Burundi Economic Outlook
- After a recession in 2015 that saw GDP contract by 3.9%, economic growth resumed in Burundi in 2016, but too slowly (0.9%) to improve the living conditions of the population.
- The socio-political crisis related expenditure led to a widening of the fiscal deficit to 6.7% of GDP in 2016 and caused excessive reliance on domestic debt, while a freeze on aid by international donors is affecting social expenditure.
- Burundi’s economy is dominated by the informal sector, with multiple micro and small agri-food businesses geared towards the local market.
The socio-political crisis embroiling Burundi since 2015 has caused a sharp decrease in economic activity and worsened living conditions for the population. In January 2016, the International Monetary Fund suspended its evaluation of the Extended Credit Facility arrangement, and in March 2016 the country’s main donors (the European Union, Belgium, the Netherlands, Germany and the United States) suspended part of their direct aid.
Gross domestic product (GDP) growth, which stood at 4.5% in 2014 contracted to -3.9% but recovered modestly to 0.9% in 2016. The sectors most affected were hotels, tourism, construction and infrastructure.
The decline in economic activity caused a 10% drop in public revenues and sharply widened the fiscal deficit, which stood at 6.7% of GDP in 2016, compared with 3.2% in 2014 and 8.6% in 2015. The government covered the shortfall through systematic recourse to advances from the Central Bank. Domestic debt rose to 26% of GDP in 2016, up from 12.4% in 2014, while the national debt reached 42% of GDP.
Spending in 2016 was 25% lower than in 2015. The government froze the salaries of civil servants and suspended recruitment in all ministries except Education and Health. This caused a considerable decline in the availability of services in 2016, leading to: i) a lack of medicine and vaccines; ii) insufficient school material; iii) the non-admission of 80 000 pupils who had been due to begin secondary education; and iv) pockets of famine in certain regions.
The Central Bank’s policy rate dropped from 12.5% in 2013 to 7.5% in October 2016, while the loan rate of commercial banks remained unchanged at around 16.5%. Official reserves fell by 30.1%, or 1.4 months of import cover. The drop in net foreign assets and government debt led to a 6% decline in official exchange rates between 2015 and 2016 (USD 1 = BIF 1 687 [Burundi francs]), while the dollar fetched more than BIF 2 600 on the parallel market. Inflation stood at 5.5% in 2016. The authorities are projecting 2.0% growth in 2017, while the 2017 budget law projects a 5.2% increase in public expenditure and a fiscal deficit of close to 3.8% of GDP. These projections appear unrealistic, however, given the economic situation and the challenges experienced since 2015. A re-engagement of political stakeholders depends on a political solution to the current tensions that would make it possible to prevent an even more serious deterioration of the socio-political situation.