Introduction

INTRODUCTION 40. By adopting the Poverty Reduction and Growth Strategy as a framework for government intervention in the economic, financial, and social areas, the government simultaneously undertook to conduct annual reviews in order to measure the progress made at regular intervals and to draw the lessons necessary for taking corrective measures. 41. The development partners as a whole have been supportive of the PRSP process and have already granted debt relief. Thus, upon adoption of the Interim PRSP in 2003, the member countries of the Paris Club granted forgiveness of their claims on Burundi until 2005, while multilateral creditors granted annual debt relief equivalent to about US$36 million. With the publication of the first review of the PRSP, Burundi will have fulfilled one of the conditionalities agreed for reaching the completion point, the immediate effect of which will be forgiveness of about 92 percent of its external public debt. 42. The purpose of this report is thus to comply with the government’s undertaking to report to the people on the results of its poverty reduction policy. Accordingly, the progress report on the actions taken and reforms implemented one year after PRSP adoption has been the subject of feedback sessions with all stakeholders. 43. This report indicates, in respect of each of the four PRSP axes, the status as regards the manner in which objectives have been achieved, the actions taken, possible constraints, and programs to be implemented in the short term. The preparation of this first review adheres to the same participatory dynamic that is always preferred for the PRSP process, thereby bearing witness to the effort to ensure sustained involvement on the part of the various stakeholders. The report is structured as follows: Chapter 1: Recent sociopolitical and economic developments Chapter 2: Improved governance and security Chapter 3: Promotion of sustainable and equitable growth Chapter 4: Development of human capital Chapter 5: Combating HIV/AIDS Chapter 6: Macroeconomic performance Chapter 7: Monitoring and evaluation mechanisms 15 ©International Monetary Fund. Not for Redistribution I. RECENT SOCIOPOLITICAL AND ECONOMIC DEVELOPMENTS 44. The preparation of the first report on PRSP implementation, the contents of which were adopted by the government in September 2006, took place in a general environment marked by the stabilization of security, political normalization, and multifaceted efforts aimed at economic recovery and improving the living conditions of the people. 45. Although cyclical economic developments may have had an impact on anticipated performance in terms of meeting the objectives set, the government’s objective to move forward toward the consolidation of peace, improving access to basic social services, and strengthening the partnership with its partners, made it possible to lay groundwork favorable to execution of the priority actions of the PRSP. 1.1 Political and security developments Political situation 46. An historical threshold was crossed with the free and transparent electrics that allowed for the establishment of democratic institutions not only at the central level but at the various decentralized levels. Subsequently, the government has gradually improved the framework for dialogue and consultation among all stakeholders in the political sphere of Burundi. A serene environment conducive to the restoration of confidence among all population groups was thus restored. The resumption of discussions with the FNL/PALIPEHUTU and the establishment of a National Unity Government in November 2007 are further signs of this approach. They also reflect the political will to overcome the spillover effects of the armed conflict and to strengthen the dynamic of renewed peace. 47. Difficulties did arise, however, in the work of the parliament, which could not be organized on a regular basis. This problem, which persisted throughout 2007, delayed the passage of draft laws which are nonetheless essential for the harmonious execution of essential reforms. Security conditions 48. The situation is calm throughout almost the entire national territory. All provinces are now accessible. Consequently, economic activity could be resumed all over the country. The concerted efforts made by the government and its partners have opened new horizons for the consolidation of peace. Noteworthy developments include the establishment of a political directorate responsible for strengthening mediation in the negotiation process with the FNL with a view to definitively ceasing hostilities. As a 16 ©International Monetary Fund. Not for Redistribution consequence, last-minute foot-dragging on the part of the last political movement still under arms have just given way to greater hope, in that its delegates have resumed work within the JVMM, thereby revitalizing a climate of confidence among the parties. 1.2 Social and economic developments 49. GDP growth was irregular, rising from 0.9 percent in 2005 to 5.1 percent in 2006. It slipped the following year, owing in particular to a sharp decline in coffee production, which dropped from 30,000 metric tons in 2006 to 8,000 metric tons in 2007. The economy remains extremely sensitive to climatic risks and the performance of the coffee sector. In consequence, GDP growth was only 3.2 percent at end-2007. 50. The consumer price index rose considerably from 9.6 percent for 2006 to 14.4 percent in 2007, mainly owing to the upward revision of certain fees and to higher costs for food products. Chart 1: Trends for inflation and the GDP 30 25 20 15 % 10 5 0 -5 -10 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Year Annual average of monthly inflation Real GDP growth Source: ISTEEBU. 51. Public finances were characterized primarily by the growth in public revenue, which increased from FBu 178.8 billion in 2006 to FBu 197.8 billion in 2007. This change is largely attributable to improved collection rates, which made it possible to boost the revenue level to approximately 18.7 percent of average annual GDP for the past two years. However, the substantial increase in the wage bill strongly weighed on the budget, maintaining expenditure at a very high level (24.7 percent of GDP in 2007). At end-2006, outstanding external debt was equivalent to US$1,516.1 million, or 165 percent of GDP. With the support of the international community, Burundi was able 17 ©International Monetary Fund. Not for Redistribution to benefit from external debt relief vis-à-vis Paris Club member countries. The second stage was reached in 2005 when Burundi reached the decision point. 52. The state’s cash flow difficulties also resulted in sizable domestic arrears to the private sector. With the support of the World Bank, an exhaustive inventory of creditors was drawn up and a plan for clearing arrears was adopted starting in fiscal 2006. The strategy adopted in this regard consisted in cash payment of a portion of the arrears and in the issuance, with the assistance of the BRB, of Treasury bonds for the remainder. 53. Monetary policy has remained prudent overall. Indeed, despite the persistence of the fiscal deficit, the recourse to bank financing was contained and money supply growth limited to 10.1 percent for M2 and 15.8 percent for M3 in 2007, as compared to nominal GDP growth of about 10 percent. Concerning exchange policy, the strengthening of the auction system was accompanied by substantial exchange rate liberalization of the foreign exchange rate and a significant reduction in the gap between the official and parallel market rates. 54. As in the past, foreign trade is characterized by a persistent trade deficit. The predominant share of coffee in the export structure continued, as the product accounted for over 60 percent of receipts. On the import side, petroleum products are still the key component, accounting for 22.7 percent of the total c.i.f. value of imports. The surge in petroleum product prices led to a more rapid rise in the value of imports than of exports. The trade deficit expanded from 16.6 percent of GDP in 2005 to 21.2 percent of GDP in 2007. 55. The current official transfers generated by external assistance failed to have the anticipated impact on the external current account because of (i) the low level of such transfers and (ii) the high cost of commercial transactions resulting from the fact that Burundi is landlocked. The current account thus posted a negative balance of –US$133.5 million in 2006, that is, -14.5 percent of GDP. Human development 56. Burundi has made notable efforts aimed at improving the living conditions of the people. The progress made in this area is reflected in Table 1, which shows HDI changes. Between 2000 and 2005, this indicator improved in relative terms from 0.368 to 0.413. However, Burundi is still 167th out of the 177 countries ranked. Burundi also lags considerably behind the progress made by neighboring countries with comparable economic structures. This suggests that even greater efforts are necessary in order to increase human development. Table 1: Changes in HDI in the countries of the subregion, 1975-2005 Year Kenya Rwanda Zambia Burundi DRC 1975 0.466 0.337 0.470 0.290 0.414 1980 0,514 0,385 0,478 0,318 0,423 1985 0,534 0,403 0,489 0,352 0,430 1990 0,556 0,340 0,477 0,366 0,423 1995 0.544 0.330 0.439 0.347 0.391 2000 0,529 0,418 0,420 0,368 0,375 2005 0,521 0,452 0,434 0,413 0,411 Source: United Nations Annual Report on Sustainable Human Development (2007-2008). 18 ©International Monetary Fund. Not for Redistribution 1.3 PRSP monitoring and evaluation mechanisms Monitoring and evaluation objectives 57. The PRSP monitoring and evaluation system must make it possible to revisit strategies and to refocus the resources mobilized in order to impart greater effectiveness to the implementation of poverty reduction programs.

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