BY Avit Ndayiziga
Amidst the deteriorating economic situation in Burundi, public debt surged to BIF 6,150.8 billion in 2023 from BIF 5,187.4 billion in 2022, compounding the challenges. Economists attribute this escalation to the rise in state expenditures.
Burundi’s economy continues to decline as public debt steadily accumulates. As per the November 2023 Report of the Monetary Policy Committee released by the Central Bank of Burundi (BRB), heightened state expenditures have led to a significant increase in public debt.
By September 2023, the domestic debt had risen by 12.2 percent to reach BIF 4,355.2 billion, up from BIF 3,882.4 billion in 2022, constituting 70.8% of the total public debt.
According to the report, external debt increased by 37.6%, climbing from 1,304.9 billion BIF to 1,795.5 billion BIF, resulting in an average public debt increase of 18.6 percent.
The total public debt has surged to 61.0 percent from 56.4 percent in the previous year, exceeding the maximum limit of 50% of GDP set in the East African Community’s macroeconomic convergence criteria. This development poses a threat to the economy and debt sustainability.
The domestic debt has mainly originated from treasury securities and advances from the Central Bank, while the external debt resulted from the exchange rate adjustment implemented on May 4, 2023. The draws totaled BIF 30,800.7 billion, with a debt amortization of BIF 54,977.5 million.
The exchange rate adjustment has subsequently exerted pressure on the domestic currency, leading to a general inflation of 27.2 percent. As a result, this inflation has caused a trade deficit of BIF 640,470,0 billion, creating a significant disparity between imports totaling BIF 803,978,5 billion and exports amounting to only BIF 163,508,5 billion.
Unfortunately, in the last three months (from July to October 2023) following the adoption of the Budget program, the budget deficit surged to BIF 219,191.1 billion, compared to BIF 86,776.4 billion during the same quarter in 2022.
An excessive increase in state expenses of BIF 194,131.1 billion over BIF 61,716.4 billion of revenue fueled the budget deficit. To offset the deficit, the government resorted to a domestic net debt of BIF 110,995.4 billion.
This situation has resulted in an economic crisis, sparking diverging opinions among the head of state, economists, and other experts on the root causes.
Evariste Ndayishimiye, the president of Burundi, says the devil in Burundians is the root cause of economic crisis.“We do not know which devil has bewitched Burundi and halted its development. Every time we initiate a development project, the devil arises and blocks it. Thus, we should fervently pray to cast out the devil that hinders Burundi’s development.” Called on Ndayishimiye.
However, economists and experts disagree, stating that attributing blame to the devil suggests that the government has exhausted its solutions. “Praying to God to cast out the devil and reverse the dire economic situation is irrational. He and his government should address the root causes of the main economic crisis instead of attributing blame to the unknown,” they emphasized.
André Nikwigize, an economist and president of Partners for Peace and Prosperity, highlights that the escalating public debt places a strain on domestic banks and impedes economic growth. He notes that the 65% surge in state expenditures outlined in the 2023-2024 state budget was bound to lead to a substantial increase in public debt.
“It comes as no surprise to me that, within the East African Community partner states, no country has dared to escalate state expenditures by such a significant margin. I had foreseen that the budget would inundate Burundi’s economy with a marked rise in public debt, particularly domestic debt, to meet daily expenses. Unquestionably, this has materialized as we predicted, with a domestic debt of BIF 110,995.4 billion within the initial three months of operations,” he emphasized.
The economist emphasized that the lack of careful monitoring of domestic debt leads to detrimental outcomes such as refinancing and over-indebtedness.
“Inadequate oversight of the domestic debt portfolio results in refinancing, leading to the issuance of public securities at high rates. Moreover, it poses the risk of over-indebtedness and may ultimately crowd out the private sector,” he concluded.
Supporting him, Faustin Ndikumana, leader of PARCEM, a Burundian civil society organization dedicated to promoting good governance, combating corruption, safeguarding human rights, and fostering economic development, emphasizes that the mounting public debt, devoid of tangible development projects but laden with expenses, poses a significant obstacle to progress and jeopardizes the future. “It is alarming how the country continues to accumulate debts without implementing tangible projects. The lack of infrastructure such as roads and hospitals, along with fuel shortages and dwindling foreign currency reserves, presents a significant threat to our sustainable future,” lamented Ndikumana.
According to the IMF report, Foreign currency reserves have declined, reaching US$ 59.7 million (about 0.5 months of imports) in mid-September (from 1.3 months of imports in end-March 2023), driven by the import bill and delayed gold sales.
However, Ndikumana expressed regret over the non-functioning state of the Court of Audit, as it allows officials to misuse public funds without accountability as stipulated by the constitution. “The inactive Court of Audit has enabled government officials to be complicit in the misuse of public funds, leading to a significant increase in public debt without concrete actions. This is concerning as the Court of Audit is the sole entity capable of thoroughly auditing how governmental institutions manage their allocated budgets.” Ndikumana also highlighted that the current state budget program is set to disburse BIF 247 billion as interest from accrued debts. When combined with the existing budget deficit of 728.9 billion BIF, this situation must lead Burundi into an economic pitfall, he concluded.
Gabriel Rufyiri, president of OLUCOME, a corruption watchdog association, emphasizes that the rise in public debt is attributed to insufficient law enforcement in combating corruption. “We are surprised that Burundi has established a police bureau to combat corruption, yet this body lacks the necessary budget to operate. Besides, the existing anti-corruption laws are inadequate as they do not address the accountability of high-ranking government officials. When prominent figures engage in corruption, there are no laws to hold them accountable.” Rufyiri warned, calling for the government to implement a culture of transparency.
Following the Report of the Monetary Policy Committee revealing that state overspending has led to a surge in public debts, Minister of Finance, Budget, and Economic Planning Audace Niyonzima presented the Budget execution report for the first quarter of 2023-2024 during the Council of Ministers on Wednesday, December 12, 2023. The report indicated that first-quarter revenue fell short, reaching only 3.80% compared to initial forecasts. Additionally, expenditure execution reached 48.9% of the first quarter ceiling by the end of September 2023, with expenditure commitment reaching 94.2%. Consequently, this led to the accumulation of domestic debt to cover the budget deficit.
The council of ministers, led by President Evariste Ndayishimiye, has chosen to address the budget deficit by revising the state budget.
To offset the budget deficit, the government aims to boost revenues. This can only be achieved if the Burundian Revenue Authority (OBR) digitizes its services and strengthens its control and verification mechanisms. According to the new plans, digitalization is seen as a sustainable solution, given the significant gap between the amount of imports and collected taxes highlighted by the president.
To cut expenses, the Council of Ministers has proposed the cancellation of public procurement activities requiring payment in foreign currencies, opting instead to reschedule them for 2024-2025.
The third and fourth-quarter activities scheduled for the operation of OBUHA and ARB, except for salaries, will be canceled to utilize the funds in their bank accounts first.
The activities planned for the third and fourth quarters for FONIC will be canceled, except for salaries, for FONIC to utilize the credit in its bank account first.
Despite efforts to reduce public debt, Andre and Faustin remain dissatisfied, citing unnecessary but costly activities such as the annual prayer of grace and extensive international visits by the head of state, questioning their economic impact.