Burundi

Macroeconomic performance and outlook

The economic recovery strengthened in 2019 (3.3% growth in real GDP) on the back of higher coffee exports, a slight increase in public investment, and a particularly good year for agricultural production.

The fiscal deficit rose to 4.2% for 2019, after 3.3% in 2018, mainly due to an increase in recurrent expen- ditures that was not offset by good performance in tax collection. The deficit has been financed through increased recourse to central bank advances and the accumulation of domestic payment arrears. The risk of debt distress remains high (63.5% of GDP in 2019 compared with 58.4% in 2018) because of increased domestic debt. In inflation, the fall starting in 2018 (from 16.1% in 2017) continued in 2019, with a rate of –3.1% (food prices dropped almost 11%).

The country’s external position remains fragile. The current account deficit inched lower to 10% in 2019, financed primarily by government borrowing from the banking sector through the issuance of treasury bills. In 2019, official reserves did not cover one month of imports, whereas in 2018 they stood at 1.1 months. In June 2019, the official exchange rate was 1,842.4 francs to the dollar, depreciating 11% since 2016.

Almost two-thirds of the population lives below the poverty line (2017 estimate), and the youth unemploy- ment rate is particularly high (65%).

Tailwinds and headwinds

The economy is projected to grow 3.7% in 2020 and 4.3% in 2021 on the back of higher coffee exports, a slight increase in public investment, average growth of 6% in food production, and steady, prudent monetary policy. The central bank has initiated significant regula- tory reforms in exchange rate policy, which could relieve pressure on the country’s foreign reserves.

Various initiatives are under way to modernize and diversify agricultural production, build the Jiji and Mulembwe power plants, improve access to the coun- try (rehabilitating the port of Bujumbura), increase regional trade by strengthening the transport network, and improve the quality of human resources.

With a small export base (coffee and tea) and an agricultural sector highly vulnerable to weather shocks, Burundi’s current account is in deficit (10% in 2019). The fiscal deficit (4.2% in 2019) could increase further in 2020 (4.9% of GDP) and 2021 (5.2% of GDP).

Food security remains a major challenge, and 6 of 10 children were stunted in 2017. Health indicators are weak. Life expectancy, 57 years in 2014, fell to 52.6 in 2017. The under-five mortality rate is 42.5 per 1,000 live births. And the incidence of malaria is 156.2 per 1,000 population at risk. The risks of natural disasters are real (70% of internal displacement is due to natural disasters).

The overall level of human capital is low due to an underperforming education system and persistent mis- matches between skills and labor market needs.

The agricultural sector is predominant, accounting for 40.7% of GDP in 2018 and employing around 80% of labor. But it faces significant agronomic, technologi- cal, and institutional constraints.

Energy infrastructure development is inadequate, with low electricity access (1.2% in rural areas and 58.5% in urban areas in 2016).

Health sector preparedness

Overall, Burundi’s health system is poorly prepared to cope with the wide spread of the pandemic. The 2019 Global Health Security Index ranks Burundi 177 among 195 coun- tries, with a score of 22.8 (of 100). The country appears well below world averages in prevention capacity (25.1 versus 34.8), detection (11.4 versus 41.9), and the rapid response of its health system (28.4 versus 38.4). Faced with COVID–19, the high population density (436 people per km2) poses a major risk for the spread of the virus and constrains the health system’s ability to provide care.

Policy responses

In the area of public health, in March the government adopted a national contingency plan for preparedness and response to the COVID–19 crisis. The cost of this con- tingency plan is estimated at approximately $26 million. The government has also taken measures to contain the spread of the virus in the country. But no lockdown mea- sures have been adopted—no school closures, no remote working, and so on.
Although the economy is starting to show the impact of COVID–19 (including the 7.6% year-on-year increase in the consumer price index at the end of April compared with a 7.1% increase in March), no specific economic policy mea- sures for taxes, subsidies, enterprises, exposed sectors, or social protection have been adopted so far. Likewise, the country’s monetary authorities have not yet implemented any mechanisms to regulate and support the economy.

Source: African Economic Outlook 2020

Summary

Burundi issues Treasury Bills and Bonds. For  Treasury Bills, maturities are 91 days, 182 days and 364 days. For Treasury bonds, the maturities are currently 2,3,4,5,6,7,8,9 and 10 years.

Issuance strategy 

The medium-term debt management objective is as follows:

• Provide cash requirements for short-term securities and capital investment requirements for medium and long-term securities.
• The overall public debt must not exceed 50% of GDP, according to the convergence criteria for the implementation of the Protocol of the Monetary Union of the East African Community.

In order to avoid the concentration of debt, the Government issues both short and long-term securities, with diversified maturities.

Benchmark issues 

Burundi issues weekly, every Wednesday, Treasury bills and bonds for all maturities. There are no maturity specially considered as references. Each time, there are new lines, since the practice of reopening existing lines has not yet started.

. 

Yield curve

Yield curve calculation models 

Burundi has not yet started to build and publish the yield curve given that the secondary market for Treasury securities is nascent.

Interpolation methods 

N/A

Yield curve managed by

N/A

Display platform 

N/A

Challenges in building an efficient yield curve 

• Narrow investor base
• Illiquid and limited secondary market: There are few transactions in the OTC market.
• Absence of bond issues considered as benchmarks.

Procedures for market participation

For Treasury bonds, investors can either bid directly to the Central Bank, the BRB (if they have an account at the institution) or through their commercial banks; for T-bonds, investors have the alternative of opting for debt conversion. 

The bidding process is open to all investors provided they meet the minimum amount required to bid. Bids may be made at fixed or variable rates. For variable rate tenders, bids are ranked in ascending order of rates or decreasing prices. In the event of oversubscription, the Auction committee pro-rates the bids.

When bids are made at fixed rate, each bidder is allocated the entire amount he/she tendered for (as long as the sum of bids does not exceed the amount of the issue; if it does, bids are prorated).

A maximum of 5 bids is allowed per auction.

Taxation

Interest income derived from holding a government security is subject to a 15% withholding tax.

Settlement cycle

The settlement cycle is T + 1 for auctions on the primary market, and T + O for transactions on the secondary market.

.

Market restrictions

Openness to international investors

The market is open to nationals and foreigners. There are no restrictions or special treatment for foreigners. In 2010, the government created “l’Agence Burundaise pour la Promotion de l'Investissement” as a way to promote investment (foreign and local) in the country.

Capital controls

Most capital transactions, including credit operations, direct investment, and personal capital movements, are subject to restrictions or authorization requirements.

The average delay for remitting investment returns, once all taxes have been paid, is about three months. 

Foreign Exchange restrictions and profit repatriation

Foreign exchange controls have recently been liberalized. In principle, there are no restrictions on converting or transferring funds associated with foreign investment; in practice, limitations depend on the availability of hard currency, since the Central Bank is not accustomed to accommodating large international transactions. It may be worthwhile to note that the Burundi Franc is pegged to the value of a composite of currencies.

Residents and nonresidents may hold foreign exchange accounts and withdraw funds up to a set limit upon presentation of requisite documentation. Central bank approval is required for accounts held abroad.

Credit rating

Burundi has not been assigned a rating by any of the credit rating agencies.

List of Primary Dealers

The role of Primary dealers is played by Treasury Specialists who are approved by the Central Bank, with the commitment to respect the code of conduct and the specifications that govern them. Currently, commercial banks are eligible to play this role, nine SVTs are approved for the moment.