AFRICAN DEVELOPMENT BANK AFRICAN DEVELOPMENT FUND

FIFTH ECONOMIC REFORM SUPPORT PROGRAMME

(PARE-V)

REPUBLIC OF BURUNDI

APPRAISAL REPORT

OSGE

MAY 2012

Appraisal Team

Team Leader: Michel Mallberg, Chief Macroeconomist, OSGE.2 Team Members:

- M. YARO, Principal Public Finance Specialist, ORPF.2 - M. FALL, Principal Procurement Specialist, ORPF.1 - J. TOKINDANG, Principal Country Economist, BIFO - A. EYEGHE, Principal Social Protection Specialist, OSHD.1 - M. DIOMANDE, Senior Financial Management Specialist, ORPF.2 - A. BYLL-CATARIA, Senior Social Protection Specialist, OSFU - L. BASSOLE, Macroeconomist, OSGE.2 (Co-Team Leader) - A. TARSIM, Senior Economist, OSGE.2 - A. DIALLO, Senior Economist, OSHD.1

- R. LAKOUE, YP Economist, OSGE.2

Sector Director: - I. LOBE NDOUMBE, OSGE Country Director: - G. NEGATU, EARC

Peer Reviewers

Nadège Yameogo (EDRE), Carina Sugden (OSGE), Catherine Baumont-Keita (ORNB), Laurette Dade (ORPF.2), Hamacire Dicko (MLFO), Richard Doffounsou (ORWA)

TABLE OF CONTENTS

I. THE PROPOSAL………………………………………………………………………… 1

II. COUNTRY AND PROGRAMME CONTEXT…………………………………………. 1

2.1. Government’s Overall Development Strategy and Medium-Term Reform

Priorities ...................................................................................................................1

2.2. Recent Political and Socioeconomic Developments, Prospects, Constraints and

Challenges ................................................................................................................2

2.3. Status of Bank Group Portfolio................................................................................5

III. KEY PROGRAMME DESIGN ELEMENTS AND SUSTAINABILITY 5

3.1. Linkages with the CSP, Country Readiness Assessment and Analytical

Underpinnings ..........................................................................................................5

3.2. Donor Collaboration and Coordination ...................................................................6

3.3. Results and Lessons Learned from Similar Completed or Ongoing Operations .....7

3.4. Linkages with Ongoing Bank Operations ................................................................8

3.5. Bank’s Comparative Advantages .............................................................................8

3.6. Application of Good Practice Principles on Conditionalities ..................................8

3.7 Application of the Bank's Non-Concessional Debt Policy………………………..9

IV. PROPOSED PROGRAMME AND EXPECTED OUTCOMES…………………………9

4.1. Programme Goal and Objectives .............................................................................9

4.2. Pillars, Specific Objectives and Expected Outcomes ..............................................9

4.3. Financing Requirements and Arrangements ..........................................................13

4.4. Programme Beneficiaries .......................................................................................14

4.5. Impact on Gender ...................................................................................................14

4.6. Environmental Impact ............................................................................................14

V. IMPLEMENTATION, MONITORING AND EVALUATION 14

5.1. Programme Implementation Arrangements ...........................................................14

5.2. Monitoring and Evaluation Arrangements.............................................................15

VI. LEGAL INSTRUMENTS AND AUTHORITY 16

6.1. Legal Instruments...................................................................................................16

6.2. Conditions associated with Bank Group Intervention ...........................................16

6.3. Compliance with Bank Group Policies ..................................................................16

VII. RISK MANAGEMENT 16

VIII. RECOMMENDATION 17

Tables

TABLE 1: Results-Based Logical Framework .............................................................................. vi

TABLE 2: Key Macroeconomic Indicators 3

TABLE 3 : Conditions for Programmatic Support Operations (PSO) in Accordance with Bank

Policies .................................................................................................................... 5

TABLE 4: Progress made under the Bank's Previous Budget Support Operations …………... 7

TABLE 5 : Breakdown of Budget Support Areas of Intervention ................................................. 9

TABLE 6 : Financing Requirements ............................................................................................ 13

TABLE 7: Financing Arrangements ............................................................................................. 13

Annexes

ANNEX 1 : Letter of Development Policy and Matrix of Operational Policies

ANNEX 2 : Relations with the IMF

i

CURRENCY EQUIVALENTS

(April 2012)

UA 1 = US$ 1.55

UA 1 = €1.16

UA 1 = BIF 2,167.44

FISCAL YEAR

1 January to 31 December

PROGRAMME TIMEFRAME – MAIN MILESTONES

Milestones Timeframe

PCN Approval by OpsCom 23 March 2012

Programme Approval by the Board July 2012

Programme Effectiveness July 2012

Disbursement of 1st Tranche August 2012

Disbursement of 2nd

Tranche June 2013

Programme Completion December 2013

ii

ACRONYMS AND ABBREVIATIONS

ABEJ Burundi Youth Employment Agency

ADB : African Development Bank

ADF : African Development Fund

API Investment Promotion Agency

ARMP : Public Procurement Regulatory Authority

BIF Burundi Franc

BIFO The Bank’s Burundi Country Office

FL : Finance Law

BRA: Burundi Revenue Authority

BRB : Bank of the Republic of Burundi

CAR : Commitments at Risk

CdC : Court of Auditors

CDI Investment Code

CED : Expenditure Commitment Control

CGIT General Tax and Excise Duties Code

CM Council of Ministers

CMP Public Procurement Code

CNCA : National Aid Coordination Committee

CNMP : National Public Procurement Commission

CPIA : Country Policy and Institutional Assessment

CPPR : Country Portfolio Performance Review

CSI Core Sector Indicators

CSP : Country Strategy Paper

DNCMP : National Public Procurement Control Directorate

DSA : Debt Sustainability Analysis

EAC : East African Community

EC : European Commission

ECCAS: Economic Community of Central African States

ECF : Extended Credit Facility

EU: European Union

EUR Euro

FIJ Youth Insertion Fund

FSF : Fragile States Facility

GAP Governance Action Plan

GBS : General Budget Support

GBSP : General Budget Support Programme

GDP : Gross Domestic Product

GoB Government of Burundi

HIPCI Heavily Indebted Poor Countries Initiative

HIV : Human Immunodeficiency Virus

ICGLR : International Conference on the Great Lakes Region

IGE : General State Inspectorate

IMF : International Monetary Fund

LI Labour Intensive

LOLF : Organic Budget Law

LR : Loi de règlement (Audited Finance Law)

iii

LVAT Loi relative à la taxe sur la valeur ajoutée (Law on Value Added Tax)

MDG : Millennium Development Goals

MDRI: Multilateral Debt Relief Initiative

MFPDE: Ministry of Finance and Economic Development Planning

NCB : National Competitive Bidding

NGO Non-Governmental Organization

NPSDS National Private Sector Development Strategy

NPV: Net Present Value

OECD/DAC Organization for Economic Cooperation and Development/Development

Assistance Committee

ONEF : National Employment and Training Observatory

OTBU : Burundi’s Payment Authorizing Officer and Public Accountant

PAP : Priority Action Plan

PAR : Projects at Risk

PARE : Economic Reform Support Programme

PCN Programme Concept Note

PEFA : Public Expenditure and Financial Accountability

PEMFAR : Public Expenditure Management and Financial Accountability Review

PER : Public Expenditure Review

PF Partnership Framework

PFM : Public Financial Management

PFMS: Public Financial Management Strategy

PIU : Project Implementation Unit

PNE National Employment Policy

PPP : Purchasing Power Parity

PPP : Public-Private Partnership

PPPF : Public Private Sector Partnership and Consultative Framework

PRSP : Poverty Reduction Strategy Paper

PSO : Programmatic Support Operations

RGGB: General Regulation on Public Budget Management

SICI : Inspection and Internal Control Service

SIGEFI : Integrated Financial Management System

SME : Small and Medium Enterprises

SYGADE : Debt Management and Analysis System

TFP : Technical and Financial Partners

UA : Unit of Account

UNDP : United Nations Development Programme

UNO United Nations Organization

USD United States Dollar

VAT : Value Added Tax

WB : World Bank

WHO : World Health Organization

iv

GRANT INFORMATION SHEET

BENEFICIARY INFORMATION

Donee Republic of Burundi

Executing Agency

Partnership Framework Support Unit at the

Ministry of Finance and Economic

Development Planning (MFPDE)

Programme Name Fifth Economic Reform Support Programme

(PARE-V)

GRANT CONDITIONS

Modalities ADF Grant from the Fragile States Facility

Resources

Amount 12 million Units of Account

Number of Tranches

Two (2) tranches of UA 7 million and UA 5

million to be disbursed in 2012 and 2013

respectively after fulfillment, by the Donee, of

the specific conditions precedent to each

tranche

PARALLEL FINANCING OF THE PROGRAMME

World Bank (2012 and 2013) : US$ 25 million in 2012 and US$ 25 million in

2013

European Union (2012 and 2013) :

EUR 14 million as a fixed tranche in 2012

EUR 7 million as a variable tranche in 2013

EUR 7 million as a fixed tranche in 2013

v

EXECUTIVE SUMMARY

Context

Over the past few years, Burundi has enjoyed a period of relative political

stability and organized elections regularly, but the situation remains fragile.

Some progress has been made, but the country remains fragile from the

economic, social and institutional points of view. Its economic growth

(4.2% in 2011) remains inadequate compared to the challenges it faces.

Consequently, Burundi is implementing the Poverty Reduction Strategy

Paper II (PRSP-II) and has embarked on a reform process aimed at

modernizing its administration and private sector. The implementation of

these reforms will help to boost economic growth, promote social

development, and build institutional capacities which could ultimately help

the country to emerge from its fragile situation.

Programme

Overview

The Programme’s overall goal is to create conditions conducive to rapid

and inclusive growth. The specific objectives are to: (i) enhance

Government efficiency in the management of its public resources; and (ii)

promote private sector development and job creation.

Programme

Beneficiaries

The programme’s end beneficiary will be the population of Burundi as a

whole and, more particularly, the poorest segments. The improved quality

of public spending will increase supply and facilitate access to basic social

services. Furthermore, Government services will also benefit from the

Programme, which will help to build their capacity to provide higher

quality public services.

Needs Assessment

This programme addresses the Burundi Government need for public

finance stabilization. By financing part of the budget deficit, the

Programme will contribute to easing social tension and reinforcing the

country’s stability. It will therefore, like the other four previous operations,

continue to support the country in its modernization process aimed at

achieving strong, inclusive and job-creating growth

Bank’s Added Value

The Bank has acquired considerable budget support experience from the

first four programmes implemented in the country, as well as from similar

operations in other Fragile States. Since 2009, the Bank has adopted a

programmatic approach for its budget support operations, which is

appropriate for the type of reform policy adopted by the country.

Institutional

Development and

Knowledge Building

This operation will further consolidate the Bank’s intervention aimed at

building the capacities of the Burundi Government services. The analytical

work, as well as the different draft texts considered for the Programme’s

formulation, will contribute to knowledge building.

Recommendations

The Boards are invited to consider and approve the budget support

programme of UA 12 million, broken down into two tranches of UA 7

million and UA 5 million for Burundi for 2012 and 2013 respectively,

under the conditions stipulated in this report.

vi

Table 1: Results-Based Logical Framework

PROGRAMME RESULTS-BASED LOGICAL FRAMEWORK

Country and Programme Name: BURUNDI : Economic Reform Support Programme Phase V (PARE V)

Programme Goal: Contribute to the promotion of accelerated economic growth by enhancing efficiency in the management of Government resources and promoting

private sector development and job creation.

RESULTS CHAIN

PERFORMANCE INDICATORS

MEANS OF

VERIFICATION

RISKS

/MITIGATION

MEASURES Indicators

(including the

CSI)

Baseline

Situation Target

IMP

AC

T

The conditions for rapid and inclusive

growth are created.

Real growth rate ; Implementation

rate of pro-poor

investments ; Private investment

rate % GDP

4.2% in 2011

60% in 2011

7.6% in 2011

4.8% in 2012 and 5% for 2013 and 2014

75% in 2013

10% in 2013

MFPDE and API data ;

IMF reports

Risks:

- The post-electoral

transition which could

lead to deterioration in political and security

stability. This could

weaken ownership and delay implementation of

the reforms. There is an

additional risk of political instability at the regional

level. - A slowdown in the

implementation of the

reforms due to social pressure (the recent

increase in electricity

prices triggered social protests) which could

undermine the efforts

made. The recent law on privatization is being

questioned in Parliament.

- Institutional and

technical capacities are

too weak for

implementation of the reforms

-Vulnerability of

Burundi’s economy to exogenous shocks,

including the impact of

the international financial crisis, weather conditions

and international oil price

hikes; risk of debt unsustainability due to a

narrow export base.

- Fiduciary risk for operation, as well as the

risk of governance

incidents.

Mitigation Measures: - Support from

international and regional organizations, including

UNO and ICGLR;

integration into EAC, maintenance of TFP

support, continuing

implementation of reforms aimed at

improving governance,

pursuance of policy dialogue, especially

through Government

seminars and ongoing dialogue with the private

sector and civil society.

- Pursue public debate

and sensitization

campaigns to explain the rationale for the reforms

EF

FE

CT

S

I. Government efficiency in managing its resources is enhanced

PEFA Indicators P-19

PI-20 PI-21

PI-26

Revenue/GDP ratio

P-19: C+ (2011) PI-20: D+ (2011)

PI-21: D+ (2011) PI-26 : D+

(2011)

14.4% in 2011

P-19: B (2013) PI-20: C (2013)

PI-21: C (2013) PI-26 : C (2013)

15.1% in 2012 and

15.4% in 2013

Analysis on the basis of PEFA methodology

for 2013

MFPDE Data

II. Conditions for promoting private

sector development and job creation

have improved

Number of direct

and indirect jobs

created (all sectors)

6000 in 2011 15 000 in 2012 and

15 000 in 2013

API data

OU

TP

UT

S

Component I. Enhancement of Government Efficiency in Managing its Public Resources

I.1 Improve revenue mobilization

Adopt the revised Bill on the Value Added Tax (LVAT)

Minutes of the meeting on the

adoption of the

revised LVAT Bill

Previous Law LVAT Bill adopted by the Cabinet

Meeting (CM) before

mid-2013 and tabled

before Parliament

The LVAT Bill ; minutes of the

adoption by CM

Letter tabling the Bill

before parliament

Simplify direct taxation: Revise the

General Tax and Excise Duties Code

(CGIT) and the Tax Procedures Manual

Minutes of the

Cabinet Meeting

(CM) on the adoption of the

revised CGIT

Previous Law Draft revised CGIT

adopted by CM

before end 2013 and tabled before

Parliament

Draft CGIT ; minutes

of adoption by CM

Letter submitting the CGIT to Parliament

I.2 Strengthen the National Public Procurement System

Adopt the draft Public Procurement

Code (CMP) revised in accordance with

the recommendations of the country procurement assessment report

Minutes of the CM

meeting on the

adoption of the revised CMP

adopted

2008 CMP Draft CMP adopted

by CM and tabled

before Parliament before end 2013

Draft CMP ; Minutes

of adoption by CM

Letter submitting the revised draft code to

Parliament

Conduct an external audit of public

contracts in accordance with the provisions of the Public Procurement

Code and publish the results on the

Website of the Ministry of Finance or

the ARMP once it is operational). The

audit will concern 2010, 2011 and 2012.

The scope of the audit must cover a minimum of 25% of the annually

awarded number of contracts

Public contract

audit reports

No public

contracts audit

Audit reports

prepared and published. The

reports for 2010 and

2011 will be

available at end 2012

and the report for

2012 will be available by mid-

2013

Copy of the audit

reports; reports available on the

MFPDE Website

(screen copy)

Allocate adequate budget resources to

ARMP in the 2013 and 2014 FL to enable ARMP to fulfill its functions in

compliance with the laws and

regulations

ARMP Budget in

accordance with the FL

2012 BL (BIF

233 M)

25% annual increase

in 2013 budget (available end 2012)

and 2014 budget

(available end 2013)

Copy of 2013 and

2014 FL

As from 1 June 2012, systematically publish the final contract awards (on the

Ministry of Finance website or once it is

operational, on the ARMP Website)

% of public contracts

0 (2011) At least 50% of public contracts in

2012 and 100% of

contracts published in 2013

ARMP Report

I.3-Strengthen Internal and External Controls on Budget Execution

Prepare a classification of supporting

documents for all payments in the form

of an Order, and ensure application of the classification by the OTBU

Classification of

supporting

documents is applied

No classification Classification

available and applied

by end 2012

Reports of OTBU and

Court of Auditors

(CdC)

vii

RESULTS CHAIN

PERFORMANCE INDICATORS

MEANS OF

VERIFICATION

RISKS

/MITIGATION

MEASURES Indicators

(including the

CSI)

Baseline

Situation Target

The CdC, in accordance with the RGGB, carries out control of

compliance with the classification of

supporting documents for all payments as part of the personal and pecuniary

responsibility of the payment

authorizing officer and public accountant (OTBU)

% of expenditure controlled by the

CdC

The CdC does not carry out

controls of this

type

+ 50% of expenditure controlled from 2013

CdC report - All the technical and financial assistance

provided by partners in

the partnership framework to build

institutional capacities

and implement PRSP II. -Establishment of the

Burundi Revenue

Authority, - Strengthening of public

financial management and

implementation of the good governance and

anti-corruption strategy.

-Implementation of reform to improve the

business climate and

investments -Implementation of

programmes to improve

agricultural productivity and economic

diversification

-Implementation of budgetary and monetary

policies aimed at

achieving macroeconomic stability while

implementing pro-poor

public programmes and targeting the most

disadvantaged social

segments of society. -Implementation of

projects financed by the Bank and other Technical

and Financial Partners

(TFP) in the employment, education, health

infrastructure (energy,

transport, etc.), agriculture, private sector

development and

institutional capacity building sectors.

The MFPDE prepares a monitoring

report on implementation of the

recommendations made by the CdC on budget execution relating to the audited

budget laws for 2009, 2010 and 2011

and published on the MFPDE website

Monitoring Report

on CdC

recommendations and publication of

the report

No monitoring

carried out

A report is published

for 2009, 2010 and

2012 and published on the MFPDE

website

Copy of reports and

screen copy of the

website page where the reports are

published

Establish a mechanism to monitor the implementation at the Ministry of Good

Governance of the recommendations

made by the IGE during its inspections

Monitoring report on the

recommendations

and % of recommendations

followed up

Little follow-up carried out

The percentage of recommendations

implemented is above

30% in 2012 and above 50% in 2013

IGE monitoring report on the implementation

of the

recommendations

Ministerial inspectorates submit their

annual control programmes and reports to the IGE to strengthen their

coordination

% of Ministerial

inspectorates which submit their

control

programmes and reports to IGE

Few Ministerial

Inspectorates submit their

annual control

programmes and reports to IGE

60% of inspectorates

submit their reports and programmes in

2012 and 80% in

2013

Annual IGE Report

Adoption, by Ordinance, of the Public

Expenditure Rationalization Manual and

the text on Expenditure Commitment Control (CED) and implementation of

the texts

Ordinance on the

adoption of the

Public Expenditure Rationalization

Manual and on the

CED

No Ordinance

on the adoption

of the Public Expenditure

Rationalization

Manual and on the CED

Ordinances adopted

by end 2012

Copies of Ordinances

Component II. Promotion of Private Sector Development and Job Creation

Prepare, adopt and implement the

National Private Sector Development Strategy (NPSDS)

Copy of NPSDS No strategy Strategy adopted by

the CM end 2012 and implemented in 2013

NPSDS; CM minutes

Prepare and adopt a Bill on Public-

Private Partnerships (PPP)

Copy of the PPP

Bill to CM

No legal

framework

Adoption of the PPP

Bill by the CM

before end 2013

PPP Bill ; CM minutes

Establish a public-private dialogue framework (PPDF) to serve as

consultation and decision-making

platform

Number of meetings organized

No dialogue framework

Dialogue framework is operational before

mid-2013 ; quarterly

meetings organized

Annual report of PPDF secretariat

Adopt Bill amending the Investment

Code (CDI)

Copy of the Bill

amending the CDI

Previous Code New Code adopted

by the CM before end

2013 and tabled before Parliament

Copy of CDI ;

Adoption minutes and

letter of transmittal to Parliament

Recruit 12 senior staff for API and

install API in offices suitable for its mission

Number of senior

staff recruited

21 senior staff

have assumed duty (2011)

At least 33 senior

staff have assumed duty at API by 3rd

quarter of 2012

API Report;

Prepare National Employment Policy

(PNE), propose the related sector priority action plans (PAP), and

implement this policy

Copy of policy and

sector PAPs

No policy PNE prepared by end

2012, adopted and implemented from

2013

PNE ; PNE Adoption

minutes

Establish a formal framework to revise

education curricula for closer balance

between employment supply and demand among the different partners

Copy of text

establishing the

framework and number of

meetings

No framework Framework

operational by end

2012; at least 4 meetings organized

per year

Copy of text

establishing the

framework, minutes of meetings

ADB Financing (in UA million): FSF = 12 ; WB: US$ 35 million for 2012 ; EU: EUR 44 million for 2012-2014 period

1

REPORT AND RECOMMENDATION BY MANAGEMENT TO THE BOARDS OF DIRECTORS

ON A PROPOSED GRANT TO THE REPUBLIC OF BURUNDI TO FINANCE

THE ECONOMIC REFORM SUPPORT PROGRAMME, PHASE V (PARE-V)

I. THE PROPOSAL

1.1. Management submits the following proposal and recommendation concerning the

award of a grant of UA 12 million under Pillar 1 of the Fragile States Facility (FSF) to the

Republic of Burundi to finance the Economic Reform Support Programme - Phase V (PARE-

V) over two fiscal years (2012 to 2013). Burundi meets the conditions of eligibility for the FSF as

regards its fragility, and is thus considered as a fragile State1. This will be the Bank’s fifth General

Budget Support (GBS) operation in Burundi, and follows a request by the Government of Burundi

(GoB) made in November 2011. The Programme was appraised in March 2012, and has taken into

account good practices on conditionality and the FSF Operations Guidelines. One of the main

features of this fifth budget support operation is that it broadens the scope of the Bank’s

intervention in Burundi to target private sector development and job creation, and deepens reforms

to enhance Government efficiency in managing public resources so as to ensure inclusive and

sustainable growth.

1.2. PARE-V is aligned on the Poverty Reduction Strategy Paper, Phase II (PRSP-II),

adopted in January 2012 for the 2012-2016 period. PRSP II seeks to create an environment that

will foster Burundi’s sustainable development and allow for achievement of the Millennium

Development Goals (MDG). It is also aligned on the country’s long-term vision ‘Burundi 2025’.

Furthermore, PARE-V is in keeping with: (i) the 2012-2016 Country Strategy Paper (CSP) adopted

in November 2011; (ii) the Bank’s Governance Strategic Directions and Action Plan (GAP) for

2008-2012; and (iii) the governance thrust of the Bank’s Medium-Term Strategy (2008-2012).

PARE-V, which is described in the Letter of Development Policy (Annex 1), will support the

ongoing reform programme in Burundi, consolidate the achievements, and deepen reforms

supported by the Bank in its previous Programmes (PARE I-IV).

1.3. PARE-V’s development objective is to contribute to the promotion of accelerated

economic growth by enhancing Government efficiency in the management of public resources,

promoting private sector development, and creating jobs. In this context, PARE-V’s main

operational objectives are to: (i) enhance Government efficiency in the management of public

resources (Component 1); and (ii) promote private sector development and job creation (Component

2). PARE-V’s expected outputs are: (i) increased tax revenue; (ii) a more efficient procurement

system underpinned by a Public Procurement Code, which will guarantee greater transparence,

fairness and competition; (iii) an improved and more efficient internal and external control system

which will contribute to sounder management of Government’s financial resources; (iv) an increase

in the level of private investment; and (v) the creation of more youth employment opportunities.

II. COUNTRY AND PROGRAMME CONTEXT

2.1. Government’s Overall Development Strategy and Medium-Term Reform Priorities

2.1.1. The overall development framework and long-term social and economic development

objectives are set out in the ‘Burundi 2025’ vision, adopted by Parliament in October 2010.

This Vision is a development planning instrument, which guides sustainable development policies

and strategies in order to meet the needs of the present generations without damaging or

undermining the prospects for future generations. To that end, the Vision identifies eight (8) closely

linked pillars: (1) good governance and building of Government capacities; (2) human capital; (3)

economic growth and poverty reduction; (4) regional integration; (5) demography; (6) social

cohesion; (7) regional development and urbanization; and (8) partnership. The Burundi 2025 vision

is supported, in the medium-term, by the second generation PRSP II adopted in January 2012.

1 See 2012-2016 CSP for Burundi ADB/BD/WP/2011/200 - ADF/BD/WP/2011/133

2

2.1.2. PRSP II gives top priority to sustained and job-creating growth, which requires a

sound macroeconomic framework, higher productivity in the growth-enhancing sectors,

especially agriculture, economic infrastructure, private sector promotion, and youth

employment. The four (4) strategic thrusts identified following broad-based consultations between

the Government, the civil society and development partners are: (1) strengthening of the rule of law,

consolidation of good governance, and promotion of gender equality; (2) transformation of

Burundi’s economy to ensure sustained and job-creating growth; (3) improved accessibility and

quality of basic social services and strengthening of national solidarity; and (4) land and

environmental management in harmony with development.

2.2. Recent Political and Socioeconomic Developments, Prospects, Constraints and

Challenges

2.2.1. At the political level, Burundi has, over the past few years, enjoyed a period of

relative stability and organized elections regularly, but the situation remains fragile. In the

wake of the 2010 elections2 which were boycotted by the Opposition, the country experienced a

period of fairly high tension which the Authorities are trying to ease with support from international

and regional organizations. The Law on Political Parties, adopted in April 2011, which tightens the

conditions for registration and also applies to already registered parties, has fanned fears of a return

to a single party system. To contribute to the reconciliation process, a Truth and Reconciliation

Commission will be established in 2012.

2.2.2. At the economic level, Burundi has experienced volatile growth. Over the 2006-2011

PRSP I implementation period, real Gross Domestic Product (GDP) growth averaged 3.9% per year

compared to a forecast of almost 7% in PRSP-I. This was due to the importance of agriculture in

GDP (about 43.9% in 2010), which is dependent on weather conditions. The poor performance of

the coffee sector, which is undergoing restructuring, also impacted negatively on economic growth.

In 2011, as a result of the contraction in global demand largely due to inflationary pressure, the

GDP growth rate was 4.2 %, which was below the forecast rate of 4.5%3. Frequent power cuts also

impacted negatively on industrial activity and other sectors of the economy.

2.2.3. The external shocks due to soaring food and oil product prices heightened

inflationary pressure in Burundi in 2011. Headline inflation thus rose by about 10 percentage

points between 2010 and 2011 from 4.1% (end of period) to 14.3% (end of period). This

inflationary surge prompted the Central Bank to tighten monetary policy. Indeed, to remedy this

situation, it raised interest rates to contain private sector demand for credit. Thus, according to the

forecasts, the level of consumer prices should fall to 10.3% (end of period) in 2012 and then

stabilize at 8.4% (end of period) in 20134.

2.2.4. Fiscal management was prudent over the 2010-2011 period so as to contain the

Government finance deficit. 2011 was marked by a sharp increase in tax revenue and the early

disbursement of budget supports for 2012. The improvement in tax revenue by 14.4% of GDP in

2011, compared to 13.7% in 2010, was mainly due to the tax system reform, operationalization of

the Burundi Revenue Authority (BRA) in July 2010 and greater centralization of Government

revenue. Despite the negative impacts of the oil and food shocks, the Burundi Authorities were able

to contain the level of budget expenditure in 2011 at 40.1% of GDP compared to 41% in 2010.

Control of public expenditure, coupled with an increase in domestic revenue and budget aid, helped

to maintain the overall budgetary deficit (on a cash basis, including grants, excluding HIPC) at an

average level of 3.4% of GDP over the 2010-2011 period5 compared to an average of 4.2% of GDP

over the 2008-2009 period. The estimated overall budget deficit for 2011 is 2.5 % of GDP.

2 The elections were held from 24 May to 8 September 2010. 3 IMF Reports No.11/199 of July 2011 and No.12/28 of February 2012. 4 IMF Report No.12/28, February 2012. 5 Idem

3

Table 2: Key Macroeconomic Indicators

2010 2011 2012 2013

Real GDP Growth (%) 3.8 4.2 4.8 5.0

Inflation (end of period) (%) 4.1 14.3 10.3 8.4

External Debt (end of period) (% of GDP) 37.0 35.9 35.6 34.7

Overall Balance of Payments (% of GDP) 0.7 -0.8 -0.2 1.9

Monetary Reserves (months of imports) 4.7 4.4 4.4 4.0

Expenditure (% of GDP) 41.0 40.4 35.6 36.0

Revenue including Grants (% of GDP) 37.3 37.9 32.1 32.0

Tax Revenue (% GDP) 13.7 14.4 15.1 15.4

Net Financing (% GDP) -3.7 -2.5 -3.5 -4.0

2.2.5. The debt sustainability analysis (DSA) for 2011 shows that, despite the budget

reforms, Burundi presents a high risk of debt distress, mainly due to the narrowness of its

export base as well as weak institutional capacity6. The debt to exports ratio was 174.4% in

2011, which is above the 100% threshold for the entire DSA analysis period (2011-2031). However,

the net present value (NPV) of external debt to GDP ratio remained below the 30% threshold over

the same period, settling at 13.9% in 2011. However, the level of public debt to GDP fell by 0.8%

between 2010 and 2011 to 37% of GDP in 2011. This improvement was linked to a fall in public

sector borrowing requirements, which reflects a widening of the revenue base and a gradual decline

in public expenditure. To mitigate the debt sustainability risks, Burundi should only use grants and

highly concessional loans (at least a 50% grant element).

2.2.6. However, the medium-term macroeconomic prospects remain fairly positive.

According to the IMF, real GDP growth should increase slightly to 4.8% in 2012 compared to 4.2%

in 2011. It should also rise at an average annual rate of 5.2% over the 2012-2014 period. This

positive trend will be sustained by stronger agricultural sector performance, especially in the wake

of the coffee sector reform, sustained activities in the construction sector, and increased investment

in the energy and tourism sectors.

2.2.7. However, there are still substantial risks of a short-term deterioration. The security

situation and external environment, characterized by high oil prices, are creating persistent risks for

Burundi’s economy with negative impacts on inflation and budget execution. Indeed, the

uncertainties surrounding the current international situation could result in a sharp fall in

development assistance with a negative impact on the country’s growth potential.

2.2.8. The Government aims to build its domestic resource mobilization capacity and

control budget expenditure in order to offset the fall in foreign aid. Tax revenue is expected to

increase from 14.4% of GDP in 2011 to about 15.1% and 15.4% in 2012 and 2013 respectively as a

result of the widening of the tax base, the strengthening of the tax and customs administrations,

control of tax exemptions and the combat against corruption and fraud. The restructuring of

expenditure should be continued with greater budget rigour through improvement in effectiveness

and transparency of public financial management. The efforts to control current expenditure will

create a fiscal space which will allow for improvement in the proportion of expenditure channelled

towards poverty reduction. Concurrently, the Government has undertaken to control the wage bill.

Thus, recruitments will only be made in the priority sectors of education and health, and the wage

bill will be reduced from 8.7% of PIB in 2011 to 8.3% and 8.2% of GDP in 2012 and 2013

respectively. However, the drop in external assistance in the form of grants, coupled with

exceptional expenditure on infrastructure (the Authorities intend to invest heavily in electric power

6 IMF Report, No.12/28 of February 2012, Annex 1 ‘Debt Sustainability – Joint IMF/World Bank Analysis, December 2011’

4

generation infrastructure) should widen the budget deficit to 3.5% and 4.0% of GDP in 2012 and

2013.

2.2.9. With regard to governance, the indicators for Burundi show mixed results. The

governance7 indicators published by the World Bank are weak, but with a slight improvement

between 2009 and 2010 in the 6 areas concerned. The country was ranked between the 7th and 21st

centile in 2010, with a better result for ‘voice and accountability’ and a poor performance for

‘political stability and absence of violence’. The Mo Ibrahim Foundation Index of African

Governance showed that, between 2009 and 2010, Burundi slipped 2.4 points to 45.1 in 2010

compared to 47.5 in 2009, resulting in its overall ranking fall to 37th

in 2010 compared to 32nd

in

2009. Burundi was ranked 172th out of 182 countries in Transparency International’s Corruption

Perceptions Index in 2011 compared to 170th

out of 178 countries in 2010 (refer to Technical

Annexes 5 and 6). This situation reflects the country’s fragility and underscores the importance of

pursuing efforts to deepen the scope of governance reforms.

2.2.10. The private sector remains embryonic with about 3,000 enterprises registered8,

mainly small and medium-sized, employing about 40,000 people. The share of private

investment in GDP remains limited even though it increased from 2.2% in 2000 to 13% in 2010.

The infrastructure gaps, especially the lack of an adequate road network and the weak electric

power generation and distribution capacities, represent major constraints. This situation is

exacerbated by political and security instability, corruption, a weak judicial system, shortage of

labour and qualified human resources, as well as difficulties for the private sector in accessing

financing. The country is ranked 169th out of 183 countries in the 2012 ‘Doing Business’ report and

140th

out of 142 in the Global Competitiveness Report. The main constraints on private sector

development and the promotion of investments are: (i) energy and transport costs; (ii) an

inappropriate regulatory, legal and institutional business framework, (iii) low agricultural

productivity; (iv) gap between the skills of the labour force and private sector demand; (v) poor

quality of public services, and (vi) lack of access to financing (see Technical Annexes 5 and 7).

2.2.11. Poverty reduction remains the main challenge to Burundi’s social development. In

the wake of the social progress made as a result of the policy of free education and health care, the

country has improved its human development index ranking since 2005, but remained at 185th

out

of 187 countries in 20119. According to the most recent household survey in 2006, 67% of the

population lives below the poverty threshold. Rural poverty is extremely high at 69% compared to

34% in urban areas. Furthermore, gender disparities, exacerbated by the crisis, have had a

disproportionate impact on women and girls, who are economically fragile and subjected to gender-

related socio-cultural pressures and violence10

. Thus, despite the efforts made to improve the

population’s living conditions, Burundi, like most fragile States, will be unable to achieve the

MDGs by 201511

.

2.2.12. The major challenge for Burundi is to gradually emerge from its fragile situation,

especially by encouraging a shift towards a diversified economy, driven by the private sector

which will generate inclusive growth. Despite the progress made, Burundi remains fragile from

the economic, social and institutional standpoint. The country’s economic development has created

sufficient growth and jobs to significantly reduce poverty. The unemployment situation is a cause

for concern and affects young people and women. In order to address these challenges, Burundi

must pursue its reform programme and implement policies aimed at:

Easing constraints on private sector development so as to boost investment and

sustainable economic development;

7 World Governance Indicators, 2011

8 Investment Climate Assessment, World Bank, 2008 9 UNDP 2011 Human Development Report 10 See Gender Profile for Burundi prepared by ORQR 4 in November 2011. 11 This situation is mainly due to the fact that reference year is 1990, whereas since 1993, the country has experienced a major political and military

crisis which has seriously affected the living conditions.

5

Improving access to education and health care for the population, especially the

disadvantaged and vulnerable segments, in order to ensure inclusive economic

growth; and

Leveraging more domestic resources in order to reduce dependence on external aid,

while enhancing expenditure effectiveness and the quality of public services.

2.3. Status of Bank Group Portfolio

2.3.1 The Bank’s portfolio in Burundi comprises 14 ongoing operations for a total amount of

UA 266.5 million. These operations are broken down as follows: 56% for road infrastructure, 7%

for agriculture, 13% for water and sanitation, 16% for the social sector, and 8% for the energy

sector. The overall portfolio disbursement rate is 29.4%.

2.3.2 According to the 2010[1]

portfolio review, the overall performance was considered

satisfactory, with a score of 2.3 in 2010 (on a scale of 0 to 3, with 3 being highly satisfactory),

compared to a score of 2.1 in 2008. As at 31 March 2012, projects at risk (PAR) and commitments

at risk (CAR) represented 23% and 14% of the portfolio respectively, while the Bank’s averages are

26.8% and 16.7% respectively (Source: Outliers and Exceptions Report, March 2012 edition).

III. KEY PROGRAMME DESIGN ELEMENTS AND SUSTAINABILITY

3.1. Linkages with the CSP, Country Readiness Assessment and Analytical Underpinnings

3.1.1. Linkage with the CSP: PARE-V is aligned on the Pillar 1 of the 2012-2016 CSP:

“Strengthening of State institutions”. Its implementation will contribute to the achievement of the

expected outcomes under this CSP Pillar, namely improved public resource management and

sustained private sector development to ensure sustainable creation of jobs for inclusive growth.

3.1.2. Linkage with Bank Group Strategies: The two components of PARE-V are in harmony

with the 2008-2012 Governance Action Plan (GAP) for 2008-2012. They are also consistent with

the Bank’s Private Sector Development Strategy12

and its Medium-Term Strategy for 2008-2012.

3.1.3. Compliance with then General and Technical Conditions Precedent: As indicated in the

Table below, Burundi meets the main eligibility criteria for a budget support operation.

Table 3: Conditions for Programmatic Support Operations (PSO) in accordance with Bank Policies

Condition Key Points

Government’s

Commitment to

reduce poverty

The Government has made a strong commitment to reduce poverty in Burundi. This commitment is

in the long-term development vision “Burundi 2025”. The Government has also prepared a medium-

term strategy, the Poverty Reduction Strategy Paper, Phase II. PRSP II gives top priority to sustained

and job-creating growth which requires a sound macroeconomic framework, higher productivity in

the growth-enhancing sectors, in particular agriculture, economic infrastructure, private sector

promotion and youth employment. A mechanism has been established to coordinate the

implementation and monitoring of PRSP-II, and the National Aid Coordination Committee (CNCA)

is responsible for aid coordination.

Macroeconomic

Stability

As also confirmed by the IMF, the economic results achieved under the Extended Credit Facility

(ECF) for 2011 were satisfactory overall. The 7th Review of the IMF ECF was approved by the

IMF’s Executive Board in January 2012. Since 2000, the country has experienced slow economic

recovery with an average growth rate of 3%. This trend was confirmed with a growth rate of 3.9% in

2010 and 4.2% (estimated) in 2011. Inflation remains a major problem with an estimated rate of 14%

for 2011 (9.5% in 2010 and 4.6% in 2009) due mainly to hikes in global oil and food prices. Burundi

reached the Heavily Indebted Poor Countries Initiative (HIPCI) completion point and became eligible

for debt relief under the Multilateral Debt Relief Initiative (MDRI) in 2009. In March 2010, the Paris

Club cancelled outstanding debts. Given the high risk of the country becoming debt distressed and its

weak capacities, external budget financing is limited to grants and highly concessional loans. The

medium-term economic framework and financial sector are considered viable.

[1] African Development Bank: Mid-Term Review of 2008-2011 Country Strategy Paper and Country Portfolio Review.

ADF/BD/WP/2010/151/Rev.1 12 Ref: ADB/BD/WP/2004/71/Rev. 1, November 2004.

6

Condition Key Points

Political Stability

A power-sharing agreement was signed in 2008 with the last group of rebels. The organization of

municipal, presidential and legislative elections in 2010 was deemed satisfactory by independent

observers. Although tensions appeared in the wake of the elections, the authorities have kept the

political and security situation under control, but it remains fragile.

Satisfactory

Fiduciary Risk

Assessment

Major fiduciary risks were identified in the different recently conducted studies (PEMFAR in 2008, a

PEFA in 2009, PER in 2010). The Government has implemented a public financial management

reform strategy to correct the shortcomings identified. A PEFA assessment in 2012 revealed a

positive Public Financial Management (PFM) trend, which demonstrates the Government’s

commitment to improving PFM within a reasonable timeframe. The progress made includes: an

improved legal and regulatory framework, the budget preparation process, budget quality,

particularly regarding information contained in the Finance Law and the multi-year perspective in

budget planning, improved revenue collection, especially through the establishment of the Burundi

Revenue Authority, access by the general public to budget information, introduction of competition

and control of public procurement, accounting and recording of information and financial reports.

Strong overall budget credibility and a satisfactory budget classification exist. The voted and

promulgated budget, as well as the budget execution reports, are published on the Website of the

Ministry of Finance and Economic Development Planning. Civil society organizations, including the

Government Action Observatory, review and comment on the budget and its execution. The Court of

Auditors produces timely budget law reports. In accordance with the 2012 PEFA report, the

Government is preparing a second phase of the Public Financial Management Reform Strategy in

order to consolidate and deepen the results achieved. The Bank has carried out an assessment of the

fiduciary risk, which was considered moderate. Measures have been identified to mitigate the

fiduciary risk (see Technical Annexes 2 and 3)

Harmonization

A donor partnership framework (PF) exists, involving the MFPDE and donors intervening in the area

of public financial management reform. This PF organized its first annual joint review in September

2010. The joint review will be pursued under PARE-V. Harmonization efforts will be maintained,

especially among the WB, EU and ADB, which are the three main donors providing the country with

budget support. Joint studies have been conducted, and there are coordination efforts to organize joint

supervision missions. Dialogue has also been initiated between donors and the Authorities to develop

a joint matrix of reforms. The opening of BIFO will enable the Bank to play an active role in this

process.

3.1.4. Analytical Work and Underpinnings: Preparation of the budget support operation was

backed up by studies and reports, including: (i) the 2009 PEMFAR; (ii) the 2012 PEFA being

finalized, (iii) the internal and external control study, (iv) the Bank’s internal control study, (v) the

study on the transformation of Burundi economy financed jointly by the Bank and World Bank

(2011), (vi) the joint economic memorandum to the Bank and World Bank (2010), (vii) assessment

of the business environment (2012), and (viii) the gender profile prepared by the Bank in 2011. The

recommendations of these different analytical works included: (i) the need to diversify the economy

to ensure sustained and inclusive growth with a significant impact on improving the living

conditions of the population, (ii) a reduction in vulnerability to exogenous shocks, and (iii)

enhancement of public financial management efficiency to support domestic resource mobilization,

ensure smooth implementation of PRSP II and better resource allocation to the priority sectors and

reduce dependency on external financing.

3.2. Donor Collaboration and Coordination

3.2.1 The Bank is a member of the Partners Coordination Group (PCG), which is the formal

framework for dialogue between the different development partners and the Government13

.

Under this operation, consultations were held with the TFPs to strengthen the harmonization of

interventions and heighten their impact on the country’s development. Non-Governmental

Organizations (NGOs) and the private sector through the Chamber of Commerce were also

consulted. A partners' consultative group has been set up for which the CNCA provides secretariat

services and whose objective is to coordinate development aid. A budget support partnership

framework has also been established, and coordination meetings are regularly organized14

.

13 The Bank signed the PCG in September 2008. 14 The African Development Bank, the World Bank, and European Union are financing budget support operations in Burundi for the 2012-2013

period.

7

Discussions are ongoing for the preparation of a joint matrix with the EU and World Bank. It should

be noted that with the opening of the Bank’s Country Office in Burundi (BIFO), the Bank now has

an entry point which will enable it to strengthen its role in dialogue with the Government and in the

coordination of activities with the other TFPs.

3.2.2 Significant efforts have been made by the donors and the Authorities concerning

implementation of the Paris Declaration. Thus, the systematic gathering of financial information

on development projects from donors has resulted in the inclusion of a higher proportion of external

aid in the Finance Law. A development assistance database was compiled for that purpose in 2008,

and will contribute to the gradual improvement of development aid statistics. However, further

progress is required regarding aid predictability and the use of national procedures. Apart from

budget aid, the very nature of which assumes the use of national systems, only Belgium uses the

Burundi procurement system in its interventions. According to the 2011 report on international

engagement in Fragile States – Republic of Burundi, the objectives were achieved for 3 of the 15

indicators established by the Paris Declaration on Aid Effectiveness (for 2 indicators progress was

made, while for 10 other indicators there was practically no movement). In the second half of 2011,

the Bank fielded a mission to assess the national procurement procedures in comparison to the

Bank’s rules and procedures. Recommendations will be made under a General National Public

Procurement Action Plan to allow for the eventual use of national competitive bidding procedures

in Bank projects.

3.3. Results and Lessons Learned from Similar Completed or Ongoing Operations

3.3.1 Recently completed or ongoing operations: The Bank has financed four budget support

operations since 2004 (PARE I to IV). All the completion reports have been finalized. While the

implementation of PARE I was unsatisfactory, PARE II, III and IV were better implemented and

their results are satisfactory. The previous operations have shown that it is necessary to consider the

following aspects to ensure a stronger impact of budget support in Burundi: (i) pursue the

programmatic and multi-year approach; (ii) step up reform-focused dialogue with the Authorities,

(iii) strengthen coordination with the other donors; and (iv) ensure that financing is available for

measures requiring the conduct of a study. The design of this project takes into account these

different lessons learned from the previous programmes.

3.3.2 Progress made under the Bank’s previous budget support operations: The Bank’s previous

operations have, in addition to financing the State budget which contributed to the implementation

of the PRSP, supported the national public financial management strategy. They have therefore

contributed to the achievement of some of the objectives of the PFM National Reform Strategy (see

Technical Annex 8).

Table 4: Progress in the Bank’s Previous Budget Support Operations

Objective of the

National PFM

Reform Strategy

Expected Outcomes

Objective 1 of the

Strategy: “Reform of

the Legislative and

Regulatory

Framework”

PARE I to IV have contributed to the adoption and implementation of the new Organic

Public Finance Law (LOLF), preparation of the General Regulation on Public Budget

Management (RGGBP), as well as the establishment and operationalization of the

structures set up under the new Public Procurement Code (namely ARMP, DNCMP

and CNMP) and the adoption of a Public Procurement Action Plan. The progress in

public procurement is reflected in the improvement of the related PEFA indicator (PI-

19) from D+ to C+ between 2008 and 2012. Nevertheless, efforts must be made to

further improve public procurement. The budget support operations have also helped

to enhance the quality of budget reporting as indicated by the related PEFA indicator

(PI-24) which rose from D in 2008 to C+ in 2012. Public access to budget information

has also improved as indicated by the related PEFA indicator (PI-10) from C in 2008

to B in 2012.

8

Objective 2:

“Improvement of

public expenditure

monitoring”

The Bank’s operations have supported the preparation and implementation of a three-

year rolling cash flow plan and the progressive establishment of a single treasury

account. This is reflected in improved monitoring and management of cash flow, debts

and guarantees as indicated by the related PEFA indicator (PI-7) which improved from

D+ in 2008 to C+ in 2012.

Objective 3: “More

efficient and

transparent public

resource

management”

The Bank’s interventions have supported the preparation of the macroeconomic

framework and budget priorities within the timeframes stipulated by the LOLF,

identification of poverty reduction expenditures in the budget, the conduct of a census

of Government employees and use of the results of this census in budget preparation,

more exhaustive leveraging of external funding, improvement of budget

documentation accompanying the Finance Bill and the preparation of a circular setting

the deadlines for commitment, authorization to pay and payments. Overall, these

interventions have led to improvement in budget monitoring efficiency as reflected in

the related PEFA indicator (PI 24) which rose from D+ in 2008 to C+ in 2012.

Objective 4:

“Improvement of

control systems”

The Bank’s operations have supported capacity building of audit institutions, in

particular, the General State Inspectorate (IGE) and the Court of Auditors (CdC), as

well as establishment of the Inspection and Internal Control Service at MFDPE (SICI).

These institutions have reduced the time taken to present audit reports to Parliament as

indicated by the related PEFA indicator (PI-26 ii), which improved from C in 2008 to

B in 2012.

3.4. Linkages with Ongoing Bank Operations

3.4.1. The Bank intends to finance technical support under the FSF Window III in order to build

budget programming and macroeconomic framework capacities. This new capacity building project

aims to implement reforms that would improve public financial management and support private sector

development. Finally, the programme will improve the business environment and thereby create

synergies and complementarities with Bank operations in the area of infrastructure (transport,

energy, social infrastructure and water and sanitation) and job creation in Burundi, as well as

address some of the constraints identified in paragraph. 2.2.12. Furthermore, strengthening the

effectiveness of the public financial management system will facilitate implementation of the

Bank’s other operations.

3.5. Bank’s Comparative Advantages

3.5.1 Following the first four programmes implemented for the country, the Bank is now one of

Burundi’s leading partners and has acquired solid reform support experience. PARE-V is a continuation

of the previous operations, and aims to prioritize the consolidation and deepening of the reform

achievements. The results obtained under these different programmes are significant (see paragraph

3.3.2), and should be consolidated and sustained. The Bank also has sound experience in the

implementation of complementary institutional support operations of other TFPs, as well as the

implementation of similar operations in other fragile States. It has also conducted several studies in

Burundi and contributed to financing the preparation of PRSP-II, which gives it a comparative

advantage in terms of partnership with the country. This experience has enabled the Bank to contribute

actively to the Government’s reform programme. The opening of BIFO and establishment of the

Regional Resource Centre nearby (in Kenya) will also help to strengthen country dialogue and

ensure closer monitoring of all the Bank’s portfolio activities.

3.6. Application of Good Practice Principles on Conditionalities

3.6.1. Good practice principles on conditionalities have been applied: The programme was

designed to support implementation of PRSP-II and sector strategies relevant to PARE-V. PRSP-II

was prepared using a participatory approach. A mechanism involving the civil society and private

sector has been established to monitor its implementation. Monitoring of PARE-V’s

implementation will benefit from the Partnership Framework, which will serve as a coordinated

framework for accountability. The operation was adapted to the country context taking into account

its fragility aspects and aligning the programme on its priorities. The number of conditions

precedent to disbursement of each tranche has been limited to relevant actions required to achieve

the expected programme outcomes. The Bank is also strengthening collaboration and coordination

9

with the other development partners involved in budget support operations in order to create

synergy and consistency among their respective interventions.

3.7. Application of the Bank’s Non-Concessional Debt Policy

3.7.1. Burundi is classified as an ADF country eligible for ADF resources only. The country has

benefited from debt relief under the HIPCI and MDRI. Consequently, the public sector is only

eligible for concessional loans. This programme is therefore in compliance with the Bank’s Non-

Concessional Debt Accumulation Policy adopted in 2008 and revised in 2010.

IV. PROPOSED PROGRAMME AND EXPECTED OUTCOMES

The Burundi Authorities attach the highest priority to sustained and job-creating growth15

, which

requires a macroeconomic framework based on sound public financial management and private

sector development. The Government’s commitment to implementation of the reforms and its

determination to emerge from the situation of fragility have made it possible, with the Bank’s

support under the previous PARE phases (see paragraph 3.3), to strengthen the management of

Burundi’s public finances. However, despite this significant progress, much remains to be done in

light of the challenges specified in paragraph 2.2.12. The aim of this programme is therefore to

consolidate the public financial management achievements of the previous four PARE phases. It

also intends to focus on reforms for the development of the private sector, the main creator of jobs

and the conditions for inclusive growth. Furthermore, consolidation of the public procurement

reform is expected to have a positive impact on businesses. The same applies to the revision of tax

and investment laws which will have a positive impact on tax revenue, starting a business and job

creation.

4.1 Programme Goal and Objectives

4.1.1 The overall project goal is to create conditions conducive to rapid and inclusive

growth. The specific objectives are to: (i) improve Government efficiency in the management of its

resources; and (ii) promote private sector development and job creation.

4.2 Pillars, Specific Objectives and Expected Outcomes

4.2.1 The programme is divided into the following two components: (i) enhancement of

Government efficiency in the management of public resources; and (ii) promotion of private

sector development and job creation. The measures retained under this programme are identified

in PRSP-II and its Priority Action Plan (PAP). The first component seeks to consolidate the

achievements of the previous PARE phases and is based on the Public Finance Reform Strategy

(2012-2014)16

as well as the interim results of the 2012 PEFA assessment, which highlight the

persistent public financial management weaknesses. The second component will aim to improve the

investment environment and create an enabling environment for job creation. The selection of

reform areas has also taken into account other donors’ interventions (see Table 3) so as to ensure

complementarity and synergy between the support operations.

15

See the Strategic Thrusts of PRSP-II Paragraph 2.1.2 16

This strategy is being finalized with AFRITAC/IMF support.

10

Table 5: Breakdown of Budget Support Areas of Intervention

ADB

European

Union World Bank

Improve revenue mobilization X X

Strengthen the public procurement system X

Improve external and internal control X X X

Improve the SIGEFI system X X

Improve budget preparation and planning X

Strengthen public financial management transparency X X X

Improve payroll and wage bill management X

Facilitate restructuring and privatization of public

enterprises and reform of the coffee, energy and mining

sectors

X

Prepare a private sector strategy X

Establish a public-private dialogue framework X

Build API capacities and revise the Investment Code X

Prepare and adopt a PPP Law X

Prepare and adopt a National Employment Policy X

Establish a public-private framework to revise

education curricula

X

Promote the development of the health, basic education

and justice sectors

X

Component 1: Enhancement of Government Efficiency in the Management of Public Resources

4.2.2 Implementation of the 2009-2011 Public Financial Management Strategy (PFMS) has

led to considerable progress in Public Financial Management. The 2012 PEFA thus indicates

progress in 13 of the 2617

indicators assessed (excluding TFP-related indicators). The PFM progress

made include improvement in the legal and regulatory framework, the budget preparation process,

budget quality, especially information contained in the Finance Law and the multi-year perspective

in budget planning, improvement in revenue collection, particularly through the establishment of

the BRA, the general public’s access to budget information, the use of competitive procedures and

control of public procurement, accounting and recording of information and financial reports.

4.2.3 The Government of Burundi has assumed ownership of the results of the different

analytical studies on public financial management and has established a Support Unit in charge

of Reforms and the Partnership Framework with donors to steer and coordinate implementation of

the reforms. Despite the headway made, a number of PFM shortcomings have been identified: (i)

delays in the adoption and implementation of new tax reform texts (texts on the Value Added Tax

(VAT) and on tax procedures); (ii) insufficient streamlining of the expenditure chain with redundant

control procedures and the absence of a budget execution procedures manual; and (iii) internal and

external control weaknesses. Furthermore, the Government has not yet established a system to

monitor implementation of the recommendations of the IGE and Court of Auditors.

4.2.4 The objective of emerging from its fragile situation will require the country to obtain

substantial financial resources and strengthen domestic resource mobilization. Tax revenue in

Burundi rose gradually from 2007 to 2011 due to the general increase in taxes and the establishment

of the BRA. However, it is still necessary to implement tax reforms in order to create an effective

and cohesive framework which will leverage more resources for the priority sectors. It is also

important to increase tax revenue, which will lead to gradual reduction in the State budget’s

financing requirements in terms of development assistance.

4.2.5 The proposed programme seeks to support tax reforms and simplify tax payment procedures.

This will be done through the finalization, adoption and implementation of the Law on VAT and the

17 The PEFA assesses 28 indicators of the national system but 2 of the indicators could not be assessed (PI-27 and 28)

11

Revised General Tax and Excise Duties Code and the Tax Procedures Manual. The objective of

reform of the Law on Direct Taxes is to establish a simple, transparent and fair tax system that will

be easy to understand and implement. With regard to the VAT, the revision will be mainly

parametric, particularly in terms of the threshold for those liable to pay VAT, and confined to the

declaratory system with, however, the introduction of VAT certification for all those liable to pay in

order to improve and simplify control. The direct taxation reforms aim to introduce two taxes, a tax

on individual incomes of natural persons and a corporate profit tax. The reform also aims to replace

previous investment incentive arrangements with general tax incentives that are non-discretionary,

and consequently more transparent and attractive. These revisions are also closely linked to the

revision of the Investment Code (see Paragraph 4.2.14). The ongoing activities of the BRA as well

as revision of the texts on taxation will have a positive impact on taxation. The revenue to GDP

ratio was expected to rise in 2011 to 14.4% of GDP and to 15.1% and 15.4% of GDP in 2012 and

2013 respectively. Similarly, the effectiveness of the taxpayer registration measures and assessment

of taxes, excise and customs duties as measured by PEFA indicator PI 14 will improve from C in

2011 to C+ in 2013. It is also expected that the recovery of taxes and customs duties will become

more efficient, with PEFA indicator PI-15 up from B+ in 2011 to A in 2013.

4.2.6 The annual accounts, the report on the implementation of the Finance Law, as well as the

Audited Finance Laws for 2008, 2009 and 2010 were produced and presented to the Court of

Auditors within the stipulated timeframes, and are of satisfactory quality. However, the same cannot

be said of the interim execution reports which require improvement in terms of exhaustiveness and

quality of information. These different reports are based on a public expenditure chain which has

not been reviewed by the Court of Auditors. However, this circuit is affected by (i) bottlenecks at

the commitment and verification of services rendered stages, (ii) the lack of budget predictability

and transparency during the year, (iii) shortcomings in the verification of the use of funds namely

salaries, (iv) insufficient formalization and effectiveness of internal control procedures, and (v) no

audits of accounts prepared by public accountants. This situation reveals difficulties encountered by

the Court of Auditors in the performance of its jurisdictional duties, particularly in the area of

human and material resources. The resulting risks are: (i) delays in the processing of files of

expenditure supporting documents, (ii) the diversion of voted credits and funds to other expenditure

items, (iii) major payroll anomalies, and (iv) the inability of internal control to prevent or detect the

major irregularities, the diversion of resources, and inefficient use of public funds.

4.2.7 Progress has been noted in the area of internal control, especially regarding the building of

the General State Inspectorate’s (IGE) capacities. However, the internal control system is impaired

by the weak monitoring of recommendations made by the IGE and by the lack of coordination

between the IGE and inter-Ministerial inspectorates.

4.2.8 The programme will support pursuance of the reform to improve internal and external

control. Thus, the following measures will be supported under PARE-V: (i) establish classification

of supporting documents for all payments in the form of an Ordinance and ensure it is implemented

by the OTBU; (ii) adopt the Public Expenditure Manual by Ordinance and implement it; (iii)

finalize and adopt the text on Expenditure Commitment Control (CED) and implement it; (iv) the

Ministry of Finance and Economic Development Planning is preparing a monitoring report/Table

of the CdC recommendations formulated in the CdC Report on budget execution and relating to the

2009 and 2010 Audited Finance Laws and publishes it on the Ministry’s website; (v) have the study

and recommendations on the internal and external control system in Burundi technically validated

by the Cabinet Meeting and start to implement the recommendations; (vi) establish a mechanism for

implementation of the recommendations made by the General State Inspectorate at the Ministry of

Good Governance pursuant to its inspection missions; and (vii) ensure that Ministerial inspectorates

submit their annual control programmes and reports to the General State Inspectorate to strengthen

their coordination. The reforms are expected to improve PEFA indicators PI-20, 21 and 26 from D+

in 2011 to C in 2013.

12

4.2.9 Procurement: As regards the adoption of the 2008 Public Procurement Code, the

Government’s efforts have focused on the effective establishment of instruments or structures to

ensure operation of the legal and regulatory framework with the finalization of the institutional

organization. Thus the institutions responsible for regulation (ARMP, Public Procurement

Regulatory Authority by Decree No. 100/119 of 7 July 2008) and audit of public procurement

contracts (DNCMP, National Public Procurement Directorate by Decree No. 100/120 of 8 July

2008) have been established and are operational. This is also the case for the public procurement

management units (CGMP by Decree 100/123 of 11/07/2008) which have also been set up within

the contracting authorities (Ministries).

4.2.10 However, since the end of the 2010 fiscal year, the ARMP no longer has the means to

perform its different duties since its budget allocation is highly inadequate (45% of the needs

expressed (see ARMP 2011 annual report). The financial autonomy of the main institution in charge

of training programmes, accessibility of information to strengthen the transparency of the system

and independent public procurement audits is no longer guaranteed. Indeed, the Code provides for

the conduct of annual independent audits by ARMP, which may also carry out controls on its own

initiative in the event of a breach of the public procurement regulations. Furthermore,

communication tools (website, public procurement bulletin) and archiving systems have not yet

been established due to insufficient budget allocations. Training programmes to ensure

dissemination and operationalization of the legal framework tools are postponed from one year to

another. An assessment of this new 2008 legal and regulatory framework among the stakeholders

and operators concerned in October 2011 showed inconsistencies and shortcomings, as well as

fiduciary-type discrepancies requiring an overhaul of the public procurement code.

4.2.11 In order to address the above-mentioned shortcomings, the national system will be

strengthened by implementing the following measures: (i) submission, to the Cabinet Meeting and

Parliament, of the Bill on the revision of the public Procurement Code in accordance with the

recommendations of the national public procurement system assessment; (ii) conduct of an external

audit of public contracts for 2010, 2011 and 2012 in accordance with the provisions of the Public

Procurement Code and publication of the findings on the website of the Ministry of Finance (or on

the ARMP site once it is operational); (iii) allocation to ARMP of adequate budget resources in the

2013 and 2014 FL to enable it to perform its duties in accordance with the laws and regulations in

force; and (iv) systematically publish as from 1 June 2012, the final award of contracts (on the

Ministry of Finance’s website or on the ARMP website once it becomes operational). It is expected

that these measures will improve the PEFA PI-19 indicator from C+ in 2011 to B in 2013.

Component 2: Promotion of Private Sector Development and Job Creation

4.2.12 With regard to the business climate, there are many inadequacies that hamper the

emergence of a private sector able to support the State on its path towards economic development

and job creation. These constraints mainly concern the inflexible regulations and cumbersome

procedures, as well as the absence of a partnership culture. Consequently, as described in the 2011

Bank-financed study on the Transformation of the Burundi Economy, the country has adopted many

reforms over the past decade, and is implementing them with the support of its partners. These

efforts include the clearance of Government arrears, reform of the trade and company laws, and

establishment of the Investment Promotion Agency (API). The progress has been significant,

especially in light of the existing weak capacities; however, in order to attract investors and

facilitate the effective emergence of a buoyant private sector, it is necessary to pursue reforms,

particularly in the area of good governance. The country is ranked 169th out of 183 countries in the

2012 ‘Doing Business’ report and 140th

out of 142 by the Global Competitiveness Report. It should

be noted that Burundi climbed 9 places in the Doing Business ranking for 2012 compared to 2011.

This sends a strong signal of commitment to reforms, which must be consolidated. However, the

absence of a legal framework for public private partnerships (PPP) is a constraint on infrastructure

co-financing.

13

4.2.13 Little is still known of the employment and underemployment situation in Burundi due to

lack of reliable and recent data. However, the employment situation, especially youth employment,

is a cause for concern. Urban unemployment and rural underemployment are among the major

challenges to be met as indicated in PRSP-II. While the urban unemployment rate is 11.67% (2009),

15.24% of young people are affected and 60% of the unemployed are youths. In rural areas, the

situation is mainly characterized by underemployment. Young people seeking their first job account

for 59% of the unemployed. Despite recent significant contribution by the private sector with the

emergence of private training facilities, the quality of education remains low with very little

technical or scientific focus. This has resulted in a mismatch between supply and demand on the

labour market. In terms of strategy, the Government has included the promotion of employment as

one of the key pillars of PRSP-II. The policies implemented to address these challenges include: (i)

the Burundi Youth Employment Agency (ABEJ) under the oversight of the Ministry of Youth

Affairs aimed at building entrepreneurship capacities, as well as gathering information on youth

unemployment; (ii) the National Observatory on Employment and Training (ONEF) under the

oversight of the Ministry of Labour aimed at collecting data on the labour market. The Authorities

have also pursued a policy of labour intensive (LI) works for the implementation of infrastructure

projects.

4.2.14 The programme measures aimed at enhancing the efficiency of State expenditure, improving

transparency and controlling public expenditure will indirectly contribute to private sector

development. To support the implementation of reforms directly targeting the private sector and

promotion of employment, the programme will contribute to the preparation of a National Private

Sector Development Strategy and its implementation through: (i) the preparation of a private sector

development strategy, (ii) support for the revision of the Investment Code, (iii) adoption of a legal

and institutional framework for public-private partnerships (PPP), (iv) the establishment of a public-

private dialogue framework to serve as platform for consultation and decision-making between the

two sectors, and (v) building API’s capacities through the recruitment of 12 additional senior staff.

These measures, especially the strengthening of API and revision of the Investment Code, should

also impact on job creation through private sector investment. In order to further promote job

creation, especially youth and women’s employment, PARE V will also support the adoption of a

National Employment Policy (PNE), as well as the creation of a public-private sector consultative

framework for the revision of school curricula. The implementation of its measures is expected to

help increase the private investment rate from 7.6% in 2011 to 10% in 2013. With regard to job

creation, it is expected that almost 15,000 jobs will be created in 2012 and 2013 respectively

compared to the creation of 6,000 jobs in 2011.

4.3 Financing Requirements and Arrangements

Table 7: Financing

Arrangements 2012 2013

(Percentage of GDP) B- Total Financing 21.9 23.5

Net Domestic Financing 1.8 1.0

Net External Financing 20.1 22.5 External Grants 15.9 15.5

Programme Support 2.6 2.0

World Bank 1.0 0.9 European Commission 0.8 0.7

ADF/FSF 0.5 0.3

Other Budget Aid 0.3 0.1 Project Support/Other Grants and

Transfers 13.3 13.5 Other External Financing 4.2 7.0

C-Residual Financing Gap C= (B-A) 0.0 0.7

Source: IMF Country Report, No.12/28, 2012

Table 6 : Financing Requirements

2012 2013

(Percentage of GDP)

Total Revenue and Grants 32.1 32.0

Total Revenue excluding Grants 16.2 16.5

Tax Revenue 15.1 15.4

Non-Tax Revenue 1.1 1.1

Grants 15.9 15.5

Total Expenditure 35.6 36.0

Wages 8.3 8.2

Current Non-Wage Expenditure 13.2 12.7

Investment Expenditure 14.1 15.1

Overall Balance excluding Grants -19.4 -19.5

Overall Balance including Grants -3.5 -4.0

Change in Arrears 2.5 3.3

A- Financing Gap on a Cash Basis

(excluding grants) -21.9 -22.8

Financing Gap on a cash basis

including Grants (excluding HIPC) -6.0 -7.3

Source: IMF Country Report, No.12/28, 2012

14

4.3.1 Financing Requirements: Table 6 presents the Government’s financing requirements for the

2012 and 2013 fiscal years. These requirements (financing gap on a cash basis excluding grants)

represent 21.9% and 22.8% respectively for 2012 and 2013.

4.3.2 Financing Arrangements to Finance the Gap: Table 7 shows that 91% and 95.7% of the

financing gap (on a cash basis excluding grants) will be financed externally in 2012 and 2013

respectively. The development partners will provide the required general budget support resources

to the tune of 2.6% of GDP in 2012 and 2% of GDP in 2013. Bank financing under this programme

will represent 0.5% of GDP in 2012 and 0.3% of GDP in 2013.

4.4 Programme Beneficiaries

The end beneficiary of the programme is the population of Burundi as a whole, especially the

poorest segments. Indeed, improvement of the quality of public spending will increase supply and

facilitate access to basic social services. The health and education sectors, in particular, will benefit

from an improvement in the quality of public spending. Furthermore, by helping to create

conditions for stronger, more sustainable and evenly distributed growth, the programme will also

improve the living conditions of the population in the longer term. The other beneficiaries are

Government services (Ministry of Finance and partner Structures) whose technical and operational

capacity to provide public services will be strengthened through the implementation of reforms.

4.5. Impact on Gender

4.5.1. The programme has no specific actions targeting women. However, improvement of the quality of

public spending through more effective and efficient public resource management will help to increase

the share of pro-poor expenditure in the budget. This should benefit in priority the vulnerable segments

of the population, namely women and children. By financing the State budget, the programme will help

to promote the policy of free education and health care for mothers and under-5 children.

4.6. Environmental Impact

4.6.1. The programme is a budget support operation which exclusively targets economic reforms. It is

therefore classified under Category III, and will have no impact on the physical environment. However,

it will have a positive impact on the social environment because it will help to transform the budget into

an instrument for attaining PRSP-II goals in the areas of poverty reduction and improvement of the

living conditions of the population. It will also have a positive impact on civil society’s access to PFM

information.

V. IMPLEMENTATION, MONITORING AND EVALUATION

5.1. Programme Implementation Arrangements

5.1.1. Executing Agency: Budget support management falls within the institutional framework for

steering and coordinating the PFM reform programme agreed upon under the PF. It is reliant on three

structures: (i) a Steering Committee chaired by the Minister of Finance, Planning and Economic

Development (MFDPE); (ii) a Technical Steering Committee bringing together the Directors-General of

the Ministries concerned; and (iii) a support structure for day-to-day programme management

comprising senior officials from the MFDPE and supported by technical assistance. This unit organizes

regular monitoring meetings with partners present in the field, as well as an annual review of

progress made in implementing the public finance reform strategy. Furthermore, it also organizes

validation meetings with IMF review missions and other important economic and financial missions.

From its management of previous Bank operations as well as its management of IMF, World Bank and

European Union operations, the structure has proved its ability to manage budget support operations.

Like the previous operations, this programme will fall within this framework.

15

5.1.2. Disbursement Arrangements: The financing proposed under the programme is UA 12 million

under Pillar 1 of the FSF. The grant will be disbursed in two tranches of UA 7 million in 2012 and UA 5

million in 2013. The disbursement in two tranches is contingent on fulfillment of the following

conditions precedent. A special account will be opened at the Bank of the Republic of Burundi (BRB) as

for previous operations, and will receive the grant resources. When requesting for payment, the

Authorities will provide evidence that there is a zero balance on the account for the payment of the ADF

resources. These resources will then be transferred from the BRB to the General Treasury Account. The

BRB will make no charge for this operation, in accordance with the agreement signed between the BRB

and the MFDPE, and the applicable exchange rate on the date of transfer from the BRB to the General

Treasury Account will apply. The MFDPE will submit written confirmation of receipt of the transfer.

5.1.3 Procurement Arrangements: The Bank has assessed the results of procurement awards at

national level and defined safeguard measures in Technical Annex 8 [see Assessment of national

procurement system; General Plan of Measures] for weaker aspects of the system in order to

mitigate the fiduciary risk in procurement. Taking into account these mitigation measures described

in Technical Annex 8, resources will be utilized in accordance with national public finance regulations.

5.1.4. Financial Management and Audit Arrangements: PARE-V resources will be utilized within the

public expenditure chain in accordance with national public finance regulations. The MFPDE will be

responsible for the administrative, financial and accounting management of PARE-V resources.

Resources for the first tranche of PARE-V have been included in the General State Budget for 2012

under the item relating to budget support entitled “Current Grants”. The PARE-V funds will be

held in the State Treasury Singe Account at the Bank of the Republic of Burundi (BRB). The

Governor of the BRB and the Burundi Authorities have undertaken to implement the

recommendations of the IMF and external auditors on improving mechanisms to safeguard the

assets of the BRB.

5.1.5 The Court of Auditors has, in general, presented its audit reports to the National Assembly

within the deadlines stipulated under the existing regulations, and is firmly committed to the

process to build its capacities. PARE V will be audited during consideration of the budget execution

reports and draft Audited Finance Laws by the Court of Auditors concerning the 2012 and 2013

fiscal years. In this connection, PARE-V and the Capacity Building Project under preparation both

contain measures aimed at strengthening the external control function. The Government annual

financial statements will be available in 2013 and 2014 within the deadlines stipulated in the

existing Organic Finance Law. In compliance with Bank policy, an audit will also be conducted by

an independent firm in accordance with terms of reference to which Bank will give its no-objection

opinion.

5.2. Monitoring and Evaluation Arrangements

5.2.1. Competent Institutions: The MFDPE will be responsible for programme monitoring/evaluation.

This Ministry has already been involved in monitoring/evaluation of previous economic reform support

programmes (PARE I, II and III and IV). The MFPDE will take measures to provide the human

resources and equipment needed for programme monitoring/evaluation.

5.2.2. Monitoring/Evaluation: The reform support unit within the MfDPE will be responsible for the

day-to-day monitoring of PARE-V. Coordination among donors operating in the area of PFM will be

used as a monitoring/evaluation tool for the programme, through joint supervision of the progress made

in implementing the reform programme. The logical framework presented in this document constitutes

the performance evaluation framework.

16

VI. LEGAL INSTRUMENTS AND AUTHORITY

6.1. Legal Instruments

6.1.1. The legal instrument to be concluded under this programme is the Grant Agreement. The

parties to this Agreement are the African Development Bank and the Republic of Burundi.

6.2. Conditions for Bank Group Intervention

6.2.1. Conditions precedent to grant effectiveness: Grant effectiveness shall be subject to the

signing of the Grant Agreement between the Bank, the Fund and the Republic of Burundi.

6.2.2. Conditions precedent to disbursement of the two tranches: Maintain a stable

macroeconomic environment as mentioned in the IMF assessments or publications.

6.2.3. Conditions precedent to disbursement of the first tranche:

1) Provide the Bank and Fund with evidence of the submission of the Bill on the Value Added

Tax to the Cabinet Meeting;

2) Provide the Bank and Fund with evidence of the adoption of the Text on Public Expenditure

Control (CED).

6.2.4. Conditions precedent to disbursement of the second tranche:

1) Submit to the Bank and Fund: (i) audit reports of procurement contracts for 2010, 2011 and

2012, which should concern at least 25% of all contracts awarded each year (number of

contracts based on ARMP statistics); and (ii) a screen copy of the website page where the

audits are published;

2) Submit to the Bank and Fund the report prepared by the Ministry of Finance and Economic

Development Planning on the monitoring of the table of recommendations made by the

Court of Auditors (CdC) in the CdC report on budget execution and relating to the Audited

Finance Laws for 2009 and 2010; and

3) Provide the Bank and Fund with evidence of the submission of the Bill amending the

Investment Code to the Cabinet Meeting.

6.3. Compliance with Bank Group Policies

6.3.1. This programme complies with applicable policies and guidelines, in particular: (i) the

Bank’s PSO policy; (ii) Burundi’s Country Strategy Paper for 2011-2016; (iii) Bank Group Strategy

for Enhanced Engagement in Fragile States; and (iv) FSF Operations Guidelines.

VII. RISK MANAGEMENT

Risks Mitigation Measures

The post-electoral transition which

could lead to the deterioration of

political and security stability. There is

an additional risk of political instability

at the regional level.

Support from international and regional organizations, including

UNO and ICGLR; integration into EAC, maintenance of TFP

support, continuing implementation of reforms aimed at improving

governance, pursuance of policy dialogue, especially through

Government seminars and ongoing dialogue with the private

sector and civil society.

Slowdown in the implementation of

reforms due to social pressure (the

recent increase in electricity prices

triggered social protests) which could

undermine the efforts made.

Pursuance of public debate and sensitization campaigns to explain

the rationale for the reforms. Implementation of policies aimed at

creating jobs and pursuance of poverty reduction policies

17

Risks Mitigation Measures

Institutional capacities weak and

inadequate for reform implementation

All the technical and financial assistance provided by partners in

the partnership framework to build institutional capacities and

implement PRSP II.

Vulnerability of Burundi’s economy to

exogenous shocks (impact of the

international financial crisis, fall in

external financial support, weather

conditions and international oil and

food price hikes).

Implementation of fiscal and monetary policies aimed at achieving

macroeconomic stability while implementing pro-poor public

programmes and targeting the most disadvantaged social segments

of society. Continuing implementation of structural reforms aimed

at promoting development and economic diversification, boosting

of private sector investments, and pursuance of reforms aimed at

increasing tax revenue. Continue to implement reforms to improve

the business and investment climate

Fiduciary risk for the operation, as well

as the risk of governance incidents.

Strengthening public financial management and public

procurement through implementation of the good governance and

anti-corruption strategy and Phase 2 of the Public Financial

Management Reform Strategy. Continuation of TFP support to

PFM reforms and institutional capacity building.

VIII. RECOMMENDATION

In light of the foregoing, it is recommended that the Boards of Directors should approve the award of a

grant of UA 12 million from FSF resources to the Republic of Burundi to implement the Programme

under the conditions stipulated in this report.

Annex I Letter of Development Policy

REPUBLIC OF BURUNDI Bujumbura, ……….../…….../2012

MINISTRY OF FINANCE

MINISTRY OF FINANCE AND ECONOMIC DEVELOPMENT PLANNING

OFFICE OF THE MINISTER

N°540/………….…/2012

I

To Mr. Donald KABERUKA

President of the African Development Bank

Group

Temporary Relocation Agency

TUNIS - TUNISIA

Subject: Letter of Development Policy for the Fifth Phase of the Economic Reform Support Programme (PARE V)

Mr. President,

We are pleased to send you the attached Letter of Development Policy agreed upon in the new Budget Support Programme

between Burundi on the one hand, and the African Development Bank and African Development Fund, on the other, for the

financing from Pillar I resources of the Fragile States Facility of a Fifth Economic Reform Support Grant (PARE V).

The Government of Burundi successfully implemented its 2011 Programme supported by the Fourth Economic Reform

Support Programme (PARE IV). During that period, significant progress was made regarding stabilization and economic

reforms, as well as in the implementation of the Poverty Reduction and Growth Strategy Paper, especially the human

development thrust. Considerable improvement was also made in the education and public health sectors under the

implementation of the previous PAREs. The reform measures backed by this programme were satisfactorily implemented.

This letter of Development Policy is submitted at a time when the Government has just prepared its PRSP-II and when it is

turning to its partners to mobilize financing for this PRSP.

PRSP-II is based on the results of PRSP-I and its objective is to trigger accelerated growth by creating an environment that

will foster sustainable development and job creation, the redistribution of the fruits of this growth, and the rapid and profound

transformation of Burundi’s economy. To that end, the programmes selected seek to close the energy gap, increase

agricultural sector productivity, consolidate the human development programmes already initiated, and provide more

sustained support to the private sector.

At the political level, democratic general elections (Presidential, legislative, municipal and hillside) based on direct universal

suffrage were organized over the May to August 2010 period. Security has been restored throughout the national territory,

which is a positive environment and a prerequisite for successful implementation of the programmes presented in PRSP-II.

Furthermore, the establishment of the Truth and Reconciliation Commission has reached a satisfactory stage. Members of

Government are making visits to share with the population the conclusions of the committee responsible for proposing the

establishment of this Commission, which is of critical importance for the country.

The main priority of the Government’s new programme is consolidation of the achievements of PRSP-I, while laying solid

foundations for economic growth to lift a large part of the population out of extreme poverty. The programmes are mainly

Annex I Letter of Development Policy

REPUBLIC OF BURUNDI Bujumbura, ……….../…….../2012

MINISTRY OF FINANCE

MINISTRY OF FINANCE AND ECONOMIC DEVELOPMENT PLANNING

OFFICE OF THE MINISTER

N°540/………….…/2012

II

focused on: (i) peace consolidation, (ii) security and national reconciliation, (iii) the development of agro-pastoral activities to

achieve food security, (iv) improvement of the quality of service delivery in the health and education sectors to achieve the

Millennium Development Goals, (v) promotion of employment to reduce unemployment and poverty, (vi) pursuance and

implementation of the public financial management strategy, (vii) good economic and financial governance, and (vii) regional

integration. Despite the fairly satisfactory human development results achieved in the implementation of PRSP- I, the

challenges of economic growth and poverty reduction remain immense and require considerable resources.

For these reasons, the Government of Burundi is requesting a new ADB support grant to facilitate the implementation of an

economic reform programme over the 2012 to 2013 period under PARE V, in an amount equivalent to 12 million Units of

Account (ADF UA).

This Programme is consistent with our long-term ‘Burundi 2025’ vision, our Poverty Reduction Strategy Paper (PRSP-II), as

well as our Public Financial Management Strategy (second generation) being finalized and which will be adopted in 2012.

This new strategy will focus on the entry into force of the implementing texts relating to the recently signed Decree on the

General Regulation on Public Budget Management.

In particular, it will adopt a Decree on Fiscal Governance, sign the Ordinance governing Expenditure Commitment

Comptrollers, and prepare Procedures Manuals to streamline the expenditure chain.

The Programme is also fully consistent with the budget support programmes of the World Bank (IDA) and the European

Commission. Funding for 2012 in the form of budget support grants from its donors is as follows: 25 million US dollars from

IDA, 14 million Euros from the European Commission, and 7 million Units of Account from the ADB.

The attached Letter of Development Policy presents the Government’s objectives and the policies it intends to implement

under the grant so as to reinforce poverty reduction actions with support from all its development partners.

The policies and measures described in the Letter of Development Policy will help to strengthen the implementation of the

programmes set out in PRSP-II relating to the promotion of growth, peace consolidation, private sector development, and

environmental protection through sustainable and well-balanced management, while ensuring the irreversibility of the progress

made in health and education. However, the Government is ready to consider any additional measures that the ADB or ADF

may deem necessary to ensure the Programme’s success. Finally, in order to facilitate monitoring of progress made in

implementing the policies and measures contained in the programme, the Government will respond favourably to any request

for information from the ADB and ADF.

The Burundi Authorities express the wish that the Letter of Development Policy and the accompanying Programme document be made public. It therefore authorizes their publication and posting on the African Development Bank website following agreement by the Board of Directors. The Government of Burundi will also post these documents on its official websites. Please accept, Mr. President, the assurances of our highest consideration.

Tabu Abdallah MANIRAKIZA

MINISTER OF FINANCE AND ECONOMIC DEVELOPMENT PLANNING

REPUBLIC OF BURUNDI

Annex I Letter of Development Policy

REPUBLIC OF BURUNDI Bujumbura, ……….../…….../2012

MINISTRY OF FINANCE

MINISTRY OF FINANCE AND ECONOMIC DEVELOPMENT PLANNING

OFFICE OF THE MINISTER

N°540/………….…/2012

III

ECONOMIC REFORM SUPPORT PROGRAMME

(PARE V)

LETTER OF DEVELOPMENT POLICY (LDP)

May 2012

Annex I Letter of Development Policy

REPUBLIC OF BURUNDI Bujumbura, ……….../…….../2012

MINISTRY OF FINANCE

MINISTRY OF FINANCE AND ECONOMIC DEVELOPMENT PLANNING

OFFICE OF THE MINISTER

N°540/………….…/2012

IV

I. GENERAL INTRODUCTION

1. In the implementation of its Poverty Reduction and Growth Strategy Paper and in support of its

economic reform programme for 2012, the Government is requesting support from the ADB. This

policy paper aims to safeguard the achievements of the first PRSP, while focusing on programmes

likely to promote growth. It will also build on the progress made under PARE II, PARE III and PARE IV

which have produced satisfactory macroeconomic results, even though they remain unsatisfactory

with respect to poverty reduction. This Policy Letter summarizes the social context and recent

economic developments.

It describes the policies set out under the 4 thrusts of PRSP-II which the Government undertakes to

pursue in the areas relating to: (i) strengthening of the rule of law, consolidation of good governance

and promotion of gender equality; (ii) transformation of Burundi’s economy so as to achieve lasting

and sustainable growth; (iii) improvement of accessibility to and quality of basic services, and (IV)

management of land and a well-balanced environment.

2. The long-term national development policy is set out in the Burundi 2025 Vision, the four priority

thrusts of which are: (i) good governance and building of the Government’s capacities; (ii) human

capital; (iii) economic growth and poverty reduction; (iv) regional integration; (v) demography; (vi)

social cohesion; (vii) regional development and urbanization; and (viii) partnership. This Vision is

broken down into medium-term strategies (PRSP), the first of which aims to culminate in positive

outcomes in terms of: (i) improvement of governance and security, (ii) promotion of sustainable and

evenly distributed economic growth, (iii) development of human capital, and (iv) HIV/AIDS control.

PRSP-II focuses on the promotion of growth-enhancing sectors and support for the private sector, and

is organized around the 4 thrusts mentioned in Point 1 above.

3. The main challenge in implementing PRSP-II consists in triggering sufficient momentum to create new

jobs and revenue, especially for young people who are hardest hit by unemployment, which could be a

source of insecurity. This new strategy focuses on development concerns and the orientations

expressed by the population, namely : strengthening of the justice system and the rule of law ;

consolidation of good governance and improvement of the performances of public institutions ;

improvement of productivity in the growth-enhancing sectors, private sector development,

improvement of the accessibility and quality of economic infrastructure, regional integration, increase

in the intake capacities and quality of education, building the capacities and strengthening the

performance of the health care system, population control and fertility reduction, as well as rational,

well-balanced regional development, environmental protection and sustainable water resource

management.

4. The primary sector plays the key role in the structure of Burundi’s economy with a very small amount

of processing despite the promising results achieved in recent years. The Government remains aware

of the many challenges facing Burundi’s economy. However, it is confident that there are great

opportunities that Burundi must seize in order to diversify its sources of economic growth which are

still dominated by the agricultural sector, especially the traditional export sectors such as coffee,

cotton and tea. The Authorities will endeavour to ensure that the reforms to be initiated in these

agricultural sectors increase the sector’s productivity with: (i) a higher contribution to growth; (ii) and

higher incomes for farmers, particularly those in rural areas. With support from partners, reforms

have already been initiated in marshland development which is a major lever that can be used to

increase agricultural production. Furthermore, a National Agricultural Investment Plan has been

Annex I Letter of Development Policy

REPUBLIC OF BURUNDI Bujumbura, ……….../…….../2012

MINISTRY OF FINANCE

MINISTRY OF FINANCE AND ECONOMIC DEVELOPMENT PLANNING

OFFICE OF THE MINISTER

N°540/………….…/2012

V

adopted, the strategic objectives of which include: increased production and food security,

professionalization of producers, and development of the sub-sectors and agri-business including

livestock and fisheries, as well as institution building. In view of Burundi’s tourism potential, the

Government intends to make tourism one of the pillars of the economy. To that end, the adopted

tourism strategy is aimed at promoting this sector by attracting private investors and stimulating

demand, as well as by developing new tourist sites. Large-scale projects to increase energy supply

have been initiated in 2012 in order to promote the private sector and support growth.

5. Burundi is also seeking other contributions from donors to implement the programmes set out in the

PRSP, and will need a reference framework to facilitate harmonization of donors’ policies.

To this end, the Government wishes to obtain increased coordination from ADB and garner the

support of all the financial partners around PRSP-II which has been disseminated at all levels. The

process of seeking financing has been initiated. In this context, the Second Vice-President of the

Republic recently visited the headquarters of the World Bank, European Union, United Nations and

the International Monetary Fund in order to involve these different partners in the financing of this

strategy.

6. This Letter of Development Policy reflects the Government’s reform agenda for the next two years, and

also presents the performance indicators which will guide the assessment of the quality of its

implementation. In order to maximize its success, the Authorities will continue to take all appropriate

measures to involve all the stakeholders and draw on past experiences.

II. RECENT ECONOMIC DEVELOPMENTS

7. The country has recorded positive growth in recent years, even though the growth rate remains too

low for achievement of the MDGs. The GSP growth rates in 2009, 2010 and 2011 were 3.5%, 3.8%

and 4.2% respectively. The average growth rate over the period was about 3.83%. While this result is

undoubtedly encouraging, higher growth rates are necessary to achieve PRSP-II and MDG objectives,

as well as reduce poverty which remains high. Even though there are no updated data on the

phenomenon of poverty, none of the indicators point to its reduction. Indeed, almost 2/3 of Burundi’s

population live below the poverty line. However, growth is trending upwards, since GDP is expected to

reach 4.8% in 2012, and a higher rate of 5% over the 2013-2014 period. Rigorous implementation of

PRSP-II is expected to improve the business environment which, in turn, will create massive Foreign

Direct Investment inflows in support of growth. Recently, the Government has pursued its efforts to

improve the quality of public spending by increasing the share of the budget allocated to education,

health and socioeconomic infrastructure. To this end, considerable progress has been observed in

agriculture since the budget share allocated to it hovers around 7%. However, in order to launch the

economy on the path of strong, sustainable growth, and significantly reduce poverty, the Government

is determined to tackle the many challenges already identified, including the need to: (i) improve the

business climate, (ii) invest in the development of human capital and close the existing production

support infrastructure gap, (iii) increase agricultural productivity and diversify agricultural production

and the structure of the economy. Thrust 2 of PRSP-II outlines the actions which the Government

should prioritize to increase the growth rate, which has remained low.

8. According to recent data, the structure of the economy is dominated by agriculture which accounted

for about 45% of GDP over the 2004-2009 period. It is followed by the services sector (with 37% of

GDP in 2004-2009), ahead of industry (17%). Agriculture therefore still plays a key role in the

economy in terms of its contribution to GDP and export earnings (an average of more than 60% over

Annex I Letter of Development Policy

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OFFICE OF THE MINISTER

N°540/………….…/2012

VI

the 2006-2009 period), but also because of its impact on employment. There is no denying that

agricultural sector productivity and production have declined in recent years mainly due to weather

conditions and a long period of conflict, as well as a downturn in the prices of export commodities.

This downturn has continued in 2012, and will lead to a drop in export earnings despite high

production. On the other hand, the contribution of the services sector has risen steadily. There has

also been an increase in the construction sector’s contribution to GDP.

9. Burundi had succeeded in maintaining single-digit inflation levels up to 2007. However, fueled by the

exponential rise in global oil and food prices, inflation soared to 14.7% by the end of that year and to

22 % by the end of 2008, by far exceeding the Government’s revised target of about 14%. In 2009,

inflation fell to about 9% at year end with an estimated rate of 9.5% for 2010, compared to the

original forecast of 7.5%.

Annual inflation for 2011 was about 9% compared to an initial forecast of 7%. Despite difficulties

caused by the upsurge in commodity prices in 2012 which will result in double-digit inflation in 2012,

the Government is determined to take appropriate measures through the implementation of prudent

fiscal and monetary policies to contain inflation. The new BRB/Ministry of Finance Convention limits

the use of bank financing of the budget. A nation-wide household consumption survey will be

conducted in 2012 to update and adjust the basket used in calculating the consumer price index.

10. The budget deficit is in line with the Government’s macroeconomic stabilization objectives, despite its

widening in 2010 as a result of the recent global crises, temporary losses of revenue related to the

implementation of certain tax reforms (VAT and CET), and election-related expenditure. To try to

reduce the deficits, the Authorities pursued their policy of fiscal stringency with satisfactory results in

2007 and 2008. The primary budget deficit was below forecast, due to strong resource mobilization

and a cutback in non-priority primary expenditure of about 2.6% of GDP in 2007 and 1.2% in 2008.

On the other hand, in compliance with the PRSP and MDG objectives, the Authorities have been able

to steadily increase spending on poverty reduction from 6.3% of GDP in 2005 to about 9.3% in 2006,

11.2% in 2007, 12.1% in 2008, 12.3% in 2009, 14.8% in 2010 and almost 18% and 17% in 2011

and 2012 respectively.

11. The 2012 Budget is consistent with the macroeconomic objectives agreed under the Extended Credit

Facility (ECF). The preparation of this budget was marked by the desire to reduce operating

expenditure in order to ensure adequate margins to finance investments. Consequently, salaries were

increased by 1% without the transposition decision. It should be noted that the payment of salary

arrears relating to the transposition decision was completed in 2011. However, preparations for 2012

were made in a difficult context of budget support cutbacks. Against this backdrop, the Government

will endeavour to mobilize domestic resources to offset this loss of budget support.

12. Following a worsening of the external position in 2007 as a result of a 23.4% deterioration in the

terms of trade, there was a fairly significant improvement in the terms of trade by 3.4% and 39.8% in

2008 and 2009 respectively, linked to a substantial increase in coffee exports (+34%) and an

improvement in global coffee prices. However, 2010 was marked by another deterioration of over

20%.

Official foreign exchange reserves, which had risen since 2006 from 3.6 months of import coverage,

fell slightly again in 2009 to 6 months of imports. Burundi’s currency has remained fairly stable and

Annex I Letter of Development Policy

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according to estimates, the Real Effective Exchange Rate (REER) depreciated by 5.7% in 2007. It rose

slightly by 1.2% in 2008, but depreciated again slightly by 2% in 2009.

13. The external position has continued to improve, with an increase in current transfers despite the

worsening trade balance. Over the coming years, the current external deficit is expected to settle at

about 10% of GDP. Moreover, the terms of trade are expected to improve by 7.8% in 2011 and 0.5%

in 2012. The business climate improvement reforms helped the country to increase its ranking in the

recent Doing Business report. This will improve the financial account, as a result of massive inflows of

Foreign Direct Investment.

14. Several reforms have been implemented to mitigate the negative impacts of global food prices on the

most disadvantaged segments of the population. Temporary and targeted price reductions have been

applied to imports of food and oil products consumed by the poorest segments of the population.

Furthermore, the Government has strengthened the social safety nets, especially through

programmes relating to food security, school canteens, transfers to farmers, rural agricultural

microcredit, and assistance to refugees and people displaced by war. Finally, in order to increase

agricultural production, the Government has provided smallholders with seeds and fertilizer, initiated

the rehabilitation of the Imbo plain irrigation system and basic infrastructure, as well as cattle

restocking. Furthermore, a vast marshland development programme was recently launched, and will

undoubtedly increase production so as to address the problem of food insecurity. The Government

wishes to thank all the donors that have backed these initiatives financially, in particular, the African

Development Bank, World Bank, Netherlands, Norway, the European Union, and many others.

III. KEY LESSONS FROM THESE REFORM PROGRAMMES AND CHALLENGES

3.1 LESSONS FROM THE REFORM PROGRAMMES

15. The following key lessons have been learned from implementation of earlier programmes and reforms

under PRSP-I and the programme concluded between Burundi and the International Monetary Fund:

(i) strengthening of macroeconomic stabilization, (ii) structural reforms aimed at improving the public

financial management system, monetary and exchange rate policy, and (iii) enhancement of the

efficiency of the productive system, especially the privatization of public enterprises and restructuring

of the coffee sector. Implementation of the PRSP-I produced positive results in the areas of

governance and human development.

16. Implementation of these programmes and reforms has required the mobilization of significant

resources. Progress has been made in the health and education sectors mainly due to the financing

received by the country on reaching the completion point in January 2009. Despite a crisis exit

context and an unfavourable international environment, the country has continued to post positive

growth, and it can be readily seen that the donors support operations have effectively facilitated the

strides made by the Government in implementing its reform programme. Over the past few years, the

country has been largely spared by the international financial crisis. However, only in 2012 did it

experience a sharp cutback in budget support equivalent to about 3.5% of GDP or half the estimated

amount for 2011. Against this difficult backdrop, the Government, in collaboration with its technical

and financial partners, will consider how to extend the SAB procedure to health care, statistics and

other areas of interest to donors so as to offset dwindling budget support. The African Development

Bank’s support through PARE II, PARE III and PARE IV paid particular attention to the strengthening of

internal and external control and improvement of public expenditure management, in particular,

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better budget preparation and public procurement reform. World Bank support, through ERSP-II and

ERSP III, gave high priority to improving the transparency of public financial management, enhancing

the business environment and ensuring efficiency of the productive system.

17. Significant progress has been made in public financial management as a result of implementation of

the planned reforms. Several implementing texts on the new Organic Finance Law have been

published or are being finalized, including the promulgation of the General Regulations on Public

Budget Management, the Decree on Fiscal Governance, the new Public Financial Management

Strategy and its 2012-2014 Action Plan, the BRB/Ministry of Finance Convention and Medium-Term

Budget framework letters.

With regard to revenue collection, the past few years have been marked by the establishment and

operationalization of the Burundi Revenue Authority, with very strong collection performances. Several

measures have been implemented to improve the performance of the collection services and

broaden the tax base, including the replacement of the Transactions Tax by Value Added Tax and the

application of the Common External Tariff to ensure harmonization with the East African Community.

Several other measures have been implemented aimed at broadening the tax base, bringing the

single taxpayer identification number into general use, computerization of the collection services,

payment of arrears, and updating of some Laws. Income tax will be extended to the other categories

which did not pay this type of tax. With regard to internal control, IGE has continued to conduct its

internal control activities, and the re-establishment of the Inspection and Control Service at the

Ministry of Finance has helped to strengthen internal control. The Court of Auditors is operational, is

issuing opinions on all Finance Bills tabled before Parliament, and has produced Budget Execution

reports that have been submitted to Parliament. The adoption of a new Public Procurement Code

compliant with international standards and the entry into force of the said code has contributed

significantly to enhancing budget execution efficiency. The Government has obtained new payroll

management software on World Bank financing.

18. In order to consolidate all the available resources, the Government has continued to streamline its

accounts culminating in the establishment of a single Treasury account, and has consolidated the

progress already made in rechanneling public expenditure towards the priority poverty reduction

sectors. A decree on fiscal governance, which is being adopted, will address issues relating to the

terms and conditions for implementing the principle of legality of revenue and expenditure, the

definition of objectives and formulation of fiscal and economic and improvement of economic and

fiscal policies. It will also define rules relating to Finance Laws, in particular their structure and

improvement of budget procedures at both government and parliamentary levels. An Ordinance on a

new classification in compliance with international standards has also been signed and will soon

enter into force. The deployment of Expenditure Commitment Comptrollers in two pilot Ministries is

envisaged in 2012. The finalization of the expenditure chain streamlining project aims at ensuring

compliance with international best practices for the modulation of controls. In order to empower

actors and instill a culture of budget accountability, the payment authorization system will be

decentralized in 2014. The programme budget will be introduced into Burundi’s budget process as

from 2004.

19. With regard to improvement of the business climate, considerable progress has also been made in

boosting the private sector, including the adoption of several texts aimed at simplifying business start-

up procedures as well as reducing the time taken to obtain a building permit. These texts aim

particularly at improving the regulatory framework. They also include the new Code for Private

Companies and Companies with Mixed Ownership, preparation of the Bankruptcy Law, and

Annex I Letter of Development Policy

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preparation of a Decree implementing the Competition Law. The private sector promotion strategy will

be strengthened through entrepreneurship support, with special focus on young people and

harmonization of Burundi’s tax laws with those of the EAC countries.

A coordination and monitoring unit will be established to implement and monitor the financial

development strategy and its action plan. It will also provide strategic directions for accelerating the

financial sector reform. The Central Bank has embarked on a vast project to computerize and

modernize its payment system by setting up a single window. The Central Bank is conducting a survey

on financial inclusion so as to improve poor people’s access to formal financial systems. The Central

Bank has also implemented significant measures to strengthen its internal control and risk

management systems in accordance with the IMF staff report on financial safeguards assessment.

20. The year 2011 was marked by the continuing privatization of the 104 remaining washing stations.

The launching of the bidding procedure concerned 104 washing stations and 2 plants. Of these lots,

28 washing stations and 1 plant have been sold, and competitive bidding for the 76 remaining

stations and the plant will be launched.

21. Thus, despite the various external shocks, in particular the post-conflict situation, weather conditions

and the international financial crisis and global recession, the implementation objectives of PARE II, III

and IV were achieved. PARE II, III and IV, which supported the PRSP implementation, aimed to assist

the Government in the implementation of specific measures to improve public resource management

and strengthen internal and external control of public financial management. Here below is a

summary of the prerequisites fulfilled by the Government before disbursement of PARE II, III and

PARE IV:

Submission of the draft audited finance law for the 2007 fiscal year by the Ministry in charge of

Finance to the Court of Auditors;

Adoption of the new Organic Public Finance Law by Parliament in 2008;

The adoption of Decrees and Ministerial Orders relating to the structures defined in the Public

Procurement Code: (1) Public Procurement Regulatory Authority (ARMP), (2) National Public

Procurement Control Directorate (DNMP), and (3) Public Procurement Management Unit (CGPM).

The adoption of a Decree defining the budget preparation timetable, the responsibilities of the

different actors, and the content of the framework letter to improve the schedule and efficiency of

the budget preparation procedures;

Conduct of an audit of oil sector/government cross-debts;

Maintain an International Monetary Fund Staff-Monitored Programme following the completion of

the ECF programme for 2008 and 2009.

Submission of the draft Audited Finance Law for the 2008 fiscal year by the Ministry of Finance to

the Court of Auditors;

Clearance of government debt owed to the oil sector, as indicated in the audit of government/oil

sector cross debts, and adoption of the text on the recovery of customs duties owed by the oil sector

as indicated in the audit of government/oil sector cross-debts;

The adoption, no later than June 2009 and by the Ministry of Finance, of the text recalling the

deadlines for the commitment, verification, payment authorization and payment of budget

expenditure.

Annex I Letter of Development Policy

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Finalization and submission of the draft General Regulations on Public Budget Management

(RGGBP) to the Cabinet Meeting for consideration;

Submission of the 2008 draft Audited Finance Law to Parliament for discussion;

Finalization and adoption of an action plan for the implementation of public procurement reforms;

Submission of the 2009 Management Account and the 2009 draft Audited Finance Law by the

Ministry of Finance to the Court of Auditors.

3.2 THE NEW CHALLENGES

22. The country is still facing major political and economic challenges before it can embark on the path to

sustainable and evenly-distributed growth. In light of the implementation of PRSP-I, these challenges

are at the core of the PRSP-II process, which aims to achieve sustainable and well-balanced

development. This process is underpinned by the pursuance of a macroeconomic framework, and the

consolidation of peace, security and the rule of law.

23. Even though the outcomes of the PRSP-I are generally satisfactory, there are still some challenges.

With a population of almost 8 million inhabitants in 2010, the country has a high population which

puts the demographic issue to the forefront of the country’s concerns. Similarly, the country’s HDI

rating was low for the same year at about 0.282, and it is ranked 166th out of 169 countries

according to the 2010 UNDP report. The country’s civil war destroyed much property and

infrastructure, and this could be the reason for the slow growth achieved over the period. However,

the restoration of peace and security and other factors were identified in PRSP-II, and represent

challenges which must be addressed in order to put the economy back on the right track of growth.

These challenges, which represent objectives and must be overcome if PRSP-II is to succeed, are:

control of population growth, intensification of agricultural production systems, public expenditure

efficiency, private sector development, the energy challenge, and building the capacity to steer

development programmes.

Annex I Letter of Development Policy

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N°540/………….…/2012

XI

Article I. BURUNDI: Economic Reform Support Programme – Phase V (PARE V) MATRIX OF POLICY MEASURES

Data Sources: DS; the measures in bold and marked with an asterisk (*) are conditions precedent to first disbursement; and the measures in bold letters and marked with two

asterisks (**) are conditions precedent to disbursement of the second tranche.

Objectives

2012 Measures

2013 Measures

2014 Measures18

Target Output Indicators Target Impact

Indicators19 Data Sources

Component 1 – Enhancement of Government’s Efficiency in the Management of its Resources

IMPROVE

REVENUE

MOBILIZATION

I.1.1. Adoption of the Bill on

Value-Added Tax* by the

Cabinet Meeting

I.2.1 Operationalize the

provisions of the Code

I.3.1 Operationalize the

provisions of the Code

The VAT Bill is adopted by

the Cabinet Meeting before

July 2012

PEFA PI 14 (Baseline 2012 :

C

DS : MFPDE certified

copy transmitting the

certified copy of the

minutes of the Cabinet

Meeting indicating the

18 For information, the measures could form part of a possible future budget support operation 19 Since a full PEFA is not planned before 2015, the indicators for 2013 will be assessed by the Bank’s services)

Annex I Letter of Development Policy

REPUBLIC OF BURUNDI Bujumbura, ……….../…….../2012

MINISTRY OF FINANCE

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N°540/………….…/2012

XII

Objectives

2012 Measures

2013 Measures

2014 Measures18

Target Output Indicators Target Impact

Indicators19 Data Sources

2013 Target: C+

PEFA PI 15

2012 Baseline:

B+

2013 Target: A

Revenue to

GDP Ratio

2011 Baseline:

14.4%

adoption of the VAT

Bill; copy of the draft

Code; PEFA indicator

assessment by the Bank’s

services; IMF reports for

the revenue/GDP ratio

I.2.2. Adoption of the revised

General Tax and Excise Duties

Code and the Tax Procedures

Manual by the Cabinet Meeting

I.3.2 Operationalize the

provisions of the Code and

Manual

The Revised General Tax and

Excise Duties Code are

submitted to the Cabinet

Meeting for consideration

before end 2013

DS: MdFPDE certified

copy transmitting a

certified copy of the

minutes of the Cabinet

Meeting indicating the

adoption of the Revised

Code and Tax

Procedures Manual.

copies of the Code and

Manual

Annex I Letter of Development Policy

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OFFICE OF THE MINISTER

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Objectives

2012 Measures

2013 Measures

2014 Measures18

Target Output Indicators Target Impact

Indicators19 Data Sources

2012 Target:

2012 : 15.1%

2013 Target :

15.4%

STRENGTHEN

THE NATIONAL

PUBLIC

PROCUREMENT

SYSTEM

I.2.3- Submission to the Cabinet

Meeting and forwarding to

Parliament of the Bill on the

revision of the Public

Procurement Code in accordance

with the recommendations of the

ongoing assessment of the

national procurement system by

ADB/COMESA; and preparation

of the related implementing texts

(procedures manual, standard

bidding documents and code of

I.3.3 Operationalize the

provisions of the new Code

The Bill is submitted for

adoption by the Cabinet

Meeting and forwarded to

Parliament before end 2013

PEFA PI-

192012 Baseline

2012 : C+

2013 Target : B

DS: MFPDE certified

copy forwarding a

certified copy of the

letter forwarding the Bill

to the Government

General Secretariat

(SGG); assessment of the

PEFA indicator by the

Bank’s services. copies

of the revised texts

Annex I Letter of Development Policy

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XIV

Objectives

2012 Measures

2013 Measures

2014 Measures18

Target Output Indicators Target Impact

Indicators19 Data Sources

penalties)

I.1.2- Conduct an external

audit of public contracts in

accordance with the

provisions of the public

procurement code and publish

the results on the website of

the Ministry of Finance (or on

the ARMP site once it is

operational). The audit will

concern 2010, 2011. The

scope of the audit must cover

a minimum of 25% of the

number of annually awarded

contracts

I.2.4- Conduct an external audit

of public contracts in accordance

with the provisions of the public

procurement code and publish the

results on the website of the

Ministry of Finance (or on the

ARMP site once it is operational).

The audit will concern 2012. The

scope of the audit must cover a

minimum of 25% of the number

of annually awarded contracts

Condition precedent to

disbursement**: Submit to the

Bank the public procurement

audit reports for 2010, 2011 and

2012. The audits must cover a

minimum of 25% of annually

awarded contracts according to

I.3.4 Conduct an external

audit of public contracts in

accordance with the

provisions of the public

procurement code and publish

the results on the website of

the Ministry of Finance (or on

the ARMP site once it is

operational). The audit will

concern 2013. The scope of

the audit must cover a

minimum of 45% of the

number of annually awarded

contracts

Conduct an external audit of

public contracts in accordance

with the Public Procurement

Code and publish the results

The external audits of public

contracts for 2010, 2011 and

2012 are conducted and

published on the website of

the Ministry of Finance (or on

the ARMP site once it is

operational).The scope of the

audits must cover a minimum

of 45% of the number of

annually awarded contracts

DS : MdFPDE letter

forwarding the copy of

the audit report and

confirming the

publication of the

findings: copies of audits

made; copies of web

screens of sites where

audits are published

Annex I Letter of Development Policy

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Objectives

2012 Measures

2013 Measures

2014 Measures18

Target Output Indicators Target Impact

Indicators19 Data Sources

ARMP statistics) and a screen

copy of the website page where

the audits are published

on the website of the Ministry

of Finance (or on the ARMP

site once it is operational).

The audit will concern 2013.

The scope of the audit must

cover a minimum of 45% of

the number of annually

awarded contracts

I.1.3 Allocate adequate

budget resources to ARMP in

the 2013 and 2014 FL to

enable ARMP to fulfill its

functions in compliance with

the existing laws and

regulations (especially

I.2.5 Allocate adequate budget

resources to ARMP in the 2014

BL to enable ARMP to fulfill its

functions in compliance with the

existing laws and regulations

(especially concerning audits).

The Budget allocated to ARMP

I.3.5 Allocate adequate

budget resources to ARMP

under the 2015 FL to enable

ARMP to fulfill its functions

in compliance with the

existing laws and regulations

(especially concerning

ARMP is financially

autonomous

BF indicating that the

mechanism has been

established and budget

execution report stating

that the resources have

been provided to ARMP

Annex I Letter of Development Policy

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XVI

Objectives

2012 Measures

2013 Measures

2014 Measures18

Target Output Indicators Target Impact

Indicators19 Data Sources

concerning audits). The

Budget allocated to ARMP

under the 2013 FL must be

higher than the budget for the

2012 FL (MBIF 233)

under the 2014 BL must be higher

than the budget for the 2013 BL

audits). The Budget allocated

to ARMP under the 2015 FL

must be higher than the

budget for the 2014 FL

I.1.4 As from 1 June 2012,

systematically publish the

final contract awards (on

the Ministry of Finance

website or once it is

operational, on the ARMP

website)*

Disbursement Condition:

screen copy of the website

page where the final

contract awards for the 1

January 2012 to 30 June

I.2.6 Systematically publish the

final contract awards (on the

Ministry of Finance website or

once it is operational, on the

ARMP website)

I.3.6 Systematically publish

the final contract awards (on

the Ministry of Finance

website or once it is

operational, on the ARMP

website)

The contract awards are

published in a website/

DNCMP/ARMP report

– certified copies of the

website page where the

final contract awards are

published

Annex I Letter of Development Policy

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XVII

Objectives

2012 Measures

2013 Measures

2014 Measures18

Target Output Indicators Target Impact

Indicators19 Data Sources

2012 are published*

STRENGTHEN

INTERNAL AND

EXTERNAL

BUDGET

EXECUTION

CONTROLS

I.1.5 Prepare a classification

of supporting documents for

all the payments in the

form of an Order**

I.2.7 The OTBU strictly applies

the classification of supporting

documents for all payments.

I.3.7 The OTBU strictly

applies the classification of

supporting documents for all

payments.

A classification of supporting

documents for all payments in

the form of an Order is

available and applied by the

OTBU

PEFA PI-20

2011 Baseline:

D+

2013 Target: C

PEFA PI-21

2011 Baseline:

D+

2013 Target: C

DS: Certified copy of the

Order concerning the

classification of

supporting documents

for payments and Court

of Auditors report

I.2.8 The Court of Auditors, in

accordance with the RGGB,

carries out an annual control of

compliance with the classification

of supporting documents for all

payments as part of the personal

and pecuniary responsibility of

the payment authorizing officer

and public accountant (OTBU)

I.3.8 The Court of Auditors,

in accordance with the

RGGB, carries out an annual

control of compliance with

the classification of

supporting documents for all

payments as part of the

personal and pecuniary

responsibility of the payment

authorizing officer and public

The Court of Auditors carries

out controls on the OTBU’s

payments

DS : Copy of Court of

Auditors Report

Annex I Letter of Development Policy

REPUBLIC OF BURUNDI Bujumbura, ……….../…….../2012

MINISTRY OF FINANCE

MINISTRY OF FINANCE AND ECONOMIC DEVELOPMENT PLANNING

OFFICE OF THE MINISTER

N°540/………….…/2012

XVIII

Objectives

2012 Measures

2013 Measures

2014 Measures18

Target Output Indicators Target Impact

Indicators19 Data Sources

accountant (OTBU)

PEFA PI-26

2011 Baseline:

D+

2013 Target : C

I.1.6 The Ministry of Finance

and Economic Development

Planning prepares a monitoring

report/table of

recommendations made by the

Court of Auditors (CdC) on

budget execution relating to the

Audited Finance Laws for 2009

and 2010. The monitoring

report/table presents the

recommendations,

implementation status of the

recommendations and

MdFDPE’s related comments.

The Table/Report is published

on the Ministry of Finance

website. **

I.2.9 The Ministry of Finance and

Economic Development Planning

prepares a monitoring report/table

of recommendations made by the

Court of Auditors (CdC) on

budget execution relating to the

Audited Finance Laws for 2011.

The monitoring report/table

presents the recommendations,

implementation status of the

recommendations and MdFDPE’s

related comments. The

Table/Report is published on the

Ministry of Finance website.

I.3.9 The Ministry of Finance

and Economic Development

Planning prepares a

monitoring report/table of

recommendations made by

the Court of Auditors (CdC)

on budget execution relating

to the Audited Finance Laws

for 2012. The monitoring

report/table presents the

recommendations,

implementation status of the

recommendations and

MdFPDE’s related comments.

The Table/Report is published

on the Ministry of Finance

website.

Monitoring of the

implementation of the

recommendations is initiated

and operational in 2012 and

continues to be operational in

2013

DS: Certified Copy of

the MFPDE report and

certified screen copy of

the website page where

the report is published

Annex I Letter of Development Policy

REPUBLIC OF BURUNDI Bujumbura, ……….../…….../2012

MINISTRY OF FINANCE

MINISTRY OF FINANCE AND ECONOMIC DEVELOPMENT PLANNING

OFFICE OF THE MINISTER

N°540/………….…/2012

XIX

Objectives

2012 Measures

2013 Measures

2014 Measures18

Target Output Indicators Target Impact

Indicators19 Data Sources

I.1.7 Have the study and

recommendations on

Burundi’s internal and

external control system

technically validated by the

Cabinet Meeting and start to

implement the

recommendations

I.2.10 Continue to implement the

recommendations of the study

and recommendations on

Burundi’s internal and external

control system.

I.3.10 Continue to implement

the recommendations of the

study and recommendations

on Burundi’s internal and

external control system

Technical validation of the

study and recommendations

on Burundi’s internal and

external control system by the

Cabinet Meeting.

Copy of the minutes of

the Cabinet Meeting on

the technical validation

of the study

I.1.8 Establish a mechanism

to monitor the

implementation at the

Ministry of Good Governance

of the recommendations made

by the General State

Inspectorate in the context of

its inspections

1.2.11 Ensure the monitoring of

the recommendations made by the

General State Inspectorate in the

context of its inspections

I.3.11 Ensure the monitoring

of the recommendations made

by the General State

Inspectorate in the context of

its inspections

The percentage of

recommendations

implemented is above 30% in

2012 and above 50% in 2013

DS: - Letters from the

General State

Inspectorate forwarding

copies of the

recommendation

monitoring evaluation

reports

Annex I Letter of Development Policy

REPUBLIC OF BURUNDI Bujumbura, ……….../…….../2012

MINISTRY OF FINANCE

MINISTRY OF FINANCE AND ECONOMIC DEVELOPMENT PLANNING

OFFICE OF THE MINISTER

N°540/………….…/2012

XX

Objectives

2012 Measures

2013 Measures

2014 Measures18

Target Output Indicators Target Impact

Indicators19 Data Sources

1.2.12 Ministerial inspectorates

submit their annual control

programmes and reports to the

General State Inspectorate to

strengthen their coordination

Ministerial inspectorates

submit their annual control

programmes and reports to

the IGE before end 2013

DS : IGE letter

acknowledging receipt of

the annual programmes

and reports prepared by

the Ministerial

Inspectorates

I.1.9 Adoption, by Ordinance,

of the Public Expenditure

Rationalization Manual

I.2.13 Entry into force of the

Public Expenditure

Rationalization Manual

Public Expenditure

Rationalization Manual is

adopted and applied

DS: Copy of the

Ordinance concerning

the Public Expenditure

Rationalization Manual

I.1.10 Finalize and adopt

the text on Expenditure

Commitment Control

(CED)*

I.2.14 Implement the text on CED The text on CED is adopted

and applied

DS : Copy of the text on

the adoption of the text

on CED

Annex I Letter of Development Policy

REPUBLIC OF BURUNDI Bujumbura, ……….../…….../2012

MINISTRY OF FINANCE

MINISTRY OF FINANCE AND ECONOMIC DEVELOPMENT PLANNING

OFFICE OF THE MINISTER

N°540/………….…/2012

XXI

Objectives

2012 Measures

2013 Measures

2014 Measures18

Target Output Indicators Target Impact

Indicators19 Data Sources

1.1.11 Submission of the

annual management report

on revenue and expenditure

operations on the Treasury

Current Account and the

2011 HIPCI Account by the

Ministry of Finance and

Economic Development

Planning to the Court of

Auditors *

1.2.15 Submission of the annual

management report on revenue

and expenditure operations on the

Treasury Current Account and the

2011 HIPCI Account by the

Ministry of Finance and

Economic Development Planning

to the Court of Auditors

Component II – Promotion of Private Sector Development and Job Creation

IMPROVE THE

INVESTMENT

AND BUSINESS

ENVIRONMENT

IN ORDER TO

II.1.1. Adoption of the private

sector development strategy

by the Cabinet Meeting

II.2.1 Implement the Strategy in

accordance with its annual Action

Plan

II.3.1 Implement the Strategy

in accordance with its annual

Action Plan

The private sector

development strategy is

adopted before end 2012

Private

investment/GD

P ratio

SD : Letter forwarding

the strategy ; certified

copy of minutes of the

Council of Ministers

meeting mentioning the

Annex I Letter of Development Policy

REPUBLIC OF BURUNDI Bujumbura, ……….../…….../2012

MINISTRY OF FINANCE

MINISTRY OF FINANCE AND ECONOMIC DEVELOPMENT PLANNING

OFFICE OF THE MINISTER

N°540/………….…/2012

XXII

Objectives

2012 Measures

2013 Measures

2014 Measures18

Target Output Indicators Target Impact

Indicators19 Data Sources

CREATE JOBS 2011 baseline:

7.6%

2013 target:

10%

Number of jobs

created:

2011 baseline:

6000 jobs

created

2012 Target:

15,000 jobs

created

adoption of the strategy

II.1.2. Establishment of a

public-private dialogue

framework (PPDF) to serve as

a consultation and decision-

making platform between the

two sectors

II.2.2 Public-Private Dialogue

Framework is operational and

meets regularly

II.3.2 Public-Private Dialogue

Framework is operational and

meets regularly

The Public-Private Dialogue

Framework is set up before

end 2012. Meetings of the

Public-Private Dialogue

Framework are held at least

once in 2012 and twice in

2013

DS : the annual report

prepared by the

Permanent Secretariat of

the Public-Private

Dialogue Framework

II.1.3 Recruit 12 senior staff

for API and install API in

offices suitable for its mission

II.2.3. Adoption, by the Cabinet

Meeting, of the Bill amending

the Investment Code

Disbursement Condition:

Submission of the Bill

amending the Code to the

II.3.3 Implement the

provisions of the new

Investment Code

The Bill amending the

Investment Code is submitted

to the Cabinet Meeting and

adopted by the Cabinet

Meeting before end 2013. 12

senior staff are recruited for

API, and API is installed in

offices suitable for its

DS: Certified copy of the

forwarding letter on the

Bill amending the

Investment Code to the

Cabinet Meeting

Annex I Letter of Development Policy

REPUBLIC OF BURUNDI Bujumbura, ……….../…….../2012

MINISTRY OF FINANCE

MINISTRY OF FINANCE AND ECONOMIC DEVELOPMENT PLANNING

OFFICE OF THE MINISTER

N°540/………….…/2012

XXIII

Objectives

2012 Measures

2013 Measures

2014 Measures18

Target Output Indicators Target Impact

Indicators19 Data Sources

Cabinet Meeting.

Condition precedent to

Disbursement: submission of

the Bill amending the

Investment Code to the Cabinet

Meeting **

mission.

2013 Target:

15 000 jobs

created

II.2.4. Submission of the Bill on

public-private partnerships(PPP)

to the Cabinet Meeting

II.3.4 The Cabinet Meeting

adopts the Bill on PPP

The Bill on PPP is submitted

to the Cabinet Meeting before

end 2013

DS Forwarding letter to

the Cabinet Meeting and

certified copy of the

minutes of the Cabinet

Meeting adopting the

draft Law

Annex I Letter of Development Policy

REPUBLIC OF BURUNDI Bujumbura, ……….../…….../2012

MINISTRY OF FINANCE

MINISTRY OF FINANCE AND ECONOMIC DEVELOPMENT PLANNING

OFFICE OF THE MINISTER

N°540/………….…/2012

XXIV

Objectives

2012 Measures

2013 Measures

2014 Measures18

Target Output Indicators Target Impact

Indicators19 Data Sources

II.1.4. Prepare the National

Employment Policy (PNE),

propose the sector action

plans (youth, social

protection, etc.)

II.2.5 Adoption of the

employment policy by the

Cabinet Meeting and

implementation of the policy

II.3.5 Implementation of the

employment policy

The National Employment

policy is prepared before end

2012, adopted by the Cabinet

Meeting in 2013 and

implemented

DS: Copy of the policy

and copy of the minutes

of the Cabinet Meeting

adopting the policy

Annex I Letter of Development Policy

REPUBLIC OF BURUNDI Bujumbura, ……….../…….../2012

MINISTRY OF FINANCE

MINISTRY OF FINANCE AND ECONOMIC DEVELOPMENT PLANNING

OFFICE OF THE MINISTER

N°540/………….…/2012

XXV

Objectives

2012 Measures

2013 Measures

2014 Measures18

Target Output Indicators Target Impact

Indicators19 Data Sources

II.1.5 Establishment of a

formal framework to revise

the education curricula to

ensure a closer match

between employment supply

and demand among the

different partners (Ministry of

Basic Education, Ministry of

Higher Education, civil

society and the private sector)

II.2.6 At least 5 curricula are

revised under the formal

framework

The formal framework to

revise the education curricula

is established before end 2012

and 5 curricula are revised in

2013

DS: Copy of the minutes

of formal framework

meetings; Copies of

revised curricula

XXVI

V. PROGRAMME MONITORING

24. The Government will be responsible for monitoring the programme and matrix of measures of the

structural reforms. To do so, it will use the institutional framework set up to monitor and evaluate the

reforms backed by all budget support programmes financed by the technical and financial partners.

25. The inter-Ministerial team includes the focal points of the Ministries of Finance and Economic

Development Planning, Trade, Youth and Sports, the SCEP and the Coffee Sector Committee. The

technical committees focus on the public finance reforms, the business climate and the coffee sector

and youth employment. The Reform Support Unit at the Ministry of Finance and Economic Development

Planning will coordinate the Monitoring Committee, which is composed of members from the Ministries

and Institutions involved in this Programme.

VI. PRELIMINARY LIST OF THE MAIN AREAS TO WHICH FUTURE BUDGET SUPPORT GRANTS COULD BE

MADE

26. PARE-V is the fourth phase of a programme of four budget support grants, which started with the

PAREG. The PAREG defined the programme’s areas of intervention. PARE-II, PARE-II and PARE-IV were

mainly aimed at consolidating and building on reforms initiated under the PAREG, while PARE V will seek to

complete implementation of reforms already initiated under previous programmes. The ADB programme

has been closely harmonized with the budget support programmes of the other technical and financial

partners.

27. Capitalizing on the Government’s continuously satisfactory performance, the ADB, in collaboration with

other technical and financial partners, including the World Bank and the European Commission, should

launch the preparation of a new series of budget support grants to foster implementation of PRSP-II. The

priority actions, which are based on a diagnosis of the country’s problems and priorities, are defined in

PRSP-II.

28. The future programme will comprise different measures in public finance, private sector development

and improvement of youth employment with programmes to ensure a close match between supply and

demand for jobs. Consideration might also be given to mainstreaming of reforms related to transparency in

natural resource management and the revenue it generates, since recent prospecting has revealed that

the country has enormous mining potential.

6.1 PUBLIC FINANCE

29. As regards public finance, medium-term measures will continue to focus on: (i) reform of the

budget process through the introduction of programme budgets, (ii) strengthening of the culture of

performance and budget accountability; and (iii) strengthening of control institutions, and (iv) reform of the

procurement system.

30. As concerns reform of the budget process, the implementing texts of the General Regulations on

Public Budget Management include: (i) the budget procedures manual; (ii) simplification of the expenditure

chain; (iii) the Ordinance on the operation of Expenditure Commitment Comptrollers. Finally, the next

programme could be guided by the recommendations of the ongoing PEFA.

Furthermore, the implementation of these reforms will require capacity building to train Government

personnel on new budget practices.

31. With regard to the strengthening of control institutions, future operations will continue to target

capacity building for both internal and external control. The measures to be implemented will draw on the

recommendations of the study on control conducted in 2011.

32. As for reform of the procurement system, priority could be given to increasing transparency in

public procurement management, as well as gradual upgrading of the national system to ensure

compliance with international standards in order to encourage the use of the national system in

development projects financed with external resources. The focus will be on the publication of

procurement notices in newspapers and on the websites of the Ministry in charge of Finance and the

Procurement Regulatory Agency once it becomes operational.

XXVII

6.2 PROMOTION OF THE PRIVATE SECTOR

33. As concerns the promotion of the private sector, future reforms could target the creation of a legal and

regulatory framework that is more conducive to investment. Potential measures relate mainly to

implementation of the new investment code, the new commercial code or enhancement of the efficiency of

the commercial court and arbitration centres.

34. Reforms could also target the establishment of a consultative framework between the public and

private sectors to which private enterprises attach great importance. Such reforms could specifically relate

to the application of principles instituted through adoption of the Presidential Decree of 2008 to create a

consultative framework between the public and private sectors.

Strengthening of dialogue between the Government and Burundian businesses is critical to ensuring that

Burundi’s private sector benefits from the regional integration process within the EAC. With regard to the

promotion of employment, priority will be given to the establishment of youth-oriented programmes.

35. The private sector could also be promoted by supporting financial sector reform to facilitate greater

access to financing for small and medium enterprises.

VII. CONCLUSION

VII. CONCLUSION

43. Such are some of the policies that will dominate Government action in the years ahead. This

programme, which was discussed with African Development Bank experts, will be very closely monitored by

the authorities. *************************

XXVIII

Annex II Relations with the IMF

Press Release No. 12/35

3 February 2012

IMF Executive Board Approves New US$46.5 Million Extended Credit Facility

Arrangement and US$1.6 Million Disbursement for Burundi

The Executive Board of the International Monetary Fund (IMF) approved on January 27,

2012 a new three-year, SDR 30 million (about US$46.5 million) arrangement for Burundi

under the Extended Credit Facility (ECF) aimed at consolidating the gains made in terms of

macroeconomic stability and further reducing poverty. The approval enables the immediate

disbursement of an amount equivalent to SDR 1 million (about US$1.6 million). The Board's

decision was taken on a lapse of time basis1.

A previous ECF arrangement for Burundi expired on January 23, 2012, following the Board’s

completion on January 13, 2012 of the seventh and final review which allowed the

disbursement of an amount equivalent to SDR 5 million (about US$7.8 million), bringing

total disbursements under that arrangement to an amount equivalent to SDR 51.2 million

(about US$79.4 million – see Press Release No. 12/9).

Economic Outlook

Real GDP growth in 2011 is projected at 4.2 percent, somewhat lower than previously

envisaged, owing to a weakening in aggregate demand related to the food and fuel price

shock and persistent electricity shortages. The overall deficit in 2011 is projected to be 2.5

percent of GDP or 0.5 percent of GDP lower than programmed. Revenue collection through

end-October was about 34 percent higher than in the same period in 2010, as the result of

improvement in revenue administration and better collection of non-tax revenue.

Economic growth is projected to reach 6.0 percent in 2014, supported by improved

productivity and diversification of agricultural activity, and by increased investment in the

electricity and tourism sectors. As a result of a prudent demand policy, inflation is expected

to decline gradually to single digits. In the external sector, exports of coffee and other

agricultural products should increase strongly and offset the expected increase in imports.

Consequently, the external current account deficit is expected to improve and stand at 9.1

percent of GDP in 2014.

However, downside risks remain. Growth could be affected because of the security situation

and the external environment characterized by high petroleum products prices, with

International Monetary Fund

Washington, D.C. 20431 USA

XXIX

negative consequences for inflation and budget execution. Moreover, the euro zone crisis

could increase the uncertainties surrounding budget support.

Program Summary

The program for 2012–14 draws on the lessons from the Ex Post Assessment (EPA) and

builds on the new poverty reduction and growth strategy (PRSP-II). It will seek to

consolidate the gains made in terms of macroeconomic stability from implementation of

previous economic programs and to further assist the government to continue its poverty

reduction policy in the framework of the PRSP-II. The EPA highlighted the importance of

greater exchange rate flexibility to better absorb external shocks, the rebuilding of fiscal

buffers, and the safeguarding of debt sustainability. A key pillar of the new PRSP emphasizes

the transformation of the Burundian economy for sustained growth and job creation by

alleviating key bottlenecks to growth.

The program aims at: (i) further improving tax revenue collection; (ii) strengthening public

financial management and developing a debt management policy; (iii) permitting greater

exchange rate flexibility; and (iv) improving the business climate.

The ECF program dovetails with initiatives of key development partners, in particular the

World Bank in the electricity, education, coffee, and health sectors, the African Development

Bank in infrastructure, bilateral donors in revenue mobilization and governance. The program

envisages consolidating quick wins secured under previous arrangements such as social

safety net programs in the health and education sectors.