Economic Analysis
Burundi

Burundi

Population 9.4 million
GDP per capita 304 US$
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Synthesis

major macro economic indicators

  2014 2015  2016(f) 2017(f)
GDP growth (%) 4.5 -4.0 -1.0 0.0
Inflation (yearly average) (%) 4.4 5.5 5.5 12.4
Budget balance (% GDP) -17.3 -14.9 -9.1 -11.1
Current account balance (% GDP) -19.2 -22.0 -17.1 -14.1
Public debt (% GDP) 35.7 46.0 47.1 57.1

 

(f) Forecast

STRENGTHS

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

WEAKNESSES

  • Political crisis since 2015
  • Growing tensions on the border with Rwanda
  • Poorly diversified economy and vulnerable to external shocks
  • Geographic isolation
  • Activity hampered by lack of infrastructure and limited access to electricity
  • International aid suspended following political crisis

Risk assessment

Burundian economy at a standstill

Hit by a political deadlock for more than two years and the sanctions imposed by the international community, Burundi's economy is stalling. The political crisis plunged the country into a position of economic weakness which was aggravated in 2016 with the suspension of direct aid from the main donor countries to the government. This situation is expected to persist in 2017. With the suspension of direct financial support from the EU since March 2016, Burundi suffers from a lack of foreign currency and has, thus, seen a rise in the cost of imports. The country is also facing an acute fuel shortage since May 2017, which is expected to push consumer prices higher. The fall of the Burundian franc, droughts and higher taxes on basic goods had already put consumer prices under pressure. The country is also plagued with sugar and electricity shortages, which puts additional strain on Burundian households. Waning private consumption by impoverished households will have a negative impact on growth.

In addition to weak foreign investments, public infrastructure investment will be curbed as well due to lower fiscal revenues, thus hampering the construction sector. Agriculture, which represents more than a third of GDP and employs 90% of the population, should keep suffering from the droughts, triggered by the weather phenomenonEl Niño and La Niña.Harvest losses are estimated to be about 50% for the first season 2017. Moreover, the gradual increase in coffee and tea prices will be offset by the ban on exporting foodstuffs to bordering countries, a decision prompted, among other things, by the rise in tensions with Rwanda.

 

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

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

Deprived of external financial aid, the current account deficit is projected to remain high in 2017. The trade balance will remain broadly in deficit given the very limited export base, dominated by coffee and tea. The ban, since August 2016, on exporting foodstuffs to bordering countries, which accounted for 17% of exports (in 2015, 30% in 2014), will also hit the trade balance. Heavily reliant on imports, the latter is expected to decrease because of the lack of foreign currency.  

The persistence of considerable public and current account deficits, together with the suspension of international aid, exposes the country to the risk of over-indebtedness in the years to come. In spite of the Central Bank intervention, the twin deficits put pressure on the Burundi franc, which keeps depreciating on the black market.

 

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

Though Burundi had implemented significant political changes in favour of democracy since the end of the civil war in 2005 and the socio-economic situation had improved, the country is, once again, mired in a political and security crisis. The situation in Burundi deteriorated following President Pierre Nkurunziza's decision to stand for a third term (in breach of Constitution) and his re-election on 21 July 2015. This election gave rise to a large number of demonstrations by the opposition, the general population and was widely criticised by international observers. The tensions have since become palpable between the ruling party (CNDD-FDD), the opposition and civil society. The death toll is estimated in between 500 and 2,000 since the beginning of the crisis. Accordingly, in April 2016, the ICC prosecutor, Fatou Bensouda, opened a preliminary enquiry into the violence and crimes committed since April 2015. In October 2016, the Burundian government responded by announcing its decision to leave the international court. Despite the government's systematic rejection of the findings of the various international organizations, a new report published by the UN in June 2017 confirmed that, although the violence is more "clandestine", they continue. Burundi remains globally isolated within the regional organization in spite of the support of the Ugandan and Tanzanian presidents on the sidelines of a summit of EAC heads of state in May. A lifting of the budgetary sanctions imposed by the EU seems unlikely. Indeed, the latter has declared itself inflexible as long as human rights violations continue. The issue of refugees, already more than 400,000 and which could reach half a million by the end of the year, has strained relations with the other countries in the Great Lakes region, struggling with porous borders, political instability and ethnic conflicts. Specifically, diplomatic relations with Rwanda are steadily worsening. In spite of the country’s distance with the Somali border, the country, which contributes to the AU mission in Somalia, is under the threat of potential terrorist attacks by Al-Shabaab.

 

 

Last update : June 2017

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