Burundi’s economy in free fall as aid cuts bite

Saturday November 7 2015

Police walk away from protestors in the

Police walk away from protestors in the Cibitoke neighbourhood of Bujumbura, Burundi, on May 5, 2015. Several donors have suspended aid to Burundi due to violence in the country. PHOTO | FILE | AFP

By TREVOR ANALO

The Burundi government is struggling to meet its financial obligations following the suspension of aid and diminishing revenues from taxes and exports in the face of a political crisis that has been unfolding in the East African country this year.

Western countries — led by the European Union, the United States, Belgium and the Netherlands — have withheld more than $190 million in aid in attempts to get President Pierre Nkurunziza to negotiate with the opposition.

This has added a fiscal crisis to the political one that the country has been in since President Nkurunziza’s controversial, if successful, bid for a third term. Slightly over 50 per cent of Burundi’s budget is donor-funded.

In its first Burundi Economic Outlook report released mid last month, the World Bank projects the country’s $3 billion economy will shrink by 2.3 per cent this year while the International Monetary Fund, which had projected a 4.8 per cent growth before the political crisis, now sees a contraction of 7.2 per cent.

Last year, the Burundi economy expanded by 4.7 per cent, a trend maintained since 2005 when the civil war ended.

Falling tax revenues

Tax revenues have been falling since April after violence disrupted commercial activities across the country, especially in the rural areas where farming has been hit hard by displacements.

The government estimates the total damage since the crisis broke out in May at $33 million. According to the country’s revenue authority (OBR), tax collections fell by a third in October from the $27 million collected in August.

The OBR had predicted a tax revenue collection of $466 million this year, some 10.2 per cent higher than that collected last year.
But it remains unlikely that Burundi will meet this target given the sharp decline in revenues since June. By August, the tax collected was still 20.4 per cent lower than in August 2014.

Burundi now finds itself under pressure to finance its donor-dependent $970 million budget.

Grinding to a halt

“Economic activity is grinding to a halt; with the country’s tax collection system ceasing to function, this could affect the livelihoods of tens of thousands of government employees in the capital and other cities,” said Jason Braganza, a senior analyst with Development Initiatives, a UK-based international development NGO.

Data from Development Initiatives shows gross aid to Burundi, which increases by six per cent annually, standing at $552 million in 2013.

Some of the biggest donors to have suspended aid are Belgium, which provides 11 per cent of Burundi’s total bilateral aid; the Netherlands (6 per cent); France (3 per cent); and the European Union (13 per cent).

US President Barack Obama has also ejected Burundi from Agoa, poking a $4 million hole in the country’s shrinking foreign reserves.

Many people are rushing for hard currency as the Burundian franc slides further against the dollar.

Additionally, the Burundian diaspora, who provide a good chunk of the country’s tourism revenue, did not spend their summer holidays on the beaches of Lake Tanganyika this year because of the deteriorating security situation.