Burundi

Economic performance and outlook: Economic growth remains severely affected by the acute political crisis that has gripped the country since 2015; real per capita GDP declined 1.6% in 2016. A succession of adverse events, including suspension of financial aid by major donors, shortage of foreign exchange reserves, imports price inflation, and declining investment, seriously weakened the country’s economy, which contracted an estimated 1.3% in 2017. The economy, which depends heavily on agriculture, is expected to remain in recession until 2018 (0.3% decline in real GDP) before growing slightly in 2019 (1%). 

Macroeconomic evolution: The suspension of foreign aid continues to hurt the budget, which posted an estimated deficit of 8.2% of GDP in 2017 despite higher taxes on commodities. The situation is likely to continue to deteriorate in the short term (with an 8.9% deficit projected in 2018 and a 9.1% deficit in 2019). The current account deficit, which reached an estimated 11.6% of GDP in 2017, reflects restrictions on coffee and tea exports as well as insufficient foreign exchange reserves. Despite falling slightly, the current account deficit is projected to remain high in 2018 (10.4%) and 2019 (9.3%). Compounding these challenges is the steep downward trend of the Burundian franc, which will continue to exert pressure on consumer prices: inflation is projected to increase from an estimated 14.6% in 2017 to 15.7% in 2019. Domestic debt is expected to remain high, and external debt is expected to remain stable. Overall public debt is expected to climb to 67.8% of GDP in 2018 and 72.1% in 2019.

 Tailwinds: Burundi has made progress in improving its basic education system and is preparing to launch extensive reforms that extend primary schooling, as outlined in the Millennium Development Goals. The reforms will strengthen human capital over the medium and long term. The country is also likely to benefit from modest increases in international prices for tea and coffee, which account for over 80% of exports. Debt relief for 75% of the government’s foreign debt under the Heavily Indebted Poor Countries initiative will help bolster the economy by stabilizing foreign debt. Finally, although the country has found itself increasingly isolated on the international political stage, Burundi will continue to benefit from economic integration with the East African Community and the African Union. 

Headwinds: The sociopolitical and security crisis affecting Burundi is likely to weigh heavily on the economy and business climate. The World Bank’s 2018 Doing Business report ranked the country 164 out of 190 countries, down seven places from 2016. The shortage of aid and foreign funding, on which the economy heavily relies, will also hurt the budget balance; scarce funding for major public investment will slow growth. Finally, the economy depends heavily on agriculture, which accounts for more than a third of GDP, on commodity exports, and on fuel and food imports. This leaves Burundi highly vulnerable to external shocks, as demonstrated by the severe impact of adverse weather and external trade restrictions on export revenues and the trade balance.

Source: African Economic Outlook 2018

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.