Estudos Econômicos
Burundi

Burundi

Population 9.4 million
GDP 304 US$
D
Country risk assessment
E
Business Climate
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Synthesis

major macro economic indicators

  2014 2015  2016 (f) 2017 (f)
GDP growth (%) 4,5 -4,0 -0,5 2,0
Inflation (yearly average) (%) 4,4 5,5 6,3 9,4
Budget balance (% GDP) -17,3 -15,6 -12,5 -11,9
Current account balance (% GDP) -18,5 -15,9 -4,6 -9,6
Public debt (% GDP) 33,9 42,4 44,3 45,6

 

(e) Estimate (f) Forecast

STRENGTHS

  • Natural resources (coffee, tea, minerals)
  • Annulation de 75 % de la dette publique extérieure en 2009
  • Membership of East African Community(EAC) and the African Union (AU)

WEAKNESSES

  • Tense political context
  • Growing tensions on the border with Rwanda
  • Poorly diversified economy and vulnerable to external shocks
  • Geographic isolation
  • Activity hampered by lack of infrastructure and limited access to electricity
  • International aid suspended following political crisis

Risk assessment

Growth suffering from political crisis, international sanctions and drought

Hit by the political deadlock and the sanctions imposed by the international community, Burundi's economy contracted for the second consecutive year in 2016. The recovery will continue at a slow pace in 2017. The political crisis plunged the country into a position of economic weakness which was exacerbated in 2016 with the suspension of direct aid from the main bilateral donors to the government. This situation is expected to persist in 2017. With the suspension of direct financial support supplied by the EU to Bujumbura, Burundi suffers from a lack of foreign exchange and has thus seen a rise in the cost of imports. Private consumption by impoverished households is thus unlikely to support growth. Moreover, given the low government revenues, public infrastructure investment will be curbed, thus hampering the construction sector. Agriculture, which represents more than a third of GDP and employs 80% of the population, is, for its part, expected to be hit by the drought, triggered by the weather phenomenonLa Niña.Finally, the gradual increase in coffee and tea prices will be offset by the ban on exporting foodstuffs to bordering countries, a decision prompted, among other things, by the rise in tensions with Rwanda.

Given the problems with the weather and the slight increase in oil, coffee and tea prices, inflation rose in 2016. Prices are projected to continue to climb in 2017, driven by downward pressure on the Burundi franc andLa Niñawhich would trigger upward pressure on food prices.

 

The suspension international aid is increasing the pressure on the twin deficits

The public deficit (excluding grants) is expected to widen in 2017, hit by the withdrawal of international aid. Measures aimed at maximising income flows in 2016, like the compulsory purchase of a "household booklet" (family record book aimed at controlling population movements) for 2,000 Burundi francs (1 dollar) or a vest for all bicycle taxi drivers, have helped reduce the deficit only temporarily in 2016. With regard to spending, the main measure aims to transfer responsibility for teachers' salaries (82% of civil service salaries) to the local authorities. In deciding to leave the International Criminal Court (ICC) Burundi has, moreover, certainly worsened its position vis-à-vis its bilateral funders. The pressure on the  public accounts will, therefore, intensify in 2017.

Deprived of external financial aid, the current account deficit is projected to widen in 2017 also. The trade balance will remain broadly in deficit given the very limited export base, dominated by coffee and tea. The ban, since August 2016, on exporting foodstuffs to bordering countries, which account for 17% of exports (in 2015, 30% in 2014), will also hit the trade balance. Heavily reliant on imports, the country will find it difficult to reduce the volume in 2017.

The persistence of considerable public and current account deficits, together with the suspension of international aid, exposes the country to the risk of over-indebtedness in the years to come. These deficits also put pressure on the Burundi franc, which is set to continue to depreciate against the dollar, despite the Central Bank's interventions to support its currency.

 

On the brink of civil war, Burundi is isolating itself from international support

Though Burundi had implemented significant political changes in favour of democracy since the end of the civil war in 2005 and the socio-economic situation had improved, the country would appear, once again, to be on the point of collapse. The situation in Burundi deteriorated following President Pierre Nkurunziza's decision to stand for a third term (in breach of Constitution) and his re-election on 21 July 2015. This election gave rise to a large number of demonstrations by the opposition,the general population and was widely criticised by the international observers. The tensions have since become palpable between the ruling party (CNDD-FDD), the opposition and civil society. The ICC has put the number of deaths at 430 and the number of arrests at 3,400 since the start of the political crisis. Accordingly, in April 2016, the ICC prosecutor, Fatou Bensouda, opened a preliminary enquiry into the violence and crimes committed since April 2015. In October 2016, the Burundian government responded by announcing its decision to leave the international court. Coming after Burundi suspended its cooperation with the Office of the High Commissioner for Human Rights over a report referring to genocide in September 2016, this decision increases Burundi's isolation from the international community. In this context, the business climate will continue to be highly degraded.

The crisis in Burundi and the flight of over 320,000 refugees, according to the UN, between April 2015 and December 2016, has strained relations with the other countries in the Great Lakes region, already struggling with porous borders, political instability and ethnic conflicts. Specifically, diplomatic relations between Burundi and Rwanda are steadily worsening. The country, which contributes to the African Union mission in Somalia, is also under the threat of terrorist attacks by Al-Shabaab.

Last update : January 2017

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