88981 INTERNATIONAL DEVELOPMENT ASSOCIATION INTERNATIONAL MONETARY FUND BURUNDI Joint Bank-Fund Staff Debt Sustainability Analysis 2014 Update Prepared by the staffs of the International Development Association and the International Monetary Fund Approved by Jeffrey D. Lewis and Marcelo Giugale (IDA) and Roger Nord and Daneshwar Ghura. (IMF) June 19, 2014 This low-income debt sustainability analysis (LIC DSA) updates the joint IDA/IMF DSA from February 14, 2013, reflecting the most recent macroeconomic developments. This updated DSA indicates that Burundi continues to be assessed at a high risk of debt distress. Both baseline public and external DSA suggest Burundi’s public sector debt is sustainable given the current size and evolution of the debt stock. Compared to the 2012 DSA assessment, overall public debt sustainability improves modestly. Debt sustainability remains highly sensitive to shocks, due mainly to the narrow export base. The public DSA suggests that Burundi’s overall public sector debt sustainability indicators are projected to improve in the medium and long run. However, the large downside risks and the vulnerability of the indicators to shocks point to the need for prudent fiscal and debt policies, and for structural reforms to promote private sector-led growth and exports diversification. 1 I. BACKGROUND 1. The Debt Sustainability Analysis update indicates that Burundi continues to have a high risk of debt distress. Nonetheless, the update of the debt sustainability analysis (DSA) using the uniform 5 percent discount rate in line with the recent Board decision shows some 1 The DSA has been produced jointly by Bank and Fund staffs. The fiscal year for Burundi is January to December. 2 improvements. 2 While Burundi’s assessment of high risk of debt distress remains, the PV of external debt-to-GDP and debt-to-government revenue ratios have improved and are now below their assessment thresholds (Figures 1 and 2 and Tables 1–4). The DSA update suggests that Burundi has limited borrowing space, underscoring that loans should continue to be highly concessional given its narrow export base. 3 2. Burundi is a weak policy performer for the purpose of determining the debt burden thresholds under the Debt Sustainability Framework (DSF). Burundi’s rating on the World Bank’s Country Policy and Institutional Assessment (CPIA) has improved slightly in recent years. However, the performance is still low, and the average for the last three years—3.14 on a scale of 1 to 6—puts Burundi in the group of weak policy performer. 4 3. At end-2012, Burundi’s public and publicly guaranteed external debt stood at US $487 million or 22.3 percent of GDP. Burundi’s stock of external debt has declined significantly since 2009 as a result of the debt relief under the enhanced Highly Indebted Poor Countries (HIPC) Initiative and the Multilateral Debt Relief Initiative (MDRI). About 90 percent of Burundi’s outstanding nominal external PPG debt is owed to multilateral creditors, with bilateral creditors accounting for the remainder. 2 On October 11, 2013, the Executive Boards of the IMF and the World Bank approved the reform of the discount rates presented in SM/12/271, resulting in a unique, unified 5 percent rate to be applied both to DSAs and to the calculation of the grant element (Board Decision N. 15462-(13–97)). 3 Coffee and tea account for about 80 percent of exports. 4 A score below 3.25 corresponds to a poor policy performance, according to the LIC Debt Sustainability Framework (DSF). 3 Text Table 1. Burundi: Stock External Debt, end-2012 (Millions of US dollars) Nominal Percent of Total Percent of GDP Total Debt 487 100 22.3 Multilateral 440 90.4 20.1 Bilateral 46 9.6 2.1 Paris club 0 0.0 0.0 Non-Paris club 46 9.6 2.1 Commercial 0 0.0 0.0 Sources: Burundian authorities; and Bank-Fund staff estimates. II. UNDERLYING ASSUMPTIONS 4. While growth estimates remained at the levels projected in the 2012 DSA, other macroeconomic developments in 2012–13 underperformed the previous estimates and projections, mainly due to external shocks. Trade deficit exceeded initial projections by about 3 percentage points of GDP in 2012 and 5 percentage points in 2013, as the terms of trade deteriorated by about 38 percent cumulatively in 2012–13. Coffee, which accounts for about two-thirds of exports, experienced a decline in international prices by about 30 percent during 2012–13. The import coverage of gross international reserves remained broadly unchanged from previous projections. Inflation is slightly higher than projections for 2013 mostly owing to the domestic supply shocks. The overall budget deficit widened by 1.3 and 0.3 percentage points of GDP compared to the 2012 DSA mainly owing to lower grants and weaker revenue performance. 5. The macroeconomic outlook has been revised accordingly. The average medium-term (2013–18) GDP growth is revised slightly downward compared to the 2012 DSA, although the long-term growth is broadly kept unchanged as the growth outlook remains unaltered. Due to this revision, i.e. lower nominal GDP base in the medium term, the size of the economy is also projected to be smaller in the long run, implying a lower level of sustainable debt. As the decline in coffee prices is projected to continue in 2014, medium-term exports growth was also revised downward. Prices are expected to bottom out towards the middle of the decade; thus, long-run 4 growth is kept broadly unchanged compared to the 2012 DSA. 5 Combined with oil price projections, which are higher, in the near term, than those in the 2012 DSA, the trade deficit is projected to be more pronounced in the medium term. Central government revenue projections have also been adjusted downward reflecting the permanent losses induced by the 2013 new income law and negative impact of the various shocks to economic activities. Financial assistance from donors, all types considered, is assumed to decline from about 20 percent of GDP in 2012 to 13 percent in the long run. 6 6. Risks to the macroeconomic outlook stem mostly from the fragile social and security situation and the external environment. The protracted Euro Area debt crisis and the decelerating economic growth in emerging markets are likely to engender negative spillovers through the trade and investment channels. Uncertainty in donor support also poses risks. Despite the projected easing of oil and food international prices, uncertainty remains. Moreover, the recent influx of refugees continues to weigh heavily on the social and economic situation. Other socio-political developments are highly unpredictable in the run-up to the 2015 elections. III. EXTERNAL DSA 7. Under the baseline scenario, one indicator breaches the policy threshold during the medium term. The PV of debt-to-exports ratio, although gradually declining, is projected to stay above the 100 percent policy threshold until around 2020. The debt service-to-exports ratio slightly and temporarily breaches the threshold. These projected developments are mostly due to Burundi’s narrow export base and the relatively limited export potential at this time. In contrast, the PV of debt-to-GDP ratio, the PV of debt-to-revenues ratio, and the debt service-to-revenue ratio are expected to remain well below the indicative policy dependent thresholds throughout the projection period. Moreover, those indicators are somewhat stabilizing in the medium term and show a declining trend in the long run, indicating an improvement of the debt sustainability profile in the long run (Text Table 2, Figure 1 and Table 1). This stems from the intention of the authorities to pursue sound macroeconomic and prudent debt policies. The combination of such policies is expected to alleviate debt burden indicators. The reduction of debt burden is a key 5 In the medium and long terms, coffee prices are assumed to increase by 5 percent per year (which corresponds broadly to the average of the last two decades). Also, coffee production is assumed to expand by 5 percent per year, reflecting the expected outcome of the on-going reforms in the sector. 6 Financial assistance from donors includes budget support, project loans and grants, humanitarian assistance, technical assistance, and financing related to elections and regional conflicts. 5 pillar of the program currently implemented by the government and supported under the IMF’s Extended Credit Facility (ECF). Text Table 2. Burundi: Summary of Baseline External Debt Sustainability Indicators (percent) Indicative 2013 2023 2033 Thresholds PV of debt to GDP 30 13.8 6.0 2.8 PV of debt to exports 100 255.6 80.2 32.3 PV of debt to revenue 200 104.8 45.3 21.0 Debt service to exports 15 8.3 5.1 2.2 Debt service to revenues 25 3.4 2.9 1.4 Sources: Burundian authorities; and Bank-Fund staff estimates. 8. Alternative scenarios and stress tests highlight the high vulnerability of the debt sustainability profile to adverse shocks. Under a scenario of combined adverse shocks on GDP growth, exports, and FDI flow, the debt indicators worsen significantly compared to the baseline scenario; four of the debt indicators breach the threshold in the medium term and return broadly close to the baseline in the long run. 7 However, under a scenario that assumes continuation of policies during the last ten years, two indicators breach the threshold; most indicators would double compared to that under the baseline scenario and would not improve even in the long run. 8 These results underscore the need to foster a sound macroeconomic environment that would promote growth, export diversification, and inflow of foreign direct investment, and to continue the reform measures to avoid returning to policies in the past. 9 9. All scenarios suggest that Burundi’s narrow export base is the most significant factor that contributes to the vulnerability of Burundi’s debt sustainability. The PV of debt-to-exports ratio remains above the policy threshold of 100 percent in the baseline, 7 The combination of shocks assumes that, during 2014–15, GDP growth, export growth, USD GDP deflator and non-debt creating flows will be at their historical averages minus one-half standard deviation. 8 The historical scenario assumes that, throughout the projection period, key macroeconomic variables will stay at their respective average during the last ten years. The some economic variables in 2009 were adjusted as Burundi benefited from the Heavily Indebted Poor Countries Initiative and the Multilateral Debt Relief Initiative during that year. 9 In the event the assumption on coffee production does not materialize and the country falls back into a fragility trap, the debt indicators would significantly worsen. 6 historical, and stress tests scenarios. Although, the trend declines in the long term, the ratio stays stubbornly high, particularly under the historical scenario. IV. PUBLIC DSA 10. Public debt indicators, including external and domestic, are expected to gradually improve under the baseline scenario. The improvement is due primarily to a decline in the public sector borrowing requirement, reflecting the widening of the revenue base and the gradual decline in government spending in the post reconstruction period. The ratios of the PV of public debt to GDP and public debt to revenues remain low, reflecting Burundi’s reliance on grants and highly concessional loans to finance reconstruction and poverty reduction. 11. However, public debt indicators are highly vulnerable to shocks. Under a shock scenario that combines a lower GDP growth and a larger primary deficit, the PV of debt-to-GDP ratio is projected to enlarge by 6 percentage points (above the baseline scenario) throughout the projection period, and the PV of debt-to-revenue ratio by about 20 percentage points. 10 These results underscore the need for prudent fiscal policy and avoidance of past unsustainable borrowing policies. A swift adoption and implementation of a strategy based on the recent Debt Management Performance Assessment (DeMPA) would be crucial. The debt service to revenue ratio is not significantly affected by alternative scenarios and shocks because additional borrowing is expected to be on highly concessional terms. V. CONCLUSION 12. Based on this LIC-DSA, staffs are of the view that Burundi continues to face a high risk of debt distress. The debt sustainability indicators improved slightly compared to the 2012 DSA. However, the classification remains unchanged, considering that, as in the 2012 DSA, the PV of debt-to-export ratio remains above the policy threshold under the baseline. 13. Based on this high risk classification and on the vulnerabilities shown through the alternative and stress tests scenarios, Burundi should pursue sound macroeconomic and prudent debt policies. In particular, the analysis points to the importance of enlarging export 10 The scenario assumes that, in 2013-14, GDP growth and primary balance will be at their historical average minus one-half standard deviation. 7 base and diversifying export markets. This would include swift implementation of reforms in the coffee sector and unlocking export potential in other sectors (mining, tea, horticulture, and tourism). It would also be essential to continue sound policies as policy reversals are shown in the analysis as having serious hindering effect on debt sustainability. Finally, given the high risk of debt distress and the vulnerabilities, staffs encourage the authorities to continue to seek maximum concessionality in their external financing, with all nonconcessional borrowing regularly reviewed, monitored, and reported to ensure full transparency and sound governance. Staffs encourage the authorities to finalize the new law on public debt, which would provide an overreaching debt legal framework and help determine the objective, the strategy, the signing authority, and other aspects of debt management. The strengthening of debt management practices now underway is a good step towards reinforcing debt sustainability. Staffs encourage the authorities to expedite the implementation of the World Bank DeMPA mission assessment to facilitate putting in place a comprehensive medium-term debt strategy. 14. The authorities broadly share staffs’ assessment. 8 Figure 1. Burundi: Indicators of Public and Publicly Guaranteed External Debt Under Alternatives Scenarios, 2013–20331/ a. Debt Accumulation b.PV of debt-to GDP ratio 20 70 35 18 60 30 16 14 50 25 12 40 20 10 8 30 15 6 Rate of Debt Accumulation Grant-equivalent financing (% of GDP) 4 20 10 Grant element of new borrowing (% right scale) 2 10 5 0 -2 0 0 2013 2018 2023 2028 2033 2013 2018 2023 2028 2033 c.PV of debt-to-exports ratio d.PV of debt-to-revenue ratio 600 250 500 200 400 150 300 100 200 50 100 0 0 2013 2018 2023 2028 2033 2013 2018 2023 2028 2033 e.Debt service-to-exports ratio f.Debt service-to-revenue ratio 30 20 18 25 16 14 20 12 15 10 8 10 6 4 5 2 0 0 2013 2018 2023 2028 2033 2013 2018 2023 2028 2033 Baseline Historical scenario Most extreme shock 1/ Threshold Sources: Burundi authorities; and IMF staff estimates and projections. 1/ The most extreme stress test is the test that yields the highest ratio in 2023. In figure b. it corresponds to a Non-debt flows shock; in c. to a Non-debt flows shock; in d. to a Non-debt flows shock; in e. to a Exports shock and in figure f. to a One-time depreciation shock. 9 Figure 2. Burundi: Indicators of Public Under Alternatives Scenarios, 2013–20331/ Baseline Fix Primary Balance Most extreme shock Primary Balance Historical scenario 45 PV of Debt-to-GDP Ratio 40 35 30 25 20 15 10 5 0 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 160 PV of Debt-to-Revenue Ratio 2/ 140 120 100 80 60 40 20 0 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 30 Debt Service-to-Revenue Ratio 2/ 25 20 15 10 5 0 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 Sources: Country authorities; and staff estimates and projections. 1/ The most extreme stress test is the test that yields the highest ratio in 2023. 2/ Revenues are defined inclusive of grants. Table 1.: External Debt Sustainability Framework, Baseline Scenario, 2010-20331/ (In percent of GDP, unless otherwise indicated) 6/ 6/ Actual Historical Standard Projections Average Deviation 2013-2018 2019-2033 2010 2011 2012 2013 2014 2015 2016 2017 2018 Average 2023 2033 Average External debt (nominal) 1/ 22.5 23.4 22.3 18.5 17.4 16.6 15.3 13.7 12.1 7.4 4.7 of which: public and publicly guaranteed (PPG) 22.5 23.4 22.3 18.5 17.4 16.6 15.3 13.7 12.1 7.4 4.7 Change in external debt 1.3 0.9 -1.1 -3.8 -1.0 -0.8 -1.3 -1.6 -1.5 -0.6 -0.1 Identified net debt-creating flows -0.4 2.3 0.5 -0.1 -0.2 -0.4 -0.8 -1.4 -1.5 -2.8 -1.4 Non-interest current account deficit 12.2 14.6 18.4 7.9 7.8 22.9 21.2 21.0 19.9 17.9 17.2 15.1 16.9 17.1 Deficit in balance of goods and services 34.6 34.0 37.2 35.5 32.2 31.2 29.6 27.5 26.4 22.9 23.3 Exports 8.9 10.3 9.3 5.2 5.4 5.5 6.9 6.9 7.0 7.5 8.6 Imports 43.5 44.3 46.5 40.7 37.6 36.6 36.4 34.4 33.4 30.5 31.9 Net current transfers (negative = inflow) -23.0 -20.2 -19.0 -20.3 4.2 -12.8 -11.2 -10.3 -9.7 -9.5 -9.2 -7.7 -6.4 -7.3 of which: official -17.3 -12.8 -13.8 -7.9 -6.6 -5.9 -5.4 -5.4 -5.2 -4.4 -3.6 Other current account flows (negative = net inflow) 0.5 0.7 0.3 0.3 0.2 0.1 0.1 0.0 -0.1 -0.2 0.0 Net FDI (negative = inflow) -10.0 -10.6 -16.6 -6.1 7.3 -22.3 -20.8 -20.8 -20.1 -18.8 -18.1 -17.5 -18.1 -18.4 Endogenous debt dynamics 2/ -2.6 -1.6 -1.3 -0.7 -0.7 -0.6 -0.6 -0.6 -0.5 -0.4 -0.3 Contribution from nominal interest rate 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.0 Contribution from real GDP growth -0.9 -0.9 -0.9 -0.9 -0.8 -0.8 -0.8 -0.7 -0.7 -0.4 -0.3 Contribution from price and exchange rate changes -1.7 -0.8 -0.6 … … … … … … … … Residual (3-4) 3/ 1.7 -1.4 -1.6 -3.7 -0.8 -0.5 -0.6 -0.2 0.0 2.1 1.3 of which: exceptional financing 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 PV of external debt 4/ ... ... 17.4 14.5 13.8 13.1 11.9 10.7 9.4 5.4 2.8 In percent of exports ... ... 186.6 280.8 255.6 239.2 173.5 155.0 135.5 71.6 32.3 PV of PPG external debt ... ... 17.4 14.5 13.8 13.1 11.9 10.7 9.4 5.4 2.8 In percent of exports ... ... 186.6 280.8 255.6 239.2 173.5 155.0 135.5 71.6 32.3 In percent of government revenues ... ... 111.6 110.8 104.8 98.9 90.5 80.9 71.6 41.0 21.0 Debt service-to-exports ratio (in percent) 1.3 2.2 5.3 10.1 8.3 8.8 8.9 8.2 8.0 4.9 2.2 PPG debt service-to-exports ratio (in percent) 1.3 2.2 5.3 10.1 8.3 8.8 8.9 8.2 8.0 4.9 2.2 PPG debt service-to-revenue ratio (in percent) 0.8 1.4 3.2 4.0 3.4 3.6 4.6 4.3 4.2 2.8 1.4 Total gross financing need (Millions of U.S. dollars) 46.8 91.2 55.0 30.2 27.3 24.7 15.9 -11.2 -17.1 -125.5 -137.2 9 Non-interest current account deficit that stabilizes debt ratio 10.9 13.6 19.5 26.7 22.2 21.8 21.3 19.6 18.7 15.7 17.1 Key macroeconomic assumptions Real GDP growth (in percent) 5.1 4.2 4.0 4.1 0.9 4.5 4.7 4.8 5.0 5.2 5.4 4.9 5.9 7.0 6.4 GDP deflator in US dollar terms (change in percent) 8.8 3.9 2.5 8.4 8.5 12.1 4.9 3.1 3.0 2.9 3.0 4.8 2.5 2.3 2.4 Effective interest rate (percent) 5/ 0.3 0.6 0.5 0.7 0.2 0.7 0.8 0.9 1.0 1.0 1.1 0.9 1.2 0.8 1.0 Growth of exports of G&S (US dollar terms, in percent) 52.3 25.1 -3.1 21.5 25.6 -35.1 14.6 9.5 36.2 8.3 9.9 7.2 10.0 11.4 10.4 Growth of imports of G&S (US dollar terms, in percent) 76.0 10.2 12.0 26.6 32.2 2.4 1.7 5.2 7.5 2.1 5.4 4.1 6.0 8.4 8.6 Grant element of new public sector borrowing (in percent) ... ... ... ... ... 40.5 38.6 43.9 47.0 59.6 59.6 48.2 59.6 59.6 59.6 Government revenues (excluding grants, in percent of GDP) 14.5 16.5 15.6 13.1 13.1 13.2 13.2 13.2 13.2 13.2 13.2 13.2 Aid flows (in Millions of US dollars) 7/ 490.9 513.5 467.9 474.0 437.0 481.4 530.4 578.5 619.3 878.1 1995.6 of which: Grants 460.9 487.7 423.0 456.3 422.1 459.3 510.4 561.7 601.0 850.9 1930.6 of which: Concessional loans 30.0 25.8 44.9 17.7 14.9 22.1 20.1 16.8 18.2 27.1 65.0 Grant-equivalent financing (in percent of GDP) 8/ ... ... ... 17.3 14.6 14.7 15.0 15.0 14.8 14.1 13.3 13.8 Grant-equivalent financing (in percent of external financing) 8/ ... ... ... 94.7 94.1 95.0 96.6 98.8 98.8 98.8 98.7 98.7 Memorandum items: Nominal GDP (Millions of US dollars) 2029.2 2196.1 2341.8 2743.3 3015.2 3256.5 3521.2 3810.1 4134.9 6166.2 14773.0 Nominal dollar GDP growth 14.3 8.2 6.6 17.1 9.9 8.0 8.1 8.2 8.5 10.0 8.6 9.5 8.9 PV of PPG external debt (in Millions of US dollars) 380.3 401.1 418.3 427.7 424.3 410.5 394.3 336.9 414.1 (PVt-PVt-1)/GDPt-1 (in percent) 0.9 0.6 0.3 -0.1 -0.4 -0.4 0.2 -0.1 0.1 0.0 Gross workers' remittances (Millions of US dollars) … … … … … … … … … … … PV of PPG external debt (in percent of GDP + remittances) ... ... 17.4 14.5 13.8 13.1 11.9 10.7 9.4 5.4 2.8 PV of PPG external debt (in percent of exports + remittances) ... ... 186.6 280.8 255.6 239.2 173.5 155.0 135.5 71.6 32.3 Debt service of PPG external debt (in percent of exports + remittances) ... ... 5.3 10.1 8.3 8.8 8.9 8.2 8.0 4.9 2.2 Sources: Country authorities; and staff estimates and projections. 1/ Includes both public and private sector external debt. 2/ Derived as [r - g - ρ(1+g)]/(1+g+ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, and ρ = growth rate of GDP deflator in U.S. dollar terms. 3/ Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes. 4/ Assumes that PV of private sector debt is equivalent to its face value. 5/ Current-year interest payments divided by previous period debt stock. 6/ Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability. 7/ Defined as grants, concessional loans, and debt relief. 8/ Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt). 10 INTERNATIONAL MONETARY FUND 11 Table 2. Burundi: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2013–2033 (In percent) Projections 2013 2014 2015 2016 2017 2018 2023 2033 PV of debt-to GDP ratio Baseline 15 14 13 12 11 9 5 3 A. Alternative Scenarios A1. Key variables at their historical averages in 2013-2033 1/ 15 14 13 13 12 12 12 15 A2. New public sector loans on less favorable terms in 2013-2033 2 15 14 14 13 12 11 7 5 B. Bound Tests B1. Real GDP growth at historical average minus one standard deviation in 2014-2015 15 14 14 12 11 10 6 3 B2. Export value growth at historical average minus one standard deviation in 2014-2015 3/ 15 14 14 13 12 10 6 3 B3. US dollar GDP deflator at historical average minus one standard deviation in 2014-2015 15 15 14 13 12 10 6 3 B4. Net non-debt creating flows at historical average minus one standard deviation in 2014-2015 4/ 15 22 28 26 24 23 16 7 B5. Combination of B1-B4 using one-half standard deviation shocks 15 20 24 22 21 19 13 6 B6. One-time 30 percent nominal depreciation relative to the baseline in 2014 5/ 15 19 18 17 15 13 8 4 PV of debt-to-exports ratio Baseline 281 256 239 174 155 136 72 32 A. Alternative Scenarios A1. Key variables at their historical averages in 2013-2033 1/ 281 262 247 186 178 170 165 170 A2. New public sector loans on less favorable terms in 2013-2033 2 281 263 252 188 171 152 93 55 B. Bound Tests B1. Real GDP growth at historical average minus one standard deviation in 2014-2015 281 257 241 175 157 137 72 33 B2. Export value growth at historical average minus one standard deviation in 2014-2015 3/ 281 317 354 259 233 205 113 49 B3. US dollar GDP deflator at historical average minus one standard deviation in 2014-2015 281 257 241 175 157 137 72 33 B4. Net non-debt creating flows at historical average minus one standard deviation in 2014-2015 4/ 281 400 510 381 354 324 214 77 B5. Combination of B1-B4 using one-half standard deviation shocks 281 377 454 338 312 283 182 68 B6. One-time 30 percent nominal depreciation relative to the baseline in 2014 5/ 281 257 241 175 157 137 72 33 PV of debt-to-revenue ratio Baseline 111 105 99 90 81 72 41 21 A. Alternative Scenarios A1. Key variables at their historical averages in 2013-2033 1/ 111 107 102 97 93 90 95 111 A2. New public sector loans on less favorable terms in 2013-2033 2 111 108 104 98 89 81 53 36 B. Bound Tests B1. Real GDP growth at historical average minus one standard deviation in 2014-2015 111 107 102 94 84 74 43 22 B2. Export value growth at historical average minus one standard deviation in 2014-2015 3/ 111 109 107 99 89 79 47 23 B3. US dollar GDP deflator at historical average minus one standard deviation in 2014-2015 111 111 108 99 89 78 45 23 B4. Net non-debt creating flows at historical average minus one standard deviation in 2014-2015 4/ 111 164 211 199 185 171 123 50 B5. Combination of B1-B4 using one-half standard deviation shocks 111 149 180 169 156 143 100 42 B6. One-time 30 percent nominal depreciation relative to the baseline in 2014 5/ 111 148 139 128 114 101 58 30 12 Table 2. Burundi: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2013-2033 (continued) (In percent) ( p ) Debt service-to-exports ratio Baseline 10 8 9 9 8 8 5 2 A. Alternative Scenarios A1. Key variables at their historical averages in 2013-2033 1/ 10 18 19 16 14 13 6 5 A2. New public sector loans on less favorable terms in 2013-2033 2 10 19 21 18 17 16 7 3 B. Bound Tests B1. Real GDP growth at historical average minus one standard deviation in 2014-2015 10 19 21 18 16 15 7 2 B2. Export value growth at historical average minus one standard deviation in 2014-2015 3/ 10 22 28 25 22 21 10 4 B3. US dollar GDP deflator at historical average minus one standard deviation in 2014-2015 10 19 21 18 16 15 7 2 B4. Net non-debt creating flows at historical average minus one standard deviation in 2014-2015 4/ 10 19 23 22 19 18 9 6 B5. Combination of B1-B4 using one-half standard deviation shocks 10 20 24 22 19 18 9 5 B6. One-time 30 percent nominal depreciation relative to the baseline in 2014 5/ 10 19 21 18 16 15 7 2 Debt service-to-revenue ratio Baseline 4 3 4 5 4 4 3 1 A. Alternative Scenarios A1. Key variables at their historical averages in 2013-2033 1/ 4 7 8 8 7 7 4 4 A2. New public sector loans on less favorable terms in 2013-2033 2 4 8 9 10 9 9 4 2 B. Bound Tests B1. Real GDP growth at historical average minus one standard deviation in 2014-2015 4 8 9 10 9 8 4 2 B2. Export value growth at historical average minus one standard deviation in 2014-2015 3/ 4 8 9 9 8 8 4 2 B3. US dollar GDP deflator at historical average minus one standard deviation in 2014-2015 4 8 9 10 9 9 5 2 B4. Net non-debt creating flows at historical average minus one standard deviation in 2014-2015 4/ 4 8 10 11 10 10 5 4 B5. Combination of B1-B4 using one-half standard deviation shocks 4 8 9 11 10 9 5 3 B6. One-time 30 percent nominal depreciation relative to the baseline in 2014 5/ 4 11 12 13 12 11 6 2 Memorandum item: Grant element assumed on residual financing (i.e., financing required above baseline) 6/ 55 55 55 55 55 55 55 55 Sources: Burundi authorities; and IMF staff estimates and projections. 1/ Variables include real GDP growth, growth of GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows. 2/ Assumes that the interest rate on new borrowing is by 2 percentage points higher than in the baseline., while grace and maturity periods are the same as in the baseline. 3/ Exports values are assumed to remain permanently at the lower level, but the current account as a share of GDP is assumed to return to its baseline level after the shock (implicitly assuming an offsetting adjustment in import levels). 4/ Includes official and private transfers and FDI. 5/ Depreciation is defined as percentage decline in dollar/local currency rate, such that it never exceeds 100 percent. 6/ Applies to all stress scenarios except for A2 (less favorable financing) in which the terms on all new financing are as specified in footnote 2. Table 3. Burundi: Public Sector Debt Sustainability Framework, Baseline Scenario, 2010-2033 (In percent of GDP, unless otherwise indicated) Actual Estimate Projections 5/ 5/ Standard 2013-18 2019-33 Average 2010 2011 2012 Deviation 2013 2014 2015 2016 2017 2018 Average 2023 2033 Average Public sector debt 1/ 39.7 39.6 37.7 31.5 29.8 28.5 26.8 24.9 23.1 17.6 12.9 of which: foreign-currency denominated 22.5 23.4 22.3 18.5 17.4 16.6 15.3 13.7 12.1 7.4 4.7 Change in public sector debt 14.7 -0.1 -1.9 -6.2 -1.7 -1.2 -1.7 -1.9 -1.8 -0.8 -1.1 Identified debt-creating flows -0.2 1.6 -1.1 -5.8 -1.7 -0.6 -0.8 -1.1 -0.9 -0.6 -0.1 Primary deficit 2.3 2.5 3.0 -3.8 14.6 1.3 0.7 1.1 0.9 0.3 0.3 0.8 0.3 0.7 0.4 Revenue and grants 37.3 38.7 33.7 29.7 27.1 27.3 27.7 27.9 27.7 27.0 26.2 of which: grants 22.7 22.2 18.1 16.6 14.0 14.1 14.5 14.7 14.5 13.8 13.1 Primary (noninterest) expenditure 39.6 41.2 36.7 31.1 27.8 28.4 28.6 28.2 28.1 27.3 27.0 Automatic debt dynamics -2.5 -0.8 -3.7 -7.0 -2.3 -1.7 -1.7 -1.4 -1.2 -0.9 -0.8 Contribution from interest rate/growth differential -2.6 -4.5 -6.2 -5.6 -2.8 -2.2 -2.0 -1.7 -1.6 -1.0 -0.9 of which: contribution from average real interest rate -1.4 -2.9 -4.7 -3.9 -1.4 -0.9 -0.6 -0.4 -0.3 0.0 0.0 of which: contribution from real GDP growth -1.2 -1.6 -1.5 -1.6 -1.4 -1.4 -1.4 -1.3 -1.3 -1.0 -0.9 Contribution from real exchange rate depreciation 0.1 3.6 2.5 -1.5 0.5 0.6 0.3 0.3 0.3 ... ... Other identified debt-creating flows 0.0 0.0 -0.4 -0.1 -0.1 0.0 0.0 0.0 0.0 0.0 0.0 Privatization receipts (negative) 0.0 0.0 -0.4 -0.1 -0.1 0.0 0.0 0.0 0.0 0.0 0.0 Recognition of implicit or contingent liabilities 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Debt relief (HIPC and other) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Other (specify, e.g. bank recapitalization) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Residual, including asset changes 14.9 -1.7 -0.9 -0.5 0.0 -0.6 -0.9 -0.8 -0.9 -0.2 -1.0 12 Other Sustainability Indicators PV of public sector debt ... ... 32.8 27.5 26.1 25.0 23.5 21.9 20.4 15.6 11.0 of which: foreign-currency denominated ... ... 17.4 14.5 13.8 13.1 11.9 10.7 9.4 5.4 2.8 of which: external ... ... 17.4 14.5 13.8 13.1 11.9 10.7 9.4 5.4 2.8 PV of contingent liabilities (not included in public sector debt) ... ... ... ... ... ... ... ... ... ... ... Gross financing need 2/ 5.7 11.3 18.2 10.9 6.4 7.2 7.9 9.5 9.8 9.9 9.5 PV of public sector debt-to-revenue and grants ratio (in percent) … … 97.6 92.5 96.2 91.5 84.9 78.6 73.7 58.0 42.0 PV of public sector debt-to-revenue ratio (in percent) … … 210.7 210.0 198.7 189.2 178.1 166.4 155.0 118.7 83.6 of which: external 3/ … … 111.6 110.8 104.8 98.9 90.5 80.9 71.6 41.0 21.0 Debt service-to-revenue and grants ratio (in percent) 4/ 1.8 12.5 36.1 24.8 4.6 4.9 6.4 11.8 5.8 4.0 2.8 Debt service-to-revenue ratio (in percent) 4/ 4.5 29.4 77.9 56.2 9.6 10.1 13.5 25.0 12.2 8.3 5.7 Primary deficit that stabilizes the debt-to-GDP ratio -12.4 2.6 5.0 7.6 2.4 2.3 2.6 2.2 2.1 1.1 1.8 Key macroeconomic and fiscal assumptions Real GDP growth (in percent) 5.1 4.2 4.0 4.1 0.9 4.5 4.7 4.8 5.0 5.2 5.4 4.9 5.9 7.0 6.4 Average nominal interest rate on forex debt (in percent) 0.3 0.6 0.5 0.7 0.2 0.7 0.8 0.9 1.0 1.0 1.1 0.9 1.2 0.8 1.0 Average real interest rate on domestic debt (in percent) 6.4 -1.2 -10.3 -3.3 8.5 -12.4 -1.7 0.1 0.6 1.8 2.4 -1.5 2.7 2.3 2.8 Real exchange rate depreciation (in percent, + indicates depreciation) 0.3 19.1 12.7 3.7 12.2 -7.7 ... ... ... ... ... ... ... ... ... Inflation rate (GDP deflator, in percent) 8.9 6.4 17.3 13.3 9.5 20.7 8.1 6.4 6.0 5.4 5.5 8.7 4.8 4.4 4.6 Growth of real primary spending (deflated by GDP deflator, in percent) 0.1 0.1 -0.1 0.1 0.2 -0.1 -0.1 0.1 0.1 0.0 0.0 0.0 0.1 0.1 0.1 Grant element of new external borrowing (in percent) ... ... ... … … 40.5 38.6 43.9 47.0 59.6 59.6 48.2 59.6 59.6 ... Sources: Country authorities; and staff estimates and projections. 1/ Central government gross debt is used. 2/ Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period. 3/ Revenues excluding grants. 4/ Debt service is defined as the sum of interest and amortization of medium and long-term debt. 5/ Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability. BURUNDI Table 4. Burundi: Sensitivity Analysis for Key Indicators of Public Debt 2013-2033 Projections 2013 2014 2015 2016 2017 2018 2023 2033 PV of Debt-to-GDP Ratio Baseline 28 26 25 23 22 20 16 11 A. Alternative scenarios A1. Real GDP growth and primary balance are at historical averages 28 27 27 26 26 26 26 30 A2. Primary balance is unchanged from 2013 28 26 25 24 23 22 19 16 A3. Permanently lower GDP growth 1/ 28 26 25 24 22 21 16 13 B. Bound tests B1. Real GDP growth is at historical average minus one standard deviations in 2014-2015 28 27 26 25 23 22 18 14 B2. Primary balance is at historical average minus one standard deviations in 2014-2015 28 35 42 38 35 33 26 16 B3. Combination of B1-B2 using one half standard deviation shocks 28 31 35 32 30 28 23 16 B4. One-time 30 percent real depreciation in 2014 28 32 30 28 26 25 18 12 B5. 10 percent of GDP increase in other debt-creating flows in 2014 28 31 30 28 26 24 19 13 PV of Debt-to-Revenue Ratio 2/ Baseline 93 96 91 85 79 74 58 42 A. Alternative scenarios A1. Real GDP growth and primary balance are at historical averages 93 100 98 95 92 91 92 95 A2. Primary balance is unchanged from 2013 93 97 93 87 83 79 70 61 A3. Permanently lower GDP growth 1/ 93 96 92 85 79 75 60 49 B. Bound tests B1. Real GDP growth is at historical average minus one standard deviations in 2014-2015 93 97 94 88 82 77 64 51 B2. Primary balance is at historical average minus one standard deviations in 2014-2015 93 128 152 139 126 120 96 62 B3. Combination of B1-B2 using one half standard deviation shocks 93 114 126 116 107 101 83 59 B4. One-time 30 percent real depreciation in 2014 93 118 111 103 95 89 68 44 B5. 10 percent of GDP increase in other debt-creating flows in 2014 93 115 110 100 93 87 69 48 Debt Service-to-Revenue Ratio 2/ Baseline 25 5 5 6 12 6 4 3 A. Alternative scenarios A1. Real GDP growth and primary balance are at historical averages 25 5 5 8 13 7 6 6 A2. Primary balance is unchanged from 2013 25 5 5 7 12 6 5 4 A3. Permanently lower GDP growth 1/ 25 5 5 6 12 6 4 3 B. Bound tests B1. Real GDP growth is at historical average minus one standard deviations in 2014-2015 25 5 5 7 12 6 4 3 B2. Primary balance is at historical average minus one standard deviations in 2014-2015 25 5 6 16 21 8 5 4 B3. Combination of B1-B2 using one half standard deviation shocks 25 5 6 12 17 7 5 4 B4. One-time 30 percent real depreciation in 2014 25 5 6 7 13 7 5 3 B5. 10 percent of GDP increase in other debt-creating flows in 2014 25 5 6 12 12 7 4 3 Sources: Country authorities; and staff estimates and projections. 1/ Assumes that real GDP growth is at baseline minus one standard deviation divided by the square root of the length of the projection period. 2/ Revenues are defined inclusive of grants.