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

• The government securities yield curve extended to 5 years with 2 benchmark points along the curve (2 and 5 years). 
• The issuance strategy is based solely on funding the budget. Constructing the yield curve is not taken into account in the issuance strategy. The issuance methods used are auction method and the underwriting method, both in new lines. 
• Burundi is 40th in the ABMDI 2017 Ranking Report. 

Issuance strategy 

The issuance strategy is based solely on funding the budget. 

Benchmark issues 

There are two benchmark maturities for government securities in local currency, Burundi Franc (BIF): 2 and 5 years. The benchmark maturities are those with large issue amounts and issued on a regular basis. 

Yield curve

Yield curve calculation models 

There is no yield curve in Burundi and the government issuance strategy does not plan to build a benchmark yield curve. 

Interpolation methods 

No method for interpolation is in use.

Yield curve managed by

N/A

Display platform 

N/A

Challenges in building an efficient yield curve 

Illiquid and limited secondary market: There are few transactions in the OTC market.

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

Treasury securities are settled on a T+6 basis.

Market restrictions

Openness to international investors

Foreign investors can participate in the government securities market.

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

As of March 2010, Burundi has not been assigned a rating by any of the credit rating agencies.

List of Primary Dealers

There are no primary dealers in Burundi.