Burundi Economic Outlook

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.

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