Press Release No. 12/35

Press Release: IMF Executive Board Approves New US$46.5 Million Extended Credit Facility Arrangement and US$1.6 Million Disbursement for Burundi

February 3, 2012

The Executive Board of the International Monetary Fund (IMF) approved on January 27, 2012 a new three-year, SDR 30 million (about US$46.5 million) arrangement for Burundi under the Extended Credit Facility (ECF) aimed at consolidating the gains made in terms of macroeconomic stability and further reducing poverty. The approval enables the immediate disbursement of an amount equivalent to SDR 1 million (about US$1.6 million). The Board's decision was taken on a lapse of time basis¹.

A previous ECF arrangement for Burundi expired on January 23, 2012, following the Board’s completion on January 13, 2012 of the seventh and final review which allowed the disbursement of an amount equivalent to SDR 5 million (about US$7.8 million), bringing total disbursements under that arrangement to an amount equivalent to SDR 51.2 million (about US$79.4 million – see Press Release No. 12/9).

Economic Outlook

Real GDP growth in 2011 is projected at 4.2 percent, somewhat lower than previously envisaged, owing to a weakening in aggregate demand related to the food and fuel price shock and persistent electricity shortages. The overall deficit in 2011 is projected to be

2.5 percent of GDP or 0.5 percent of GDP lower than programmed. Revenue collection

through end-October was about 34 percent higher than in the same period in 2010, as the

result of improvement in revenue administration and better collection of non-tax revenue.

Economic growth is projected to reach 6.0 percent in 2014, supported by improved productivity and diversification of agricultural activity, and by increased investment in the electricity and tourism sectors. As a result of a prudent demand policy, inflation is expected to decline gradually to single digits. In the external sector, exports of coffee and other agricultural products should increase strongly and offset the expected increase in imports. Consequently, the external current account deficit is expected to improve and stand at 9.1 percent of GDP in 2014.

However, downside risks remain. Growth could be affected because of the security situation and the external environment characterized by high petroleum products prices, with

negative consequences for inflation and budget execution. Moreover, the euro zone crisis could increase the uncertainties surrounding budget support.

Program Summary

The program for 2012–14 draws on the lessons from the Ex Post Assessment (EPA) and builds on the new poverty reduction and growth strategy (PRSP-II). It will seek to consolidate the gains made in terms of macroeconomic stability from implementation of previous economic programs and to further assist the government to continue its poverty reduction policy in the framework of the PRSP-II. The EPA highlighted the importance of greater exchange rate flexibility to better absorb external shocks, the rebuilding of fiscal buffers, and the safeguarding of debt sustainability. A key pillar of the new PRSP emphasizes the transformation of the Burundian economy for sustained growth and job creation by alleviating key bottlenecks to growth.

The program aims at: (i) further improving fiscal revenue collection; (ii) strengthening public financial management and developing a debt management policy; (iii) permitting greater exchange rate flexibility; and (iv) improving the business climate.

The ECF program dovetails with initiatives of key development partners, in particular the World Bank in the electricity, education, coffee, and health sectors, the African Development Bank in infrastructure, bilateral donors in revenue mobilization and governance. The program envisages consolidating quick wins secured under previous arrangements such as social safety net programs in the health and education sectors.

¹ The Executive Board takes decisions under its lapse of time procedure when it is agreed by the Board that a proposal can be considered without convening formal discussions.