Burundi at high risk of debt distress - CNBC Africa

Burundi at high risk of debt distress

East Africa

by Trust Matsilele 0

Burundi's President Petero Nkurunziza has been battling to rescue the country from a risk of a debt distress. PHOTOS: Ikazeiwacu

Burundi continues to be at a high risk of debt distress, and it will be important that any future borrowing be done on a concessional basis, the IMF has said.

The International Monetary Fund said achieving debt sustainability will help anchor fiscal policy in the medium term.

(READ MORE: Burundi’s inflation declines to 3.5% in October)

“Passage of the law on public debt, which would provide a legal framework for debt management, would be important. In this regard, better domestic debt management, notably by aligning the issuance of government securities with government’s financing needs, will help prevent recourse to central bank financing and the buildup of arrears,” said the fund.

According to the fund, economic growth is estimated to have picked up slightly in 2014, while inflation declined markedly, aided by falling international fuel prices and prudent monetary policy.

The fund also added that the near-term economic outlook remains challenging, and prudent policies will continue to be needed in the face of uncertainties in the external environment, and in the run-up to the 2015 national elections.

“The 2015 budget provides an adequate basis for fiscal policy in the current election year, and should be implemented with vigilance. Revenue slippages that emerged in early 2014 were addressed through corrective revenue measures, and are expected to have a lasting, positive impact on revenue performance,” said the fund.

“Strengthening tax administration and improving the coordination between tax policy design and its implementation will be critical to increasing the tax-to-GDP ratio on a sustainable basis.”

The fund urged the government to strengthen public financial management so as to enhance efficiency and mitigate fiscal risks.

“Efforts are needed to improve cash management by the Treasury and strengthen expenditure controls, while safeguarding pro-poor spending," added the IMF.

(READ MORE: IMF hails Burundi’s ECF as broadly satisfactory)

“Underlying inflation has declined significantly in recent months and low international food and fuel prices will help keep inflation at bay. Nevertheless, it will be important for monetary policy to continue to focus on supporting a low-inflation environment. Financial stability should be strengthened through enhanced banking surveillance, and current plans to establish a credit bureau and a collateral registry.”

The IMF said a strengthened pace of structural reforms was key to boosting Burundi’s external competitiveness, mobilise private sector investment, and lift Burundi’s growth potential.

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