Documentof The World Bank FOR OFFICIAL USEONLY Report No. 31202-BI THEREPUBLICOFBURUNDI EnhancedInitiativefor Heavily IndebtedPoor Countries PreliminaryDocument January 6,2005 AFTP3 Afkica Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without WorldBankauthorization. FOROETFICZAL USE ONLY INTERNATIONALMONETARYFUNDAND INTERNATIONAL DEVELOPMENT ASSOCIATION BURUNDI EnhancedInitiativefor HeavilyIndebtedPoor Countries-Preliminary Document Preparedby the Staffs of the IntemationalMonetary Fundandthe World Bank January 6. 2005 Contents Page I. Introduction.................................................................................................................... 3 I1. Background and Assessment o f Eligibility.................................................................... 3 A.PRGF andIDA Status............................................................................................... 3 B.PovertyReductionandHumanResourceDevelopment ........................................... 3 C.Policy ImplementationTrack Record ....................................................................... 5 I11. Debt Sustainability Analysis andPossible HIPC Assistance ........................................ 9 A.DebtReconciliation Status........................................................................................ 9 B. Structure ofExtemalDebt....................................................................................... 10 11 D.Possible HIPC InitiativeAssistance........................................................................ C.Debt Sustainability Analysis ................................................................................... 13 E.Impact o fHIPC Initiative Assistance ...................................................................... 14 F. Sensitivity Analysis ................................................................................................. 15 IV. The Decisionand Floating CompletionPoints............................................................ 16 A.The PRSP Process................................................................................................... 16 B.ProposedDecisionPoint Timing............................................................................. . . . . 16 17 D.Monitoringthe Useo fHIPC InitiativeResources.................................................. C.Triggers for the Floating CompletionPoint............................................................ 18 V. Issues for Discussion.................................................................................................... 19 Tables 25 Balance o fPayments. 2001-23 .................................................................................... SelectedEconomic and FinancialIndicators. 2002-07 ................................................ 2. 1. 26 3. Nominal and Net Present Value o f Extemal Debt Outstanding by Creditor Groups. 4. End-December 2003 .................................................................................................. HIPC Initiative-Assistance 29 5. Discount and Exchange Rate Assumptions at End-2003............................................. Undera ProportionalBurden-Sharing Approach..........28 30 This document has a restricted distribution and may be used by recipients only in the performance of their official duties Its contents may not be otherwise disclosed . without World Bai& authorization . - 2 - 6. Burundi:ExternalDebt Service. 2004-23 ................................................................... 31 7. Net PresentValue of External Debt After HIPC Assistance. 2003-23 ........................ 33 External DebtIndicators and Sensitivity Analysis. 2003-23....................................... 35 9. 8. External ResourcesTransfer. 2004-23......................................................................... 36 10. Long-Term Macroeconomic Assumptions. 2003-23................................................... 37 11. PossibleDelivery o f IMFAssistance under the EnhancedHIPC Initiative. 2005-201439 12. PossibleDelivery o f World Bank Group's AssistanceUnderthe Enhanced HIPC Initiative. 2004-42............................................................................................ 40 13. HIPC Initiative: Status of Country Cases ConsideredUnderthe Initiative. end-December 2004................................................................................................... 41 Figures 1. Composition of Stock o fExternal Debt at End-December2003. Before FullUse o fTraditional Debt-ReliefMechanisms .................................................................... 21 2. Composition of Stock o fExternal Debt at End-December 2003. After FullUse of Traditional Debt-ReliefMechanisms .................................................................... 21 3. External DebtProfile: External Sustainability Indicators. 2003-23 4. ............................ 22 Sensitivity Analysis ..................................................................................................... 5. ExternalDebtProfile: Net Present Value o fDebt-to-GDP Ratio. 2003-23 ................23 24 Boxes 1. Poverty and Social Indicators ....................... ................................................................ 4 2. ! SelectedEconomic Policy and Structural Measures, 2003-04 ...................................... 7 3. 8 4. Arrears Clearance........................................................................................................... Paris Club Rescheduling.............................................................................................. 11 MainAssumptions inthe Debt Sustainability Analysis .............................................. 12 6. 5. 18 7. PossibleTriggers for the FloatingCompletion Point .................................................. PossibleExpenditure Priorities for the Use o fHIPC DebtRelief............................... 19 Appendix I. Debt Management Capacity......................................................................................... 42 - 3 - I.INTRODUCTION 1. This paper presents a preliminary assessment o f Burundi's eligibility for assistance under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative. The findings are based on several joint IDA-IMF missions to Bujumbura, most recently in September and November 2004. Together with the authorities, the September mission conducted a preliminarydebt sustainability analysis (DSA). Burundihas a heavy debt burdenandlimited resources, with a present value (NPV) o f debt-to-exports ratio o f almost 2,000 percent at end- 2003 before application o f traditional debt-relief mechanisms. The results o f the preliminary DSA show that Burundi's extemal debt situation would continue to exceed the HIPC threshold even after application o f traditional debt-relief mechanisms, with a NPV o f debt-to- exports ratio o f 1,834percent at end-2003. However, it should be noted that under the decision to extend the sunset clause under the HIPC Initiative to end-2006, the eligibility requirement was amended such that the requirement o f a determination of unsustainable debt should be based on end-2004 data for any member that had not reached the decision point by end-2004.' The end-2004 data will be reflected in the documents for the decision point discussion (proposed to be inMay 2005). 2. Section I1provides backgroundinformation on eligibility under the enhanced HIPC Initiative, the incidence o f poverty, and the policy track record. Section I11 presents the preliminary DSA, including possible assistance under the enhanced HIPC Initiative. Section IV outlines the proposed timeline for preparation o f the decision point document, the proposed key reforms to be considered for the completion point triggers, and gives a preliminary indication o f how debt-service savings after the decision point will be used and tracked. SectionV includes issues for discussion bythe Boards o fExecutive Directors. 11. BACKGROUND ASSESSMENT ELIGIBILITY AND QUALIFICATION AND OF FOR HIPCASSISTANCE A. PRGFandIDA Status 3. Burundiis an IDA-only country, with a per capita GDP of about US$83 in2003, and i s eligible to receive resources under the Ih4F's Poverty Reduction and Growth Facility (PRGF). Burundi will continue to need substantial concessional assistance from the international community and is likely to remain an IDA-only country and eligible for PRGF resources for many years to come. B. PovertyReductionandHumanResourceDevelopment 4. Although income per capita in Burundi has recovered since 2000, it i s still less than one-half the historic high o f US$lSO attained before civil conflict erupted in 1993. Interms ' IMFDecisionNo. 13367-(04197) PRGF, October 8,2004; see alsoEBS/04/145, 10/08/04andBUFF/04/171, 9/08/04. IDA Boarddocuments R2004-0187and IDNR2004-0234. - 4 - o f social welfare indicators, Burundiis the fourth least developed country inthe world (2004 United Nations Development Program (UNDP)-Human Development Index).2 Burundi's social indicators (Box 1) are among the weakest in Sub-SaharanAfrica, reflecting pervasive poverty. Since 1992, the percentage of people living below the poverty line has doubled, from 35 percent overall to 68 percent in 2002 (68.7 percent in rural areas, 66.0 percent in urban areas). The child malnutritionrate has risen from 35 percent in 1987 to 45 percent in 2000. Access to safe water andhealth services remains extremely low, at less than48 percent and 20 percent of the population, respectively. 5. Displaced persons (400,000 internally and 600,000 refugees in camps abroad at the peak o f the fighting) suffer from deprivation, malnutrition, lack of sanitation, andpoor health conditions. HIV/AIDS prevalence i s rising, particularly in the refugee camps, and increased from less than 1percent to 6 percent of the population between 1989 and 1998 (11percent to 20 percent inurban areas). The number o f people living with HIV/AIDS in 1999 was about 360,000 in the 15-49 age group, and 19,000 for those under 15. There are some 558,000 orphans, about 195,000 ofwhom are believedto have beenorphanedbyAIDS. Box 1. Poverty and SocialIndicators (Inpercent, unless otherwisespecified, as oflatestyear for whichdataavailable) Indicator Burundi Sub-SaharanAfrica Population(inmillions; 2002) 7.3 702.6 Populationgrowth(2003) 2.0 2.1 GDP per capita(US$; (2003) 83 490 Life expectancyat birth(years; 2002) 41.7 45.8 Infantmortality rate(per thousand, 2002) 123 103.1 Childmortality rate(per thousand, 1998) 208 173.9 Maternalmortality rate (per 100,0OO/live 1300 916.8 births; 2001) HIV/AIDS prevalence(percent of active 11.3 n.a. sexuallypopulation;2001) Literacyrate(percent ofpopulation;2001) 55.4 64.9 Gross school enrollmentrate (percent of 71.0 87 age group; 2001) Male 79.5 94 Female 62.4 80 Populationdensity (persons/sqkm) 262.0 29.2 Sources: BurundiI-PRSP, World Bank, African Development Indicators 2004 andWorld Development Report 2005; and UNESCO database. 6. The government adopted an interim Poverty Reduction Strategy Paper (I- PRSP)-assessed by IDA and IMF staffs in January 2004-following a broad-based participatory process. The authorities are also seeking to mobilize development partners to support Burundi's poverty alleviation agenda. *The index measures a country's achevements inthree aspects ofhuman development: longevity, knowledge, and decent standard of living. - 5 - C. PolicyImplementationTrack Record 7. Within a difficult political environment, and starting from a very low base, the Burundi authorities have made good initial progress in implementing financial and structural reforms, but large challenges remain. These include the need to complete the political transition to democracy, demobilize armed combatants, and address widespread deep poverty 8. During extended periods o f political stability since independence in 1962, Burundi achieved above average economic and social progress compared to Sub-Saharan Africa. However, since 1993 civil conflict has derailed this progress and, combined with the effects o f a 1996-99 economic embargo imposed by governments in the region, Burundi suffered a ten-year period o f economic decline. The turning point for Burundi was the signing o f a peace and reconciliationagreement among 39 political-ethnic groups inh s h a , Tanzania, inAugust 2000. Since then atransitiongovernment hasbeenestablished, which subsequently brought in all but one o f the armed groups that had not signed the Arusha Agreement. A senate and parliament were established in 2002 and a peaceful presidential change fi-om a Tutsi to a Hututook place as envisaged in 2003. A referendum on a draft new constitution and national elections are to be heldbefore May 2005. The proposed constitution provides minority Tutsis with a guaranteed 40 percent o f seats inthe National Assembly and positions inthe cabinet. 9. A United Nations peacekeeping force (ONUB) is implementing a disarmament, demobilization, and reintegrationprogram supportedby the UN, IDA, andbilateral donors through the Multi-Country Demobilization and Reintegration Program (MDRP). In September 2004, agreement was reached on the integration o f former rebel combatants into the new armed forces and demobilization commenced in late November 2004. Actions to improve internal security through reform o f the security services, justice system, and local administrations are also being undertaken. Actions for resettlement and reintegration of victims include a protocol for access and protection o f internally displaced persons and the establishment in 2003 o f a National Commission on Reintegration o f Refugees that has assisted with the return o f some 300,000 refugees to date. 10. The improving political and security conditions allowed the authorities to make progress toward restoring macroeconomic and financial stability, economic growth, and international trade. These efforts have been supported by the World Bank through balance o f payments support (an Emergency Economic Recovery Credit in 2000 and an Economic Recovery Credit in 2002), sector grants and loans, and trust-fund financed support to help cover multilateral debt service and the clearance of arrears to the African Development Bank (AfDB) for 2003-04.3 Beginning in the second half o f 2001, the authorities implemented economic reform programs, supported first by an IMF Staff-Monitored Program and Belgium, Italy, the United Kingdom, France, andNorway have supported the trust fimd. - 6 - subsequently (in 2002-03) by the IMF's Emergency Post-Conflict Assistance, which led to a three-year PRGF arrangement beginningin January 2004. The European Union and bilateral donors have also provided important assistance. The authorities' reform efforts, despite sporadic localizedhostilities from the one remaining rebel faction, have restored positive real economic growth, reduced inflation to single digit levels, and increased the provision o f social services. 11. The authorities' medium-term macroeconomic objectives, as outlined in their I-PRSP, are to achieve sustained economic growth o f some 5 percent per annum, lower inflation to about 4-5 percent, increase in the level o f foreign reserves to six months o f imports o f goods and services, reduce the external current account deficit (in relation to GDP), limit external financing to grants and highly concessional loans, restore a sustainable external debt position, and boost private savings and investment. These objectives will only be achieved through sustained export-led growth. Burundi's low export revenue is a serious problem which threatens to derail efforts to secure adequate, sustainable levels o f foreign exchange. This issue and related policies which will be addressed by a WTO-IDA-led Diagnostic Trade Integration Study (nearing completion) and an IDA Sources o f Growth study planned for 2005. The government is committedto allocatingmore funds for the poor; fostering community management and partnerships with the private sector and civil society; establishing an enabling environment for private sector activity, while disengaging the State from the productive system; andraising agriculturalproductivity anddiversification. 12. Recent performance in implementing economic reforms has been broadly satisfactory, despite delays in structural reforms and some slippages in fiscal policy in2004. Following the h s h a Agreement, the authorities resumed their financial and structural reform program in a difficult political and economic environment o f strong expenditure pressures, related to the establishment o f the transitional institutions envisaged in the Agreement, the accommodation o f representatives from former rebel factions into the transition government, and restoring coverage o f social programs. Measures to boost private sector participation through resumption o f privatization, land reform, and sectoral liberalization have generally been delayed by the heavy political agenda, which has drawn out the transition process. Box 2 lists selected measures implemented during2003-04. 13. Management and discipline inpublic finances, weakened by personnel losses related to the conflict and subsequent low wage scale, have been strengthened. Key actions have been undertaken inpublic expendituremanagement,supported by IDA assistance initiated in2000 and still underway with support from IDA'SEconomic Management Support Project (EMSP). These include adoption o f a functional and economic classification system o f budgetary expenditure and a double-entry accounting system, implementation o f a system for monitoring the flow o f resources and government expenditures with respect to external assistance programs, and computerization o f expenditure management. In 2004, legislation establishing an audit court (Cow des Comptes) was ratified by parliament and an action plan adopted for its opening in spring 2005. Revenue mobilizationreforms include strengthened tax administration and collection; elimination of line ministry authority to grant tax - 7 - exemptions; and creation o funits inthe customs and intemal revenue departments to monitor the purpose, recipients, andvalue o f exemptions granted. 14. Major progress has been made inliberalizing the foreign exchange system. In2000, the central bank switched from allocating foreign exchange administratively to an auction system. Further liberalization measures resulted in the removal o f restrictions on current transactions in2003 and led to the gradual convergence o f the parallel and official exchange rates; by late 2004 the differential fell below 3 percent. To curb inflation from double-digit levels, the authorities tightened monetary policy in2001. Inflation fell to 3.5 percent at end- 2002, spiked to 10.7 percent at end-2003, and is projected to return to single-digit levels at end-2004. Box 2. SelectedEconomicPolicyand StructuralMeasures, 2003-04 Measures Status Elimination o fremaining exchange restrictions on current Done (September 2003) account transactions andbona fide amortization payments Preparationand adoptionby the cabinet o f a gender action Done (September 2003) plan, satisfactory to IDA, to eliminate gender disparities, including enabling women to inherit land and other properties Adoption by the parliament o f a budget law (for 2004) inline Done (December 2003) with programobjectives Extension o ftransactions tax to domestically produced goods Done (January 2004) and services Adoption by the cabinet o f a draft legislation to establish an Done (March 2004) Office o f Auditor General responsible for auditing the financial operations o fpublic agencies, and the submission o f the draft legislation to the NationalAssembly. Assessment that all banks inoperation meet the minimum Two banks closed (March 2004) capital requirement Establishment o f a new audit court (Cow des Comptes) Justices appointed(June 2004); audit o f 2004 government accounts to begin in April 2005. Adoption by the cabinet o f an action plan for the reform o ftht Done (August 2004) public procurementadministration. Adoption by the cabinet o f a comprehensive strategy, Done (October 2004) developed inconsultationwith stakeholders, to revive the coffee, tea, and cotton sub-sectors. Adoption by the cabinet o f the New National Accounting and Done (November 2004) Budget Nomenclature. 15. The authorities have sought to normalize relations with international creditors. By late 2004, arrears to multilateral creditors hadbeen cleared or arrangements to do so were in place, and the AfDB had resumed lending operations to Burundi (Box 3). InMarch 2004, Burundi was accorded a Paris Club debt rescheduling on Naples terms, and has since - 8 - concluded all but one bilateral agreement. Discussions are under way to secure comparable treatment from other non-Paris Club bilaterals and commercial creditors. Box 3. Arrears Clearance Burundihasmademajor efforts to normalize relations with creditors, andduring 2003 and2004 reached the following agreementswith multilateral andbilateral creditors: The African DevelopmentBankGroup (AfDB)approved a framework for assisting post-conflict countries (PCC) to clear their arrears to the AfDB inJuly 2004. The framework is based on sharing the financing cost amongst the country, donors, and the AfDB PCC facility determined on a case-by- case basis. Earlier in2004, BurundihadpaidUA 6.7 million to clear 30 percent o ftotal UA 22.6 million (US$33.6) inarrears at end-2003.' Donors (France and the EU) committed UA 8.0 million and the AfDB Board o f Directors approved a UA 8.0 million grant from the PPC facility to complete the arrears clearance program inOctober 2004. The OPEC Fundimplementeda Commodity ImportProgram(CIP) to achieve a concessional rescheduling ofUS$6.0 million inarrears at end-1998. The program was frozen after Burundifailed to repay US$1.5 million falling due in 1999. The CIP was resumed in2003, after a payment from Burundi.The OPEC Fundgranted an additional CIP to clear US$3.2 millioninarrears accrued since 1998. BADEAagreedon consolidating US$16.7 millioninarrears inJuly 2003 andrepayments falling due from August 2003 to end-2004. The total amount o f US$17.3 million will be repaid at concessional terms over 11years. Arrears to the EuropeanUniontotaling some US$25 million to the EUand the European Investment Bank were cleared inmid-2004 entirely with EUgrant assistance. Arrears to ParisClub creditorswere cleared inthe context ofthe March2004 rescheduling(Box 4). 'ThePCCfacility is alegalautonomousentity underthe auspices of the African DevelopmentFund(AfDF) for the solepurposeofproviding grant resourcesto assist qualifying PCCsclear their AfDB Grouparrears. The facility is financed from UA 100million fromthe AfDB net incomeallocations, UA 100million from ADF-IO resources, and UA 7 millionfrom Nigeria Trust Fundincomeallocations. 16. On the structural front, a wide range of programs have been initiated and measures implemented.Good governanceactions taken include the appointment of a stateminister for good governance in 2003, the establishment of an inter-ministerial committee to promote good governance and fight corruption, the preparation of a governance action plan, the strengthening o f the Inspectorate General of Finances, creation o f an audit court, and establishmentof anInternational Commission o fInquiryon politicalprisoners. 17. Private sector development i s key to pro-poor growth. Actions undertaken to promote the sector include programs to clear the government's arrears to private sector suppliers, the implementation of a revised corporate law, and preparation of a new commercial law. Revisions to the bankruptcy laws and improvements in the arbitration system are under way, and a policy framework to re-establish a public enterprise privatization program has been prepared. Like other countries in conflict, Burundi has experienced major net disinvestment with gross private investment o f less than 3 percent of GDP failing far short o f maintaining a capital stock that has declined through the deterioration and destruction o f productive assets. Durable peace i s therefore a necessary - 9 - condition for these policy actions to reverse the economic decline. Inaddition, for sustainable growth to occur the government must strengthen the steps it has already taken, and contemplate new measures to improve the business climate. 18. Human resource developmentpolicy programs that are being implemented include the rehabilitation o f education and health infkastructure. Priorities are for improving access to these services in formerly underserved ethnic communities, the decentralization o f health management to improve coverage and quality of basic health services, the introduction o f an independent and autonomous management structure for public hospitals, and the use o f cost- recovery mechanisms to improve and ensure a sustainable provision o f health services. A multi-sector strategy for the fight against HIV/AIDS is being implemented. Actions taken in gender and social protection include the preparation o f a gender action plan, and establishment o f a find to support the development o f micro-credit institutions in rural communities and safety net mechanisms to assist the poor and victims o f conflict. The matrimonial code has been revised to grant property rights to wives, including the right o f widows to inherit land. Campaigns to promote the role o f women have been undertaken. Representation o f women in public offices has been increased (the Arusha Accord established a minimum threshold o f 30 percent). However, Burundi's prospects o f meeting the Millennium Development Goals are uncertain. While the goals for gender participation and access to public services are attainable by 2015, it is unlikely that the other goals can be met inthis timeframe, given the handicaps from a decade o f hostilities, forced displacement o fpopulations, and economic decline. 19. The rural sector contributes nearly 50percent of GDP and supports more than 90 percent o f the population. Therefore, increasing agricultural productivity and diversification and rural development are among the government's major priorities to revitalize the economy and reduce poverty. The Council o f Ministers approved a comprehensive reform plan o f the coffee (a key sector), tea, and cotton sectors in October 2004. Measures have been implemented to rebuild livestock herds. Demographic pressures have led to the degradation o f land and the govemment i s addressing this through an Agriculture Rehabilitation and Sustainable Land Management Program supported by IDA. While seeking to increase the area available for farming, the government gives priority to programs for resettling war victims and returning refugees and reintegrating them in agricultural activities, restoringthem where possible to their former properties, and arranging new properties or vocations for others. 111. DEBTSUSTAINABILITY ANALYSISAND POSSIBLEHIPCASSISTANCE A. DebtReconciliationStatus 20. The DSA presented below was prepared jointly by the authorities and the staffs o f IDA and the IMF, based on loan-by-loan data provided by the authorities and creditors for public and publicly guaranteed debt outstanding and disbursed as o f end-December 2003. - 10- More than 95 percent of outstanding debt has been reconciled with the creditors, with only information on a few non-Paris Club bilateral creditors stillneeded.4 B. Structure of ExternalDebt 21. At end-December 2003, Burundi's public and publicly guaranteed external debt, includingarrears, was estimated at US$1,35 1million innominal terms. Multilateral creditors account for 84 percent o f this debt and Paris Club bilateral creditors for 11percent. After assuming full use of traditional debt reliefmechanisms for bilateral and commercial debt, and excluding the clearance o f multilateral arrears (which have since been cleared primarily through external grants), the stock of external debt outstanding in NPV terms i s US$872 million (Table 3, Figures 1and2). 22. External arrears. From the onset o f the civil war in the early 199Os, Burundi accumulated arrears to most of its external creditors for a total stock o f arrears amounting to US$185 million or 14percent o ftotal debt outstanding at end-2003. About 36 percent of total arrears, or US$66 million, was owed to multilateral creditors-arrears to the AfDB totaled US$34 million and to the European Union US$25 million. As o f late 2004, Burundi had cleared its arrears to all multilateral creditors. As o f end-2003, 64 percent of total arrears was owed to bilateral and commercial creditors. Arrears to Paris Club bilateral creditors amounted to US$79 million and US$39 million was owed to other bilateral and commercial creditors. InMarch 2004, the Paris Club agreed on a concessional rescheduling (Box 4). ~~ The reconciliationprocess has beencompleted for all multilateral, Paris Club, and commercial debt. Reconciliation is not completed with respect to debt owed to China, Kuwait, Libya, Saudi Arabia, and United Arab Emirates. - 11- Box 4. ParisClub Rescheduling Paris Club creditors agreed on March 4,2004, to a restructuring o fBurundi's public external debt, following the approval o f a PRGF arrangement inJanuary 2004. The deadline for concluding the bilateral agreementswas extended from end-September 2004 to early-March 2005, andbyNovember 2004 agreementshadbeensigned with all but one creditor (Japan). The reconciliation o fthe debt was carried out inthe context o f the bilateral agreements. A total o fUS$85 millionwas treated, o fwhich US$4 million was cancelled. The specifics are summarized below: The agreementtreats both accumulated arrears as of end-2003 and current maturities falling due in 2004-2006 under Naples terms. Pre-cut off date (June 20, 1999)official development aid (ODA) debts are rescheduled over 40 years, with 16 years grace, at interest rates at least as favorable as the original interest rates. Pre-cut off date commercial credits are rescheduled over 23 years, with 8 years o f grace, at market interest rates, with a present value reduction of 67 percent. 75 percent o f interest accruing in2005-2006 on rescheduled amounts was capitalized, with repayment (inequal semi-annual installments) between September 2008 and March2016. 0 Creditors agreed to top-up the reductionrate to 90 percent (Cologne terms) as soon as Burundihas reached its decision point underthe enhancedHIPC Initiative. Burundicommitted to seek comparable treatment from other external creditors. C. DebtSustainabilityAnalysis 23. The underlying macroeconomic projections assume that Burundi's economy continues to recover in line with the program approved by the government in2004, with the support o f external financing at highly concessional terms (Box 5). According to the baseline scenario, which incorporates a considerable domestic savings effort taking hold as recovery continues, Burundi's external debt i s projected to remain above the HIPC thresholds even after HIPC assistance (Table7). To reach the HIPC threshold would require a very high proportion o f external financing to be provided as grants early in the projection period to finance priority expenditure (see sensitivity analysis below) and deep reforms to underpin stronger growth and export performance. 24. The outlook envisages continued consolidation o f the peace process, macroeconomic stability, and structural reforms, and f i l l normalization o f relations with creditors from 2005. Annual real GDP growth is projected at 5 percent, which could be significantly exceeded early in the projection period, under the impulse o f the reconstruction effort, as returning refugees and demobilized combatants beginproductive activities, land and other property in recently-insecure locations are reclaimed and are put to economic use, and structural reforms take hold (Table 10 and Box 5). Starting from an exceptionally low base in2004, exports are expected to surge in2005 and drive growthover the long term as export volumes increase by 4-9percent per year (7.5 percent on average), assuming the significant development of nontraditional sectors. In addition, with coffee sector reforms geared toward enhanced quality o f production, Burundi's coffee is projected once again to fetch a premium over international prices starting in2008. With imports easing afier the reconstruction period, the trade balance of goods and services improves over the projection period. The current account deficit is projected to remain at above 10percent o f GDP over the medium term and to narrow to 5 percent of GDP by 2023, while private savings gradually rise to 8% percent o f - 1 2 - GDPby2023. The economic recovery andthe reintegration o fcombatants are expected to be sustained by significant levels o f official external financing, which in gross terms are expected to reach 51 percent o f GDP in 2004, and then trend down to 9 percent by 2023. Official grants are projected to substantially exceed official loans, which are assumed to be on PRGF or IDA terms, with a combined average grant element o f about 40 percent. Fiscal revenues are projectedto remain at about 20 percent o f GDP. Box 5. MainAssumptions inthe DebtSustainabilityAnalysis Real GDP growth averages 5 percent over 2004-23, underpinnedbyan initial boost from reconstruction and subsequentimprovements inagricultural production and other private sector activities. CPIinflation is projectedto decelerate from 11percent in2003 to 7 percent in2004-06 on average, and subsequentlyto drop steadily to 4 percent through 2023. Fiscalpolicy aims at achieving the govemment's spending priorities while maintaining macroeconomic stability. Revenues, excluding grants, are assumedto remain at the current 19 percent o fGDP through 2010 and to slowly rise to 20 percent o fGDP until2023. Gross official external financing (grants plus loan disbursements) is expected to average about 46 percent o f GDP during 2004-05, thentrend downto 10percent o f GDP in2023. Net resource transfers are expected to remainpositive throughout the projection periodaveraging 37 percent o f GDP over 2004-05, then trending down to 7 percent o f GDP in2023. Official loan financing (excluding the IMF) is assumed to be entirely at concessional rates on terms comparable to IDA. Export receipts inUS.dollars are expected to surge in2005 andthen rise annually at rates decelerating from 16percent in2006 to 7 percent in2023. The composition o fexports i s expected to shift from coffee and tea productionto other sectors (other agricultural products, processed foods and light manufactures). Coffee quality is assumedto improve, reflecting the impact o f the sector's reform, and the price discount relative to world prices is assumedto revert to a premiumafter 2008. The GDP share ofexports ofgoods andservices is projectedto rise from 8 percent in2004 to 11percent in2008 andto 13percent from2021 onwards. Imports of goods and services inUS.dollars are projected to average 42 percent o f GDP in 2004-05 and, with emergency assistance and reconstruction-relatedimports winding down, to decline below 30 percent o fGDP in2008. 25. The projected baseline growth rates and export performance may appear optimistic, especially seen against Burundi's past experience. The rate o f real GDP growth slightly exceeds that observed inperiods o f peace duringthe 1 9 8 0 but i s inline with evidence from ~ ~ post-conflict recovery elsewhere. It is likely that growth will be bolstered by the economic contribution o f the hundreds of thousands of returning refbgees and displaced, and the reintegration o f tens o f thousands o f former armed combatants into productive society, supported by the MDRP and other government programs. Moreover, the baseline does not incorporate a post-conflict catch up period with higher rates o f growth. Nevertheless, the authorities will need to vigorously pursue structural reform and security policies which favor - 1 3 - private sector investment. Coffee exports are projected to double over the next twenty years, consistent with Burundi's potential and historical highs. The projections also take into account an export-led diversification o f the economy, which has potential to expand into agro-focused goods, light industrial manufactures, and possibly high value mineral resource^.^ The projections will be revisited for the HIPC Decision Point document. 26. On the basis o f these assumptions, and taking into account the phased-in provision ofHIPC Initiative assistance, the NPV o f outstanding debt-to-exports ratio would remain significantly above 150percent through the interim period (Table 7), notwithstanding the assumed high share o f grants in official assistance (paragraphs 1 and 34). The estimates for the amount o f HIPC assistance are based on the NPV o f the stock o f multilateral debt at end-2003 prior to arrears clearance and on the end-2003 NPV o f bilateral and commercial debt assuming the full use o f traditional debt relief mechanisms as simulated by a hypothetical stock-of-debt operation on eligible debt on Naples terms. After the full delivery of HIPC assistance, the ratio o f the NPV o f debt to exports is projected to rise sharply initially, peaking at 302 percent in 2006 and to decline steadily to 182percent in 2023. This profile reflects significant new reconstruction and adjustment lending by multilaterals on highlyconcessional terms inthe 2004-06 period. D. PossibleHIPCInitiativeAssistance 27. After the full use o f traditional debt-relief mechanisms to bring the extemal debt-to- exports ratio down from 1,834 percent at end-2003 to the target ratio o f 150percent implies a common reductionfactor o f 91.8 percent for all creditors or reliefinthe amount o fUS$80l million inNPV terms (Table 4). 28. Of this amount, possible assistance from multilateral creditors would be about US$681 million inNPV terms, and relieffrom Paris Club bilateral creditors would amount to about US$79 million. Commercial creditors would be expected to provide a further US$8 million o f relief inNPV terms andother official bilateral creditors US$33 million. Assuming the time profile and modalities laid out below, this translates into about US$1,322 million o f debt relief in nominal terms over time. The following assumptions were made inprojecting the time profile o fpossible enhanced HIPC Initiative assistance: e Paris Club bilateral creditors. There would be a flow rescheduling on Cologne terms-or a 90 percent NPV reduction-after reaching the decision point (which i s assumed to take place in M a y 2005), with delivery o f the remaining required IDA is planningto undertake a study inearly 2005 ofthe potential sourcesofgrowthinBurundi. At the expectedtime ofthe decisionpoint inmid-2005, enhancedHIPC Initiativeassistancewould be based on end-2004 debt stock. As new disbursements during 2004 would be incorporated inthe base period stock of debt, this would imply commensurately higher HIPC assistanceand a somewhat lower projected profile inthe NPVofdebt-to-exports ratio over the projectionperiod, all other things constant. - 14- assistance at the completion point expected at end-2006, through a stock-of-debt operation. 0 Comparable treatment would be provided by non-Paris Club official bilateral creditors. 0 IMF assistance would total US$24.2 million inNPV terms. Immediately following the approval o f the decision point by the Boards o f IDA andthe IMF, the IMF would provide interim assistance inthe form of debt-service reduction in 2005-06, covering PRGF interest obligations. PRGFprincipal repayments due to the IMF beginAugust 2009. Therefore, most o f the IMF's remaining HIPC relief would be delivered following the completion point, with debt-service reduction through 2014 (Table 11). IDA would provide total assistance amounting to US$414.0 million in NPV terms. Immediately following the approval o f the decision point by the Boards o f IDA and the IMF, IDA would begin to provide interim assistance in the form o f debt-service reduction on debt outstanding and disbursed at end-2004, and, assuming that Burundi reaches the completion point inearly 2006, would continue until2042 (Table 12). All other creditors are assumed to provide debt-service reduction until their contributions meet the requirement under the enhanced HIPC Initiative. Discussions are ongoing with AfDB andother multilaterals as to the precise modalities. E. ImpactofHIPCInitiativeAssistance 29. Burundi's exports and budgetary resources cannot support its external debt burden, and significant donor support on grant or highly concessional terms will be necessary through the medium-term. Some 56percent o f the bilateral nominal stock o f debt was in arrears (at end-2003). Consequently, total debt-service obligations before HIPC relief also include significant interest on arrears. Duringthe process o f normalizing its relations with the international community, the entire stock o f extemal arrears is assumed to be replaced by new successor arrangements or rescheduled. Notwithstanding debt reliefreceived from Paris Club creditors in 2004, scheduled debt service would rise after arrears clearance (Table 6). HIPC assistance would reduce debt service due in the interim period (June 2005 to end- 2006)7 fiom an average o f 54percent o f exports after traditional debt relief to 21percent. Debt service would subsequently trend down to an average o f 7.9percent in 2014-23. Similarly, debt service due in 2005 after traditional debt relief i s expected to reach 27.6 percent o f fiscal revenue, but would decline to 12.8 percent, after HIPC assistance, and subsequently to an average o f 5.2 percent in 2014-23. Additional external resources, including from the recovery of exports, will more than offset debt service obligations and result in a net positive inflow during the interim period and beyond (Table 9). However, in Interimrelief is assumedto beprovidedbythe IMF, IDA,the Afr-ican Development Bank, other multilateral creditors and the Paris Club. - 1 5 - the interim periodprojectedratios o f debt service to exports after HIPC relief do not compare favorably with the average ratio (8.2 percent in 2004) o f the 27 countries that have reached their decision or completion points because o f the limited number o f creditors assumed to provide interim relief and debt service on new borrowing. The reduction o f debt service as a result o f HIPC assistance i s expected to average nearly US$27 million in2005, increasing to an annual average o f about US$40 million after the completionpoint.* F. SensitivityAnalysis 30. Four scenarios were carried out to test the sustainability o f Burundi's extemal debt after HIPC Initiative assistance (Table 8, Figure 4). The first scenario considers the sensitivity o f the baseline projections to higher non-oil prices on imports, assuming an unchanged level o f investment and private and public consumption. Non-oil prices are assumed to be 5 percentage points higher than projected during 2005-09, and thereafter to increase according to the baseline scenario. The higher import growth is assumed to be partially financed by additional concessional borrowing for the whole projection period, Under these assumptions, the ratio o f the NPV o f debt to exports and the ratio o f debt service to exports would be on average 39percentage points and 1percentage point higher, respectively, than in the baseline scenario, during 2003-13; the corresponding figures for 2014-23 are projectedto be 92 percentage points and2 percentage points, respectively. 31. The second scenario considers the impact of a two percentage point increase in interest rates paid on all loans, starting in 2005 and remaining in place throughout the projection period. Both export receipts and government revenues are assumed to remain unchanged from the baseline scenario. Under these assumptions, the ratio o f the NFV o f debt to exports would remain on average 104percentage points higher than the baseline scenario over the period 2003- 13, while the debt-service-to-exports ratio would average 8 percentage points higher. The corresponding figures for 2014-23 are 122percentage points and 9 percentage points higher, respectively. 32. A third scenario illustrates the effect on debt ratios of assuming future financing (excluding the IMF) i s entirely grants until the ratio of NPV o f debt to exports reaches 150percent. Under this scenario, Burundi would benefit from 100percent grant financing duringthe period2006-08. Under this scenario, the NPV o f debt-to-exports ratio is projected to reach 150percent in2011. After 2011, financing needs are assumed to be met with a mix o f 50 percent grants and 50 percent concessional loans. The highly concessional terms assumed after 2011maintains the ratio o f the NFV of debt to exports permanently below the 150percent threshold and significantly lowers the debt-service burden with respect to the baseline scenario. * Innominal flow terms, HIPC assistanceby multilateralcreditors is defined as the reduction indebt service due after arrears clearance and after HIPC assistance. For bilateral and commercial creditors it is defined as the difference betweendebt service due after traditional debt relief and that due after HIPC assistance. - 16- 33. A fourth scenario highlights the risks of failing to achieve robust and prolonged export growth. The baseline scenario assumes that exports would significantly contribute to growth over the medium and long term. Ifthe assumption is changed so that export volumes are projectedto increase at a rate 1percentage point lower than that o f the baseline scenario, the NPV o f debt-to-exports ratio i s projected to average 14 percentage points more than the baseline scenario inthe period 2004-2013 and to be 72 percentage points above the baseline level at the end o f the projectionperiod. 34. Other possible scenarios were considered, in particular adverse price shocks reflecting Burundi's vulnerability to coffee price developments in world markets. Such shocks would worsen the sustainability o f Burundi's debt compared to the baseline. These issues highlight the importance o f a deep and sustained reform effort by the local and international community to re-establish internal security, and by the authorities to attract private sector investment necessary to achieve the projected growth and diversification o f GDPandexports andattain a more robust external debtposition. 35. The sensitivity analysis indicates that Burundi's ability to service external debt after HIPC relief is very vulnerable to external shocks and export performance. The achievement o f a robust external debt position is also heavily influencedby the composition and terms o f external assistance. The small export base constrains the amount o f debt that Burundiwill be able to service in the medium and long term, especially if public expenditure is to give priority to achieving the MDGs. The analysis underscores the importance o f a strong and sustained domestic reform effort, an active program to develop exportable production (traditional and nontraditional), prudent debt management strategy, and external assistance heavily weighted toward grants. Iv. THEDECISIONAND FLOATING COMPLETIONPOINTS A. The PRSP Process 36. The government has prepared an I-PRSP based on broad consultations although they were limited by the security situation in some provinces. It presents a long-term vision o f development based on six strategic themes for promoting sustainable, equitable economic growth deemed essential for poverty alleviation: (i)peace and democratic governance; (ii)reintegration o f conflict victims and disadvantaged groups into the economy; (iii) private sector development; (iv) human capital development; (v) HIV/AIDS; and (vi) advancing the role o f women in development. The government i s actively implementing this program. The Joint Staff Assessment (JSA) for this I-PRSP was presented to the Boards o f the IMF and IDA inJanuary 2004. Burundiintends to adopt a fillPRSP based on a participatory process currently underway at the colline (neighborhood) level byM a y 2005. B. ProposedDecision Point Timing 37. In the staffs' view, Burundi's overall record o f macroeconomic stabilization and reforms since 2000, including under the PRGF arrangement since January 2004, its submission o f the I-PRSP and active progress on its PRSP, and its state o f debt reconciliation - 17- would allow the decision point for debt reduction to be reached by mid 2005.' To reach the decision point, there would need to have been continued satisfactory execution o f the PRGF- supported economic program, as evidenced by completion o f the second program review, the identification o f expenditures that will benefit the poor, and adequate progress inestablishing a system for monitoring and tracking poverty-related spending andthe use o f HIPC Initiative resources. C. Triggersfor the FloatingCompletionPoint 38. IDA and IMFstaffs have reached preliminary understandings with the authorities on the nature o f triggers for the completion point (Box 6). The first four items would be standard general triggers to be complemented by satisfactory performance on a few specific and monitorable policy measures, aimed at raising growth and reducing poverty. The policy reforms would place special emphasis on pro-poor policy reform and expenditure policy in education, health, basic infrastructure, and social protection of vulnerable groups and conflict victims, as well as improved transparency and accountability in financial management. The reforms will aim at fostering an investment climate conducive to private sector development and improving efficiency inthe allocation and use o f scarce resources directly benefiting the poor. Should Burundi remain on track with regards to implementation o f its poverty reduction strategy and economic reforms supported by IDA and the IMF, the HIPC completion point could be reached within 14months o fthe HIPC decision point. Undertheproposedtiming, Burundiwould have metthe qualification requirementfor a satisfactory poverty reduction strategy as set out inSWO41374 andthe IMFBoard decision (Decision No. 13373-(041105), November 9,2004) to amend the PRGF-HIPC Trust and the PRGF Trust Instruments and inIDNSECM2004- 059811, "Poverty Reduction Strategy Progress inImplementation." - 1 8 - Box 6. PossibleTriggers for the FloatingCompletionPoint 1. A f i l lPRSP hasbeenpreparedthrough aparticipatory processand satisfactorily implemented for at least one year as evidenced by a Joint StaffAssessmentNote on the country's annualprogress report. 2. Maintenance o fmacroeconomic stability as evidenced by satisfactory implementation o fan ongoing PRGF-supported program. 3. Use o fbudget savings inaccordance with the criteria set forth at the decision point and use o f interimrelief as reportedand discussedby a national monitoringcommittee on a semi-annual basis. 4. A monitoring andtracking system for the budget, inparticular for poverty-related spending, has been put inplace. 5. Satisfactory progress on keypolicy measuresandtargets drawn from those outlined below, and to be refined during further discussions with the authorities: Structural measures:Pro-poor growth-promoting reforms such as, (i) speeding up the reform and divestiture o fpublic sector enterprises; (ii) deepening structural reforms already initiated, especially inthe areas ofthe trade andexchangeregimes andthe liberalization ofthe coffee sector; (iii)addressing the government's domestic debt and arrears, and (iv) steps to revitalize the private sector. Governance measures:(i) strengthening the core functions o f government, including financial management andputting inplace an integratedpublic expenditure computerizedsystem(IPECS) supported by IDA, and strengthening and modernizing revenue collection andpublic procurement; (ii) commencement of an audit o f the 2005 government accounts by the Cows des Comptes. Social and Poverty targets: (i) education: an agreed increase inthe number o f children enrolled in primary and secondary schools, o f rural schools rehabilitated andreconstructed, and o f teachers and textbooks inschools; (ii) health increased rate of child immunizations; increased access o frural population to potable water and rehabilitation o fruralprimary healthcare facilities; (iii)HIV/AIDS: increased awareness andprevention campaigns; increased care for persons infected; and (iv) infrastructure: rehabilitation o frural access roads. , D. Monitoringthe UseofHIPCInitiativeResources 39. Securing the effective use o f debt relief assistance for poverty reduction and, more generally, the "capacity to implement and monitor a shift in the composition o f expenditure toward poverty-related objectives, is a key element of the HIPC Initiative. It will require continued efforts to strengthen the programming, management and control o f expenditure, and to improve service delivery in key sectors. Within this framework, the technical assistance already being provided in the area o f public expenditure management by IDA, particularly through its EMSP, andbythe IMFwill be essential to restore an adequate budget management capacity. An Assessment and Action Plan (AAP) for tracking poverty-related expenditure i s provided for under the EMSP. 40. A new budget nomenclature is being put in place with the 2005 budget to make possible the tracking o f resources allocated by activity and region, and the monitoring o f the efficiency o f resource use for poverty reduction purposes. Inaddition, financial management i s to be strengthened by the implementation o f an integratedpublic expenditure computerized system in2006. A special treasury sub-account will be established inthe central bank where the budgetary savings from the debt relief will be deposited in a special account. IDA'S - 19- EMSP and Grant on Procurement Reform will provide resources to strengthen andmodernize the public procurement system with the adoption and implementation o f a legal, regulatory, andinstitutional framework inlinewith internationalbestpractices. 41. An Independent Oversight Committee will monitor these expenditures. Itwill include national and local representatives, as well as members of the international donor community. This approach has been successfully implementedinother countries inthe region. The use o f HIPC Initiative resources would be subject to independent technical and financial audits to ensure the effective use o f these resources for poverty reduction, and all such audits would be made publicly available. 42. It is important that poverty reduction programs be prepared according to standard budget procedures. Possible expenditure priorities for the use of HIPC resources, consistent with the priorities described inthe I-PRSP document, areprovidedbelow (Box 7) andwillbe further discussed and specified with authorities inthe decisionpoint document. Box 7. PossibleExpenditure Priorities for the Use of HIPC Debt Relief National reconciliationand security Resettlementandreintegrationof ex-combatants. Resettlementof intemal displacedpeople andrefugees. e Economicreintegrationofcivil strife victims. Justice systemreform. Disarmament,demobilization, andreintegrationof combatants. Health Publicawarenessprogramsto controlthe spreadof HIV/AIDS. Rehabilitationandstrengtheningof existingbasichealthfacilities and services and, establishingnew facilities. Reinforcingprogramsfor the preventionandcontrolofthe major endemic-epidemic diseases and promotinghealtheducation. Improvingthe availability drugs inurbanandrural facilities. Improvingthe performance ofnationalchild vaccinationprogram. Improving accessto potablewater suppliesparticularlyinthe rural areas. Education Rehabilitationor reconstructionof rural schools. Provisionofsuitableteaching materialsfor rural andurban schools. Increasingthe number of teachingpersonnelparticularlyinrural areas. Infrastructure Rehabilitationand expansionof coverageof ruralwater supplysystems. Rehabilitationof keyrural roads andbridges. e Constructionofnew roads andbridgesinurbanandrural areas. Agriculture Strengtheningresearchanddevelopment throughsupport to agriculturalresearchinstitutions. Promotingprivatesector involvement. v. ISSUES FORDISCUSSION 43. This paper presents a preliminary assessment o f Burundi's eligibility for assistance under the enhanced HIPC Initiative, and seeks the Executive Boards' endorsement o f this assessment. In addition, Executive Directors' view and guidance are sought on following issues: - 20 - 0 Eligibility. Do Directors agree that Burundi has met the eligibility criteria under the Enhanced HIPC Initiative, other than the criterion on unsustainable debt that will be based on end-2004 data, recognizing that the end-2003 debt data indicate that Burundiis likely to meet this criterion? 0 Timing of the Decision Point. Do Directors agree that Burundi could reach its HIPC Decision Point by M a y 2005, provided that the country remains on track with its macroeconomic program as agreed under the PRGF arrangement? 0 Completionpoint.What are the Executive Directors' views on the possible triggers and key policy measures (for which satisfactory performance has to be achieved) linked to the floating completion point? -21- .$ E aY \o 69 3 P m 5a- e, u E t! m i a - 22 - Figure 3. Burundi:ExternalDebt Proflee: ExternalSustainabihtyIndicators, 2003-23 (Inpercent) N P V ofDebt-to-Ehports Ratios o " " " " " " " ~ " " " t 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 Debt Senice-to-Exports Ratios 40 - I 20 - ----__..---- '* 4 I l - L I - - = - - I Before HIPCassistance I - =AfterHIPC assistance Sources: Burundiauthorities; and staffestimates andprojections. - 23 - Figure 4. Sensitivity Analysis, 2003-23 NPV of debt-to-export ratios 400.0 - 350.0 - 300.0 - 250.0 - 200.0 - 150.0 - 100.0 - 50.0 - 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2018 2020 2021 2022 2023 -Baseline Higher non-oil import prices ------.Lower concessionality of new borrowing ... _ _ Higher grant financing Lower export growth F w e 5, B m d iExternalDebtProfile: Net PresentValue ofDebt-to-GDP Ratio, 2003-23 (In percent) 160- BeforeHIPC assistance 140- - - mAfierHIF'Cassistance 120- 100- 80- 60- 40 - 0 ~ " ' " " " " ' " ' " ' " ' 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 Sources: Bumndiauthorities; and staffestinrates andprojections - 25 - Table I.Burundi: Selected Economic andFinancial Indicators, 2002-07 2002 2003 2004 2005 2006 2007 Prog. Actual Prog. Proj. Proj. Proj. Proj. (Annualpercentagechange, unlessotherwise indicated) Nationalincomeandprices RealGDP growth 4.5 1.1 -1.2 5.1 5.5 5.0 5.0 5.0 GDP deflator 1.7 10.4 11.6 6.7 8.0 6.7 6.0 5.8 Consumerprices (period average) -1.3 9.9 10.7 6.4 7.5 6.6 5.3 5.1 Consumerprices (endof period) 3.5 7.5 10.7 5.5 8.5 5.5 5.2 5.0 Externalsector Exports, f.0.b. (inU S . dollars) -20.3 63.1 28.6 -30.1 9.4 39.1 15.7 14.3 Imports,f.0.b. (inUS.dollars) -4.2 12.5 29.0 9.9 44.9 6.2 -6.9 2.2 Export volume -19.7 55.7 30.3 -33.8 -18.2 39.2 9.4 7.0 Import volume -3.4 5.3 25.7 9.1 30.9 6.5 -6.7 2.0 Terms oftrade (deterioration-) -0.1 -1.9 -3.8 4.8 20.9 0.1 6.0 6.7 Realeffectiveexchangerate (annualaverage; depreciation-) -15.1 ... -18.6 ... -4.3 1/ Centralgovemment Revenue 7.5 6.0 14.9 9.8 4.9 9.7 11.9 11.3 Total expenditureandnet lending(commitmentbasis) 1.1 28.8 50.1 10.3 36.4 15.0 -6.5 0.5 Noninterestcurrent expenditure 0.7 12.9 15.9 3.8 22.7 2.0 13.8 11.7 (Change inpercentofbeginning-of-periodM2, unlessotherwiseindicated) Moneyandcredit Net foreign assets 7.1 -4.1 19.0 -1.9 -7.7 2.8 2.7 0.7 Domestic credit 24.0 36.9 14.0 20.8 30.6 11.5 7.6 9.5 Government -10.2 17.2 9.6 9.2 18.9 -4.9 -2.5 0.0 Privatesector 34.0 15.2 5.5 15.3 13.7 16.4 10.4 9.8 Money andquasimoney(M2) 27.2 14.0 23.1 18.3 18.6 14.9 16.5 15.0 Incomevelocity (ratio ofGDP to M2;endofperiod) 4.1 3.6 3.7 3.6 3.6 3.5 3.3 3.2 Reservemoney(12-monthgrowthrate) 23.2 14.3 10.9 14.3 26.9 7.7 12.9 12.4 Centralbankrefmcingrate (inpercent;endof period) 15.5 15.5 14.5 ... 14.5 21 Commercialbanklendingrate(inpercent; mediumtern?periodaverage) 20.6 19.6 20.7 ... 20.5 1/ (InpercentofGDP) Centralgovemment Revenue(excludinggrants) 20.3 19.4 21.1 19.7 19.4 19.0 19.1 19.2 Total expenditureandnetlending 25.9 29.5 35.3 29.5 42.2 43.4 36.4 33.0 Prima.rybudgetbalance(excludingforeign-financed projects) 2.2 -1.5 -0.8 0.0 -3.2 -1.9 -1.9 -1.7 Overallbalance(commitment basis) Excluding grants -5.7 -10.1 -14.2 -9.8 -22.8 -24.3 -17.3 -13.8 Including grants -1.4 -7.3 -6.3 ... 0.3 -3.6 -4.4 -4.0 Savings-investmentbalances Currentaccount balance(excludingcapital grants) -6.5 -8.1 -6.1 -9.3 -20.4 -19.0 -15.1 -14.5 Gross investment 5.2 11.7 10.4 11.7 12.4 12.8 12.7 13.0 Public 3.6 8.7 8.3 8.7 9.4 9.4 8.7 8.7 Private 1.6 3.0 2.1 3.0 3.0 3.3 4.0 4.3 GrossMtiOMl Savin@ -1.3 3.6 4.2 2.4 -7.9 -6.2 -2.4 -1.4 Public -0.2 -1.8 -1.3 -1.4 -4.4 -2.5 -2.4 -2.4 Private -1.1 5.3 5.5 3.7 -3.5 -3.7 0.0 0.9 (Inmillions 0fU.S. dollars, unlessotherwise indicated) Externalsector Current account -40.7 -48.3 -36.5 -60.1 -135.9 -148.0 -129.9 -133.5 Overall balance ofpayments -27.1 -63.2 -11.9 22.4 25.4 -27.0 -28.4 -20.5 Grossoficial reserves(end ofperiod) 60.1 52.9 68.9 87.9 81.7 115.0 111.5 113.9 Gross official reserves(inmonthsof imports, c.i.f.) 5.9 4.6 5.3 6.5 4.3 5.8 6.0 6.0 Netoficial reserves(inmonths of imports, c.i.f.) 2.2 3.1 2.5 2.2 1.7 1.6 2.0 2.0 Debt-serviceratio (scheduled; inpercent ofexportandservicereceipts) 121.7 96.8 108.3 193.9 146.0 62.4 54.9 45.8 Externalpaymentsarrears 181.1 ... 176.8 Memorandumitems: Exchangerate( B w d i francs per U.S. dollar; average) 931 1,074 1,083 1,120 1,101 u GDP at currentmarketprices(inbillions ofBurundifrancs) 584.6 647.4 644.7 722.5 734.3 822.5 915.1 1,015.9 Sources: Burundi authorities; andFund staffestimates andprojections. I/DatathroughSeptember2004. 21DatathroughNovember 15,2004. - 26 - Table 2. Burundi:Balance ofPayments,2001-23 (In millions o tUS dollars, unless othenviscindicated) Current account -44.9 -40.7 -36.5 -135.9 -148.0 .129.9 -133.5 -130.7 -132.8 .134.2 ,133.8 -135.6 Tradebalance -69.2 -72.7 -93.8 -150.2 -145.2 .I21 3 -115.3 -112.6 -113.7 ,1176 ,120.9 -125.2 Exports, L0.b. 39.2 31.2 40.2 43.9 61.1 70.7 80.8 90 8 100.1 108.8 118.8 128.8 Wwhich. coffee 19.7 16.7 25.5 26 2 42.8 50.3 58.8 67.I 74.9 81.8 89.1 95.9 Imparts, tab. -108.4 ,103.9 ,134.0 -194.1 -206.3 .192.0 -196.2 -203.4 -213.7 .226.3 ,239.7 -254.0 ofwhich: petmleum products -16.4 -15.9 -30.0 -58.7 -60.5 -61.8 -63.5 -65.3 -67.5 -71.6 -75.9 -80.5 Ofwhich. i-rts relatedto reconsrmctionsffor! -49.9 -62.5 -95.7 -136.1 -119.1 .I103 -98 0 -95.0 -92.2 -95.5 ,1007 -106.3 Services(net) -31.0 -35.7 -27 7 -94.7 -93.4 -81.7 -71.8 -65.0 -59.3 -56.2 -55.0 -55.1 Credits 6.9 7.7 17.5 7.2 11.4 13.2 15.1 17.0 18.8 20.5 22.5 24.4 Debits -37.9 -43.3 -45.2 -101.8 -104.8 -94.9 -86.9 -82.0 -78.1 -76.7 -77.5 -79.5 Income(net) -12.8 -14.1 -20.I -21.9 -21.6 -19.0 -18 5 -18.4 -18.3 -18.7 -19.1 -19.5 Ofwhich interestanpublic debt (including IMF chargesandmorat -10.2 -12.1 -13.4 -10.8 -10.9 -9.7 -9.9 -10.0 -10.1 -10 I -10.0 -10.0 Currentuansfers(net) 68 1 81.8 105.2 130.9 112.2 92.1 72.1 65.2 58 4 58.3 61.2 64.1 Privatc (nct) 6.5 5.5 7 0 7.4 8.2 9.2 I O 2 11.3 12.5 13.1 13.8 14 5 Official (net) 61.6 76.3 98.2 123.6 104.0 83.0 62.0 54.0 46.0 45 2 47 4 49.7 Capital account 13.6 26.2 47.0 145.8 77.3 85.0 90.8 96.1 I O 1 8 108.0 114.0 120.5 Projectgrants 7.I 14.I 33.0 73.1 50.0 55.0 57.8 59.8 61.9 64.0 65.6 67.3 Programgrants 6.5 12.I 140 72.7 27 3 30.0 33.0 36.3 40.0 44.0 48.4 53.2 Financial account -10.6 2.6 -21.6 11.3 43.7 16.4 22.2 20.4 184 18.7 17.3 I 64 Dircct investment 0.0 00 0.0 0.0 5.0 100 11.0 11.6 12.1 12.7 13.4 14.0 Medium andlong-tmn official loans(net) -19.7 1.9 -7.2 -0.5 45.1 6.6 11.4 9.1 6.5 6.3 4 3 2.7 Disbursements 15.2 34 6 41.9 35.0 79 4 43 0 45.5 44.9 43.3 42.9 42.5 42. I Pmjcet loans 8.8 14.6 21.0 20.2 28.8 23 0 23.5 23.9 24.4 24.9 25.4 25.9 Programloans 6.4 20 0 20.9 14.8 50.6 20.0 22.0 21 0 189 18.0 17.1 16.2 Amortization (excludingIMF) -34.9 -32.7 -49.1 -35.5 -34.4 -36 4 -34 0 -35.9 -36.8 -36.6 -38.2 -39.4 Othercapital 9.I 0.7 '-14.4 11.7 -6.3 -0.2 -02 -0.3 .o 3 -0.3 -0.4 -0.4 Wwhich. s hort-tmn capital 0.0 00 0.0 0.0 0.0 0.0 0.0 0.0 0.0 00 0.0 00 Errorsandomissions 0.6 -15.2 -0.9 4.2 0.0 0.0 0.0 0.0 0.0 0 0 0.0 0.0 Overall balance -41.3 -27.1 -11.9 25.4 -27.0 -28.4 -20.5 -14.2 -12.6 -7.5 -2.6 1.2 Financing(-increaseinassets) 41.3 27.1 11.9 -25.4 -0.9 4.8 -0.8 -1.4 -2.0 -2.4 -2.6 -2 8 Changeincenml banknet fareign reserves(-increase) 13.2 -5.7 -9.8 0.7 -0.6 -4.7 -0.8 -1.4 -2.0 -2.4 -2.6 -2 8 IMF, net 4.4 -10.0 -12.5 -10.4 -32.2 -21.1 -10.6 0.0 3.9 9.9 14.2 18.1 Otherreserves. net 8.8 4.3 2.7 11.1 31.6 16.4 9.7 -1.4 -5 9 -12.3 -16.7 -20.9 Changeinarrears (+increase) 28.2 32.7 -5.4 -125.0 -51.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 ExCtQtioMl financing I/ 0.0 27.I 99.0 50.9 9.5 0.0 0.0 0.0 0.0 0.0 0.0 Cancellation 0.0 0.0 0.0 33.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Reschedulingofdebt smicc andarrears 0.0 0.0 27.I 65.7 50.9 9.5 0.0 0.0 0.0 0.0 0.0 0.0 Financinggap 0.0 0.0 0.0 0.0 27.8 23 6 21.3 15.6 14.6 9.9 5.2 1.6 Memorandumitem: Tradebalance(inpercentof GDP) -10.4 -11.6 -15.8 -22.5 -18.6 -14.1 -12.5 -11.3 -10 6 -10.1 -9.6 -9.2 Currentaccount(inpercentofGDP) -6.8 -6.5 -6.I -20.4 -19.0 -15.1 -14.5 -13.1 -12.4 -11.6 -10.7 -100 q w h i c h . excluding currentofficial Uansfers -106.5 ,117.0 ,134 7 -259.4 -251.9 -212.9 -195.4 -184.6 -178.8 -179.3 -181.2 -185.3 Grossofficial reserves InmillionofU.S. dollars 23.8 60.1 68.9 81.7 115.0 I l l 5 113.9 118.1 124 1 131.4 139.2 147.5 Inmonthofimpons, c.i.f. 2.3 5.9 5.3 4.3 5.8 6.0 6 0 6.0 6.0 6.0 6 0 6.0 Net reserves (in monthsof imports,c if) 1.6 2.2 2.5 1.7 1.6 2.0 2 0 2.0 2.0 2.0 2 0 2.0 Total extemaldebt 1074 121.7 108.3 146.0 62.4 54.9 45.8 42.5 42.7 43.7 44.1 44.0 Debt-serviceratio (inpercentofexports ofgwds andServices) Scheduleddebt service(including IMF) 107.4 121.7 108.3 146.0 62.4 54.9 45.8 42.5 42.7 43.7 44.1 440 Actual debtservice(including IMF, a brecheduling) 46.3 37.5 70.6 87.5 50.1 43.6 45.8 42.5 42.7 43.7 44.1 44.0 Exchangcrate(Burundi francsper U.S dollar, period avcragc) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 00 0.0 0.0 Multilateraldebt servicedue (inmillions ofU.S. dollars) Nominal GDP (inmilliom afU.S.dollars) 662 3 628.1 595.5 667.2 780 9 857.6 923.4 995.1 1,073 1,160 1,254 1,354 Sources: B m d iauthorities, andFundstaff estimates andprojections. - 27 - Table 2. Burundi: Balance of Payments, 2001-23 (Inmillionsof US. dollars,unlessotherwiseindicated) Currentaccount -134.5 -137.8 -140.3 .141.9 -141.3 ,143.0 -145.1 .148.0 -151.4 ,155.8 -161.0 Trade balance -129.6 -133.8 -137.5 -140.3 -141.2 .144.2 -147.6 -151.7 -156.4 .162 0 -168.4 Exports, To b. 139.3 151.0 164.0 179.0 197.1 214.0 231.5 249.6 268 5 287.8 307.7 Ofwhich: coffee 102.9 109.9 116.4 I23 3 132.7 140.8 149.2 158.0 167.3 176.9 187.3 Imports,f.0.b. -268.9 -284.7 -301.5 .3193 -338.3 358.1 -379.1 -401.3 -424.9 -449.8 -476 1 Ofwhich: petroleumproducts -85.4 -90.6 -96.1 .101.9 -108.0 .1146 -121.5 -128.9 -136.7 .144.9 -153.7 Ofwhich: impomrelatedto reconstwtion effort -105 3 -104.8 -106.1 .108.6 -111 2 -114.7 -118.4 -122.2 -126.2 -130.4 -134.7 Services (net) -52.2 -54.3 -56.4 -58.4 -60 1 -62.2 -64 4 -66.9 -69.5 -72.3 -75.4 Credits 26.5 28.8 31.4 34.3 37.9 41.3 44 8 48.5 52.3 56.3 60.4 Debits -78.7 -83.1 -87.8 -92.7 -98.0 -103.5 -109.3 -115 4 -121.8 -128.6 -135.8 Income(net) -19.9 -20.3 -20 4 -20.9 -21 4 -22.0 -22.7 -23.3 -24.0 -24.8 -25.6 Ofwhich: interest onpublic debt(includingIMF chargesandmorat -9.9 -9.8 -9.3 -9.2 -9.2 -9.2 -9.2 -9.2 -9.2 -9.2 -9.2 Currentkansfen(net) 67.3 70.6 74.0 77.6 81.4 85 4 89.5 93.9 98.5 IO3 3 108.3 Private(net) 15.2 15.9 16.7 17.6 18.5 19.4 20.3 21.4 22 4 23.6 24 7 Official(net) 52.1 54.6 57.3 60.1 63.0 66.0 69.2 72.6 76.1 79.7 83.6 Capital account 116.8 113.8 113.4 1148 116.2 118.9 1217 I24 5 I27 5 130.5 133.7 Project@ants 69.0 70.7 72.4 74.3 76.1 78.8 81.5 84.4 87.3 90.4 93 6 Programgrants 47.9 43.1 40.9 40.5 40.1 40.1 40.1 40 1 40.1 40.1 40.1 Financialaccount 15 8 16.6 14.2 16.1 15.8 16.0 17.3 17.7 I 7 6 17.9 17.4 Directinvestment 14.7 15.5 16.3 17.1 17.9 18.8 I 9 8 20.1 21.8 22.9 24 0 Medium-andlong-termofficial loans (net) 1.5 1.5 -1.6 -04 -1.5 -2.1 -1.8 -2.3 -3.4 -4.1 -5.7 Disbursements 42.5 42.8 43.2 43 6 44.0 44.4 44.9 45.3 45.8 46.2 46 7 Projectloans 26.4 26.9 27.5 28.0 28 6 29.2 29.8 30 3 31.0 31.6 32 2 programloans I 6 0 15.9 15 7 15 6 15.4 15.3 15.1 15.0 14 8 14.7 I 4 5 Amortization(excludingIMF) -41.0 -41.3 -44 8 -44.0 -45.5 -46.6 -46.6 -47.6 -49.2 -50.3 -52 4 Other capital -04 -0.5 -0.5 -0.5 -0.6 -0.6 -0.7 -0.7 -0.8 -0.8 -0 9 Ofwhich: short-termcapital 0.0 0.0 0.0 0.0 0.0 0.0 0 0 0.0 0.0 0.0 0.0 Errors andomissions 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Overallbalance -I -7.5 8 -12 7 -11.0 -9.2 -8.0 -6.2 -5.7 -64 -7 3 -9 9 Financing(-increase in assets) -2.9 -3.1 -3.2 -3.4 -3.7 -3.8 -4.1 -4.3 4.6 -4.8 -5.1 Changein centralbanknet foreip reserves (-increase) -2.9 -3.1 -3.2 -3.4 -3 7 -3.8 -4.1 -4.3 -4.6 4.8 -5.1 IMF, net 19.1 15.4 9 8 4.9 1.0 0.0 0.0 0.0 0.0 0 0 0 0 Other reserves, net -22.0 -18.5 -13.1 -8.4 -4.7 -3.8 -4.1 -4.3 -4.6 -4.8 -5.1 Changein arrears (+ increase) 0.0 0.0 0.0 0.0 0 0 0 0 0 0 0.0 0 0 0.0 0.0 ExceptionalfinancingI/ 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0 0 0 0 0 0 0.0 Cancellation 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0 0 0.0 0.0 0.0 Reschedulingofdebt service andarrears 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0 0 Financinggap 4 7 10.5 16.0 14.4 12.9 11.9 10.2 10.0 10.9 12.2 15 0 Memorandumitem, Trade balance(inpercenlof GDP) -8.9 -8.5 -8.1 -7.7 -7.3 -6.9 -6.6 -6 3 -6.1 -5.9 -5.7 Currentaccount(in percentof GDP) -9.2 -8.8 -8 3 -7.8 -7.3 -6.9 -6.5 -6.2 -5.9 -5.7 -5 5 Of which: excluding currentofficial transfers -186.6 -192.4 -197.5 -201.9 -204.3 -209.0 -214.3 -220.5 -227.5 -235.5 -244 6 Gross official reserves Inmillionof U.S dollars 156.2 165.4 175.1 185.4 196.4 208.0 220.2 233.1 246.7 261.2 276 5 Inmonthsofimports, c it 6.0 6.0 6 0 6 0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 Netreserves (in months of imports;,c.i.f.) 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 Total externaldebt 42.2 37 0 32 7 27.3 23.7 21.8 20.2 190 18.2 17.3 16.7 Debt-seniceratio (in percenlofexpons ofgoodr andservices) Scheduleddebt snvice (includingIMF ) 42.2 37.0 32.7 27.3 23.7 21.8 20.2 19.0 18.2 17.3 16.7 Actualdebtservice (includingIMF;a&r recheduling) 42.2 37.0 32.7 27.3 23.7 21.8 20.2 19.0 18.2 17.3 I 6 7 Exchangerate(Burundi francs per U.S.dollac periodaverage) 0 0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Multilateraldebt selvicedue(in millionsof U.S. dollars) NominalGDP (in millionsof U.S. dollars) 1,460 1,572 1,690 1,815 1,947 2,086 2,233 2,391 2,559 2,740 2,933 Sources: Burundiauthorities; and Fundstaffestimates andprojections -28- Table 3. Burundi: Nominal andNet Present Value o f ExternalDebt Outstandingby CreditorGroups, End-December2003 NPV of DebtAfcer Traditional NominalDebt Stock Stwk ofArrean NPV ofDebt DebtRelief I/ US$million Percent US$million Percent US$million Percent US$million Percent oftotal oftotal oftotal oftotal Total 1351.2 100.0 184.7 100.0 936.4 100.0 872.0 100.0 Multilateral 1,138.8 84.3 66.0 35.7 741.2 79.2 741.2 85.0 IDA 734.9 54.4 0.0 0.0 450.9 48.1 450.9 51.7 AfDB Group 240.9 17.8 33.4 18.1 162.8 17.4 162.8 18.7 AfDB 14.0 1.o 14.0 7.6 14.0 1.5 14.0 1.6 AfDF 226.1 16.7 19.1 10.4 148.0 15.8 148.0 17.0 NTF 0.8 0.1 0.3 0.2 0.7 0.1 0.7 0.1 IMF 28.6 2.1 0.0 0.0 26.4 2.8 26.4 3.0 EuropeanUnion 74.8 5.5 25.1 13.6 59.5 6.4 59.5 6.8 EUadministeredby IDA 0.9 0.1 0.0 0.0 0.6 0.I 0.6 0.1 IFAD 30.5 2.3 0.3 0.2 19.3 2.1 19.3 2.2 BADEA 16.9 1.3 0.0 0.0 11.7 1.2 11.7 1.3 OPEC Fund 9.2 0.7 6.5 3.5 8.9 I.o 8.9 1 .o BDEGL 2.0 0.2 0.7 0.4 1.2 0.1 1.2 0.1 Bilateralandcommercial 212.5 15.7 118.7 64.3 195.2 20.8 130.9 15.0 ParisClub 21 141.3 10.5 79.3 42.9 127.7 13.6 86.3 9.9 Post-cutoffdate 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 ODA 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Non-ODA 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Pre-cutoffdate 141.3 10.5 79.3 42.9 127.7 13.6 86.3 9.9 ODA 119.0 8.8 56.9 30.8 105.4 11.3 84.1 9.6 Non-ODA 22.3 1.7 22.3 12.1 22.3 2.4 2.2 0.3 Austria 15.6 1.2 0.0 0.0 7.4 0.8 3.7 0.4 France 78.7 5.8 44.3 24.0 13.8 7.9 55.9 6.4 Japan 24.7 1.8 12.7 6.9 24.2 2.6 24.6 2.8 Russia 22.3 1.7 22.3 12.1 22.3 2.4 2.2 0.3 Other official bilateral 61.6 4.6 39.0 21.1 58.6 6.3 35.9 4.1 Post-cutoffdate 4.4 0.3 3.1 1.7 4.4 0.5 4.3 0.5 ODA 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Non-ODA 4.4 0.3 3.1 I.7 4.4 0.5 4.3 0.5 Pre-cutoffdate 57.2 4.2 35.9 19.4 54.2 5.8 31.6 3.6 ODA 48.8 3.6 35.9 19.4 46.8 5.0 28.8 3.3 Non-ODA 8.5 0.6 0.0 0.0 7.4 0.8 2.8 0.3 China 13.7 1.o 0.0 0.0 11.9 1.3 4.2 0.5 Kuwait 20.8 1.5 18.6 10.0 19.3 2.1 12.0 1.4 Libya 4.4 0.3 3.1 1.7 20.7 2.2 13.8 1.6 SaudiArabia 20.3 1.5 15.0 8.1 2.4 0.3 1.7 0.2 UnitedArab Emirates 2.4 0.2 2.4 1.3 4.4 0.5 4.3 0.5 Commercial 9.5 0.7 0.5 0.2 8.9 0.9 8.6 1 .o Post-cutoffdate 9.1 0.7 0.0 0.0 8.4 0.9 8.4 1.0 Pre-cutoffdate 0.5 0.0 0.5 0.2 0.5 0.0 0.1 0.0 Germany OS 0.0 0.5 0.2 0.5 0.0 0.1 0.0 Israel 9.1 0.7 0.0 0.0 8.4 0.9 8.4 1 .o Sources:Burundiauthorities;andBank-Fundstaffestimates. I/Includesastock-of-debtoperationonNaplestermsatend-2003;andatleastcomparableactionbyotherofficialbilateral andcomercial creditorsoneligibledebt (pre-cutoffandnon-ODA). 2/ ParisClub cutoff date is June 30, 1999. - 29 - Table 4. Burundi: HIPC Initiative-Assistance Under a Proportional Burden-Sharing Approach I/21 (Inmillions ofU.S. dollars, unlessotherwise indicated) NPV o f debt- Common Reduction to-exports target Factor 41 (inpercent) Total Bilateral 31 Multilateral (Percent) (InNPV termsat end-2003) 150 801 120 681 91.8 Memorandumitems: NPV o f debt 51 872 131 141 Paris Club Creditors 31 86 Of which: pre-cutoffnon-ODA debt 2 Non-Paris Club Creditors 31 45 Ofwhich: pre-cutoffnon-ODA debt 3 Ofwhich: commercial creditors 9 Three-year average o f exports 41.5 Current-year exports 51.6 NPV o f debt-to-exports ratio 61 1834 Sources: Congolese authorities; and Fundstaff estimates. 11The proportionalburden-sharingapproach is described in "HIPC Initiative-Estimated Costs and Burden-Sharing Approaches" (EBS~971121,1/1191and IDNSECM 97-306,717197). 21Includes a hypothetical stock-of-debt operation on Naples terms (December 2003) and comparable treatment by other official bilateral creditors. 31Includesofficial bilateralcreditors and commercial debt. 41Each creditor's NPV reduction in percent o f its exposure at the decision point. 51 Based on end-2003 data after full application o ftraditional debt-reliefmechanisms. 61Based on the three-year export average (backward-looking average, Le., 2001-03). -30- Table 5. Burundi:DiscountandExchangeRateAssumptions at End-2003 DiscountRate 1/ Exchange Rate21 CurrencyName (Inpercentper annum) (Currencyper U.S.dollar) Austrian Schillings 4.63 10.89 CanadianDollar 5.18 1.29 ChineseYuan 4.20 8.28 DeutscheMark 4.63 1.55 DanishKroner 4.77 5.91 Euro 4.63 0.79 Great Britain Sterling 5.37 0.56 Japanese Yen 1.70 107.10 KuwaitiDinar 4.47 0.29 LibyanDinar 4.20 1.30 Norwegian Kroner 5.30 6.67 RussianRouble 4.20 0.60 Saudi Arabia Ryal 4.20 3.75 SpecialDrawing Rights 4.20 0.67 SwedishKroner 5.00 7.20 Swiss Franc 3.21 1.24 UnitedArab EmiratesDhirams 4.20 3.67 United States Dollar 4.47 1.oo Memorandumitem: ParisClub cutoffdate June 20, 1999 Sources: OECD; and IMF, International Financial Statistics. 1/ The discountrates usedare the average commercialinterest reference rates over the six-month periodprior to end-December2003, Le., the end ofthe period for which actualdebt and export data are available. 21The exchangerates are expressedas nationalcurrencyper U.S. dollar at end-December 2003. - 3 1 - W V I 0 - i O G i O G & - i N - 0 ' 0 P W o m - - m y o , y W P P N 2 2 W P 2: a a - 32 - .i: m p! 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L Pe! - 37 - Table 10.Burundi:Long-TermMacroeconomicAssumptions,2003-23 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 (Inunits indicated) Real GDP growth (percent change) -1.2 5.5 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 Nominal GDP (millions o fUS.dollars) 595 667 781 858 923 995 1,073 1,160 1,254 1,354 1,460 Percent change -5.2 12.1 17.0 9.8 7.7 7.8 7.8 8.1 8.1 8.0 7.8 Exports o f goods and nonfactor services (millions ofU.S. dollars) 58 51 72 84 96 108 119 129 141 153 166 Percent change 48.2 -11.3 41.8 15.7 14.4 12.4 10.2 8.8 9.3 8.4 8.2 Imports o fgoods andnonfactor services (millions o fU.S. dollars) 179 296 311 287 283 285 292 303 317 333 348 Percent change 21.7 65.2 5.1 -7.8 -1.3 0.8 2.2 3.8 4.7 5.1 4.2 Fiscalrevenues, excluding grants (millions o fU.S. dollars) 125.7 129.6 148.6 164.1 177.3 191.6 207.2 224.6 243.6 263.8 285.3 Percent change -1.3 3.1 14.6 10.5 8.0 8.1 8.1 8.4 8.4 8.3 8.1 GDP per capita (US.dollars) 82.7 90.9 104.2 112.3 118.7 125.6 133.0 141.2 150.0 159.2 168.8 Percent change -12.0 9.9 14.7 7.8 5.7 5.8 5.9 6.2 6.2 6.2 6.0 Population (millions) 7.2 7.3 7.5 7.6 7.8 7.9 8.1 8.2 8.4 8.5 8.6 Percent change 7.7 2.0 2.0 1.9 1.9 1.9 1.8 1.8 1.8 1.7 1.7 Units o f local currency per U.S. dollar (period average) 1,082.6 1,100.5 1,053.3 1,067.1 1,100.1 1,132.2 1,161.7 1,186.9 1,210.6 1,234.8 1,259.5 GDP deflator (percent change) 11.6 8.0 6.7 6.0 5.8 5.6 5.4 5.2 5.0 4.9 4.7 CPI index (percent change) 10.7 7.5 6.6 5.3 5.1 5.0 4.8 4.3 4.0 4.0 4.0 (Inpercent ofGDP) Composition of nominal GDP 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Consumption 110.0 124.3 117.8 110.9 107.2 104.9 103.4 102.3 101.4 100.7 99.8 Government 22.7 28.5 30.2 24.3 21.0 20.9 20.8 20.5 20.0 19.5 18.9 Nongovernment 87.3 95.8 87.6 86.6 86.2 84.0 82.5 81.8 81.4 81.2 80.9 Gross investment 10.4 12.4 12.8 12.7 13.0 12.9 12.8 12.6 12.4 12.3 12.2 Government 8.3 9.4 9.4 8.7 8.7 8.3 7.9 7.4 6.9 6.4 6.0 Nongovernment 2.1 3.0 3.3 4.0 4.3 4.6 4.9 5.2 5.5 5.8 6.2 Net exports o f goods and nonfactor services -20.4 -36.7 -30.6 -23.7 -20.3 -17.8 -16.1 -14.9 -13.9 -13.0 -11.9 Exports of goods and nonfactor services 9.7 7.7 9.3 9.8 10.4 10.8 11.1 11.1 11.1 11.0 10.9 Imports o f goods andnonfactor services -30.1 -44.4 -39.8 -33.5 -30.7 -28.7 -27.2 -26.1 -25.0 -24.0 -22.8 Aid-related imports o f goods andnonfactor services -16.1 -20.4 -15.3 -12.9 -9.1 -8.7 -7.8 -7.0 -6.7 -6.4 -6.1 Extemalcurrent account balance, incl. grants, before debt relief -6.1 -20.4 -19.0 -15.1 -14.5 -13.1 -12.4 -11.6 -10.7 -10.0 -9.2 Gross investment 10.4 12.4 12.8 12.7 13.0 12.9 12.8 12.6 12.4 12.3 12.2 Grossnational savings 4.2 -7.9 -6.2 -2.4 -1.4 -0.2 0.4 1.1 1.8 2.2 2.9 Net official extemal financing 14.2 1.9 21.5 11.1 7.7 4.8 2.0 -0.3 -1.8 -2.8 -2.9 Gross official external financing 19.9 15.8 25.9 15.3 11.3 8.4 6.1 4.5 3.5 2.7 2.5 Grants 16.5 18.5 16.0 12.1 9.0 7.5 6.2 5.7 5.4 5.2 5.0 Loans 3.4 -2.8 9.9 3.2 2.4 0.9 -0.1 -1.2 -1.9 -2.5 -2.5 Disbursements 9.1 11.1 14.3 7.5 6.1 4.5 4.0 3.7 3.4 3.1 2.9 Amortization -5.7 -13.8 -4.4 -4.2 -3.7 -3.6 -4.2 -4.9 -5.3 -5.6 -5.4 Overall fiscal balance 12.4 17.9 13.7 12.9 13.5 14.0 14.6 15.4 16.1 16.8 16.7 Total revenue and grants 47.7 60.1 57.1 49.4 46.5 46.4 46.3 46.3 46.2 46.1 45.3 Revenues, excluding grants 21.1 19.4 19.0 19.1 19.2 19.3 19.3 19.4 19.4 19.5 19.5 Total expenditures -35.3 42.2 -43.4 -36.4 -33.0 -32.4 -31.7 -30.9 -30.1 -29.3 -28.6 Sources: Burundiauthorities; and staff estimatesand projections. - 38 - Table 10.Burundi:Long-TermMacroeconomicAssumptions, 2003-23 Averages 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2002-11 2012-21 (In units indicated) RealGDP growth (percentchange) 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 Nominal GDP (millions 0fU.S. dollars) 1,572 1,690 1,815 1,947 2,086 2,233 2,391 2,559 2,740 2,933 1,052 2,197 Percentchange 7.7 7.5 7.4 7.3 7.1 7.1 7.1 7.1 7.1 7.I 9.4 7.2 Exports of goods andnonfactorservices (millions ofUS.dollars) 180 195 213 235 255 276 298 321 344 368 112 269 Percentchange 8.5 8.7 9.2 10.2 8.6 8.3 7.9 7.6 7.3 7.0 11.8 8.3 Imports of goods and nonfactorservices(millions ofU.S.dollars) 368 389 412 436 462 488 517 547 578 612 306 481 Percentchange 5.8 5.8 5.8 5.9 5.8 5.8 5.8 5.8 5.8 5.8 8.2 5.8 Fiscal revenues, excludinggrants(millions 0fU.S. dollars) 308.1 332.3 358.0 385.1 413.6 443.9 476.2 510.9 548.6 589.I 204 437 Percentchange 8.0 7.9 7.7 7.6 7.4 7.3 7.3 7.3 7.4 7.4 8.6 7.5 GDP per capita(U.S. dollars) 178.7 189.0 199.5 210.4 221.7 233.3 245.9 259.1 273.0 287.7 130.4 229.8 Percentchange 5.9 5.7 5.6 5.5 5.3 5.3 5.4 5.4 5.4 5.4 7.4 5.5 Population(millions) 8.8 8.9 9.1 9.3 9.4 9.6 9.7 9.9 10.0 10.2 8.0 9.5 Percentchange 1.7 1.7 1.7 1.7 1.7 1.7 1.6 1.6 1.6 1.6 1.9 1.7 Units of local currency per U.S. dollar (period average) 1,284.7 1,310.4 1,336.6 1,363.3 1,390.6 1,418.4 1,446.8 1,475.7 1,505.2 1,535.3 1150.7 1406.7 GDP deflator (percentchange) 4.6 4.5 4.3 4.2 4.1 4.0 4.0 4.0 4.0 4.0 5.7 4.2 CPI index (percent change) 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 5.1 4.0 (Inpercent) Compositionof nominalGDP 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Consumption 99.1 98.5 98.0 97.4 96.8 96.2 95.7 95.1 94.6 94.0 107.3 96.6 Government 18.3 17.7 17.7 17.7 17.6 17.5 17.4 17.2 17.1 16.9 22.5 17.5 Nongovernment 80.8 80.8 80.3 79.7 79.2 78.8 78.3 77.9 77.5 77.1 84.8 79.1 Grossinvestment 12.1 12.0 12.2 12.3 12.5 12.7 13.0 13.2 13.5 13.9 12.6 12.7 Government 5.5 5.2 4.9 4.7 4.5 4.4 4.2 4.0 3.9 3.7 7.9 4.5 Nongovernment 6.6 6.9 7.2 7.6 8.0 8.4 8.8 9.2 9.7 10.2 4.1 8.2 Net exportsofgoodsandnonfactor services -11.2 -10.6 -10.2 -9.7 -9.3 -9.0 -8.7 -8.4 -8.1 -7.9 -19.9 -9.3 Exportsofgoodsand nonfactorservices 10.7 10.6 10.9 11.3 11.5 11.7 11.8 11.9 11.9 11.9 10.3 11.4 Imports ofgoods andnonfactor services -22.0 -21.2 -21.1 -21.0 -20.8 -20.7 -20.5 -20.3 -20.1 -19.8 -30.2 -20.7 Aid-related imports ofgoods andnonfactorservices -5.9 -5.6 -5.5 -5.3 -5.2 -5.2 -5.1 -5.1 -5.0 -5.0 -10.1 -5.3 External current account balance, incl. grants, before debt relief -8.8 -8.3 -7.8 -7.3 -6.9 -6.5 -6.2 -5.9 -5.7 -5.5 -13.6 -6.9 Gross investment 12.1 12.0 12.2 12.3 12.5 12.7 13.0 13.2 13.5 13.9 12.6 12.7 Gross nationalsavings 3.3 3.7 4.3 5.1 5.7 6.2 6.8 7.3 7.9 8.4 -1.0 5.9 Netofficialexternalfmancing -1.7 -0.5 0.9 1.7 1.8 1.9 1.8 1.7 1.7 1.2 4.1 1.1 Gross officialexternalfmancing 2.9 3.4 3.9 4.1 4.1 4.0 3.8 3.7 3.5 3.0 9.6 3.6 Grants 4.8 4.6 4.5 4.3 4.2 4.0 3.9 3.8 3.7 3.6 9.1 4.1 Loans -1.9 -1.3 -0.6 -0.2 -0.1 -0.1 -0.1 -0.1 -0.1 0.7 0.5 -0.4 Disbursements 2.7 2.6 2.4 2.3 2.1 2.0 1.9 1.8 1.7 2.5 6.1 2.2 Amortization -4.6 -3.8 -3.0 -2.4 -2.2 -2.1 -2.0 -1.9 -1.8 -1.8 -5.5 -2.6 Overall fiscal balance 16.8 17.0 15.7 14.6 13.6 12.8 12.0 11.3 10.7 10.1 15.2 13.5 Total revenue andgrants 44.7 44.2 42.4 40.8 39.3 38.0 36.8 35.6 34.6 33.7 49.0 39.0 Revenues,excludinggants 19.6 19.7 19.7 19.8 19.8 19.9 19.9 20.0 20.0 20.1 19.3 19.8 Total expenditures -27.9 -27.3 -26.7 -26.2 -25.7 -25.2 -24.8 -24.4 -24.0 -23.5 -33.8 -25.6 Sources:Burundiauthorities; and staff estimatesand projections. - 39 - I N 0 2 0 N 2 0 N - 0 N 0 N 0 0 OI 0 N '*4P9 ' 4 Y O 0 E 3 r. 0 '4 ' 4 Y N 0 0 1 0 0 W N 0 0 a vi N 0 0 . m - 40 - 09 VI m 0 22 - '9 m o! d vi d N m a m 8 -d 2 N v! m N p! P N 2 N * 1 N x N - 09 N x N 2 t .- 38 .g 8i4 D 2 P -41 - Table 13. HLF'C Initiative: Status ofCountryCasesConsideredUnderthe Initiative, end-December 2004 Target EstimatedTotal NPV ofDebt-to- AssistanceLevels I1 Percentage NominalDebt Decision Completion Gov. (InmillionsofUS.dollars, present value) Reduction Senice Relief country Point Point Exports revenue Multi- World inNPV of (In millionsof (in percent) Total Bilateral lateral IMF Bank Debt21 U.S.dollars) Completionpointreachedunder enhancedframework Benin Jul. 00 Mar. 03 150 265 77 189 24 84 31 460 Bolivia 1,302 425 876 84 194 2,060 originalframework Sep. 97 Sep. 98 225 448 I57 291 29 54 I 4 760 enhancedframework Feb. 00 Jun. 01 150 854 268 585 55 140 30 1,300 BurkinaFaso 553 83 469 57 231 930 originalframework Sep. 97 Jul. 00 205 229 32 I96 22 91 27 400 enhancedframework Jul. 00 Apr. 02 I50 195 35 161 22 79 30 300 topping-up Apr. 02 I50 129 16 112 14 61 24 230 Ethiopia 1,982 637 1,315 60 832 3,275 originalframework Nov. 01 Apr. 04 I50 1,275 482 763 34 463 47 1,941 lopping-up Apr. 04 I50 707 I55 552 26 369 31 1.334 Ghana Feb.02 Jul. 04 144 250 2,186 1,084 1,102 112 781 56 3,500 Guyana 591 223 367 75 68 1,354 originalframework Dec. 97 May 99 107 280 256 91 I65 35 27 24 634 enhancedframework Nov. 00 Dec-03 I50 250 335 132 202 40 41 40 719 Madagascar Dec. 00 Oct-04 150 836 474 362 19 252 40 1,873 Mali 539 169 370 59 185 895 originalframework Sep. 98 Sep. 00 200 121 37 84 14 43 9 220 enhancedframework Sep. 00 Mar. 03 150 417 I32 285 45 143 29 675 Mauritania Feb.00 Jun. 02 137 250 622 261 361 47 100 50 1,100 Mozambique 2,023 1,270 753 143 443 4,300 originalframework Apr. 98 Jun. 99 200 1,717 1.076 641 125 381 63 3,700 enhancedframework Apr. 00 Sep. 01 150 306 194 112 18 62 27 600 Nicaragua Dec.00 Jan. 04 150 3,308 2,175 1,134 82 191 73 4,500 Niger 663 235 428 42 240 1,200 decisionpoint assistance Dec. 00 Apr. 04 150 521 211 309 2a 170 53 900 topping-up Apr. 04 150 143 23 1I9 14 70 25 300 Senegal Jun. 00 Apr. 04 133 250 488 212 276 45 124 19 850 Tanzania Apr. 00 Nov.01 I50 2,026 1,006 1,020 120 695 54 3,000 Uganda 1,003 183 820 160 517 1,950 originalframework Apr. 97 Apr. 98 202 347 73 274 69 160 20 650 enhancedframework Feb, 00 May 00 150 656 I10 546 91 357 37 1,300 Decisionpointreachedunderenhancedframework Cameroon Oct. 00 Floating 150 1,260 874 324 37 179 27 2,800 Chad May. 01 Floating 150 170 35 134 18 68 30 260 Congo, DemocraticRep. of Jul. 03 Floating 150 6,311 3,837 2,474 472 831 80 10,389 Ethiopia Nov.01 Floating 150 1,275 482 763 34 463 47 1,930 Gambia, The Dec. 00 Floating 150 67 17 49 2 22 27 90 Guinea Dec. 00 Floating 150 545 215 328 31 152 32 800 Guinea-Bissau Dec. 00 Floating 150 416 212 204 12 93 a5 790 Honduras Jul. 00 Floating 1I O 250 556 215 340 30 98 18 900 Malawi Dec.00 Floating 150 643 163 480 30 331 44 1,000 Rwanda Dec.00 Floating 150 452 56 397 44 228 71 800 SZo Tom4 andPrincipe Dec.00 Floating 150 97 29 68 24 a3 200 SierraLeone Mar.02 Floating 150 600 205 354 123 122 80 950 Zambia Dec.00 Floating 150 2,499 1,168 1,331 602 493 63 3,850 PreliminaryHIPCdocumentissued Cated'Ivoire Mar. 98 31 141 280 345 163 182 23 91 6 4/ 800 Total assistanceprovldedlcommitted 33,611 16,186 17270 1,589 8,132 56,833 PreliminaryHIPCdocumentissued Cate GIvoire61 ... 91 250 2,569 1,027 918 166 438 37 3,900 Sources: IMF andWorldBankBoarddecisions, completionpointdocuments,decisionpointdocuments,preliminaryHIPCdocuments,andstaff calculations. I1 Assistancelevelsareat counhies'respectivedecisionor completionpoints, as applicable. 21 Inpercentofthe netpresentvalue of debtatthe decisionor completionpoint(as applicable), after the full use oftraditionaldebt-reliefmechanisms. 31 Cdte d'Ivoire reachedits decisionpoint underthe originalframework in March 1998. The total amountof assistancecommittedthereunderwas US$345 millioninNPV terms 41 Nonreschedulabledebtto non-ParisClubofficial bilateralcreditorsandthe LondonClub, whichwas alreadysubjectto ahighlyconcessionalrestructuring, is excludedfrom theNPVofdebtat thecompletionpointinthe calculationofthis ratio. 5/ Equivalentto SDR 1,669 million at an SDIUUSDexchangerateof0.6448, as of December28,2004 61 It is suggestedthatenhancedHIPCrelieffor Cdted'Ivoireovertakethe commihnentsmadeunderthe originalHIPCframework, - 42 - APPENDIX Burundi:DebtManagementCapacity 1. The Direction de la Dette Extkrieure (DDE) at the Ministry o f Finance is responsible for debt management; while the central bank, Banque de la Rkpublique du Burundi (BRB) collects andgathers debt and external sector statistics. 2. The main impediment to debt management remains the lack o f trained humanresources at the DDE. This considerably limits the authorities' debt management capacity particularly in the context o f the enhanced HIPC Initiative debt sustainability analysis (DSA) process. Inorder to allow the authorities to fully participate in the D S A process, staff have raised this concern with the authorities. The authorities recognize the urgent need to reinforce the DDE and are planning a major restructuring o f the DDE in the near future. Support for strengthening debt management capacity is planned as part of the World Bank's Economic Management Support Project (EMSP). Debt management is tracked and monitored by SYGADE software, but due to limitedtrained humanresources, SYGADE i s not used inits full capacity to reflect accurate and up to date level of debt disbursed, amount o f debt serviced, andpayment plan schedules. Also, while Debt-Pro software has been installed it is not yet being used. Furthermore, for effective external debt management, Burundishould have well-coordinated institutional arrangements that are fully integrated within the overall macroeconomic policymaking framework. The DDE should be better able to coordinate with the cabinet o f the Finance Minister and all services in charge o f I M F mprogrammonitoring. 3. Years o f civil war have affected Burundi's dialogue with its creditors and its debt- servicing capacity which has resulted in poor records on the existing level o f indebtedness. Looking ahead, the country's engagement in the enhanced HIPC Initiative will improve its relation with creditors and its awareness o f its level ofindebtness.