues, in particular fiscal, monetary, and exchange regime policies. Both institutions are providing significant technical assistance. The Fund and the Bank have both contributed to the Diagnostic Trade Integration Study under the Integrated Trade Framework—a review of the policy, regulatory, and institutional framework—with the objective of promoting employment-generating trade. Collaboration was intensified in 2005, as Burundi’s full PRSP and the HIPC Decision Point Document were prepared. A Joint Staff Advisory Note (JSAN) was produced on the full PRSP in February 2007. Table 1 summarizes Bank-Fund collaboration in specific areas.

C. world Bank Group Program and Portfolio

A Country Assistance Strategy (CAS) will be undertaken in FY08 following the adoption of the PRSP by the government and the forthcoming Board discussions of the poverty reduction strategy. Recent Bank support has been within the framework of the interim strategy note (ISN) adopted by the Board in May 2005 and covering FY06 and FY07. The ISN is fully aligned with the priorities of the I-PRSP and aims at (a) addressing the country’s social needs, including access to basic services, enhanced employment opportunities, and stronger social capital in particular within rural communities; and (b) creating the basis for a sustained economic recovery and growth. IDA is supporting this strategy with a series of fast-disbursing and investment operations (Table 2).

Based on sound macroeconomic policies and progress in reforming the economy, external financial aid has resumed and culminated with Burundi being granted access to debt relief under the enhanced Heavily Indebted Poor Country Initiative (HIPC initiative) in August 2005. The HIPC debt relief will reduce Burundi’s debt by over 90 percent in NPV terms, and scheduled debt service by some US$30–40 million per year for the next thirty years. The Government has intensively used the full-PRSP preparation process to improve coordination of development efforts in the country, including donor-supported activities. There are ongoing efforts to improve alignment of public expenditures with poverty-reduction priorities. The 2006 budget allocations have been linked to the priorities identified in the full PRSP and recent work in developing sector policies, particularly in health and education. Moreover, allocations to pro-poor programs have increased from 33.6 percent of total expenditure in 2005 to 35.5 percent in the 2006 revised budget law, and increased further in the 2007 budget law. In addition, the military wage bill to GDP ratio has been reduced from about 3.5 percent in 2002 (a peak) to about 2.8 percent in 2005 and 2.3 percent in the 2006 revised budget law, while the civilian wage bill was increased from 3.5 percent in 2000 to 6.0 percent in the revised budget law. One area of concern is the issue of the wage bill, which is expected to account for about 12 percent of GDP in 2007 (from 8–9 percent in 2006).

International Development Agency (IDA) program. As of end January 2007, the active portfolio comprised eight operations with a total commitment value of US$332 million (of which US$ 142 million remain undisbursed). IDA has financed projects in (i) post-conflict rehabilitation and reintegration; (ii) education; (iii) health, HIV/AIDS and social policy reforms; (iv) public works (water sanitation and flood protection) and job creation; (v) transportation (roads and highways) rehabilitation; (vi) agriculture rehabilitation; (vii) economic management, and a policy-based quick-disbursing operation (Economic Reform Support Grant).

On August 1, 2006, the Board approved a budget support operation (Economic Reform Support Grant) in the amount of US$60 million to the Republic of Burundi to help its government carry out a set of reforms in the areas of public finance management, cash crop sectors and private sector development. About 60 percent of the proceeds of this operation financed the country’s 2006 budget while the remainder (US$25 million) will be allocated toward the 2007 budget. The IMF is supporting the Government’s program with a PRGF. In practice, there is close collaboration between the Bank and Fund in many areas, particularly those related to growth and poverty reduction.

International Finance Corporation (IFC). Burundi has been a member of IFC since 1975. With the peaceful transition, prospects for IFC involvement in Burundi are improving. An IFC mission in January 2005, followed by a joint IFC-Bank PSD (Africa Region) mission in May 2005 were conducted to discuss two areas of possible IFC intervention: (i) support to the country’s privatization program, including possible transaction implementation advice on the privatization of the incumbent fixed-line telecommunications company, ONATEL; and (ii) potential investment in Burundi’s largest commercial Bank (Banque de Crédit de Bujumbura, BCB). In November 2006, another IFC mission was conducted to discuss with the government the possibility of IFC-Corporate Advisory Services (CAS) to act as transaction advisor for the privatization of ONATEL. IFC is exploring opportunities for Burundi’s banks to participate in IFC Global Trade Finance program which presents the best opportunity for IFC to intervene in the country’s financial sector. A trade finance assessment and appraisal of 2 leading banks will be conducted by the IFC Global trade finance team in February, 2007. There is potential for IFC participation in the rehabilitation and modernization of Novotel, and the provision of financial assistance to private hotel operators to meet a high demand for quality accommodation in Burundi. IFC is currently considering providing term financing for expansion projects of the following companies: Interpetrol, a logistics company with over 100 haulage trucks, OLD EAST SA, a commercial real estate company, and Brarudi, a brewery jointly owned by the state and Heineken.

Multilateral Investment Guarantee Agency (MIGA). Burundi became a member of MIGA in March 1998. MIGA’s outstanding portfolio consists of one contract of guarantee in the infrastructure sector, with a gross exposure of US$0.9 million, and a net exposure of US$0.8million. The total estimated amount of foreign direct investment facilitated to-date by MIGA is approximately US$1.8 million. Currently, there are no active projects in MIGA’s pipeline for Burundi. However, one contract with Mauritius Telecom for US$0.9 million was signed in FY03.

World Bank Institute (WBI): Since July 1, 2006, Burundi became one of 14 African countries out of 44 focus countries for WBI programs. These countries are priority countries for WBI. For FY07, the WBI program for Burundi includes (i) a Leadership program; and (ii) an Anti-corruption and Governance diagnostics.

World Bank staff: Questions may be referred to Pedro Alba ((202) 458–2246), and Jean-Pascal N. Nganou ((202) 458–8054).

Table 1.Summary of Bank-Fund Collaboration
Thematic areaAreas of collaborationBankFund
PRSP process.Finalization of the full PRSPAiding in preparation of participatory consultations and workshops; coordination of donors, poverty survey and analysis; Prepared the Joint Staff Advisory Note (JSAN) on the full PRSP.Commented on the design of macroeconomic framework in the PRSP; Prepared the Joint Staff Advisory Note (JSAN) on the full PRSP.
Macroeconomic stability and development.Development agenda in poverty reduction goals.Complement Fund’s macroeconomic policy with various broad structural and sector works through lending and capacity building especially in the areas such as budget management, agriculture, energy, infrastructure, and telecommunications sectors.Fund leads on the macroeconomic policy dialogue, including on fiscal, monetary, and exchange rate policies. Fund has been supporting Burundi through a PRGF approved on January 23, 2004, extended to end-September 2007. Program measures and TA have targeted improved national statistics.
Collaboration in growth oriented reforms of the Government.Technical assistance (TA) in macro framework and related issues under the IDA EMSP.The PRGF supported program, has focus on removing the structural impediments to sustained growth
Public financial managementCollaboration in institutional and structural reforms including procurement code, a basic computerized financial management information system (IFMIS); expenditure management, an investment management system, and budget planning.TA for: (i) the completion of the Public Expenditure Review (PER) under the Emergency Economic Recovery Credit (EERC); (ii) the Country Financial Accountability Assessment (CFAA), and (iii) Country Procurement Issue Paper (CPIP) and the preparation of a comprehensive action plan to reform procurement. The Bank has also provided under the Economic Management Support Project (EMSP) TA in the computerization of public finance management (IFMIS).TA has been in the area of expenditure management and control, the introduction of a basic IFMIS, the elimination of extra-budgetary funds, and to a treasury single account. A resident expert is being posted at the Ministry of Finance. The new AFRITAC Center will provide peripatetic technical assistance.

The Fund has worked to reinforce donor coordination on budget support and TA.
Strengthening capacities in the areas of financial accountability and budget monitoring.Financing and provision of technical assistance in budget management and financial accountability, notably to the National Auditing Court (Cour des Comptes).

The Bank has also supported the reinforcement of capacity for the Cour des Comptes judges, parliamentarians, and media through IDA EMSP. The Bank will also strengthen the capacity of the State General Inspectorate (IGE) for internal audit and control. A consultant is being hired to provide support to the PETS.
TA in the areas of: (i) functional classification for expenditure including a sub-classification for poverty related outlays; (ii) an new budget and accounting code; and (iii) expenditure tracking and control
Reforming revenue policy and administrationThe Bank has provided TA to redraft the tax code. The Bank also provided support to customs administration and to the study on the introduction of the VAT.TA has been provided on customs administration; import tariffs; reinforcement of tax administration; and tax policy reform.
Structural and policy reforms and financial sector.Collaboration in key institutional and structural reforms legal and judicial reform in establishing commercial courts and other regulatory reforms.The Bank has provided support in: (i) the restructuring of the banking sector, including privatization, under ERSG; (ii) the creation and the functioning of the Arbitration Center through the EMSP. Support will be given to the Ministry of Justice and Ministry of Commerce for the revision and dissemination of the Commercial code and the bankruptcy code. The Bank is helping the reforms in coffee, tea, and cotton sectors, in addition to micro-finance.In the structural area the PRGF has focused on the removal of trade restrictions and the freeing of prices and marketing in key sector such as coffee and sugar.

TA to the central bank on banking supervision, prudential regulation, reserves management, monetary policy analysis, and liquidity management.
Governance and corruptionCollaboration in the:

(i) preparation of a national anti-corruption strategy ; (ii) governance diagnostic survey.
The Bank is expected to provide technical assistance for the preparation of a governance diagnostic survey. Also, mindful of the limited human and managerial capacity at the Ministry of Good Governance, the Bank will help in reinforcing the capacity at this line ministry and for anti-money laundering control. The Bank has also contributed and provided support to the audit of domestic arrears and the strategy for their clearanceUnder the IMF safeguards policy the central bank has conducted regular external audits, initiated an internal audit, and strengthened governance. TA in drafting the anti-money laundering law (AML/CFT). The PRGF-supported program has also targeted the reinforcement of cash management at the coffee parastatal, OCIBU, and the reinforcement of oversight of the public sector.
Infrastructure and private sector developmentCollaboration in business policies especially in the areas of taxation, budget, and legal and institutional development.The Bank has been supporting this area through its infrastructure projects in road sector, and public works and employment. The Bank will also prepare a privatization program for a number of public enterprises identified in the ERSG grant.

Based on the investment climate survey carried out in June 2006, the Bank is preparing an Investment Climate Assessment to identify the constraints to the development and growth of the private sector.
The focus has been on the elimination of distortions in the tax system, clearance of budgetary arrears with the private sector, and support of the privatization effort.
Agriculture and rural development.Collaboration in restoring the productive ability of the rural sector.World Bank is supporting this sector through its Agricultural Rehabilitation and Sustainable Land Management Project (ARSLMP), which aims to raise productivity and incomes among rural population, through: (i) investments in production and sustainable land management; (ii) capacity building for producer organizations, and local communities, including war-distressed returnees and internally displaced persons. The Bank will assist in the privatization of the coffee and tea sectors.
Social sector and community development.Development agenda in poverty reduction and social sectors.The Health and Population Project and the multisectoral HIV-AIDS and Orphans Project are supporting the social sector development in the area of HIV-AIDS, population and health.
Table 2.Status of Active Operations
ProjectUS$ mil.ObjectiveApproval/

Effectiveness
Disbursed

February 07

(%)
Ratings
DOIP
Agricultural Rehabilitation and Sustainable Land Management Project40To restore the productive capacity of rural areas, through: (i) investments in production and sustainable land management; (ii) capacity building for producer organizations and local communities, including war-distressed returnees and internally displaced persons.July 2004/ September 200443.4SS
Emergency Demobilization Reinsertion and Reintegration Program33To help consolidate peace in Burundi and the Great Lakes region by: (i) demobilizing soldiers and ex-combatants and providing targeted support to facilitate their return to civilian life; and (ii) contributing to the reallocation of government expenditures from military to social and economic sectors.March 2004/ September 200469.0MSMS
Transport Infrastructure Rehabilitation Project51.4To contribute to Burundi’s post-war revival by restoring part of the priority road network, generating employment for the rural poor, and improving institutional capacity in the road sector.March 2004/ September 200427.0UU
Economic Management Support Project (EMSP)26To increase the efficiency of Burundi’s macroeconomic, financial, and administrative management by strengthening accountability and transparency through improved procedures and controls.January 2004/April 200417.0MSS
Economic Reform Support Grant (ERSG)60To help implement the Government’s economic reform program during 2006 and Burundi’s Interim PRSP by supporting key policy measures aimed at: (i) improving public expenditure management and their impact on the poor; and (ii) accelerating growth.August 2006/ November 200659.0n/an/a
Multisectoral HIV/AIDS Control and Orphans Project36To support the national program as set forth in its Action Plan for the Struggle against HIV/AIDS for the period 2002–2006, through actions involving in-line ministries, civil society, private enterprises, labor unions, in addition to women and youth, and nongovernmental organizations (NGOs).June 2002/ October 200298.0SS
Public Works and Employment Creation Project (with additional grant of US$ 30.6 million approved in December 2005)70.6To contribute to the peace process and reconstruction of Burundi through generation of productive and labor-intensive employment.January 2001/June 200175.0SS
Regional Trade Facilitation Project15To contribute to poverty alleviation through private sector led growth by improving access to financing for productive transactions and cross-border trade. It also aims to bring together a group of countries in the Southern and Eastern African region that are willing to address the market’s perception of risk in Africa by setting up a credible insurance mechanism.April 2001/ February 200270.1SS

VI. Burundi: Relations with the African Development Bank Group

(As of December 31, 2006)

Burundi has been a member of the AfDB Group since its foundation in 1964. The AfDB’s grant and loan operations with the country were interrupted by the outbreak of civil strife in 1993. On July 19, 2004, the AfDB Boards approved general policy guidelines to assist post-conflict countries to clear their arrears and created a facility, the PCCF, initially funded with about SDR 100 million in AfDB funds, to provide financial assistance to qualifying post-conflict countries. The policy guidelines call for a three-way burden-sharing formula among the country, donors, and the PCCF. On October 27, 2004, the AfDB Boards endorsed a specific arrears clearance proposal for Burundi whereby the balance of arrears was settled with the help of donors and the PCCF before the Decision Point under the enhanced HIPC Initiative.

On November 24, 2005, the Boards of Directors of the African Development Bank (ADB) and the African Development Fund (ADF) agreed that Burundi had effectively met the conditions and reached the decision point under the enhanced framework of the Heavily Indebted Poor Countries (HIPC) Initiative. The Bank Group’s share of debt relief will amount to US$149.35 million in present value terms (US$226.01 million in nominal terms), which is equivalent to about 21 percent of the multilateral creditors’ assistance, and about 18 percent of total assistance from all creditors. This amount will save up to 90 percent of Burundi’s debt-service obligations annually until February 2043.

Under its FAD 9 allocation, following the lifting of sanctions in October 2004, on July 7, 2004, the Bank Group approved a grant of SDR 2.13 million to finance training of civil servants and procurement of equipment for institutions in charge of economic management and the civil society. A structural adjustment credit totally SDR 6.72 million, in one tranche, accompanied by a further grant of SDR 1.5 million for institutional support, was approved by the Board on December 2004. A multi-sector project, totaling SDR 9.8 million, was also approved on December 2004. Under its FAD 10 allocation, the Bank Group approved in December 2005 a grant of SDR 12 million to finance rural water infrastructure rehabilitation and, in March 2006, a SDR 9 million to finance the watershed management project. In November 2006, the Bank Group approved one more grant: SDR 7.3 million, in one tranche, to finance economic reforms and governance support program.

African Development Bank Operations in Burundi
Outstanding

loans
Past-due

obligations
(In millions of SDRs)
African Development Bank0.00
African Development Fund147.030
Nigerian Trust Fund0.140
Total147.170

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