Burundi

Macroeconomic performance

Real GDP growth improved to an estimated 1.4% in 2018, following a 0.2% contraction in 2017. The slight recovery in GDP was due to resurgence in the services sector (7.4%) following the return of relative calm, and increased production of key export items such as coffee and tea. Manufacturing and agro-processing also contributed to the recovery by growing at 3.2%. The transport and telecommunications sectors weathered the political instability and insecurity better than the construction and hotel and tourism sectors, which depend heavily on foreign financing.

The budget deficit for 2018 was an estimated 8.8% of GDP, up from 6.5% in 2017. The first quarter of 2018 recorded tax and nontax income that was 19.2% higher than in the first quarter of 2017, due mainly to 28.3% more tax revenue from domestic trade and 27.1% more from income. Public spending increases are expected to be 4.6% in comparison with 2017.

In 2018, the central bank continued an expansionary monetary policy that began in 2015. Inflation in 2018 was an estimated 12.7%, due mainly to higher food prices. The official exchange rate was 1,795 Burundian francs per US dollar in October 2018, compared with 1,670 in October 2015—a 3.5% depreciation. The parallel market sees increased pressure on the exchange rate: 2,710 Burundian francs per dollar in October 2018. The current account deficit fell slightly in 2018 to 10.4% of GDP from 11.6% in 2017.

Tailwinds and headwinds

Economic growth is projected to continue at a slower pace—0.4% in 2019 and 1.2% in 2020—driven primarily by increased production and export of coffee and tea, improved terms of trade (from −11.7% in 2018 to 1% in 2019), and higher investment (from 11.8% of GDP in 2018 to 12.4% in 2019). Inflation is projected to nearly double to 22.1% in 2019 and 23.1% in 2020. With a portion of international assistance frozen, the budget deficit is projected to remain at 8.8% in 2019 but to worsen to 10.3% in 2020. The current account deficit is projected to fluctuate between 9.2% in 2019 and 11.2% in 2020.

Several strengths and opportunities, if tapped, will have a considerable impact on growth and job creation. They include underexploited mining potential for peat, limestone, nickel, coltan, phosphates, vanadium, carbonatites, and other minerals; exploitable hydropower potential of 1,300 MW, with less than 40 MW tapped; and the development of the 650 kilometer Lake Tanganyika, whose roughly 10 ports could make it an interregional trade hub. In this regard, renovating Bujumbura port will boost trade, especially among countries of the subregion, such as Democratic Republic of Congo, Rwanda, Tanzania, Uganda, and Zambia.

These economic prospects are filled with uncertainty. Agricultural production remains vulnerable to climate shocks, as happened in 2015 when flooding caused by El Niño was followed by drought. Burundi is also subject to international sanctions that reduce foreign aid that could finance development. The country will have to find new sources of finance if the situation does not change.

Finally, the economic prospects face political and economic uncertainty, especially as the 2020 elections approach. Fragility persists in weak capacity, widespread poverty and youth unemployment, and low capacity to generate or use fiscal space.

Source: African Economic Outlook 2019

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.

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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.

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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.