Burundi emerges from civil conflict to a brighter future

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Decades of political instability and civil conflict severely undermined Burundi's institutional and productive capacity. But today, according to a recent IMF country study, Burundi is looking to a brighter future as it works toward securing macroeconomic stability and implementing structural reforms to boost economic growth and reduce poverty.

Burundi was taking its first steps toward democracy when a coup d'état erupted in 1993. The protracted civil conflict that ensued devastated the economy (see Chart 1). As security degenerated, large numbers of people were displaced, economic activity dropped sharply, and donors reduced their financial assistance. A blockade imposed by neighboring countries in 1996 led to even more intense economic restrictions.

Between 1993 and 2005, real income per capita in Burundi dropped by almost half-to about $110 a year-and the poverty rate reached almost 60 percent in 2001. According to the United Nations Development Program, Burundi is now one of the least developed countries in the world. By 2000, financial imbalances had widened, the external debt had become unsustainable, and the state's heavy participation in the economy had severely weakened the productive sector. Total factor productivity declined steadily between 1993 and 2000, especially in agriculture, which accounts for roughly half of Burundi's GDP.

The poor performance of public enterprises, exacerbated by falling international commodity prices in the late 1990s, led to large financial losses, external and domestic payments arrears, and decapitalization of crucial agricultural production in crops such as coffee, which accounts for 80 percent of exports. These losses worsened Burundi's fiscal situation, even as an accumulation of nonperforming loans weakened the financial system.

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Burundi faces key challenges of boosting growth and raising social spending

A recent economic review by the IMF focused on the key challenges to launching the economy on a higher growth path and raising social spending to achieve the Millennium Development Goals. The program, supported by the IMF's Poverty Reduction and Growth Facility, was on track in 2005, although growth fell short of target, largely because of a poor coffee harvest and drought in the north. Inflation fell...