View metadata, citation and similar papers at core.ac.

uk brought to you by CORE

provided by Danubius University, Romania: Danubius Journals

ISSN: 2065-0175 ŒCONOMICA

The Dynamics of Fiscal Deficits in Burundi:

An Exploratory Review

Joseph Mawejje1, Nicholas M. Odhiambo2

Abstract: The major objective of this study is to undertake an exploratory review of fiscal deficits in
Burundi during the period 1980 – 2017. Burundi emerged from conflict with large state and
peacebuilding challenges, and extreme institutional and socio-economic deficits. Many years of
conflict affected Burundi's productive capacity, policy and institutional capacity, and the ability to
make meaningful public investments. While the country has undertaken various fiscal policy reforms,
revenue growth has been lower than anticipated, and little progress has been achieved in improving
public expenditure efficiency. Consequently, fiscal deficits remain large as a percentage of GDP. The
study approach considers a systematic review of literature, reforms, and trends. Findings indicate that
the major factors contributing to the persistently large fiscal deficits in Burundi include the following:
low and volatile economic growth, small economic base with low incomes, large informal economy,
and dominance of the primary sectors. In addition, conflict and fragility, large expenditure on military
and peace operations, as well as dependency on aid have been identified as major determinants of
fiscal deficits in Burundi. The authorities in Burundi should put in place strategies for operating a
fiscal policy that is consisted with sustainable fiscal balances and maintenance of sustainable levels of
public debt in line with the East African Monetary Union convergence criteria. To the best of the
authors’ knowledge, this is the first paper to provide a systematic review of the fiscal policy trends
and reforms in Burundi.
Keywords: Fiscal policy; revenue; expenditure; conflict; Burundi
JEL Classification: E62; E62

1. Introduction
Burundi's macroeconomic performance has been invariably shaped by its failure to
emerge from recurring cycles of internal political conflict (Nkurunziza and
Ngaruko, 2008). Consequently, Burundi's economy has been characterised by
fragility and instability since its independence in 1962. Overall, Burundi remains
one of the poorest countries in the world and lags on many human development

1 PhD in progress, Department of Economics, University of South Africa, Address: P.O Box 392,
UNISA, 0003, Pretoria, South Africa, Corresponding author: [email protected].
2 Professor, PhD, Department of Economics, University of South Africa, Address P.O Box 392,

UNISA, 0003, Pretoria, South Africa, E-mail: [email protected]/[email protected].

AUDŒ, Vol. 15, no. 5/2019, pp. 181-195
181
ACTA UNIVERSITATIS DANUBIUS Vol 15, no 5, 2019
indicators. Poverty is ubiquitous. The World Bank estimates that close to 73 per
cent of Burundians lived below the international poverty line of US$1.90 per day in
2014, nearly double the average for Sub Saharan Africa and other low-income
countries (World Bank, 2018). With these development challenges, Burundi needs
to realign fiscal policy to address growth, fragility, and vulnerability. However,
fiscal space has been constrained by a combination of low economic growth,
climate change induced natural disasters, and conflict that affected productivity
(World Bank, 2018). With a low economic base and high military expenditures, the
country has often found itself in fiscal crises, with rising fiscal deficits and large
macro-fiscal imbalances (Ndikumana, 2001).
Many years of conflict have affected Burundi's productive capacity, policy and
institutional capacity, and the ability to make meaningful public investments. These
challenges resulted in an inability to mobilise sufficient revenues, low budget
execution capacity, leading to recurring cycles of low growth. With a narrow
economic base and limited potential for revenue mobilisation, the country did not
have enough fiscal space to meet the large expenditure needs arising out of the
large reconstruction needs, often leading the country to rely on inflation tax
(Nkurunziza 2005). With weak institutions and governance structures, fiscal policy
played a limited role in the resource mobilisation and allocation that would have
facilitated a better economic trajectory. Fiscal deficits have traditionally been high
in Burundi, although their magnitude has varied widely through the period of
analysis. Grants, which averaged 17.3 per cent of GDP during 2010 – 2017, have
increasingly played a major role in meeting the financing needs of the country.
Real GDP per capita growth has been low, constrained by low productivity and a
high population growth rate. Consequently, improvements in incomes per capita
have been minimal. Indeed, absolute real incomes per capita have been declining
for the last three decades. Specifically, GDP per capita declined remarkably during
the period 1990 – 2005, dropping by 35 per cent to $220 from $ 340 and only
recovered slightly until 2014 when it reached a value of $244, before starting to
declining again (figure 1). This drop highlights the effects of the conflict which
eroded the productive capacity or the country, leading to loss of production bases.
The current account has been deteriorating, reflecting underperformance in the
export sector, which is dominated by coffee and other primary commodities.
Military expenditure relative to the size of the economy is high and rose
substantially during the conflict years during 1990 – 2010.
Economic growth remains volatile due to dependence on the widely fluctuating
agricultural sector, which constitutes about 46 per cent of GDP. Earlier studies
have highlighted the country's vulnerability to exogenous shocks related to
commodity exports, rain-fed agriculture, and volatile foreign aid (World Bank,
2013; Lim and Rugwabiza, 2009). However, Burundi's measured agricultural
182
ISSN: 2065-0175 ŒCONOMICA

sector is dominated by coffee, and the volatility in coffee prices account for recent
variations in growth, export performance and government receipts, which affect
government finances. As an example, it is estimated that the 2005 drought limited
real GDP growth to only 0.9 per cent (World Bank 2014). However, the economy
has been more diversified recently, with the service sector, which accounts for 37
per cent of GDP, beginning to recover mainly due to growth in public services and,
to a lesser extent, in the transport and trade sub-sectors. Burundi's industrial sector,
which contributes about 17 per cent of GDP, is dominated by agricultural
processing.
Despite the return of steadier growth and increases in external financing, large
fiscal deficits (including grants) persisted, averaging 18 per cent of GDP during
2010 - 2017. Revenue raising efforts remained erratic even as the government
increased spending on service delivery and expanded the public service. The
situation was often not helped by policy inconsistencies and reversals, including
failure to streamline tax subsidies and to broaden the tax base. To restore the fiscal
base and improve tax collection, the Burundi Revenue Authority (OBR) was
established in 2009. Further reforms intended to strengthen budget transparency
and integrity included the creation of a court of audit, adoption of modern budget
laws, and introduction of a single treasury account. These reforms, discussed in
greater detail in the following section, were expected to improve fiscal outcomes
and transparency in fiscal management in Burundi. The rest of the paper is
structured as follows: section two discusses the fiscal policy reforms in Burundi.
Section three presents the trends of fiscal deficits during the period 1980-2016.
Section 4 discusses the determinants of fiscal deficits. Section five concluded.

2. Fiscal Policy Reforms in Burundi

The authorities in Burundi have undertaken various reforms intended to improve
the fiscal position of Government. These reforms have focused on creating fiscal
space for growth-enhancing investment by improving revenue and expenditure
management, as well as overall budgetary quality and credibility. These reforms
started with the structural adjustment program which broadly sought to improve
production incentives by opening up the economy to market forces, promote
private sector development, and increase the efficiency of fiscal policy. Five areas
were targeted, and these included: public expenditure management; public
enterprise reform; trade, industrial, and credit policies; agriculture; and labour
policy and the social sectors. Second generation reforms included improving
efficiency in expenditure and raising more domestic revenue.

183
ACTA UNIVERSITATIS DANUBIUS Vol 15, no 5, 2019

2.1. The Structural Adjustment Program

The coffee boom starting in the early to mid-1970s had led to a period of relatively
good performance and growth. During this period, Burundi also benefitted from
increased foreign aid. However, starting in 1981, Burundi's economy faced serious
economic and financial difficulties. Terms of trade shocks, caused by a decline in
international coffee prices, oil price increases and weak capacity to oversee any
meaningful adjustment policies, led to large budget deficits and a deteriorating
balance of payments position (World Bank, 1988).
Faced with growing macro-fiscal imbalances, the Government took some
adjustment measures at the end of 1983. The Burundi Franc was depreciated by 30
per cent against the U.S. dollar; producer prices of the main export crops were
increased significantly; some tax rates were raised; public wages were frozen; and
an effort was made to control both recurrent and capital expenditures policies
(World Bank, 1988). In recognition of the serious economic consequences that
could result from failure to correct the financial imbalances, the Government
embarked in 1985 on the preparation of a major program of economic reforms. The
program aimed at redressing the main financial imbalances, accelerating economic
growth, diversifying the country's productive base, and reducing the economy's
dependence on coffee.
With the assistance of the World Bank and the International Monetary Fund,
preparation for the first Structural Adjustment Program began in May 1985, and
the first measures were implemented in mid-1986. The government adopted a
wide-ranging set of economic reforms broadly consistent with three major
objectives: (i) reducing the budget deficit (ii) maintaining a sustainable balance of
payments position; and (iii) containing inflation to about 5-6 per cent a year; and
(iv) increasing credit to the private sector. The medium-term structural adjustment
program was geared towards rationalising the incentive system through
liberalisation of the economy and improving efficiency in resource allocation and
utilisation.
With these reforms, the government aimed to achieve an average real GDP growth
of 4 per cent per year, based on improved agricultural performance and expansion
of the industrial sector. The domestic savings rate was expected to increase from 4
per cent in 1982-85 to 6-7 per cent during 1986-90, and the private sector was
expected to emerge as the new engine of investment and growth. In the process, the
Government implemented major changes in trade and industrial policies and took
important steps to strengthen public expenditure management and rehabilitate the
public enterprise sector.
These reforms were largely successful. The overall financial position of the
government improved with revenues increasing by about 20 per cent in nominal
184
ISSN: 2065-0175 ŒCONOMICA

terms and expenditures by 9 per cent. Subsequently, the overall deficit (on a cash
basis and excluding capital grants) declined from 9.4 per cent of GDP in 1985 to
7.5 per cent in 1986. The balance of payments position improved as well, with the
current account deficit reducing to 5.6 from 7.4 per cent of GDP per cent.
However, coffee exports were adversely affected by lower-than-expected average
prices and by transportation and marketing problems which prevented Burundi
from exporting all its coffee production. Therefore, overall improvements in the
external position were less favourable than envisaged under the Government's
program. Foreign exchange reserves increased to 2.5 months of imports at the end
of 1986, nearly twice the level at end-1985, but lower than the 4.5 months
estimated under the program. The debt service ratio, as a proportion of exports of
goods and non-factor services and private transfers, rose to 22.1 per cent, compared
with the 16.3 per cent programmed, reflecting the weaker export performance
rather than an increase in short-term debt.
In addition, the necessary steps were taken to improve the management of public
expenditures. The first three-year rolling public expenditure program (PEP) was
prepared in 1988, and the capacity to prepare and appraise projects was
strengthened with World Bank support. The PEP focused on three pillars, meant to
improve the overall environment for macroeconomic and fiscal policy
management. These were: (i) accelerate the preparation of a comprehensive PEP
(1989-91), paying attention to the economic justification of major projects and the
adequate allocation of recurrent expenditures to priority programs; (ii) move into a
single consolidated budget and improve the accounting system of the Ministry of
Finance; and (iii) strengthen the project implementation and follow-up process.
2.2. Tax Policy Reforms in Burundi

The major reform in Burundi's reforms involved creating a semi-autonomous

revenue authority (SARA). Subsequently, the Burundi revenue authority, officially
known as the Office Burundais des Recettes (OBR), was established in 2009 by an
act of parliament, under Article 6 of Law Number 1/11. Although the OBR is the
agent for tax collection, the Ministry of Finance determines the tax policy. In the
same year, the VAT was introduced, replacing the transactions tax (Ndoricimpa
2017). At the same time, a number of reforms were undertaken within the OBR in
the years that followed its creation. These included: investment in IT systems,
efforts to widen the tax base, and a drive to professionalize customs operations at
the borders. With these actions, the creation of the tax authority was immediately
successful. By 2012, taxes collected by the revenue authority rose to more than
USD 350 million, 75 per cent more than in 2009 in real terms. Consequently, the
contribution of tax revenues to GDP was 16.7% against 13.8% in 2009 (Holmes
2013).

185
ACTA UNIVERSITATIS DANUBIUS Vol 15, no 5, 2019

2.3. Budgetary and Expenditure Reforms

The budgetary and expenditure reforms started with the adoption of the interim
poverty reduction strategy paper in 2003, supported jointly by the World Bank and
the International Monetary Fund. At the time, Burundi was emerging from conflict
with huge state and peacebuilding challenges, and extreme institutional and socio-
economic deficits. Focus was on promoting peace and good governance,
reintegrating victims of conflict, ex-combatants, and their families; promoting
sound economic growth to reduce poverty; expanding access to basic social
services; prevention and mitigation of HIV/AIDS and other sexually transmitted
diseases (STDs); and advancing the role of women in development (World Bank
2004).
Building on the interim PRSP, the first poverty reduction paper was published in
2006. While the implementation of the first PRSP brought remarkable progress in
terms of macroeconomic stability and access to basic social services, the general
pace of economic growth remained low and did deliver the expected poverty
reduction dividend. In addition, the repercussions of the 2009 international
economic and financial crisis greatly frustrated the efforts of the government,
which had been forced to contend with previous shocks – the 2006-2007 energy
crisis and the sharp rise in prices of staples from 2007-2009 –whose effects were
still felt (World Bank 2007). A second PRSP was published in 2012 with a focus
on growth and job creation as a basis for future poverty reduction programs (World
Bank 2012). The development of the Growth and Poverty Reduction Strategy
Papers, as well as focus on implantation of the Millennium Development Goals
(MDGs) marked a significant turning point in the formulation of spending plans
and constituted the basis of the first Priority Action Plan (PAP 2007-2010) for
short-term and medium-term development (GoB, 2011).
The authorities in Burundi enacted a budget law in 2008. Rules on commitments
were tightened and exception public spending procedures, which were used widely
in the past, were brought under control. With these developments, most of the
existing extra-budgetary accounts were closed or integrated into standard budget
documents. The level of unreported extra-budgetary expenditures does not exceed
5 per cent of total expenditures. Consequently, budget execution rates improved
significantly, rising from 81.4 per cent in 2006 to 97.6 per cent in 2013, with
development spending showing the largest improvement, increasing from 45.9 per
cent in 2006 to 85.4 per cent in 2013 (World Bank 2015).
The introduction of the Integrated Financial Management Information System
(IFMIS) in 2006 improved budget monitoring and internal control systems.
Following these reforms expenditure commitments were aligned with projected
cash flows with the setting up of commitment ceilings for each line ministry on a
quarterly basis. Internal budgetary controls were further improved in 2012 with the
186
ISSN: 2065-0175 ŒCONOMICA

appointment of controllers of committed expenditures in three pilot ministries,

including in health, education, and agriculture (World Bank 2013).
Authorities in Burundi gradually introduced the Medium-Term expenditure
framework (MTEF), aligning the PRSP priorities to the budget. Starting in 2011,
the central MTEFs consistent with the macroeconomic framework are used in the
preparation of the budget. This involves making three-year forecasts of fiscal
aggregates on a rolling annual basis through the central MTEF and Medium-Term
Budgetary Framework (MTBF). As a result of these initiatives, the composition of
public expenditure has significantly improved toward priority sectors, including
education, health, and agriculture (World Bank 2013). Medium-term budgeting
was introduced through the 2012 Decree on Budgetary Governance, based on three
documents: The Medium-Term Budgetary framework (MTBF), the Medium-Term
Financial Framework (MTEF) and the Background to the Budget (UNICEF, 2017).
Table 2 summarises the key fiscal policy reforms undertaken in Burundi since
1980.
On the basis of the extensive reform agenda that was undertaken by Burundi
authorities, the country was awarded in January 2009 HIPC debt relief worth USD
832 million (Specker et al. 2010). Despite these reforms, many challenges for
prudent fiscal management remain, especially in the area of cash management,
public accounting, and external budget control. The Treasury Single Account was
introduced starting from 2010, starting a process of consolidating and unifying
government's banking arrangements to ensure that transfers are easily traceable,
and enabling the Ministry of Finance to monitor the government's cash flows
better. However, the process of effectively integrating all relevant accounts and of
creating safeguards against the creation of new separate accounts was much slower,
limiting progress on short-term cash management (World Bank 2013). As a result,
weaknesses persist in the execution and control of the expenditure chain, with
significant accumulation of arrears (IMF 2014). While a consolidated Government
statement is prepared annually, with information on revenue and expenditure, the
public accounting information remains weak with account balances often
incomplete.

187
ACTA UNIVERSITATIS DANUBIUS Vol 15, no 5, 2019
Table 1. Summary of Key Fiscal Policy Reforms in Burundi

Source: Author review of literature

On the basis of the extensive reform agenda that was undertaken by Burundi
authorities, the country was awarded in January 2009 HIPC debt relief worth USD
832 million (Specker et al. 2010). Despite these reforms, many challenges for
prudent fiscal management remain, especially in the area of cash management,
public accounting, and external budget control. The Treasury Single Account was
introduced starting from 2010, starting a process of consolidating and unifying
government's banking arrangements to ensure that transfers are easily traceable,
and enabling the Ministry of Finance to monitor the government's cash flows
better. However, the process of effectively integrating all relevant accounts and of
creating safeguards against the creation of new separate accounts was much slower,
limiting progress on short-term cash management (World Bank 2013). As a result,
weaknesses persist in the execution and control of the expenditure chain, with
significant accumulation of arrears (IMF 2014). While a consolidated Government
statement is prepared annually, with information on revenue and expenditure, the
public accounting information remains weak with account balances often
incomplete.

3. Fiscal Deficit Trends in Burundi

Fiscal deficits have varied widely during the period of study, but the trends
provided in figure 2 suggest four distinct periods of note. The first period
corresponds to the ten years during 1980 – 1990. The second period corresponds to
the six years during 1991 – 1995. The third period corresponds to the five years
188
ISSN: 2065-0175 ŒCONOMICA

during 1996 – 2000. The fourth period corresponds to the period during 2001 –
2017.
The period during 1980 – 1989 represents Burundi's best performance. Fiscal
deficits, which averaged 15 per cent of GDP during this period, were low and
stable. At the same time, GDP performance was high but volatile, reaching 12 per
cent between 1981 and 1985. During this time, fiscal deficits were contained
partly due to a slowdown in public investments, as well as due to the structural
adjustment measures undertaken starting from 1983 (World Bank 1988). Overall,
the government financial position improved with expenditures declining from 31
per cent of GDP in 1980 to 25 per cent in 1988. Consequently, the fiscal deficit
declined to 7 per cent of GDP from 14 per cent of GDP over the same period.
During the period 1991 – 1996, fiscal deficits widened rapidly as government
expenditure accelerated. This period coincided with the onset of the civil war in
1993 which led to a rise in peace and military spending to an average of 3.8 per
cent of GDP from an average of 2.9 per cent of GDP during 1985 – 1990. At the
same time, the civil conflict led to near total destruction of the social and economic
infrastructure. Owing to the effects of conflict, real economic growth rates were
negative and averaged -3.2 per cent during that period.

80

60

40

20

0
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016

-20

-40 Fiscal Deficits Tax revenue Expenditure

Figure 1. Trends in Government Revenue, Expenditure, and Deficits (% GDP)

Source: Author construction using World Bank, IMF, and ICTD datasets

During the period 1995 – 2000, the fiscal position improved somewhat, even as
revenues declined from 21 per cent of GDP in 1995 to 18 per cent in 2000. The
decline in revenues was offset by a corresponding decline in expenditures from 38
per cent of GDP in 1995 to 30 per cent, with the overall effect being that the
overall government fiscal balance improved by five percentage points from -16 per
cent of GDP to -11 per cent of GDP.
189
ACTA UNIVERSITATIS DANUBIUS Vol 15, no 5, 2019
During the period 2001 - 2017, the fiscal deficit widened considerably despite
improved revenue performance. The Arusha Peace agreement signed in 2000 had
led to a period of relative peace following a debilitating conflict. However, new
fiscal pressures soon emerged including efforts to resettle and reintegrate refugees
(IMF 2014). At the same time, increased expenditure pressures arose from
government efforts to demobilize and reintegrate former combatants into the
national security forces as well as a reconstruction agenda that focused on poverty
reduction and social service delivery (Ndoricimpa 2017). Consequently, current
expenditure on salaries increased as the civil service expanded. Between 2005 and
2010 expenditure on salaries increased by more than 80 per cent in real terms as
the number of civil servants increased by more than 50 per cent (IMF 2011).
Efforts to increase revenues did not match the increase in expenditure, despite
efforts to widen the tax base and improved tax revenue effort. The fiscal deficit
excluding grants widened from 11 per cent of GDP in 2008 to 27 per cent of GDP
in 2008, before starting to decline as the country embarked on fiscal consolidation
reforms.

4. The Determinants of Fiscal Deficits in Burundi

The main drivers of fiscal deficits in Burundi are related to the conflict and the
political turmoil that perpetuated large military and security expenditures and to the
structure of the economy with a large informal economy and low per capita
incomes. These factors can be summarized as structural factors, policy and
institutional factors, and the effects of civil war. In a persistently fragile political,
economic, and social environment, military expenditures have necessarily and
historically been high in Burundi, crowding out investments in the rest of the
sectors. While this meant that economic growth was much slower, it also resulted
in increased reliance on official development assistance to meet the investment
gaps in the social sectors and basic infrastructure (Nielsen and Madani 2010). With
a low economic base, sources of domestic revenue were always meagre. These
factors largely explain the evolution of fiscal balances in Burundi.
In the 1980s and early 1990s, Burundi experienced large budget deficits. In the ten-
year period Between 1980 - 1989 fiscal deficits averaged 15 percentage points of
GDP. During the ten-year period between 1990 – 1999 fiscal deficits decreased,
averaging 19.58 percentage points of GDP, with these deficits reaching 33.1
percentage points of GDP in 1992 before gradually declining and reaching 12.87
per cent in 1999. To meet higher spending, the government authorities often
resorted to higher monetary financing of the deficit and keeping interest rates
artificially low to ease government borrowing from the banking sector (IMF 1997).
The monetization of the deficit often added upward pressure on prices, which were
190
ISSN: 2065-0175 ŒCONOMICA

already under pressure from supply-side constraints due to bottlenecks in

production and international trade.
Burundi embarked on compressive structural adjustment policies in 1991 aimed at
strengthening economic performance and restoring macroeconomic stability.
However, the reforms were short lived as the country plunged yet again into
political turmoil following the assassination of President Ndadaye in 1993. The
macroeconomic instability that followed led to a sharp pressure on prices, with
inflation increasing from 7 per cent in 1990 to 31 per cent in 1999 and remained in
double digits up to 1998. Military expenditure, which had averaged 3 per cent as a
percentage of GDP during 1980 – 1989 rose and averaged 4.77 per cent during
1990 - 1999. The dire macroeconomic situation was exacerbated starting in 1996
when Burundi's regional neighbouring countries and the international community
imposed a total economic embargo on the country following a military coup. By
the year 2010, the fiscal deficit had soared to 26.10 per cent, mainly on account of
high military expenditures, low economic growth, and a limited base for domestic
revenue mobilisation.
The Government's prudent fiscal policy led to the reduction of fiscal deficit to
about 14.2 per cent of gross domestic product (GDP) on average during the five
years from 2013 to 2017. According to the World Bank (2018), a series of
measures contributed to this performance, including the improvement of the
allocation of the budget (efficiency) toward growth and poverty reduction sectors
and progress toward controlling the size of the wage bill (civil services and army
forces) and purchases of goods and services through the budget. In a context of
gradually declining aid, another important measure was domestic revenue
mobilisation reforms through the creation of the Burundi Revenue Office (Office
Burundais des Recettes, OBR). Monetary and exchange rate policy by the Central
Bank were also critical to keep the inflation in check and promote exchange rate
flexibility to mitigate the impact of shocks on the economy (World Bank, 2018).
Ndikumana (2001) argues that Burundi runs high public deficits because of the low
tax base and institutional weaknesses that constrain tax revenue mobilisation.
Moreover, conflict and ethnic tensions disrupt economic activity, eroding the tax
base, lead to misallocation of the budget, including increased expenditures on the
military and security sectors, and weaken state capacity, and drive including in
fiscal policy management. These factors lead to the deterioration of fiscal deficits
Ndikumana (2001). Figure 3 shows that fiscal deficits have been procyclical,
reducing during economic downturns, and rising during the period of positive
economic growth.
Growth has been consistently low, and this has affected fiscal policy in Burundi.
Unfortunately, Burundi's immediate post-colonial history was dominated by
military dictatorships. During the period 1960 – 2000, Burundi's GDP per capita
191
ACTA UNIVERSITATIS DANUBIUS Vol 15, no 5, 2019
fell from about 620 dollars to 370, signifying the debilitating effects of conflict.
Consequently, Burundi remains one of the poorest countries in the world and lags
its East African neighbours. Average per capita consumption is only US$270 per
year, placing Burundi at the bottom of the low-income category (World Bank
2018). Poor governance has suffocated innovation and entrepreneurship, frustrating
sector development and diversification of the economy. Moreover, the creation of
state-owned public enterprises that were badly governed created additional layers
of corruption, bureaucratic expansion, and predation that benefited from the public
resources, which affected budget deficits (Nkurunziza and Ngaruko 2002).
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
15
5
-5
-15
-25
-35

Fiscal Deficit, % GDP Growth, % annual

Figure 2. Fiscal Deficits And Growth In Burundi, % GDP

Source: Author Construction Using World Bank, IMF, and ICTD Datasets

The Ministry of Finance and Economic Development Planning oversees fiscal

policy development and implementation. The budget is the main tool for fiscal
policy implementation as it lays down the revenue and expenditure plans and
priorities, as well as sources of revenue. One of the major challenges in Burundi
has been the management of public expenditures. According to Ndikumana (2001),
fiscal policy in Burundi has been shaped by three factors: the structure of the
economy, policy and institutional factors, and the effects of civil war.
The two major structural factors that constrain tax revenue mobilisation in Burundi
are related to the level of development with low levels of development with low
per capita incomes, a large informal economy, and dominance of the primary
sectors. In Burundi, incomes are so low that taxation without discouraging
consumption, savings, and investment is difficult. With the services sectors
dominated by small, informal, and unproductive firms, the manufacturing and
agricultural sectors are the key sources of tax revenue. Taxes on good and services,
which constitute over 50% of total tax revenue have continued to play a major role
(table 3). The experience of Burundi is consistent with recent research which
shows that countries that operate closer to their tax potential have high levels of

192
ISSN: 2065-0175 ŒCONOMICA

income, large shares of non-agricultural output, smaller shares of rural populations,

and low corruption scores (Fenochietto and Pessino, 2013; Mawejje and Sebudde,
2019).
However, the importance of trade taxes is gradually diminishing as domestic taxes
start to play an important role. This has been made possible by the reforms,
including the institution of the Office Burundais des Recettes (OBR) which is
mandated with collecting domestic revenue, improving efficiency and ensuring
compliance in tax administration. In addition, the shift of domestic revenue from
international trade reflects the effects of trade liberalization characterized by a
systematic decline in tariff rates, particularly for products originating from within
Burundi's regional trading blocs.
The third factor that contributes to the fiscal revenue crisis in Burundi is the civil
conflict which has disrupted economic activity, trade, and led to the erosion of the
tax base. The economic sanctions on Burundi following the 1996 military coup
had severe effects on government revenue by reducing the volume of international
trade. Recent research shows that that government changes during periods of
conflict are related to steep rises in the fiscal deficit (Dalyopy 2017). Owing to the
prolonged conflict, the authorities usually faced a tradeoff between allocating funds
between military expenditures and service delivery Ndikumana (2001). Thus, the
conflict and dominance of the military have been an important determinant of fiscal
outcomes in Burundi.

5. Conclusion
Burundi emerged from conflict with large state and peacebuilding challenges, and
extreme institutional and socio-economic deficits. Many years of conflict affected
Burundi's productive capacity, policy and institutional capacity, and the ability to
make meaningful public investments. These challenges resulted in an inability to
mobilise sufficient revenues, low budget execution capacity, leading to recurring
cycles of low growth. With a low economic base and high military expenditures,
the country has often found itself in fiscal crises, with rising fiscal deficits and
large macro-fiscal imbalances. The country embarked on a reform process, starting
with the adoption of the poverty reduction strategies that were meant to better align
fiscal objectives to the development needs of the country. Subsequent reforms have
focused on improving revenue mobilisation and improving the efficiency of
budgets. While these reforms have started to yield some positive results, such as
improved revenue collection and congruence in budget execution, challenges still
remain, particularly in the execution and control of the expenditure chain, which
often result in the accumulation of arrears. Fiscal deficits are linked to the structure
of the economy with large informal sectors, large military spending, low levels of

193
ACTA UNIVERSITATIS DANUBIUS Vol 15, no 5, 2019
development and incomes, weak institutions, a non-diversified economy with a
large reliance on commodity exports, as well as weak growth that has characterised
the post-conflict period. The authorities in Burundi should put in place fiscal
strategies for operating a fiscal policy that is consisted with sustainable fiscal
balances and maintenance of sustainable levels of public debt in line with the East
African Monetary Union convergence criteria.
Table 3. Burundi Fiscal Operations, % GDP

Source: IMF and World Bank data

References
Dalyop, G.T. (2017). Determinants of Fiscal Deficit in Conflict-affected States in Africa.
International Journal of Economic Policy Studies, 12(1), pp. 69-95.
Fenochietto, R. & Pessino, C. (2013). Understanding countries tax effort. IMF Working paper
WP/13/24. International Monetary Fund: Washington DC.
GoB (2011). Vision Burundi 2015. GoB - Government of the Republic of Burundi. Ministry of
Planning and Communal Development: Bujumbura.
Holmes et al. (2013). For state and citizen: reforming revenue administration in Burundi. Policy Voice
Series. Africa Research Institute.
IMF (1997). Burundi: Recent economic developments. IMF Staff Country Report No. 97/114.
Washington, DC: International Monetary Fund.
IMF (2011). Burundi - ex post assessment of the longer-term program engagement. IMF Report No.
11/269. Washington, DC: International Monetary Fund.
194
ISSN: 2065-0175 ŒCONOMICA
IMF (2014). Burundi: Fourth review under the extended credit facility arrangement. IMF Country
Report No. 14/83. Washington, DC: International Monetary Fund.
Lim, C. & Rugwabiza, L. (2009). A shock Analysis of Burundi’s Economy. Africa Development
Bank, East Africa Department.
Mawejje, J. & Sebudde, R.K. (2019). Tax revenue potential and effort: Worldwide estimates using a
new dataset. Economic Analysis and Policy. 63, pp. 119-129.
Ndikumana, L. (2001). Fiscal Policy, Conflict, and Reconstruction in Burundi and Rwanda. WIDER
Discussion Paper No. 2001/62. Helsinki: United Nations University.
Ndoricimpa, A. (2017). Analysis of asymmetries in the tax-spending nexus in Burundi. Journal of
Economics and Political Economy, 4(1), pp. 53-70.
Nielsen, H. & Madani, D. (2010). Potential benefits and risks of increased aid flows to Burundi. The
World Bank.
Nkurunziza & Ngaruko (2002). Explaining growth in Burundi: 1960-2000. Centre for the Study of
African Economies, University of Oxford.
Nkurunziza, J. & Ngaruko, F. (2008). Why has Burundi Grown so Slowly? The Political Economy of
Redistribution. In The Political Economy of Economic Growth in Africa 1960-2000, edited by Ndulu,
B.J; O’Connell, S.A; Azam, J.P; Bates, R.H; Fosu, A.K; Gunning, J.W. & Njinkeu, D. Cambridge:
Cambridge University Press, pp. 51-85.
Nkurunziza, J.D. (2005). Political instability, inflation tax and asset substitution in Burundi. Journal
of African Development, 7(1), pp. 42-72.
Specker, L.; Briscoe, I. & Gasana, J.M. (2010). Early Economic Recovery in Fragile States: Case
Study Burundi: Operational Challenges. Netherlands Institute of International Relations.
UNICEF (2017). Political Economy Analysis of the budget process in Burundi. United Nations
International Children’s Fund.
World Bank (1988). Burundi structural adjustment and development issues. Report No. 754-BU.
Washington DC: The World Bank Group.
World Bank (2004). Burundi - Interim Poverty Reduction Strategy Paper and Joint IDA-IMF Staff
Assessment of the Interim PRSP. Washington, DC: The World Bank.
World Bank (2007). Burundi - Poverty Reduction Strategy Paper. Washington, DC: The World Bank.
World Bank (2012).Burundi - Second poverty reduction strategy paper and joint IDA/IMF staff
advisory note. Washington, DC: The World Bank.
World Bank (2013). Burundi Public Expenditure Review: Strengthening Fiscal Resilience to Promote
Government Effectiveness. The World Bank: Washington DC:.
World Bank (2014). Burundi public expenditure review. Washington DC: World Bank Group.
World Bank (2015). Strengthening institutional capacity for government effectiveness Project. Project
appraisal document. Washington, DC: The World Bank.
World Bank (2018). Republic of Burundi: addressing fragility and demographic challenges to reduce
poverty and boost sustainable growth. Systematic country diagnostic. Washington DC: The World
Bank Group.

195